Sustainability Strategy 2020
The Tata Group’s Vision for a Sustainable Future
Stephanie Grodin
Elizabeth Holt
Marni Kruppa
Andres Satizabal
I. EXECUTIVE SUMMARY
According to James Collins and Jerry Porras, authors of Built to Last: Successful Habits of Visionary Companies, “visionary”
companies have core values and a core purpose that remains fixed even in a changing environment.i In this case, the core purpose is
clear: Tata is committed to improving its community and the world as a whole. The company’s founder, Jamsetji Tata, once said, “In
a free enterprise, the community is not just another stakeholder in business, but it is in fact the very purpose of its existence.”ii As it
grows and deals with the challenging post-crisis environment, Tata must adapt its sustainability strategy so it can continue to adhere to
its core values and use this characteristic to become one of these “visionary” companies, thus achieving superior returns than its
competitors in the long run. The following shows an overview of Tata’s proposed sustainability strategy and the key elements to
successful implementation. This strategy has the potential to increase the company’s value by 2.6% or $3.6 billion.
Exhibit 1. Sustainability Strategy
The remainder of this document expands on this strategy by outlining the context, the strategy, the implementation, and the valuation
methodology.
II. CONTEXT
Current Conditions
Globalization heightens the world’s problems and makes them much more apparent to society. As a result, people are increasingly
concerned with the issues that negatively impact society and the environment and are demanding a more consolidated approach to
creating solutions for these problems, as evidenced by increased attendance at gatherings like the World Economic Forum. In addition
to demanding solutions from national governments or non-profit organizations and forums, society is increasingly calling into
question the role of business in providing social and environmental goods. The past decade has witnessed a changing interplay
between business and social responsibility, a relationship which has significant impact on organization's purpose, profit, and growth
trajectory.
Meanwhile, the recent economic crisis has generated public outrage and has called business operations into question. The crisis has
forced businesses to reassess their balance between purpose and profit, and many organizations have drastically reduced or cut their
corporate social responsibility initiatives to meet budgetary requirements or investors’ demands for short-term returns. These same
businesses face constant criticism from communities whose livelihoods have been permanently disrupted.
The Tata Group
Within this challenging context, the Tata Group strives to uphold its commitment to doing business by doing good. Since it was
founded in 1868, the Tata Group has maintained a strong tradition of returning wealth to society by contributing to various social
causes. Tata is committed to the creation of multinational businesses that grow through excellence and innovation, while balancing
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the interests and welfare of shareholders, employees, and civil society, and its leaders have been recognized for "being exemplary in
corporate integrity, social consciousness, and responsible capitalism." The Group’s core values - integrity, understanding, excellence,
unity and responsibility – inspire and motivate the Group's operations, leadership, and culture, and are embodied in the wellrecognized Tata brand. This brand, untarnished over 140 years, is one of the 100 best global brands, as it signals Tata’s commitment
to social innovation and corporate sustainability.
In the aftermath of the recent global financial crisis, the Tata focus, operations, leadership and brand are a shining example for those
who have become "too greedy for themselves." However, in its attempt to expand its presence worldwide, Tata face challenges and
increasing pressures to become more focused on financial results and short-term returns. Critics argue that Tata’s purpose-driven
profit is a strategy that is not scalable or transferrable to other parts of the world. By readjusting its sustainability strategy over next
ten years to better align with its corporate vision and objectives, Tata can withstand external pressures and take advantage of market
and societal disruptions to emerge as the new leader in corporate sustainability.
III. SUSTAINABILITY STRATEGY
Given the competitive context, the Tata Group must design and implement a corporate sustainability strategy, as proposed in Exhibit
1, in order to increase the economic viability of the firm, as well as its social and environmental impact, while creating value for its
shareholders. While the Tata Group bases its business success on "putting the community first and investing patiently in social
initiatives," the changes in the global operating environment highlight the need for a cohesive, coordinated sustainability strategy that
is at the core of the Group's business. The Tata Group should approach sustainability as an integrated part of its business and thus
create value for both stakeholders and shareholders.
