Read the online Sustainability Report at www.bat.com/sustainability
Sustainability Report 2011 British American Tobacco Sustainability Report 2011 2
Sustainability Report 2011
Sustainability and Our regions Engagement and Harm reduction Marketplace Environment Supply chain People and culture our business and markets governance
Sustainable business practice is at the heart of the Group’s strategy. By addressing our social, environmental and economic impacts, we build value for the business, for our shareholders and for other stakeholders.
OUR PRODUCT
■ We are committed to reducing the health risks of our products, so our approach is to make available a range of reduced-risk tobacco and nicotine products for adult consumers. ■ We’ve established a stand-alone company, Nicoventures, to explore the development and commercialisation of regulatory approved nicotine products. ■ We seek to grow our market share, but we do this responsibly – our marketing activities are not aimed at the underage and not misleading about the health risks of tobacco products. ■ We are working to fight the black market in tobacco, such as through developing new technologies to further secure the supply chain.
REGULATION
■ We support regulation based on sound evidence and are sharing objective evidence to help contribute to the policy debate on regulation. ■ To help contribute to the development of tobacco harm reduction policy, our Chief Scientific Officer sat on an expert panel of a workshop held by the US Food & Drug Administration on developing the scientific standards for the evaluation of modified risk tobacco products. ■ Where local laws aren’t as strict as our International Marketing Standards, we lobby for similar standards ■ We held a stakeholder dialogue on the opportunities of current and future carbon pricing mechanisms and carbon regulation.
SUSTAINABLE AGRICULTURE
■ We provide agronomy support to over 140,000 farmers worldwide. ■ We are working to protect the long term security of our tobacco leaf supply by encouraging sustainable agriculture based on multi-stakeholder partnerships and held two stakeholder dialogues on the issue. ■ We are using biodiversity risk and opportunity assessments to inform our approach to sustainable agriculture. ■ We commissioned independent research into the impact of tobacco farming on communities and the environment. ■ We are working to protect the human rights of our suppliers, contracted farmers and local communities. British American Tobacco Sustainability Report 2011 3
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Sustainability and our business
Our approach
In this Report, we focus on the five areas of our sustainability agenda – harm reduction, marketplace, environment, supply chain and people and culture – in each we focus on what the future might look like and how we’re preparing for it.
Our sustainability agenda aims to build value for our shareholders and other stakeholders by addressing our social, Sustainable business practice is at the heart of the environmental and economic impacts. This means generating returns for our Group’s strategy. By addressing our social, environmental shareholders by doing the right thing by our stakeholders and the environment. and economic impacts, we build value for the business, for our shareholders and for other stakeholders. This concept of sustainable value underpins all our sustainability activities. By taking action to address our impacts today, we help our business thrive in the future. British American Tobacco Sustainability Report 2011 4
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Chief Executive’s overview
Almost everything we do is preparing us for the future. That is why this Report focuses on what that future could look like and how we are preparing for it.
Nicandro Durante, Chief Executive
Q What is your vision for a sustainable tobacco company?
A Many people ask me whether the cigarette business can be sustainable in the long term and whether people will keep on smoking? The fact is that despite an increase in smoking restrictions and the introduction of further tobacco control measures, many people continue to smoke and use tobacco products and will probably do so for the foreseeable future. So in 20 years’ time, I see the bulk of our business still being in conventional cigarettes. Naturally, I want us to be able to help to reduce the impact of tobacco use on public health. This is something that should be of benefit to society as well as our shareholders since it will contribute to long-term business sustainability. However, the challenge should not be underestimated: policy makers are not all in agreement when it comes to how to approach tobacco related harm reduction, the science is complex and to resolve these issues requires a collaborative approach between the private and public sectors. Because science is such an important topic for us I decided recently to create a new Management Board position of Group Scientific Director. This helps ensure that science is at the heart of our strategic planning and decision making. So, as well as conventional cigarettes, we are driving our business to be able to offer consumers a choice of reduced toxicant cigarettes, as well as new categories such as low-toxicant smokeless tobacco and regulatory approved nicotine products. I like to describe this approach as the ‘responsible use of tobacco’ but I recognise that this is a contentious concept and that for good reasons stakeholders hold widely different views. Our commitment to this is the reason we have recently established a new company, Nicoventures.
Q What is Nicoventures and where does it fit with your sustainability agenda?
A Nicoventures is a new stand-alone company in the Group that is pioneering our development of regulatory approved nicotine products. We believe there is a potential market for products that will offer smokers much of the experience they expect to get from a cigarette but without the real and serious health risks of smoking. This requires a different approach and we hope that Nicoventures will make significant progress in this area and make a meaningful contribution to tobacco harm reduction. British American Tobacco Sustainability Report 2011 5
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Q What other sustainability issues are important to British American Tobacco?
A In the marketplace it’s essential we continue to market our products in a responsible way to informed adult consumers and work with retailers to prevent youth access to tobacco products. It’s also important to work with governments and enforcement authorities to combat the black market in tobacco, which has become our fourth largest competitor. We also have a considerable impact upon the environment in both our direct operations and in tobacco growing areas and for several years we have put in place various initiatives to help mitigate our impact on biodiversity, to limit and reduce deforestation in our leaf growing operations and to improve efficiencies relating to energy and water use. In the supply chain it’s important to ensure that the rights of tobacco farmers are respected and that the industry and stakeholders work together to tackle child labour. Initiatives such as our Social Responsibility in Tobacco Production programme and participation in the Eliminating Child Labour in Tobacco Growing Foundation help us play our part. Sustainable agriculture is important to us too – tobacco farming makes an important contribution to rural development by improving both landscape and livelihoods and through providing agronomy support to our contracted farmers we are able to help share best practice.
Q Why is your business facing increased regulation?
A Regulation has been increasing in many consumer goods industries but especially in tobacco due to the public health impact of the product. Many people think we are opposed to regulation and it may come as a surprise that we actually support evidence based regulation that achieves the objective of reducing the impact of tobacco use on public health. We are, however, very concerned about regulation that isn’t based on sound evidence, fails to achieve public health goals and exacerbates the illegal trade in tobacco products. For example, steady, gradual increases in tobacco taxation can help reduce smoking rates and increase government revenues. However, in many cases we see large and sudden increases in tax that destabilise markets. Consumers often down-trade to widely available illegal products in such circumstances, depriving the Government of revenue and undermining public health policy while damaging the legitimate business interests of retailers. We’ve often been accused of being underhand when it comes to lobbying and engagement but I can tell you that our engagement and advocacy on key regulatory issues is very open and transparent – you can read our views on these issues in this Report.
Q What else is British American Tobacco doing to prepare for the future?
A Almost everything we do is preparing us for the future. That is why this Report focuses on what the future could look like and how we are preparing for it. For example, over the past year, we have been mapping climate change risks to help us identify where in the world things such as water availability and energy security could impact our operations and tobacco growing in the future. We’re also looking at how we can make sure we get the very best people into the business. Employee expectations of a satisfying career are changing and we know we need to understand and meet those expectations. So can a business like ours be sustainable? By taking the lead, setting out a clear agenda for the future and doing things right, the answer is yes.
Nicandro Durante, Chief Executive March 2012 British American Tobacco Sustainability Report 2011 6
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
View point from Karen de Segundo, Chairman of the Board CSR Committee
I think we are able to have a more impartial view, bringing in different perspectives and experience and providing challenge to the business.
Karen de Segundo, Chairman of the Board CSR Committee
The job of the Board CSR Committee is to make sure that the Group’s sustainability programme is on track. With the Committee being made up entirely of independent Non-Executive Directors like myself, I think we are able to have a more impartial view, bringing in different perspectives and experience and providing challenge to the business. Sustainability often requires looking at the business from a longer term perspective. Take tobacco harm reduction: policy makers do not yet agree how to approach it and the science is complicated, but that doesn’t mean that the business isn’t committed to it. I was very encouraged by Nicandro creating the new Management Board position of Group Scientific Director this year. In 2011, as well as looking at areas such as adherence to the Group’s International Marketing Standards and health and safety performance, we’ve also been focusing on sustainable agriculture in detail and the positive contribution that the business can make in this area. For me this is an exciting topic, as well as being particularly relevant given the increasing pressures on land and resources that the world is facing. Karen de Segundo, Chairman of the Board CSR Committee British American Tobacco Sustainability Report 2011 7
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Our vision for sustainability
Our vision of a sustainable tobacco business is one that EMPLOYEE manages the impact of its operations and products responsibly VIEWPOINT For me, acting today and prepares for a future in which it continues to create responsibly means value for shareholders as well as being in the best interest of facing up to our most important impacts other stakeholders. including the health risks associated with The tobacco industry has not met the expectations of its stakeholders in the past. However, we are working tobacco products. hard to align our business strategy with the expectations of society. Our sustainability agenda comprises five goals across our key impact areas. We will: Ad Schenk, Managing Director, British American Tobacco ■ Strive to bring commercially viable, consumer acceptable reduced-risk products to market; Germany ■ Take a lead in upholding high standards of corporate conduct within our marketplace; ■ Actively address the impact of our business on the natural environment; ■ Work for positive social, environmental and economic impacts in our supply chain; and ■ Work to ensure we have the right people and culture to meet our goals. Here we describe some of the ways we are trying to meet our sustainability goals. Working towards reducing the risks of our products Despite the known health risks and increasing regulation, many people still choose to smoke. The World Health Organisation estimates that, as the global population increases, there could be as many as two billion smokers worldwide by 2050. We believe that regulators and the public health community should involve the tobacco industry and recognise the contribution we can make towards developing potential solutions to these health issues. For example, we are already working to develop reduced toxicant cigarettes and are committed to developing new categories such as low-toxicant smokeless tobacco and regulatory approved nicotine products. This is challenging though, as not only is the science complex but, to be successful, these products need to meet consumers’ expectations and provide an acceptable alternative to existing tobacco products. We also need a regulatory framework to support their development and sale. Despite these challenges, we are already making good progress in developing the science and engaging with regulators and public health professionals. We are committed to continuing our work with others so that we can move forward without delay. Supporting regulation based on sound evidence We are not against tobacco control regulation. We support regulation based on robust evidence that can help to reduce the impact of tobacco use on public health, embraces an open-minded approach to harm reduction and takes into account the preferences of consumers. Some regulatory proposals, such as plain packaging, are not based on clear evidence that they will meet their stated objectives. In some cases, they are also likely to have unintended consequences, such as increasing the levels of counterfeit and smuggled tobacco products and damaging the livelihoods of tobacco farmers and legitimate retailers. We are keen to contribute evidence to the policy debate about regulation. In 2011, we commissioned two independent third party reports: one was produced by Deloitte and examines the intended and unintended impact of tobacco packaging regulation; the other, by Development Delivery International, focuses on the social, environmental and economic impacts of tobacco growing. Marketing our products responsibly Like any business, we want to grow our market share in a responsible way. For example, our International Marketing Standards state that our marketing should not be aimed at the underage and not be misleading about the health risks of tobacco products. Nor do we conduct marketing activities aimed at increasing the number of people who smoke or how much they smoke. Instead, we aim to grow our market share by encouraging existing adult smokers to choose our products over our competitors. British American Tobacco Sustainability Report 2011 8
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Promoting sustainable agriculture Agriculture often comes with complex, interrelated social, environmental and economic challenges. Tobacco growing is no exception and individual companies or farmers cannot tackle these challenges alone. We support a multi-stakeholder approach to sustainable agriculture that will help to protect our tobacco leaf supply chain as well as create successful farming communities. We have direct relationships with over 140,000 tobacco farmers in 19 countries to whom we provide agronomy support. This support includes providing quality seed as well as guidance on crop management, soil and water protection and environmental best practice. The guidance is not limited to tobacco farming, it covers all areas of agriculture. Valuing our people Of course, we cannot be successful in any of these areas unless we have great people working for us. So we are focusing on creating competitive advantage from our people and building a stretching and supportive culture that attracts, engages and retains diverse and talented people. Working with others To have a successful business that meets the expectations of society we need the support of the scientific and public health communities, as well as regulators and local stakeholders. So we engage with our stakeholders to build consensus on the best ways forward. This takes many forms and involves listening as well as talking. For example, we hold stakeholder dialogue sessions in which we jointly develop our sustainability plans. We have set up a Supply Chain Sustainability Stakeholder Panel to guide and challenge us on these issues. And our External Scientific Panel gives us important input to help inform our research programme. A sustainable future We hope that this Report gives our stakeholders a transparent account of how we are working towards better meeting their expectations and how we are working to build a sustainable business for the future. We are, as always, open to talking with our stakeholders, in particular to those who can help us tackle some of our key challenges. We’re also keen to hear what you think of this Report, our goals and our progress. You can email us at [email protected] or you can complete our feedback survey at www.bat.com/sustainability/feedback. British American Tobacco Sustainability Report 2011 9
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
External recognition We have built a strong reputation for sustainability and are recognised as leaders in our industry.
In 2011, we were included in both the Dow Jones Sustainability World Index (DJSI World) and the Dow Jones Sustainability Europe Index (DJSI Europe) for the 10th year running. The Indexes track the economic, environmental and social performance of companies that have demonstrated that they integrate sustainability into their businesses. Our overall score was 88 per cent, an increase of 10 per cent from 2010. That placed us as the industry leader. We scored a maximum 100 per cent rating in four areas – risk and crisis management, fuels for tobacco curing, responsible marketing and combating smuggling. In all other areas, we scored above the sector average and we achieved the highest scores for the industry in 12 of the 19 categories. These included corporate governance, environmental reporting, environmental policy, labour practice indicators, human capital development and standards for suppliers.
We are also included in the STOXX® Global ESG Leaders Indices. This is an innovative index that uses a completely transparent selection process so that investors can fully understand which environmental, social and governance factors determine a company’s rating.
We received a gold rating in the 2011 Business in the Community Corporate Responsibility Index, with a score of 94 per cent. Business in the Community is an independent, business-led charity. Its Corporate Responsibility Index is the UK’s leading voluntary evaluation of how large organisations manage corporate responsibility. Our score of 94 per cent placed us at the top of the gold performance band. We achieved strong scores across all categories including 100 per cent ratings for corporate strategy, stakeholder engagement and biodiversity. Other awards and recognition We also featured in the Carbon Disclosure Project’s Carbon Disclosure Leadership Index, with a score of 91 per cent. This index highlights those companies in the FTSE 350 Index that have shown the most professional approach to managing and disclosing their climate change impacts. High scores indicate that senior management understands the business issues related to climate change and is building climate related risks and opportunities into the core business. The UK Environment Agency ranked us as the top company in the grocery sector in their first CRC Energy Efficiency Scheme Performance League Table. This table ranks over 2,000 organisations on their actions to manage energy consumption. We were one of only 22 companies to score 100 per cent. In their ‘How does it stack up? Sustainability Reports 2011’ report, leading communication consultancy, Radley Yeldar, named our 2010 Sustainability Report as one of the top 10 in the FTSE 100. In 2011, we also won the top award for both People and Executive Remuneration reporting in PricewaterhouseCooper’s annual Building Public Trust Awards. The judges commented on the quality of our reporting of the Group’s people strategy, in the context of its overall business strategy, in its Annual Report and noted that this was underpinned by a wealth of relevant, business critical people data in the Group’s 2010 Sustainability Report. You can view the awards and recognition we have received in previous years at www.bat.com/awards. British American Tobacco Sustainability Report 2011 10
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Progress against our goals
Status key: On track Completed Not met
Harm reduction
2011 goals and commitments Status 2012 goals and commitments Timing
Validate and submit for publication details of a series Take the laboratory models of diseases through an End 2013 of laboratory models of diseases, such as cancer, external validation phase involving collaborative chronic obstructive pulmonary disorder and research with scientifi c partners. cardiovascular disease, as well as the biological processes of infl ammation and oxidative stress by end 2011. (A number of studies have been submitted in 2011 and the remaining will be submitted in 2012.) Work with our External Scientifi c Panel on the design Register and undertake a longer clinical study of End 2012 of a longer clinical study of biomarkers of exposure to biomarkers of exposure to tobacco smoke toxicants tobacco smoke toxicants and biomarkers of biological and biomarkers of biological effect under ethical effect by end 2011. approval and to high clinical standards. Implement our reinvigorated biotechnology Submit for publication more of our research on the End 2012 programme and submit the latest results of the tobacco genome and undertake further fi eld trials research for publication by end 2011. on tobacco plants with lower toxicant levels. Present our scientifi c fi ndings at international Present our scientifi c fi ndings at international End 2012 conferences and maintain or increase our conferences and continue to improve the standard publications in peer-reviewed journals by end 2011. of our publications in peer-reviewed journals. Further improve www.bat-science.com to facilitate greater input from the external scientifi c community into our scientifi c research programme by end 2011. (This work has been put on hold while we explore the best way to share our science further through electronic media.) Review our approach to snus test marketing by end 2011.
Marketplace
2011 goals and commitments Status 2012 goals and commitments Timing
Engage with the International Labour Organisation Revise and update our International Marketing End 2012 and other relevant international organisations to aim Standards to take into account evolving marketing to ensure that the impact of regulation on issues such practices and regulation. as employment and free trade are properly assessed by end 2011. 100 per cent adherence to our International 100 per cent adherence to our International End 2012 Marketing Standards. (In 2011, 21 incidents of Marketing Standards. non-adherence were identifi ed.) Review youth smoking prevention in those markets 100 per cent adherence to our global approach to End 2012 that have yet to implement our global approach by youth smoking prevention in all countries where end 2011. implementation is required. Complete a pilot at our factory in Mexico of the industry-agreed system for digital tax verifi cation by end 2011. British American Tobacco Sustainability Report 2011 11
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Environment
2011 goals and commitments Status 2012 goals and commitments Timing Develop new goals for our energy, water and waste Develop new goals for our energy, water and End 2012 measures by end 2011. (This has been delayed while waste measures. we review our approach.) Set fi ve-year milestones to monitor progress towards Set fi ve-year milestones to monitor progress End 2012 our 2030 and 2050 CO2e targets by end 2011. (This towards our 2030 and 2050 CO2e targets. has been delayed while we review our approach.) Reduce our direct energy use towards our 2012 target Reduce our direct energy use towards our 2012 End 2012 of 11.03 gigajoules per million cigarettes equivalent target of 11.03 gigajoules per million cigarettes produced, 6.7 per cent lower than our 2007 baseline. equivalent produced, 6.7 per cent lower than our 2007 baseline. Reduce our direct water use towards our 2012 Reduce our direct water use towards our 2012 End 2012 target of 4.2 cubic metres per million cigarettes target of 4.2 cubic metres per million cigarettes equivalent produced, 13.4 per cent lower than our equivalent produced, 13.4 per cent lower than our 2007 baseline. 2007 baseline. Reduce our waste to landfi ll towards our 2012 target Reduce our waste to landfi ll towards our 2012 End 2012 of 0.022 tonnes per million cigarettes equivalent target of 0.022 tonnes per million cigarettes produced, 12 per cent lower than our 2007 baseline, equivalent produced, 12 per cent lower than our and recycle at least 85 per cent of our waste. 2007 baseline, and recycle at least 85 per cent of our waste.
Reduce our direct CO2e emissions by 50 per cent Reduce our direct CO2e emissions by 50 per cent 2030/ by 2030 and 80 per cent by 2050 against our 2000 by 2030 and 80 per cent by 2050 against our 2000 2050 baseline of 1.38 tonnes per million cigarettes baseline of 1.38 tonnes per million cigarettes equivalent produced. equivalent produced. Engage with stakeholders about the long-term challenges and opportunities of climate change, focusing on the areas of carbon pricing and renewable energy by end 2011. Undertake a feasibility review of renewable energy to Incorporate renewable and low-carbon energy End 2012 help identify potentially suitable manufacturing options in the development of plans to help us locations and technologies by end 2011. meet our long-term CO2e targets.
Carry out a water footprint analysis to better Complete the strengthening of our sustainable End 2012 understand the risks and opportunities that changes water management strategy. in water availability could present for us by end 2011. Review and revise our biodiversity risk and Complete the next round of biodiversity risk and End 2014 opportunity assessment tool for use in our next round opportunity assessments, using the updated tool, in of assessments of tobacco leaf growing operations all our tobacco leaf growing operations. by end 2011. Conduct research to verify the apparent return of Conduct research to verify the apparent return of End 2013 wildlife to trial areas of re-established natural forest in wildlife to trial areas of re-established natural forest Sri Lanka by the end of 2013. in Sri Lanka. British American Tobacco Sustainability Report 2011 12
Sustainability Report 2011
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Supply chain
2011 goals and commitments Status 2012 goals and commitments Timing Aim for zero use of natural forest for directly Aim for zero use of natural forest for directly End 2015 contracted farmers’ curing fuels by end 2015. contracted farmers’ curing fuels.
Introduce requirements for our leaf suppliers to meet Continue working with the independent End 2012 minimum performance thresholds in their Social SRTP reviewer, LeafTc, to review and update Responsibility in Tobacco Production (SRTP) the assessment. assessment scores by end 2011. Incorporate requirements for human rights and other Incorporate requirements for human rights and End 2012 sustainability criteria into all our framework other sustainability criteria into all our framework agreements with global suppliers by end 2012. agreements with global suppliers.
Establish an external stakeholder panel to provide Conduct a review of our approach to human rights End 2012 guidance and challenge on supply chain following the publication of the OECD’s revised sustainability issues by end 2011. Guidelines for Multinational Enterprises, including input on our Child Labour Policy from the International Labour Organisation. Use our approach for considering environmental impacts in all global factory sourcing decisions by end 2011. Extend our third-party manufacturing assessments to Conduct a detailed review of our strategic End 2012 include water by end 2011. operational sites in high-risk water stress locations.
Roll out our energy and CO2e assessments for Roll out our energy and CO2e assessments for End 2012 warehouses across the Group by end 2012. warehouses across the Group.
Roll out our programme to improve fuel effi ciency Roll out our programme to improve fuel End 2012 across all Group Trade Marketing & Distribution effi ciency across all Group Trade Marketing & teams by end 2012. Distribution teams. Carry out a review of our Business Enabler Survey Tool to incorporate further sustainability criteria into the assessment process by end 2011. Further integrate sustainability principles into the selection criteria for our direct materials and machinery suppliers by end 2011. Trial our environmental scorecard with strategic Develop the next version of our supplier scorecard End 2012 materials suppliers by end 2011. and expand its use to machinery suppliers. British American Tobacco Sustainability Report 2011 13
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
People and culture
2011 goals and commitments Status 2012 goals and commitments Timing
In each of our business units, we aim to have at In each of our business units, we aim to have at End 2012 least one local successor ready in the short term for least one local successor ready in the short term each senior position and two local successors ready for each senior position and two local successors in the long term. (In 2011, this was achieved for ready in the long term. (This goal is expressed 51 per cent of roles for the short term and 53 per cent as 1:1:2.) for the long term.) Aim to have a 70:30 ratio of local to expatriate senior Aim to have a 70:30 ratio of local to expatriate End 2012 managers at business unit level. (In 2011, the ratio senior managers at business unit level. was 57:43.) Complete the development of our global learning management system and implement it across the Group by end 2011. Review our approach to employee wellbeing to Review our approach to employee wellbeing, to End 2012 establish how it can contribute to improved employee establish how it can contribute to improved engagement by end 2012. employee engagement. Work with our employees to devise improvement Revise our employee opinion survey to strengthen End 2012 plans in response to the results of our employee our feedback culture and be better aligned to opinion survey by end 2011. business priorities, with the revised survey to be carried out Group-wide by year end. Our global aim is to have a Lost Workday Case Our global aim is to have a Lost Workday Case End 2012 Incident Rate of no more than 0.2 by end 2012. Incident Rate of no more than 0.2 by end 2012. The local target set for all our companies is The local target set for all our companies is zero zero accidents. accidents and we have a zero accidents ambition for the whole Group. Implement our plan to reduce vehicle-related injuries in our Trade Marketing & Distribution teams by end 2011. British American Tobacco Sustainability Report 2011 14
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
By region/ Performance summary 2009 2010 2011 Trend market Marketplace International Marketing Standards 15 6 21 Number of reported instances of partial or non-adherence Youth smoking prevention Percentage of reporting markets where our businesses state they are running or supporting 33 72 73 youth smoking prevention programmes Preventing underage access Percentage of reporting markets where our businesses state they are engaging with 39 49 50 the government to improve measures to help prevent underage access to tobacco Environment
Energy use Gigajoules per million cigarettes equivalent produced 11.12 11.14 10.31
Carbon dioxide Tonnes CO2e per million cigarettes equivalent produced 0.86 0.85 0.82 Water use Cubic metres per million cigarettes equivalent produced 4.41 4.15 3.89 Waste to landfi ll Tonnes per million cigarettes equivalent produced 0.019 0.018 0.017 Recycling Percentage of waste recycled 83.3 85.2 85.4 Supply chain Company sponsored or advised forestry 66.4 59.2 62.9 Wood fuel sources Commercial forest 27.2 28.8 29.8 Percentage sources of wood used Natural forest 4.3 12.1 7.3 in growing programmes Source unknown (All unknown sources have now been 2.1––– identifi ed since 2010 so this category has been deleted) Social responsibility policy 87 93 93 Social Responsibility in Tobacco Production Agronomy 59 65 67 Average percentage of leaf suppliers’ Tobacco processing 73 79 81 self-assessment scores Socio-economic factors 85 90 91 Child labour section of Social Responsibility in Tobacco Production 83 87 90 Average percentage of leaf suppliers’ self-assessment scores People and culture
Local succession coverage – 1:1:2 at business unit level Short term 58 57 51 Average percentage of business units with at least one local successor in the short term and two local successors in the long term for each senior position Long term 63 43 53 Local top teams – 70:30 at business unit level 55 51 57 Average percentage of local representation on business unit senior management teams 77 Employee opinion ‘Your Voice’ biennial Score in the Engagement category 78 – survey (2008) British American Tobacco vs Towers Watson +5 Ranked by difference from benchmark +2 – global FMCG benchmark (2008) Management trainees 48 48 47 Management grade 34 33 35 34 Management grade 35 32 32 33 Management grade 36 28 29 29 Gender diversity Management grade 37 23 24 25 Percentage of women in management grades Management grade 38 13 15 16 Management grade 39 9 8 10 Management grade 40 4 5 5 Management board 0 0 0 Non-Executive Directors 38 33 33 Lost Workday Case Incident Rate (LWCIR) 0.37 0.27 0.26 LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked Employees 22 25 18 Serious injuries and fatalities Contractors 6 4 19 Total 28 29 37
See the full Report online at www.bat.com/sustainability for all our performance data. KEY Improvement For the measures indicated , data is also available for our four regions and nine of our Minimal or no change (2 percentage points or less) largest markets at www.bat.com/sustainability/regionsandmarkets. Decline British American Tobacco Sustainability Report 2011 15
Sustainability Report 2011
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Stakeholders’ challenging questions
Here we answer some of the more challenging questions our stakeholders ask. If you have a question you would like to see answered in a future Report or have any feedback on our approach to sustainability, please email us at [email protected] or complete our feedback survey at www.bat.com/sustainability/feedback. We will donate £10 to the Global Trees Campaign for each of the first 200 responses to the survey.
You can also find our response to previous stakeholder questions in our last Sustainability Report.
Q Can scientific research paid for by tobacco companies really be impartial?
A We realise that it’s a contentious issue – the tobacco industry funding research. But we believe that we have a responsibility to contribute to the science of tobacco harm reduction. We are completely transparent about the research we fund and we expect scientists who receive grants from us to interpret and publish the findings of their work without being influenced by the fact we funded the research. The science involved in understanding the harm caused by tobacco use and developing reduced-risk products is extremely complex. So we share our research findings with the external scientific community and collaborate with others to improve the breadth and quality of our research. We have worked with many independent scientists around the world, for example, in the USA, Italy, Germany, Brazil and Russia.
Q How can you say you support regulation when it must damage your business?
A Not all regulation does damage our business. For example, we lobby for local laws to meet the same level as our International Marketing Standards as this creates a more level playing field with our competitors. With the black market in tobacco being one of our biggest competitors, any regulation to address this is in our interests and we support the World health Organisation’s Framework Convention for Tobacco Control (FCTC) draft Protocol to Eliminate Illicit Trade in Tobacco Products. We would also like to see regulation that supports the development and sale of reduced-risk products. New types of regulation we are seeing proposed today, such as ingredients bans and plain packaging, are not based on robust evidence that they are likely to reduce smoking rates. It is often not clear that the regulation will achieve its public health objectives and may result in unintended consequences, such as increasing the illegal tobacco trade or damaging the livelihoods of farmers and retailers. It is this type of regulation that we do not support. We are focusing on engaging with stakeholders to share our expertise and provide objective evidence to inform future regulation. And where regulation is proposed that may have unintended negative consequences, we propose alternative approaches that we believe will help avoid these consequences.
Q Doesn’t tobacco growing lead to a loss of biodiversity?
A Loss of biodiversity is driven by many factors including deforestation, inappropriate use of agrochemicals, soil degradation and water pollution. The type of crop grown is less important than how the farm is managed: poorly managed agriculture results in biodiversity loss. For many years, we have taken action to minimise the effects of our tobacco growing operations on biodiversity, which you can read about in the environment and supply chain sections. We support an approach to sustainable agriculture, involving multi-stakeholder partnerships, which includes achieving the right balance between biodiversity conservation and agricultural productivity. Our work with our contracted farmers also addresses the environmental impacts of other crops, not just tobacco. In 2011, we commissioned independent research by Development Delivery International (DDI) into the impacts of tobacco growing, which comprised a literature review of over 300 published sources on the subject and field research into the circumstances of tobacco and non-tobacco farmers in three contrasting tobacco growing countries. In the report, DDI stated that: “The review of the evidence comparing environmental risks of tobacco cultivation with other international agricultural commodities suggests that as far as environmental risk is concerned, tobacco growing would seem to pose no greater threat than any other commodity, especially when compared to crops like cotton and sugar cane, which have high requirements for agrochemicals and where land management practices can have significant negative impacts on ecosystems.” You can read more about this research in the supply chain section. British American Tobacco Sustainability Report 2011 16
Sustainability Report 2011
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Q Where fertile land is used to grow tobacco rather than food, doesn’t tobacco cultivation contribute directly to hunger and malnutrition?
A A lot of factors contribute to the issue of food security and it remains a major challenge for the world population. Stopping tobacco farming will not solve hunger. We estimate that less than 0.1 per cent of the world’s agricultural land is used for tobacco farming and for part of the year that land is used to grow non- tobacco crops, including food. Sustainable agriculture is a priority in addressing this issue. But this issue requires collaboration and support from national governments and the international community. Tobacco is the crop of choice for many farmers and we believe that farmers are best placed to decide the mix of crops they grow. We encourage our contracted farmers to grow other types of crops in addition to tobacco, both in the same fields at other times of the year and in other parts of their farms. We engage with our contracted farmers to improve their farming knowledge and practice. This helps not only with their tobacco cultivation, but also with their cultivation of other crops, making them more self-sufficient. The results of field research, carried out by Development Delivery International in 2011, into the circumstances of tobacco and non-tobacco farmers in three contrasting tobacco growing countries showed that tobacco cultivation is seen to be an important and reliable income source that enhances food security and has contributed to increasing farmers’ welfare. You can read more about this research in the supply chain section.
Q Is it really feasible for you to continue to recruit talented employees in the future given that you sell cigarettes?
A We will continue to focus on bringing talented people into the business, but we recognise this may be more of a challenge for us in the future. Working in the tobacco industry may not be for everyone. For many though, the attractions of a rewarding career with a major international business that values their contribution and supports their professional development will be key factors in their decision to join British American Tobacco. We believe that by continuing to be transparent about the important issues facing our industry, potential employees will respond to that commitment and seek out long and rewarding careers with our business. . British American Tobacco Sustainability Report 2011 17
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Global Reporting Initiative index
The Global Reporting Initiative (GRI) is a global, multi-stakeholder organisation that has developed guidelines for sustainability reporting. Known as the G3 Guidelines, these include a list of indicators that companies should consider reporting against. The index below lists each of the GRI G3 indicators, whether we report against it and where that information can be found. Please see the GRI materiality page, which explains how we established which indicators to report against.
Response key: Fully reported Partially reported Information not reported (not considered material to business operation) Information not reported (more relevant locally and we do not collect global data on it) Information reported in Annual Report 2011
Issue code Issue area Response
EC1 Economic value generated and distributed
EC2 Financial implications due to climate change
EC3 Defined benefit plan obligations
EC4 Significant financial assistance from government
EC5 Entry level wage ratios compared to local minimum
EC6 Local supplier policy and spend
EC7 Local hiring
EC8 Impact of infrastructure investments
EC9 Indirect economic impacts
EN1 Materials used
EN2 Use of recycled materials
EN3 Direct energy consumption
EN4 Indirect energy consumption
EN5 Energy saved
EN6 Energy-efficient products and services
EN7 Energy reduction initiatives
EN8 Water withdrawal
EN9 Water sources affected by withdrawal of water
EN10 Water recycled and reused
EN11 Land in areas of high biodiversity
EN12 Impacts on biodiversity
EN13 Habitats protected or restored
EN14 Plans for managing impacts on biodiversity
EN15 Areas with IUCN Red List species
EN16 Direct and indirect greenhouse gas emissions
EN17 Other indirect greenhouse gas emissions
EN18 Initiatives to reduce greenhouse gas emissions
EN19 Ozone-depleting substances
EN20 NOx, SOx emissions
EN21 Water discharge
EN22 Waste disposal
EN23 Significant spills
EN24 Hazardous waste British American Tobacco Sustainability Report 2011 18
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EN25 Biodiversity – water habitats
EN26 Environmental impacts of products and services
EN27 Packaging materials reclaimed
EN28 Non-compliance with environmental laws and regulations
EN29 Impact of transport
EN30 Environmental expenditures
LA1 Total workforce by employment type
LA2 Employee turnover
LA3 Benefi ts provided employees
LA4 Collective bargaining agreements
LA5 Minimum notice period
LA6 Management-worker health and safety committees
LA7 Health and safety
LA8 Serious disease programmes
LA9 Health and safety agreements with trade unions
LA10 Training
LA11 Lifelong learning
LA12 Career development reviews
LA13 Diversity
LA14 Salary ratio of men to women
HR1 Human rights – investment screening
HR2 Human rights – supplier screening
HR3 Human rights – employee training
HR4 Total number of incidents of discrimination and actions taken
HR5 Freedom of association
HR6 Child labour
HR7 Forced or compulsory labour
HR8 Human rights – security personnel
HR9 Indigenous people
SO1 Community programmes
SO2 Corruption – risk assessment
SO3 Anti-corruption policies
SO4 Response to incidents of corruption
SO5 Public policy and lobbying
SO6 Contributions to political parties
SO7 Anti-competitive behaviour
SO8 Non-compliance with laws and regulations
PR1 Health and safety of products
PR2 Health and safety of products – non-compliance
PR3 Product and service information
PR4 Product and service information – non-compliance
PR5 Customer satisfaction
PR6 Marketing communications
PR7 Marketing communications – non-compliance
PR8 Customer privacy
PR9 Products and services – non-compliance British American Tobacco Sustainability Report 2011 19
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
GRI materiality
The Global Reporting Initiative’s G3 Guidelines allow organisations to decide which indicators they report against by performing a materiality test. In 2011, we carried out a materiality test to assess whether the indicators we were reporting against were still significant for us and our stakeholders. The review consisted of three stages. Firstly, to identify relevant issues for our business and stakeholders, we reviewed minutes from our regional audit and CSR committee meetings and from stakeholder dialogue sessions held around the Group since 2009. We then mapped the issues identified in the first two stages onto a materiality matrix, by assessing their current or potential impact on the Group and their level of interest to stakeholders. Finally, we refined this mapping process through internal consultation with senior functional managers in relevant areas, such as our Head of Environment, Health & Safety and Head of Human Resources Strategy and Development. From this, we generated a reduced list of indicators to report against – from 79 down to 46. In some cases, an indicator is relevant to British American Tobacco, but we are unable to report quantitative data. Where this is the case, we say so and, where appropriate, offer a description of our activities in this area instead. Information in some of the GRIs is derived from our annual Sustainability Survey. In 2011, we reviewed which of our markets should report information through the survey, which resulted in a reduced number. As a result, some of the GRIs in our previous Reports included information from markets that we now no longer collect data from. You can read more about the process we followed in this review in the materiality section. British American Tobacco Sustainability Report 2011 20
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Economic performance
EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.
Component Comment 2011 response Direct economic value generated a) Revenues Net sales plus revenues from fi nancial investments and sales of assets £46,980m Economic value distributed b) Operating costs Payments to suppliers, non-strategic investments, royalties and facilitation payments £7,176m c) Employee wages and benefi ts Total monetary outfl ows for employees (current payments, not future commitments) £2,694m d) Payments to providers of capital All fi nancial payments made to the providers of the organisation’s capital £3,675m e) Payments to government £32,194m f) Community investments Voluntary contributions and investment of funds in the broader community (includes donations): Statutory reporting criteria £13.7m LBG criteria £13.6m e) Economic value retained (calculated Investments, equity release, etc. as economic value generated less economic value distributed) £1,227m
EC2 Financial implications and other risks and opportunities for the organisation’s activities due to climate change. Climate change is one of the greatest global environmental challenges we face today. Addressing its impacts requires governments, businesses and individuals to all take responsibility. Climate change could affect many aspects of our business, including the availability of tobacco leaf, water, energy and other raw materials. There are also potential risks from policy and regulation, these include, but are not limited to, tighter emissions reduction targets at facilities, future costs of carbon, minimum vehicle efficiency standards, increase in vehicle taxes for polluting vehicles, increase in fuel tax and mandatory carbon trading/management schemes. In addition we believe there are financial implications associated with the risks identified. In 2006, assisted by the consultancy company Environmental Resources Management (ERM), we conducted a study concentrating on key leaf operations, factories and global impact areas such as direct materials supply, business travel and freight. The headline outcome from this study was that climate change could potentially bring physical impacts affecting our companies with annual incremental costs in the range of £50 million to £100 million (annual net revenue of the Group is £14,883 million). While the long-term risks of climate change create a challenge, they also present an opportunity for us: if we consider a longer timeframe in our decision making, we can take steps today that will set us up to be more competitive in the future. We also believe there are opportunities in climate change policy and regulation, such as emissions trading, carbon market, tax credits, financial incentives and tradeable allowances. In 2011, we held a stakeholder dialogue session to explore the potential for British American Tobacco to utilise the opportunities of these economic incentives for our business. We are now considering how to incorporate the insights provided during the day into our sustainability and wider business strategies. Part of this process will include assessing the feasibility of the ideas and opportunities identified at the session. You can read more about the key insights from this dialogue, in a summary that can be downloaded from www.bat.com/reporting. Our approach is to assess and reduce our environmental impacts by increasing efficiency in our operations and making smarter choices in our supply chain. British American Tobacco Sustainability Report 2011 21
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
To reduce our carbon footprint, we address our energy use, our waste to landfill and our business travel. We are also beginning to explore opportunities for generating and purchasing renewable energy. The challenge is in identifying when, where and what renewable energy sources will become economically viable, so we also intend to research low-carbon fuel options to deploy in the interim. In 2011, we held a stakeholder dialogue session to further explore the opportunities of renewable and low-carbon energy. The participants highlighted that these areas will make an important contribution to meeting future energy needs. We are looking at renewable and low-carbon initiatives in more detail, and intend to incorporate them further into our plans to help us meet our long-term CO2e targets. You can read more about the key insights from this dialogue, in a summary that can be downloaded from www.bat.com/reporting.
EC3 Coverage of the organisation’s defined benefit plan obligations Details of our retirement benefit scheme can be found in our 2011 Annual Report.
EC4 Significant financial assistance received from government This information is more relevant locally and we do not collate global data on it.
EC5 Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation. This information is more relevant locally and we do not collate global data on it.
EC6 Policy, practices and proportion of spending on locally based suppliers at significant locations of operation We do not currently measure the proportion of spending on locally based suppliers as this would be an extremely complex calculation. We are a global business and have contracts with global suppliers, although the delivery and invoicing of goods and services often takes place locally, making it difficult to categorise spend as ‘global’ or ‘local’. Our companies use the most appropriate supplier for goods and services, taking into account numerous factors such as meeting our minimum standards, capability and capacity to supply, quality, location, price, speed of delivery and various other criteria, including local regulations and social issues.
EC7 Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation Ensuring key succession plans are in place for every senior role remains our long-term objective. This means having at least one local successor ready in the short term and two local successors identified for long-term development. We also aim to achieve a 70:30 ratio of local to expatriate senior managers in each business unit. This gives our companies a valuable balance between local knowledge and international perspective. Following our recent reorganisations, we have identified some gaps in our succession plans for a number of important roles. To tackle this, the Group launched a global recruitment drive in 2011, focusing on senior management positions. This will continue in 2012. For further details of our succession management including data on our succession coverage and local to expatriate management balance, please see the people and culture section. We are committed to providing equal opportunities to each prospective and current employee. Our Group Employment Principles state that we will not discriminate in hiring, promotion or retirement decisions on the grounds of race, colour, gender, age, social class, religion, smoking habits, sexual orientation, politics or disability. Rather, we match the requirements of the job to the ability and potential of the individual. You can read a full version of our Employment Principles at www.bat.com/principles.
EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement. This information is more relevant locally and we do not collate global data on it. British American Tobacco Sustainability Report 2011 22
Sustainability Report 2011
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EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts. Our companies commission economic impact studies on an ad hoc basis to meet local business needs. In 2011, three new studies and one update on a 2010 study were commissioned by our company in Poland. The 2011 update was made to the study known as the ‘Green Book’, which was originally commissioned by our company in Poland in 2010 and carried out by the Polish Employers Organisation on the tobacco sector within the national economy of Poland. This update showed that the tobacco industry generated 9.1 per cent of the annual tax revenue of the Polish state budget in 2009, directly secures 60,000 jobs and indirectly supports a further 500,000 for 120,000 retailers and wholesalers. Poland has the biggest number of cigarette factories in the European Union and the tobacco sector accounts for 36 per cent of the Polish surplus in foreign trade of agriculture products. The share of illegal tobacco products amounts to 15 per cent of the entire market. In 2011, a follow-up publication to the ‘Green Book’ was also commissioned by British American Tobacco Poland and carried out by the Polish Employers Organisation. This study, known as ‘The White Book’ contains an analysis of the impact some proposed tobacco control regulations may have on the Polish economy. The report analyses both the European (especially EU Tobacco Product Directive) and local regulatory trends and provides recommendations on how to shape the law and measures to avoid unintended negative consequences. It also includes recommendations for tackling the illegal tobacco trade. The Polish Employers Organisation also published another study in 2010 entitled ‘Unregistered economy in the sector of excise goods’. This study aims to assess the smuggling and illicit trade of excise goods (fuel, alcohol, tobacco) in Poland. It shows that the Polish state budget lost PLN 6 billion (£1,263 billion) in 2010 due to the illegal trade of fuel, tobacco and alcohol. It also states that one of the reasons behind the growth of this illegal trade is the fiscal policy, where there are sudden and excessive hikes in excise tax. A third study commissioned by our company in Poland in 2011, was carried out by the Republican Foundation on ‘State’s tax policy for the tobacco sector and its economic and social consequences’. The study analyses taxes imposed on the tobacco sector and the impact they might have on legal tobacco consumption, workplaces in the sector and the economy. It gives recommendations on future excise changes. In 2011, we commissioned independent research by Development Delivery International (DDI) into the impacts of tobacco growing, which comprised a literature review of over 300 published sources on the subject and field research into the circumstances of tobacco and non-tobacco farmers in three contrasting tobacco growing countries. This literature review concluded that the existing research base was both limited and lacked contextual understanding. No clear evidence to support a causal link between tobacco cultivation and poverty or that tobacco growing necessarily leads to adverse labour or employment outcomes could be found. The literature on environmental risks was equally problematic with the possible exception of deforestation, although the evidence suggested that this is site specific and can be mitigated. It also found that there is no clear evidence that tobacco growing exacerbates poverty; and that there is minimal evidence that it contributes to food insecurity. The second part of the study took the form of a practical investigation in Bangladesh, Brazil and Uganda looking at whether tobacco cultivation poses a greater hazard to the welfare of poor people in comparison with the cultivation of other available crops. The case study results show that the claims for a direct causal link between tobacco cultivation and poverty do not hold true as a generalisation. It also found that the ability of households to move in and out of tobacco cultivation does not support a picture of entrapment; that tobacco cultivation is seen to be an important and reliable income source that enhances food security and has contributed to increasing farmers’ welfare; and that suitable agronomy support can help mitigate both environmental and health risks, such as green tobacco sickness, associated with tobacco farming. DDI’s report contributes to the currently limited evidence base in this area and includes detailed on the ground research about the impact of tobacco cultivation on farmers’ livelihoods. The report says that the percentage of the literature reviewed that shows any peer-review or quality assurance process is rather limited and so restricts the evidence base that policy makers can work with. The report can be downloaded from DDI’s website at www.ddinternational.org.uk. British American Tobacco Sustainability Report 2011 23
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Environmental performance
We track Group efficiency performance using the normalised output figure ‘cigarettes equivalent produced’. This includes manufacturing of tobacco products and materials and green leaf threshing.
