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Tata Group Sustainability Strategy

Mathew Ashley
Bill OBrien
Rachel Reiter
Kevin Richards

April 12, 2010


EXECUTIVE SUMMARY
Our consultancy recommends that Tata Group (Tata):
Refine its internal definition of sustainability,
Create a separate subsidiary to coordinate, manage, communicate, and expand sustainability efforts across every business unit,
and
Establish a market-specific global strategy tailored to the unique challenges and opportunities of each country and business.
These changes will allow Tata to optimally position its economic, social, and environmental sustainability efforts while addressing the
companys growing global presence, the evolving definitions of sustainability, and the increasing demand from stakeholders for
measurement and transparency. Internally, the company will develop a concise definition of sustainability and a Sustainability
Credo to guide corporate innovation and evaluation efforts. A key element of the ten year sustainability strategy recommendation is
the creation of Tata Sustainable Solutions (TSS), a wholly-owned subsidiary that will allow the company to centralize disparate
initiatives and provide role clarity, financial and measurement transparency for all Tata companies. While the structure of TSS will
allow the company to raise additional capital and expand its sustainability efforts, TSS will be closely integrated with every Tata
company, ensuring that the culture of corporate social responsibility continues and that the unique perspective and innovations from
each company are nurtured and strengthened. This subsidiary will allow Tata to formalize specific initiatives and goals, putting a
formal framework in place for leadership and organizational continuity. The organizational structure and operating processes of TSS
will be outlined in detail in our recommendations.
The sustainability strategy includes a number of voluntary initiatives tailored to the unique circumstances of Tatas diverse businesses
and its global areas of focus. Our recommendations include a ten year timeline, valuations, and specific implementation strategies for
Tatas core lines of business. Key elements of the strategy include entry into sustainability software consulting, coordination between
the Chemical, International, and Motor companies to create End of Life Vehicles (ELV) and Cradle to Cradle (C2C) processes, and
expanded and increased measurement of company efficiency efforts.
SITUATION ANALYSIS
Known as progressive and forward thinking in its Corporate Social Responsibility (CSR) initiatives for over 140 years, the Tata
Groups past CSR initiatives have fallen under four pillars: 1) Philanthropy, 2) Emergency Response, 3) Specific Community
Initiatives, and 4) Quality Management Practices. Supporting these pillars are a variety of programs that have organically developed
over the years to create an internal structure for executing the organizations sustainability efforts. This situation occasionally creates
challenges in measuring effectiveness and economic benefits of CSR, which obscures the return on investment (ROI) and could
diminish future funding.
The ten year sustainability strategy is designed to complement the business growth of the organization. This global growth will focus
on the following industries: hotels, automobile, steel, software consulting, energy, chemicals, tea, engineering, and communications.
It will target the following markets: Brazil, Canada, China, Gulf Cooperation Council (United Arab Emirates, Saudi Arabia, Oman,
Bahrain, Kuwait, and Qatar), Germany, the Netherlands, South Africa, Sri Lanka, Thailand, the United Kingdom, United States, and
Vietnam. To continue its global growth while maintaining its practiced sustainability, Tata needs to address creating and capturing
value, while addressing uncertainty in its global sustainability strategy.
Defining Sustainability for Tatas Future
In order for the ten year strategy to be developed, the definition of sustainability itself needs to be refinement. Tatas current definition
of sustainability was developed as part of a series of group-wide meetings. Although Tata has had a great deal of success in preserving
a culture of sustainability, the rapid global expansion of the company threatened to dilute the power of this working definition. Our
team proposes a refined definition of sustainability: Corporate Sustainability is a local, national, and global endeavor for
creating long-term economic, social and financial growth for the enterprise and its stakeholders. This definition would be
easier for Tata employees to internalize and will allow for interpretational flexibility, as there are continually evolving worldwide
definitions of sustainability.1
Beyond a basic corporate definition, we recommend Tata promote the continuity of sustainability innovation through a set of guiding
principles, a Sustainability Credo, that provides employees with a roadmap for evaluating social business practices. The Credo
below provides a concrete, measureable way to define the operation and implementation of sustainability initiatives.
1

University of Reading, http://www.ecifm.rdg.ac.uk/definitions.htm.

