Investing in a Sustainable Future for Our Business and Society Introduction

Value Sustainability Summary 2014 shared Investing in a sustainable future for our business and society Introduction

The concept of shared value underpins our whole approach to sustainability. It is about investing in the future for our business and society.

Sustainability is not a choice or something The receipt of the relevant licences from that is ‘nice to have’ – it is crucial to the UK medicines regulator for Voke, securing the future of our company and for our new nicotine inhalation product, is creating shared value for our consumers, another big step towards making available our shareholders and our stakeholders. a range of products across the risk continuum, enabling consumers to choose It is not a recent priority either – as a major the ones that are right for them. international business in a controversial sector, we have long been aware of our Yet we still have a long way to go, and responsibilities and our ability to address as much as our business has changed so issues on a global scale. has the world around us – from evolving consumer demands and emerging Indeed, in our long history of focusing on opportunities in a new generation of sustainability and corporate responsibility, products, to increasing expectations of we have made significant progress – our the role of business in society. strong market performance is delivering value for our shareholders, while we So we have now sharpened our have also embedded more effective approach further with the development sustainability practices into our day- of a new sustainability agenda, focused to-day business. These have included on the most material issues for our strengthening our approach to human business and our stakeholders in three rights, advancing sustainable agricultural key areas: harm reduction, sustainable practices among our farmers, developing agriculture and farmer livelihoods, and industry-wide security systems for our corporate behaviour. supply chain that help prevent tobacco These are not only where we face some trafficking, and achieving a 45% reduction of our biggest challenges, but also where in CO e emissions from baseline. 2 I see the greatest opportunities. As a result, we have achieved inclusion in Developing and promoting less risky the Dow Jones Sustainability Index for the products, supporting farmers’ livelihoods last 13 years, 12 of them as industry leader. and operating to the highest standards Given the serious health risks associated of corporate conduct and transparency with smoking, I am particularly proud are all absolutely the right thing to do. of the progress we have made in harm They can add value to society, as well as reduction. In just a few years, our helping to ensure we deliver our Group aspirations for this important area are strategy and BAT continues to grow and becoming a reality, with less risky nicotine thrive in the long term.” products now on the market in the UK, plans to launch in further markets and a strong pipeline of innovations for the future. Nicandro Durante, Chief Executive British American Tobacco March 2015 ILITY S SIB TRE ON NG SP TH E R F A strategic approach R H GROWTH O G M U O D R IV H MED CO E Through a detailed materiality process, T R N FO SU R IN M S M E I N R T O Y including stakeholder dialogue and IO C D P H E O E M I R A C research, we have identified the three key F H WORLD’S BEST E C AT SATISFYING areas that have the greatest significance

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Y MOMENTS IN T O E I to our business and our stakeholders. T www.bat.com D L L I TOBACCO E I V I U B E AND BEYOND C C A R O These form our new sustainability agenda /materiality T I S N I N I V G O A E I T T N T O as covered in this Report. Y U S S T R T U E C EN S R OMMITM D P E R D I W N S IN IO IN IN NI AT G NG ORGANIS M S N P PE IR O IT

Independent assurance Harm reduction p04 Sustainable agriculture p08 Ernst & Young LLP has been We are committed to researching, and farmer livelihoods engaged by British American developing and promoting a range We are committed to working to Tobacco to provide limited external of innovative tobacco and nicotine enable prosperous livelihoods for all assurance of this Report, as well products to enable adult consumers farmers who supply our tobacco leaf, as all performance information to have a choice of less risky benefiting rural communities and published at www.bat.com/ alternatives to regular cigarettes. the environment. sustainability/data. Read the full statement, including the scope of work and conclusions, and BAT’s response at Our other business priorities www.bat.com/assurance We continue to focus on other key business priorities, including retailer relationships, diversity, employee engagement, governance and stakeholder engagement. These are covered in our Annual Report and online at Get in touch www.bat.com/sustainability Simon Cleverly, Susan Jones and Verity Lawson British American Tobacco Corporate behaviour p12 Globe House, 4 Temple Place We are committed to operating to London WC2R 2PG the highest standards of corporate [email protected] conduct and transparency, benefiting +44 (0)20 7845 1000 governments, consumers, the environment and our people.

www.bat.com/sustainability 01 British American Tobacco Creating shared value

More than £480 million Over 100 papers on our We invest significant sums invested in R&D into research published in each year, and employ innovative tobacco and peer-reviewed journals hundreds of scientists in nicotine products over over the last five years many disciplines, in the last three years researching less risky tobacco Research and nicotine products

Supply chain

More than £65 million invested each year and over 1,000 BAT leaf technicians directly supporting our farmers

Over 100,000 contracted farmers worldwide, mainly in countries in Africa, Asia and Latin America As a major international tobacco Over 170 million trees company, we are planted in the last seven years committed to addressing Over 400,000 tonnes of leaf the negative impacts purchased each year from contracted farmers and third of our business... party suppliers worldwide

Over 70,000 non-leaf suppliers in more than 80 countries

More than £30 million invested each year in environment, health and safety

24% reduction 45% reduction in 44 factories in water use CO2e emissions in 41 countries Production from 2007 baseline from 2000 baseline

02 Sustainability Summary 2014 British American Tobacco Marketing and consumers

More than £50 million invested each year in fighting tobacco trafficking

Over 2 million retailers reached by our youth smoking prevention activities

Over 200 brands and 667 billion cigarettes sold in 2014

1st tobacco company to have a nicotine product licensed as a medicine

1st international tobacco company to launch an e-cigarette ...while continuing to work on areas where we can create shared value for our business and society

Communities and economies

More than £60 million Around £30 billion Over 57,000 Over £2.3 billion invested in community paid to governments employees paid to employees projects over the last each year in excise worldwide each year in wages five years and other taxes and benefits

www.bat.com/sustainability 03 British American Tobacco Harm reduction ‘I want a choice of less We are committed to risky products’ researching, developing and promoting a range of innovative tobacco and nicotine products to enable adult consumers to have a choice of less risky alternatives to regular cigarettes.