EN1 Materials used by weight or volume
2010 2011 metric metric tonnes tonnes % change Tobacco leaf (see note) 859,974 909,496 5.76% Direct materials (cigarette paper, wrapping, packaging, filters, glues, inks, plug wraps) 433,855 442,893 2.08% Indirect materials (parts, cleaning materials, etc) 32,604 41,951 28.67% Total 1,326,433 1,394,340 5.12% Per million cigarettes equivalent produced 1.23 1.17 -4.88%
Note: As leaf tonnage includes both unprocessed tonnage entering processing and processed leaf entering factories, leaf tonnage measured for environmental reporting purposes is typically higher than tonnage used to manufacture product. The Group’s total use of materials increased in 2011 by 67,908 tonnes (5.12 per cent) driven primarily by the inclusion of data from our 2010 acquisition in Indonesia.
EN2 Percentage of materials used that are recycled input materials In 2011, the percentage of materials used which were reported as from recycled input materials fell from 0.21 per cent in 2010 to 0.11 per cent, a decrease of 47.6 per cent. These are mostly reconstituted tobacco products, made from by-products of the manufacturing process. The decrease was primarily the result of a site in the UK no longer using 418 tonnes recycled packaging materials and a site in Serbia no longer using 548 tonnes reconstituted materials.
EN3 Direct energy consumption by primary energy source
2010 2011 gigajoules gigajoules % change Sites and offices 3,960,839* 3,791,884 -4.27% Fleet and other vehicles 1,865,089 1,862,629 -0.13% Total 5,825,928 5,654,513 -2.94% Per million cigarettes equivalent produced 5.39 4.75 -11.87%
* The previously reported figure for sites and offices in 2010 of 7,997,668 has been restated due to the fact that it also included intermediate energy (e.g. electricity for lighting and energy from biomass) that should not be part of the scope for this GRI. Direct energy includes the primary energy used (e.g. natural gas for heating and fuel for our own or leased fleet) by Group companies (WBCSD scope 1). The decrease of 11.87 per cent was primarily driven by site rationalisation.
EN4 Indirect energy consumption by primary source
2010 2011 gigajoules gigajoules % change Total 3,253,057* 3,358,143 3.23% Per million cigarettes equivalent produced 3.01 2.82 -6.31%
* The previously reported figure for 2010 of 8,561,792 has been restated due to the fact that it also included direct energy that should not be part of the scope for this GRI. Indirect energy is the energy required to produce and deliver purchased electricity. As it is a function of many components from each location around the world, which are dependent upon the individual energy efficiency of local providers, the change is difficult to analyse at a Group level. British American Tobacco Sustainability Report 2011 24
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
EN5 Energy saved due to conservation and efficiency improvements We do not report on this indicator as we do not believe it is relevant to our business.
EN6 Initiatives to provide energy-efficient or renewable energy-based products and services, and reductions in energy requirements as a result of these initiatives We do not report on this indicator as we do not believe it is relevant to our business.
EN7 Initiatives to reduce indirect energy consumption and reductions achieved In line with management measures such as restrictions on business travel, we are expanding the use of communications solutions, such as video teleconferencing facilities, which, over time, could lead to further reductions in business travel. You can read examples of some of our other initiatives in the environment and supply chain section.
EN8 Total water withdrawal by source
2010 2011 cubic metres cubic metres % change Total 4,481,075 4,621,147 3.13% Per million cigarettes equivalent produced 4.15 3.89 -6.27%
Total water use in 2011 decreased to 3.89 million cubic metres. Performance against the normalised output measure, cigarettes equivalent produced, has also improved by 6.3 per cent. This was largely due to an increase in production volumes resulting from the inclusion of our 2010 acquisition in Indonesia. Absolute water use increased by 3.1 per cent.
EN9 Water sources significantly affected by withdrawal of water This information is more relevant locally and we do not collate global data on it.
EN10 Percentage and total volume of water recycled and reused
2010 2011 cubic metres cubic metres Total 445,110 341,823 Per million cigarettes equivalent produced 9.93% 7.4%
EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas We do not report on this indicator as we do not believe it is relevant to our business.
EN12 Description of significant impacts of activities, products and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas Working in partnership with three NGOs – Fauna & Flora International, The Tropical Biology Association and the Earthwatch Institute – in the British American Tobacco Biodiversity Partnership we continue to develop our management of biodiversity issues, measuring our impacts, setting targets and reporting on progress. These include the following 2012 targets: ■ Complete the next round of biodiversity risk and opportunity assessments, using the updated tool, in all our leaf growing operations by end 2014; ■ Conduct research to verify the apparent return of wildlife to trial areas of re-established natural forest in Sri Lanka by 2013; and ■ Aim for zero use of natural forest for directly contracted farmers’ curing fuels by end 2015. In 2010, biodiversity risk and opportunity assessments were completed in all our tobacco leaf growing operations. These assessments help us to identify, assess and address risks arising from our impacts and dependencies on biodiversity and ecosystems in and around our leaf growing areas. By the end of 2011, initiatives had been put in place to address the issues identified. British American Tobacco Sustainability Report 2011 25
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
We make sure that the assessments and the actions taken encourage cooperation with local stakeholders and don’t just focus on tobacco. Collaboration with the people living and working in the agricultural landscapes or organisations like our Biodiversity Partnership or local NGOs is often required for these initiatives. Examples of these initiatives are replanting trees to address water supply issues in a watershed catchment of the Indonesian island of Lombok and a Ugandan project to restore and manage forest and freshwater health. You can read a case study on the Indonesia project in the environment section of this Report. In 2011, we revised the biodiversity risk and opportunity assessment tool with our Biodiversity Partnership. The revised version of the tool should give us a more consistent approach to the assessments across the globe. This will be rolled out to our tobacco growing operations in 2012 and the next round of assessments will be completed by the end of 2014. We also plan to share the assessment tool with other tobacco and agricultural businesses to encourage them to adopt a similar approach. As a business we focus on addressing our own biodiversity impacts and dependencies and those of our contracted farmers. But through our Biodiversity Partnership, we also address challenging biodiversity issues through projects with external stakeholders in the wider agricultural landscapes and ecosystems on which we depend. You can read about these projects in detail on the Partnership’s website: www.batbiodiversity.org. Our Group Biodiversity Statement outlines our aim to embed biodiversity conservation across our businesses. For more information on the Biodiversity Statement, please see EN14.
EN13 Habitats protected or restored We do not report on this indicator as we do not believe it is relevant to our business.
EN14 Strategies, current actions and future plans for managing impacts on biodiversity Our Biodiversity Statement outlines the Group’s position. It includes a requirement for our companies to undertake biodiversity risk assessments to help incorporate biodiversity impacts management into business planning. The following commitments are included in the Statement, which is on the Biodiversity Partnership website www.batbiodiversity.org and at www.bat.com/principles. ■ We will always ensure that our business is in compliance with all international, national and local biodiversity regulations as a minimum requirement; ■ In all geographical areas of our own business operations, and for potential areas of future operation, we commit to assessing our impacts, i.e. we will identify areas of high biodiversity value and understand our impacts on ecosystem services; ■ These assessments and stakeholder engagements will lead to action plans to minimise, mitigate or offset our impacts, with effective monitoring mechanisms to ensure such action plans are implemented and progress is reported; and ■ We will also take steps to share information with suppliers, assisting them in understanding and managing their impacts on biodiversity, hence minimising our impact throughout the supply chain, e.g. in the sourcing of leaf and packaging materials. Working with the Biodiversity Partnership has helped us to develop specific biodiversity tools and generate greater awareness of the issues within the Group and our supply chain. In 2011, we began our third five-year term of the Partnership, with a commitment of £1.5 million per year. There will be fewer but larger projects focusing on biodiversity in agricultural landscapes and the ecosystems on which they depend, specifically: ■ Reducing unsustainable use of forests and restoring natural forests; ■ Enhancing freshwater ecosystems, through improved vegetation cover and water management; and ■ Promoting agricultural practices that enhance soil health and biodiversity. You can read about current projects in detail on the Partnership’s website: www.batbiodiversity.org.
EN15 Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations by level of extinction risk We do not report on this indicator as we do not believe it is relevant to our business. British American Tobacco Sustainability Report 2011 26
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
EN16 Total direct and indirect greenhouse gas emissions by weight
2010 2011 metric metric tonnes tonnes % change
Direct CO2 WBCSD 1 371,610 355,410 -4.36%
Indirect CO2 WBCSD 2 371,989 373,680 0.45%
Indirect CO2 WBCSD 3 177,805 187,436 5.42% Total 921,404 916,526 -0.53% Per million cigarettes equivalent produced 0.85 0.82 -3.53%
We report all greenhouse gases in CO2 equivalent. The source is primarily energy used and waste to landfill which produces methane. We do not include data on emissions of CH4, N2O, HFCs, PFCs and SF6 as they are estimated to be insignificant. The reduction was primarily due to various energy reduction initiatives.
EN17 Other relevant indirect greenhouse gas emissions by weight
2010 2011 metric metric tonnes tonnes % change Total 1,422,455 1,607,965 Per tonne of leaf cured 5.4 5.56 3.70%
We purchase tobacco from farmers and dealers. The curing of some types of tobacco by farmers using wood fuel results in greenhouse gas emissions. If the air curing method used by some farmers is also included, then the 2011 figure would be 4.3 metric tonnes per tonne of tobacco.
EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved We do not report on this indicator as we do not believe it is relevant to our business.
EN19 Emissions of ozone-depleting substances by weight
We do not report this data as emissions of CH4, N2O, HFCs, PFCs and SF6 are estimated to be insignificant, currently less than 0.002 per cent.
EN20 NOx, SOx and other significant air emissions by type and weight We do not currently report other greenhouse gas data, such as NOx and SOx emissions, as this is not collected at a global level.
EN21 Total water discharge by quality and destination
2010 2011 cubic metres cubic metres % change Total water withdrawn 4,481,075 4,621,147 3.13% Total waste water discharged by Group companies 2,498,319 2,389,108 -4.37% Per million cigarettes equivalent produced 2.31 2.01 -12.99% Process and sewage waste water 2,498,319 2,388,631 -4.39% Total water consumption 1,982,756 2,232,039 12.57%
The 2011 reductions were largely the result of an increase in production volumes resulting from the inclusion of our 2010 acquisition in Indonesia. Absolute water use increased by 3.1 per cent. Within our industry, unplanned discharges of water are unusual. We track reports of unplanned water discharge by our companies and will report on any incidents where there has been a breach of local regulation. British American Tobacco Sustainability Report 2011 27
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
EN22 Total weight of waste by type and disposal method
2010 2011 metric metric tonnes tonnes % change Non-hazardous waste sent to landfills 19,087 19,993 4.75% Non-hazardous waste recycled 112,994 118,845 5.18% Non-hazardous waste incinerated 479 296 -38.20% Other non-hazardous waste 159 46 -71.07% Hazardous waste sent to approved landfills 63 194 207.94% Hazardous waste recycled 1,839 1,678 -8.75% Hazardous waste incinerated 46 13 -71.74% Other hazardous waste 72 88 22.22% Total 134,741 141,152 4.76% Per million cigarettes equivalent produced 0.125 0.119 -5.12%
The 2011 increase in waste in absolute terms was largely driven by higher waste being generated at a small number of sites due to specific reasons such as production waste rising as a result of an increase in production volumes, salvage waste from a warehouse fire and transferring production volumes to a site with limited recycling facilities. We approach waste as another raw material and we recycle or reuse it within our business or that of others. We aim to reduce our waste to landfill towards our 2012 goal of 0.022 tonnes per million cigarettes equivalent, 12 per cent lower than our 2007 baseline, which was met ahead of schedule in 2011 with a decrease to 0.017 tonnes largely due to efficiency improvements alongside an increase in production volume resulting from the inclusion of our 2010 acquisition in Indonesia.
EN23 Total number and volume of significant spills We do not report on this indicator as we do not believe it is relevant to our business.
EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally We do not report on this indicator as we do not believe it is relevant to our business.
EN25 Identity, size, protected status and biodiversity value of water bodies and related habitats significantly affected by the reporting organisation’s discharges of water and runoff We do not report on this indicator as we do not believe it is relevant to our business.
EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation We do not report on this indicator as we do not believe it is relevant to our business.
EN27 Percentage of products sold and their packaging materials that are reclaimed by category We do not report on this indicator as we do not believe it is relevant to our business.
EN28 Monetary value of significant fines and total number of non-monetary sanctions for non- compliance with environmental laws and regulations
2010 £ 2011 £ Total fi nes 97 0 No of non-compliance incidences 1 0
In 2011, there were no reported fines for environmental non-compliance. British American Tobacco Sustainability Report 2011 28
Sustainability Report 2011
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EN29 Significant environmental impacts of transporting products and other goods and materials used for the organisation’s operations, and transporting members of the workforce We do not report on this indicator as we do not believe it is relevant to our business.
EN30 Total environmental protection expenditures and investments by type
2010 £ 2011 £ % change Capital improvements 14,267,590 18,130,607 27.08% Salaries and other operating expenses 18,493,323 20,731,190 12.10% Fines, penalties and surcharges 97 0 -100.00% Total 32,761,010 38,861,797 18.62% Per million cigarettes equivalent produced 30.34 32.68 7.72%
Our global reporting systems are integrated for Environmental, Occupational Health and Safety related expenditures. 2011 capital expenditure increase was primarily driven by instigating contingency plans following the Japan earthquake. British American Tobacco Sustainability Report 2011 29
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Labour practices
LA1 Total workforce by employment type, employment contract and region This information is more relevant locally and we do not collate global data on it. The total number of people employed by Group subsidiaries at the end of 2011 was 56,265.
LA2 Total number and rate of employee turnover by age group, gender and region We do not collate global data on all employment changes. Managerial data are as follows:
Total Voluntary New hires turnover turnover Americas 122 323 222 Asia-Pacific 297 436 301 Eastern Europe, Middle East and Africa 196 485 236 Western Europe 174 374 180 UK 72 108 52 Total 861 1,726 991
LA3 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations We do not collate this information globally and do not believe it is a significant issue for the Group. Our Employment Principles make clear our strategy of ensuring that our reward levels are highly competitive within the local area and we are confident that through regular external benchmarking with comparator organisations, we remain a generous benefit provider. You can download a copy of our Employment Principles at www.bat.com/principles.
LA4 Percentage of employees covered by collective bargaining agreements This information is more relevant locally and we do not collate global data on it.
LA5 Minimum notice period(s) regarding significant operational changes, including whether it is specified in collective agreements Our Employment Principles make clear that, where restructuring is necessary, we are committed to doing so in a responsible manner. Where such situations do occur, our companies adopt responsible local approaches and procedures to address each instance, including severance pay and any other measures as may be appropriate to the situation and location, including outplacement support to help displaced employees to find alternative employment. You can download a copy of our Employment Principles at www.bat.com/principles.
Health and safety
LA6 Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programmes This information is more relevant locally and we do not collate global data on it. British American Tobacco Sustainability Report 2011 30
Sustainability Report 2011
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LA7 Rates of injury, occupational diseases, lost days, absenteeism and total number of work-related fatalities
2010 2011 Lost work day cases through injury to employees, 1 shift or more (LWC) 212 204 Lost work day case incidence rate (LWCIR) (Number of lost work day cases x 200,000 divided by total hours worked by all employees) 0.27 0.26 Serious injuries to employees 25 18 Of which, accidents involving the fatality of an employee 3 1 Of which, assault or murder of an employee 0 1 Serious injuries to contractors 4 19 Of which, accidents involving the fatality of a contractor 1 6 Of which, assault or murder of a contractor 0 3 Total cases 29 37
It is a matter of great concern to us that there were 37 serious injuries in 2011, involving 18 employees and 19 contractors across 21 countries. Seven of these 37 injuries were fatalities (one employee and six contractors), compared to four in 2010 (three employees and one contractor). Four were the result of assaults, two were from falls from height and one was the result of a road traffic accident. We greatly regret this loss of life and we systematically review every major incident to identify any ways in which we can prevent a recurrence.
LA8 Education, training, counselling, prevention and risk-control programmes in place to assist workforce members, their families, or community members regarding serious diseases We believe this information is more relevant locally and we do not collate global data on it. Information on our Significant Endemic Diseases programme can be found at www.bat.com/ehs.
LA9 Health and safety topics covered in formal agreements with trade unions We do not report on this indicator as we do not believe it is relevant to our business.
LA10 Average hours of training per year per employee by employee category We believe this information is more relevant locally and we do not collate global data on it. We do not limit learning to ‘off-the-job’ education activities and we provide comprehensive global frameworks for development planning as well as performance management. Our global learning strategy is to build capabilities through a focus on coaching and by enhancing our ability to connect, collaborate and share. We place considerable emphasis on creating a coaching culture throughout the organisation, as we believe that training and development should take place as close as possible to the work being done and that coaching is the right way to develop leaders at all levels, to share knowledge and to build better business solutions. We therefore do not foresee training hours becoming the right measure to determine if we are developing our people. In recent years, we have focused on simplifying and enhancing how we manage our learning and development practices, in particular to give our employees access to the leadership, managerial and functional training programmes they need to strengthen their core capabilities and progress within our business. A range of training programmes has been made accessible to all our companies and in 2011 we launched a new online learning and development system. For the first time, this provides our people with access to a suite of e-learning applications and gives our companies a clearer view of the learning and capability gaps in their operations. Our Group Employment Principles specifically cover learning and development and the provision of opportunities, and also emphasise the importance of personal responsibility for growth. You can download a copy of our Employment Principles at www.bat.com/principles. British American Tobacco Sustainability Report 2011 31
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LA11 Programmes for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings We do not report on this indicator as we do not believe it is relevant to our business.
LA12 Percentage of employees receiving regular performance and career development reviews All our management employees around the world have access to our electronic performance management and career development systems. For non-management employees, processes vary in line with local practice. These systems enable objectives to be set for each employee for the forthcoming year and for achievement against those objectives to be recorded. The systems also contain development and career planning information which feeds through to our training and career management systems. All management employees are expected to complete the performance appraisal process. The approach to performance and career development for employees in our companies is managed locally. In 2011, we set out to simplify our performance management system in response to feedback from many employees. The aim was to better support employees’ regular performance reviews, helping them track their performance against individual goals and their contribution to the Group’s values and ambitions. The revised system is being used throughout the Group from January 2012. It is simpler to use and encourages employees and managers to think about performance management throughout the year, not only at the start and end of the annual cycle. Using a streamlined and more logical approach to objective setting and assessment, it will help differentiate more clearly between those who are falling short, those who are meeting their goals and those whose performance is genuinely outstanding. We have also focused on strengthening our use of constructive feedback, the quality of development materials and making opportunities available to all our people.
LA13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity
Male Female % by level 2010 2011 2010 2011 Management trainees 52% 53% 48% 47% Management grade 34 65% 66% 35% 34% Management grade 35 68% 67% 32% 33% Management grade 36 71% 71% 29% 29% Management grade 37 76% 75% 24% 25% Management grade 38 85% 84% 15% 16% Management grade 39 92% 90% 8% 10% Management grade 40 95% 95% 5% 5% Management Board 100% 100% 0% 0% Non-Executive Directors 67% 67% 33% 33%
At 31 December 2011, the Management Board had 15 members and the Board of British American Tobacco p.l.c. had 12 members, three Executive Directors and nine Non-Executive Directors, including the Chairman.
LA14 Ratio of basic salary of men to women by employee category We believe this information is more relevant locally and we do not collate global data on it. British American Tobacco Sustainability Report 2011 32
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Human rights
Strategy and management
HR1 Percentage and total number of significant investment agreements that include human rights clauses or that underwent human rights screening We do not report on this indicator as we do not believe it is relevant to our business.
HR2 Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken We do not collate this data as a global percentage. All our tobacco leaf suppliers and our major suppliers of other raw materials are subject to detailed performance assessment, including on human rights criteria. Our Social Responsibility in Tobacco Production (SRTP) programme, which applies to all our tobacco leaf suppliers, includes an assessment of the working environment, safety standards, medical facilities and community support services. Our leaf managers and technicians also help all our contracted farmers to protect the health of their farm workers, for example by using agrochemicals safely. For more about SRTP, including suppliers’ review scores, as well as details of how we manage human rights in the supply chain please see the supply chain section. Our Business Enabler Survey Tool (BEST) establishes the standards we expect from our suppliers of raw materials other than leaf. It assesses suppliers’ performance against 108 criteria and suppliers must achieve an overall grading of Approved, Qualified or Certified in order to be retained. The criteria include human rights elements such as occupational health and safety, working conditions, employee benefits, child labour, forced, bonded and slave labour, discrimination, collective bargaining and freedom to join unions, records of harassment, abuse or bullying and the history of any strikes. For more about BEST, see the supply chain section of this Report.
HR3 Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained This information is more relevant at a local level and we do not collate global data on it.
HR4 Total number of incidents of discrimination and actions taken We do not currently collate this information for the Group. However, our Group Employment Principles make clear that we are against all forms of unfair discrimination. We are dedicated to providing equal opportunity to each employee and will not discriminate when making decisions on hiring, promotion or retirement on the grounds of employees’ or candidates’ race, colour, gender, age, social class, religion, smoking habits, sexual orientation, politics or disability. Our approach is based on the inherent requirements of the role to be performed. A fundamental aim is to ensure a diverse and representative workforce profile through equal employment opportunities. Our companies also observe national legislation relevant to positive discrimination. Our companies’ performance against our Employment Principles is monitored through risk management processes and internal audit controls and committees. You can download a copy of our Employment Principles at www.bat.com/principles.
HR5 Operations identified in which the right to exercise freedom of association or collective bargaining may be at significant risk and actions taken to support these rights. This information is more relevant locally and we do not collate global data on it.
HR6 Operations identified as having significant risk for incidents of child labour and measures taken to contribute to the elimination of child labour As set out in our Child Labour Policy and Group Employment Principles, we are committed to the principles of protecting children from child labour exploitation. You can download copies of our Child Labour Policy and Group Employment Principles at www.bat.com/principles. Child labour continues to be a key human rights issue for any industry that incorporates an agricultural supply chain, and tobacco growing is no exception. We work to eliminate this in our tobacco leaf supply chain through our Social Responsibility in Tobacco Production (SRTP) programme, which addresses the social and environmental issues associated with tobacco growing and processing, including child labour, and reaches more than 200,000 farmers who supply all the leaf we buy. British American Tobacco Sustainability Report 2011 33
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SRTP includes a process of reviewing and scoring leaf suppliers’ operations. There is more about SRTP, including suppliers’ review scores on addressing child labour, in the supply chain section of this Report. We also helped to establish the Eliminating Child Labour in Tobacco Growing (ECLT) Foundation, along with the International Tobacco Growers’ Association and the trades unions in our sector. We continue actively to support its work. The Foundation supports and funds local projects, researches child labour in tobacco agriculture and establishes and shares best practice. There is more about the ECLT Foundation at its website www.eclt.org and at www.bat.com/eliminatingchildlabour. In addition some of our markets carry out corporate social investment projects focusing on eliminating child labour. For example our company in Mexico supports the Blossom Programme which provides education, nutrition, recreation and health to field workers’ children. Management of human rights within the Group, including child labour, is monitored through risk management processes and internal audit controls and committees. Our companies are required to assess risks to human rights both within their operations and their supply chains, and their performance in addressing these is reviewed by our audit and CSR committees.
HR7 Operations identified as having significant risk for incidents of forced or compulsory labour and measures taken to contribute to the elimination of forced or compulsory labour Our Group Employment Principles make it clear that we will not tolerate any form of forced or compulsory labour within our companies’ operations. Our companies’ performance against our Employment Principles is monitored through risk management processes and internal audit controls and committees. You can download a copy of our Employment Principles at www.bat.com/principles.
HR8 Percentage of security personnel trained in the organisation’s policies or procedures concerning aspects of human rights that are relevant to operations We do not report on this indicator as we do not believe it is relevant to our business.
HR9 Total number of incidents of violations involving rights of indigenous people and actions taken This information is more relevant locally and we do not collate global data on it. British American Tobacco Sustainability Report 2011 34
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Society
Community
SO1 Nature, scope and effectiveness of any programmes and practices that assess and manage the impacts of operations on communities, including entering, operating and exiting This information is more relevant locally and we do not collate global data on it. Our approach to restructuring is covered in the people and culture section of our Sustainability Report.
SO2 Percentage and total number of business units analysed for risks related to corruption 100 per cent of all business units are analysed for risks related to corruption. It is a fundamental Group policy, set out in our Standards of Business Conduct (available at www.bat.com/corporategovernance), that all Group companies and all employees observe and comply with the laws and regulations applicable to them and that they act with high standards of business integrity. The Standards include specific provisions on bribery and corruption which prohibit the giving or taking of bribes to or from any person, and any other activity which contravenes any applicable anti-corruption measures, including those prohibiting corrupt practices abroad. They also provide that Group companies and employees are prohibited from making facilitation payments, save in exceptional circumstances where necessary to protect the health, safety or liberty of any employee. The Standards include specific provisions on gifts and business entertainment, and provide employees with guidance on what they may and may not offer or accept in this regard. Gifts and business entertainment that are modest, appropriate and consistent with reasonable business practice are permissible without prior approval. Otherwise, they may only be offered or accepted with prior management approval, and must be notified to the Company Secretary or legal counsel of the company concerned and recorded in its books. Additionally, certain types of gift and entertainment are specified as unacceptable (essentially, where they would represent a bribe or otherwise involve illegality). We are confident that our policy meets the standards of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Our Standards of Business Conduct have been in place for many years. They were updated with effect from 1 September 2011 in order to ensure that they remain at the forefront of best business practice and to ensure alignment with the provisions of the UK Bribery Act 2010, which came into effect on 1 July 2011, and associated guidance. The Standards apply to all Group companies and all employees, including senior management and all directors of Group companies, and each company is required formally to adopt them or local policies embodying them. Senior managers in the Group must report on annual compliance with the Standards with regard to all employees in the company or department for which they are responsible. All business units within the Group are covered in this way. Continuous information on compliance with the Standards through the year is gathered at a global level and reported to the regional audit and CSR committees and quarterly to the Board Audit Committee. The Board CSR Committee also reviews Group reputation- related issues arising from non-compliance with the Standards.
SO3 Percentage of employees trained in organisation’s anti-corruption policies and procedures Every Group company and every employee worldwide is expected to live up to our Standards of Business Conduct and guidance on them, including the specific guidance on bribery and corruption, which is provided across the Group through training and awareness programmes and a dedicated site on our intranet. An online training course on the Standards is available to UK Head Office staff and new joiners, and has also been made available to our businesses overseas for incorporation, where appropriate, into their training programmes. As part of the annual confirmation of compliance with the Standards of Business Conduct, senior managers are required to confirm that the Standards have been made available to all staff reporting to them.
SO4 Actions taken in response to incidents of corruption In the year to 31 December 2011, 28 instances of suspected improper business conduct contrary to our Standards of Business Conduct (excluding employee fraud and theft against Group companies) were reported to the Board Audit Committee (2010: 38), including 19 brought to attention through ‘whistleblowing’ reports from employees, ex-employees, third parties or unknown individuals reporting anonymously (2010: 33). British American Tobacco Sustainability Report 2011 35
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11 were established as breaches and appropriate action was taken (2010: 13). In 14 cases, an investigation found no wrongdoing (2010: 22). In three cases, the investigation continued at the year-end (2010: three). No instances involved sums or matters considered material to the Group. The appropriate action will vary from case to case but will include, depending on the circumstances, dismissal or disciplinary action. Where criminal activity is believed to be involved, the matter will generally be reported to the relevant authorities. Where any weakness in internal controls is identified, appropriate measures are taken to strengthen them.
SO5 Public policy positions and participation in public policy development and lobbying We are committed to responsible and transparent engagement with governments. This commitment is embodied in our Statement of Business Principles, which is publicly available at www.bat.com/principles. We believe that views advocated in policy formation should be communicated transparently. So the view and positions we advocate are reflected on www.bat.com. We support best practice principles on the development of regulation, including the EU Communication on Smart Regulation and the guidelines of the Organisation for Economic Cooperation and Development and the UK Better Regulation Executive. In the course of normal business, our companies consult widely with officials in health, revenue, customs, agriculture and other areas. Regulatory engagement by our companies is monitored by our regional audit and CSR committees. In 2011, we continued to engage with our stakeholders on regulatory issues at global and local levels. Our regulatory centre of expertise coordinates this activity, developing global positions and helping our companies improve their abilities to advocate our positions. We also worked with independent third parties to build an objective evidence base that underpins our positions. You can read details of our engagement focus in 2011 in the marketplace section of this Report, including our views on plain packaging, alternative crops, ingredients bans, pricing and tax measures and retail display bans.
SO6 Total value of financial and in-kind contributions to political parties, politicians and related institutions by country Our Standards of Business Conduct set out our policy on political donations. Contributions from our companies to political parties and organisations, their officers, elected politicians and candidates for elective office are generally not encouraged, and may only be made subject to specific controls. Contributions are not permitted to be made in order to achieve any improper business or other advantage or to influence any decision by a public official to the advantage of the Group or any Group company. In addition, they must not be intended personally to benefit the recipient or his or her family, friends, associates or acquaintances and must be permissible under all applicable laws. Any donation must be authorised by the board of the company making it, must be fully documented in the company’s books and, if required by local law, must be put on the public record. Details must be notified in writing each year to the Company Secretary of British American Tobacco p.l.c. and these are monitored by the Board Audit Committee. Donations to political organisations and political expenditure within the European Union may only be made out of funds previously authorised by shareholders at a General Meeting. We collate information centrally on contributions to political parties and to individual politicians that are made for the benefit of their party. Payments in 2011 were as follows:
Parties £ equivalent Australia: British American Tobacco Australia Ltd 63,310 Jamaica: Carreras Ltd 145,794 Total 209,104
SO7 Total number of legal actions for anti-competitive behaviour, anti-trust and monopoly practices and their outcomes For 2011, our companies reported the following matters: ■ In Argentina, proceedings brought by a private individual against public officers of the Ministry of Economy and representatives of the tobacco industry, including our company, which alleged wrongful conduct on the basis of their entry into a revenue collection agreement, were dismissed at trial. The dismissal was upheld on appeal. British American Tobacco Sustainability Report 2011 36
Sustainability Report 2011
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■ Our Brazilian subsidiary, Souza Cruz, continues to defend an administrative proceeding brought by the Brazilian competition authority relating to merchandising and product display practices; a case brought by a competitor which alleges breach of a previous administrative order prohibiting exclusive sales agreements with retailers; and an administrative proceeding brought by the public prosecutor, based on a complaint by a third party, alleging breach of an order prohibiting exclusivity of sales. ■ Our subsidiary, Imperial Tobacco Canada, continues to contest a claim for C$135 million (£85.12 million) by a wholesaler which includes allegations of anti-competitive behaviour in connection with the company’s move to direct delivery to stores and introduction of new terms of trade with wholesalers. ■ In Chile, our company defended an action brought by the National Economic Prosecutor’s Office, and supported by a competitor, alleging a breach of an order made in previous anti-trust proceedings. Following trial, the court made a partial finding in respect of some of the alleged activity and the company was ordered to adjust its practices accordingly. No penalty was imposed. ■ The Competition Office in Hungary has commenced an investigation in relation to certain short-term exclusivity agreements entered into by our company there with a number of retailers. Our company does not consider its conduct to have been unlawful, but is cooperating in the investigation. ■ In Romania, an investigation by the Competition Council of the Romanian cigarette market is continuing, based on their suspicion of breach of national and EU competition law by various market participants, including our local subsidiary. ■ In South Africa, our company had been defending an appeal by a competitor against the Competition Commission’s ruling in our company’s favour, rejecting allegations that it had abused a dominant market position. In 2011, the competitor’s appeal was abandoned. ■ In the USA, a class action alleging price-fixing against certain tobacco companies including British American Tobacco (Investments) Limited is continuing in the Kansas State Court.
SO8 Monetary value of significant fines and total number of non-monetary sanctions for non- compliance with laws and regulations See also EN28, SO7, PR4 and PR7. In 2011, the following matters were reported by our companies: ■ Our company in Kenya is disputing the amount of an excise payment of KES594,076,450 (£4,169,986) demanded by the revenue authority on the basis of a differing interpretation of the applicable regulations. The matter remains pending resolution. ■ In Turkey, following a successful claim by the Labour Directorate, our company’s agreement with a sub-contractor relating to the sub-contracting of services was found to be in breach of labour rules. The agreement was declared null and void and the relevant employees were transferred to our company. Our company in Turkey also continued to contest a fine of £10.8 million imposed by the customs authority for alleged non-payment of Tobacco Fund Tax and VAT, and was successful in having the fine reduced to £2.7 million. ■ In Ukraine, in connection with the importation of non-tobacco materials, our company successfully defended a claim by the customs authorities for additional customs duty and a fine for non-compliance with customs regulations relating to the identification of country of origin. The decision is being appealed. British American Tobacco Sustainability Report 2011 37
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
Product responsibility
Customer health and safety
PR1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures All tobacco products pose real and serious risks to health. Risk awareness among consumers is constantly reinforced by health warnings on primary packaging mandated by the majority of governments. We believe that a ‘one product fits all’ approach cannot achieve tobacco harm reduction, so our approach is to make available a range of reduced-risk tobacco and nicotine products for adult consumers. For more information, please see the harm reduction section of this Report. In the context of possible product deterioration or contamination, our companies follow a common approach to assuring product integrity. This seeks to minimise the risk of product integrity issues arising, through risk assessment and controls across our product design and supply chain, and to ensure the appropriate response capability should a product integrity issue arise through incidents within or beyond our control.
PR2 Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services, by type of outcomes Save as reported elsewhere in these GRIs, no instances were reported by our companies in 2011.
PR3 Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements Where health warnings on packaging are not required by local laws or regulations, our Health Warnings on Cigarette Packaging policy requires Group companies to comply with any voluntary codes in force or, in the absence of these, to follow Group guidelines in placing an appropriate health warning on primary packaging.
PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling, by type of outcomes See also PR6 for details of our voluntary International Tobacco Products Marketing Standards. In 2011, the following matters were reported by our companies: ■ In Brazil, Souza Cruz received a fine of BRL3,068.21 (£1,144) pursuant to an infraction notice issued by the standards authority in relation to samples of a ‘roll your own’ tobacco product, claiming that the average product weight was less than acceptable. Souza Cruz is disputing nine infraction notices issued by the health authority for alleged breach of packaging laws based on allegations that the packaging differs from that previously notified and/or that it contains a prohibited advertising message. In eight of these cases, the health authority’s decision is pending and no fines have been imposed to date and, in the remaining case, the health authority’s decision to issue a fixed penalty of BRL160,000 (£59,638) is under appeal. Souza Cruz is also disputing an infraction notice alleging that consumers were not sufficiently informed of increases in tar, nicotine and carbon monoxide levels. In a further case, Souza Cruz successfully resisted an infraction notice issued by the health authority claiming that insufficient space was devoted to pictorial health warnings. ■ Our company in Costa Rica was prosecuted (together with another tobacco company) for using language other than Spanish in terms included on its product packaging. The company successfully defended the charge, but was found liable for providing misleading information by its use of the term ‘lights’. The company’s challenge to the decision was rejected and its appeal is pending. In the meantime a fine of US$4,000 (£2,494) has been imposed. ■ In Ukraine, following an audit of our factory, the Legal Metrology Authority issued 13 orders preventing the sale of five brand variations. Our company was successful in setting aside 12 of the 13 orders and was able to resume sales of all products concerned. It is seeking to invalidate all 13 orders, claiming that the method used by the Authority to collect samples unlawful. British American Tobacco Sustainability Report 2011 38
Sustainability Report 2011
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PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction For several years, our companies have commissioned an independent customer satisfaction survey among key distribution and retail partners, providing feedback on service quality and other aspects of our business relationship. In 2010, the survey was enhanced to include new methodologies, providing greater focus and allowing it to be coordinated globally by an independent research agency. The survey covers several of our largest markets. In each market, it benchmarks British American Tobacco against our major local tobacco competitor and the Fast Moving Consumer Goods (FMCG) supplier considered the best locally in serving the same retailers. Quality of our service is covered across key areas including: ■ Trade marketing support; ■ Product distribution; ■ Products; ■ Overall quality; and ■ Customer engagement. The most recent results for 2010 rate British American Tobacco as the best company overall in 16 of 31 markets surveyed. We were also identified as the best overall company on trade marketing support in 17 of 31 markets surveyed. Full results can be viewed at www.bat.com. In addition to the global survey, our companies are also encouraged to adopt consumer feedback mechanisms such as call centres, websites and mail response suited to the local environment.
PR6 Programmes for adherence to laws, standards and voluntary codes related to marketing communications, including advertising, promotion and sponsorship In 2001, we collaborated with other international tobacco companies to establish a set of voluntary International Tobacco Products Marketing Standards (IMS) and in 2007 we updated them, in response to stakeholder dialogue and without the collaboration of the rest of the industry. Our updated Standards include, for example, further procedures for adult verification and responsible use of new media such as the internet and other electronic messaging. The Standards require that marketing activities should not be aimed at, or particularly appeal to, youth, and not feature celebrities or link tobacco with sporting, professional, social or sexual success. They also state that advertising should not appear in printed publications unless at least 75 per cent of readers are verified as adults and that all marketing materials must carry a health warning as well as the health warnings on product packs. Group companies must report annually on their level of adherence with the Standards. Adherence by our companies is monitored by our regional audit and CSR committees and updates reported to our Board CSR Committee. For information on adherence to our International Marketing Standards, please see the marketplace section of this Report and PR7. To download the Standards in full, go to www.bat.com/marketingstandards.
PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion and sponsorship, by type of outcomes Until now, our companies’ adherence to IMS has been monitored through self-assessments and as part of internal company audits. We have now introduced additional IMS-specific on-site audits in selected markets. In 2011, 21 incidents of non-adherence were identified. These included the size and position of health warnings on promotional items; insufficient age verification during promotional activities; and the use of video in a non-age-verified environment. We believe these to be isolated incidents and actions have been taken to address them, but they highlight the need to continually reinforce the Standards and monitor our companies’ adherence closely. The business we took control of in Indonesia in 2010 has not yet implemented our IMS. We’re engaging with other tobacco companies and the Indonesian Government on implementing stricter regulations to ensure a level playing field and hope to reach an industry consensus. You can read more about this in the marketplace section. British American Tobacco Sustainability Report 2011 39
Sustainability Report 2011
Sustainability and Our regions Engagement and our business Harm reduction Marketplace Environment Supply chain People and culture and markets governance
For 2011, our companies reported the following matters: ■ In Brazil, Souza Cruz continues to defend a prosecution for alleged unlawful practices in the advertising of tobacco products brought by the prosecuting authority on the instance of an anti-tobacco organisation. In another case, brought by the health authority, Souza Cruz is alleged to have breached advertising laws through its promotion of a music festival. Both cases are pending resolution. ■ Souza Cruz successfully defended a claim brought by a consumer alleging misleading advertising practices and breach of advertising law in relation to a promotional campaign. A further claim, in which a consumer has complained that he was unable to purchase cigarettes without paying also to receive an MP3 player offered as part of a product tie-in, remains pending resolution. ■ Souza Cruz is also defending an infraction notice issued by the prosecution authorities in relation to its sponsorship of an international music festival. The authority’s decision is pending. ■ In Colombia, our company continues to contest a fine of COP5,000,000 (£1,688) imposed by the trade and industry authority for allegedly supplying consumers with incorrect information in relation to the duration of a promotion. ■ In France, our company’s appeal in a case relating to whether illustrations included on cigarette packs are prohibited advertisements was successful, but two other Group companies (the manufacturer and the brand owner) received a fine of €150,000 (£130,141) each and were required to pay damages of €2,000 (£1,735). ■ Our company in France also continues to defend three cases brought against it by an anti-tobacco organisation for alleged breach of advertising laws, one arising from the distribution of free biodegradable ashtrays, and two involving advertisements for Dunhill cigars published in a specialist cigar magazine. In all three cases, the claims were rejected at first instance, but are under appeal. In a third case, a claim by the organisation against our company for breach of advertising laws arising from an advertisement displayed at a temporary tobacco shop at a fair was upheld on appeal and a fine of €10,000 (£8,676) was imposed. ■ Three further cases in France have been brought on the instance of anti-tobacco organisations for alleged breach of advertising laws. In one, involving a poster campaign against the counterfeiting of tobacco products and reference to the campaign on our company’s website, resolution is pending. In another, based on a sticker prices campaign in respect of a brand price repositioning, a fine of €10,000 (£8,676) was imposed. In a third, involving pack inserts and messaging on limited edition packs, the case was dismissed but remains under appeal. ■ Our company in Germany continued to defend two cases brought against it by German consumer organisations for alleged breach of advertising laws. One claim arose from an article published in a magazine featuring snus. At trial, the court made a finding against the company in respect of the use of trademarks in the feature, although no fine or penalty was imposed. The second case, involving an advertisement on a university campus, was dismissed. A further claim was brought against our company in Germany by an individual who claimed to have received email advertising in violation of the law. The claim was dismissed at first instance and an appeal is pending. ■ Our subsidiary in Guatemala is contesting a fine of US$40,000 (£24,942) imposed by the Ministry of Health in respect of an advertisement alleged to be non-compliant with local advertising legislation. ■ In Hungary, a significant number of actions were brought by the relevant authorities against our company for breach of advertising regulations. The majority of these cases are ongoing or resulted in no fine against the company. In a number of cases, the courts found in our company’s favour, including in a significant Supreme Court ruling on the legality of point-of-sale advertising materials. ■ Our company in Mexico continued to defend four injunction orders from the health authority arising from advertisements featured in adult magazines. Its defence is based on a lack of clarity over the definition of ‘adult magazine’. Two of the orders have been resolved in our company’s favour and the remaining two are pending resolution. ■ In Peru, an anti-tobacco organisation brought a case against our subsidiary and a competitor company, claiming that advertising in retail outlets was illegal on the basis that it was visible to minors. The case was dismissed by the relevant authority. ■ An anti-tobacco organisation in South Africa lodged a complaint with the Advertising Standards Authority regarding our company’s anti-illicit trade campaign, accusing it, among other things, of stealth advertising. The Authority ruled against the company on one issue, where it was not able to provide sufficient evidence between the trade in illegal cigarettes and organised crime. The ruling was upheld on appeal. Our company was ordered to remove the billboards, but no fine was imposed. British American Tobacco Sustainability Report 2011 40
Sustainability Report 2011
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■ In Switzerland, a claim against our subsidiary by a competitor company for breach of the unfair competition legislation, based on an allegation that a price promotion lasted longer than permitted under the law, was settled by mutual agreement. Our company in Switzerland also reports that it defended three claims by competitor companies based on allegations that promotional activity was in violation of the industry’s Marketing Code. In two of these cases, our company was required to pay fines of CHF12,000 (£8,443) and CHF9,000 (£6,332) respectively. The remaining case was decided in our company’s favour and the claim was rejected. ■ Our company in Turkey is defending an appeal following the dismissal of a fine imposed by the advertising authority for alleged promotion of the company and its brands on the company website. It is also challenging fines of TRY286,000 (£106,181) and TRY57,232 (£21,248) imposed by the authority in relation to the use of the corporate logo on company vehicles, and contesting a written warning and fines of TRY280,000 (£103,954) and TRY308,194 (£114,421) issued by the authority in three cases in which the provision of information to consumers on request is alleged to have constituted advertising.
