The Tata WayA Mutually Reinforcing Cycle of Profitability and Sustainability

Jose Ochoa, Rajiv Rammohan, Ram Sangireddy, Christopher Shields

Executive Summary

Our strategy will propel Tata to the top of global CSR leadership by:• Maximizing its initiatives by localizing them• Allowing realistic CSR comparisons across all of Tata’s companies• Considering the lifecycle impact of its products and services• Developing a groundbreaking buy-in and incentive tool• Creating measurable value for Tata and for society

Adapting to new markets New Markets Multiplier Factor

Stepping it up a notch Product Lifecycle Impact Metric

Aligning purpose with profit Internal CSR credit market

The strategy relies on our Three Pillars of Sustainability:

CSR investments have realized a 32% return to Tata’s brand equity, creating value for each Tata Group company.

Value Gained on Tata Brand Equity Due to CSR $US BN

Value of the Tata Brand $9.92

Estimated 2008 Tata CSR Contributions $0.603

Cost of CSR Contribution in Perpetuity $6.03

Value of Brand Equity – CSR Investment $3.89

Value of Brand Equity Due to CSR $1.94

ROI of CSR Investment 32%

Tata’s CSR initiatives align the interests of each of its stakeholders and strengthen its overall competitive advantage

Stakeholders Interests Leverage over Tata

Workers Safety, fair wages, etc…

Strikes, decreased productivity

Local communities

Investments in local needs

Oppose and hinder expansion plans

Investors Financial return Access to capital markets

Benefits of CSR Initiatives

A firm ‘people want to work for’

Low interference, overall support

More stable financial returns

With global expansion, Tata must adapt its CSR efforts to match the diverse needs of local communities.

Metric Germany Vietnam

GDP (PPP) per capita $34,100 $2,900

% population below poverty line 11% 22%

Adult literacy rate 99% 90.3%

HIV/AIDS prevalence rate 0.1% 0.5%

Unemployment rate 8.2% 2.9%

Tata CSR focus (proposed) • Employment• Environment

• Education• Health

Source: CIA World Fact Book

New Markets 2 3

Localize One-size-fits-all CSR strategy is neither efficient nor sustainable

New Tata

Index

NMMF enables the Tata Group to fairly compare the CSR performance of each of its companies

NMMFUse to compare

Tata Group companies’ CSR

performance

Original Tata

Index

New Markets 2 3

New Markets Multiplier Factor (NMMF) normalizes sustainability initiatives of different Tata Group companies to facilitate comparison of CSR performance

Normalize

ProfitSynergies

Incorporating PLIM in the Tata Index will put the group at the forefront of CSR

1 PLIM 3

Product Lifecycle Impact Metric (PLIM) measures the lifecycle impact of Tata Group companies’ products Measure

Product Impact

CSR Synergies PLIM

The modified Tata Index will be tied to performance against annual CSR targets.

Assessment Levels

Total Points

Tata Chemicals

2010 CSR Performance Target 600 560

Total points (before suggested modifications)

1000 534.15

Product Response – Level IV (PLIM) 100 10

(1) Value addition to society in perpetuitya) Human standard of living and purchase

capacityb) Enhanced ease of mutual existencec) Enhanced health and safety conditionsd) Other considerations

(0 to 100)30203020

40

(2) Lifetime Ecological Impacta) Environmental pollutionb) Material wastec) Human health and safetyd) Other considerations

(-100 to 0)-30-20-30-20

-30

Total Points (including PLIM) 1100 544.15

OriginalIndex Score

Modified Index Score

PLIM Score

1 PLIM 3

Target Target Index Score

Firm meet profit

target?

NO

YES

NO

TATA Group Internal CSR

Market

• Not eligible for incentives• Not allowed CSR trading

Allowed to tradeCSR credits YES

Sell CSR credits?

Buy CSR credits?

• Eligible for incentives• Maximize profitability

NONot eligiblefor incentives

YES

Eligible forincentives

Internal CSR market will align each company’s financial incentives with the double bottom line of responsibility and profitability

Firm meet CSR

target?

Firm meet CSR

target?

1 2 CSR Market

Phased in rollout will enable flexible and scalable implementation of a strategy sustainable in the long term

Task 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Create Local Task Force

Revise Internal Sustainability

System

Increase Coordination

with all Stakeholders

Rollout PLIM

Commence CSR internal trading

Implement and Revise CSR

internal market

Early : Anticipated leadership change

Year Three: Group wide rollout

Year Six: CSR market is fully operational

An annual investment in CSR Trading Market bonus pool will generate an additional profit margin of 0.829%.

Corporate Social Responsibility Performance

Intangible resources*

Innovation

Human Capital

Reputation

Culture

Corporate Financial Performance

Figure adapted from Surroca, Jordi, Josep Tribo, and Sandra Waddock. "Corporate Responsibility and Financial Performance: The Role of Intangible Resources." Strategic Management Journal, 2010: 463-490.

Intangible resources*

Innovation

Human Capital

Reputation

Culture

PV of Perpetual Investment = $1BPV of Perpetual Profit Generated = $8.29MCSR Profit Margin = 0.829%

But Economic Value Added is only a portion of the Global Value Added by CSR……….