To create a ten year sustainability strategy for Tata, we first outlined strategic goals for the Group. The key objective for all
sustainability measures is translating stakeholder value into shareholder value. Corporate sustainability initiatives must also advocate
core values in global business practices. Strategically, Tata should expand its philanthropic investments in markets where impact is
greatest. Its strategy should address stakeholder demands in each key market, as well as generate new demand in uncontested market
space. The sustainability plan at Tata should simultaneously invest in human capital for long term progress, while leveraging company
innovations and take them to market.
We then created an overarching strategy that Tata can realize by following our recommendations in the following four areas:
Structure, Culture, Measurement, and Communication. Our recommended strategy is prescribed below:
Vision
The Tata Group envisions a future in which it is recognized as the undeniable global leader in corporate sustainability. With its
integrated approach to corporate sustainability, Tata aims to reinforce core business operations while creating and capturing value for
its shareholders.
Focus
First and foremost, Tata should strive to become a thought leader in the corporate sustainability space. It has already made significant
contributions in developing global standards and guidelines that influence corporate sustainability. For example, in collaboration with
the United Nations Development Program, Tata developed a unique framework for evaluating social responsibility and business
excellence within corporations. With its record of achievement and excellence in corporate sustainability, and its immense knowledge
of the field, Tata should aim to revolutionize the industry by setting and raising corporate citizenship standards by which all
companies are compared. Tata gains a competitive advantage in forcing other companies to meet and adhere to standards that it
creates. Tata also benefits as the strength of its brand value increases, reinforced by its reputation as standard-setter and industry
leader.
As it expands from India and gains a larger presence in Western countries, the emphasis of Tata’s social investment should also shift
away from investment in basic human needs to more targeted interventions. For example, currently, significant resources are spent
investing in basic needs of the community, such as healthcare and education. Tata believes that these investments create a stronger
community on which its business foundation is built. However, in Western countries, these social safety nets already exist, so Tata
should divert this spending to more focused investments. As mentioned earlier, Western equity markets will more likely tolerate
social investments if the return on investment is easily quantifiable and visible. The returns of basic community investments are often
harder to identify and attribute to specific interventions; therefore, in the West, Tata should shift the emphasis to either quantifying the
impact of community giving or to more strategic social investments that augment its business value.
For example, instead of funding primary schools in the West, Tata could expand the idea of the JN Tata Endowment and offer grants
for top engineering students to perform research on relevant innovation areas, such as carbon emissions reduction or energy-efficient
processes that could benefit Tata industries. If these awards held the same prestige as they do in India, then Tata could effectively
attract top talent and increase its reputation around the globe as a leader in innovation and social sustainability.
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Additionally, Tata should focus on innovation to generate a dramatic social impact. A refined focus allows Tata to leverage its
innovative culture and its technological capabilities to have a greater impact on communities. Tata’s successful development of the
Swach and the adult literacy software show how Tata can maximize its impact on communities by responding to society’s most urgent
needs. Emphasizing innovation throughout Tata companies will lead to the creation of technologies that serve social purposes and
also provide economic and commercial value for Tata.
Finally, Tata should also seek to identify opportunities to shape public policy. For example, Tata might work with civil society groups
and together lobby to set higher standards in areas where it already excels. For example, it could support the adoption of minimum
labor standards in countries where it operates. The benefit of such a strategy would be fourfold: First, Tata would increase its social
impact and returns by forcing other companies to adhere to policies that support higher social standards. Second, this strategy would
help secure Tata's position as a powerful advocate for social cause and a leader in corporate sustainability. Certainly, Tata would have
to choose its issues carefully, as making a controversial choice could result in negative publicity, which would ultimately damage the
brand. However, Tata could manage this risk by field-testing ideas and public reactions to them. Third, if Tata adheres to a higher
standard than its competitors in areas such as labor standards, automobile mileage standards, or green house emissions, then it joins an
exclusive group of corporations that advocate for more robust standards. While competitors would be forced to scramble to adapt
their processes to the new standards, Tata gains a competitive advantage from its forward thinking. Finally, by entering the public
policy fold, Tata has an opportunity to influence the debate and limit potential tensions between economic, environmental, and social
activities, thereby improving its ability to do business around the world.