PR8 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data In 2011, no material instances were reported by our companies.
PR9 Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services Our company in Turkey is contesting a written warning issued by the tobacco regulatory authority for the alleged sale of product without the required sales certificates. British American Tobacco Sustainability Report 2011 41
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Independent assurance statement by Ernst & Young
The British American Tobacco p.l.c. Sustainability Report 2011 (the Report)1 has been prepared by the management of British American Tobacco, which is responsible for the collection and presentation of the information within it and reviewed by the Board CSR Committee. Our responsibility, in accordance with management’s instructions, is to carry out a ‘reasonable level’ assurance engagement on the information presented in the Report regarding the stakeholder dialogue sessions and a ‘limited level’ assurance engagement on the rest of the Report. We do not accept or assume any responsibility for any other purpose or to any other person or organisation. Any reliance any such third party may place on the Report is entirely at its own risk. What we did to form our conclusions Our assurance engagement has been planned and performed in accordance with ISAE30002 and to meet the requirements of a Type 2 assurance engagement as defined by AA1000AS (2008)3. The AA1000AS (2008) assurance principles of Inclusivity, Materiality and Responsiveness have been used as criteria against which to evaluate the Report. In order to form our conclusions we undertook the steps outlined below: 1. Interviewed a selection of executives and senior managers at British American Tobacco’s headquarters in London to understand the current status of social, ethical, environmental and health and safety activities and progress made during the reporting period. 2. Reviewed selected headquarters documents relating to social, ethical, environmental and health and safety aspects of British American Tobacco’s performance, to understand progress made across the organisation and to test the coverage of topics within the Report. 3. Reviewed British American Tobacco’s approach to stakeholder engagement through interviews with employees at headquarters, two regions and three local companies, interviews with selected key stakeholders reviews of selected associated documentation and attendance at four stakeholder dialogue sessions. 4. Carried out the following activities to review data samples and processes for environment, health & safety (EHS), the Sustainability Survey, machinery destroyed, wood fuel sources, the Business Enabler Survey Tool (BEST), the Social Responsibility in Tobacco Production (SRTP) programme, local succession coverage and leadership diversity data: a. Reviewed disaggregated energy, waste and water data reported by a sample of seven local companies to assess whether the data had been collected, consolidated and reported accurately. b. Reviewed and challenged supporting evidence from the sample of seven local companies.
c. Tested whether energy, waste, water, CO2e and health & safety data had been collected, consolidated and reported appropriately at Group level. d. Reviewed data for machinery destroyed, wood fuel sources, BEST, SRTP, local succession coverage 1 This includes the printed and leadership diversity at Group level. Summary Report and full e. Reviewed and challenged supporting evidence for a selection of Sustainability Survey data points from a online Report, including the sample of the 86 local companies that completed the Survey in 2011. case studies and balanced f. Reviewed disaggregated data reported in balanced scorecards for four regions and nine markets to scorecards for nine key markets assess whether the data had been collected, consolidated and reported accurately. and selected sustainability 5. Reviewed British American Tobacco’s processes for determining material issues to be included web content on www.bat.com, in the Report. marked with the Ernst & Young 6. Reviewed the coverage of material issues within the Report against the key issues raised in the footnote. stakeholder dialogue sessions, material issues and areas of performance covered in external media 2 ISAE 3000 – International reports and the environmental and social reports of British American Tobacco’s peers, as well as the topics Federation of the Accountants’ discussed by the Board CSR Committee and regional audit and CSR committees. International Standard for 7. Reviewed information or explanations about the Report’s data, statements and assertions regarding Assurance Engagements Other British American Tobacco’s sustainability performance. Than Audits or Reviews of Historical Financial Information. 3 AA1000AS (2008) – The second edition of the AA1000 assurance standard from the Institute of Social and Ethical Accountability. British American Tobacco Sustainability Report 2011 42
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In order to form our conclusions on the information regarding the stakeholder dialogue sessions, we: 8. Attended four independently facilitated stakeholder dialogue sessions. Three were held in the UK and one in Bangladesh. 9. Reviewed the independent facilitator’s minutes of the dialogues to form conclusions that they provided a fair representation of the issues raised and British American Tobacco’s response. 10. Reviewed the sections in the Report relating to the stakeholder dialogue sessions, as described in the environment and supply chain sections to form conclusions that they are an accurate and balanced summary. Level of assurance The extent of evidence gathering procedures for a ‘limited level’ of assurance is less than that of a ‘reasonable’ assurance engagement (such as a financial audit) and therefore a lower level of assurance is provided for the full Report than the sections relating to the stakeholder dialogue sessions. The limitations of our review With the exception of selected telephone interviews with regional and local staff and the review of selected documentation, our work was limited to headquarters activities. We did not visit any local companies. Our conclusions Based on the scope of our review our conclusions are outlined below: Inclusivity Has British American Tobacco been engaging with stakeholders across the business to develop its approach to sustainability? ■ We are not aware of any key stakeholder groups that have been excluded from engagement. However, we are aware of stakeholder groups who, due to their critical views of the tobacco industry, have not accepted invitations to engage. ■ We are not aware of any matters that would lead us to conclude that British American Tobacco has not applied the inclusivity principle in developing its approach to sustainability. Materiality Has British American Tobacco provided a balanced representation of material issues concerning its sustainability performance? ■ With the exception of the area listed below, we are not aware of any material aspects concerning British American Tobacco’s sustainability performance that have been excluded from the Report. ■ We consider that British American Tobacco could have covered the following in more depth in the Report: – Disclosure of why targets have not been met, including discussion of the challenges associated with their achievement. This relates to the introduction of new goals for energy, water and waste measures, five-year milestones to monitor progress towards the CO2e targets and performance against the local representation target. ■ Nothing has come to our attention that causes us to believe that British American Tobacco management has not applied its processes for determining material issues to be included in the Report. The process is described on the materiality page. Responsiveness Has British American Tobacco responded to stakeholder concerns? ■ We are not aware of any matters that would lead us to conclude that British American Tobacco has not applied the responsiveness principle in considering the matters to be reported. Completeness and accuracy of performance information How plausible are the statements and claims within the Report? ■ We have reviewed information or explanations on the statements on British American Tobacco’s sustainability activities presented in the Report and we are not aware of any misstatements in the assertions made. How complete and accurate is data on EHS, the Sustainability Survey, machinery destroyed, wood fuel sources, BEST, SRTP, local succession coverage and leadership diversity in the Report? ■ We are not aware of any material reporting units (as defined by British American Tobacco) that have been excluded from the headquarters level data relating to the topics above. ■ Nothing has come to our attention that causes us to believe that the data relating to the above topics has not been collated properly at headquarters level. ■ We are not aware of any errors that would materially affect the data as presented in the Report. British American Tobacco Sustainability Report 2011 43
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Has British American Tobacco provided a fair representation of the issues raised and response to the stakeholder dialogue sessions referred to in the Report? ■ Information in the Report regarding the independently facilitated stakeholder dialogue sessions held in the UK and Bangladesh provides a fair summary of the engagement at these sessions. Observations and areas for improvement See the following page to view our observations and areas for improvement. Our independence This is the fifth year that Ernst & Young LLP has provided independent assurance services in relation to British American Tobacco p.l.c.’s Sustainability Report. We have provided no other services relating to British American Tobacco’s approach to sustainability reporting. Our assurance team Our assurance team has been drawn from our global environment and sustainability network, which undertakes engagements similar to this with a number of significant UK and international businesses. The work has been led and reviewed by a Lead Sustainability Assurance Practitioner.
Ernst & Young LLP London March 2012 British American Tobacco Sustainability Report 2011 44
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Ernst & Young observations and areas for improvement
Our observations and areas for improvement will be raised in a report to British American Tobacco management. Selected observations are provided below. Additional specific observations regarding progress made and areas for improvement can be found in the appropriate sections of the printed Summary Report and full online Report. These observations do not affect our conclusions on the Report set out earlier in this statement. ■ During our work we have seen evidence of a more detailed analysis of Group EHS data by British American Tobacco’s central EHS function. This has provided them with a greater understanding of performance at an individual unit level and has allowed for the targeting of specific activities to drive improvements in performance. There continue to be areas for improvement in relation to the transposition of data from unit to Group EHS data systems and the level of review applied to performance at a unit and regional level. ■ Improving health and safety performance across the Group has been a focus area over the past year and we have seen evidence of regular updates being provided to the Board and senior management. An internal review of accident categorisation has led to improved identification of priority areas and the roll-out of accident reduction initiatives across the Group. Although we have seen a positive downward trend of vehicle- related injuries compared to 2010, these accidents continue to be the most common cause of physical incidents and so the focus needs to continue to identify further areas for improvement. ■ British American Tobacco continues to engage with stakeholders to help shape sustainability plans and initiatives. During our attendance at the stakeholder dialogue sessions, interviews with selected key stakeholders and interviews with representatives from local companies, we noted several examples where stakeholder opinion had influenced business decisions. For example, British American Tobacco is considering ways of incorporating renewable energy and low-carbon options into its energy and wider business strategies and is examining opportunities for further collaboration to address the risks and opportunities presented by sustainable agricultural practices.
Ernst & Young LLP London March 2012 British American Tobacco Sustainability Report 2011 45
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Learning from our assurance process British American Tobacco’s response to the Named as one of the assurance statement top five companies in the FTSE 350 for our approach to sustainability An independent review of our approach is essential to support our commitment to continuous assurance in Carbon Smart’s improvement. The review by Ernst & Young LLP of our Sustainability Report and of how it is aligned 2011 report ‘Stuck on the starting with the AA1000 Assurance Standard (2008) has highlighted a number of strengths in our reporting blocks: The state of sustainability process, as well as where improvements could be made. assurance in 2010’ Inclusivity Ernst & Young LLP concluded that we have been inclusive in our engagement with stakeholders across the business in developing our approach to sustainability. However, they also shared our observation that some stakeholders refuse to engage with us because of the nature of our products. We hope that the changes we have made to our approach to dialogue will encourage wider participation. Actions for us ■ Continue to try to engage with our critics; and ■ Continue to develop our approach to dialogue to include wider participation from different stakeholder groups. Materiality Our sustainability agenda was developed in 2007 using a three-stage materiality test to identify which issues we should include in our reporting. This was formally reviewed in 2009 and reviewed on an informal basis each year since. Ernst & Young LLP concluded that we could have covered in more depth details of why targets have not been met, specifically on: ■ The development of new goals for our energy, waste and water measures and five-year milestones to monitor progress towards our long-term CO2e targets by end 2011. This has been delayed to allow time to review our approach and seek advice on the most appropriate measures to help ensure we continue to improve our performance. ■ Our aim to achieve a 70:30 ratio of local to expatriate senior managers in each business unit has not yet been reached. This was mainly the result of reorganisations over recent years. However, in 2011 we have seen an improvement in local representation compared to 2010 and believe this is a positive indication that we are once again progressing against this target. Actions for us ■ Conduct a formal materiality review in 2012;
■ Announce new Group targets for our energy, waste and water measures, as well as CO2e milestones in our 2012 Report; and ■ Continue to report transparently on our progress against our goals and commitments. Responsiveness Ernst & Young LLP attended four stakeholder dialogue sessions held in the UK and Bangladesh, as described in the environment and supply chain sections. These dialogues were independently facilitated and were attended by senior management from British American Tobacco. Ernst & Young LLP concluded that content in this Report relating to these dialogues are an accurate and balanced summary. In addition, Ernst & Young LLP interviewed our employees at Group, regional and local level and a selection of key external stakeholders on our approach to stakeholder engagement. Several examples where stakeholder opinion has influenced business decisions were noted in Ernst & Young’s observations. We continue to involve stakeholders in helping to shape our sustainability plans and initiatives, such as through our dialogue sessions and with our newly formed Supply Chain Sustainability Stakeholder Panel. As well as including details of our stakeholder engagement in this Report, we also publish summaries of the key insights from our dialogue sessions and a number of our companies have published stakeholder reports based on the outputs of local dialogue sessions. These can be found at www.bat.com/reporting. Actions for us ■ Continue to involve stakeholders directly in the development of plans to meet our sustainability goals; and ■ Continue to report transparently on our stakeholder engagement, including publishing summaries of our dialogue sessions on www.bat.com. British American Tobacco Sustainability Report 2011 46
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The Group British American Tobacco is the world’s second largest tobacco group by market share, with brands sold in more than 180 markets. We have four global brands – Dunhill, Kent, Lucky Strike and Pall Mall – and more than 200 local brands in our portfolio. Our market positions are strong in each of our regions and we are the leading tobacco company in more than 50 markets. Our employees number more than 56,000 and we have 46 cigarette factories in 39 markets. In 2011, we sold 705 billion cigarettes and had an annual gross turnover of £46,123 million. Our Group vision To achieve leadership of the global tobacco industry, not just in volume and value, but also in the quality of our business. To be industry leaders we must continue to demonstrate that we are a responsible tobacco Group with outstanding people, brands and superior products.
Our vision
Growth
Productivity Winning Responsibility organisation
Our strategy Growth: Our strategy to deliver our vision begins with growth and our aim to increase our global market share, with a focus on our Global Drive Brands and our other international brands. Productivity: We target continuous improvements in our cost base that will provide resources to invest in our brands, helping us to grow market share and achieve higher returns for shareholders. Winning organisation: By being a winning organisation we can ensure that we attract, develop and retain the best people we need to deliver our strategy for growth. Responsibility: Our companies and people are required to act responsibly at all times and we seek to reduce the harm caused by our products and our environmental footprint. Our sustainability agenda Our sustainability agenda is an integral part of delivering this strategy and comprises five goals. We will: ■ Strive to bring commercially viable, consumer acceptable reduced-risk products to market; ■ Take a lead in upholding high standards of corporate conduct within our marketplace; ■ Actively address the impacts of our business on the natural environment; ■ Work for positive social, environmental and economic impacts in our supply chain; and ■ Work to ensure we have the right people and culture to meet our goals. Our global presence Since our company was founded in 1902, we have become one of the world’s most international businesses, in terms of our locations and our multicultural workforce. Effective from 1 January 2011, we reorganised our previous five regions into four: Americas, Asia-Pacific, Western Europe and the newly formed Eastern Europe, Middle East and Africa region. You can view balanced scorecards of sustainability performance for these regions, as well as for nine of our largest markets, in the regions and markets section. British American Tobacco Sustainability Report 2011 47
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Our economic impact
As one of the world’s most international businesses, British American Tobacco’s economic contribution stretches from a local to a global level. We sell brands in more than 180 markets worldwide, with 46 cigarette factories based in 39 countries. Our Group employs more than 56,000 people, with many more people indirectly employed through our supply chain, including suppliers, contractors, distributors and retailers, as well as over 200,000 farmers who grow the tobacco leaf we buy.
REVENUES £46,980m Net sales plus revenues from fi nancial investments and sales of assets
Economic value distributed £45,753m
£7,176m Operating costs Payments to suppliers, non-strategic investments, royalties and facilitation payments
£2,694m Employee wages and benefi ts Total monetary outfl ows for employees (current payments, not future commitments)
£3,675m Payments to providers of capital All fi nancial payments made to providers of capital
£32,194m Payments to governments Tax paid including excise taxes
£13.7m Community investments Voluntary contributions and investment of funds in the broader community (includes donations)
Economic value retained £1,227m Calculated as revenues less economic value distributed Economic impact studies Our Group companies commission economic impact studies on an ad hoc basis to meet local business needs. In 2011, three new studies and one update on a 2010 study were commissioned by our company in Poland. In 2011, an update was made to the study known as the ‘Green Book’ which was originally commissioned by our company in Poland in 2010 and carried out by the Polish Employers Organisation on the tobacco sector within the national economy of Poland. This update showed that the tobacco industry generated 9.1 per cent of the annual tax revenue of the Polish state budget in 2009, directly secures 60,000 jobs and indirectly supports a further 500,000 for 120,000 retailers and wholesalers. Poland has the biggest number of cigarette factories in the European Union and the tobacco sector accounts for 36 per cent of the Polish surplus in foreign trade of agriculture products. The share of illegal tobacco products amounts to 15 per cent of the entire market. British American Tobacco Sustainability Report 2011 48
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In 2011, a follow-up publication to the ‘Green Book’ was also commissioned by British American Tobacco Poland and carried out by the Polish Employers Organisation. This study, known as ‘The White Book’, contains an analysis of the impact some proposed tobacco control regulations may have on the Polish economy. The report analyses both the European (especially the EU Tobacco Products Directive) and local regulatory trends and provides recommendations on how to shape the law and measures to avoid unintended negative consequences. It also includes recommendations for tackling the illegal tobacco trade. The Polish Employers Organisation also published another study in 2010 entitled ‘Unregistered economy in the sector of excise goods’. This study aims to assess the smuggling and illicit trade of excise goods (fuel, alcohol, tobacco) in Poland. It shows that the Polish state budget lost PLN6 billion (£1.263 billion) in 2010 due to the illegal trade of fuel, tobacco and alcohol. It also states that one of the reasons behind the growth of this illegal trade is the fiscal policy, when there are sudden and excessive hikes in excise tax. A third study commissioned by our company in Poland in 2011, was carried out by the Republican Foundation on ‘State’s tax policy for the tobacco sector and its economic and social consequences’. The study analyses taxes imposed on the tobacco sector and the impact they might have on legal tobacco consumption, workplaces in the sector and the economy. It gives recommendations on future excise changes. In 2011, we commissioned independent research by Development Delivery International (DDI) into the impacts of tobacco growing, which comprised a literature review of over 300 published sources on the subject and field research into the circumstances of tobacco and non-tobacco farmers in three contrasting tobacco growing countries. This literature review concluded that the existing research base was both limited and lacked contextual understanding. No clear evidence to support a causal link between tobacco cultivation and poverty or that tobacco growing necessarily leads to adverse labour or employment outcomes could be found. The literature on environmental risks was equally problematic with the possible exception of deforestation, although the evidence suggested that this is site specific and can be mitigated. It also found that there is no clear evidence that tobacco growing exacerbates poverty; and that there is minimal evidence that it contributes to food insecurity. The second part of the study took the form of a practical investigation in Bangladesh, Brazil and Uganda, looking at whether tobacco cultivation poses a greater hazard to the welfare of poor people in comparison with the cultivation of other available crops. The case study results show that the claims for a direct causal link between tobacco cultivation and poverty do not hold true as a generalisation. It also found that the ability of households to move in and out of tobacco cultivation does not support a picture of entrapment; that tobacco cultivation is seen to be an important and reliable income source that enhances food security and has contributed to increasing farmers’ welfare; and that suitable agronomy support can help mitigate both environmental and health risks, such as green tobacco sickness, associated with tobacco farming. DDI’s report contributes to the currently limited evidence base in this area and includes detailed on the ground research about the impact of tobacco cultivation on farmers’ livelihoods. The report says that the percentage of the literature reviewed that shows any peer-review or quality assurance process is rather limited and so restricts the evidence base that policy makers can work with. The report can be downloaded from DDI’s website at www.ddinternational.org.uk. British American Tobacco Sustainability Report 2011 49
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Harm reduction
What the future might look like
We have a responsibility to seek to reduce the health risks of our products. In the future, we expect to be able to offer adult tobacco consumers reduced toxicant cigarettes and new categories such as low-toxicant smokeless tobacco and regulatory approved nicotine products.
Demonstrating that new products are less risky poses many scientific and regulatory challenges. To tackle these, we expect to see many more research collaborations being More and more it seems clear to me that, to established involving the tobacco industry, reduce the health impacts from smoking, academia and tobacco research centres. This will hopefully lead to the development prevention and quitting initiatives alone will of a regulatory assessment framework for not be enough. We need a broader approach – potentially reduced-risk products that is one that accepts that many adults are going to underpinned by sound science. continue to use tobacco and nicotine products. That means developing reduced-risk products.
David O’Reilly, Group Scientific Director
How we’re preparing for the future Our material issues YOU ASK US
■ Identifying which smoke toxicants pose Reported Can scientific research paid for by tobacco the greatest health risks and developing > Reduced-risk products companies really be impartial? new technologies to reduce these. > Engagement > Read our response in the sustainability and our business section ■ Developing a framework of At bat.com: scientific tests to evaluate the > Information on the health risks of smoking likely health impacts of potentially > Second-hand smoke reduced-risk products. Do you have any questions or feedback on our approach to harm reduction or ■ Our stand-alone company, Our materiality test determines which topics other sustainability issues? Nicoventures, is exploring the are of the greatest significance to our development and commercialisation of business and stakeholders. We will donate £10 to the Global Trees regulatory approved nicotine products. Campaign for each of the first 200 responses ■ Engaging with regulators, scientists and we receive to the feedback survey. the public health community to develop www.bat.com/sustainability/feedback the scientific and regulatory frameworks needed to deliver reduced-risk products. British American Tobacco Sustainability Report 2011 50
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Viewpoint from the Group Scientific Director
Of course, the only way to avoid the health risks associated with tobacco products is not to use them. However, with the global population increasing, the World Health Organisation has estimated that the number of smokers worldwide is going to increase. More and more, it seems clear to me that, to reduce the health impacts from smoking, prevention and quitting initiatives alone will not be enough. We need a broader approach – one that accepts that many adults are going to continue to use tobacco and nicotine products. That means developing reduced-risk products. In order to achieve this, first we need to collaborate with others to determine the appropriate scientific and regulatory frameworks for the development and scientific assessment of these products David O’Reilly, and monitoring of their use. In my newly created Management Group Scientific Director Board position as Group Scientific Director, I am committed to seeing that our product strategy continues to be based on robust scientific evidence.
What’s the issue? The greatest negative impact of our business is the real and serious health risks of tobacco products. So developing reduced-risk products for those adults who use tobacco products is a priority. There are many challenges in this: the science is complex; collaboration is needed between scientists, tobacco companies and regulators; products need to meet consumer expectations; and we need a regulatory framework that supports tobacco harm reduction. We are committed to meeting these challenges. British American Tobacco Sustainability Report 2011 51
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Our approach
What is tobacco harm reduction? EXTERNAL The US Institute of Medicine defines tobacco VIEWPOINT harm reduction as “minimising harms and If lots of people stop decreasing total morbidity and mortality, without completely eliminating tobacco and nicotine use”. smoking but switch This recognises a well-established public health to medicinal nicotine policy concept that seeks pragmatic ways to products, it would minimise the impact of an activity or behaviour that be no more harmful carries inherent risks. Well known examples of this than the existing use of are the use of seat belts in cars and crash helmets caffeine... We need to for motorcyclists. liberalise the medicinal In terms of tobacco this could mean that, in market and introduce addition to a continued emphasis on prevention a decent cigarette and cessation efforts, adult tobacco consumers substitute. We may end should have the option of choosing less risky products instead of existing more risky products, such as up with millions of people conventional cigarettes. However, few governments currently support this view. addicted to nicotine Our role in tobacco harm reduction inhalers, but so what? As a manufacturer of tobacco products, we have a responsibility to pursue ways in which we might reduce Millions are addicted the health risks of our products. Although nicotine is not completely harmless, contrary to what many people to caffeine. believe it is not associated with most tobacco-related diseases. There is widespread agreement in the scientific community that it is the toxicants in the tobacco and tobacco smoke that are responsible for the majority of Professor John Britton, Chair of the Tobacco Advisory Group of these. Indeed in a Public Assessment Report, the UK Government’s Medicines and Healthcare products the Royal College of Physicians Regulatory Agency (MHRA) states that: “Nicotine is strongly addictive and stopping smoking results in (RCP). Speaking at the launch of cravings and withdrawal effects, but it is the tobacco smoke that produces the diseases and premature deaths the Tobacco Advisory Group of the 1 associated with smoking.” RCP’s report ‘Harm reduction in So, on a ‘product risk continuum’, where products can be lined up in a decreasing order of risk, conventional nicotine addiction: helping people cigarettes can be considered the riskiest; some forms of low-toxicant smokeless tobacco products, while not who can’t quit’, October 2007 risk free, much less risky; and regulatory approved nicotine products almost risk free.
Product risk continuum – our view Tobacco and nicotine products can be considered to sit on a continuum of risk.
Conventional cigarettes Reduced toxicant cigarettes
Heat not burn cigarette-like devices Low-toxicant smokeless tobacco
Regulatory approved nicotine
HIGHER POTENTIAL RANKING OF OVERALL RISK LOWER
Our previous efforts at test marketing lower-risk products have given us important insights into tobacco consumers’ varied product preferences and different needs for potentially reduced-risk products. We believe that a ‘one product fits all’ approach cannot achieve tobacco harm reduction, so our approach is to make available a range of reduced-risk tobacco and nicotine products for adult consumers. 1 MHRA Public Assessment Alongside this, we are engaging with the scientific and public health community to try to build more widespread Report. ‘The use of nicotine support for this broader approach to tobacco harm reduction. replacement therapy to reduce harm in smokers’, February 2010. British American Tobacco Sustainability Report 2011 52
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Developing reduced-risk products
We are working on three broad product categories based on the way they are designed, manufactured and consumed: reduced toxicant cigarettes; low-toxicant smokeless tobacco products; and regulatory £166m R&D approved nicotine products. (research and development) spend Reduced toxicant cigarettes It is well established that people who smoke more cigarettes a day and over a longer period of time have an increased risk of developing a smoking- Third year related disease. So we are researching whether with our External Scientific cigarettes with lower levels of toxicants in the Panel, a multidisciplinary team tobacco smoke might lower health risks for those of leading experts who help adults who don’t want to quit. inform our scientific research Our approach is to: programme ■ Determine which toxicants in smoke are significant for disease and develop tools to measure smokers’ exposure to them; ■ Develop products that may substantially 27 papers reduce exposure to these significant toxicants submitted for publication in and, through clinical testing, demonstrate that they do; and peer-reviewed journals ■ Assess whether this reduction in exposure can reasonably be expected to reduce the risk of one or more specific diseases. Our work on developing laboratory models of disease has progressed in two areas: establishing the most effective way for us to expose cells to tobacco smoke so that we can evaluate the impacts; and creating more sophisticated models to mimic the processes involved in the development of cancer and other diseases. We have set up a new research group, Predictive and Experimental Toxicology, which is focused on developing the science to evaluate which smoke toxicants are the most significant in the development of various smoking-related diseases. We have made good progress in increasing our understanding of how and where smoke particles are deposited in the respiratory system. This will help us to develop new technologies that could reduce these impacts. We have also reinvigorated our biotechnology research, using our understanding of the tobacco plant genome to work out how to develop new plant lines with lower levels of certain toxicants or the precursors to these toxicants. In our last Sustainability Report, we discussed our clinical study, which showed that smokers who switched to modified prototype cigarettes had reduced exposure to certain smoke toxicants compared to people smoking conventional cigarettes. This short-term clinical study is a good first step, but we need stronger scientific evidence to establish reduced risk. Our next step is a longer clinical study starting in 2012. This will measure biomarkers of biological effect in body fluids that could indicate biological changes related to disease processes. Although these changes will not tell us whether the modified prototype cigarettes actually present lower overall health risks, they provide evidence we need to see whether we are on the right track. The cigarette technologies being tested in this study use novel processes that would need to be scaled up to be viable for large-scale commercial production. This is an important area of our current research and development effort. Recent publications from the US Food and Drug Administration’s Tobacco Products Scientific Advisory Committee and the World Health Organisation’s scientific advisory group suggest that future regulation of combustible tobacco products could be based on the toxicant levels emitted from them. The harm reduction potential of such regulation is not clearly understood. We believe that our research into reduced toxicant cigarettes will prepare us for such a regulatory future and allow us to contribute to the evidence base for the development of regulation for this category. British American Tobacco Sustainability Report 2011 53
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Regulatory approved nicotine products The UK Government’s recently updated public health strategy for England considers adults to be Attended and presented at responsible for their choices and so there may be many smokers who may not want to quit smoking. In 2010, the Medicines and Healthcare products Regulatory Agency approved a ‘harm reduction’ element key for some regulatory approved nicotine products for their use as either a complete or partial substitute for cigarette smoking. We believe that the products currently on the market are not meeting the needs of conferences these smokers. including the annual Nicoventures was recently established to focus exclusively on the development and commercialisation conference of the Society for of regulatory approved nicotine products. It is a stand-alone company within the British American Research on Nicotine and Tobacco Group and is managed separately from our tobacco business. Tobacco and the Society of Toxicology Nicoventures is exploring the development of nicotine products that, subject to regulatory approval, will provide smokers with a safer alternative to cigarettes that they actually want to use. If it is successful this will also meet the objectives of some leading public health professionals and make commercial sense to us and to our shareholders. It forms part of our long-term business sustainability agenda. For more information, please see www.nicoventures.co.uk.
Smokeless tobacco products Independent evidence shows that certain low-toxicant smokeless tobacco products, such as Swedish-style snus, present substantially lower overall health risks than cigarette smoking. We tried to bring snus to new markets, but had a number of setbacks: it is banned from sale in some parts of the world; in countries where we test marketed it, the regulatory environment did not allow the communication of the relative risks of snus compared to cigarettes to adult smokers; and smokers often did not like using it in preference to cigarettes. We believe that smokeless tobacco products could still play an important role in a harm reduction approach. So we are looking at developing other innovative low-toxicant smokeless tobacco products that we hope will appeal to tobacco consumers and be approved by regulators. British American Tobacco Sustainability Report 2011 54
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Sustainability and Harm reduction Our regions Engagement and Marketplace Environment Supply chain People and culture our business and markets governance
Engagement
Our work to develop reduced-risk products will be pointless if we cannot successfully bring them to market. So we are engaging with the scientific community and regulators to build support for tobacco EXTERNAL VIEWPOINT harm reduction as a pragmatic public health policy. We are trying to build support for a broader Applying harm reduction approach to tobacco harm reduction by principles to public health making presentations at scientific conferences, policies on tobacco/ publishing our research in peer-reviewed nicotine is more than journals and engaging with the scientific and simply a rational and public health communities. humane policy... It has the At the heart of our approach is the belief that we potential to lead to one of must always be transparent about our science, the greatest public health making it publicly available for review by other breakthroughs in human experts and scientists. We publish details of history by fundamentally our scientific research on www.bat-science.com changing the forecast of and contribute to debates around tobacco harm a billion cigarette-caused reduction through conferences and journals. deaths this century. In 2011, we carried out research into views on tobacco harm reduction among healthcare professionals in the UK, Sweden and Norway. We asked a Sweanor, D., Alcabes, P., Ducker, representative sample what they thought about tobacco use, approaches to quitting and smoking reduction, E. (2007), ‘Tobacco harm reduction: their understanding of the risks of nicotine and the key factors associated with the health risks of smoking. How rational public health policy could transform a pandemic’. Most advocated a ‘complete cessation’ approach to tobacco use, rather than broader harm reduction International Journal of Drug Policy, strategies. Some held inaccurate views on what it is about cigarette smoking that poses serious risks to health. 18 (2), 70–74 For example, many wrongly believed nicotine to be as harmful as tobacco smoke, when in fact it is toxicants in the tobacco and tobacco smoke that are responsible for most smoking-related diseases. Given the expertise of ASSURANCE those surveyed, this general lack of understanding was surprising. COMMENT FROM ERNST & YOUNG LLP Another surprising result was that a number of those interviewed in Sweden were unaware of the impact of snus use on public health. A substantial number of Swedish men switching from cigarette smoking to snus use There are many coincided with a lower rate of male lung cancer in the country than any comparable developed nation. Oral challenges associated cancer rates also decreased and cardiovascular health significantly improved. with bringing potentially This research has highlighted the need to raise awareness about the different risk profiles of cigarettes, reduced-risk products to smokeless tobacco products and nicotine products. market, many of which are Regulation discussed in this Report. We have seen evidence We believe tobacco product regulation should be underpinned by sound scientific evidence and developed of engagement with the through transparent and accountable consultation with all relevant stakeholders. Our extensive experience in tobacco science means that we could make a valuable contribution to the development of tobacco regulatory and scientific harm reduction policy. We have encountered resistance to this in the past, but are beginning to see more communities and some opportunities opening up for us to contribute, as well as some governments starting to take broader public health bodies approaches to tobacco harm reduction. on the topic of harm In 2011, our Chief Scientific Officer sat on the expert panel of a workshop held by the US Food and Drug reduction. Despite this Administration (FDA) on developing scientific standards for the evaluation of modified risk tobacco products. engagement, public health The FDA’s approach is inclusive and evidence-based, something we strongly support. policies remain targeted at The UK National Institute for Health and Clinical Excellence is developing guidance on harm reduction prevention and cessation approaches to smoking. It sought contributions through a consultation process involving a range of efforts, illustrating the stakeholders from across society, including the tobacco industry. We welcomed the opportunity to contribute continued importance of and responded with our views. stakeholder engagement if further support for harm reduction is to be progressed.
Published details of our scientific research continually on www.bat-science.com British American Tobacco Sustainability Report 2011 55
Sustainability Report 2011
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Viewpoint from an employee in R&D
What I really enjoy about my role is being part of this exciting, emerging discipline.
Sarah Cooney, Head of Scientific Collaboration and Communication British American Tobacco Group Research & Development
Growing up, I had little experience of the tobacco industry, but like most people I was familiar with anti-tobacco rhetoric. So I never in a million years thought I would be part of the industry. But it is the best job I’ve ever had. I trained as a geneticist in Canada and worked in plant biotechnology before moving to London in 1997 to work in science publishing. In late 2010, I gave a presentation to staff in British American Tobacco’s Group Research & Development (GR&D) department on how to get their manuscripts published. It was a real eye-opener: the quality of the work these scientists were doing was really good and they were passionate about it. And I could see why – it was genuinely interesting. So when a permanent role came up a few months later, I decided to take the leap into working for a tobacco company. I would be using my experience of publishing to help the Group bring their scientific research to a wider public, by improving the impact of published work and helping the scientists to better navigate the publishing landscape. After all, what’s the point of being a science communicator if you can’t jump in at the deep end and work on a big challenge? What I really enjoy about my role is being part of this exciting, emerging discipline. It’s one that spans lots of different scientific areas, from traditional analytical chemistry to nanotechnology and aerosol science, taking in computational toxicology and biological models of disease along the way. And I can see the difference I make in this role to our scientists. Our GR&D labs in Southampton have also become a place to bring visitors – both external stakeholders as well as British American Tobacco employees from around the globe who want to learn more about the science we are doing to support our approach to tobacco harm reduction. We’ve identified some of the top communicators among our scientists and I’m proud that the training I’ve delivered has helped to build their skills and confidence. They’re now more comfortable going out into the world and communicating our science. Sarah Cooney, Head of Scientific Collaboration and Communication British American Tobacco Group Research & Development British American Tobacco Sustainability Report 2011 56
Sustainability Report 2011
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Harm reduction goals and commitments
Our harm reduction commitment We will strive to bring commercially viable, consumer acceptable reduced-risk products to market.
2012 goals ■ Take our laboratory models of diseases through an external validation phase involving collaborative research with scientific partners by end 2013; ■ Register and undertake a longer clinical study of biomarkers of exposure to tobacco smoke toxicants and biomarkers of biological effect under ethical approval and to high clinical standards by end 2012; ■ Submit for publication more of our research on the tobacco genome and undertake further field trials on tobacco plants with lower toxicant levels by end 2012; and ■ Present our scientific findings at international conferences and continue to improve the standard of our publications in peer-reviewed journals. British American Tobacco Sustainability Report 2011 57
Sustainability Report 2011
Sustainability and Marketplace Our regions Engagement and Harm reduction Environment Supply chain People and culture our business and markets governance
Marketplace
What the future might look like
We expect to see more tobacco control regulation being introduced around the world. However, if the current trend for some regulation continues, such as excessive excise increases, plain packaging or ingredients bans, this may lead to a dramatic rise in the levels of illegal tobacco products. This could mean a future dominated by a black market that is untaxed and unregulated instead of a legitimate regulated industry generating significant revenue for governments. TheT challenge I face in my role is this: how ddo we responsibly grow our business in an However, we also expect to see more legislation to address this rising illegal inincreasingly regulated environment?...We’d like tobacco trade, which we hope will help drive ttoo see regulation that is well thought through… more international cooperation and stronger AAnd, of course, we continue to act responsibly enforcement. This is a positive step but will in all that we do. only be effective if it is rigorously enforced both nationally and internationally and Jean-MarcJe Lévy, Group Marketing Director covers all players in the market.
How we’re preparing for the future Our material issues YOU ASK US
■ Sharing objective evidence to help Reported How can you say you support regulation contribute to the policy debate on > Tobacco regulation and engagement when it must damage your business? regulation, as well as supporting > How we market our products > Read our response in the sustainability and regulation for the development and sale > Fighting the black market in tobacco our business section of reduced-risk products. At bat.com: ■ Updating and strengthening > Litigation Do you have any questions or feedback adherence to our International > Cigarette litter Marketing Standards. on our approach to marketplace or other sustainability issues? ■ Collaborating with governments and Our materiality test determines which topics enforcement authorities to help address are of the greatest significance to our We will donate £10 to the Global Trees the black market in tobacco and working business and stakeholders. Campaign for each of the first 200 responses with our competitors to develop new we receive to the feedback survey. technologies to stop the unauthorised www.bat.com/sustainability/feedback sale, re-sale or smuggling of our products. British American Tobacco Sustainability Report 2011 58
Sustainability Report 2011
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Viewpoint from the Group Marketing Director
One of the big challenges I face in my role is this: how do we responsibly grow our business in an increasingly regulated environment? We agree that tobacco products should be regulated – so long as the regulation is based on sound evidence and meets public health goals but doesn’t fuel the illegal tobacco trade or damage the livelihoods of retailers or tobacco farmers. We’d like to see regulation that is well thought through. So we’re focusing on engaging with stakeholders to share our expertise and contribute objective evidence. And, of course, we continue to act responsibly in all that we do, including the development and marketing of innovative cigarettes for adult consumers.