Tata must first seek parity and sustainable best practices across their collective group of companies. Points of parity must be
established to measure the success of sustainability efforts over the next ten years. The Tata Group must leverage its areas of expertise
across all businesses going forward to enable the sustainable development of the entire group. These efforts include consistent
employee equality and management training programs, centralized innovation practices that look at all major businesses, formalized
water and waste conservation policies for companies operating in particular regions, Leadership in Energy and Environmental Design
(LEED) certification for all new construction, and energy efficiency initiatives for all existing buildings.
Figure 1: Tata Group Sustainability Credo

DECISION ANALYSIS
A thorough consideration of the impacts of the new TSS structure and its initiatives on both internal and external stakeholders was
conducted in the development of the recommended ten year sustainability strategy. The current structure and coordination of
sustainability initiatives was a starting point for our analysis. After reviewing the current structure and discovering a lack of
continuity across business units in sustainability tracking and reporting, our consultancy identified several options for creating a
structure that would allow implementation of the sustainability strategy. These options included: 1) scaling back social initiatives,
while focusing on the environmental efforts, 2) maintaining current structure in India but giving directly to charities in expansion
markets, and 3) creating a subsidiary that houses the communications, tracking, and long-range sustainability efforts while allowing
individual business units to maintain ownership of short-term projects with an Economic Value Added (EVA).
Critical issue consideration included ensuring leadership continuity, appropriateness for global growth, sensitivity to shareholder
reaction, meeting coordination challenges across the entire enterprise, maintaining the corporate culture and commitment to
sustainability from the employee level through leadership, fostering innovation, and leveraging core competencies. External
considerations were also considered including impact on the ability to raise capital, relationships with local governments and
regulating bodies, Non-Governmental Organizations (NGOs), and local community members.
Figure 2: Decision Analysis Matrix

A strategy suggesting elimination of social initiatives would be contrary to Tatas vision but would address short-term investor ROI
concerns. This option would still address Tatas need to meet previously set climate change goals by diverting the focus from social to
environmental issues. Our consultancy concluded that one of Tatas core competencies is its CSR leadership, thus the first option was
eliminated. The second option included philanthropic giving directly to charities and has several advantages; this approach would
raise Tatas profile with local NGOs and allow for seamless global expansion. However, this option fails to leverage Tatas leadership
and expertise in CSR. Reporting and measurement metrics would still be an outstanding issue with this approach as individual
charities may or may not have the capabilities to quantify their impact. The recommended option, development of a wholly-owned
TSS subsidiary, addresses the internal business challenges while remaining sensitive to Tatas external stakeholders.
PROPOSED TEN YEAR STRATEGY
Creation of Tata Sustainability Solutions (TSS)
Tata currently has four pillars of sustainability within the organization Tata Trusts, Tata Relief Committee (TRC), Tata Council for
Community Initiatives (TCCI), and Tata Quality Management Services (TQMS). Tata also has individual think tanks (such as the
Tata Chemicals Innovation Center) and initiatives each business silo, with annual groupwide meetings devoted to sharing best
practices. The individual responsibilities of TCCI and TQMS overlap, although TCCIs functions are more organic and less rigid than
the TQMS process. This organizational structure can be rightly credited with maintaining Tatas cultural core values. However, much
of Tatas sustainability measurement is ad hoc. An all-encompassing sustainability report is not currently being produced, leaving
uncertainty around the funding and returns of Tatas sustainable investments. Finally, this loose four pillar structure is likely to
become harder difficult to maintain and navigate as the companys global growth continues.
One solution that would allow Tata to continue sustainability in its rapidly-expanding operations is the creation of a company
subsidiary devoted to social and environmental stewardship. This subsidiary, TSS, would function like any other Tata business unit
(Tata Motors, Tata Chemical), except that it would operate at first as a cost center/support function rather than a profit center. TSS
would centralize a number of company functions, including educational trusts, TRC, and TCCI. The subsidiary would have a number
of key functions (see Exhibit 1 in Appendix), including internal (and eventual external) consultation support for sustainable initiatives,
a division for social projects that do not meet traditional definitions of EVA (as determined by TQMS), intra-company knowledge
sharing and training functions, a cross-functional innovation center, a financial reporting & analysis and auditing unit (which would
produce an annual sustainability report), and an internal/external fundraising team. Some advantages of this arrangement would
include:

Centralized Consulting Support for All Business Units. TSS would have a heavily staffed and funded group ensure that
sustainability opportunities are promoted, monitored, and cross-utilized between Tata businesses. In the medium-to-long term,
this same consulting function could be used externally to provide the same services as consulting firms such as Blu Skye and
Domani, effectively monetizing a Tata core competency and providing funding for future internal sustainable initiatives.
Increased Transparency. TSSs reporting function would utilize outside auditors and consultants to validate its numbers. Its
social and environmental metrics would cross all Tata organizations. Capitalization and financial information would be key to
providing outside stakeholders (especially shareholders) with a transparent view of funding and returns for sustainability projects.
Financial Independence. The new subsidiary would be funded through a pool of funds approach. This is analogous to US
bond covenant contracts for dividend payments. Just as bondholders want to control how profits are paid out of the firm,
shareholders who are skeptical of financial returns on sustainability would contract with Tatas management to ensure that cash is
infused into the subsidiary after certain profit and dividend/stock buyback criteria are met. This would continue the movement
towards transparency in finances and satisfy all shareholder groups (those who want the company to focus on sustainability
regardless of profit and those who are concerned about firm use of excess funds) and would ensure funding reserves for
sustainability in recessionary times.
Management Development. Management development would involve a significant rotation in this subsidiary, and training on
relevant sustainability practices and measurements would be provided. This would not only ensure top managerial talent in the
group but also continue to spread ideas and best practices throughout the organization after employee rotations are complete.
Fundraising Ease and Scalability. Tata has established itself as a forward-thinking company that has often predated the Indian
government (a major Tata shareholder) in key worker protection policies. With the increased transparency of TSS, Tata could
organize funding from employees, outside investors, and government agencies. This fundraising power could help TSS duplicate
the rapid growth of Tatas other lines. TSS management ability, knowledge, and continued success help other donors maximize
the social and environmental impact of their contributions.
Strategic Continuity. Creating a separate business subsidiary and a document with shareholders/stakeholders that details the
funding and reporting processes for TSS would ensure that the companys sustainability initiatives themselves are clear
throughout the organization and allow for quick implementation in the event of a CEO leadership transition.

Consistency of Business Practices. Tata will need to maintain clear and consistent treatment of employees, business partners,
and NGOs in all of its worldwide markets. TSS would maintain these standards and modify them with the Group Executive
Office (GEO) and Group Corporate Center (GCC).