IV. IMPLEMENTATION OF STRATEGY
Structure
As a multinational conglomerate, the Tata Group faces competition in multiple countries in multiple industries. One of its competitive
advantages is its commitment to corporate sustainability, which rests on four pillars within the organization: the Tata Trusts, the Tata
Relief Committee, the Tata Council for Community Initiatives (TCCI), and the Tata Quality Management Services (TQMS). The
Group's current sustainability efforts fall mainly within the TCCI and TQMS pillars.
In order to achieve and implement Tata's new sustainability strategy, the company must modify its organization and structure to better
align with its goals. Currently, both TCCI and TQMS initiatives are led by committees consisting of senior corporate social
responsibility executives from various Tata companies. The committees report directly to Dr. J.J. Irani, a member of the Tata Group
Corporate Centre. While this structure implies that Tata places importance on sustainability initiatives (by assigning top level
executives to the task), the company could elevate social issues even further. In an increasingly globalized world, it is imperative that
Tata better integrate and coordinate its sustainability efforts, and it can achieve better coordination with some modifications to its
existing structure.
If Tata aims to become the world leader in global sustainability efforts, then it must establish a new Chief Sustainability Officer (CSO)
position. The CSO would sit on the executive committee as well as the board; by virtue of the seniority of the position, Tata
communicates its commitment to corporate sustainability. The CSO must embody the core values and attributes of Tata, but the
company may choose to tap an outsider, a non-Indian national. For instance, if Tata selects an African or Latin American leader, the
company will strongly signal its desire and commitment to bring social innovation expertise to other parts of the developing world.
Following the identification of a CSO, Tata must assemble a more permanent Sustainability Task Force. Although Tata currently has
dedicated executives who serve on the TCCI or TQMS committees, it is important for the Group to have a cohesive and coordinated
Sustainability unit. Therefore, we advise that Tata formalize a combined Task Force that would work on both TCCI and TQMS
initiatives. This new structure would enable coordinated communications and efforts between the two core sustainability pillars. In
the past, TCCI and TQMS have collaborated successfully, launching the Tata Index, the Leadership Protocol, and the recent Climate
Change Policy. Therefore, in the future it is critical for the Group to create a more integrative, cross-functional approach to
sustainability, providing a structure that will improve collaboration and innovation for Tata as a whole and provide a way for the
Group to exploit common initiatives between company's holdings.
Tata must continue to empower and incentivize its employees, aligning them with the sustainability vision of the company. Tata's
strong culture of social innovation and leadership provide a strong sense of human purpose to the organization, while the flat structure
allows employees - even at the bottom levels - to participate in the "creation of sustainable value." iii Tata must preserve and perpetuate
its culture, leadership, and open dialogue, as these are two critical components for employee alignment and motivation. To some
degree, Tata may want to consider incentivizing its corporate sustainability executives (the CSO and members of the Sustainability
Task Force) with awards, recognition, or performance-based compensation. At the lower levels, Tata could institute a program by
which they recognize top employees for hours of volunteer work. Tata could also better incentivize its culture of innovation by
providing rewards or performance-based compensation for any employee who proposes and launches a social innovation for the
Group.
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Finally, in order for the company to become the global corporate sustainability leader, Tata must structure itself to improve its
dialogue and communications with key stakeholders. The newly established Sustainability Task Force should have primary
responsibility for reaching out to the communities and potential stakeholder partners. By cultivating stakeholder relationships, Tata
will maximize its ability to innovate and gain insights from the communities in which it operates. For example, Tata may assign a
representative from its Sustainability Task Force to develop a working group that frequently visits and studies communities in need
around the world. These communities are comprised of potential Tata customers. By communicating with developing communities,
Tata can generate new ideas for products and services that meet the needs of potential customers in currently uncontested market
space. Tata should also encourage a two-way dialogue such that individuals within communities are free to bring insights and
innovations to company representatives. In this same vein, Tata should strengthen and expand existing partnerships with
stakeholders. Tata will value by incorporating different perspectives into its sustainability initiatives. By leveraging relationships
with NGOs, industry associations, investors, and even competitors, Tata will continue to maximize the value of its social and
environmental impact.