Jean-Marc Lévy, Group Marketing Director
What’s the issue? We believe that regulation should be shaped in collaboration with all stakeholders, including the tobacco industry. With our industry experience and expertise, we can be part of developing regulatory solutions. Like any business we want to grow our market share. But we do this responsibly, not by trying to increase the number of smokers or how much they smoke, but through competitive and innovative product offers to encourage existing adult smokers to choose our products over our competitors. The black market in tobacco is a widespread problem, but it is made worse by regulatory policies and particularly by large and sudden increases in excise tax that destabilise the market. The perpetrators in this criminal trade are underground operators and are often gangs that also traffic drugs, arms and people and may have ties to terrorist organisations. British American Tobacco Sustainability Report 2011 59
Sustainability Report 2011
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Tobacco regulation and engagement
Increasingly stringent regulation is being proposed and introduced around the world, mainly driven by the World Health Organisation’s Framework Convention on Tobacco Control (FCTC). New types of regulation we are seeing today, such as ingredients bans, are not based on strong TRANSPARENT LOBBYING evidence that they are likely to reduce smoking rates. It is often not clear that the regulation will We believe that views advocated in policy formation should be achieve its stated objectives, while in many cases communicated transparently. it is likely to have unintended consequences. So the views and positions These include increasing the black market in we advocate are reflected on tobacco or damaging the livelihoods of tobacco www.bat.com. We support farmers and retailers. It is this type of regulation best practice principles on the that we do not support. development of regulation, including the EU Communication In 2011, we continued to engage with our on Smart Regulation and the stakeholders on regulatory issues at global and guidelines of the Organisation local levels. This activity is coordinated centrally for Economic Cooperation and as we develop global positions and help our Development and the UK Better companies improve their abilities to advocate our views. We also worked with independent third parties on Regulation Executive. developing objective evidence to help inform our positions. Our engagement position on two key areas in 2011, plain packaging and alternative crops, is discussed below. Our views on ingredients bans, pricing and tax measures and retail display bans are covered on the following page. STAKEHOLDER Plain packaging VIEWPOINT Some governments are considering regulation to restrict the colours, designs and trademarks that can be used Our analysis did not on tobacco packaging. In Australia, legislation has been passed requiring all tobacco products to be sold in identify any direct impact plain packaging from December 2012. of PSA [plain packaging] Australia is likely to be the first country to introduce plain or unbranded packaging legislation but other types regulation on of packaging regulation elsewhere have reduced the space on the pack available for brands, for example by consumption. increasing the size of health warnings. In 2011, we commissioned a report by Deloitte to examine the intended ‘Tobacco Packaging Regulation: and unintended impacts of this type of packaging regulation. It revealed that neither increasing the size of An international assessment of the health warnings on packs nor introducing graphic images had directly reduced tobacco consumption. The intended and unintended impacts’ report also recognised that plain packaging could lead to a number of unintended consequences, such as an by Deloitte, May 2011 increase in the black market in tobacco. This suggests that plain packaging legislation might not reduce smoking rates and that it might increase the illegal tobacco trade instead. The illegal market does not pay any excise tax on the tobacco it sells, so the government loses out on revenue and cigarettes are cheaper to buy. Also, illegal traders do not stick to the age limit for tobacco sales, so cigarettes could become more easily available to the underage. Like all brand owners, we believe we are entitled to use our packs to distinguish our products from those of our competitors. By restricting branding, governments risk breaching intellectual property rights and, in most cases, international trade agreements. British American Tobacco Australia always said it wanted to avoid going to court over plain packaging regulation. But the company has been left with little alternative: as a legal company selling a legal product it has a duty to defend its intellectual property on behalf of its shareholders. So we, and other tobacco companies in Australia, are challenging the constitutional validity of the removal of trade marks and other intellectual property without compensation. British American Tobacco Sustainability Report 2011 60
Sustainability Report 2011
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Alternative crops The FCTC requires governments who are party to it to promote, as appropriate, economically viable alternative crops for tobacco farmers to grow where their livelihoods are seriously affected as a consequence of local tobacco control programmes. We support this. However, the FCTC working group in this area appears to be going beyond this mandate by seeking to phase farmers out of tobacco growing ahead of any decline in demand. We believe that while the demand for tobacco exists, farmers should have the right to choose whether they grow tobacco or not and that governments should not try to drive farmers out of tobacco growing EMPLOYMENT TRENDS IN THE TOBACCO SECTOR as this can result in social, economic and other impacts for those farmers and their wider communities. Any assessment of economically sustainable alternative livelihoods to tobacco cultivation should be evidence- In 2011, the International Labour based, look at all the potential impacts and use a methodology agreed in consultation with impacted growers, Organisation conducted research key tobacco producing countries, tobacco merchants and manufacturers. We agree that governments should into employment trends in the consider the protection of the environment and the health of people engaged in tobacco cultivation in their tobacco sector, with a view to inform policy debates on the countries and decide what measures they may wish to introduce. But we believe that independent research impacts some regulation may should be carried out to assess the environmental and social impact of tobacco growing in comparison have on employment and the with other types of crops. To help contribute to this evidence base, in 2011, we commissioned independent livelihoods of tobacco farmers. research into the impact of tobacco farming on communities and the environment, which you can read about in We contributed data to this the supply chain section. research along with other tobacco companies, governments and social partners in key tobacco growing countries. British American Tobacco Sustainability Report 2011 61
Sustainability Report 2011
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Other regulatory issues
Ingredients bans Some people claim that ingredients are used in tobacco products to make smoking more appealing to children and more addictive. Framework WHAT ARE TOBACCO Convention for Tobacco Control (FCTC) guidelines INGREDIENTS? recommend that governments restrict or prohibit Tobacco ingredients, in the the use of ingredients. context of proposed restrictions However, the World Health Organisation has or prohibitions, predominately obtained and published comprehensive data mean any substance that is on youth smoking rates in Canada, a country added to the tobacco during the where cigarettes that do not use ingredients manufacturing process. are preferred, and the United States, where This does not include substances cigarettes containing ingredients are popular, that make up other components through its coordination of the Health Behaviour of a tobacco product, such as the filter, tipping paper or adhesives in School-aged Children study. This data allows used in a cigarette. for a comparison to be made of levels of underage smoking in the two countries. Further comparable data on Tobacco ingredients have a smoking rates in the general population in both Canada and the United States have been reported in a joint specific function and should study by Statistics Canada and the United States Centre for Disease Control, designed and conducted to allow not be confused with organic for direct comparison. substances, such as nicotine, Together, these studies indicate that cigarettes containing ingredients are no more attractive than those which are naturally present in containing low levels of or no ingredients. Specifically there are no substantial differences in youth smoking the tobacco plant, nor smoke initiation or smoking rates between the two countries. constituents, such as carbon monoxide, which are produced Some of our products use small quantities of ingredients to help control moisture, maintain product quality or when a cigarette is burned. act as binders or fillers. They also help balance the natural tobacco taste, often replacing sugars lost in the curing process. We do not condone the use of ingredients for the purpose of making tobacco products more attractive to children by creating an overtly fruity or candy taste that masks the taste of tobacco. We support restrictions or prohibitions on ingredients that are shown through sound scientific evidence to enhance the pharmacological effects of nicotine or to lead to increased underage smoking. The ingredients our Group companies use have been selected based on criteria that, at the levels used, they do not add to the health risks of smoking, they do not encourage people to start smoking or make it more difficult for people to quit and they are not added to make our tobacco products appealing to children. Instead of a ban on all ingredients, we advocate legislation prohibiting the sale of tobacco products with an overt fruity or candy taste that masks the taste of the tobacco and where the nature of the product or product packaging may be attractive to the underage. Pricing and tax A working group of parties to the FCTC is developing possible draft guidelines on pricing and tax measures intended to reduce demand for tobacco products. The FCTC itself does recognise that it is the sovereign right of countries to determine their own taxation policies. We believe it is not within the competence of the FCTC working group, the World Health Organisation or anyone other than each national government to decide the tax and fiscal policies it thinks appropriate for its country. These should also take into account any potential unintended consequences, for example, sudden and significant hikes in excise rates can result in price disparities between neighbouring countries. This can lead to an increase in smuggling across borders, driving the tobacco market into the hands of criminals and depriving the country of tax revenue. We recommend gradual and predictable increases in excise that address public health concerns, boost tax revenues and do not increase the illegal tobacco trade. British American Tobacco Sustainability Report 2011 62
Sustainability Report 2011
Sustainability and Marketplace Our regions Engagement and Harm reduction Environment Supply chain People and culture our business and markets governance
Retail display bans Some countries have banned, or are considering banning, displays of tobacco products in shops. Instead of being on display, the products are hidden under the counter or behind curtains or screens, making it hard for customers to know what is available. This approach is based on claims that displays encourage people, in particular children, to smoke and that they demotivate people who are trying to quit. However, in countries where display bans have been introduced, such as in Iceland and Canada, there is no clear evidence to show that these have had a significant effect on smoking levels among either children or adults. These bans may also have negative consequences, such as an increase in the illegal tobacco trade and damage to the livelihoods of small retailers. To help address youth smoking, we instead advocate stronger enforcement of minimum age laws and more severe penalties for retailers caught selling tobacco products to the underage; the introduction of schemes such as a ‘No ID no sale’ programme; and programmes to raise retailers’ awareness of minimum age laws. Where retail display bans are introduced we aim to work with retailers to minimise disruption to their business. For example, prior to the ban coming into effect in New South Wales in Australia, we gave the retailers practical guidance on how to comply with the legislation and how to maintain business as usual, as far as possible, for their customers. British American Tobacco Sustainability Report 2011 63
Sustainability Report 2011
Sustainability and Marketplace Our regions Engagement and Harm reduction Environment Supply chain People and culture our business and markets governance
How we market our products
Like any business, we want to grow our market ASSURANCE share. But we do this responsibly, not by trying to COMMENT FROM increase the number of smokers or how much they ERNST & YOUNG LLP smoke, but through competitive and innovative In 2011, British American product offers to encourage existing adult smokers Tobacco carried out to choose our products over our competitors. internal audits in 16 We apply a consistent, responsible approach markets to monitor to marketing across the Group by requiring our compliance with the companies to follow our International Marketing Group’s International Standards (IMS) wherever local law is less Marketing Standards stringent. Our IMS state that our companies’ (IMS). Although an marketing should be targeted at adult tobacco increase in the number of consumers and not undermine their understanding of the health risks. non-compliance incidents was identified compared Until now, our companies’ adherence to IMS has been monitored through self-assessments and as part to the two previous years, of internal company audits. We have now introduced additional IMS-specific on-site audits in selected markets. In 2011, 21 incidents of non-adherence were identified. These included the size and position of health warnings these had varying degrees on promotional items; insufficient age verification during promotional activities; and the use of video in a non- of severity and only a few age-verified environment. We believe these to be isolated incidents and actions are being taken to address raised concerns about them, but they highlight the need to continually reinforce the Standards and monitor our companies’ control issues. We have adherence closely. seen evidence of work We took management control of our company in Indonesia in January 2010 and planned to achieve full IMS undertaken to develop adherence by March 2012. However, this target has not been met. guidelines that further We have always stated that IMS should be applied in full where local regulation is less strict and that we will clarify IMS and British accept the competitive disadvantage of doing so. However, in the case of Indonesia this has not been possible. American Tobacco will While we comply with Indonesia’s light regulation, implementing our IMS without other industry players need to continue to following similar standards would be a severe threat to our relatively new and small business there. reinforce the Standards There is much disagreement within the industry in Indonesia about what sensible tobacco regulation should across the Group and look like. So we are engaging with other tobacco companies and the Indonesian Government on implementing monitor adherence. stricter regulations to ensure a level playing field and hope to reach an industry consensus. This has been a difficult decision to take and one we understand many of our stakeholders will disagree with. But we commit to resolving the situation as soon as possible and to keeping stakeholders informed of our progress. Youth smoking prevention We have a global approach to youth smoking prevention (YSP). In countries where there are no laws stopping OUR COMPANIES’ YOUTH retailers selling tobacco products to under 18s, we expect our companies to encourage governments to adopt SMOKING PREVENTION them. Where minimum age laws do exist, our companies are expected to raise retailers’ awareness of them. ACTIVITIES IN 2011 We also require our companies to measure the reach, coverage and, where possible, effectiveness of their YSP activities. ■ 16% of our reporting markets stated they have Following the launch of our global approach to YSP, we found that it could not be applied in certain countries no minimum age law of 18 that are politically unstable; have regulation prohibiting our preferred YSP activities; or where we operate for tobacco sales in place, through a distributor and have no employees in the country to implement the approach. In total, markets 86% of which are engaging representing only 10 per cent of our sales volumes fell into one of these categories. These markets will be with stakeholders for its reviewed annually to monitor changing situations. introduction. Of the reporting markets that are currently able to implement our YSP approach, 96 per cent stated they ■ 73% reported running were compliant in 2011. The remaining non-compliant markets are expected to achieve adherence by the youth smoking prevention programmes, spending a total end of 2012. of £4.7 million. ■ 88% of these programmes are focused on retail youth access prevention. British American Tobacco Sustainability Report 2011 64
Sustainability Report 2011
Sustainability and Marketplace Our regions Engagement and Harm reduction Environment Supply chain People and culture our business and markets governance
Fighting the black market in tobacco
The black market in tobacco is already a widespread problem, but it is made worse by some STAKEHOLDER misguided regulatory policies and particularly by VIEWPOINT large and sudden increases in excise tax that The potential impact destabilise the market. The perpetrators in this of plain packaging on criminal trade are underground operators and the illicit market has are often gangs that also traffic drugs, arms and been highlighted by a people and may have ties to terrorist organisations. number of commentators We are hopeful that the FCTC draft Protocol as an area of concern, to Eliminate Illicit Trade in Tobacco Products, if including the Australian effectively enforced, will help to tackle the problem. government who Our approach recognised that plain Our approach to fighting the black market in packaging, if it made tobacco includes: counterfeiting easier ■ Effective internal governance and supply chain security; and enforcement less ■ Gathering commercial information on the illegal trade; effective, could lead to an increase in illicit trade. ■ Working with authorities to ensure that appropriate enforcement action is taken; ■ Engaging with international bodies like the World Customs Organisation to increase understanding ‘Tobacco Packaging Regulation: of the issue; An international assessment of the intended and unintended impacts’ ■ Informing regulators about the impacts of the illegal tobacco trade; and by Deloitte, May 2011. ■ Raising awareness of the issue among employees and the public. We require our companies and employees to support only legitimate trade in our products. Through our ‘Know Your Customer’ guidelines and procedures, we try to ensure that the volume of tobacco products we supply is consistent with legitimate demand. It is our policy to stop doing business with customers or suppliers that we find to be complicit in illicit trade. In 2011, we ceased supply to one retailer in South Africa in these circumstances. In 2011, we strengthened these guidelines and procedures as part of our cooperation agreement with the ILLEGAL TOBACCO European Commission. It is estimated that up to 12 per Supply chain security cent of the global tobacco trade To help eliminate unauthorised sale, re-sale or smuggling of tobacco products we are working with other is illegal. international tobacco manufacturers to further secure the supply chain. It is necessary to develop industry-wide ■ Counterfeit or fake products security systems to do this. are unauthorised copies of branded products that have We have created a proven, automated system for tracking and tracing products as they move through the been manufactured without supply chain. If products are found on the black market, the system can trace them back to their point of the knowledge or permission departure from the legitimate supply chain. It uses industry standards and meets our obligations under our of the trade mark owner cooperation agreement with the European Commission, as well as the expected requirements of the FCTC and using cheap draft Protocol to Eliminate Illicit Trade in Tobacco Products. It has been implemented in Poland and Ukraine unregulated materials. and is currently being rolled out elsewhere. ■ Local tax evaded products In 2011, we were founding members of the Digital Coding and Tracking Association (DCTA). Working with the are manufactured and DCTA, we advised IBM on a model demonstrating how track and trace systems can be implemented globally sold in the same country, based on industry standards. Governments are interested in the security of the tobacco supply chain, because but are not declared to the tobacco products sold illegitimately rob them of excise revenue. In the past, cigarette packs have carried paper authorities, so excise tax is not paid. These products tax stamps to verify their legitimacy but counterfeiters are getting better at copying these. are manufactured in either With the DCTA, we are promoting the concept of digital tax verification based on an agreed industry-wide legitimate or illegal factories. approach. This approach uses digital coding printed directly onto packs, which also helps consumers and ■ Smuggled products (either authorities validate the product’s authenticity. In 2011, we piloted the preferred system at our factory in genuine or counterfeit) are Mexico. In 2012, we will continue to work with the DCTA to advocate for the introduction of this system in moved from one country to further countries. another without payment of taxes or duties, or in breach of laws prohibiting their import or export. British American Tobacco Sustainability Report 2011 65
Sustainability Report 2011
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International cooperation In 2011, we continued to engage with other sectors addressing illegitimate trade through international organisations like the International Chamber of Commerce’s Business Action to Stop Counterfeiting and Piracy, the International Tax and Investment Centre and the Anti-Counterfeiting Group. In 2010, we signed a cooperation agreement with the European Commission and its member states and, in 2011, we reviewed our progress against it. We are meeting all our obligations, including implementing track CONTRIBUTING FACTORS and trace technology, introducing enhanced ‘Know Your Customer’ policies and monitoring seizures of our TO THE BLACK MARKET brands. To support the agreement, we will provide US$200 million over the next 20 years, which can be used IN TOBACCO to fund areas including training for border staff in new security systems. ■ In the EU and around the world, we also support law enforcement agencies by providing training and Large and sudden excise intelligence, helping to authenticate seized products and carrying out forensic analyses on illegal goods. increases, resulting in price disparities between The general public is often unaware of the wider impacts of the illegal cigarette trade. To illustrate these and neighbouring countries, remind people that illegal tobacco is not a victimless crime, we followed our 2010 short film ‘Who’s in control?’ which encourage smuggling with a second film, ‘This is the man’. This film is being used by our companies and shared with external across borders. stakeholders to help raise awareness. It can be viewed at www.bat.com/theman. ■ Weak border controls and ineffective sanctions.
■ Packaging regulation that makes counterfeiting easier or increases demand for smuggled branded goods.
ILLEGAL CIGARETTES AND ORGANISED CRIME
The illegal tobacco trade is not just the work of small operators. More and more, we are seeing the involvement of organised crime. Interpol, the international police organisation, states that criminal gangs that traffic drugs, arms and people are also behind the illegal tobacco and alcohol trades. The US Department of Justice believes some also have ties to terrorist organisations. A number of in-depth reports on cigarette smuggling, including its links with terrorism, corruption and organised crime, have been published by the International Consortium of Investigative Journalists, part of the US-based Centre for Public Integrity. British American Tobacco Sustainability Report 2011 66
Sustainability Report 2011
Sustainability and Marketplace Our regions Engagement and Harm reduction Environment Supply chain People and culture our business and markets governance
Marketplace goals and commitments
Our marketplace commitment We will take the lead in upholding high standards of corporate conduct within our marketplace.
2012 goals ■ Revise and update our International Marketing Standards to take into account evolving marketing practices and regulation by end 2012; ■ 100 per cent adherence to our International Marketing Standards by end 2012; and ■ 100 per cent adherence to our global approach to youth smoking prevention in all countries where implementation is required. British American Tobacco Sustainability Report 2011 67
Sustainability Report 2011
Sustainability and Environment Our regions Engagement and Harm reduction Marketplace Supply chain People and culture our business and markets governance
Environment
What the future might look like
We expect the effects of climate change to be felt more strongly in the coming years. Together with the growing global population and economic development, this will probably result in disruption to the water cycle, loss of biodiversity, decreasing soil fertility and many other environmental changes. We are also likely to see more legislation and other initiatives to manage climate change.
For British American Tobacco, these changes to the environment could make it harder for us to source tobacco and make Reducing our impacts such as energy use and and distribute our products, as well as water consumption has always been important affecting the communities and landscapes but our longer term risk planning, particularly in which we operate. So we are increasingly focused on minimising the effect we have on around water, will be crucial to the way we climate change and preparing our business manage our operations in the future. for the risks ahead. Luis Barros, Head of Operations for Eastern Europe, Middle East and Africa
How we’re preparing for the future Our material issues YOU ASK US
■ Using risk assessments and Reported Doesn’t tobacco growing lead to a loss stakeholder dialogue to shape our > Environmental management of biodiversity? response to climate change. > Biodiversity > Read our response in the sustainability and our business section ■ Developing strategies to reduce our At bat.com: impacts, focusing on water, energy and > Genetically modified tobacco biodiversity. > Soil conservation and improvement Do you have any questions or ■ Using biodiversity risk and opportunity feedback on our approach to assessments to inform our approach to Our materiality test determines which topics environmental management or sustainable agriculture. are of the greatest significance to our other sustainability issues? business and stakeholders. ■ Working with external stakeholders on areas of common interest, such as We will donate £10 to the Global Trees through our Biodiversity Partnership. Campaign for each of the first 200 responses we receive to the feedback survey. www.bat.com/sustainability/feedback British American Tobacco Sustainability Report 2011 68
Sustainability Report 2011
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Viewpoint from the Head of Operations for Eastern Europe, Middle East and Africa
For me, working in a region where much of our manufacturing and leaf growing is based, often in locations where we also see resource use pressures, good environmental management is essential. Reducing our impacts such as energy use and water consumption has always been important but our longer term risk planning, particularly around water, will be crucial to the way we manage our operations in the future. This is not only the right thing to do, but also makes sound business sense given how much we depend on natural resources for our products. Securing access to these resources, as well as being prepared for future changes, is key to ensuring the sustainability of our business in the region.
Luis Barros, Head of Operations for Eastern Europe, Middle East and Africa
What’s the issue? We need to address both our immediate environmental impacts and the likely environmental pressures on the business in the future. This involves risk assessments, performance management and investment in efficient technologies. Environmental problems cannot be solved by one company acting alone. They also need flexibility – what works in one part of the world might not in another. British American Tobacco Sustainability Report 2011 69
Sustainability Report 2011
Sustainability and Environment Our regions Engagement and Harm reduction Marketplace Supply chain People and culture our business and markets governance
Environmental management
To manage our environmental impacts we work within our supply chain but to be truly effective we also need to work more with local communities and in collaboration with other international organisations. Reducing our impacts OUR ENVIRONMENTAL We have had a comprehensive Environmental, TARGETS Health & Safety (EHS) management system for many years. We monitor and reduce our To assess our environmental direct environmental impacts by making our efficiency, we set targets relative operations more efficient. We also address our to the volume of cigarettes we indirect impacts by choosing suppliers with strong produce. Each of the targets environmental credentials and encouraging our below is calculated per million cigarettes equivalent. existing suppliers to improve their environmental From our 2000 baseline of performance. 1.38 tonnes: In 2011, we performed well against our key ■ Reduce CO2e emissions by environmental measures for energy, carbon 50 per cent by 2030 and 80 dioxide equivalent (CO2e) emissions, water and per cent by 2050. (Our CO2e waste, primarily due to efficiency improvements emissions include other alongside an increase in production volumes. This increase in volumes resulted from the recent inclusion of greenhouse gases, such data from our business in Indonesia. In absolute terms, energy increased by 1.9 per cent, with water use and as methane.) From our 2007 baselines: waste to landfill also increasing. You can read more about this in the environmental performance data. ■ Reduce direct energy use by Having met our 2012 targets for energy, water and waste ahead of schedule we had intended to publish new 6.7 per cent by 2012. targets in this Report, however, this has been delayed to allow time to review our approach and seek advice ■ Reduce direct water use by on the most appropriate measures to help ensure we continue to improve our performance. During 2011, we 13.4 per cent by 2012. developed CO2e and energy reduction plans for our largest manufacturing sites; began a review of the scope ■ Reduce waste to landfill by of reporting for energy and CO2e; worked to strengthen our water strategy; and integrated data from our 2010 12 per cent by 2012 and acquisition in Indonesia. We are committed to achieving further reductions in our energy and water use and recycle at least 85 per cent waste sent to landfill and to meeting our long-term CO2e targets. Given the importance of this, we believe it is of our waste each year. prudent to spend more time on the development of new Group targets, so will instead announce them in our 2012 Report. When it comes to reducing our environmental impacts within our direct operations, our priority is to minimise ASSURANCE COMMENT FROM energy consumption. We aim to do this by carefully assessing and planning our energy needs to maximise ERNST & YOUNG LLP efficiency; by investing in energy-efficient equipment; by employee engagement; and by encouraging our Our review of British suppliers to reduce their energy use. American Tobacco’s That said, our long-term ambitions are demanding and to meet them, we must also look at renewable and stakeholder engagement low-carbon energy sources. This is particularly the case in our manufacturing and logistics operations where processes showed that our direct energy use is highest. In 2011, we carried out a feasibility review of renewable energy. A number of stakeholders continue to our sites have followed up with their own investigations. For example, a few of our factories use biomass or place high importance on the tobacco dust as a fuel to provide heat and to reduce waste to landfill. Group’s response to climate Water is an important resource for us, especially in manufacturing and tobacco growing. For many years, we change. British American have been measuring water use in our operations and working to reduce it. Local initiatives have contributed Tobacco has set long-term to us meeting our Group targets, such as in some locations, where water resources are scarce, adopting targets to reduce direct innovative technologies. For example, two of our factories in Malaysia and Brazil use rainwater collection CO2e emissions and, in systems. In Uzbekistan, our company has worked with local stakeholders to improve the existing water 2007, developed 2012 targets irrigation systems for tobacco farmers in the Urgut area. To reduce the water footprint of the entire supply for four environmental chain, we also encourage our suppliers to cut their water consumption. metrics, all of which were met in 2011. Although we have seen evidence of five-year CO2e reduction plans being developed for large manufacturing sites, the commitment to develop five-year milestones to reduce CO2e emissions for the Group as a whole has not been met. It will be important to finalise these mid-term targets so that performance against them can be communicated in next year’s Sustainability Report. British American Tobacco Sustainability Report 2011 70
Sustainability Report 2011
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Environmental performance data
Group energy use Gigajoules per million cigarettes equivalent produced1 -7.5% compared to 2010
2012 11.03 (Target)
2011 10.31*
2010 11.14
2009 11.12
2008 12.08
2007 11.82
02468101214
* This includes the performance data for the first time of the business in Indonesia that we took control of in January 2010, but does not yet include our October 2011 acquisition in Colombia. In 2011, we exceeded our global 2012 target to reduce our energy use by 6.7 per cent to 11.03 gigajoules per million cigarettes equivalent produced, from our 2007 baseline of 11.82 gigajoules per million cigarettes equivalent produced. Group energy use was down in 2011 by 7.5 per cent from 2010 to 10.31 gigajoules per million cigarettes equivalent produced. This was primarily because of efficiency improvements alongside an increase in production volume resulting from the inclusion of our 2010 acquisition in Indonesia. Absolute energy increased by 1.9 per cent compared to 2010.
1 We track Group effi ciency performance using the normalised output fi gure ‘cigarette equivalent produced’. This includes manufacturing of tobacco products and material and green leaf threshing. British American Tobacco Sustainability Report 2011 71
Sustainability Report 2011
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Carbon dioxide 1 Tonnes CO2e per million cigarettes equivalent produced 3.5% compared to 2010
2050 0.28 (Target)
2030 0.69 (Target)
2011 0.82*
2010 0.85
2009 0.86
2008 0.94
2007 0.88
2000 baseline 1.38
0 0.25 0.5 0.75 1 1.25 1.5
* This currently excludes the performance data of the business in Indonesia that we took control of in January 2010 and our acquisition in Colombia in October 2011 due to this requiring a recalculation of the baseline, which will be completed in 2012 alongside the development of our new Group energy target.
Group CO2e includes the WBCSD Scopes 1, 2 and 3. These cover CO2e from all energy sources controlled by the Group, from purchased energy, from business travel and freight and from incineration and landfill. Our global targets are to reduce our COve by 50 per cent by 2030 and 80 per cent by 2050 from our year 2000 baseline of 1.38 tonnes per million cigarettes equivalent produced.
Group CO2e was down in 2011 by 3.5 per cent from 2010 to 0.82 tonnes per million cigarettes equivalent. The reduction was primarily due to similar reasons as those for energy use.
1 We track Group effi ciency performance using the normalised output fi gure ‘cigarette equivalent produced’. This includes manufacturing of tobacco products and material and green leaf threshing. British American Tobacco Sustainability Report 2011 72
Sustainability Report 2011
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Water use Cubic metres per million cigarettes equivalent produced1 6.3% compared to 2010
2012 4.2 (Target)
2011 3.89*
2010 4.15
2009 4.41
2008 4.73
2007 4.85
01234 5
* This includes the performance data for the first time of the business in Indonesia that we took control of in January 2010, but does not yet include our October 2011 acquisition in Colombia. In 2011, we exceeded our global 2012 target to reduce our water use by 13.4 per cent to 4.2 cubic metres per million cigarettes equivalent produced, from our 2007 baseline of 4.85 cubic metres per million cigarettes equivalent produced. Group water use in 2011 was down by 6.3 per cent from 2010 to 3.89 cubic metres per million cigarettes equivalent produced. The increase in water efficiency was largely due to an increase in production volume resulting from the inclusion of our 2010 acquisition in Indonesia. Absolute water use increased by 3.1 per cent.
Waste to landfill 1 Tonnes CO2e per million cigarettes equivalent produced -5.6% compared to 2010
2012 0.022 (Target)
2011 0.017*
2010 0.018
2009 0.019
2008 0.024
2007 0.025
0 0.005 0.01 0.015 0.02 0.025
*This includes the performance data for the first time of the business in Indonesia that we took control of in January 2010, but does not yet include our October 2011 acquisition in Colombia. In 2011, we exceeded our 2012 global target to reduce our waste to landfill by 12 per cent to 0.022 tonnes per 1 We track Group effi ciency million cigarettes equivalent produced, from our 2007 baseline of 0.025 tonnes per million cigarettes equivalent performance using the produced. normalised output fi gure Group waste to landfill decreased in 2011 by 5.6 per cent from 2010 to 0.017 tonnes per million cigarettes ‘cigarette equivalent produced’. equivalent produced, largely due to efficiency improvements alongside an increase in production volume This includes manufacturing of resulting from the inclusion of our 2010 acquisition in Indonesia. Absolute waste sent to landfill increased in tobacco products and material 2011 by 5.4 per cent due to site specific issues such as salvage waste generated from a warehouse fire and and green leaf threshing. transferring production volumes to a site with limited recycling facilities. British American Tobacco Sustainability Report 2011 73
Sustainability Report 2011
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Recycling Percentage of waste recycled +0.2% compared to 2010
2011 85.4%*
2010 85.2%
2009 83.3%
2008 81.2%
2007 78.8%
0 10 20 30 40 50 60 70 80 90
*This includes the performance data for the first time of the business in Indonesia that we took control of in January 2010, but does not yet include our October 2011 acquisition in Colombia. We have set a global target to recycle more than 85 per cent of waste generated in each year. Group recycling remained relatively stable in 2011 with a small 0.2 per cent increase of 85.4 per cent of waste being recycled. British American Tobacco Sustainability Report 2011 74
Sustainability Report 2011
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Future environmental risks, opportunities and planning STAKEHOLDER VIEWPOINT We are focused on increasing our understanding of future risks and opportunities by mapping our risks from I applaud British climate change, assessing our water footprint and engaging with stakeholders. American Tobacco for Climate change risk mapping its decision to use this In 2011, we mapped the risks posed by climate change to our main operational sites and tobacco growing series of dialogues to locations, along with a small number of strategic material suppliers’ sites. This involved looking at national really examine how risks, like energy security and the vulnerability of transport and infrastructure, as well as more local risks like climate change will water scarcity and flooding. In the tobacco growing areas, we also looked at risks to do with urbanisation rates, impact on its business. child labour and food security. Paul Burke, Independent dialogue This research has raised awareness of climate change risks in the business and is helping us prioritise our facilitator, Senior Partner, Acona efforts to protect the Group against these risks. We have also used the results to pilot a climate change risk Partners LLP index, which we now plan to develop for each of our strategic leaf growing locations. Based on this, short- and long-term action plans will be put in place. For example, the pilot showed that Pakistan has a number of risks around water security. They are not affecting tobacco growing areas yet, but may well in the future. So our local company in Pakistan will now carry STAKEHOLDER out a more detailed assessment of water management in these areas, then follow it up with an action plan and VIEWPOINT seek partnerships with local stakeholders. There is no magic We plan to review our climate change risk index each year, to track existing and developing risks, and will bullet – it’s about monitor progress against our action plans. We also intend to use this information to identify future opportunities understanding what in this area. works best in a Water particular location.
In 2011, we started to assess the water footprint of tobacco growing locations. We are using the results to Participant in dialogue on further develop our water strategy, so that we have a clear picture of how much is used in our supply chain renewable energy and and where we might have problems getting enough water in the future. The outputs from our 2010 stakeholder low-carbon options dialogue on water availability and management are also being fed into the improvement of our water strategy. The aim of the strategy is to make sure that our business has the secure water resources we need in the future, while also minimising our water use as well as being better prepared to deal with extreme weather events such as flooding. Stakeholder engagement In 2010 and 2011, we held a series of three stakeholder dialogue sessions looking at different aspects of climate change. The first, on water availability and management, was discussed in last year’s Report. The second session looked at current and future carbon pricing mechanisms and carbon regulation. A major theme that came out of the day was that business needs to be a prime driver of innovation in carbon reduction. The third session focused on renewable and low-carbon energy. The participants highlighted that these areas will make an important contribution to meeting future energy needs. We are looking at renewable and low- carbon initiatives in more detail, for example, we have initiatives in place, such as sites in Pakistan and Turkey generating energy with installations of solar and photovoltaic equipment. We now intend to incorporate such initiatives further into our plans to help us meet our long-term CO2e targets. You can download the reports from all three dialogue sessions here. Please also see the viewpoint from the independent dialogue facilitator on the main insights from the series. British American Tobacco Sustainability Report 2011 75
Sustainability Report 2011
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Climate change dialogue series: viewpoint from the independent facilitator
I applaud British American Tobacco for its decision to use this series of dialogues to really examine how climate change will impact on its business.
Paul Burke, Senior Partner Acona Partners LLP
In 2010 and 2011, British American Tobacco held a series of stakeholder dialogue sessions focused on different aspects of climate change: water availability and management; carbon pricing and regulation; and renewable energy and low-carbon options. Acona Partners LLP helped with the design and organisation, including the recruitment of participants, and I facilitated each of the sessions. Stakeholder dialogue has always been a cornerstone of British American Tobacco’s approach to sustainability. The methodology has evolved a lot over recent years to one that seeks, first, to understand stakeholder views and, second, to develop strategies and specific plans in response. I think this has made for rich and valuable discussions. My impression is that participants – both inside and outside the business – have enjoyed their sessions and really welcomed the fact that they produce tangible outcomes. And that the business was keen to draw upon the experience of its peers and other experts. Climate change is often named as the greatest challenge facing the planet. Many sustainability reports, annual reports and so on from the corporate world pay lip service to this. They claim that the business in question is responding to the risks, but often there seems to be a disconnect between the rhetoric and the reality. Many businesses just aren’t doing enough. So I applaud British American Tobacco for its decision to use this series of dialogues to really examine how climate change will impact on its business. After all, it’s only by fully understanding future risks that a company can protect its long-term business interests. Each dialogue focused on a different issue, but some common themes came up. The first was that the impacts of climate change on a company such as British American Tobacco are real, significant and likely to increase. These will probably include pressure on water resources for tobacco growing and increased energy costs in manufacturing. The business needs to take these into account. The second theme that emerged was the importance of cooperation and collaboration in responding to climate change. The challenges and opportunities of climate change – things like managing water resources and developing the infrastructure for renewable energy – are too big for any one business to address on its own. Also traditional boundaries between what the public sector is responsible for and what the private sector should be doing don’t really make sense when you need these huge, systemic changes. The final theme that recurred throughout the dialogues was that businesses need to adapt their existing processes for risk management and capital expenditure assessment to better take into account the impacts of climate change. This means having a much broader and more sophisticated understanding of environmental and social issues and evaluating risk and pay-back over longer time frames. More detailed information on the insights from each of these sessions can be found in the dialogue reports at www.bat.com/stakeholder. British American Tobacco regards these dialogues as part of a much wider process of engagement and is keen to expand its understanding of the specific issues. If you would like to contribute to this process, please contact [email protected]. Paul Burke, Senior Partner at Acona Partners LLP British American Tobacco Sustainability Report 2011 76
Sustainability Report 2011
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Environmental governance
Our comprehensive Environment, Health & Safety (EHS) management system has been in place for many years and is based on international standards, including ISO 14001. We also have an internal reporting system for monitoring Group-wide environmental performance. Each of our companies has an EHS Steering Committee, with overall environmental responsibility held by the General Manager or site manager. EHS is also a standing agenda item for management meetings and governance committees at area, regional and global levels. This has raised awareness of EHS risks across our business and aims to create a consistent approach for our companies in managing them. Our Group Operations Director has overall responsibility for environmental management, and responsibility for our EHS Policy is held by the Management Board. The Policy requires all our companies to address their own environmental impacts and those of their supply chains. Environmental management is also an important part of our integrated supply chain sustainability strategy, which you can read about in the supply chain section. British American Tobacco Sustainability Report 2011 77
Sustainability Report 2011
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Managing biodiversity
The success of our business now and in the future depends on biodiversity. Biodiversity provides STAKEHOLDER resources like clean water, healthy soils and VIEWPOINT timber. Business has a responsibility to minimise At present, we think its negative impact on biodiversity, as species and that British American communities also depend on these resources. Tobacco is the only Biodiversity risk and opportunity agricultural multinational assessments to have conducted a biodiversity risk In 2010, biodiversity risk and opportunity assessments were completed in all our tobacco assessment of its global leaf growing operations. These assessments help operations. This means us to identify, assess and address risks arising it can base decisions from our impacts and dependencies on biodiversity on real on the ground and ecosystems in and around our leaf growing circumstances of areas. By the end of 2011, initiatives had been put in place to address the issues identified. its leaf growing We make sure that the assessments and the actions taken encourage cooperation with local stakeholders and operations in a don’t just focus on tobacco. Collaboration with the people living and working in the agricultural landscapes or strategic manner. organisations like our Biodiversity Partnership or local NGOs is often required for these initiatives. Fauna & Flora International, Examples of initiatives underway are replanting trees to address water supply issues in a watershed catchment Biodiversity Partner of the Indonesian island of Lombok and a Ugandan project to restore and manage forest and freshwater health. You can read a case study on the Indonesia project on the following page. In 2011, we revised the biodiversity risk and opportunity assessment tool with our Biodiversity Partnership. The revised version of the tool should give us a more consistent approach to the assessments across the globe. This will be rolled out to our tobacco growing operations in 2012 and the next round of assessments will be completed by the end of 2014. We also plan to share the assessment tool with other tobacco and agricultural businesses to encourage them to adopt a similar approach. BIODIVERSITY: OUR APPROACH Biodiversity projects As a business we focus on addressing our own biodiversity impacts and dependencies and those of our As a Our Group Biodiversity business we focus on addressing our own biodiversity impacts and dependencies and those of our contracted Statement outlines our aim to embed biodiversity conservation farmers. But through our Biodiversity Partnership, we also address challenging biodiversity issues through across our business. It can be projects with external stakeholders in the wider agricultural landscapes and ecosystems on which we depend. downloaded at www.bat.com. You can read about these projects in detail on the Partnership’s website: www.batbiodiversity.org. Biodiversity partnership Since 2001, we have worked with three NGOs in the British American Tobacco Biodiversity Partnership: Fauna & Flora International, the Tropical Biology Association and Earthwatch Institute. The Partnership seeks to address some of the challenging issues surrounding the conservation and management of biodiversity within agricultural landscapes and the ecosystems on which we depend. See www.batbiodiversity.org British American Tobacco Sustainability Report 2011 78
Sustainability Report 2011
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Biodiversity project in Indonesia
When we trialled our biodiversity risk and opportunity assessment tool in 2007, our leaf growing operations in Indonesia were among the first to test it out. The assessment identified a high risk to tobacco WHAT IS A WATERSHED? farming communities’ water supplies on the island of Lombok, where deforestation and land clearance A watershed is an ecological has contributed to declining water flows. system on an area of land in which all the surface water (such Since 2010, a project between our Biodiversity as streams, rivers and lakes) and Partner, Fauna & Flora International, our company groundwater (water within the in Indonesia and local stakeholders, including the ground) drains to the same place. University of Mataram, has been addressing these Watersheds are important issues. The aim of the project is to define and because environmental issues implement an approach to watershed management, such as deforestation can impact involving different stakeholders in the area, that the whole area. This can cause will enhance the area’s biodiversity, address loss of biodiversity and impair deforestation, improve livelihoods, support agriculture and promote sustainable water management. ecosystem services, negatively affecting water supplies The first phase of the project focused on a small number of local communities, mainly farmers. The project included needed for agriculture and the a diverse range of activities, including training on home gardening techniques; strategic tree planting; improved surrounding communities. water storage; and helping women’s groups develop suitable products to sell and access markets directly. These help improve their livelihood options and also aim to reduce the need to degrade forest resources, as well as helping to improve already degraded areas. Farmers were encouraged to plant trees and helped to understand how this helps protect the water supply. They were also given training on how to give young plants the best start in life. In 2010 and 2011, 132,060 wood trees and 27,910 fruit trees were planted, with a survival rate of 55 per cent for those planted in the middle and downstream area and 76 per cent for those planted upperstream. Some farmers raised concerns about the trees shading their crops from the sunlight they need. To address this, meetings were held with the farmers to discuss their concerns and find solutions. Practical recommendations were made such as planting species with fewer branches and planting in an east-west direction so as not to block the sun. A biodiversity survey conducted in 2011 provided important baseline information on the area and multi-stakeholder workshops and seminars have helped raise the profile of the approach to watershed management, which recognises the important role of biodiversity and ecosystems. A key stakeholder in the project is the local government, which recognises that successful water management requires the collaboration of all stakeholders in the area and that solutions can be found by different sectors working together on this common issue. Since 2010, a related project has also been run in the area to reduce the use of wood as a fuel by local farmers, which can be another cause of deforestation in the area. Our company in Indonesia recommends and supports the use of coal as a fuel for tobacco curing with its contracted farmers, however, there are still some small instances of native wood being used. To address this, the company is working with a consortium, funded by the Global Sustainable Biomass Fund, to develop and assess the use of candlenut shells as an alternative fuel. This has included helping community groups establish nurseries for planting candlenut, as well as processing plants. The company has also made stocks of candlenut available for its contracted farmers to buy. In addition, farming communities have received training on making bio-ethanol from household waste, which they can use as an alternative fuel to wood for cooking. Building on the work of both projects to date, in 2012, they will be expanded to work with additional farmers and other stakeholders. This will include facilitating the development of the Government’s watershed plan for Renggung – an important agricultural area in Lombok. British American Tobacco Sustainability Report 2011 79
Sustainability Report 2011
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Environment goals and commitments
Our environment commitment We will actively address the impact of our business on the natural environment.
2012 goals
■ Set five-year milestones to monitor progress towards our 2030 and 2050 CO2e targets by end 2012; ■ Develop new goals for our energy, water and waste measures by end 2012; ■ Reduce our direct energy use towards our 2012 target of 11.03 gigajoules per million cigarettes equivalent produced, 6.7 per cent lower than our 2007 baseline; ■ Reduce our direct water use towards our 2012 target of 4.2 cubic metres per million cigarettes equivalent produced, 13.4 per cent lower than our 2007 baseline; ■ Reduce our waste to landfill towards our 2012 target of 0.022 tonnes per million cigarettes equivalent produced, 12 per cent lower than our 2007 baseline, and recycle at least 85 per cent of our waste each year;
■ Reduce our CO2e emissions by 50 per cent by 2030 and 80 per cent by 2050 against our 2000 baseline of 1.38 tonnes per million cigarettes equivalent produced; ■ Incorporate renewable and low-carbon energy options in the development of plans to help us meet our long-term CO2e targets by end 2012; ■ Complete the strengthening of our sustainable water management strategy by end 2012; ■ Complete the next round of biodiversity risk and opportunity assessments, using the updated tool, in all our tobacco growing operations by end 2014; and ■ Conduct research to verify the apparent return of wildlife to trial areas of re-established natural forest in Sri Lanka by end 2013. British American Tobacco Sustainability Report 2011 80
Sustainability Report 2011
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Supply chain
What the future might look like
Supply chains have always needed to be flexible and agile. But there are increasing pressures to adapt faster than before: climate change, more competition and demand for greater business growth, to name a few.
The anticipated growth in demand for agricultural products is particularly relevant for us. As the global population expands and economic development generates more disposable incomes, there will be increased competition between crops for energy, land and water. It’s vital to ensure our supply chain is fit for purpose for the long term… Importantly our We also expect business to play a greater approach covers both our own operations and role in addressing social and environmental issues, through influence and public-private our wider supply chain… To me it’s clearly good partnerships. business, as well as good stewardship.
Des Naughton, Group Operations Director
How we’re preparing for the future Our material issues YOU ASK US
■ Protecting the long-term security of our Reported Where fertile land is used to grow tobacco tobacco leaf supply by encouraging > Working with farmers rather than food, doesn’t tobacco cultivation sustainable agriculture based on multi- > Sustainable agriculture contribute directly to hunger and malnutrition? stakeholder partnerships. > Supply chain management > Read our response in the sustainability and our business section ■ Using our supply chain programmes At bat.com: and partnership projects with suppliers > Tobacco curing and third parties to protect the human > Integrated pest management Do you have any questions or feedback rights of our suppliers, contracted > Green tobacco sickness farmers and local communities. on our supply chain management or other sustainability issues? ■ Working to help build an objective Our materiality test determines which topics evidence base on the impacts of are of the greatest significance to our We will donate £10 to the Global Trees tobacco growing compared to business and stakeholders. Campaign for each of the first 200 responses other crops. we receive to the feedback survey. ■ Listening to our Supply Chain www.bat.com/sustainability/feedback Sustainability Stakeholder Panel’s guidance and challenge on our supply chain sustainability issues.
■ Reducing environmental impacts in our operations and encouraging our suppliers to reduce theirs. British American Tobacco Sustainability Report 2011 81
Sustainability Report 2011
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Viewpoint from the Group Operations Director
It is vital to ensure our supply chain is fit for purpose for the long term. That’s partly about how it’s structured – for example, being vertically integrated gives us greater flexibility. But it’s also about making sure our supply chain works in sustainable ways, from growing tobacco through to distributing our products around the world. Importantly, our approach covers both our own operations and our wider supply chain. We join forces with partners in our supply chain and with other stakeholders to find solutions that work for all of us, preparing us for changing regulation, climatic instability and evolving consumer needs. The business case for adapting to climate change is strong and includes competitive advantage, cost savings, community Des Naughton, resilience, liability management and good investor relations. To Group Operations Director me, it’s clearly good business, as well as good stewardship.
