Sustainability Strategy 2020The Tata Group’s Vision for a Sustainable Future

> Executive Summary

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• The dynamic global environment challenges companies to reassess balance between business and social priorities

• A sustainability strategy creates an opportunity to generate and capture economic value

• A strategic approach strengthens social impact and maximizes return on social investments through: • Targeted interventions• Innovation• Thought leadership• Public policy

• Effective implementation enables Tata to achieve its strategy, by making changes to:• Structure• Culture• Measurement• Communication

• The value generation potential is 2-3 % of net value

> A concerted sustainability strategy gives Tata a competitive advantage by generating social impact

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• Create an opportunity for shared value

• Leverage unique capabilities

• Enable a measurable ROI

• Yield magnified returns with small investments

• Create opportunities in uncontested markets

• Reinforce Tata culture

• Increase social impact and return

• Influence the debate and minimize tensions

• Improve ability to conduct business

• `

• Set the standard and raise the bar

• Compel followers

• Reinforce brand with strengthened reputation

Targeted Interventions Innovation Public Policy Thought

Leadership

FOCUS

> An effective implementation is necessary to achieve sustainability goals

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• Quantify social impact and translated to financial value creation

• Understand financial and non-financial costs of initiatives

• Prioritize and align strategies

• Appoint a Chief Sustainability Officer

• Form a permanent Sustainability Task Force

• Cultivate stakeholder relationships

• Exploit common initiatives

• Empower and align employees to new vision

• Incentivize and reward sustainability efforts

• Foster long-term talent recruitment and development

• Create brand equity and goodwill

• Motivate employees and community

• Enhance investor relationships• Communicate quantifiable impact

Coordination and integration Engrain sustainability mindset in the organization

Improve social impact measurement

Publicize Tata’s sustainability leadership

Structure Culture

Measurement Communication

> Tata can implement its sustainability plan to achieve its 10-year vision

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Create Sustainability

Task Force

1 Define & Convey

Strategic Sustainability

Vision

2

Set strategic priorities

3Define metrics for evaluating

impact

4Identify

partners to create greatest

impact

5Adjust

investments based on impact

6Demonstrate financial and social impact

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Month 1 Month 2 Month 3 Month 4-6 Month 7 Quarterly Annually

Appoint sustainability

leader who sits on corporate

executive board, establish

sustainability task force

Define annual social, economic &

environmental initiatives in each region; Consider opportunities for shaping political

agenda

Develop relationships with

relevant NGOs, industry

associations, businesses, and

lobbyists

Announce quick wins that align

with new strategy

Strategy group becomes

responsible for innovation

Distribute report annually to

shareholders and employees,

beginning in Year Five

Demonstrates

global

commitment to

sustainability

Reinforces

message that

sustainability

is key

component of

the business

Able to assess

strategic

investments

with greatest

impact on

ongoing basis

Instills

standardized

measurement

and reporting

to define social

impact

Allows group

to make strategic

investments

regionally

Builds

relationships in

the community

while delivering

impact

Signals value to

shareholders and

stockholders

Devise ways to measure and

quantify impact and to translate this impact into financial return

Reinforce linkage between

sustainability initiatives,

employee value and innovation

Phase 1:Identify Sustainability

Impact Levers

Phase 2:Determine Relevance for Tata

Phase 3:Quantify and Validate

Impact Estimation

> The valuation framework incorporates analytical tools to surmount the traditional challenges faced in valuing sustainability

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Theoretical Potential Impact

Impact Potential for Tata Group Impact Estimation

Stakeholder Mapping

Elements of Value

Business Model Relevance Grid

Geography Focus

“Sanity Check”1

2

3

4

5

6 8

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How does sustainability translate into value

for a company?

To what extent do these value generating

opportunities apply?

What should be a reasonable impact target

for Tata Group?Valuation Challenges

Valuation Framework

> The Theoretical Potential Impact Matrix summarizes how sustainability initiatives affect stakeholders and move the levers of a company’s value

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Value Lever Customers /

Community Employees Value Chain Regulators / Watchdogs

Investors and Risk Assessors Future Generations

Brand (growth) Better understanding of customer needs

Ambassadors for growth – motivation for innovation

Communication on market opportunities

Access to markets Socially conscious capital

Expanding customer base in the future

Margins Higher willingness to pay

Reduced absenteeism and turnover

Reduced conflict, ease of negotiations

Reduced compliance costs

Lower reporting costs

Lower cost of acquisition

Cost of DebtLower volatility of revenues because of brand loyalty

Better use of cash flows

Cash flow optimization in the value chain

Lower threat of expropriation

Reduced volatility of cash flows

Stability of growth in the long term

Cost of EquityLower impact of market swings = lower beta

Reduced risks of employee conflict

Faster reaction to market swings –beta swings

Reduction of country risk and favorable regulation

Tension because of perception of sub-optimal investing

Reduced risk of environmental crisis

Program Cost Constant and costly engagement

Highest priority engagement

Marginal increased engagement

High level interaction

Reporting interaction

High cost, low level of market feedback

High impactLow impactTheoretical Potential Impact Matrix

Source: Team Analysis

> The consolidated estimated impact for the Tata Group is $3.6 Billion

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Net Impact on Tata Group Value1

Note (1): Based on detailed value estimation for 4 largest companies and extrapolation for other 92 companies based on revenuesSource: Tata Case; Tata Group Companies Reports, Team Analysis

US$

Mill

ions

Impact Per Value Lever1

US$

Bill

ions

> Sustainability is a key component to Tata’s success

“A visionary company doesn't simply balance between idealism and profitability: it seeks to be highly idealistic and highly profitable.”

