ITC on the march filters out ESG concerns, for now | Economic Times

ET Intelligence Group: A day after academician Aswath Damodaran's blog decried ESG investing of costing money to companies and their investors, ITC made its first sudden up-move and has since gained nearly 13% over a week. The emergence of ESG investing - the principle of responsible investing in companies that are following environmental, social and governance norms - was one of the reasons that was impacting ITC's performance on the bourses irrespective of the company's performance on the ground. The company's management as well as analysts acknowledged ESG to be a prominent factor adversely impacting the company's stock.Now, with the stock showing signs of sustaining the uptrend, analysts have been quick at revising the company's stock price upwards. With people stepping out of their homes, sale of cigarette is expected to increase and so is overall consumption of products - providing reasons for the ITC stock to react positively. The ESG theory seems to have been temporarily forgotten probably till the time the stock starts to show weakness again. The positive stock movement as well as the bullish commentary do raise questions over the ESG concerns that had besieged the stock's performance earlier. Were the ESG concerns overdone? When will they resurface and start influencing the ITC stock? 86469126ITC has predominantly earned its profits from the cigarette business. While it is pushing forth in growing its non-cigarette consumer products business, the income model is not going to become cigarette-independent any time soon. To be sure, ITC has undertaken steps to improve its ESG scores by being water positive, carbon positive and solid waste recycling positive. But the cigarette business remains the elephant in the room. Globally, tobacco companies are improving their ESG worthiness by introducing less harmful smoke-free products such as e-cigarettes or oral nicotine products and doing their extra bit on environmental protection. Big tobacco firm Philip Morris is taking an even bolder (and controversial) step of buying a pharma firm that manufactures asthma inhalers. The move is part of achieving its goal of going 'Beyond Nicotine' and earning $1 billion in net revenues from non-tobacco sources by 2025.ITC too has been building its business 'beyond cigarettes' - especially its consumer products business - in view of the growing influence of ESG investing. However, the stock market did not seem to be much impressed. The ITC stock has in recent years proven to be a tricky investment - long- term bet for some and value trap for others. ESG investing, with its inherent flaws and benefits, sets up a long-term headwind for the company. The revival in consumption or no increase in taxes are short-term positive triggers for the stock. The most important trigger will be ITC eventually breaking free from the ESG concern. The time taken for such an eventuality remains dependent on the company's management.