What’s the issue? Our supply chain sustainability strategy prepares our business for the future. The strategy covers our own planning, manufacturing, logistics and trade marketing operations. But the most significant part of it relates to tobacco growing. Even though this is an area where some of our greatest supply chain impacts are, we do not own tobacco farms or directly employ farmers. However, with relationships with over 140,000 farmers in 19 countries, we do have strong influence. We believe these relationships and this experience mean we have an important part to play in developing sustainable agriculture solutions that focus on the whole agricultural sector, not just tobacco. British American Tobacco Sustainability Report 2011 82
Sustainability Report 2011
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Working with farmers
Agronomy support ASSURANCE COMMENT FROM We have around 800 leaf managers and ERNST & YOUNG LLP technicians worldwide, who provide agronomy During our interviews support to all our directly contracted tobacco farmers and engage with farming communities in with management all our tobacco growing locations. and key stakeholders we discussed British Engaging with our contracted farmers in this way helps make their farms viable and efficient. In American Tobacco’s doing so, we protect the security and quality of ongoing work to address our tobacco leaf supply. However, our agronomy the issue of child labour support covers areas of agricultural practice other in tobacco growing, than just tobacco farming. So it also helps farmers such as the inclusion improve the quality and yields of food crops, of child labour criteria making them more self-sufficient. in the SRTP programme It includes: and standard child ■ Information on best practice like labour and safety standards and the appropriate use of agrochemicals; labour clauses for farmer contracts. These ■ Advice on how to maximise yields, optimise crop quality, achieve reliable returns and improve the long- term sustainability of a farm; and activities, along with revisions to British ■ Guidance on improving the long-term potential of the soil and other farm resources, for example through crop rotation. American Tobacco’s Child Labour Policy, Our global agronomy centre in Brazil supports our leaf managers by identifying best practice and helping them highlight the importance to help farmers implement it consistently. the Group places on While the support we provide our contracted farmers undoubtedly brings advantages to our business in terms addressing the issue of access to high quality tobacco leaf, it also plays a significant role in improving local environments and of child labour in the livelihoods and in helping tobacco farmers mitigate the impacts of climate change. agricultural supply Sustainable sourcing chain. The impacts Tobacco leaf sometimes requires additional heat for curing and, in 2011, 78 per cent of the tobacco leaf we these activities have on purchased used wood as the fuel for this. We promote afforestation programmes to enable farmers who reducing instances of require wood for tobacco curing to obtain it from sustainable sources and we have a target of zero use of child labour will need natural forest for our directly contracted farmers’ curing fuels by 2015. to be closely monitored In 2011, we made progress towards this target, with a fall from 12.1 per cent to 7.3 per cent. This can be and outcomes disclosed viewed in the wood fuel sources data. in future reporting. We are also encouraging some of our contracted farmers to cure their tobacco with appropriate, locally available alternative fuels. These can include gas, sawdust, coal, candlenut shells or liquid petroleum gas, as well as coffee or rice paddy husks. All fuels have environmental impacts, so we are also evaluating ways to minimise fuel consumption, for example by using innovative designs for curing barns. You can read more about this in a case study on curing barn design in Zimbabwe. Continual improvement OUR SUPPLY CHAIN We monitor the social and environmental performance of all our leaf suppliers through our Social Responsibility in Tobacco Production (SRTP) programme. In 2011, we supplied over 180 The programme includes good agricultural practices, which combine viable tobacco production with positive markets with 705 billion cigarettes environmental management; soil and water conservation; appropriate use of agrochemicals; promoting made at our 46 cigarette factories afforestation programmes; safety standards; medical facilities; and eliminating exploitative child labour. in 39 countries. We purchased 443,480 tonnes of tobacco leaf, In 2011, as well as all suppliers carrying out self-assessments, the independent reviewer LeafTc carried out 26 grown by more than 200,000 reviews in 17 countries. By the year end, 96 per cent of suppliers had been reviewed by LeafTc at least once. farmers, over 140,000 of whom SRTP has been shared with the industry and the details of the review criteria are available on www.leaftc.com. are directly contracted to us. In 2011, we introduced minimum performance thresholds for all our tobacco leaf suppliers and we are revising We also purchase significant the full programme, in consultation with LeafTc. The updated version is expected in 2012 and will also be quantities of other materials, such aligned with the International Labour Organisation’s new Code of Practice on Safety and Health in Agriculture. as packaging, cigarette paper, filter materials, glues and inks. The latest SRTP scores, including those for the child labour section, can be seen in the SRTP performance data. British American Tobacco Sustainability Report 2011 83
Sustainability Report 2011
Sustainability and Supply chain Our regions Engagement and Harm reduction Marketplace Environment People and culture our business and markets governance
Human rights in the supply chain
Human rights issues are a concern in many parts of the world where we operate. We use our EMPLOYEE influence where we can to improve conditions in VIEWPOINT our supply chain. We do this through our supplier I hadn’t appreciated standards and partnership projects with suppliers how complicated the and third parties. child labour issue was Our approach draws on the UN Universal before I started working Declaration of Human Rights and the Organisation here or how much of our for Economic Cooperation and Development’s time with farmers would (OECD’s) Guidelines for Multinational Enterprises. be spent on it. I think Human rights criteria are incorporated into our it’s really important for major supply chain management programmes, people to understand including our Business Enabler Survey Tool and our Social Responsibility in Tobacco Production that it’s considered (SRTP) programme. Our leaf managers and technicians also help our contracted farmers to protect the normal among the occupational health of their farm workers, for example by using agrochemicals safely. local communities for In 2012, we will review our approach to human rights following the publication of the OECD’s revised children to help out on Guidelines for Multinational Enterprises and the Conventions of the International Labour Organisation (ILO). their parents’ farms. It This will include a review of our Child Labour Policy with input from the ILO. becomes child labour when the ‘helping out’ Tackling child labour starts to interfere with Child labour is an important human rights issue for any the child’s welfare, industry with an agricultural supply chain and the tobacco safety or education. industry is no exception. It’s not always an easy OUR APPROACH TO HUMAN RIGHTS We have had a Group-wide Child Labour Policy since distinction to make, so IN THE SUPPLY CHAIN 2000, it is a key element of our SRTP programme and we ■ we help the farmers to Our SRTP programme for all our were one of the founding members of the Eliminating Child understand where the tobacco leaf suppliers covers child Labour in Tobacco Growing (ECLT) Foundation in 2001. labour and other human line needs to be drawn We continue to play an active role in the ECLT Foundation rights issues. and the steps they need along with others in the industry, trades unions and the ■ to take, like making Through our agronomy support ILO. The Foundation runs community-based projects to services, we encourage compliance raise awareness of child labour issues; improve access sure children don’t with Group policy and local laws. to education and health services for children; and build handle chemicals. ■ We have had a Group-wide Child local capacity to address the problem. A number of our Adeladan Ademola Amidu, Labour Policy since 2000. companies in tobacco growing countries also run their own Leaf Training and Sustainability community-based programmes to address child labour. ■ We were one of the founding Supervisor, British American members of the Eliminating Child External allegations Tobacco Nigeria Labour in Tobacco Growing (ECLT) In 2010 and 2011, allegations were made by representatives Foundation in 2001. of the US Farm Labour Organising Committee (FLOC) See www.eclt.org. about conditions for migrant workers on tobacco farms in ■ We have a number of long-standing North Carolina, USA. Reynolds American Inc, an associate community-based programmes to company of which the Group is a 42 per cent shareholder, address child labour in tobacco was targeted in FLOC’s campaign. growing areas. We take this matter very seriously. In order to understand ■ Our suppliers are required to meet the complexity of the situation and to encourage progress, criteria on issues including workers’ we have engaged with the Trades Union Congress in the rights and child labour. UK and the International Union of Food workers. Reynolds ■ We are incorporating human rights American Inc. is fully committed to constructively engaging criteria into all our framework with all stakeholders who share an interest in tobacco farm agreements with global suppliers. We working conditions in North Carolina and steps to establish expect this to be completed in 2012. this process are underway. British American Tobacco Sustainability Report 2011 84
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Curing barn design to reduce wood fuel use in Zimbabwe
Some tobacco farmers use wood as a fuel for curing tobacco. We have a target of zero use of natural forest for our directly contracted farmers curing fuels by 2015. Among other things we are doing to reach this target, British American Tobacco is looking at innovative designs for curing barns that optimise fuel efficiency. One design is the rocket barn, which uses a double chimney system to draw air through the inner barn. This results in a faster curing process that uses much less wood fuel than conventional barns. The rocket barns are suitable for small-scale farmers as they are affordable, easy to build and designed for small- to medium-scale production levels. The barns were designed by Peter Scott and the Burn Design Lab and have been used in countries such as Tanzania and Malawi for some years now. From January 2010 to April 2011, our company in Zimbabwe collaborated with Northern Tobacco and the Tobacco Research Board on a pilot to assess the performance of the barn design. Test rocket barns were constructed at the Tobacco Research Board’s Kutsaga Research Station in Harare, with a conventional barn being used as a control. Results taken over a two-month period showed that rocket barns can use up to 50 per cent less wood fuel. British American Tobacco Zimbabwe is now encouraging its contracted farmers to switch to rocket barns, with a goal for them to do so by the end of 2015. British American Tobacco Sustainability Report 2011 85
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SRTP performance data
Social Responsibility in Tobacco Production Average percentage of leaf suppliers’ self-assessment scores
93% 67% 2011 81% 91%
93% 65% 2010 79% 90%
87% 59% 2009 73% 85%
92% 73% 2008 79% 89%
88% 72% 2007 78% 87%
0 10 20 30 40 50 60 70 80 90 100
Social responsibility policy Agronomy Tobacco processing Socio-economic factors
Child labour section of Social Responsibility in Tobacco Production Average percentage of leaf suppliers’ self-assessment scores
2011 90%
2010 87%
2009 83%
2008 93%
2007 91%
0 10 20 30 40 50 60 70 80 90 100 British American Tobacco Sustainability Report 2011 86
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Wood fuel performance data
Wood fuel sources Percentage sources of wood used in growing programmes
2011 62.9% 29.8% 7.3%
2010 59.1% 28.8% 12.1%
2009 66.4% 27.2% 4.3% 2.1%
2008 67.2% 27.4% 3.7% 1.7%
2007 80.0% 14.0% 5.0% 1.0%
0 20 40 60 80 100
Company sponsored or advised forestry* Commercial forest Natural forest Source unknown**
*Company sponsored or advised forestry includes trees grown by farmers and cooperatives advised by our direct agronomy services as well as trees planted or sponsored by our companies. **We ceased reporting sources unknown from 2010 following a review of wood fuel reporting, which allows these sources to now be identified. British American Tobacco Sustainability Report 2011 87
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Independent research
We do not agree with the majority of claims that tobacco farming has far worse social and STAKEHOLDER environmental impacts than other agricultural crops VIEWPOINT or practices. The review of the In 2011, we commissioned independent research evidence comparing by Development Delivery International (DDI) into environmental risks the impact of tobacco growing, which comprised of tobacco cultivation a literature review of over 300 published sources with other international on the subject and field research into the agricultural commodities circumstances of tobacco and non-tobacco farmers suggests that as far in three contrasting tobacco growing countries. as environmental risk This literature review concluded that the existing is concerned, tobacco research base was both limited and lacked growing would seem contextual understanding. No clear evidence to to pose no greater support a causal link between tobacco cultivation threat than any other and poverty or that tobacco growing necessarily leads to adverse labour or employment outcomes could be found. The literature on environmental risks was equally problematic with the possible exception of commodity, especially deforestation, although the evidence suggested that this is site specific and can be mitigated. It also found that when compared to there is no clear evidence that tobacco growing exacerbates poverty and that there is minimal evidence that it crops like cotton and contributes to food insecurity. sugar cane, which have The second part of the study took the form of a practical investigation in Bangladesh, Brazil and Uganda high requirements for looking at whether tobacco cultivation poses a greater hazard to the welfare of poor people in comparison agrochemicals and with the cultivation of other available crops. The case study results show that the claims for a direct causal where land management link between tobacco cultivation and poverty do not hold true as a generalisation. It also found that the practices can have ability of households to move in and out of tobacco cultivation does not support a picture of entrapment; that significant negative tobacco cultivation is seen to be an important and reliable income source that enhances food security and impacts on ecosystems. has contributed to increasing farmers’ welfare; and that suitable agronomy support can help mitigate both environmental and health risks, such as green tobacco sickness, associated with tobacco farming. ‘The role of tobacco growing in rural livelihoods: Rethinking the DDI’s report contributes to the currently limited evidence base in this area and includes detailed on the ground debate around tobacco supply research about the impact of tobacco cultivation on farmers’ livelihoods. The report says that the percentage reduction’ by Development of the literature reviewed that shows any peer-review or quality assurance process is rather limited and so Delivery International, restricts the evidence base that policy makers can work with. As a result, we are concerned that regulators will February 2012 develop policy that will affect the lives of hundreds of thousands of tobacco farmers and is based on neither adequate research nor robust evidence. The report can be downloaded from www.ddinternational.org.uk. British American Tobacco Sustainability Report 2011 88
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Sustainable agriculture
The world population is forecast to reach nine ASSURANCE billion by 2050 and this, along with economic COMMENT FROM development leading to people having higher ERNST & YOUNG LLP incomes, means twice as much food will need We attended two British to be produced from the same amount of land. American Tobacco This is focusing the attention of a wide range stakeholder dialogues of stakeholder groups involved in sustainable on sustainable agriculture. agriculture during the Sustainable agriculture means farming reporting year, bringing communities are successful in terms of their together participants productivity but also protect the environment and from policy making, provide social benefits like education. We believe not-for-profit and that a framework for sustainable agriculture needs to include standards and regulations to support other key influencing best practice; tools and technologies to improve organisations. It productivity and reduce environmental impacts; and key services for communities, including healthcare and was clear from the education. discussions that To be successful, sustainable agriculture needs to look at the whole landscape, not just individual crops. A the cultivation of single tobacco farmer implementing good practices is neither sufficient nor effective if neighbouring farmers tobacco brings with and community members are not also involved. That is why we want to work with others to develop an it economic, social approach that includes cross-sector solutions and involves all a community’s stakeholders. and environmental In 2011 and early 2012, we held two stakeholder dialogue sessions on sustainable agriculture. The first, in the challenges. It will be UK, was held with the Food and Environment Research Agency. Along with UK policy makers, NGOs and other important for British key influencers, we discussed the policy and regulation needed to effectively address the social, environmental American Tobacco to and economic challenges of agriculture. The main insights from the session included: demonstrate how its ■ There needs to be robust and appropriate regulation, supported by relevant agricultural policies, to ensure approach to sustainable compliance both with global standards and to address specific issues in different countries; agriculture can ■ Sustainable agriculture will require the adoption of more economic and ecologically efficient practices; help mitigate those challenges and develop ■ These practices will be implemented through appropriate tools and technologies that deliver sustainable outcomes; and ways of measuring the value generated by ■ Improved communication and education throughout the agricultural supply chain is fundamental to its activities on local translating strategies and policies into action and ensuring that tools and technology are adopted at the farm level. economies where it operates. The second dialogue session was held in Bangladesh, a key tobacco growing country. It was attended by stakeholders from the UK and across Asia. Participants were taken on a field visit to see our agronomy support services in action and an independently facilitated session was then held the following day to get feedback on our approach and discuss the challenges of sustainable agriculture in Southern Asia. STAKEHOLDER VIEWPOINT The main insights from the session were that a holistic ‘landscape’ approach involving different stakeholders in the process is needed and that further dialogue and collaboration will be required to raise awareness and When we first saw the create results. Participants all stressed the importance of educating and empowering farmers and how the details of the Group’s sharing of best practice will be necessary to accelerate the process. approach to sustainable You can download copies of the dialogue reports from www.bat.com/reporting. agriculture, we were surprised at just how much they were doing. I guess they don’t shout about it because they’ve been discouraged by the criticism the tobacco industry has received.
Dr Douglas Crawford-Brown, Chair of our Supply Chain Sustainability Stakeholder Panel British American Tobacco Sustainability Report 2011 89
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Supply chain management
In 2011, we established a Supply Chain Sustainability Stakeholder Panel to give us guidance and challenge on our supply chain sustainability issues. The Panel is made up of two OUR BUSINESS ENABLER suppliers, two professionals from other FMCG SURVEY TOOL (BEST) companies and two independent experts. You can read more about the Panel in the viewpoint from BEST assesses the sustainability the Chair on the following page. performance of our materials suppliers, providing a framework We developed our supply chain sustainability for continual improvement. strategy in consultation with internal and external Suppliers must obtain Approved, stakeholders in 2010. It requires each division of Qualified or Certified status in our supply chain to minimise its most significant order to be retained by British environmental impacts. American Tobacco. During 2011, we carried out 41 BEST reviews, Manufacturing and logistics use more energy and resources than the rest of our direct operations, so the strategy of which 23 gained the minimum focuses on them. In both areas, we have measures in place to assess and reduce our environmental impacts and Approved status, 16 gained are exploring and adopting alternative technologies and renewable sources. Qualified status and two gained We use our Sustainable Business Assessment to compare the potential social and environmental impacts the highest status, Certified. and risks associated with new products, components or packaging. Life cycle analysis provides detailed environmental information to incorporate into our decision-making. For example, consideration of energy and CO2 impacts are now used in our global factory sourcing decisions. Our Business Enabler Survey Tool, which we use to evaluate the sustainability standards of our materials suppliers, now incorporates additional sustainability criteria. We are also integrating further sustainability STAKEHOLDER principles into the selection criteria for our direct materials and machinery suppliers. VIEWPOINT Our suppliers are encouraged to monitor and measure their environmental impacts using a scorecard that we Through our work trialled in 2011 with strategic materials suppliers. The scorecard was developed in 2010 together with these with British American suppliers and covers energy, water, waste and CO2e. It helps us monitor performance and identify areas for joint improvements. We are now working with these suppliers to develop the next stage of the scorecard and will Tobacco, we were able expand its use to our machinery suppliers. to participate in a stakeholder dialogue session and the development of the supplier scorecard. This collaborative approach has been particularly fruitful for us and helped jump start our company- wide sustainability programme. We welcome British American Tobacco’s feedback and sharing of best practices as we continue on our journey.
Juliette Audren, Sustainability Programme Manager, SWM-INTL (paper and reconstituted tobacco leaf supplier) British American Tobacco Sustainability Report 2011 90
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Viewpoint from the Chair of our Supply Chain Sustainability Stakeholder Panel
When we first saw the details of the Group’s approach to sustainable agriculture, we were surprised at just how much they were doing.
Dr Douglas Crawford-Brown, Panel Chair Cambridge Science and Policy Consulting
In 2011, I became the Chair of British American Tobacco’s newly formed Supply Chain Sustainability Stakeholder Panel. Our remit is to advise and challenge the business on the implementation of its supply chain sustainability strategy. We meet twice a year, each time focusing on a specific area or issue. So far we’ve looked at sustainable agriculture and water management. We review the Group’s current approach in these areas, along with its plans going forward, and then we offer our insights and suggestions. And with a wealth of experience and knowledge on the Panel, we have a lot to say! It’s too early to say what sort of impact we’ve had, but so far I’ve found the business to be very open and willing to take on board what we have to say. Some stakeholders might be reluctant to engage with the company on sustainability issues because of the negative associations with ‘big tobacco’. However, for the Panel, it’s clear that British American Tobacco has a valuable contribution to make to the debate. I think policy makers and others appreciate the input of organisations whose supply chains range from small producers in developing countries to multinationals, as they can offer insights about what works on the ground. When we first saw the details of the Group’s approach to sustainable agriculture, we were surprised at just how much they were doing. I guess they don’t shout about it because they’ve been discouraged by the criticism the tobacco industry has received. We suggested that if British American Tobacco were to promote its concept of sustainable agriculture generally – not just growing tobacco sustainably – then this might improve the lives of tobacco growers as well as relationships with those stakeholders who are currently reluctant to engage with a tobacco company. As the Panel moves into its second year, we look forward to seeing how our work with British American Tobacco progresses and how our input is making a difference in the business. Dr Douglas Crawford-Brown, Panel Chair Cambridge Science and Policy Consulting British American Tobacco Sustainability Report 2011 91
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Supply chain goals and commitments
Our supply chain commitment We will work for positive social, environmental and economic impact in our supply chain.
2012 goals ■ Aim for zero use of natural forest for directly contracted farmers’ curing fuels by end 2015; ■ Continue working with the independent SRTP reviewer, LeafTc, to review and update the assessment by end 2012; ■ Incorporate requirements for human rights and other sustainability criteria into all ourframework agreements with global suppliers by end 2012; ■ Conduct a review of our approach to human rights following the publication of the OECD’s revised Guidelines for Multinational Enterprises, including input on our Child Labour Policy from the International Labour Organisation; ■ Conduct a detailed review of our strategic operational sites in high-risk water stress locations;
■ Roll out our energy and CO2e assessments for warehouses across the Group by end 2012; ■ Roll out our programme to improve fuel efficiency across all Group Trade Marketing & Distribution teams by end 2012; and ■ Develop the next version of our supplier scorecard and expand its use British American Tobacco Sustainability Report 2011 92
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People and culture
What the future might look like
Competition for good people is likely to intensify as international companies increase their overseas footprint. Therefore, it will be critical for businesses to build a strong and clearly differentiated reputation as an employer.
Increasingly, people want to work for businesses with strong sustainability credentials, so we need to ensure that the Group continues to stand out in this area. Ensuring our workforce shares in Having a talented workforce has become one of the success of a sustainable business the most critical factors in our industry, arguably will help us attract the best people wherever even more so than technology or capital. Our we operate. talented people are an indispensable element in competitive advantage.
Giovanni Giordano, Group Human Resources Director
How we’re preparing for the future Our material issues YOU ASK US
■ Strengthening our core capabilities, Reported Is it really feasible for you to continue to our culture and our values. > Talented people as a competitive recruit talented employees in the future given advantage that you sell cigarettes? ■ Continuing to build robust > Strengthening our culture and values > Read our response in the sustainability and succession plans. > High performance leadership and our business section ■ Embracing the diversity of our workforce organisational productivity to encourage creativity and innovation. > Workplace health and safety
■ Establishing clear principles and simple, Do you have any questions or feedback At bat.com: effective tools to manage performance. on our approach to people and culture or > Occupational health management other sustainability issues? ■ Streamlining our global human > Corporate social investment resources practices and eliminating We will donate £10 to the Global Trees duplication. Our materiality test determines which topics Campaign for each of the first 200 responses are of the greatest significance to our ■ Improving our approach to the health, we receive to the feedback survey. business and stakeholders. wellbeing and safety of our people. www.bat.com/sustainability/feedback British American Tobacco Sustainability Report 2011 93
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Viewpoint from the Group Human Resources Director
Having a talented workforce has become one of the most critical factors in our industry, arguably even more so than technology or capital. Our talented people are an indispensable element in competitive advantage. We’re focusing on driving high performance, encouraging greater productivity, building on the excellence of our people to increase our competitive advantage and strengthening our culture and values. Looking after the fundamentals is equally important: like having a safe workplace, protecting our employees’ wellbeing and listening to their views. This is all part of maintaining a culture founded on exceptional commitment and deep personal responsibility.
Giovanni Giordano, Group Human Resources Director
What’s the issue? To achieve the goals we set for our business we need a strong workforce – from securing our supply of tobacco leaf to delivering high quality products to our consumers. We can only maintain a strong workforce if we nurture our people and bring them up through the business. We value our employees’ diverse perspectives, encourage them to perform to their best ability and look after them well, particularly during periods of business change. In short, we want a stretching and supportive culture that attracts, engages and retains diverse and talented people. British American Tobacco Sustainability Report 2011 94
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Talented people as a competitive advantage
Strengthening our core capabilities In recent years, we have focused on simplifying and enhancing how we manage our learning and development practices. In particular, we have EQUAL OPPORTUNITIES concentrated on giving our employees access to the leadership, managerial and functional training We are committed to providing programmes they need to strengthen their core equal opportunities to all prospective and current capabilities and progress within our business. employees. Our Group A range of training programmes has been made Employment Principles state accessible to all our companies and, in 2011, we that we will not discriminate in launched a new online learning and development hiring, promotion or retirement system. For the first time, this provides our people decisions on the grounds of with access to a suite of e-learning applications candidates’ or employees’ race, and gives our companies a clearer view of the colour, gender, age, social class, religion, smoking habits, learning and capability gaps in their operations. sexual orientation, politics or Succession management disability. Instead, we match the requirements of the job to the Ensuring clear succession plans are in place for every senior role remains our long-term objective. This means ability and potential of having at least one local successor ready in the short term and two local successors identified for long-term the individual. development. We also aim to achieve a 70:30 ratio of local to expatriate senior managers in each business unit. This gives our companies a valuable balance between local knowledge and international perspective. Following our recent reorganisations, we have identified some gaps in our succession plans for a number of important roles. To tackle this, the Group launched a global recruitment drive in 2011, focusing on senior management positions. This will continue in 2012. The issue is also being addressed at regional level. For example, with the growth of our business in our Asia Pacific region, there is a greater demand to recruit suitably qualified managers locally. The region now has a dedicated programme to identify where to accelerate development of existing employees and where the gaps are to focus external recruitment. Data on our succession coverage and local to expatriate management balance can be viewed on the following page. Although neither target has yet been reached, we have seen an improvement in 2011 in local representation and long-term succession coverage. British American Tobacco Sustainability Report 2011 95
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Succession management data
Local succession coverage – 1:1:2 at business unit level Percentage of business units with at least one local successor in the short term and two local successors in the long term for each senior position.
88% 76% Americas 78% Americas 85% 78% 76%
31% 39% Asia- Asia- 50% 17% Pacific 53% Pacific 35%
Eastern Eastern Europe, 47% Europe, 32% Middle 47% Middle 36% East and 37% East and 50% Africa Africa
38% 22% Western 45% Western 16% Europe 38% Europe 57%
51% 53% Average 57% Average 43% 58% 63%
0 50 0 50 Short term Long term
2011 2010 2009 2011 2010 2009
Local top teams – 70:30 at business unit level Percentage of local representation on business unit senior management teams.
80 74% 72% 69% 58%
60 57% 55% 54% 53% 51% 50% 45% 45% 41% 40% 40% 40 Percentage (%)
20
0 Americas Asia-Pacific Eastern Western Average Europe, Europe Middle East and Africa
2011 2010 2009 British American Tobacco Sustainability Report 2011 96
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Strengthening our culture and values
We know that people do not stay in jobs just because of the pay or promotion opportunities. Employees want a supportive culture where their views are listened to. Diversity PROTECTING HUMAN Diversity helps us to understand our consumers, RIGHTS IN OUR customers and stakeholders and to meet their WORKPLACE needs. It also provides different ways of looking at challenges, encouraging creativity and innovation. Our Employment Principles To maintain a diverse workforce we need to attract embody key internationally talented individuals from different backgrounds recognised aspects of human and make sure our culture supports them. Our rights that apply to the workplace. They include important topics corporate values have always included a statement such as: equality of opportunity on how diversity gives us a competitive advantage and non-discrimination; freedom but we need to ensure our people fully embrace of association; not condoning this value and promote it globally. or employing child labour; being Our focus on diversity includes having greater completely against forced or demographic representation across our senior bonded labour; occupational health and safety; and fair management, including by gender and by nationality. remuneration and conditions One example of an approach taken by our company in Chile was to review the workforce by employee groups, of work. in much the same way that we do for our customer base to better understand their needs. This gave us a more robust understanding of what under-represented groups value and what we need to do to create a culture where we can attract, retain and develop a diverse talent pool. Having completed this project in 2011, British American Tobacco Chile will share its experience with human CHAIRMAN’S resources teams across the Americas region. VIEWPOINT We continue to support the career development of our female managers, with the aim of increasing the I welcome the report proportion of women in senior management roles. This includes drawing up development plans for our senior by Lord Davies about women and monitoring progress against them; assigning mentors; and encouraging recruitment consultancies Women on Boards to draw up gender-balanced candidate shortlists when we recruit externally. released in February this Data on the proportion of senior roles held by women are reviewed at our Management Board Talent year. The Company’s Review meetings. Board has considered the report in some detail... and recognises Percentage breakdown for women in management and governance bodies the benefits of increased female representation, and Board diversity in its widest sense, both % by level 2009 2010 2011 at Board level and Management trainees 48% 48% 47% throughout all levels Management grade 34 33% 35% 34% within the organisation.
Management grade 35 32% 32% 33% Richard Burrows, Chairman, Management grade 36 28% 29% 29% September 2011 Management grade 37 23% 24% 25% Read his full statement at Management grade 38 13% 15% 16% www.bat.com/diversity. Management grade 39 9% 8% 10% Management grade 40 4% 5% 5% Management Board 0% 0% 0% 32% Non-Executive Directors 38% 33% 33% of women in management roles
At 31 December 2011, the Management Board had 15 members and the Board of British American Tobacco 25% p.l.c. had 12 members, three Executive Directors and nine Non-Executive Directors, including the Chairman. female Board representation 64 nationalities working in our headquarters British American Tobacco Sustainability Report 2011 97
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Employee opinion Our most recent Group-wide ‘Your Voice’ employee opinion survey was carried out by Towers Watson in 2010. It showed that our employees view British American Tobacco more positively than the benchmark for businesses in the FMCG sector. But it also told us that, although general business communication has improved, communication on organisational changes could be clearer. The full results of the survey can be viewed on the following page. Following the survey, we held focus group sessions to get more input from employees, then developed global, regional and local action plans to address areas of concern. Conducting the survey every two years cannot provide as immediate a picture as we would like of how employees are responding to business changes. So in 2011, we trialled more regular ‘pulse checks’ of employee opinion in five of our markets. These surveys measured employee opinion on specific issues in a faster and more efficient way. We are now examining the feasibility of rolling them out across the Group. Initially they would focus on the results of actions coming out of our main survey; the readiness, support and capabilities for change prior to any reorganisation; and the effectiveness of our engagement around, and implementation, of organisational changes. We are also currently revising the main ‘Your Voice’ survey and the new version will be carried out Group-wide in 2012. British American Tobacco Sustainability Report 2011 98
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‘Your Voice’ 2010 data
‘Your Voice’ biennial employee opinion survey British American Tobacco vs Towers Watson global FMCG benchmark. Category scores ranked by difference from benchmark. ‘Difference from benchmark’ above two indicate a statistically significant difference.
10 78% 77% 76% 74% 74% 72% 69% 69% 7.5 69% 66% +7 +7 62% +6 5 +5 +5 +5
Difference +4 2.5 +3 +2 +2 +1 0 Innovation Engagement Developing talent Guiding principles People leadership Strategic leadership Corporate responsibility Performance and reward Efficiency and productivity Efficiency Managing growth and change Communication and information
% favourable scores Difference from benchmark British American Tobacco Sustainability Report 2011 99
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High performance leadership and organisational productivity
A more focused approach to performance management In 2011, we set out to simplify our performance management system in response to feedback from many employees. The aim was to better support employees’ regular performance reviews, helping them track their performance against individual goals and their contribution to the Group’s values and ambitions. The revised system is being used throughout the Group from January 2012. It is simpler to use and encourages employees and managers to think about performance management throughout the year, not only at the start and end of the annual cycle. Using a streamlined and more logical approach to objective setting and assessment, it will help differentiate more clearly between those who are falling short, those who are meeting their goals and those whose performance is genuinely outstanding. We have also focused on strengthening our use of constructive feedback, the quality of development materials and making opportunities available to all our people. An organisation that’s fit for purpose Reviews of our human resources practices in 2011 showed that the service to the business is often fragmented. This has resulted in a duplication of effort and lack of consistency across our global operations. For example, we have a large number of suppliers providing HR services around the world and, collectively, our Group companies spend a great deal of money with these suppliers. Clear opportunities exist to create strategic relationships with a smaller number of suppliers to improve quality and consistency and to take advantage of economies of scale. We are working actively to streamline our practices and eliminate duplication, while putting greater focus on the quality of services we deliver. Progressively this will be enabled by technology, providing data to track improvements and providing information to enable better management of our people and productivity. British American Tobacco Sustainability Report 2011 100
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Sustainability and People and culture Our regions Engagement and Harm reduction Marketplace Environment Supply chain our business and markets governance
Workplace health and safety
We are committed to providing a safe working environment for all our employees and contractors DIRECTOR and have a Group goal of zero accidents. VIEWPOINT It is a matter of great concern to us that there were Ensuring a safe working 37 serious injuries reported in 2011, involving 18 culture is paramount employees and 19 contractors across 21 countries. to the success of our Seven out of these 37 injuries were fatalities (one business. That is why employee and six contractors), compared to four our ambition is for in 2010 (three employees and one contractor). zero accidents in Four were the result of assaults, two were from our workplace. falls from height and one was the result of a road traffic accident. We greatly regret this loss of life Des Naughton, Group Director and we systematically review every major incident of Operations to identify any ways in which we can prevent a recurrence. Along with the number of serious injuries and fatalities for both employees and contractors, we also monitor our Lost Workday Case Incident Rate (LWCIR). The Group’s LWCIR in 2011 was 0.26, compared to 0.27 in ASSURANCE 2010. Our total number of lost workday cases decreased from 212 in 2010 to 204 in 2011. COMMENT FROM In 2011, we implemented our plan to reduce vehicle-related injuries in our Trade Marketing & Distribution ERNST & YOUNG LLP teams. Already, we have seen positive results, with an 18 per cent reduction in the teams’ vehicle-related lost Improving health and workday cases and a reduction in fatalities compared to 2010. Group-wide vehicle-related accidents decreased safety performance by nearly 19 per cent compared to 2010. Following targeted initiatives to address manual handling accidents, across the Group has lost workday cases in this area reduced by 53 per cent for the Group. been a focus area over We updated our health and safety strategy in 2010. Then, in 2011, we focused on risk management and the past year and we reducing the main causes of accidents and serious injuries. This included: have seen evidence of ■ Encouraging managers, employees and business partners to talk more about what precautions need to be regular updates being put in place; provided to leadership. ■ Launching awareness campaigns about specific types of accidents; An internal review of accident categorisation ■ The introduction of ‘safety surveys’ as part of senior management visits to operational sites; has led to improved ■ Making improvements to our Environment, Health & Safety management system; identification of priority ■ Improving our internal audit process to make sure our risk controls and management systems are fit for areas and the roll-out purpose; of accident reduction ■ Extending the scope of our health and safety reporting to help us prioritise our activities; and initiatives across the ■ Working to ensure that our occupational health services are used to support employees returning to work Group. Although we following an accident and to provide support following any traumatic incidents, such as assaults. have seen a positive We have programmes to protect and promote health, which are particularly valuable in those parts of the world downward trend of where local health services struggle to provide an adequate service. In these areas, diseases such as malaria, vehicle-related injuries tuberculosis, AIDS and hepatitis are often responsible for high levels of death and disability. compared to 2010, these Our Significant Endemic Disease programme aims to reduce the impact of these diseases on employees, their accidents continue to be families and communities. You can read more about the programme on www.bat.com and about the HIV/AIDS the most common cause programme run by our company in South Africa in the regions and markets section. of physical incidents and so the focus needs to continue to identify further areas for improvement. British American Tobacco Sustainability Report 2011 101
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Sustainability and People and culture Our regions Engagement and Harm reduction Marketplace Environment Supply chain our business and markets governance
Employee health and safety data
Lost Workday Case Incident Rate (LWCIR) LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked.
2011 0.26*
2010 0.27*
2009 0.37
2008 0.40
2007 0.39
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4
* The 2010 and 2011 figures include the performance data for the business in Indonesia that we took control of in January 2010 but do not yet include our October 2011 acquisition in Colombia.
Serious injuries and fatalities
2011 18 19
2010 25 4
2009 22 6
2008 20 6
2007 30 8
0 5 10 15 20 25 30 35 40
Employees Contractors British American Tobacco Sustainability Report 2011 102
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Sustainability and People and culture Our regions Engagement and Harm reduction Marketplace Environment Supply chain our business and markets governance
People and culture goals and commitments
Our people and culture commitment We will work to ensure we have the right people and culture to meet our goals.
2012 goals ■ In each of our business units, we aim to have at least one local successor ready in the short term for each senior position and two local successors ready in the long term (this goal is expressed as 1:1:2); ■ Aim to have a 70:30 ratio of local to expatriate senior managers at business unit level; ■ Review our approach to employee wellbeing to establish how it can contribute to improved employee engagement by end 2012; ■ Revise our employee opinion survey to strengthen our feedback culture and be better aligned to business priorities, with the revised survey to be carried out Group-wide by end 2012; and ■ Our global aim is to have a Lost Workday Case Incident Rate of no more than 0.2 by end 2012. The local target set for all our companies is zero accidents and we have a zero accidents ambition for the whole Group. British American Tobacco Sustainability Report 2011 103
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Our regions and markets
This sections provides details of sustainability performance in our four regions and nine of our largest markets. British American Tobacco Sustainability Report 2011 104
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Region and market data comparator
International Youth smoking Preventing underage Energy use Marketing Standards prevention access
Carbon dioxide Water use Waste to landfi ll Recycling
Succession planning Employee opinion Gender diversity Lost Workday Case survey Incident Rate
The following pages enable you to compare data between the regions and markets for each of our key performance measures. These measures cover the marketplace, environment and people and culture areas of our sustainability agenda. We do not currently have a comparable quantitative measure for our efforts in tobacco harm reduction or disaggregated data for our supply chain measures. British American Tobacco Sustainability Report 2011 105
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
International Marketing Standards
We apply a consistent, responsible approach to marketing across the Group by requiring our companies to follow our International Marketing Standards (IMS) wherever local law is less stringent. Our IMS state that our companies’ marketing should be targeted at adult tobacco consumers and not undermine their understanding of the health risks. We monitor our companies adherence to our IMS and report any incidences of non-adherence. For more information, please see the marketplace section of this Report.
Regions Number of reported instances of partial or non-adherence
2009 2010 2011 Americas 117 Asia-Pacific 023 Eastern Europe. Middle East and Africa 12 1 6 Western Europe 025
Markets Number of reported instances of partial or non-adherence
2009 2010 2011 Australia 000 Brazil 001 Canada 001 Germany 010 Malaysia 000 Nigeria 201 Russia 002 South Africa 201 South Korea 001 British American Tobacco Sustainability Report 2011 106
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Youth smoking prevention
Our approach to youth smoking prevention (YSP) includes our companies engaging with the government for the adoption of minimum age laws of 18 for tobacco sales where none exist; or, where they do, running YSP programmes to raise retailers awareness of them. For more information, please see the marketplace section of this Report.
Regions Percentage of reporting markets where our business states they are running or supporting youth smoking prevention programmes
100% 67% 2011 54% 79%
89% 72% 2010 54% 79%
90% 38% 2009 15% 36%
0 10 20 30 40 50 60 70 80 90 100 Percentage (%)
Americas Asia-Pacific Eastern Europe, Middle East and Africa* Western Europe**
Markets Markets where our business reports running or supporting youth smoking prevention programme
2009 2010 2011 Australia Yes No No Brazil Yes Yes Yes Canada Yes Yes Yes Germany Yes Yes Yes Malaysia No Yes Yes Nigeria Yes Yes Yes Russia Yes Yes Yes
South Africa Yes Yes Yes * The 2009 data for Eastern South Korea Yes Yes Yes Europe, Middle East and Africa only covers the markets in the Africa and Middle East region under the Group’s previous regional structure. They do not include the additional Eastern Europe markets that previously sat in a separate region.
** The 2009 data for Western Europe includes fi ve additional markets under the Group’s previous regional structure. British American Tobacco Sustainability Report 2011 107
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Preventing underage access
In addition to youth smoking prevention activities, some of our companies also engage with the government to improve measures to help prevent underage access to tobacco. For example, introducing stricter enforcement and penalties for retailers caught selling tobacco products to the underage. For more information, please see the marketplace section of this Report.
Regions Percentage of reporting markets where our business states they are engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco
56% 44% 2011 38% 63%
61% 44% 2010 35% 58%
57% 57% 2009 25% 60%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 Percentage (%)
Americas Asia-Pacific Eastern Europe, Middle East and Africa* Western Europe**
Markets Markets where our business reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco
2009 2010 2011 Australia No No No Brazil Yes Yes Yes Canada Yes Yes Yes Germany No Yes Yes Malaysia No No No Nigeria No No Yes Russia Yes Yes Yes South Africa No No No * The 2009 data for Eastern Europe, Middle East and Africa South Korea Yes No No only covers the markets in the Africa and Middle East region under the Group’s previous regional structure. They do not include the additional Eastern Europe markets that previously sat in a separate region.
** The 2009 data for Western Europe includes fi ve additional markets under the Group’s previous regional structure.
British American Tobacco Sustainability Report 2011 108
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Energy use
When it comes to reducing our environmental impacts within our direct operations, our priority is to minimise energy consumption. In 2011, we exceeded our global 2012 target to reduce our energy use by 6.7 per cent to 11.03 gigajoules per million cigarettes equivalent produced, from our 2007 baseline of 11.82 gigajoules per million cigarettes equivalent produced. For Group data and more information, please see the environment section of this Report. The data is from our online Group-wide EHS reporting system. Previous figures reported in local publications may vary due to differing local reporting standards.
Regions Gigajoules per million cigarettes equivalent produced
10.18 8.62 2011 11.54 11.45
11.04 8.95 2010 12.24 11.89
10.55 8.84 2009 12.63 12.21
012345678910111213
Americas Asia-Pacific Eastern Europe, Middle East and Africa Western Europe
Markets Gigajoules per million cigarettes equivalent produced
25 21.77 20.93 20.53 20.35
20 18.99 18.77 18.83 18.04 17.90 16.85 16.85 16.12 15.82 15.50 15.34 15.36 15 13.01 12.51 10.36 10.16 9.94 10 9.78 8.79 8.50 8.03 7.84 7.81
5
0 Australia Brazil Canada* Germany Malaysia Nigeria Russia South South Africa Korea
2011 2010 2009
*Our company in Canada does not have a manufacturing facility, therefore the data uses the normalised output fi gure ‘cigarettes equivalent sold’ instead of ‘cigarette equivalent produced’. British American Tobacco Sustainability Report 2011 109
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Carbon dioxide
Group carbon dioxide equivalent (CO2e) equivalent includes the WBCSD Scopes 1, 2 and 3. These cover CO2e from all energy sources controlled by the Group, from purchased energy, from business travel and freight and from incineration and landfill. Our global targets are to reduce our CO2e by 50 per cent by 2030 and 80 per cent by 2050 from our year 2000 baseline of 1.38 tonnes per million cigarettes equivalent produced. For Group data and more information, please see the environment section of this Report. The data is from our online Group-wide EHS reporting system. Previous figures reported in local publications may vary due to differing local reporting standards.
Regions
Tonnes CO2e per million cigarettes equivalent produced
0.55 0.86 2011 1.04 0.90
0.60 0.88 2010 1.10 0.87
0.58 0.87 2009 1.13 0.91
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2
Americas Asia-Pacific Eastern Europe, Middle East and Africa Western Europe
Markets
Tonnes CO2e per million cigarettes equivalent produced
3 2.7 2.69
2.5 2.45 2.32 2.27 2.16 2.15 2.12 2.00 2 1.65 1.63 1.43
1.5 1.41 1.38 1.08 1.08 1.07 1.03 1 0.77 0.74 0.74 0.67 0.58 0.53 0.5 0.26 0.26 0.25
0 Australia Brazil Canada* Germany Malaysia Nigeria Russia South South Africa Korea
2011 2010 2009 *Our company in Canada does not have a manufacturing facility, therefore the data uses the normalised output fi gure ‘cigarettes equivalent sold’ instead of ‘cigarette equivalent produced’. British American Tobacco Sustainability Report 2011 110
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Region and market data comparator
Water use
Water is an important resource for us, especially in manufacturing and tobacco growing. For many years, we have been measuring water use in our operations and working to reduce it. In 2011, we exceeded our global 2012 target to reduce our water use by 13.4 per cent to 4.2 cubic metres per million cigarettes equivalent produced, from our 2007 baseline of 4.85 cubic metres per million cigarettes equivalent produced. For Group data and more information, please see the environment section of this Report. The data is from our online Group-wide EHS reporting system. Previous figures reported in local publications may vary due to differing local reporting standards.
Regions Cubic metres per million cigarettes equivalent produced
3.79 3.94 2011 4.29 3.36
3.99 4.32 2010 4.48 3.70
4.12 4.22 2009 5.36 3.74
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
Americas Asia-Pacific Eastern Europe, Middle East and Africa Western Europe
Markets Cubic metres per million cigarettes equivalent produced
20 18.03 16.54
15 12.9
10 8.96 7.95 7.29 6.82 5.52 5.54 5.07 4.98 5 4.73 4.00 3.23 3.08 2.84 2.72 2.73 2.67 2.59 2.49 2.11 1.77 1.62 1.21 0.89 0.73
0 Australia Brazil Canada* Germany Malaysia Nigeria Russia South South Africa Korea
2011 2010 2009 *Our company in Canada does not have a manufacturing facility, therefore the data uses the normalised output fi gure ‘cigarettes equivalent sold’ instead of ‘cigarette equivalent produced’. British American Tobacco Sustainability Report 2011 111
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Waste to landfill
In 2011, we exceeded our 2012 global target to reduce our waste to landfill by 12 per cent to 0.022 tonnes per million cigarettes equivalent produced, from our 2007 baseline of 0.025 tonnes per million cigarettes equivalent produced. For Group data and more information, please see the environment section of this Report. The data is from our online Group-wide EHS reporting system. Previous figures reported in local publications may vary due to differing local reporting standards.
Regions Tonnes per million cigarettes equivalent produced
0.014 0.007 2011 0.032 0.017
0.014 0.008 2010 0.032 0.014
0.013 0.008 2009 0.029 0.028
0 0.0025 0.005 0.0075 0.01 0.0125 0.015 0.0175 0.02 0.0225 0.025 0.0275 0.03 0.0325
Americas Asia-Pacific Eastern Europe, Middle East and Africa Western Europe
Markets Tonnes per million cigarettes equivalent produced
0.1 0.095 0.091
0.08 0.076 0.072 0.058
0.06 0.057 0.043 0.041 0.040 0.040 0.04 0.034 0.031 0.022
0.02 0.017 0.013 0.005 0.004 0.004 0.003 0.003 0.001 0.001 0.002 0.001 0.001 0.000 0.001 0 Australia Brazil Canada* Germany Malaysia Nigeria Russia South South Africa Korea
2011 2010 2009 *Our company in Canada does not have a manufacturing facility, therefore the data uses the normalised output fi gure ‘cigarettes equivalent sold’ instead of ‘cigarette equivalent produced’. British American Tobacco Sustainability Report 2011 112
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Recycling
In 2011, we met our global target to recycle more than 85 per cent of waste generated in each year. For Group data and more information, please see the environment section of this Report. The data is from our online Group-wide EHS reporting system. Previous figures reported in local publications may vary due to differing local reporting standards.