Global Value Added* = Social Value Added + Economic Value Added

Where:

Social Value Added = Economic Value of Social Saving + Tax Revenues + Non-Economic Benefits

Adapted from Hughes, Greg, Sonali Rammohan, and Linda Emanuel. "Corporate Citizenship: Managing Relationships with Professionals and Government." Aids & Public Policy Journal, 2003: 61-76.

Local application of Tata Index, PLIM, and CSR Credit Trading Market are key to Tata’s corporate strategy.

This CSR Strategy is Key to Corporate Strategy:• Aligns profitability with sustainability• Enhances brand equity• Erects barriers to entry for competitors• Anticipates future regulatory changes• Further enables a smooth leadership transfer• Further institutionalizes Tata’s culture for future generations

Next Steps:• Create leadership task force composed of Group Corporate Sustainability VP, Group

CFO, Group COF, CMO, and other relevant executives to solidify strategy• Commence the creation of local task forces• Work with governments, NGO’s, the UN, and local residents to identify CSR needs

within each target market• Further investigate how to maximize both profits and social performance*• Move forward with this strategy!

* Husted, Bryan, and Jose de Jesus Salazar. "Taking Friedman Seriously: Maximizing Profits and Social Performance." Journal of Management Studies, 2006: 75-91. We suggest this merely as a starting point, the Tata group must optimize profits and social performance according to the needs of all Tata stakeholders.

Thank You

Questions?

Appendix A

Value Gained on Tata Brand Equity Due to CSR ($US BN)

Value of Tata brand $9.92 2008 Tata CSR contributions* $0.603 Cost of CSR contribution in perpetuity** $6.03 Value of Tata brand over CSR investment $3.89 Value of Brand equity due to CSR*** $1.94 % return on CSR for Brand Equity**** 32% Annualized value of Tata brand $0.99 Annualized value of Tata brand over CSR investment $0.39 Annualized value gained on brand equity due to CSR $0.19 % Return on CSR for Brand Equity 32%

* Tata Steel contributed $31.58M to CSR in 2008. Given that Tata Steel comprises 20.95% of the Tata group's public market cap of $60B, we estimate the total CSR contributions of Tata's 24 public companies to be $151M. Given that the Tata group consists of 96 companies, we then multiply this value by 4 and obtain a Tata Group grand total contribution of $603M. ; Source: Prasad,Dr V.V.S.K, Professor in MBA, The Hindu College, February 2009, http://www.indianmba.com/Faculty_Column/FC955/fc955.html, accessed April 11, 2010

** Given lack of financial data and our understanding of Tata's operations, we estimate Tata's discount rate to be 10%.

***Though much of Tata's brand equity is due to its CSR policies, we recognize that a large portion of its brand equity is also due to factors such as product quality & reliability, operational effectiveness, internal sustainability investments, and other intangibles. We therefore estimate that only 50% of Tata's brand equity over CSR investment is due to the Group's CSR strategy.

***We recognize that 32% is a conservative estimate, as given the relative size of the varous Tata companies, we believe the Tata Group's total CSR 2008 contributions to be less than $603M.

Appendix B

CSR Investment Profit Margin ($US M)

Initial CSR Investment $100 Discount rate 10%Value of CSR Investment in Perpetuity $1,000

Δ in innovation due to CFP 860.00

Δ in Human capital due to CFP 530.00

Δ in Repuation due to CFP 640.00

Δ in Culture due to CFP 89.00

Δ in CSR rating in perpetuity 423.55

Δ in innovation due to CSR 59.30

Δ in Human captial due to CSR 127.07

Δ in Reputation due to CSR 160.95

Δ in Culture due to CSR 173.66 Additional Profit due to CSR in perpetuity $8.29 Annual Additional Profits due to CSR $0.83 Profit margin 0.829%

Appendix C

Relationship between CSR and Financial Performance

Effects of CSR on Intangible Resources β Innovation 0.140β Human Capital 0.300β Reputation 0.380β Culture 0.410 Effects of Intangible Resources on CFP β Innovation 0.031β Human Capital 0.021β Reputation 0.008β Culture 0.014 Effects of CFP on Intangible Resources β Innovation 0.860β Human Capital 0.530β Reputation 0.640β Culture 0.089 Effects of Intangible Resources on CSR β Innovation 0.220β Human Capital 0.318β Reputation 0.087β Culture 0.121

Obtained from Surroca, Jordi, Josep Tribo, and Sandra Waddock. "Corporate Responsibility and Financial Performance: The Role of Intangible Resources." Strategic Management Journal, 2010: 463-490.

NMMF enables the Tata Group to fairly compare the CSR performance of each of its companies

NMMF

Compare Tata Group

companies’ CSR performance

Tata Index

NMMFTata Index

Vietnam

Germany

1 2 3

Incorporating the Product Lifecycle Impact Metric (PLIM) in the Tata Index will put the group at the forefront of CSR

Positive Externalities:• Benef

its rural farmers

• Reduces malnutrition by increasing crop yields

Negative Externalities:• Leads

to soil and water pollution

Product Impact

Synergies PLIM

Global CSR

Group

Company

Tata Chemicals• Gains

exposure to working with low income farmers

Tata Kissan Sansar• Can

utilize this knowledge in selling XXX in similar markets1 2 3