Measurement
The Tata Group must increase the emphasis it places on social impact measurement. Accurate measurement requires extensive data
collection, which is both time consuming and expensive. However, the measurement component, along with requisite data-collection
and analysis, is an essential part of a successful sustainability strategy. Measurement alone is not sufficient –measured results must be
translated into financial value so that potential investors can compare investments of different nature. Quantifiable results will also be
an important tool that helps Tata earn the maximum return for its investments. The data will indicate which investments demonstrate
the highest returns, in terms of social value creation, and Tata can continuously adjust its sustainability plans accordingly. Constant
feedback and re-adjustment is critical to Tata’s ability to deliver maximum social impact as it expands its presence globally and shifts
its social investment focus as described above.
Measurement will also be important when prioritizing initiatives that create both positive and negative effects. For example, while the
Tata Nano provides an affordable and safe vehicle for middle-class families in the developing world, it also increases the number of
cars on the road. While the Nano emits low emissions compared to other cars and raises the “standard” for all auto makers, by
increasing the number of cars, the Nano will ultimately contribute to increased carbon emissions and thus global warming. Therefore,
a better understanding of the financial and non-financial costs of this initiative will facilitate better strategic decision-making in the
long term.
Currently Tata companies are using the Global Reporting Initiative (GRI) standards and the Tata Index to track sustainability efforts.
The GRI framework defines core report content, principles by which to assess quality, and guidance on how to set boundaries in
analyzing the impact of sustainability issues along a value chain. The Tata Index seeks to link processes and outcomes to evaluate
social programming across the Tata companies. While both initiatives attempt to set up a measurement system that allows
comparison, neither system translates impact into financial value, an essential component for investors.
For example, Tata developed the Tata Swach, a water purifier that helps provide safe drinking water in rural villages. While this
product likely made only a small contribution to the Tata Group's bottom line, the social impact of this product was certainly
significant.iv In terms of measurement, Tata should look to measure the contribution of this innovation by conducting surveys of
targeted communities. It could assess the value of this intervention by measuring and quantifying the decrease in number of sick days
and the associated workdays lost. Tata could also factor in savings by the reduction in health care costs related to water-borne
diseases. By quantifying its social impact, Tata helps shareholders and stakeholders better understand the value that the Group
unlocks and captures.
Communication
As it continues to redefine and adjust its sustainability strategy, Tata must ensure that it is receiving "credit" for the work it is doing.
Publicity is important because it adds value to the Tata brand, creates goodwill among the communities where Tata maintains
operations, and motivates employees who see their contribution to society recognized. Other organizations, such as the Ford
Foundation, are better known for their charitable work, even though they have worked with fewer NGOs. By failing to publicize its
contributions, Tata is not capturing all of the value of its social investments.
Furthermore, Tata must communicate not only its charitable contributions, but also the impact of these contributions. The
communication of results should be communicated in absolute terms, such as the number of scholarships given and the number of
families who have gained access to potable water. The results should also be communicated in financial terms so that investors
understand the financial value of such investments.
Implementation Approach
Exhibit 2 (Appendix) highlights how Tata should implement its sustainability strategy. Steps 3-7 are completed annually. Step 7,
demonstrating financial and social impact with an annual consolidated report, should begin after Tata has conducted sufficient data on
its sustainability efforts.
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Implementation sequence:
Given the high concentration of Tata Group’s value in four organizations we recommend a three-tiered approach for rolling out the
new sustainability strategy in the companies. This way, the corporation will be able to test structural adjustments, cultural changes, the
communication approach, and the measurement systems in a few organizations and use its resources efficiently. The first wave of
implementation would encompass the Tata Group’s four largest companies. The second wave would include all companies currently
under the Tata brand. The third tier would integrate all remaining companies into the sustainability system. These three waves would
be implemented in 2010, 2011, and 2012, respectively. For the companies included in waves one and two, adoption of the new
process would be mandatory, given that the Tata brand name is at stake. However, realizing that companies in the third wave do not
use the Tata brand name, we recommend a voluntary rollout process, which limits the strain placed on resources or focus in
organizations that may be struggling with other pressing issues.
V. VALUATION
We used a three phased valuation framework to estimate the incremental value created by our proposed sustainability strategy for Tata
Group. Our process, shown in Exhibit 3, considers financial and non-financial impact in an attempt to capture the total value creation
potential of the Tata Group.