Regions Percentage of waste recycled
86.61% 90.43% 2011 77.51% 90.02%
87.48% 89.85% 2010 76.39% 91.25%
87.27% 88.88% 2009 76.89% 84.31%
0 10 20 30 40 50 60 70 80 90 100 Percentage (%)
Americas Asia-Pacific Eastern Europe, Middle East and Africa Western Europe
Markets Percentage of waste recycled 99.92% 99.37% 99.54% 99.49% 98.86% 100 97.75% 96.14% 96.25% 96.07% 95.87% 95.79% 94.89% 86.24% 83.63% 82.40% 80.53% 77.96% 74.89% 73.57%
75 71.42% 70.69% 68.81% 66.37% 57.49% 55.93% 50.52% 50 42.66% Percentage (%)
25
0 Australia Brazil Canada Germany Malaysia Nigeria Russia South South Africa Korea
2011 2010 2009 British American Tobacco Sustainability Report 2011 113
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Region and market data comparator
Succession planning
Ensuring clear succession plans are in place for every senior role remains our long-term objective. This means having at least one local successor ready in the short term and two local successors identified for long-term development. We also aim to achieve a 70:30 ratio of local to expatriate senior managers in each business unit. This gives our companies a valuable balance between local knowledge and international perspective. For more information, please see the people and culture section of this Report.
Local succession coverage - 1:1:2 at business unit level Regions Percentage of business units with at least one local successor in the short term and two local successors in the long term for each senior position.
88% 76% Americas 78% Americas 85% 78% 76%
31% 39% Asia-Pacific 50% Asia-Pacific 17% 53% 35%
Eastern Eastern 47% 32% Europe, Middle 47% Europe, Middle 36% East and 37% East and 50% Africa* Africa*
38% 22% Western 45% Western 16% Europe** 38% Europe** 57%
51% 53% Average 57% Average 43% 58% 63%
0 25 50 75 100 0 25 50 75 100 Short term Long term
2011 2010 2009 2011 2010 2009
Markets Percentage of business units with at least one local successor in the short term and two local successors in the long term for each senior position
71% 71% Australia 100% Australia 100% 43% 71% 100% 67% Brazil 100% Brazil 83% 83% 67% 20% 20% Canada 40% Canada 80% 80% 80% 40% 20% Germany 80% Germany 60% 38% 31% 67% 67% Malaysia 67% Malaysia 50% 56% 56% 40% 0% Nigeria 40% Nigeria 0% * The 2009 data for Eastern Europe, 43% 43% 33% 33% Middle East and Africa only covers Russia 60% Russia 40% 50% 33% the markets in the Africa and Middle 60% 40% South Africa 20% South Africa 60% East region under the Group’s 43% 86% 17% 0% previous regional structure. They do South Korea 17% South Korea 0% 44% 78% not include the additional Eastern 0 25 50 75 100 0 25 50 75 100 Short term Long term Europe markets that previously sat
2011 2010 2009 2011 2010 2009 in a separate region.
** The 2009 data for Western Europe includes fi ve additional markets under the Group’s previous regional structure. British American Tobacco Sustainability Report 2011 114
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Region and market data comparator
Local top teams - 70:30 at business unit level Regions Percentage of local representation on business unit senior management teams
80 * The 2009 data for Eastern 74% 72%
69% Europe, Middle East and Africa only covers the markets in the Africa 58% 60 57%
55% and Middle East region under the 54% 53% 51% 50% Group’s previous regional structure.
45% 45% They do not include the additional 41% 40% 40% 40 Eastern Europe markets that previously sat in a separate region. Percentage (%)
20 ** The 2009 data for Western Europe includes fi ve additional markets under the Group’s previous 0 Americas Asia-Pacific Eastern Europe, Western Europe** Average regional structure. Middle East and Africa*
2011 2010 2009
Markets Percentage of local representation on business unit senior management teams 100% 100 100% 83% 83% 80%
75 71% 67% 67% 67% 60% 60% 57% 57%
50 45% 43% * The 2009 percentage of local 40% 40% 40% Percentage (%) 33% 33% representation on the business unit 29% senior management team has been 25 20% 20% 17%
17% re-stated to the one previously reported of 71 per cent, due to the earlier fi gure being incorrectly 0% 0% 0 Australia Brazil Canada Germany Malaysia* Nigeria Russia South South quoted in the 2009 Report. Africa Korea
2011 2010 2009 British American Tobacco Sustainability Report 2011 115
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Employee opinion survey
We know that people do not stay in jobs just because of the pay or promotion opportunities. Employees want a supportive culture where their views are listened to. Our Group-wide ‘Your Voice’ employee opinion survey is carried out every two years, with the most recent one in 2010. Below you will find regional and market level scores in the engagement category the survey. For Group data across all the categories and more information, please see the people and culture section of this Report.
Regions British American Tobacco regions vs. Towers Watson global FMCG benchmark Regional scores in engagement category ranked by difference from benchmark
20 150 % favourable scores +11 10 83% 82% 100 74% 72% 76% 79% 72% 77% +2 +6 +5 0 +3 50 -1 -3 -5
Difference from benchmark -10 0 Americas Asia-Pacific Western Europe Western Eastern Europe, Middle East and Africa
2008 2010 2008 2010 % favourable scores | Difference from benchmark
Markets British American Tobacco local company vs. Towers Watson local country national benchmark Local scores in engagement category ranked by difference from relevant national benchmark
10 150
+6 +5 5 +4 125 +3 +2 +2
+1 % favourable scores 0 -1 -1 -1 100
85% -2 81% 81% 80% 79% 78% 77% -5 78% 75% 74% 74% -4 70% -5 70% 75 68% 67% -6 65%
-7 55% 53% -10 -9 50 -11 Difference from benchmark
-15 25
-17
-20 0 Brazil Russia Nigeria Canada Australia Malaysia Germany South Africa South Korea
2008 2010 2008 2010 % favourable scores | Difference from benchmark British American Tobacco Sustainability Report 2011 116
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Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Region and market data comparator
Gender diversity
Our focus on diversity includes having greater demographic representation across our senior management, including by gender and by nationality. We continue to support the career development of our female managers, with the aim of increasing the proportion of women in senior management roles. For Group data and more information, please see the people and culture section of this Report.
Regions Percentage breakdown for women in management
2009 2010 2011 Management trainees Americas 44.2% 42.0% 39.0% Asia-Pacific 37.0% 43.0% 45.1% Eastern Europe. Middle East and Africa* 56.5% 48.6% 47.0% Western Europe** 47.8% 56.6% 50.7%
Management grade 34 Americas 34.0% 34.0% 32.2% Asia-Pacific 26.7% 27.0% 28.3% Eastern Europe. Middle East and Africa* 34.5% 32.7% 31.3% Western Europe** 39.2% 40.2% 41.2%
Management grade 35 Americas 31.3% 29.0% 29.0% Asia-Pacific 27.4% 29.0% 28.5% Eastern Europe. Middle East and Africa* 41.7% 32.7% 34.0% Western Europe** 33.3% 35.9% 37.9%
Management grade 36 Americas 20.8% 26.0% 23.6% Asia-Pacific 27.2% 24.0% 27.0% Eastern Europe. Middle East and Africa* 40.1% 29.2% 29.5% Western Europe** 30.0% 30.5% 31.6%
Management grade 37 Americas 17.7% 18.0% 20.3% Asia-Pacific 16.8% 22.0% 24.6% Eastern Europe. Middle East and Africa* 44.0% 23.3% 20.2% Western Europe** 20.7% 22.4% 21.6%
Management grade 38 Americas 11.3% 19.0% 19.0% Asia-Pacific 17.4% 17.0% 15.0% Eastern Europe. Middle East and Africa* 50.0% 10.7% 13.2% Western Europe** 13.7% 10.2% 12.1% British American Tobacco Sustainability Report 2011 117
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Region and market data comparator
Management grade 39 Americas 7.4% 0.0% 4.5% Asia-Pacific 7.7% 6.0% 9.1% Eastern Europe. Middle East and Africa* 0.0% 8.7% 9.5% Western Europe** 10.5% 11.8% 20.0%
Management grade 40 Americas 0.0% 0.0% 11.1% Asia-Pacific 0.0% 0.0% 0.0% Eastern Europe. Middle East and Africa* 0.0% 7.1% 7.1% Western Europe** 11.1% 15.4% 18.2%
Markets Percentage breakdown for women in management
2009 2010 2011 Management trainees Australia 30.8% 22.0% 75.0% Brazil 42.9% 17.0% 25.0% Canada 20.0% 27.0% 25.0% Germany 50.0% 70.0% 64.3% Malaysia 41.4% 69.0% 53.8% Nigeria 33.3% 50.0% 57.1% Russia 57.1% 64.0% 52.6% South Africa 34.6% 43.0% 54.5% South Korea 20.0% 22.0% 27.3%
Management grade 34 Australia 27.2% 29.0% 30.2% Brazil 30.2% 29.0% 24.8% Canada 37.8% 35.0% 32.7% Germany 39.8% 41.0% 38.3% Malaysia 18.3% 29.0% 33.9% Nigeria 21.4% 27.0% 28.3% *The 2009 gender data for Eastern Russia 37.2% 38.0% 35.1% Europe, Middle East and Africa South Africa 42.3% 50.0% 41.9% only covers the markets in the South Korea 38.0% 35.0% 31.3% Africa and Middle East region under the Group’s previous regional structure. They do not include the additional Eastern Europe markets that previously sat in a separate region.
**The 2009 gender data for Western Europe includes fi ve additional markets under the Group’s previous regional structure.
British American Tobacco Sustainability Report 2011 118
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Region and market data comparator
Management grade 35 Australia 36.8% 35.0% 28.4% Brazil 26.8% 24.0% 24.8% Canada 41.3% 43.0% 42.2% Germany 31.1% 31.0% 34.9% Malaysia 33.8% 35.0% 32.6% Nigeria 17.5% 20.0% 23.1% Russia 43.2% 43.0% 44.4% South Africa 26.2% 32.0% 31.5% South Korea 26.8% 29.0% 30.0%
Management grade 36 Australia 33.8% 32.0% 36.4% Brazil 19.8% 26.0% 23.3% Canada 28.6% 36.0% 35.4% Germany 16.4% 18.0% 18.8% Malaysia 32.7% 25.0% 32.6% Nigeria 28.6% 26.0% 22.9% Russia 36.2% 32.0% 36.0% South Africa 31.8% 35.0% 35.0% South Korea 29.4% 31.0% 34.3%
Management grade 37 Australia 24.1% 23.0% 21.9% Brazil 24.1% 23.0% 21.8% Canada 23.8% 29.0% 35.0% Germany 9.3% 7.0% 37.9% Malaysia 30.8% 35.0% 12.5% Nigeria 19.0% 20.0% 23.1% Russia 25.0% 23.0% 23.1% South Africa 19.7% 21.0% 21.6% South Korea 25.0% 14.0% 22.2%
Management grade 38 Australia 33.3% 0.0% 16.7% Brazil 28.6% 33.0% 30.8% Canada 0.0% 0.0% 0.0% Germany 0.0% 0.0% 0.0% Malaysia 25.0% 25.0% 14.3% Nigeria 16.7% 25.0% 20.0% Russia 100.0% 22.0% 14.3% South Africa 8.3% 10.0% 0.0% South Korea 20.0% 14.0% 16.7% British American Tobacco Sustainability Report 2011 119
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Region and market data comparator
Management grade 39 Australia 0.0% 0.0% 25.0% Brazil 0.0% 0.0% 12.5% Canada 20.0% 0.0% 0.0% Germany 0.0% 0.0% 0.0% Malaysia 25.0% 25.0% 20.0% Nigeria 0.0% 0.0% 0.0% Russia 0.0% 25.0% 33.3% South Africa* 20.0% 20.0% 16.7% South Korea 0.0% 0.0% 0.0%
Management grade 40 Australia 0.0% 0.0% 0.0% Brazil 0.0% 0.0% 0.0% Canada 0.0% 0.0% 100.0% Germany 0.0% 0.0% 0.0% Malaysia 0.0% 0.0% 0.0% Nigeria 0.0% 100.0% 100.0% Russia 0.0% 0.0% 0.0% South Africa 0.0% 0.0% 0.0% South Korea 0.0% 0.0% 0.0%
* The 2009 percentage of women in management grade 39 has been re-stated to the one previously reported of 25 per cent, due to the earlier fi gure being incorrectly quoted in the 2009 Report. British American Tobacco Sustainability Report 2011 120
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Region and market data comparator
Lost Workday Case Incident Rate
We are committed to providing a safe working environment for all our employees and contractors and have a Group goal of zero accidents. Along with the number of serious injuries and fatalities for both employees and contractors, we also monitor our Lost Workday Case Incident Rate (LWCIR). For Group data and more information, please see the people and culture section of this Report.
Regions LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked
0.54 0.05 2011 0.27 0.49
0.45 0.30 2010 0.13 0.60
0.35 0.35 2009 0.29* 0.68**
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
Americas Asia-Pacific Eastern Europe, Middle East and Africa* Western Europe**
Markets LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked
5 4.19 4.04 4
3 2.67
2
1 0.92 0.72 0.71 0.71 0.69 0.68 0.56 0.56 0.48 0.46 0.42 0.33 0.29 0.20 0.17 0.14 0.12 0.07 0.07 0.00 0.00 0.00 0.00 0 0.00 Australia Brazil Canada Germany Malaysia Nigeria Russia South South Africa Korea * The 2009 LWCIR only covers the
2011 2010 2009 markets in the Africa and Middle East region under the Group’s previous regional structure. It does not include the additional Eastern Europe markets that previously sat in a separate region.
** The 2009 LWCIR includes fi ve additional markets in Western Europe under the Group’s previous regional structure. British American Tobacco Sustainability Report 2011 121
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Balanced scorecard for Americas
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 1 1 7
Youth smoking prevention 2009 2010 2011 Trend Notes Percentage of markets where our businesses report running or supporting youth smoking prevention programmes 90% 86% 100%
Preventing underage access 2009 2010 2011 Trend Notes Percentage of markets where our businesses report engaging with the government to improve measures to help prevent underage access to tobacco 57% 61% 56%
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 10.55 11.04 10.18
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 0.58 0.60 0.55
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.013 0.014 0.014
Recycling 2009 2010 2011 Trend Notes
Percentage of waste recycled 87.27% 87.48% 86.61%
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 4.12 3.99 3.79
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of business units Short with at least one local successor term 78% 78% 88% in the short term and two local successors in the long term for Long each senior position term 76% 85% 76% British American Tobacco Sustainability Report 2011 122
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 72% 69% 74%
Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco region vs Towers 1 Watson global FMCG benchmark Score in the Engagement category 83 82 Ranked by difference from benchmark +11 +6
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 44.2% 42.0% 39.0% Management grade 34 34.0% 34.0% 32.2% Management grade 35 31.3% 29.0% 29.0% Management grade 36 20.8% 26.0% 23.6% Management grade 37 17.7% 18.0% 20.3% Management grade 38 11.3% 19.0% 19.0% Management grade 39 7.4% 0.0% 4.5% Management grade 40 0.0% 0.0% 11.1%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.35 0.45 0.54
Notes 1 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 123
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Balanced scorecard for Asia-Pacific
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 2 3
Youth smoking prevention 2009 2010 2011 Trend Notes Percentage of markets where our businesses report running or supporting youth smoking prevention programmes 38% 72% 67%
Preventing underage access 2009 2010 2011 Trend Notes Percentage of markets where our businesses report engaging with the government to improve measures to help prevent underage access to tobacco 57% 44% 44%
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 8.84 8.95 8.62
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 0.87 0.88 0.86
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.008 0.008 0.007
Recycling 2009 2010 2011 Trend Notes
Percentage of waste recycled 88.88% 89.85% 90.43%
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 4.22 4.32 3.94
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of business units Short with at least one local successor term 53% 50% 31% in the short term and two local successors in the long term for Long each senior position term 35% 17% 39% British American Tobacco Sustainability Report 2011 124
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 54% 40% 53%
Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco region vs Towers 1 Watson global FMCG benchmark Score in the Engagement category 74 72 Ranked by difference from benchmark +3 -3
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 37.0% 43.0% 45.1% Management grade 34 26.7% 27.0% 28.3% Management grade 35 27.4% 29.0% 28.5% Management grade 36 27.2% 24.0% 27.0% Management grade 37 16.8% 22.0% 24.6% Management grade 38 17.4% 17.0% 15.0% Management grade 39 7.7% 6.0% 9.1% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.35 0.30 0.05
Notes 1 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 125
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Balanced scorecard for Eastern Europe, Middle East and Africa
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 12 1 6
Youth smoking prevention 2009 2010 2011 Trend Notes Percentage of markets where our businesses report running or supporting youth smoking prevention programmes 15% 54% 54% 1
Preventing underage access 2009 2010 2011 Trend Notes Percentage of markets where our businesses report engaging with the government to improve measures to help prevent underage access to tobacco 25% 35% 38% 1
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 12.63 12.24 11.54
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 1.13 1.10 1.04
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.029 0.032 0.032
Recycling 2009 2010 2011 Trend Notes
Percentage of waste recycled 76.89% 76.39% 77.51%
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 5.36 4.48 4.29
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of business units Short with at least one local successor term 48% 47% 47% 1 in the short term and two local successors in the long term for Long each senior position term 33% 36% 32% British American Tobacco Sustainability Report 2011 126
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 45% 40% 45% 1
Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco region vs Towers 2 Watson global FMCG benchmark Score in the Engagement category 76 79 Ranked by difference from benchmark -1 +2
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management 1 grades Management trainees 41.5% 48.6% 47.0% Management grade 34 27.2% 32.7% 31.3% Management grade 35 25.2% 32.7% 34.0% Management grade 36 23.6% 29.2% 29.5% Management grade 37 16.5% 23.3% 20.2% Management grade 38 10.1% 10.7% 13.2% Management grade 39 12.0% 8.7% 9.5% Management grade 40 0.0% 7.1% 7.1%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.29 0.21 0.27 1
Notes 1 The 2009 data for these measures only covers the markets in the Africa and Middle East region under the Group’s previous regional structure. They do not include the additional Eastern Europe markets that previously sat in a separate region. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 127
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Balanced scorecard for Western Europe
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 2 5
Youth smoking prevention 2009 2010 2011 Trend Notes Percentage of markets where our businesses report running or supporting youth smoking prevention programmes 36% 79% 79% 1
Preventing underage access 2009 2010 2011 Trend Notes Percentage of markets where our businesses report engaging with the government to improve measures to help prevent underage access to tobacco 60% 58% 63% 1
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 12.21 11.89 11.45
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 0.91 0.87 0.90
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.028 0.014 0.017
Recycling 2009 2010 2011 Trend Notes
Percentage of waste recycled 84.31% 91.25% 90.02%
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 3.74 3.70 3.36
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of business units Short with at least one local successor term 38% 45% 38% 1 in the short term and two local successors in the long term for Long each senior position term 57% 16% 22% British American Tobacco Sustainability Report 2011 128
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Regions
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 41% 50% 58% 1
Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco region vs Towers 2 Watson global FMCG benchmark Score in the Engagement category 72 77 Ranked by difference from benchmark -5 +5
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management 1 grades Management trainees 47.8% 56.6% 50.7% Management grade 34 39.2% 40.2% 41.2% Management grade 35 33.3% 35.9% 37.9% Management grade 36 30.0% 30.5% 31.6% Management grade 37 20.7% 22.4% 21.6% Management grade 38 13.7% 10.2% 12.1% Management grade 39 10.5% 11.8% 20.0% Management grade 40 11.1% 15.4% 18.2%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.68 0.59 0.49 1
Notes 1 The 2009 data for these measures includes fi ve additional markets in Western Europe under the Group’s previous regional structure. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 129
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Australia Viewpoint from the General Manager Australia
2011 was a stimulating but challenging year for us, especially with the Government passing legislation requiring us to use plain packaging for tobacco products. HIGHLIGHTS
■ David Crow, Managing Director Market share of British American Tobacco Australia approximately 45% ■ The Sydney office is also the headquarters for the Australasia area, including Australia, New Zealand and the South Pacific Islands
■ Over 2,000 employees in the Australasia area As one of the largest companies within British American Tobacco, it’s fantastic to have the opportunity (includes 300 seasonal to make a significant contribution to the Group’s sustainability goals. farmers in Fiji)
I’ve watched our approach develop over the last 10 years: from social responsibility as the right thing ■ Products manufactured to do, to sustainability as a way of adding value to the business and society. In Australia, we’ve come by the company are a long way in embedding this approach within our company and through our supply chain. We’ve exported to more than got a number of amazing sustainability initiatives in place, some of which you can read about in the 14 other markets following pages. And we continue to engage with our stakeholders on the issues that matter to them and to us. 2011 was a stimulating but challenging year for us, especially with the Government passing legislation requiring us to use plain packaging for tobacco products from late 2012. We have been engaging with the Government and other stakeholders on the issue, through a focused and transparent campaign. It’s been a seriously intense experience – from the press conference launch through to sitting alongside one of Australia’s leading constitutional lawyers in front of a Senate Legal and Constitutional Affairs Committee. I am immensely proud of our campaign against plain packaging and, from the number of debates that were held in Parliament, I think it’s clear that our messages resonated with certain MPs and the public. Ultimately, we really did want to avoid going to court over this, but I really feel that now that the legislation has been passed, we’ve been left with little alternative. We have a right to our brands and a responsibility to defend them on behalf of our shareholders. The support we received throughout our campaign from the regulatory centre of expertise back in London and the cross-functional teams across the business was really heartening. I think it’s a great example of how the joined-up, coordinated approach to regulatory engagement that we have across the Group really works. You can read more about plain packaging on our campaign website, www.plainpack.com. What I’ve learnt in the years that I’ve been with British American Tobacco, is that we have great resilience – plain packaging is going to be a big challenge for us, but one that I believe we can rise to. David Crow, Managing Director British American Tobacco Australia
PERFORMANCE HIGHLIGHTS IN 2011
■ Achieved 100% adherence to our International Marketing Standards. British American Tobacco Sustainability Report 2011 130
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Balanced scorecard for Australia
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 0 0
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes No No
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco No No No
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 16.85 18.83 18.99 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 2.45 2.69 2.70 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.072 0.091 0.095 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 55.93% 50.52% 42.66% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 5.07 5.54 5.52 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 100% 100% 71% in the short term and two local successors in the long term for Long each senior position term 71% 43% 71%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 45% 43% 57% British American Tobacco Sustainability Report 2011 131
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco Australia vs. 2 Towers Watson Australia national benchmark Score in the Engagement category 79 74 Ranked by difference from benchmark +4 -1
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 30.8% 22.0% 75.0% Management grade 34 27.2% 29.0% 30.2% Management grade 35 36.8% 35.0% 28.4% Management grade 36 33.8% 32.0% 36.4% Management grade 37 24.1% 23.0% 21.9% Management grade 38 33.3% 0.0% 16.7% Management grade 39 0.0% 0.0% 25.0% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 4.04 4.19 2.67
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 132
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
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Sustainability at British American Tobacco Australia STAKEHOLDER VIEWPOINT In 2011, British American Tobacco Australia’s main focus has been the Government’s Tobacco Plain Packaging and Trade Plain packaging is Marks Amendment Bills, which were passed by the Senate in simply wrong and bad November. Under the new legislation, from December 2012, public policy. Once all cigarettes will be required to be sold in standard olive brown brands are removed and packaging, with graphic health warnings taking up 75 per cent of all packaging is made the pack and no brand colours or logos. to look the same, it is The company launched a high-profile campaign in early 2011 to easy to imagine how raise its concerns about plain packaging, particularly around the much simpler it will be very serious unintended consequences it could have. to counterfeit a pack of The likely consequences of plain packaging legislation are cigarettes. It will reduce not well understood. The company is concerned that the brand owners’ ability Government has rushed through this legislation without to take action against conducting more robust research. During an October 2010 counterfeiting and will Senate hearing, it was highlighted that the effect plain packaging increase the burden on would have on smoking rates has not been quantified. already overstretched To contribute evidence to the debate, the Group commissioned public agencies as Deloitte to examine the intended and unintended impacts of they try to keep tobacco packaging regulation. As Australia is likely to be the illicit products away first country to introduce plain or unbranded packaging, Deloitte could not assess existing plain packaging legislation. Instead, from consumers. the research focused on other types of tobacco packaging regulation that have reduced the space on the pack The International Chamber of available for our brands, for example by increasing the size of health warnings. Commerce’s ‘Business Action to Deloitte’s report1 revealed that increasing the size of health warnings on packs and introducing graphic warnings Stop Counterfeiting and Piracy’ had not directly reduced tobacco consumption. It therefore called into question whether plain packaging would group, October 2011 reduce smoking rates. The report also recognised that plain packaging could lead to a number of unintended consequences, such as an increase in the black market in tobacco. It is estimated that more than one in 10 cigarettes smoked in Australia already comes from the black market, costing an estimated A$1.1 billion (£708 million) a year in lost tax income. The legislation also risks breaching intellectual property rights and the rights of a brand owner to use its packaging to distinguish its products from those of its competitors. British American Tobacco Australia’s campaign included a dedicated website, www.plainpack.com, television and radio interviews, billboards, press conferences and advertisements in the national press. Three of the company’s employees, including the Managing Director, also used Twitter to provide real-time updates on their response as the legislative developments took place. The Alliance of Australian Retailers also pledged its opposition to the legislation. It represents many owners of small businesses – convenience stores, newsagents, service stations and milk bars – who employ thousands of people. Their campaign had the transparent financial support of tobacco companies. Two Parliamentary inquiries were held, to which British American Tobacco Australia contributed. At the House of Representatives’ Health and Ageing Committee Inquiry into Plain Packaging in August 2011, the company’s Managing Director and Head of Corporate & Regulatory Affairs answered questions from the Committee. Near the end of the campaign, an independent poll by one of Australia’s largest newspapers saw public opinion move from the majority supporting plain packaging to a majority opposed. Despite the campaign’s effectiveness, the legislation was still passed. Like all brand owners, we believe we are entitled to use our packs to distinguish our products from those of our competitors. By restricting brands, governments risk breaching intellectual property rights and, in most cases, international trade agreements. British American Tobacco Australia always said it wanted to avoid going to court over plain packaging regulation. But the company has been left with little alternative: as a legal company selling a legal product it has a duty to defend its intellectual property on behalf of its shareholders. So we, and other tobacco companies in Australia, are challenging the constitutional validity of the removal of trade marks and other intellectual property without compensation. We hope that the campaign demonstrated to other governments that plain packaging legislation is problematic and that we will fight for our entitlement to use our packs to distinguish our products from those 1 Tobacco Packaging Regulation: of our competitors. An international assessment of the intended and unintended impacts’ by Deloitte, May 2011. British American Tobacco Sustainability Report 2011 133
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Reducing environmental impacts In September 2000, British American Tobacco Australia was the first tobacco company to join the Australian Packaging Covenant (APC). Signatories to this voluntary initiative develop plans to reduce the environmental impacts of their packaging and their wider operations. Since 2000, the company has: ■ Increased its packaging waste recycling rates to 80 per cent; ■ Increased purchases of products with recycled content: 84 per cent of office paper now contains recycled material; and ■ Improved waste and recycling systems. British American Tobacco Australia’s APC Action Plan for 2011–2015 focuses on three areas: sustainable design, recycling and product stewardship. It includes commitments to: ■ Report on average water and energy consumption per unit of production annually to the APC; ■ Introduce further best practice waste and recycling initiatives; ■ Identify opportunities to source more products with recycled content; and ■ Include requirements for packaging take-back and/or reuse or recycling of used packaging in certain procurement contracts. It will be challenging to implement some of these actions given the introduction of plain packaging in late 2012. While all the specific requirements for plain packaging are not yet clear, British American Tobacco Australia remains committed to working with its suppliers, customers and employees to deliver the most sustainable packaging options for its products. Corporate social investment In 2009, a corporate social investment (CSI) strategy for the Australasia area, including Australia, New Zealand and the South Pacific Islands, was developed. This recognised that the company relies on a healthy, educated workforce, strong societies and stable economies and that supporting these is therefore good for long-term business success. The strategy had a particular focus on the developing markets of the South Pacific, where whole sectors of society struggle to access basic services. While this remains a priority, in 2011 the strategy was extended to also cover initiatives in the areas of civic life, sustainable agriculture, environmental protection and empowerment. It continues to support the transfer of insights from British American Tobacco companies in developed countries, such as Australia and New Zealand, to our companies in the area’s developing markets, and to encourage partnerships with community organisations. Employee engagement British American Tobacco Australia is facing a period of great change, including preparing for the challenge of implementing plain packaging, as well as separate office relocations for all its corporate, call centre and IT employees at the same time as the transition of most of its manufacturing to offshore locations. In this context, to retain talented employees and drive strong business performance, it is essential that the company supports its employees well. To prepare employees for these changes, the company has introduced an initiative called the Engaging Conversation Series. This programme is designed to build employee engagement and drive excellence in people management. It involves a series of master classes on people management and employee engagement, covering topics including reward and recognition, performance reviews and career development. The initiative also includes a series of events to motivate employees. These include presentations from external guest speakers who have handled change well in their lives. British American Tobacco Sustainability Report 2011 134
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Viewpoint from an employee in Australia
The upcoming plain packaging legislation ILLEGAL TOBACCO IN worries me. I’m convinced we’re going to see AUSTRALIA an increase in illicit trade. A Deloitte report in 2011 found Barry Wilson, Area Anti-illicit Trade, Excise & Security that the illegal tobacco trade in Manager, British American Tobacco Australia Australia increased from the equivalent of 12.3% of legal tobacco consumption in 2009 to 15.9% in 2010. This represents an annual loss in tax revenue of approximately A$1.1 billion (£708 million) for the Australian Being in an anti-illicit trade role at British American Tobacco Australia is challenging and very varied. I get to Government. work with colleagues in many parts of the business – regulation, marketing, legal, supply chain and so on – and to engage with external stakeholders on the issue. It’s also a big responsibility when you think about the A recent report by the Australian scale and the impacts of the illegal tobacco trade in Australia. Crime Commission into organised Recently, we’ve been working on some pretty interesting initiatives. One of them is a tool that maps volumes crime outlines the involvement of illicit tobacco across Australian electorates. And there’s a website – illegaltobacco.com.au – that we’ve of organised crime in the illegal trade of tobacco and states that designed to share that information with the industry and enforcement authorities, so that together we can increases in excise tax are likely tackle the rapid growth of illegal tobacco in Australia. to attract further organised crime Anyone can access the website, so we’re hoping that it’ll get people talking locally – consumers and local groups to the illicit tobacco market. politicians. The politicians are particularly important as they can get things moving to address the issue in their own backyards, as well as putting pressure on the Government to respond to this serious issue. Another part of my role involves working with enforcement bodies, from customs and border protection to crime task forces. This grass roots engagement is crucial for ensuring that illegal tobacco doesn’t get overlooked when limited government resources are allocated. One of our big successes in this area was a Tobacco Crime Forum, organised by the company and including New South Wales police, customs, security experts and the tobacco industry. It looked in some depth at how to address the escalation in tobacco-related crime, ranging from simple theft to illegal trade. The upcoming plain packaging legislation worries me. I’m convinced we’re going to see an increase in illicit trade. The latest research shows that the illegal trade is already moving away from loose tobacco towards smuggled and counterfeit cigarettes. In fact, the volumes of these doubled between October 2010 and April 2011. It’s highly likely that illegal traders will set themselves up to take advantage of plain packaging. We won’t make it easy for them though! We’ll be attacking illicit trade from all sides: doing our best to ensure retailers are not selling illegal tobacco; working with enforcement agencies to help increase seizures and arrests; measuring the problem and providing intelligence to the Government; and raising awareness within the industry and among the wider public of how damaging the illegal tobacco trade really is. Barry Wilson, Area Anti-illicit Trade, Excise & Security Manager British American Tobacco Australia British American Tobacco Sustainability Report 2011 135
Sustainability Report 2011
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Markets
Brazil Viewpoint from the company President Brazil
Over the years we have built what many see as a leading approach to sustainable agriculture. HIGHLIGHTS
Andrea Martini, President of Souza Cruz ■ Founded in Rio de Janeiro in 1903 and part of the Group since 1914
■ One of the largest companies in Brazil and At Souza Cruz, we are proud to be not only one of the largest companies in the British American Tobacco listed on the São Paulo Group, but also one of the largest in Brazil, with a history going back more than 100 years. Stock Exchange Sustainability is a really important part of our strategy and it’s something we’ve received external ■ Market share of 61% recognition for. In 2011, many organisations in southern Brazil took part in Brazil’s Sustainable ■ Over 7,000 employees Management Survey1 and we were one of only 11 to get a Certificate of Management Excellence. What I’m ■ 193,900 tonnes of tobacco really proud of is that you can’t get these certificates by being strong in one area – you have to score well leaf purchased in 2011 across all aspects of sustainable management. ■ Over 70.9 billion cigarettes I want to focus on a couple of areas here though: sustainable agriculture and working with our retailers. sold every year Over the years, we’ve built what many see as a leading approach to sustainable agriculture. We offer agronomy support for approximately 30,000 farmers with whom we work, projects to tackle child labour, research into the tobacco plant and more. The focus of our work – and this is really important to me – isn’t just tobacco. It covers all areas of agricultural practices, which means that other crops benefit too. So our contracted farmers get better food crops and become more self-sufficient. What’s more, we share what we’ve learned with others in Brazil and across the Group. The relationships we have with our retail partners are equally strong. If tobacco products are being sold irresponsibly, it gives us a bad name. So we work closely with them on issues like youth smoking prevention. We’re also sponsoring the Responsible Retailing Development Centre, which is doing great work to help improve standards of conduct across retail management. With programmes like this, we’re giving Souza Cruz a really strong foundation to build upon in the future. I can see us achieving our long-term goals, delivering business success and continuing to contribute to society and the environment. Andrea Martini, President of Souza Cruz
PERFORMANCE HIGHLIGHTS IN 2011
Met or exceeded Group targets for: ■ Energy and water use ■ Waste sent to landfill and recycling ■ Succession coverage in the short term and the 70:30 ratio of local to expatriate senior managers at business unit level
1 The Sustainable Management Survey is conducted by the Editora Expressão Publisher and Aequo Solutions for Sustainability and is based on indicators adopted by the Ethos Institute. British American Tobacco Sustainability Report 2011 136
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Balanced scorecard for Brazil
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 0 1
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco Yes Yes Yes
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 7.84 8.50 8.03 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 0.25 0.26 0.26 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.004 0.004 0.005 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 95.79% 96.14% 94.89% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 2.84 2.67 2.49 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 83% 100% 100% in the short term and two local successors in the long term for Long each senior position term 67% 83% 67%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 83% 83% 100% British American Tobacco Sustainability Report 2011 137
Sustainability Report 2011
Our regions Sustainability and Engagement and Harm reduction Marketplace Environment Supply chain People and culture and markets our business governance
Markets
Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes Souza Cruz vs Towers Watson Brazil 2 national benchmark Score in the Engagement category 85 81 Ranked by difference from benchmark +2 -1
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 42.9% 17.0% 25.0% Management grade 34 30.2% 29.0% 24.8% Management grade 35 26.8% 24.0% 24.8% Management grade 36 19.8% 26.0% 23.3% Management grade 37 24.1% 23.0% 21.8% Management grade 38 28.6% 33.0% 30.8% Management grade 39 0.0% 0.0% 12.5% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.29 0.46 0.33
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 138
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Sustainability at Souza Cruz
Souza Cruz is involved in the entire production cycle, from working with tobacco leaf growers and processing tobacco, to the manufacture and distribution of cigarettes. Its approach to sustainability therefore covers every area of the business. Tackling the illegal tobacco trade It is estimated that illegal tobacco products make up more than 28 per cent of the total Brazilian market. High taxes on tobacco products, light penalties for smuggling, long national borders that are difficult to police and the sheer size of the country all contribute to the problem. An inquiry by the Brazilian Congress found that there are approximately 360 illegal brands in the country, some of which are smuggled from Paraguay. Souza Cruz supported the Brazilian Internal Revenue Service in implementing its System for the Control and Tracking of Cigarettes. This enables Government authorities to monitor the volumes of tobacco products manufactured in the country to ensure all taxes and duties are paid. In this way, it helps tackle the issue of tobacco products being manufactured and sold in the country without being declared to the authorities, to evade tax. But it does not address smuggling, which remains a major challenge for Brazil. Souza Cruz was also one of the founding members of the Brazilian Institute for Ethics in Competition. To help keep competition fair, the Institute encourages political, legal and moral practices across all industry sectors. It also undertakes specific projects in individual industries, including raising public awareness of the negative impacts of illegal tobacco. Working with retailers Souza Cruz sells its products through 300,000 retailers and encourages retailers to adopt responsible practices. For example, in 2007, the company sponsored the establishment of the Responsible Retailing Development Centre by the Dom Cabral Foundation. It generates expertise, develops management tools and implements projects to enhance standards of conduct in retail management. Souza Cruz makes the Centre’s outputs accessible to its retail partners, for example in the company’s magazine for retailers, at events and through its activities. Topics covered include taxation, illicit trade and environmental initiatives. Following the Centre’s development in 2010 of the Fundamental Principles of Responsible Retailing, which includes guidelines for retailers to enhance their responsible business practices, in 2011 the Centre established the Responsible Retailing Compact to help align these guidelines with retailers’ business strategies. In 2011, the Centre also continued to build upon its research with projects focused on the 10 biggest retail companies in Brazil and their uptake of the voluntary international standard ISO 26000 Guidance for Social Responsibility. With its retailers spread across the country and many of them very small outlets, it can be challenging for Souza Cruz to engage with them on sustainability issues – not only because of the geographical distance, but also because what works for larger retailers may not be viable for smaller ones. However, it is hoped that momentum will build and retailers will see the benefits as the company demonstrates its long-term commitment to sustainability. The company works to address the issue of youth smoking, through supporting a youth smoking prevention (YSP) campaign delivered by national retail trade associations. The campaign aims to raise retailer awareness of the minimum age law of 18 for the sale of tobacco products in Brazil. Retailers are given YSP point-of-sale materials and the company’s Trade Marketing & Distribution teams discuss the importance of youth smoking prevention and provide guidance on verifying a customer’s age. Sustainable agriculture Working directly with nearly 30,000 tobacco farmers contracted by Souza Cruz, the company has the opportunity to promote sustainable farming practices in Brazil and help to improve the lives of farming communities. The company has a long-standing sustainable agriculture programme. It focuses on addressing the environmental impacts of tobacco growing and contributing to successful farming communities by tackling child labour, enhancing farmers’ livelihoods and improving working conditions. The programme is delivered by the company’s team of over 220 leaf managers and technicians who engage individually with contracted farmers, as well as through partnerships with local organisations such as SENAR, the national service for rural learning. Some examples of the programme’s initiatives are detailed below. British American Tobacco Sustainability Report 2011 139
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Several of Souza Cruz’ projects are aimed at avoiding farmers’ use of wood from natural forests as a fuel for curing tobacco. Farmers are provided with financing to either plant seedlings to meet their future fuel needs or to buy firewood from legal sources. In 2011, more than six million seedlings were planted and over 1,000 farmers benefited. In 2011, Souza Cruz signed an agreement with the Association of Tobacco Farmers, SindiTabaco (the Tobacco Industry Union in Brazil), the Brazilian Institute of Environment and Natural Resources and the Ministry of the Environment to eradicate deforestation in the Atlantic Forest region. Under the agreement, the region will be monitored by satellite and joint projects will be implemented to raise farmers’ awareness of the issue and encourage sustainable wood sourcing along with other areas of environmental best practice, such as responsible chemical use. Since 1984, the Planting Corn and Beans after Tobacco Harvest programme, as part of an agreement between Souza Cruz and the Rio Grande do Sul state, has aimed to stimulate and support crop rotation to help generate higher incomes through the distribution of maize seeds. In 2011, the agreement was once again signed in the state of Rio Grande do Sul, as well as in the state of Santa Catarina, to distribute seeds to farmers, with the Secretaries of Agriculture and Farmers and Agriculture Federations, in the areas. Such seed distribution also takes place in the State of Paraná, coordinated by its Secretary of Agriculture, which the company hopes to support through a signed agreement in 2012. The company’s leaf managers and technicians also work with contracted farmers to preserve soil and water through their soil master plan, which contains guidance on a wide range of issues including farm planning, soil analysis, direct and minimum tillage, crop rotation and protection of river basins. Tackling child labour Since 2002, Souza Cruz has administered an Extended School Day programme to help tackle child labour, which is validated by the Souza Cruz Institute, a charitable organisation set up by the company. The programme includes investment for rural schools to enable them to provide extra-curricular activities, so that children spend their time in education and not working on farms. In 2008, the company signed a Term of Commitment with Brazil’s Ministry of Labour. This establishes measures to help protect children and adolescents in rural areas, for example, by monitoring school attendance and promoting best practice health and safety standards for farmers. Originally focused on the State of Rio Grande do Sul, in 2011, it was extended to all the states where Souza Cruz operates. Through the Growing Up Right programme, a partnership between the Tobacco Industry Union and the Brazilian Leaf Farmers Association, the company works with external partners to raise awareness of child labour issues and deliver education projects. Growing Up Right’s projects focus not only on children, but also on adolescent labour. In 2011, this was a particular focus of several campaigns, such as plays, seminars, training for field staff, pamphlets and other media used to raise awareness among farmers, local authorities and other stakeholders that can support the objectives of the programme. British American Tobacco Sustainability Report 2011 140
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Viewpoint from an employee in Brazil
TOBACCO LEAF FARMING Souza Cruz isn’t just a faceless company: IN BRAZIL we’re actually out there in the fields, working with the farmers. Brazil is the second biggest tobacco producer in the world Robson Luiz Lima, Industrial Leaf Manager, Souza Cruz It is one of the Group’s largest tobacco leaf growing markets
30,000 farmers are directly contracted to Souza Cruz I’ve been working at Souza Cruz for 27 years and have been in my current role as Industrial Leaf Manager 193,900 tonnes of tobacco leaf since 2009. Over the years, I’ve watched the company evolve a model of sustainable agriculture that was purchased by Souza Cruz distinguishes us from other companies. It means we’re often the partner of choice for farmers. in 2011 Souza Cruz isn’t just a faceless company: we’re actually out there in the fields, working with the farmers to find solutions to challenges and developing best practice approaches that benefit us all. A great example is our partnership with SENAR, the national service for rural learning, on the Safety, Organisation and Cleanliness (SOL) Rural programme. It’s all about making production processes safer, cleaner and more organised. This can help the farmers by increasing the land’s value and providing a better quality of life, as well as improving the quality of tobacco leaf – something that’s essential for us to make high quality products. We also provide guidance and training to farmers in a number of other areas – such as how to reduce the amount of agrochemicals used on their crops, tackling child labour, conserving natural forests and soil conservation and diversification to name just a few. This all helps contribute to the success of the farms not only in terms of productivity, but also helping to protect the environment and bring social benefits for the farming communities. Seeing these benefits first-hand is definitely one of the highlights of my job. Robson Luiz Lima, Industrial Leaf Manager, Souza Cruz British American Tobacco Sustainability Report 2011 141
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Canada Viewpoint from the company’s President and CEO Canada
Surely it’s better to have a legitimate, regulated industry than a black market that is untaxed and unregulated HIGHLIGHTS
Marie Polet, President and CEO, Imperial Tobacco Canada ■ Operating in Canada since 1908
■ The leading tobacco company in Canada, with a market share of approximately 50%
■ Diverse brand portfolio that When a tobacco company starts talking about sustainability, it raises a few eyebrows – particularly in contains three of the five top Canada, where tobacco control measures are among the strictest in the world. cigarette brands in Canada It seems clear to me that the intention of the restrictive tobacco policies in Canada is to ensure there is ■ More than 600 employees no future for the industry. But despite all these measures, like retail display bans, ingredients bans and ■ Distributes its products to high taxes and excise, people continue to choose to smoke. 35,000 retailers The difference is that many of these smokers now go to illegal sources – in fact, it’s estimated that in 2010 one in five cigarettes sold in Canada was illegal. Many of these illegal cigarettes are made on First Nations reservations of indigenous Canadians and distributed by organised criminal gangs. They’re sold in roadside smoke shacks in untaxed bags of 200 cigarettes, which often sell for as little as a 10th of the price of legal cigarettes. The people selling these products aren’t following any of the tobacco regulations, such as having health warnings on the bags and not selling cigarettes to children. So surely it’s better to have a legitimate, regulated industry than a black market that is untaxed and unregulated. As the leading tobacco company in Canada, we have a responsibility to raise awareness of these issues. Of course we want to protect our business, and we fully intend to remain the market leader, but what we’re fighting for isn’t just better for us – it’s better for Canadian society too. Marie Polet, President and CEO, Imperial Tobacco Canada
PERFORMANCE HIGHLIGHTS IN 2011
Exceeded Group target for water use British American Tobacco Sustainability Report 2011 142
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Balanced scorecard for Canada
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 0 1
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco Yes Yes Yes
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent sold 20.35 15.34 15.50 1, 2
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent sold 1.43 1.07 1.08 1, 2
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent sold 0.043 0.031 0.034 1, 2
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 68.81% 73.57% 71.42% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent sold 1.21 0.73 0.89 1, 2
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 80% 40% 20% in the short term and two local successors in the long term for Long each senior position term 80% 80% 20%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 40% 40% 40% British American Tobacco Sustainability Report 2011 143
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes Imperial Tobacco Canada vs Towers Watson 3 Canada national benchmark Score in the Engagement category 70 75 Ranked by difference from benchmark -2 -1
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 20.0% 27.0% 25.0% Management grade 34 37.8% 35.0% 32.7% Management grade 35 41.3% 43.0% 42.2% Management grade 36 28.6% 36.0% 35.4% Management grade 37 23.8% 29.0% 35.0% Management grade 38 0.0% 0.0% 0.0% Management grade 39 20.0% 0.0% 0.0% Management grade 40 0.0% 0.0% 100.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.71 0.48 0.71
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Our company in Canada does not have a manufacturing facility, therefore the data uses the normalised output fi gure ‘cigarettes equivalent sold’ instead of ‘cigarettes equivalent produced’. 3 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 144
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Sustainability at Imperial Tobacco Canada
Fighting the illegal tobacco trade In 2010, approximately one fifth of cigarettes sold in Canada were illegal. Tackling this illicit trade is a priority for the company. It has been reported that there are approximately 50 illegal cigarette factories operating in Canada on First Nations reservations of indigenous Canadians and, in 2006, the Royal Canadian Mounted Police reported that there were over 300 ‘smoke shacks’ selling these illegal products. Imperial Tobacco Canada believes the illegal sale of tobacco is a critical public policy matter. Any lasting solution to the problem must involve collaboration between, and be supported by, all relevant stakeholders, including enforcement bodies, federal and provincial governments, First Nations leadership, the tobacco industry and consumers. In 2011, the company continued its campaign calling for Government action to address the issue. Youth smoking prevention Imperial Tobacco Canada distributes its tobacco products to 35,000 retailers and more than half of its employees work in the field, engaging directly with these retail customers. This means that the company is able to take a partnership approach to issues such as youth smoking prevention. For example, it supports the ‘We Expect ID’ national age verification programme, which is managed by the Canadian Convenience Store Association. The programme encourages retailers to prevent youth access to all adult-only products, including alcohol, cigarettes and lottery tickets. Information kits are distributed to retailers – to date, over 14,000 have been sent out – and web-based training and certification is delivered in French, English and Korean. Fuel efficiency Imperial Tobacco Canada’s main environmental and supply chain issues arise from its offices and distribution network. In 2011, the permanent car fleet used by the company’s trade account representatives was replaced with hybrid cars. This resulted in an estimated 43 per cent reduction in fuel consumption and carbon dioxide emissions, along with considerable cost savings. Community investment Imperial Tobacco Canada matches donations made by its full-time employees to community organisations. It has also established a private charitable foundation to invest in the community: the Imperial Tobacco Canada Foundation. The Foundation’s key projects include its Montreal South-West Community programme that provides six donations a year of C$20,000 (£12,610) each for projects that enhance community and public life, as well as its Arts Achievement Award, under which C$75,000 (£47,288) is donated to a Canadian arts organisation that has made an exemplary contribution to its art form, to the public and to cultural life in Canada. British American Tobacco Sustainability Report 2011 145
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Viewpoint from an employee in Canada
It is about being proactive and preparing for the future. I don’t like to think in terms of restrictions. It’s too negative.