-Jim Collins, Built to Last: Successful Habits of Visionary Companies

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APPENDIX

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Measurement:• Standardize reporting framework to

measure impact of ROI• Harness stakeholder insights to identify

opportunities• Adjust and refine initiatives

Structure:• Be sustainability leader• Create sustainability

taskforce to foster integrated approach towards sustainability initiatives

• Exploit common initiatives between company holdings

Culture:• Engrain mindset of

sustainability in leadership

• Incentivize leaders & employees

• Attract top talent with core values

• Recruit & train future leadership class

Communication:• Disseminate brand• Address stockholders – ROI& EVA• Promote stakeholder dialogue to get

feedback on current initiatives

Context:• Post financial crisis

environment• Increasing social &

environmental awareness

• Growing Consumer base in emerging economies

• Public demands corporate responsibility

Vision: To be recognized as the undeniable global leader in corporate sustainability by reinforcing core

business operations while creating and capturing value for its shareholders

Corporate Strategy:• Conglomerate strategy• Market leader & expand

into global markets• Acquisitions in key

sectors• Strong social impact• Companies represent

the Tata brand

Sustainability Strategy Goals: • Address stakeholder demands

in each market• Generate new demand in

uncontested market space• Translate stakeholder value

into shareholder value• Collaborate with & leverage

company innovations• Invest in human capital for long

term change• Advocate core values in global

business practice• Expand philanthropic efforts in

markets where impact is greatest

Strategic Focus: • Revolutionize industry by raising

corporate citizenship standards• Prioritize key social & economic

investments to augment innovation

• Foster innovation in business• Shape public policy

> The Integrated Sustainability Plan & Implementation is a detailed approach to value creation and capture

> FOCUS: Tata must target interventions to maximize social impact and capture maximum value

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Community Schools Technology CollegeEconomic

Value Captured

Social Value

CreatedEconomic

Value Captured

Social Value

Created

•Creates an opportunity for shared value; strengthens Tata’s competitiveness while adding social value

•Impact can be isolated and measured

•Value is difficult to capture- High social impact, but does not directly increase Tata’s competitiveness

•Impact is difficult to measure and translate into financial returns

> Tata Must Innovate to find opportunities for maximum impact

Minimum Contribution to Tata’s Net IncomeMaximum Social Impact

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Impact Measurement

Publicity Value of Swach 1,620,000 search results

Assume access to the Swach can save lives at rate of 1% 16,360 lives saved

Assume access to the Swach can reduce absenteeism at rate of 1% 4,430,000 school days savedAssume access to the Swach can reduce estimated economic losses due to health spending, loss of productivity and labor diversions costs by 1% $ 284,000,000 saved

Economic Value

Captured

Social Value

Created

> Phase 3: The impact per company is derived by conservatively affecting the value levers to the extent that a sustainability strategy is relevant

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LeverImpact Range(Change from original value)

Current Value(Estimated using Tata Financials)

New Value Impact on Valuation

% Increase in Valuation

Brand (short and long term growth

rates)+1%-1.5% 36.5% years 1-5

3.0% years 6 +37.0% years 1-53.0% years 6 + 629 MM 1.8%

Margins (Cash flow generation) +0%-0.5% 1,065 MM 1,087 MM 154 MM 0.4%

Cost of Debt -0%-0.5% 4.7% 4.7% 0 MM 0.0%

Cost of Equity +0.5%-0% 13.0% 13.0% -0 MM -0.2%

Program Cost (Capex + Opex) +30%-50% 11 MM 15 MM -36 MM -0.1%

Example: Tata Consulting Estimated Impact

Source: Tata Case; Tata Group Companies Reports, Team Analysis

> Phase 2: Tata Group’s ability to capture the potential for value generation depends on industry & geography focus for each company

Potential for Value Generation per Company - Tata Group’s Largest Market Cap. Companies -

Geographic Expansion

Bre

adth

of R

elev

ant S

take

hold

er G

roup

s

+--

+Higher Potential

Source: Tata Group Companies Annual Reports; Team Analysis

> Elements of Value

xVi = Σ Ct (1+gs) / (1+ki)t + Cx(1+gl)/((k-gl)(1+ki)(t+1)) t = 1

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Short Term Component Long Term ComponentWhere:Vc = Value of the conglomerateVi = Value of one of the organizationt = Periodx = End year of short term period affected by short term growth rateCt = Operating after tax cash flow of the company in year tCx = Operating after tax cash flow of the company in year xgs = Short term growth rate of the cash flowsgl = Long term growth rate of the cash flowski = Cost of capital for organization i

nVc= Σ Vi i = 1

> Tata Group’s ability to capture the potential for value generation depends on industry & geography focus for each company

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CompanyCustomers

/ Community

Employees Value Chain Regulators / Watchdogs

Investors and Risk

AssessorsFuture

Generations

Tata Consulting ✓ ✓ x x x x

Tata Steel ✓ ✓ ✓ ✓ ✓ ✓

Tata Motor ✓ ✓ ✓ ✓ ✓ ✓

Tata Power ✓ x x ✓ ✓ ✓

Business Model Relevance Grid Geography Focus

Local Revenue

International Revenue

Untapped Value

8% 92% High

17% 83% High

45% 55% Medium

90% 10% Low