Exhibit 3: Sustainability Strategy Impact Estimation Methodology
Phase I
The first phase of the strategy impact estimation involves identifying the sustainability impact levers, which is done through three
steps.
Involves identifying the key groups of stakeholders with which Tata interacts and which have an impact in the
corporation’s value. Tata interacts with 6 key stakeholder groups: customers / community, employees, value
chain, regulators / watchdogs, investors and risk assessors, and the future generations.
The sustainability strategy’s value generation is driven by stakeholder interaction, which affects multiple levers
that determine the valuation of the individual organizations. Exhibit 4 (appendix) shows the formulation for the
valuation of a corporation using the two-stage growth valuation model. There are 4 key levers of value for
organizations that may be impacted by the sustainability strategy: cash flows, growth rate, and the components of the cost of capital
(cost of equity and cost of debt). Program costs are also taken into account.
Once the stakeholders and the elements of value generation were identified, we proceeded to assess the impact
potential of the sustainability strategy. Although there is abundant literature that mentions the potential impact on
specific levers of value generation (such as reduced employee absenteeism and turnover as a result of engaging in
stakeholder dialogue with them), there is no comprehensive analysis of the potential for impact. Therefore, the
Tata Group must continuously update its estimates for potential value generation, using internal benchmarks as information becomes
available. This will enable Tata to more accurately gauge the potential impact of its stakeholder-targeted sustainability strategy.
Exhibit 5 (appendix) shows the estimated impact that stakeholders have on the value levers.
Phase 2
The second phase of the strategy impact estimation aims to determine the impact potential for the Tata Group, according to its current
business model and geographic focus. Given the high concentration of value in four Tata companies: Tata Consulting, Tata Steel, Tata
Motor, and Tata Power (representing 71% of total revenues for the Group), we paid particular attention to the relevance of stakeholder
interactions between these four companies and assumed the rest of the organizations in the Group (92 more) capture a similar level of
value, on average.
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The business model relevance grid (see Exhibit 6 in the appendix) attempts to determine the relevance of each
stakeholder to the specific businesses within the Tata Group. This relevance varies significantly and therefore each
company must customize its approach to stakeholder interaction in order to maximize the value generated and
captured from the sustainability strategy. For example, employee dialogue is critical for Tata Consulting, where the main cost
component is employee cost, while it is not as relevant for Tata Power.
The geographic focus is a key determinant of the relevance and value of stakeholder interaction to Tata’s
sustainability strategy. Since Tata has been implementing sustainability initiatives across India, it has been able to
capture a greater degree of social value generated in India than it has in other markets. Therefore, Tata has the
potential to achieve a higher impact in international markets, given that the company has not yet systematically implemented its
sustainability strategy around the world. Second, Tata’s focus on international expansion is critical given that market needs vary
depending on the country’s level of development. For example, labor market needs in a country like Sri Lanka might be much more
similar to the needs of India, versus the United Kingdom. Therefore, the potential for delivering greater impact changes depending on
the nature of the markets addressed. We considered the level of internationalization of the key companies to adjust the estimation of
potential impact of the sustainability strategy. Therefore, Tata Consulting, with 92.9% of its revenues outside of India, should have a
greater potential to create social value under a more systematic and focused sustainability strategy than if it had a higher concentration
of its revenues inside India.
Phase 3
To gain a clearer picture of impact potential, we estimated the range of value-creation potential that each
stakeholder might have on each lever of value. This is essentially the adjustment of the impact potential of
stakeholder interaction (Exhibit 5) to Tata Group’s business model grid (Exhibit 6) and geographic focus. We
have defined these ranges of value generation with a conservative optic, expecting that in the future, measured impact results will
significantly exceed these estimations. Exhibit 7 illustrates the estimation process by showing the range of impact estimated on each of
the value levers for Tata Consulting, taking into account relevance, geographical presence, and potential for impact.
The “Sanity Check” ensures that the sustainability strategy impact valuation is not overly optimistic, thus
generating an excessive investment in initiatives. For our initial assessment, we limited the estimation of
incremental value to the 2-5% range, which is in line with the conservative estimates provided by external
studiesv. As Tata implements its strategy and is able to more accurately gauge the real impact of its initiatives, the Group might choose
to increase its investments in social initiatives that generate higher returns (in terms of impact), thereby creating more value for the
organization from its sustainability strategy.