Sylvain Foisy, Senior Brand Manager, du MAURIER, Imperial Tobacco Canada
When a new acquaintance finds out that I am a senior manager for Canada’s biggest tobacco brand, du MAURIER, the look on their face is usually a combination of confusion and disbelief. There is a great deal of misinformation and scepticism about the tobacco industry out there. But once I talk a little about my job, my company and how we take our responsibilities extremely seriously, they usually begin to see Imperial Tobacco Canada in a different light. It doesn’t faze me. I am very proud of how I contribute to Imperial Tobacco Canada’s sustainability and I am acutely aware of my responsibilities. And when you know the alternative – a contraband market that doesn’t comply with Government regulations – there’s no shame in working for the legitimate tobacco industry. Tobacco brand marketeers have a huge challenge in Canada. How do you build a brand when consumers cannot even see the packs in stores? How do you differentiate your product from those of your competitors if 75 per cent of the pack could be covered by a health warning? How do you define your brand when the regulations of what you can and cannot do are so strict? How do you compete against an illegal tobacco market that doesn’t comply with any tobacco regulations? And how do you do it all responsibly? The responsibility part for me is a no-brainer. Promoting, marketing and selling tobacco products to children are all illegal, against the core principles of our International Marketing Standards and against what each of us who works here believes to be right. Our marketing activities are directed only at adult tobacco consumers. But we still sell a legal product to adult consumers who are informed of the health risks. So my job as a marketeer is to meet the needs and preferences of those adult consumers. The job isn’t easy, particularly in a market as restrictive as Canada. It is about being proactive and preparing for the future. I don’t like to think in terms of restrictions. It’s too negative. For example, the planned increase in the size of graphic health warnings to 75 per cent on Canadian cigarette packs: we have seen this kind of extreme legislation before. It forces us to go back to the root of what’s important to consumers. This is a much more positive approach and, ultimately, more sustainable for the company. That means looking at our portfolio differently by focusing on creating innovative products and premium brands to differentiate ourselves from the competition. That’s how we’ll grow our market share among existing adult smokers and ensure that we continue to succeed as a business. Sylvain Foisy, Senior Brand Manager, du MAURIER, Imperial Tobacco Canada British American Tobacco Sustainability Report 2011 146
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Germany Viewpoint from the Managing Director Germany
For me, acting responsibly means facing up to our most important impacts including the health risks associated with tobacco HIGHLIGHTS products. • Operating in Germany since Ad Schenk, Managing Director, British American Tobacco 1926 Germany • 18% market share and third largest tobacco company in the country • Some 2,100 employees • Manufacturing sites in Bayreuth At British American Tobacco Germany, our vision is not only to lead the German tobacco market in terms and Bremen of consumer choice, but also to be the company of choice for business partners and employees. We know we can only achieve this by acting responsibly at all times. • The Bayreuth site is the largest producer in the Group, For me, acting responsibly means facing up to our most important impacts including the health risks producing 53 billion cigarettes associated with tobacco products. The long-term success of our company depends on us being able to in 2011 develop reduced-risk products in the future. Our Group R&D are doing some great work in this area. And, in the meantime, at British American Tobacco Germany we need to be responsible now with our existing products, such as through our marketing standards and youth smoking prevention programmes. We have a good reputation in Germany as a top employer with a family-friendly culture. We’re also known for our corporate social investment work, such as our Foundation for Future Studies, which contributes to wider debates affecting society. For me it’s fantastic to see how much our employees are really behind this work. That’s down to how much we involved them in developing our sustainability programme. We held sustainability workshops last year with different areas of the business and some great initiatives came out of these, developed by the employees themselves. Our sustainability goals can only be achieved if we all work together and take practical actions that everyone can contribute to. It makes me immensely proud to see this playing out in our day-to-day business. Our challenge now is to keep this momentum going, to create a truly sustainable business in the long term. Ad Schenk, Managing Director, British American Tobacco Germany
PERFORMANCE HIGHLIGHTS IN 2011
Met or exceeded Group targets for: • 100% adherence to our International Marketing Standards • Energy and water use • Waste sent to landfill and recycling. British American Tobacco Sustainability Report 2011 147
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Balanced scorecard for Germany
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 1 0
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco No Yes Yes
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 10.16 8.79 7.81 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 0.67 0.58 0.53 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.001 0.001 0.000 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 99.54% 99.37% 99.92% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 2.73 2.72 2.59 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 38% 80% 40% in the short term and two local successors in the long term for Long each senior position term 31% 60% 20%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 29% 60% 60% British American Tobacco Sustainability Report 2011 148
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco Germany vs Towers 2 Watson Germany national benchmark Score in the Engagement category 68 78 Ranked by difference from benchmark -6 +3
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 50.0% 70.0% 64.3% Management grade 34 39.8% 41.0% 38.3% Management grade 35 31.1% 31.0% 34.9% Management grade 36 16.4% 18.0% 18.8% Management grade 37 9.3% 7.0% 10.8% Management grade 38 0.0% 0.0% 0.0% Management grade 39 0.0% 0.0% 0.0% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.68 0.56 0.42
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 149
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Sustainability at British American Tobacco Germany
In 2010, British American Tobacco Germany carried out a materiality test, using the Group’s methodology, to identify the issues of most concern to the business and its stakeholders. This involved consultation with external stakeholders, followed by workshops with different areas of the business to devise sustainability goals for each area. The result was the development of a sustainability programme that contributes to the Group’s sustainability goals at the same time as addressing local needs. Examples of some of the initiatives in the programme are detailed below. Youth smoking prevention British American Tobacco Germany continues to tackle youth smoking through a campaign to raise awareness of the issue among retailers and wholesalers. In 2011, 150,000 copies of the youth smoking prevention (YSP) campaign’s brochure were distributed to the company’s trade partners. The brochure is also available electronically for retailers to distribute to their employees. It contains information on the minimum age law, guidance on effective ways to verify a customer’s age and three point-of-sale stickers for the retailers to display. A total of 450,000 stickers were distributed, enabling the retailers to meet the German legal requirement to display the minimum age for sales wherever tobacco products are sold. The campaign’s online presence includes a YSP section of the company’s website, which was updated in 2011 to include an e-learning tool for retailers that features resources such as quizzes and videos showing how to handle typical situations. British American Tobacco Germany hopes that by working with retailers and its trade partners in this way, it can effectively contribute to addressing youth smoking in Germany. Reducing environmental impacts British American Tobacco Germany is committed to addressing its environmental impacts. It was the first company in our Western Europe region to be certified to the new European DIN EN 16001 standard, which focuses specifically on energy efficiency. The company’s work to reduce its environmental impacts is primarily focused on its manufacturing and logistics, as well as having initiatives such as its programme encouraging employees to use natural resources responsibly, both at work and at home. The company’s factory in Bayreuth is the largest manufacturing site in the Group. As such, it was one of the first to undergo a third party energy and CO2e assessment in late 2009. As a result of the assessment, the site has begun to upgrade its boilers, which represents up to half its total energy use, to more energy-efficient models. The vehicle fleet used by the company’s trade and account representatives is currently being replaced with more fuel-efficient cars. To date, 46 per cent of the fleet has been replaced. This is expected to result in an estimated 10 per cent reduction in the fleet’s overall fuel consumption and CO2e emissions, as well as considerable cost savings. The company plans to replace its entire fleet by 2014. Employer of choice British American Tobacco Germany has built a reputation as an employer of choice, focused on employee wellbeing. In 2011, it was recognised, for the seventh successive year, as a Top Employer in Germany by the CRF Institute, an international organisation that identifies top performers in the areas of human resources, leadership and strategy. The company’s work in this area includes a family services programme that provides employees with support through family events and day trips, free child care facilities in emergency situations and assistance with caring for sick or elderly relatives. Free confidential counselling services are also available for all employees. In recognition of this family-friendly approach, the company was accredited in 2010 by a national initiative, Berufundfamilie gGmbH, under the auspices of the Federal Minister for Family Affairs and the Federal Minister of Economics. British American Tobacco Sustainability Report 2011 150
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Employee survey In the 2010 ‘Your Voice’ employee opinion survey, British American Tobacco Germany saw positive results: in all 11 categories, employee opinion had improved compared to the 2008 survey. However, the company recognises that there are still some areas for improvement. For example, despite being 4 per cent above the national benchmark in the area of talent development, areas for improvement were identified. In 2011, these areas were addressed through initiatives including the establishment of an academy for graduates and existing non-management employees who have the potential to move into management roles. The academy includes training, coaching and seminars on leadership and management skills. Through the Group’s new learning management system, new training courses and materials have also been developed for management employees. Guidance was also provided for line managers to give more consistent and transparent feedback to employees following Talent Review meetings. Community investment British American Tobacco Germany has a long-standing corporate social investment programme. For example, the company is the main sponsor of Hamburg’s annual ‘Long Night of Museums’ event, in which over 40 museums and galleries are opened to the public overnight. More than 30,000 visitors took part in 2011. In Bayreuth, where the company’s main factory is located, British American Tobacco Germany supports young artists through its Campus Gallery project. In partnership with the University of Bayreuth, exhibitions are held for international artists and young international artists are supported with scholarships and exhibition opportunities. The Foundation for Future Studies The company also continues to support the Foundation for Future Studies, which it founded in 1979. The Foundation contributes to society’s debates around the future and sustainability. It produces publications based on independent research and holds events and seminars to encourage open discussion of the issues. In 2011, the Foundation’s geographical scope was extended beyond Germany to include other European countries. Projects under this new scope included the publication ‘United Dreams of Europe’. This report into expectations for the future of Europe was based on a survey of 15,000 people across 13 European states and interviews with European politicians, scientists and students. British American Tobacco Sustainability Report 2011 151
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Viewpoint from an employee in Germany
STAKEHOLDER VIEWPOINT The best way we can address youth smoking I’ve been able to build a is to support retailers to adhere to the one-to-one relationship minimum age law. with the company rep who visits my store. Ralf Artes, Sales Representative, British American Tobacco Germany We discuss not only sales and products, but also issues like youth smoking prevention and health warnings. For me, this demonstrates how seriously British In my role as a trade marketing representative, I visit over 50 retailers a week – in my fuel-efficient car, American Tobacco I’d like to point out! That level of engagement with the retailers puts me in the ideal position to talk to Germany takes these them about key issues for our business, like youth smoking prevention and marketing standards. issues and shows that The best way we can address youth smoking is to support retailers to adhere to the minimum age it’s not just lip service. law. So we talk to them about the issue, provide advice on age verification, supply them with point-of- They really do practice sale materials like ‘no sales to under 18s’ stickers and so on. I think the retailers really appreciate this personal approach and from my experience it’s a far more effective way of addressing the problem. what they preach! The fact that our International Marketing Standards (IMS) are more stringent than local laws in some K. Frank, Retailer, TABA-PRESS, areas presents us with a challenge. For example, we include health warnings on all our point-of-sale Nürnberg, Germany materials, but in the shop, sometimes other materials obscure the health warnings. As health warnings on these materials are not required by local law, some retailers struggle to understand why this is a problem. Of course, we talk to them about our IMS and explain why it’s important. Then they generally get it. Last year, the company developed a new training programme to help us better understand the IMS and translate it into real-life scenarios. What was particularly helpful was the face-to-face training. Hearing about other reps’ experiences and picking up tips on how to engage with retailers on difficult issues really helps me to do my job better. And that means I’m doing my bit to contribute to us upholding high standards in the marketplace. Ralf Artes, Sales Representative, British American Tobacco Germany British American Tobacco Sustainability Report 2011 152
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Malaysia Viewpoint from the Managing Director Malaysia
Being part of an international group is a real benefit for our local business in helping us to keep pace with external best practices. HIGHLIGHTS William Toh, Managing Director, British American Tobacco Malaysia • Operating in Malaysia since 1912 • Ranks among the top 25 companies on the Malaysian Stock Exchange by market capitalisation In 2012, we will mark the centenary of our presence in Malaysia. We’ve seen a lot of changes in those • Market share of 100 years. Sustainability, for example, wasn’t something we talked about until fairly recently. But when approximately 60% you dig a bit deeper, you find that the concepts underneath it aren’t so new. • Over 1,100 employees It has always made business sense to embrace these concepts – from maintaining good relationships with the communities in which we operate, to looking after our retail customers and supporting our employees. However, what we have seen in recent years is how external expectations of a responsible company are evolving. With the development of the Group sustainability agenda in 2007 and a step-change towards sustainability and shared value, I think this has helped to put us ahead of the game compared to other companies in Malaysia. That is where being part of an international group is a real benefit for our local business in helping us to keep pace with external best practices. Besides the major challenge of the illegal cigarette trade in Malaysia, there are also increasing expectations from our stakeholders and the public in general to continue performing responsibly in our operations, not least on environmental best practices. Through continued work with enforcement bodies and environmental initiatives, I hope we’ll start to see a real change in these areas. But they are definitely long-term issues and they require long-term solutions. William Toh, Managing Director, British American Tobacco Malaysia
PERFORMANCE HIGHLIGHTS IN 2011
Met or exceeded Group targets for: • 100% adherence to our International Marketing Standards • Waste sent to landfill and recycling British American Tobacco Sustainability Report 2011 153
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Balanced scorecard for Malaysia
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 0 0
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes No Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco No No No
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 18.77 18.04 21.77 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 2.15 2.12 2.27 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.003 0.001 0.001 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 95.87% 96.07% 96.25% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 18.03 16.54 12.90 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 56% 67% 67% in the short term and two local successors in the long term for Long each senior position term 56% 50% 67%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 67% 67% 67% 2 British American Tobacco Sustainability Report 2011 154
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco Malaysia vs Towers 3 Watson Malaysia national benchmark Score in the Engagement category 70 65 Ranked by difference from benchmark -5 -11
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 41.4% 69.0% 53.8% Management grade 34 18.3% 29.0% 33.9% Management grade 35 33.8% 35.0% 32.6% Management grade 36 32.7% 25.0% 32.6% Management grade 37 30.8% 35.0% 37.9% Management grade 38 25.0% 25.0% 14.3% Management grade 39 25.0% 25.0% 20.0% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.17 0.12 0.07 4
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 The 2009 percentage of local representation on the business unit senior management team has been re-stated to the one previously reported of 71 per cent, due to the earlier fi gure being incorrectly quoted in the previous Report. 3 Data is based on 2008 and 2010 biennial employee survey. 4 Sadly, there was one vehicle-related fatality to a contractor in 2011. British American Tobacco Sustainability Report 2011 155
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Sustainability at British American Tobacco Malaysia
Fighting the illegal cigarette trade MALAYSIA’S ILLEGAL The illegal cigarette trade in Malaysia is, according CIGARETTE TRADE to the 2009 Global Tobacco Report by Goldman Sachs, the largest in the world by market share. In 2011, according to research With a vast 172 per cent rise in excise tax between conducted by Neilson, illegal cigarettes represented 36.3% of 2004 and 2010 leading to Malaysia having the the market in Malaysia. third highest cigarette prices in Asia, the demand for cheaper, illegal cigarettes has increased. The The Malaysian Government is country’s long coasts, isolated jetties and extensive estimated to lose up to MYR2 borders make it relatively easy for cigarettes to be billion (£402 million) in unpaid smuggled in from neighbouring countries. taxes each year as a result of the illegal tobacco trade. The illegal cigarette trade not only affects British American Tobacco Malaysia’s revenues, it has negative consequences for society. The state loses out on tax income, cigarettes are easily accessible to children and criminal gangs profit. The company cannot hope to tackle a problem of this scale alone. It is therefore collaborating with the Government, industry groups and enforcement bodies to develop joint solutions, share intelligence and enhance enforcement capabilities. In 2011, British American Tobacco Malaysia took the crucial step of re-evaluating its efforts and addressing the issue with a fresh approach. As a result, the local business (through the Confederation of Malaysian Tobacco Manufacturers) worked with and supported the media to highlight the illegal cigarette trade and its consequences. It also outlined a comprehensive approach and strategy to the Government on addressing the issue. Following this, the Malaysian Government made its biggest acknowledgement of the seriousness of illicit trade to date by not raising the excise tax on cigarettes for the first time in history during the tabling of the 2012 National Budget. The Prime Minister further attributed this move to the fact that the illicit cigarette trade rate of nearly 40 per cent of the market was a concern for the Government. The illegal cigarettes problem, however, is not an issue that can be solved overnight. It will require sustainable and continuous efforts from both the industry and the Government. Environment, health and safety initiatives In 2011, British American Tobacco Malaysia implemented various initiatives to improve environmental performance in its operations. A second rainwater harvesting tank was installed at its manufacturing site to collect water for wetting tobacco dust waste and cleaning. It is expected to provide the site with 100,000 litres each year, reducing demand on local water supplies. A third tank is planned for 2012. The energy efficiency of the factory’s boilers was enhanced in 2011, with the installation of a third economiser unit to recover waste heat. This is expected to cut energy consumption by 18.9 per cent. The system used to filter the site’s emissions to air was also upgraded in 2011, using a new tundra peat as an organic bio-filter. In addition, the treatment capacity of waste water from the factory premises was increased by 20 per cent through an expansion of the Effluent Treatment Plant. To improve safety and fuel efficiency among the company’s drivers, a defensive driving programme was developed in 2010. Since then, a total of 356 employees have attended 13 sessions covering safe driving, vehicle handling in emergency situations, vehicle maintenance and tips on saving fuel. Sadly, however, there was one vehicle-related fatality of a contractor in 2011. We greatly regret this loss of life and hope that the defensive driving programme and other safety initiatives will help prevent a recurrence. Employee volunteering British American Tobacco Malaysia’s charitable foundation organises employee volunteering days. In the past, these have been in employees’ own time during the weekends. In 2011, however, this was changed to encourage a higher level of participation. The company sees employee volunteering as valuable not only for the community, but also for building stronger relationships between employees and teams. Three volunteering days were organised during the working week in 2011. Volunteering activities on these three days included planting saplings and seeds at a home for the elderly, and a waterfall and beach clean-up. In addition to this, volunteer events were also held during Malaysian festive celebrations. British American Tobacco Sustainability Report 2011 156
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External allegations The Malaysian Trades Union Congress made a complaint against British American Tobacco Malaysia, alleging anti-union activity in 2007. The complaint was analysed by the UK National Contact Point for the Organisation for Economic Cooperation and Development’s (OECD’s) Guidelines for Multinational Enterprises and their final ruling was published in 2011. The main allegations of the Trades Union Congress were that the company had restructured the business in such a way that the trade union became unsustainable and that insufficient employee consultation took place. British American Tobacco Malaysia explained that the restructuring was necessary to comply with a local law that requires managers and employees to belong to different unions. In its final ruling, which can be found on www.bis.gov.uk, the UK National Contact Point stated its decision not to investigate the restructuring, as to do so could result in a ruling that conflicted with local law. We maintain that British American Tobacco complied with the law and with our employment principles: wherever we operate, we respect workers’ fundamental rights to freedom of association and collective bargaining. The final ruling also recommended that British American Tobacco strengthen its consultation processes, which has now been done. British American Tobacco Sustainability Report 2011 157
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Viewpoint from an employee in Malaysia
What I love about my job is that environment, health and safety touches pretty much every part of the business.
Loo Ling Wah, Environment, Health & Safety Manager, British American Tobacco Malaysia
I’ve worked as the Environment, Health & Safety Manager at British American Tobacco Malaysia for almost three years. Until recently, most people here saw sustainability as being just about the environment. What’s great is to see how sustainability now seems to be the buzzword on everyone’s lips, no matter what area of the company they work in. I think that’s thanks to the way the Group sustainability agenda has been structured across the five key areas and how our business in Malaysia has aligned itself through its own sustainability framework and initiatives. It’s really resonated with the employees and given them a clearer view of how important sustainability is to our company. What I love about my job is that environment, health and safety touches pretty much every part of the business – from promoting health and safety in the offices, to organising the defensive driving programme for our sales force, to implementing environmental initiatives in our factory. The part that I find more challenging is getting the buy-in from management and employees for new initiatives. People are often scared of change or find it hard to see the business benefits – especially as lots of sustainability projects have longer pay-back periods than we’re used to. I have to say though, with so much more awareness now, that part of my job is definitely getting easier. We’ve still got a way to go, but I really believe that by getting the whole company to work together like this we’ve made a huge step forward. Loo Ling Wah, Environment, Health & Safety Manager, British American Tobacco Malaysia British American Tobacco Sustainability Report 2011 158
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Nigeria Viewpoint from the Managing Director Nigeria
We’re one of only a handful of companies in the country to carry out stakeholder dialogue. HIGHLIGHTS Beverley Spencer-Obatoyinbo, Managing Director, British American Tobacco Nigeria • Operating in Nigeria since 1912 • Market share of over 85% • Head office in Lagos also serves as the head office for our West Africa area, which covers 25 countries • Works with over 850 Having returned to British American Tobacco Nigeria just over two years ago, I’m so encouraged to see independent farmers and the progress that’s been made with regards to corporate social responsibility. I really believe we’re one of purchased over 2,000 tonnes of the leaders in this country when it comes to CSR. leaf from these farmers in 2011 In Nigeria, you say ‘CSR’ and people think ‘philanthropy’, because most companies focus just on • Two manufacturing sites in community development issues. They don’t have the broader focus of looking at the social, environmental Zaria and Ibadan and economic impact of their business operations. • Employs around 800 people For example, we’re one of only a handful of companies in the country to carry out stakeholder dialogue. and indirectly supports It’s helped to build our reputation for openness and transparency, which I think has helped stakeholders approximately 1,000 more through its distribution partner who previously would’ve refused to engage with us to now be more willing to do so. This approach to dialogue has been brilliant for us: knowing what our stakeholders think means we can make better business decisions. And it’s introduced us to organisations that we can partner with to help address some of our mutual issues. To be fair, some companies are showing more of an interest now. They’re asking about what we do so that they can learn from us. That’s really satisfying actually – to think that we’re not only making a difference ourselves, but encouraging other businesses to make more of a difference too. Beverley Spencer-Obatoyinbo, Managing Director, British American Tobacco Nigeria
PERFORMANCE HIGHLIGHTS IN 2011
Achieved a Lost Workday Case Incident Rate of zero British American Tobacco Sustainability Report 2011 159
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Balanced scorecard for Nigeria
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 2 0 1
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco No No Yes
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 20.53 20.93 17.90 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 1.63 1.65 1.41 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.076 0.057 0.040 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 57.49% 66.37% 70.69% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 6.82 4.73 4.98 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 43% 40% 40% in the short term and two local successors in the long term for Long each senior position term 43% 0% 0%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 71% 20% 20% British American Tobacco Sustainability Report 2011 160
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco Nigeria vs Towers 2 Watson Nigeria national benchmark Score in the Engagement category 67 78 Ranked by difference from benchmark -7 +2
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 33.3% 50.0% 57.1% Management grade 34 21.4% 27.0% 28.3% Management grade 35 17.5% 20.0% 23.1% Management grade 36 28.6% 26.0% 22.9% Management grade 37 19.0% 20.0% 12.5% Management grade 38 16.7% 25.0% 20.0% Management grade 39 0.0% 0.0% 0.0% Management grade 40 0.0% 100.0% 100.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.00 0.00 0.00
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 161
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Sustainability at British American Tobacco Nigeria STAKEHOLDER VIEWPOINT Marketplace responsibility Enforcement of youth The Group’s International Marketing Standards smoking prevention (IMS), which are stricter than the current tobacco laws, regulations and regulation in Nigeria, have strengthened the guidelines is everyone’s company’s approach to responsible marketplace practice. British American Tobacco Nigeria has responsibility. been encouraging the Government for some Stakeholder in dialogue on time to incorporate similar standards into local minimum age law legislation and is pleased to see that this is reflected in the proposed Tobacco Control Bill, many aspects of which the company supports. This includes the provision to introduce a minimum age of 18 for tobacco sales. There are currently no restrictions on the age at which people can buy cigarettes and, while it welcomes the proposed restriction, the company also anticipates problems with its enforcement. In Nigeria, it is culturally acceptable for children to buy cigarettes on behalf of adult smokers. The STAKEHOLDER market is also highly fragmented, with many small traders and street vendors. There is also no widely available VIEWPOINT or used national identification scheme that could be used to verify customers’ ages. From my community’s To explore these challenges and how they might be tackled, in 2011 British American Tobacco Nigeria held an experience since 2009, independently facilitated stakeholder dialogue session. Participants included representatives from government, the way British American NGOs, retailers and law enforcement agencies. Tobacco Nigeria The main message from the dialogue was that clarity is needed on how the minimum age law will be effectively conducts its Corporate enforced, such as through agreement on the areas of responsibility for all the stakeholders concerned, Social Investment including the Government, law enforcement bodies, retailers and the industry. It was suggested that a interventions through framework could be developed to clearly define responsibilities and that, based on this, solutions and areas for genuine community cooperation could be identified. British American Tobacco Nigeria will work with other stakeholders to explore participation and developing such a framework. empowerment, self-help The company’s trade marketing representatives will also discuss the proposed minimum age law directly and reliance on the with retailers. The trade marketing team already engages with retailers in this way, encouraging them to sell beneficiary community’s tobacco only to those aged 18 or over, despite this not yet being law. local human and natural Community investment assets largely accounts The British American Tobacco Nigeria Foundation is an independent charitable organisation established for the sustainability in 2002. The company provides funding that the Foundation uses to improve the quality of life of and high impact of these Nigeria’s citizens. projects as shown with One of the Foundation’s flagship projects is its Agricultural Development Initiative. This develops programmes our cassava processing to help traditional subsistence farmers adopt modern agricultural techniques. For example, model farms have centre. This does not been established to show how cassava, maize, watermelons and rice can be cultivated. Small processing even happen with plants for cassava and palm oil have also been built. These help farmers to understand how different Government projects. techniques can enhance their incomes. It is a model for other The Foundation’s other projects include vocational training centres to help people acquire employable trades companies to emulate. such as tailoring, cookery, plumbing and IT. There are currently two training centres in the Zaria and Jere communities in Kaduna State and a third has been commissioned for the Idi Ayunre community in Oyo State. Stakeholder in dialogue on community investment In 2011, British American Tobacco Nigeria held a stakeholder dialogue session on the subject of community investment. In particular, the company wanted to explore how the work of the Foundation could be better aligned with the Millennium Development Goals (MDGs). Participants included representatives from development agencies, charities, NGOs and government agencies. A major challenge raised during the dialogue was that there is currently no consistent framework for measuring the impact of community programmes. Despite this, participants agreed that there are opportunities for Nigerian companies to collaborate to help achieve common MDG and sustainability goals. Drawing on the insights gained from the dialogue session, British American Tobacco Nigeria will strengthen the design and implementation of the Foundation’s projects to be better aligned with Nigeria’s MDG targets. In 2011, the Foundation assessed the impacts of its projects. In 2012, it will publish the results of this assessment and adapt its Corporate Social Investment programme as appropriate. British American Tobacco Sustainability Report 2011 162
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Viewpoint from an employee in Nigeria
TOBACCO GROWING I get to see first hand how the work we do IN NIGERIA helps to improve the quality of life in these farming communities. In Oyo State, South West Nigeria, tobacco is the most widely Adeladan Ademola Amidu, Leaf Training and Sustainability cultivated cash crop. Supervisor, British American Tobacco Nigeria The company works with over 850 independent farmers and purchased approximately 2,000 tonnes of leaf from these farmers in 2011. When I first joined British American Tobacco Nigeria to work in the leaf department, I never imagined the scope of the work involved. Of course, I knew we’d be giving farmers agronomy support. That basically means we visit farms and provide training sessions where they can get advice on agricultural best practice, from water protection to the safe handling of agrochemicals. STAKEHOLDER What I hadn’t realised is how much advice is given on other crops – it’s not just tobacco. So, for example, we VIEWPOINT encourage crop rotation. It’s good for the farmers, as it means they can grow food crops to help feed their It has been a wonderful families. And it’s good for us – we want them to use fertilisers to improve the quality of their tobacco crops, business relationship but fertilisers are increasingly expensive. If they’re growing a food crop afterwards, the fertilisers they’ve bought for their tobacco crop are still in the soil, so the food crop benefits. And that means the farmers are with BAT Nigeria. It is more willing to spend money on the fertiliser. commendable that the Curing fuel is a big issue for us at the moment. We’re encouraging our farmers to establish sustainable wood company is the only one lots, so that they have a source of wood for curing their tobacco leaf, without having to take it from the natural in the Oyo North area forest. And we’re exploring other fuels, like sawdust briquettes, as well as more efficient curing barns, like of Nigeria that offers rocket barns that need only about half the wood that traditional barns do. technical support to I hadn’t appreciated how complicated the child labour issue was before I started working here or how much farmers for tobacco and of our time with farmers would be spent on it. I think it’s really important for people to understand that it’s food crop production. considered normal among the local communities for children to help out on their parents’ farms. It becomes The presence of the child labour when the ‘helping out’ starts to interfere with the child’s welfare, safety or education. It’s not company here has always an easy distinction to make, so we help the farmers to understand where the line needs to be drawn helped to create job and the steps they need to take, like making sure children don’t handle chemicals. opportunities for our All these aspects of my job make for an interesting and challenging role – no day is ever the same! And it’s people. extremely satisfying – I get to see first hand how the work we do helps to improve the quality of life in these farming communities and that means I go home proud. Mr Alani Adewuni, tobacco grower, Igboho community, Oyo State, Adeladan Ademola Amidu, Leaf Training and Sustainability Supervisor, British American Tobacco Nigeria Nigeria British American Tobacco Sustainability Report 2011 163
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Russia Viewpoint from the General Manager Russia
Stakeholders are often surprised by how open we are – even when we’re being criticised or HIGHLIGHTS facing viewpoints different from our own. • Market share of 20.7% Johan Vandermeulen, General Manager, British American • Over 3,000 employees Tobacco Russia • Three factories in Moscow, St Petersburg and Saratov • Distribution to more than 670 cities nationwide
I’m proud to say that British American Tobacco Russia is seen as one of the pioneers of stakeholder engagement and reporting in our country. We began our programme back in 2001 and I don’t think many companies here can say they’ve had a stakeholder dialogue programme in place for that long. The dialogue process has given us a better understanding of the key issues for our local stakeholders – their opinions help inform what we have to do. We need to meet stakeholders’ expectations to help ensure the sustainability of our business, so engaging with them has helped us make better decisions. Of course, some stakeholders are sceptical of our approach just because we are a tobacco company, so they refuse to engage with us. But those stakeholders that do meet with us are often surprised by how open we are – even when we’re being criticised or facing viewpoints different from our own. It’s this kind of challenge that really keeps us on our toes. OK, we may not agree with everything they say, but we always respond and we try to be clear about our reasoning. I think that this long history of listening to our stakeholders places us in a unique position: we have a lot of experience and insights to share with others, which I hope can make a real contribution to sustainable development in Russia. Johan Vandermeulen, General Manager, British American Tobacco Russia
PERFORMANCE HIGHLIGHTS IN 2011
Met or exceeded Group targets for: • Energy and water use • Waste sent to landfill and recycling. British American Tobacco Sustainability Report 2011 164
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Balanced scorecard for Russia
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 0 2
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco Yes Yes Yes
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 9.78 9.94 10.36 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 0.74 0.74 0.77 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.022 0.017 0.013 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 77.96% 82.40% 86.24% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 2.11 1.77 1.62 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 50% 60% 33% in the short term and two local successors in the long term for Long each senior position term 33% 40% 33%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 0% 0% 17% British American Tobacco Sustainability Report 2011 165
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco Russia vs Towers 2 Watson Russia national benchmark Score in the Engagement category 74 80 Ranked by difference from benchmark -4 +5
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 57.1% 64.0% 52.6% Management grade 34 37.2% 38.0% 35.1% Management grade 35 43.2% 43.0% 44.4% Management grade 36 36.2% 32.0% 36.0% Management grade 37 25.0% 23.0% 23.1% Management grade 38 100.0% 22.0% 14.3% Management grade 39 0.0% 25.0% 33.3% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.00 0.07 0.14
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 166
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Sustainability at British American Tobacco Russia
Stakeholder engagement STAKEHOLDER British American Tobacco Russia’s long-standing VIEWPOINT stakeholder engagement programme has The fact that you’re helped inform and develop its approach to holding this dialogue, sustainability over the last 10 years. It has helped ensure that initiatives are in line with that you’re not afraid to local stakeholder expectations as well as the present your reports, Group’s sustainability agenda. speaks to the fact that In 2011, the company published its latest yours is a truly public, Stakeholder Report, detailing its recent stakeholder results-driven company. dialogue sessions on environment, health and State agency representative in safety at its factory in St Petersburg and on dialogue tobacco product regulation in Moscow. You can read more about the St Petersburg dialogue in the employee viewpoint and can download a copy of the Stakeholder Report here. STAKEHOLDER Youth smoking prevention VIEWPOINT Despite having had a minimum age law of 18 for tobacco sales since 2001, underage smoking rates in Russia The company is are still among the highest in the world. To help tackle this, British American Tobacco Russia is part of an genuinely interested industry youth smoking prevention (YSP) programme coordinated by two independent NGOs. in implementing useful The programme aims to reduce access to tobacco products for under 18s by training retailers. The training projects, which is the is delivered by the NGOs together with State authorities. This collaborative approach has enabled a more essence of business focused and effective programme with wider reach. responsibility to Retail chains are also invited to use the programme’s training module as part of their in-house training courses. the region and its This enables more regular training for their staff than the programme would be able to deliver itself and helps inhabitants. increase its reach. Representatives from the industry also discuss YSP issues with retailers as part of their day-to-day work and State agency representative in provide them with point-of-sale stickers and booklets stating that the retailer does not sell tobacco products to dialogue anyone under 18. The industry programme also aims to raise public awareness of the issue of youth smoking. In 2011, events were held in over 20 Russian cities, attended by representatives from local administrations, regional oversight agencies, commercial and non-governmental organisations and the local media. A conference devoted to the issue of youth retail access prevention was also held in St Petersburg in late 2011. This was attended by around 100 representatives of State bodies, NGOs and local businesses. YOUTH SMOKING The main objective of the conference was to develop a set of measures to strengthen enforcement of PREVENTION HIGHLIGHTS the minimum age law and help reduce youth smoking. Following the conference, a summary of the main 2004–2011: conclusions and recommendations was circulated to relevant parties, including the Government and the State Duma. • Programme run in over 40 cities. • 744 YSP educational seminars Many stakeholders are still sceptical about the intentions of tobacco companies in this area. British American and training events and over 90 Tobacco Russia hopes that the work it is putting into raising awareness, strengthening enforcement and public events held. supporting retailers to comply with the minimum age law will result in lower youth smoking rates and • Over 15,000 employees from demonstrate the company’s good intentions. 720 key retail accounts, covering In 2012, the company plans to publish results of a study conducted by an independent research agency to 14,000 outlets, took part in measure the effectiveness of the programme. training sessions. • Around 40,000 copies of YSP Environmental initiatives educational materials distributed in retail outlets across Russia. As part of the Group’s global plan to reduce the environmental impact of our factories, British American • YSP training module run in 56 Tobacco Russia’s three factories are running joint and site-specific programmes to reduce energy and water colleges and training centres for use, minimise waste generation and increase recycling rates. retail employees. The three factories have environmental management systems certified to the ISO 14001 international standard and take advantage of a common documentation database, harmonised processes and shared experience. For example, an energy saving culture project, which aimed to encourage employees to use energy at work and home in a responsible way, was successfully piloted at the factory in Saratov before being rolled out to the factories in St Petersburg and Moscow. This project was complemented by an ‘EcoFactory’ campaign which aimed to raise employees’ awareness of wider environmental issues, including the cost of natural resources. British American Tobacco Sustainability Report 2011 167
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Energy and resource use assessments were carried out at each of the three factories between 2010 and 2011. These assessments help the company to identify and prioritise measures to further reduce its energy and resource use. For example, the factory in St Petersburg replaced a range of pump and fan drives with energy- efficient alternatives and improved insulation of heating and cooling systems. This work built on a number of environmental initiatives already underway at the factories, examples of which are detailed below. In the Saratov factory, waste heat from the tobacco dryer is now used to heat water in summer and to melt snow in winter. A project is also underway to modernise the factory’s boiler system to a more efficient model, which is expected to result in reducing the site’s use of natural gas by 7–10 per cent, resulting in total energy savings of 2–3 per cent. The factory in St Petersburg saved 7 per cent of its total water use by installing a rainwater collection system for cooling hot water from the site’s boiler before disposal. Another example is the introduction of FIBEX at the St Petersburg factory to reduce and reuse waste. FIBEX is a British American Tobacco patented technology that converts previously unusable tobacco (for example, because the particle size is too small) into a useable product similar to ordinary tobacco. It involves crushing and extruding tobacco materials then reconstituting them under high pressure. The finished product can then be blended with regular tobacco. The factory in Moscow was one of the first manufacturing sites in the city to take part in an initiative of the Government’s Department of Nature to install an online system for monitoring emissions into the air. The system measures emissions data every 20 minutes, which is then collated with other data from the area and made publicly available on its website, http://mosecom.ru/air/air-today/. You can read more about environmental initiatives in the Saratov and St Petersburg factories in British American Tobacco Russia’s last two Stakeholder Reports, which can be downloaded here. Workplace safety All three of British American Tobacco Russia’s factories have health and safety management systems certified to the OHSAS 18001 international standard. These systems are based on regular identification of potential hazards, assessing associated risks and developing preventive measures. The company also holds regular training days and events to continually remind employees of the importance of health and safety. For example, the factories hold a Health & Safety and Fire Safety week each year that includes quizzes, competitions and other activities designed to engage employees in a fun way. A number of employees also act as ambassadors to champion health and safety among their colleagues. Initiatives like these have helped to embed the Group’s position that health and safety is not only the responsibility of management, but needs everyone to look out for each other. The factory in St Petersburg introduced a new system to monitor ‘near misses’, enabling it to respond to minor injuries and hazardous situations and help prevent potential lost workdays and serious injuries. The factory in Saratov made a step change in emergency preparedness at the site through installing technical means of registering employees at the fire assembly points and facilitating the evacuation procedure. The company’s factory in Moscow also took advantage of a new opportunity, in June 2010, for Moscow employers to register to the Moscow State Labour Inspection Certificate of Trust. Gaining such certification is not only recognition of the factory’s high standards of health and safety, but also helps to demonstrate its commitment to this important area, both externally and to its employees. To help reduce vehicle-related accidents in the Trade Marketing & Distribution teams, the company has had a Traffic Accident Reduction programme in place since 2008. The programme includes setting annual targets, which are included in performance objectives for key environment, health and safety personnel and drivers; recording and analysis of ‘near misses’; defensive driver training focused on practical skills to avoid accidents and handling vehicles in emergency situations; regular testing of drivers’ knowledge of local road rules; and awards and recognition for teams with accident-free records. A continuous positive trend has been seen with around a 55 per cent reduction in the road traffic accidents rate since 2006. British American Tobacco Sustainability Report 2011 168
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Viewpoint from an employee in Russia
ST PETERSBURG FACTORY We didn’t think we knew it all, but I for one thought about some things differently after that session. More than 540 employees
Victor Remezov, St Petersburg Factory Power Facilities Manager, Produces 26.8 billion cigarettes British American Tobacco Russia a year
In 2011: • Energy use of 7.21GJ per million cigarettes equivalent • CO2e of 0.51 tonnes per million cigarettes equivalent I’ve worked at the St Petersburg factory for 14 years and I’m now the Power Facilities Manager. • Water use of 1.44m3 per million cigarettes equivalent In November 2010, I was asked to participate in a dialogue session on environment, health and safety • Recycling rate of 90% issues. I’d never been to an event like this before, with people from inside and outside the company. To • Lost Workday Case Incident be honest, I was a bit nervous to start with, not knowing how it would work, and I thought it might be a Rate of zero complete waste of time. Of course, I was wrong! I soon realised that it was really useful – and enjoyable. I liked having the opportunity to explain our approach with the external stakeholders – being able to demonstrate to them that we take these issues seriously and are tackling them from lots of angles. That made me feel proud. And the comments we got back from them were really useful too. Don’t get me wrong – we didn’t think we knew it all, but I for one thought about some things differently after that session. As much as we think we might be on the right track, having that level of external challenge is invaluable in helping us to make further progress. As a result of this dialogue, we now want to engage with our stakeholders on a whole list of other topics. I think it’s great that we’re developing a strong stakeholder engagement programme – for one thing, because I think it’s really important that we don’t become complacent and, for another, because it shows how committed the company really is to addressing its environmental impacts. And that makes me proud to work here. Victor Remezov, St Petersburg Factory Power Facilities Manager, British American Tobacco Russia British American Tobacco Sustainability Report 2011 169
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South Africa Viewpoint from the Managing Director South Africa
We know we need to be ‘future fit’ to continue to deliver value to shareholders and other stakeholders. And that means meeting our sustainability goals. HIGHLIGHTS
Brian Finch, Managing Director, British American Tobacco South Africa • Operating in South Africa since 1904 • 86% share of the total legitimate tobacco market • Over 2,000 employees • Heidelberg factory produces 27.5 billion cigarettes a year British American Tobacco South Africa has deep roots in this country: we’ve been operating here for • 31% of the tobacco used over a century. The success of our company is intertwined with the success of the country so, to me, our comes from South African commitment to sustainability makes no sense if it isn’t also a commitment to sustainable development in farms South Africa. • Once again voted as one of the The Group sustainability agenda gives us a clear framework for focusing on the issues that are most top employers in the country material for the Group as a whole and those that matter most to people here in South Africa. For example, HIV/AIDS is a really serious problem here and this can affect our employees, our consumers, our suppliers – in short, our business. We’ve made good progress in addressing this, not least by evolving our HIV/AIDS support into a broader employee wellbeing programme. This has made it easier for employees to access testing and treatment without fear of being stigmatised. Another important issue here is the fact that most Black1 South Africans still hold little economic power. Broad-Based Black Economic Empowerment is about creating an inclusive and prosperous society in which all South Africans can participate fully. For British American Tobacco South Africa, encouraging Black South Africans to prosper in our workforce or wider supply chain means that we don’t miss out on talented individuals who may have much to offer our business. According to the Tobacco Institute of Southern Africa illegal cigarettes make up over 20 per cent of the total cigarette market in South Africa, so tackling illicit trade is another major focus for us. The media campaign we launched last year helped to raise public awareness and we will continue to tackle the issue. We know we need to be ‘future fit’ to continue to deliver value to shareholders and other stakeholders. And that means meeting our sustainability goals. Brian Finch, Managing Director, British American Tobacco South Africa
PERFORMANCE HIGHLIGHTS IN 2011
Met the Group target for 70:30 ratio of local to expatriate senior managers at business unit level
1 The term ‘Black’ is defi ned in South African legislation to include people of ‘African, Indian and Coloured domain’. British American Tobacco Sustainability Report 2011 170
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Balanced scorecard for South Africa
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 2 0 1
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco No No No
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 15.36 16.85 15.82 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 2.00 2.32 2.16 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.041 0.058 0.040 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 80.53% 74.89% 83.63% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 7.29 8.96 7.95 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 43% 20% 60% in the short term and two local successors in the long term for Long each senior position term 86% 60% 40%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 57% 100% 80% British American Tobacco Sustainability Report 2011 171
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco South Africa vs Towers Watson South Africa national 2 benchmark Score in the Engagement category 81 77 Ranked by difference from benchmark +6 +1
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 34.6% 43.0% 54.5% Management grade 34 42.3% 50.0% 41.9% Management grade 35 26.2% 32.0% 31.5% Management grade 36 31.8% 35.0% 35.0% Management grade 37 19.7% 21.0% 21.6% Management grade 38 8.3% 10.0% 0.0% Management grade 39 20.0% 20.0% 16.7% 3 Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.56 0.72 0.92 4
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. 3 The 2009 percentage of women in management grade 39 has been re-stated to the one previously reported of 25 per cent, due to the earlier fi gure being incorrectly quoted in the previous Report. 4 Sadly, there was one fatality in 2011 to a contractor in the Trade Marketing & Distribution team as the result of an assault. British American Tobacco Sustainability Report 2011 172
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Sustainability at British American Tobacco South Africa
Fighting the illegal tobacco trade EXTERNAL RECOGNITION In response to a significant increase in South Africa’s illegal tobacco trade in recent years, the At the 17th Conference of Parties company launched an awareness campaign in on Climate Change in South late 2010. Africa in December 2011, British Supported by the Tobacco Institute of Southern American Tobacco South Africa received recognition from the Africa (TISA), the first phase of the campaign was Global Carbon Disclosure Project rolled out in Gauteng and the Western Cape, the for its sustainability performance, two provinces with the highest levels of illegal as well as a fourth place tobacco products. The campaign aimed to educate Gold Certificate for its carbon wholesalers, retailers, consumers and the general disclosure. public about the issue. It included raising awareness through billboards, newspapers, magazines and radio, as well as media interviews. A telephone hotline was also set up for members of the public to report incidences of illegal trade. To measure the campaign’s effectiveness, the company commissioned independent research. Over 60 per cent of respondents indicated that they were aware of the campaign after two weeks. The research also demonstrated a positive impact on consumer behaviour in urban areas, with more than 70 per cent of those respondents who were aware of the campaign indicating that they were now less likely to consider purchasing illegal cigarettes. However, the research showed that the campaign did not have the same positive effect on consumer behaviour in rural areas. Following this success, the decision was made to roll the campaign out to the rest of the country. The materials from the first stage were adapted slightly based on feedback gathered in the research and a campaign website was launched: www.stopillegalcigarettes.co.za. British American Tobacco South Africa also continues to work closely with authorities, such as the South African Police Services and the South African Revenue Services, to support enforcement activities. For example it alerts them to the sale of any known contraband products. The company is also engaging with Government agencies on the Group’s approach to digital tax verification, which will help secure the legitimate tobacco supply chain and ensure all taxes and duties are paid. Environmental initiatives With South Africa’s strong economic growth, rapid industrialisation and mass electrification programme, demand for power has started to outstrip supply. As a result, the country’s power system has become increasingly unreliable. Its heavy reliance on fossil fuels is also unsustainable in the long term. British American Tobacco South Africa’s factory in Heidelberg uses coal and diesel and is one of the Group’s most energy-intensive factories. It was therefore one of the first of our factories to have a third party energy and CO2e assessment in late 2009. The assessment identified short-, medium- and long-term investments to improve energy efficiency. Examples of short-term investments that have been made are the installation of motion sensors in the factory’s offices so that lighting and air conditioning switch off automatically when they are unoccupied; introducing a policy for all machinery to be switched off when not in use; and installing variable speed drives in air handling units and the boiler house to regulate the energy used by the motors. This latter initiative resulted in a 3 per cent reduction in energy use. The company is also assessing the feasibility of the proposed longer-term investments. These include installing a photovoltaic panel as a source of energy for the air conditioners and using solar powered heat pumps for the site’s hot water supply. British American Tobacco South Africa intends to further improve energy efficiency at the Heidelberg factory and implement similar initiatives in other areas of the company. This will include reducing fuel consumption in logistics and reviewing the company’s approach to waste management. British American Tobacco Sustainability Report 2011 173
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HIV/AIDS The company has an HIV/AIDS programme for its employees and their families. It provides education, voluntary testing, counselling, treatment and support. In 2006, the programme was broadened to incorporate wider employee wellbeing concerns. This shift helped position HIV/AIDS as a serious, but manageable, disease and reduced the stigma it carried. It helped employees and their families to understand that by being part of the programme, they would be better able to manage their risk. Broad-Based Black Economic Empowerment British American Tobacco South Africa started more than three years ago to apply the Government’s Codes of Good Practice for Broad-Based Black Economic Empowerment (B-BBEE) as part of its commitment to the transformation of the South African economy. B-BBEE is a strategic issue facing businesses of all sizes in South Africa, including family businesses and small and medium enterprises. The strategy was released by the South African Government in 2003 and defined as “an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the number of Black1 people that manage, own and control the country’s economy, as well as significant decreases in income inequalities”. The company’s approach to B-BBEE includes initiatives in the areas of employment equity, skills development, preferential procurement, enterprise development and corporate social investment as required by the Government’s B-BBEE Codes of Good Practice. The company has developed a charter and scorecard to measure the effectiveness of these initiatives and those of its suppliers and business partners. It also undergoes annual audits by a B-BBEE verification agency to measure its performance against the B-BBEE Codes of Good Practice. In 2011, it achieved its target of reaching Level 6 in the Codes and has a goal to rise to Level 5 by 2014. Community investment In 2011, British American Tobacco South Africa decided to focus its corporate social investment (CSI) on the communities where its sites and its contracted farmers are based. It will support long-term partnerships with communities in Heidelberg, where its factory is located; in and around Khayamandi, where the Stellenbosch head office is; and in the Skuinsdrift tobacco growing community in the North West province. In these targeted communities, British American Tobacco South Africa will continue to support projects that are aligned with the Group’s CSI priorities of empowerment, sustainable agriculture and environment, civic life and HIV/AIDS. For example, in the Skiunsdrift community, the company is helping to empower small-scale tobacco farmers to make their operations more commercially successful.
