Tobacco major ITC gets a Medium Risk

Sustainalytics, a global leader in ESG and Corporate Governance research and ratings, looks at the businesses of ITC and presents its findings.
By Morningstar |  17-07-20

ITC’s FMCG business includes diverse offerings such as cigarettes, branded packaged foods, personal care products; however, cigarette selling is FMCG’s main revenue driver (66.9% of FY2017/2018 revenue).

The negative consequences of tobacco on societal health, coupled with the increasing consumer demand for healthier options like non-smoke tobacco products, exposes ITC to a potential loss of customers and of market-share. Additionally, misconduct related to misbranding or tax avoidance tactics could lead to significant penalties.

Moreover, ITC’s ability to effectively compete in its business environment hinges on its capability to retain its 26,147 employees (as of March 31, 2018) and continue to attract a diverse and highly qualified workforce. Low wages and violations of worker’s rights could trigger strikes and high turnover rates, causing significant disruptions in ITC’s operations.

ITC's overall ESG-related disclosure follows best practice, signalling strong accountability to investors and the public. The company's ESG-related issues are overseen by the board or the executive team, suggesting that these are integrated in core business strategy.

The quality and integrity of the company's board and management, its ownership structure and shareholder rights are identified as the highest weighted governance areas of focus. The company is publicly traded, which leads to heightened scrutiny of its governance practices and increases the importance of governance structures, practices and behaviour.

NEXT: Graphical view of the attribution analysis of all the factors mentioned in this report.

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