The initial estimation of impact of the sustainability strategy shows a potential for an increase of 2.6% in the value
of the conglomerate (see Exhibit 8). This valuation is derived from market capitalization figures and debt value for
the four largest organizations of the Tata Group. For the other companies we assumed that value is proportionate
to the Group’s revenues. This valuation, although simplified somewhat, illustrates a sense of the value generation potential of the Tata
Group.
Most of the incremental value is generated by an increase in the revenue stream, which adds $3.6 billion of value. Cost reductions
would increase value by an additional $1.0 billion, while value generated by a reduced cost of debt yields only $0.3 billion. We
estimated a negative impact on the cost of equity, given the tension of the capital markets in accepting sustainability investing.
However, once equity markets understand the value of sustainability investing and react more favorably to these types of initiatives,
Tata may be able to readjust its cost of equity. Finally, assuming the Tata Group leads global sustainability efforts, it will incur
additional costs. We estimate the overall cost of the program to be an additional $1.0 billion in the net present value terms. This value
implies an increased yearly expenditure in the program of around $120 million. Tata already has the core capacity to implement and
scale its sustainability strategy; therefore, only incremental expenditure for program-related outflows is required. Exhibit 9 breaks
down incremental value generation by category and by company.
VI. CONCLUSION
Throughout its history, the Tata Group has avoided calling attention to its extensive social impact initiatives, preferring to be the
unsung hero of the corporate sustainability world. Given the heightened focus on the role of corporations in driving social and
environmental impact through business activities, Tata has an opportunity to become the undisputed leader in shaping corporate
sustainability policy and setting standards for the future. In doing so, Tata derives benefit for itself, adding an estimated $3.6 billion in
total economic value. By following our proposed sustainability strategy, Tata maximizes value creation and capture for itself and the
communities surrounding it, reinforcing the company’s belief that “doing well by doing good is simply good business.”
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APPENDIX
Exhibit 2: Sustainability Implementation Plan at Tata
Exhibit 4: Value Lever Identification for Sustainability Strategy
Exhibit 5: Impact Potential of Stakeholder Interaction Over Value Levers
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Exhibit 6: Business Model Relevance Grid
Exhibit 7: Estimated Impact of the Sustainability Strategy on
Tata Consulting’s Value Levers and Valuation
Lever
Impact Range
(Change from
original value)
Current Value
(Estimated using
Tata Financials)
Impact on
Valuation
% Increase in
Valuation
36.5% years 1-5
New Value
37.0% years 1-5
+1%-1.5%
3.0% years 6 +
3.0% years 6 +
629 MM
1.80%
+0%-0.5%
1,065 MM
1,087 MM
154 MM
0.40%
Cost of Debt
-0%-0.5%
4.70%
4.70%
0 MM
0.00%
Cost of Equity
+0.5%-0%
13.00%
13.00%
-0 MM
-0.2%
+30%-50%
11 MM
15 MM
-36 MM
-0.1%
Brand (short and long
term growth rates)
Margins (Cash flow
generation)
Program Cost
(Capex + Opex)
Exhibit 8: Estimated Impact of the Sustainability
Strategy on Tata Group’s Valuation
(values in US Billion)
Exhibit 9: Breakdown of Impact Estimation by Initiative
and Organization
(values in US Million)
i
Collins, James and Porras, Perry. Built to Last: Successful Habits of Visionary Companies. HarperCollins Publishers; 1st edition (January 15, 1997).
Branzei, Oana and Nadkarni, Anant. “The Tata Way: Evolving and Executing Sustainable Business Strategies.” Ivey Business Journal. March/ April 2008.
iii
Branzei, Oana. “TATA: Leadership with Trust.” Ivey Management Services. 2010.
iv
Graham, Ann. “Too Good to Fail.” Strategy and Business. February 23, 2010, 6.
v S. Bonini, N. Brun, M. Rosenthal, “Valuing corporate social responsibility”, McKinsey Quarterly, February 2009.
ii
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