1 The term ‘Black’ is defi ned in South African legislation to include people of ‘African, Indian and Coloured domain’. British American Tobacco Sustainability Report 2011 174
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Viewpoint from an employee in South Africa
Employees see that the company cares about its people and about the country and that makes it a great place to work.
Mokgethi Daniel Mokone, Human Resources Service Centre Officer, British American Tobacco South Africa
I have worked for British American Tobacco South Africa for over 30 years. More than 20 of those years have been in human resources. It sounds like a cliché, but to its employees British American Tobacco South Africa really doesn’t feel like an ordinary company. I think there is an understanding that the company’s ultimate success depends on its people. They’re the company’s lifeblood and that view is embraced at all levels of the business. I think focusing on becoming an employer of choice and highlighting our strengths as an employer has helped us attract and retain talented people. Becoming an employer of choice is partly about giving employees a better work-life balance and greater control. So, for example, we introduced a greater range of flexible working options and we’ve provided an integrated wellbeing programme. We’ve also developed a coaching culture so that employees can get the help they need to develop their skills, rather than relying on classroom training to tell people what they need. My own advancement through the company – from the factory floor up through office roles into the human resources department – has shown how, if you want to develop and progress, all the opportunities are there. I’ve been supported at every stage of my career and have been inspired by seeing the rise in Black professionals in the company. It amazes me now to think how different a country South Africa was when I first started in the company; we were at the height of apartheid. Redressing these inequalities has been a big challenge for the whole country and businesses have an important part to play in this. We have a clear approach to Broad-Based Black Economic Empowerment (B-BBEE). I really believe this is not about paying lip service to the Government’s B-BBEE strategy. It’s something that the company really believes in and is strongly committed to. After all, the rise in the Black middle class in South Africa presents a real opportunity for us to recruit talented professionals. And I think employees see this commitment – not just to B-BBEE, but to all our sustainability issues and to our continued business success. They see that the company cares about its people and about the country and that makes it a great place to work. Mokgethi Daniel Mokone, Human Resources Service Centre Officer, British American Tobacco South Africa British American Tobacco Sustainability Report 2011 175
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South Korea Viewpoint from the General Manager South Korea
These days sustainability is just part of how we do business.
Stephan Liechti, General Manager, HIGHLIGHTS British American Tobacco Korea • Market share of approximately 15% • Annual sales of 13.5 billion cigarettes
Being part of this Sustainability Report is really important to us at British American Tobacco Korea. It • Over 1,000 employees allows us to demonstrate how we’re committed to the Group’s sustainability goals and the contribution • Distributes to around we’re making towards meeting them. 100,000 retailers The goals are just as relevant for us locally as they are globally, such as adhering to our International Marketing Standards, reducing our resource use and emissions, supporting our employees and having a strong workplace culture – they all make good business sense on the ground. So much so, these days sustainability is just part of how we do business. Being within the tobacco industry, we face many challenges as regulations become tougher and social expectations of the tobacco industry get higher. Youth smoking is also a growing concern in Korea. We’re working hard to address this, both directly with retailers and together with other tobacco companies through a youth smoking prevention campaign. There’s also still a perception here in Korea that sustainability is about community investment. Of course, we do contribute to the communities in which we operate and that’s an important part of our approach. But we would like to work closely with stakeholders to see more acceptance of the role of business in wider sustainability issues. Stephan Liechti, General Manager, British American Tobacco Korea
PERFORMANCE HIGHLIGHTS IN 2011
• Outperformed the Group targets for water use, waste sent to landfill and recycling • Achieved a zero Lost Workday Case Incident Rate British American Tobacco Sustainability Report 2011 176
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Balanced scorecard for South Korea
Trend key: Improvement or maximum level Minimal or no change (2 percentage points or less) Decline
International Marketing Standards 2009 2010 2011 Trend Notes Number of reported instances of partial or non-adherence 0 0 1
Youth smoking prevention 2009 2010 2011 Trend Notes Reports running or supporting youth smoking prevention programmes Yes Yes Yes
Preventing underage access 2009 2010 2011 Trend Notes Reports engaging with the government, directly or indirectly, to improve measures to help prevent underage access to tobacco Yes No No
Energy use 2009 2010 2011 Trend Notes Gigajoules per million cigarettes equivalent produced 12.51 13.01 16.12 1
Carbon dioxide 2009 2010 2011 Trend Notes
Tonnes CO2e per million cigarettes equivalent produced 1.03 1.08 1.38 1
Waste to landfi ll 2009 2010 2011 Trend Notes Tonnes per million cigarettes equivalent produced 0.003 0.002 0.001 1
Recycling 2009 2010 2011 Trend Notes Percentage of waste recycled 97.75% 98.86% 99.49% 1
Water use 2009 2010 2011 Trend Notes Cubic metres per million cigarettes equivalent produced 3.08 3.23 4.00 1
Local succession coverage – 1:1:2 at business unit level 2009 2010 2011 Trend Notes Percentage of the business unit Short with at least one local successor term 44% 17% 17% in the short term and two local successors in the long term for Long each senior position term 78% 0% 0%
Local top teams – 70:30 at business unit level 2009 2010 2011 Trend Notes Percentage of local representation on business unit senior management teams 33% 17% 33% British American Tobacco Sustainability Report 2011 177
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Employee opinion ‘Your Voice’ survey 2008 2010 Trend Notes British American Tobacco Korea vs Towers 2 Watson Korea national benchmark Score in the Engagement category 55 53 Ranked by difference from benchmark -9 -17
Gender diversity 2009 2010 2011 Trend Notes Percentage of women in management grades Management trainees 20.0% 22.0% 27.3% Management grade 34 38.0% 35.0% 31.1% Management grade 35 26.8% 29.0% 30.0% Management grade 36 29.4% 31.0% 34.3% Management grade 37 25.0% 14.0% 22.2% Management grade 38 20.0% 14.0% 16.7% Management grade 39 0.0% 0.0% 0.0% Management grade 40 0.0% 0.0% 0.0%
Lost Workday Case Incident Rate (LWCIR) 2009 2010 2011 Trend Notes LWCIR = Number of lost workday cases through injury x 200,000 divided by total hours worked 0.20 0.69 0.00
Indicates that this market has met or outperformed the Group target for this measure.
Notes 1 The environmental data is from our online Group-wide EHS reporting system. Previous fi gures reported in local publications may vary due to differing local reporting standards. 2 Data is based on 2008 and 2010 biennial employee survey. British American Tobacco Sustainability Report 2011 178
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Sustainability at British American Tobacco Korea
Youth smoking prevention STAKEHOLDER Youth smoking is a growing concern in South VIEWPOINT Korea. In 2011, a survey of 76,000 students under I’ve noticed that British 19 (the minimum age for the sale of tobacco products), conducted by the Korea Centre of American Tobacco Disease Control and Prevention, showed that Korea is strongly around 80 per cent of respondents could easily buy committed to retailer cigarettes in retailer shops without being asked to engagement for youth show ID. smoking prevention. Retailers’ licences for selling tobacco can be The campaign adopted suspended for violating the law when they are a long-term and holistic found to have sold cigarettes to under 19s. Despite approach to raise this, some of the main issues for youth smoking awareness among are lack of enforcement and retailers’ commitment retailers and I can say it to help prevent youth access. works! For several years, British American Tobacco Korea has supported a youth smoking prevention campaign focusing on age verification, together with three other tobacco companies and the industry association. Joining Dong-Gye Park, a retailer who forces with other tobacco companies helps to avoid confusing retailers with inconsistent messages and participated in the YSP campaign duplication of effort. The campaign includes engagement with retailers to raise awareness of the issue; providing point-of-sale materials and face-to-face training; and retailers being asked to sign a pledge that they will not sell to the underage. In addition, a celebrity acts as an ambassador and endorses the campaign in order to help raise awareness among youth. In 2011, the campaign targeted 70,000 retailers, with some 9,000 signing a pledge to not sell tobacco products to the underage. Environmental initiatives The company’s focus in 2011 was on reducing the environmental footprint of its manufacturing site in Sacheon. Although Sacheon is one of the more energy-efficient factories in the Group, there is always room for improvement. Therefore, in 2011 the company assessed its energy use and CO2 emissions and identified and prioritised improvement initiatives. Since the assessment, a number of ‘quick win’ changes have been made, including insulating valves in the boiler house; reducing the temperature of intake air used in the production process; modernising the site’s air conditioning unit; replacing fluorescent lighting with more energy-efficient LED lights; and installing daylight and motion sensors. An action plan has also been drawn up for investigating and implementing medium- and long-term investments, such as replacing manufacturing equipment with more energy-efficient models and exploring renewable energy options. The company also recognises that employee behaviour is a key factor in reducing environmental impacts. Therefore, in 2011 it ran a programme to raise employee awareness of environmental issues and advise them on how they can save energy in their day-to-day work. The campaign included posters and leaflets and various employees acted as ambassadors to champion environmental awareness. British American Tobacco Sustainability Report 2011 179
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Viewpoint from an employee in South Korea
Being part of an international business that is so focused on sustainability has been a great help.
Kyu-Tae Kim, Environment Health & Safety Supervisor, Sacheon factory, British American Tobacco Korea
I’ve been an Environment, Health & Safety (EHS) Supervisor at the Sacheon factory for just over a year now. I found that my previous experience at the factory in engineering roles means that I have a good understanding of the pressures my colleagues are under and how the different factory processes work. So I try to find solutions that take these things into consideration as well as the environmental issues – which makes them more likely to succeed. Being part of an international business that is so focused on sustainability has been a great help too. The Group EHS management system is so well established, I definitely wasn’t starting from scratch. And I’ve had a lot of help from my EHS colleagues, especially in getting used to the EHS data reporting system, which requires a massive amount of information. But I can see that it’s only through that kind of detail that we can get a true picture of our environmental performance. The introduction of the Group manufacturing roadmap last year was also great to see. It gave us a consistent and well thought out structure for conducting self-assessments of our energy and CO2e performance across the factory. The assessments helped us to prioritise our improvement actions and we’re already seeing the results. But we’re not complacent; even though we’re one of the more energy-efficient sites in the Group, we’re always looking for further reductions. Take this year, when we installed new machinery for a product innovation. We found that it consumed more energy and generated more waste than the other machines, but we’ve found a way to recycle some of the waste. I now need to look into how we can make further reductions, while still being able to manufacture our products and keep productivity levels up. I am proud to think that my work is contributing, at least in some way, towards the Group’s sustainability goals. I know there’s more we can do and I look forward to facing the challenges ahead. Kyu-Tae Kim, Environment Health & Safety Supervisor, Sacheon factory, British American Tobacco Korea British American Tobacco Sustainability Report 2011 180
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Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Engagement and governance
Our approach
In the tobacco industry, it’s particularly important that we demonstrate openness and build trust. We can do this through stakeholder engagement and sound governance procedures. Our process for stakeholder engagement includes independently assured and facilitated dialogue sessions. We also use a materiality test based on the outputs of By engaging with stakeholders, we can work to ensure dialogue to define those topics of greatest interest to stakeholders and high current we are tackling their areas of concern. Our governance or potential impact on the business. This determines our sustainability agenda and systems help us manage the business responsibly, as the content of this Report. society demands. Effective governance is critical to ensuring we manage our sustainability impacts, and our wider business, responsibly. It includes having clear policies, principles and standards that we live up to. British American Tobacco Sustainability Report 2011 181
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Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Stakeholder engagement
Our stakeholders include investors, NGOs, regulators, suppliers, the scientific and public health communities, consumers, employees, local communities, customers (retailers and distributors) and sustainability opinion leaders. In short, anyone who is impacted by, or can impact upon, our business operations is a stakeholder of British American Tobacco. There are various benefits to engaging with our stakeholders. It helps us to understand their concerns and therefore to respond to them appropriately. It gives us valuable feedback on our policies, procedures and ways of working, so that we can continually improve them. It provides us with opportunities to put our views across, helping our stakeholders understand our positions. It supports our partners, such as through our engagement with retailers to help them meet legal requirements on how they display tobacco products and not selling to the underage. And it is a way of sharing expertise, for example between our Group Research & Development team and the wider scientific community. The ways in which we engage with our stakeholders include formal stakeholder dialogue sessions, long-term partnerships and customer surveys, along with day-to-day dealings such as the agronomy support we provide to our contracted farmers. We have been criticised for not engaging with those stakeholders who are most critical of the tobacco industry. This is an area we have tried to address by inviting such stakeholders to our formal dialogue sessions but their willingness to participate remains a challenge. We remain open to meeting our critics and engaging in constructive discussion. Many individual stakeholder relationships are discussed in the relevant sections of this Report. In this section we discuss some of our more formal methods of engagement. Stakeholder dialogue sessions In 2001, we launched our approach to formal stakeholder dialogue sessions and our companies have been following it ever since. It is based on the AA1000 Stakeholder Engagement Standard (AA1000SES). This outlines five stages for the engagement process. British American Tobacco Sustainability Report 2011 182
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
We allow for flexibility in the planning and execution of dialogue sessions by our companies to make sure they meet local needs. For example, they select their own topics of dialogue and invite the stakeholder groups they consider the most relevant. However, some criteria are mandatory. For example: • Dialogue sessions must be independently facilitated; • When details of the dialogue are published externally, they must be assured by a third party; • Participants must be chosen using an up-to-date stakeholder map; and • A report must be issued to all participants on the dialogue outcomes. In recent years, the focus of our dialogue sessions has altered: from listening to stakeholders’ concerns to collaborating with our stakeholders on the development of our sustainability plans. This has meant involving a wider range of our own senior managers in the dialogue process to enhance commitment and understanding within the business and to ensure the outcomes of the dialogue are relevant to the business. We have also engaged with a wider range of stakeholders, including those who are most critical of us and those who will be directly impacted by the outcomes of the dialogue. This helps to ensure that we are considering every relevant issue. To read more about what we have learned from dialogue over the past decade, go to www.bat.com/dialogue. Dialogue sessions in 2011 In 2011 and early 2012, we held four formal dialogue sessions at a Group level. Two – on carbon pricing and on renewable and low-carbon energy – completed our series relating to climate change. The first dialogue in this series was held in 2010 and focused on water availability and management. The other two Group sessions held in 2011 and early 2012 both focused on sustainable agriculture. The carbon pricing dialogue session involved experts from NGOs, universities, regulators and other large companies. Our aim was to identify the risks and opportunities that arise from current and future carbon pricing mechanisms and carbon regulation. For the session on renewable and low-carbon energy, we invited a group of academics, NGOs, specialist consultancies and other large companies. The session helped build our understanding and informed our strategies for future energy use and long-term security of our energy supplies. You can also read a viewpoint from the independent facilitator on the overarching insights from the full climate change dialogue series. The first of our dialogue sessions on sustainable agriculture was held in the UK with the Food and Environment Research Agency. Along with UK policy makers, NGOs and other key influencers, we discussed the policy and regulation needed to effectively address the social, environmental and economic challenges of agriculture. The second session was held in Bangladesh, a key tobacco growing country. It was attended by stakeholders from the UK and across Asia. The objective was to get feedback on our approach to sustainable agriculture in practice. Participants were taken on a field visit to see our agronomy support services in action. We then discussed how we could build on local partnerships and knowledge to further improve our approach. Several of our companies also conducted formal dialogue sessions to advance their local sustainability plans on topics including the illegal tobacco trade; environment, health and safety; youth smoking prevention; and corporate social investment. Summaries of the outputs from each of these sessions can be downloaded at www.bat.com/reporting. British American Tobacco Sustainability Report 2011 183
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Dialogue around the Group
During 2009–2011, our companies continued to engage with their stakeholders to help shape sustainability activities in their markets. Independently facilitated and assured dialogue sessions were carried out in line with Group guidance by our companies in the following countries:
AUS ARG BGD CAN CYP ESP GER ITA KOR MAS NGR PAK ROU RUS RSA SUI UK
Sustainability approach
Integrated reporting
Corporate governance
Harm reduction
Regulation
Public place smoking
Marketing practices
Youth smoking prevention
Illegal tobacco trade
Environment
Supply chain
Sustainable agriculture
People and culture
Broad-based black economic empowerment
Health and safety
Corporate social investment British American Tobacco Sustainability Report 2011 184
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Other types of engagement
Partnerships We have a number of long-term partnership agreements that support our sustainability programme. Since 2008, we have had an External Scientific Panel, a multidisciplinary team of leading experts who provide important input to help inform the development of our scientific research programme. More information on this can be found in the harm reduction section. In 2011, we also established a Supply Chain Sustainability Stakeholder Panel to provide ongoing guidance and challenge on our supply chain sustainability issues. For further detail, please see the supply chain section. Our Biodiversity Partnership with three NGOs – Fauna & Flora International, the Tropical Biology Association and Earthwatch – entered its third, five-year term in 2011. The Partnership has helped us to develop specific biodiversity tools, such as biodiversity risk and opportunity assessments for our tobacco growing operations, and increased awareness of biodiversity within the Group and our supply chain. You can read more about this in the environment section. In 2010, we signed a cooperation agreement with the European Commission and its member states to tackle the illegal tobacco trade. You can read about this in more detail in the marketplace section. Our companies have also signed memoranda of understanding and industry agreements addressing the illegal tobacco trade in nearly 50 countries over recent years. Additional agreements were signed in 2011 in Papua New Guinea, the Ukraine and Vietnam. We continued to collaborate with key suppliers on life cycle analysis studies and the development of an environmental scorecard. We also maintained our Memorandum of Cooperation with DHL, under which we initiate innovations in logistics with a particular focus on sustainability. In 2011, we also continued to address the issue of child labour through the Eliminating Child Labour in Tobacco Growing Foundation, with community-based projects in six countries. Customer research Our largest companies commission an independent survey of our key distribution and retail partners to gain feedback on service quality and other aspects of our business relationships. The survey takes place every two years, with the most recent one being in 2010, involving 31 of our companies. The 2010 survey was enhanced to enable greater focus and global coordination. In each market, it benchmarks British American Tobacco against our major local tobacco competitor and the Fast Moving Consumer Goods (FMCG) supplier considered the best locally in serving the same retailers. The quality of our service is assessed in key areas including: • Trade marketing support; • Product distribution; • Products; • Overall quality; and • Customer engagement. The 2010 survey rated British American Tobacco as the best company overall in 16 of 31 markets surveyed. The full results from the survey can be viewed at www.bat.com. Employee opinion survey Every two years, we commission an independent, international employee opinion survey called ‘Your Voice’. It shows us the level of our employees’ engagement and enables us to benchmark our organisation against other multinational businesses. Most importantly, it highlights areas of the business where we can take action to address employees’ concerns. You can see the results of our latest survey in the people and culture section. British American Tobacco Sustainability Report 2011 185
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Materiality
We have always endeavoured to focus our sustainability programme and reporting on those issues of the greatest significance to our business and our stakeholders. In 2007, we began taking a more systematic approach to identifying those issues. Through reviewing the issues that had been raised in our companies’ stakeholder dialogue sessions since 2001, we drew up a list of 76 topics. These we grouped into 14 categories. We then performed a three-stage test to establish the most significant. The first stage involved mapping the categories onto a matrix, with each one positioned according to its level of concern to stakeholders and its current or potential impact on the Group. This mapping was refined through internal consultation at the second stage. We consulted regional teams and senior functional managers in relevant areas, such as our Head of Environment, Health & Safety, as well as the Management Board and the Board CSR Committee. In the third stage of the process, this refined version was presented for comment at a dialogue session with sustainability opinion leaders, NGOs and our senior management. The result was the identification of our five most significant areas of impact: harm reduction, marketplace, environment, supply chain and people and culture. The goals in these five areas comprise our sustainability agenda.
Material issues HIGH Reported This online Report covers the issues of greatest significance to our business and stakeholders. Reported Covered at www.bat.com Topics of high interest to some stakeholder groups but partial impact on the business, or vice versa, can be found elsewhere on our corporate website. Covered at www.bat.com Not reported We do not cover topics that are of low interest to stakeholders. Nor do we cover topics that do not have a Level of interest to stakeholders significant current or potential impact on our business. Not reported LOW Current or potential impact on Group
The exercise also determined which issues are included in our Sustainability Reports, which we cover on www. bat.com and which we do not report on. On the first page of each section in this Report, we list the topics covered in the section and what related information can be found elsewhere on our corporate website www.bat.com. Examples of topics covered outside this report but on www.bat.com are: • Green tobacco sickness; • Corporate social investment; • Litigation; and • Cigarette litter. In 2009, we reviewed the results of our materiality test, particularly in view of our shift from local reporting to a single Sustainability Report for the Group. This included reviewing the Group Risk Register and minutes from stakeholder dialogue sessions. The review identified no new issues that we needed to cover, but it highlighted the increasing significance of some of the issues we were covering on www.bat.com. As a result, these issues, including Broad-Based Black Economic Empowerment and HIV/AIDS are now covered in the South Africa section of this Report. We continue to review our materiality matrix on an informal basis and, during 2011, we identified no newly emerging issues to include. We plan to conduct another formal review in 2012. British American Tobacco Sustainability Report 2011 186
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Geographical coverage of sustainability data reporting
In 2011, we reviewed which of our markets should report information through our annual Sustainability Survey. This gathers data on areas such as corporate social investment, youth smoking prevention and stakeholder engagement. Much of the non-environmental data in our Sustainability Report and on www.bat.com is derived from this survey. Each company was assessed for its ability to complete the survey. Some of our companies are very small, with limited sustainability impact and few resources available for gathering the data requested in the survey. We also brought the criteria for which companies are expected to complete the Sustainability Survey more in line with those for other Group data collection processes. This resulted in reducing the number of our markets reporting via the Sustainability Survey from 156 to 86. These 86 markets represent 93.3 per cent of our sales volumes, with the 70 markets removed representing only 5.6 per cent. With over 90 per cent of our sales volume represented, we believe this reduced list still provides a good overview of our global operations. All Group companies, including those no longer covered by the Sustainability Survey, continue to complete our internal audit checklist as part of our governance processes. British American Tobacco Sustainability Report 2011 187
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Policies, principles and standards
Statement of Business Principles Our Statement of Business Principles sets out our expectations for the responsible management of the Group’s business. It was developed in 2002 in consultation with stakeholders, supported by the Institute of Business Ethics. The Statement comprises three principles – Mutual Benefit, Responsible Product Stewardship and Good Corporate Conduct – and 18 Core Beliefs, which explain in more detail what each principle means for the Group. Standards of Business Conduct Our Standards of Business Conduct underpin our commitment to high levels of corporate behaviour. While our Statement of Business Principles sets out our beliefs and values, our Standards of Business Conduct apply these to specific situations that may arise in our day-to-day business life.
Our Standards of Business Conduct apply to all our Group companies and employees. They i require all staff to act with high standards of business integrity, to comply with all applicable laws and regulations and to ensure that business standards are never compromised for the sake of results. They also provide clear and practical guidance covering: • Whistleblowing • Conflicts of interest • Bribery and corruption • Entertainment and gifts • Political contributions • Charitable contributions • Accurate accounting and record-keeping • Protection of corporate assets • Confidentiality and information security • Insider dealing and market abuse • Competition and anti-trust laws • Money laundering and anti-terrorism • Trade in the Group’s products • Sanctions
All Group companies have adopted our Standards of Business Conduct or local policies embodying them. They are applicable to all employees, including senior management, and to the Board of Directors. Senior managers in the Group must report on annual compliance with the Standards with regard to the company or department for which they are responsible. Agents, consultants and other third parties engaged on behalf of any Group company are expected to apply standards of business conduct consistent with our Standards. Information on compliance with the Standards is gathered at a global level and reported to the regional audit and corporate social responsibility (CSR) committees and to the Board Audit Committee. The Board CSR Committee also reviews any Group reputation-related issues arising from non-compliance with the Standards. You can read more about the Standards of Business Conduct and download them in full on www.bat.com. For Standards of Business Conduct compliance in 2011, see GRI indicator SO4. Anti-bribery and corruption policy Corruption causes distortion in markets and harms economic, social and political development, particularly in developing countries. Our Standards of Business Conduct make clear that it is wholly unacceptable for any of our companies or employees to be involved or implicated in any way in corrupt practices. It is our policy that Group companies and their employees must ensure that: • They do not directly or indirectly offer, promise or give any gift, payment or other benefit to any person for the purpose of inducing or rewarding improper conduct or influencing any decision by a public official to the advantage of the Group or any Group company; • They do not directly or indirectly solicit, accept or receive any gift, payment or other advantage from any person as a reward or inducement for improper conduct; and • Their activities do not otherwise contravene any applicable anti-corruption measures. British American Tobacco Sustainability Report 2011 188
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Our policy also makes clear that Group companies and their employees are prohibited from making facilitation payments (directly or indirectly), save in exceptional circumstances where necessary to protect the health, safety or liberty of any employee. Our Standards of Business Conduct were updated with effect from 1 September 2011 to ensure that they remain at the forefront of best practice and to ensure alignment with the provisions of the UK Bribery Act 2010, which came into effect on 1 July 2011, and associated guidance. We continue to keep our anti-corruption policies and procedures under review and, where appropriate, to update them, to ensure that they remain in line with best practice. Each Group company is required to maintain a register of all political donations, charitable contributions and non-commercial sponsorships made by or on behalf of the company. In addition, subject to materiality limits, each Group company must maintain a record of all corporate hospitality given and received. Other policies, principles and standards Other policies, principles and standards that guide the way our Group companies are run include our: • International Marketing Standards; • Philosophy for Supplier Partnerships; • Health & Safety Policy; • Child Labour Policy; • Employment Principles; and • Biodiversity Statement. Board diversity In February 2011, Lord Davies of Abersoch published his report entitled ‘Women on Boards’, which reviewed the issue of gender diversity on the boards of UK listed companies and made a number of recommendations. The Company’s Board has considered the report and its recommendations in detail and has approved a statement by the Chairman, on behalf of the Company, on this issue, which you can download from www.bat. com/diversity. Product stewardship and quality We aim to ensure that no aspect of our products, under normal conditions of use, significantly increases the risks to health associated with tobacco products. To help achieve this we have: • A number of processes covering ingredients, additives and materials, including our Additives and Materials Guidance Panel’s review process; • A Scientific Research Group which assesses external research and published opinion on tobacco-related science and associated health matters so as to guide the development of our products, Group positions and product best practice guidelines; and • Product quality management systems to ensure that we provide our consumers with products that meet their expectations and satisfy regulatory requirements. You can read more about this on www.bat.com. British American Tobacco Sustainability Report 2011 189
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Group CSR governance
A central part of being a sustainable business is operating with integrity and responsibility. Effective governance is critical to ensuring that we live up to our principles and standards and also that we deliver on our sustainability agenda. Group corporate social responsibility (CSR) performance is monitored through a Board CSR Committee and at regional and local levels through combined audit and CSR committees. This structure supports the embedding of CSR and sustainability principles across the Group and allows performance against those principles to be monitored. Framework for CSR Our Framework for CSR is based on our Business Principles and was developed in collaboration with stakeholders. It takes each of our Core Beliefs and sets out how we see our role in each of these areas – where we should take the lead, where we should work with others and where we think others should take the lead. You can read more about our Framework for CSR at www.bat.com/principles. Board CSR Committee The Board CSR Committee meets at least four times a year and comprises four Non-Executive Directors: Karen de Segundo, who chairs the Committee, Ann Godbehere, Dr Gerry Murphy and Kieran Poynter. The Chairman, Chief Executive and the Management Board members responsible for Corporate and Regulatory Affairs and Global Operations regularly attend meetings by invitation but are not members.
Summary terms of reference i The CSR Committee is responsible for: • Reviewing and making appropriate recommendations to the Board as regards the Company’s management of CSR and the conduct of business in accordance with the Statement of Business Principles; • Monitoring and reviewing the effectiveness of the Group’s strategy for, and management of, significant social, environmental and reputational issues; • Reviewing and monitoring the Group’s plans for, and progress towards, business sustainability; and • Monitoring the effectiveness of the CSR governance process. The Committee’s terms of reference were reviewed in December 2010 and minor updates were made with effect from 1 January 2011. The full terms of reference are available on www.bat.com.
The Committee is authorised by the Board of British American Tobacco p.l.c. to review CSR and sustainability activity within the business. Through feedback from the regional and local committees, it assesses Group social and environmental performance, evaluates our policies in the area of social, environmental and reputational risks and, where necessary, makes recommendations for change. It also reviews the British American Tobacco Group’s sustainability agenda and plans and approves the Company’s Sustainability Report. You can view key activities of the Board CSR Committee in 2011 on the following page. The Committee is authorised to seek the information it requires from, and require the attendance at any of its meetings of, any Director or member of management and all employees are expected to cooperate with any request made by the Committee. It is authorised by the Board to obtain, at the Company’s expense, independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. The Chairman of the Committee reports to the subsequent meeting of the Board on the Committee’s work and the Board receives a copy of the minutes of each meeting. The papers considered by the Committee are available to any Director who is not a member, should they wish to receive them. Regional and local committees The CSR Committee is supported at regional and local levels through combined audit and CSR committees, with the exception of a small number of local audit and CSR committees that have remained separate. The structure aims to support the embedding of CSR and sustainability principles across the Group and to allow performance against those principles to be monitored. The regional audit and CSR committees meet three times annually, and they follow a standard agenda, in order that materials and issues that are presented and raised at regional level may feed into Board level discussions, and vice versa. British American Tobacco Sustainability Report 2011 190
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Key activities of the CSR Committee in 2011
The CSR Committee held four scheduled meetings in 2011, including a meeting held at the beginning of March to approve the Company’s annual Sustainability Report. The other specific items considered by it included: CSR governance • Feedback and update reports from the regional audit and CSR committees and consideration of CSR- related internal audit reports and recommendations, including in relation to the organisation of the Group’s approach to environmental, health and safety issues. • Following completion of the internal control checklist self-assessment exercise, an analysis of the results for the CSR controls and the action plans in place to achieve full compliance. • A review of the key reputational risks identified in the Group Risk Register, the potential impacts and consequences of such risks and the current controls in place to address them. • A continuing review of the potential reputational impact arising from incidents of non-compliance with the Standards of Business Conduct. • A review and endorsement of the revised Standards of Business Conduct, which were updated with effect from 1 September 2011 to ensure that they remain at the forefront of best practice and to ensure alignment with the provisions of the UK Bribery Act 2010. CSR policies and compliance • Potential risks, in the countries where the Group does business, that are of potential concern from a human rights perspective and the measures and controls in place to mitigate those risks. • Consideration of the measures in place within the Group directed towards eliminating child labour in tobacco growing, including its membership of the Eliminating Child Labour in Tobacco Foundation and its efforts to drive high standards from suppliers through its Social Responsibility in Tobacco Production (SRTP) programme. • Environmental, health and safety measures, including measures to improve safety culture behaviour throughout the Group and the recommendation for adoption by the Board of a revised Corporate Health and Safety Policy. • Adherence to the Group’s International Marketing Standards and the recommendation for the adoption by the Board of specific Marketing Standards for Snus products. • The continuing work of the Biodiversity Partnership with three NGOs – Tropical Biology Association, Earthwatch and Fauna & Flora International – focusing on biodiversity in agricultural landscapes and the ecosystems on which they depend in key areas where the Group sources leaf. • Initiatives in the area of sustainable agriculture, with a focus on Brazil, including the development of an integrated supply chain and initiatives on reduction of agrochemical use and soil and water management. • Consideration of a review of the Group’s approach to youth smoking prevention. Sustainability planning and reporting • Central and local stakeholder dialogue activities during 2011. • A review of the 2010 Sustainability Report, including a summary of external feedback and proposed enhancements for 2011, and Ernst & Young LLP’s Assurance Management report. • An assessment of the 2011 goals and commitments for sustainability reporting and progress made against the 2010 goals and commitments. During 2011, the Committee considered the feedback from the external Board evaluation exercise, which took place in 2010, including a review of its standard agenda items, and reviewed and agreed its programme for 2012. British American Tobacco Sustainability Report 2011 191
Sustainability Report 2011
Engagement and Sustainability and Our regions Harm reduction Marketplace Environment Supply chain People and culture governance our business and markets
Reporting methodology
For British American Tobacco, sustainability reporting is more than a communications exercise. Our rigorous reporting processes drive change within the business. They also help ensure that the content of this Report is credible, helping to demonstrate openness and build trust. Reporting governance Our Sustainability Report undergoes a formal review and approval process prior to publication. It is reviewed in detail by a sustainability report drafting committee chaired by Michael Prideaux, Group Corporate and Regulatory Affairs Director. The final draft of the Report is then approved by the Board CSR Committee, which is a committee of the Company’s Board with delegated responsibility. Throughout the year, the Board CSR Committee reviews progress against goals and commitments published in the Report. Independent assurance and standards Our Sustainability Reports are independently assured by Ernst & Young LLP in accordance with ISAE 30001 and evaluated against the AA1000AS (2008)2 assurance principles of inclusivity, materiality and responsiveness. Ernst & Young LLP provides ‘limited’ assurance of our Report content and the completeness and accuracy of its claims and performance data. In addition, they provide a ‘reasonable’ level of assurance on all stakeholder dialogue sessions held at Group level. In addition, our reporting includes a selection of Global Reporting Initiative (GRI) performance indicators. Stakeholder dialogue We use the AA1000 Stakeholder Engagement Standard (AA1000SES) for all our dialogue sessions. This is widely recognised as the international benchmark for stakeholder engagement. Our dialogue sessions are independently facilitated and assured. This applies equally to our Group dialogues and those carried out by our local companies. The independent facilitator not only moderates the session itself, but also helps us design the format of the day and identify participants. After the dialogue, the facilitator produces a summary report, which is distributed to the participants, and a more detailed report for internal use. This detailed report helps us determine what actions we need to take. To provide a ‘reasonable level’ of assurance of the Group stakeholder dialogues, Ernst & Young LLP attends each session, reviews the independent facilitator’s report and reviews any references to the dialogue in our Sustainability Report for accuracy and balance.
1 ISAE 3000 – International Federation of the Accountants’ International Standard for Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. 2 AA1000AS (2008) – The second edition of the AA1000 assurance standard from the Institute of Social and Ethical Accountability. British American Tobacco Sustainability Report 2011 192
Sustainability Report 2011
Sustainability and Our regions Engagement and Harm reduction Marketplace Environment Supply chain People and culture our business and markets governance
About this Report
This is the British American Tobacco p.l.c. Sustainability Report 2011. It reports on the activities of British American Tobacco companies in the UK and internationally and covers the calendar year 2011. Associate companies are excluded. References to ‘British American Tobacco’, ‘we’, ‘us’ and ‘our’ when denoting opinion refer to British American Tobacco p.l.c. (the Company) and when denoting tobacco business activity refer to Group operating companies, collectively or individually as the case may be.
Statements and assurance This Report contains forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries in which the Group operates. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. Ernst & Young LLP has been engaged by British American Tobacco to provide external assurance of this Report. Ernst & Young LLP reviewed all commitments and statements of progress, data, GRI information, text and, specifically, performance-related information for the period 1 January 2010 to 31 December 2011. Read the online Sustainability Report at www.bat.com/sustainability
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