Local Sensitivity with Global Reach


Once the new companys sustainability support structure is in place, business unit management (in collaboration with TSS) can begin
exploring initiatives that reflect each units target market need, their unique business expertise, and the future direction of
sustainability within the community. Although these initiatives will be tracked in aggregate by TSS, the vast majority of the initiatives
(with the exception of certain Social Works projects) will reside on the books of each business and must pass the same EVA analysis
as any other project. The determination of what constitutes and EVA-supported initiative versus traditional social philanthropy will be
determined by the TQMS process.
Our group has several project proposals for Tata management to consider when implementing the ten year plan. These projects
resulted from a global opportunity analysis of Tatas twelve target markets (see Exhibit 2 in Appendix). The unique sustainability
needs of each region were considered in our proposals; for instance, the US and Europe already have numerous social welfare
programs in place, so the focus in those areas was placed on environmental opportunities. The political risks and barriers involved in
certain initiatives were weighed as well (for instance, the Chinese government reaction to a heavily-advertised worker rights program
must be carefully considered).
STRATEGIC PLAN IMPLEMENTATION & TIMELINE
Specific EVA and Net Present Value (NPV) supported initiatives for consideration include:
Leveraging Tatas CSR core competency into a sustainability software consulting practice,
Increase Tata Teas competitiveness by formalizing sustainability efforts through Rainforest Alliance Certification,
Efforts to reduce energy usage through conservation efforts in the hotel chain and through supply chain management, and
ELV initiatives for Tata Motors.
The framework needed for successful sustainable expansion will include the new Sustainability Credo, the creation and staffing of
TSS, and management of internal sustainability practices in Tata offices and businesses across the Tata Group. Our action plan to
implement the ten year sustainability strategy includes short and long term steps to reach our goals (see Exhibit 3 in Appendix for
assumptions, additional sources, and financial projection).
Present
Implement the new Tata Sustainability Credo through a multi-faceted corporate communication process including CEO and
business unit communications/ training in town-hall meetings, allowing for employee engagement and input.
Legally establish TSS as a separately capitalized corporate subsidiary. Draft rules governing the excess profit criteria from each
business unit that will fund TSS expansion in future years. Collaborate closely with key shareholder blocks on these rules.
Form a cross-company task force, including senior executives, to validate that all internal sustainability opportunities have been
identified and explored.
o In collaboration with senior management, establish rules for equitable employee treatment across all countries of
operations, building on current TCCI initiatives. Standards may not be equal across all countries, but should be
favorable compared to local standards, especially in the case of less developed countries.
In partnership with the Taj Hotel chains in the US, Europe, Sri Lanka, Malaysia, and South Africa establish a long-term plan to
move beyond the current goal of EARTH Certification. Immediate conservation steps can and should be implemented in the
targeted hotel locations, with a two year or less payback period. Conservation areas include heating/cooling modification for
vacant rooms, warm wash linen cleaning, florescent lighting, and water and solid waste conservation.
Expand pilot program to reduce carbon footprint to additional steel plants beyond the Port Talbot plant site. Add five plants per
year in order to achieve 20% carbon reduction goals by the year 2020. Conservation efforts can be rolled out in current and
emerging markets.
o Years 1-5: India and Europe
o Years 5-10: Expand to include Asia, Thailand and others
Year 1
Upon establishment of TSS, Tatas social philanthropic efforts should be given continued prominence in the new organization.
Possible areas for expansion include water reclamation projects in new markets, cell phone recycling and donation programs
through initiatives with key consumer facing partners, and driver safety outreach programs to complement car insurance

businesses. These initiatives can be further developed through TCSs new sustainability software initiative beginning in the
second year.
Implement the Tata Tea Groups new global strategy, including the transparent reporting of ethical sourcing through the Rainforest
Alliance Certification for both its Western European and North American tea products over the next five years to remain
competitive with industry leaders. Nine in ten Americans say that the words conscious consumer describes them well and are
more likely to buy from companies that manufacture energy-efficient products, promote health and safety benefits, support fairlabor and fair-trade practices and commit to environmentally friendly practices. 2
o In the effort to become leaders in the sustainable packaging of tea, Tata Tea must compete with industry leaders, such as
Green Mountain Coffee Roasters Life-Cycle Analysis, through their tea product, which is sold in a portion pack made
from renewable materials.
Tata Power should consider diversifying its energy mix and develop strategies to meet the expanding demand for power over the
next ten years, as coal currently provides 68% of the electricity. 3 Unfortunately, the pay-back period for coal alternatives cannot
be addressed in a ten year span due to unpredictable renewable energy technology improvements and government regulatory
barriers.4 Tata Power must begin working with government stakeholders and exploring the possibility of developing alternative
energy technology. Central to this effort are carbon footprint reduction opportunities through the use of nuclear, wind, solar and
hydro.

Year 2
European Union (EU) standards have expanded to include mandatory ELV processing for vehicles. Anticipating this trend in
other countries, Tata Motors should undertake the development of a complete ELV system in India and Asia. Tata would partner
with Tata Chemical and Tata International to create this process, splitting the proceeds with consumers.
Expand current supply chain management initiatives to include additional trucks and trailers in growth markets to decrease diesel
fuel consumption and meet carbon footprint, utilizing Tata International expertise.
The sustainability software consulting market predominantly revolves around Enterprise Carbon Accounting (ECA) software.
Tata Software Consulting should develop a strategy to enter this market, engage its existing customer base, and consider
expanding this market to include social sustainability measurement (a Tata core competency). The ECA market is estimated to be
$7 to $9 billion with the highest concentration in North America and the EU. 5 TCS should determine whether the software should
be developed internally or purchased externally.
Year 3
The three year old TSS organization should seek to monetize its sustainability implementation best practices by looking for
opportunities to serve as external consultants.
Pursue longer-term, higher cost sustainability certifications including LEED building standards and Fair Trade certified products
and standards.
Year 4-10
The goal of this longer timeframe is to get high value sustainability certifications for Tatas businesses.
o Compared to sustainability reporting leaders Green Mountain Coffee Roasters Tata Tea does not adequately address how
they source their raw materials in an ethical manner. Tatas competitor, Lipton, has certified all its Yellow Label tea bags
sold in Europe by Rainforest Alliance. Tata Teas long-term goal for the last five years of their ten year strategy should
be to reassess their supply chain in order to get Fair Trade Certification for their products. The increased use and
reporting of Fair Trade goods will allow Tata to measure, manage and report on the scope of ethical methods in their
sourcing.
o LEED certification for all Taj hotels.
o C2C certification for Tata Motors, enhancing the existing ELV processes discussed earlier.
o After the TSS is established, revenues can be used to support long term development initiatives including water
purification, education, and health projects in developing markets.
VALUATION
All of the costs associated with the creation and staffing of TSS, along with the costs and benefits associated with our specific global
strategy recommendations, have been incorporated into a ten year valuation model. The assumptions in this model were necessarily
broad, as many of these initiatives are new ideas in new markets with uncertain demand. However, empirical research and reports
2

Makower, Joel. Strategies for the Green Economy. 2009.


World Nuclear Association. http://www.world-nuclear.org/info/inf53.html. March 2010.
4
Lusk, Phillip. Nuclear Power Plant Electricity. http://www.nirs.org/neconomics/nuclearpowerplantelectricitycostslusk.pdf. April 2009.
5
http://techcrunch.com/2009/09/08/charts-ibms-software-led-margin-expansion/
3

were used as sources whenever possible, and in all other cases assumptions are documented in relation to financial projections (see
Exhibit 3 in the Appendix). Two key assumptions in the financial modeling should be clarified; given Tatas conglomerate nature
(both in geography and line of business), Company-wide required rates of return estimates were not feasible and our analysis uses a
range of discount rates in order to gauge the sensitivity of that particular assumption. In addition, the brand enhancement of Tata is a
key assumption. Rather than randomly choosing one of the many brand valuation techniques available (revenue multiples, % of
advertising spend, marketplace share of voice), we estimated the brand valuation needed to achieve break-even financials at key points
in the ten year timeframe. In this way, a management gut check" of the brand values reasonableness can be conducted. (see Figure 3
below and Exhibit 3 in the Appendix)
Figure 3: Strategic Plan Timeline

Figure 4: Key Risks of Recommendation

CONCLUSION
Our strategic recommendations for Tata are intended to address all of the organizational, cultural, strategic, and operational
considerations that a ten year sustainability strategy would necessitate. Specific sustainability initiatives need strategic support to
flourish, and the creation of TSS would be useless without innovation and creativity to fuel its growth. With a new definition of

sustainability, a framework for growth and transparency, and specifically tailored global strategies, Tata will be ideally positioned for
the next ten years to sustain its culture and evolve.

APPENDIX
Exhibit 1: Organizational Chart (Current & Proposed)

Exhibit 2: Timing, Difficulty, Impact, & Market Risk

Exhibit 3: Valuation Model