Our approach

Investing in world-class research, being transparent about our science and actively contributing to the evidence-base for evaluating the risk profile of different products.

Developing a next generation of less risky products, including e-cigarettes, medicinal nicotine inhalers and tobacco heating products.

Promoting regulation that has high consumer safety and product quality standards, while encouraging innovation, growth and availability.

Responsible marketing of our products to existing adult smokers or consumers of other nicotine products.

04 Sustainability Summary 2014 British American Tobacco External viewpoint Transparent and Health effects of long-term EC [e-cigarette] use are world-class science currently not known and a degree of risk may yet emerge. However, based on the data available regarding the We understand that some people are sceptical about research conducted and toxicant content of EC [e-cigarette] liquid and aerosol, long- funded by the tobacco industry. That is term use of EC [e-cigarettes], compared to smoking, is likely why being transparent about our science to be much less, if at all, harmful to users or bystanders. is central to our approach. E-cigarette research study1 We invest significant sums each year, and employ hundreds of scientists in many disciplines, in A pragmatic public researching less risky tobacco and nicotine products. health policy

The idea of harm reduction is well- We understand that this is a contentious We follow high standards established within public health. It topic. However, there is a growing weight and codes of conduct for is about minimising the impact of of peer-reviewed, independent evidence scientific collaborations and an activity that people know is risky, that suggests e-cigarettes are substantially funding and, in 2014, we but without necessarily stopping it less risky than conventional ones and that openly published them at completely. they can help people to reduce or quit www.bat-science.com/ smoking. On the other hand, there is Tobacco harm reduction is about standards. currently little evidence that they are providing a choice of viable, less risky a gateway into smoking.1,3 alternatives for the millions of smokers who find it difficult to, or do not wish We do agree that more research is We publish details of our to, stop using nicotine. needed into the long-term effects of research programmes on e-cigarette use. This is why we are already our dedicated website, Alternative nicotine products such as conducting our own research, submitting www.bat-science.com, and e-cigarettes are not entirely without the results for peer-review and openly the results of our studies in risk, but they are considered to “offer sharing our findings with scientists, peer-reviewed journals. reductions in risk of 95% or more regulators and other relevant bodies. compared to cigarettes.”2 This is why there is growing support A progressive way forward among scientists and health experts We open the doors of our for these alternative products. They say We want to work together with health research facilities to visiting these products should be part of public experts, governments and regulators regulators and scientists and health policy on smoking, with smokers to make tobacco harm reduction part now anyone can step inside encouraged to switch to them as part of of a progressive approach to public our labs by watching our a programme of measures to help them health policy. virtual video tour. cut down or quit. But most governments We hope that they will carefully consider www.bat.com/labtour are currently unsure about actively the evidence and do not pass up the supporting this approach. potential positive impact this new generation of products could have on Watch online The challenges society as alternatives to smoking. and in our app There are some public health organisations that have voiced concerns that not enough is known about the health risks of e-cigarettes. They also believe they could undermine efforts to denormalise tobacco use. We present our research findings to regulators and at leading international

1 Electronic cigarettes: review of use, content, safety, effects on smokers and potential for harm and benefit, P Hajek et. al., conferences and events Addiction, July 2014 around the world. 2 The importance of dispassionate presentation and interpretation of evidence, open letter to the World Health Organisation (WHO) signed by 53 leading scientists and public health experts, June 2014 3 (a) Trends in electronic cigarette use in England, Smoking Toolkit Study, University College London, June 2014; (b) Use of electronic cigarettes in Great Britain, Action on Smoking and Health, April 2014; (c) Characteristics, Perceived Side Effects and Benefits of Electronic Cigarette Use: A Worldwide Survey of More than 19,000 Consumers, K E Farsalinos et. al., International Journal of Environmental Research and Public Health, April 2014; (d) E-cigarettes: Prevalence and attitudes in Great Britain, M Dockrell et. al., Nicotine & Tobacco Research, July 2013; (e) E-cigarette awareness, use, and harm perceptions in US adults, J L Pearson et. al., American Journal of Public Health, September 2012 www.bat.com/sustainability 05 British American Tobacco Harm reduction

New products, enabling choices

The risk continuum

We are committed to developing a range of next generation tobacco and nicotine products across the Conventional Tobacco heating Low-toxicant Nicotine risk continuum. This will allow adult cigarettes products smokeless tobacco products consumers to have a choice of less risky alternatives to regular cigarettes, which can ultimately benefit public health, while also supporting the future growth of our business.

We think we are best placed to deliver alternative products. We have a separate business focusing exclusively on nicotine products, we understand what consumers want, we have world-class HIGH EXPOSURE TO TOXICANTS LOW research and development capabilities, and we have robust product and quality standards. We also have global reach and a clear commitment to market our products responsibly. External viewpoint We need to recognise that there is a continuum of nicotine delivery products. It is not the nicotine that kills half of all long- term smokers, it is the delivery mechanism. We have to recognise some of these realities and figure out how they can impact regulatory policies. US Food & Drug Administration (FDA)4

Nicotine products All our e-cigarette marketing Medicinal nicotine products communications are required to: E-cigarettes We are also looking at nicotine products • Only be directed at adults aged 18 or that are regulated as medicines, including a In 2013, we were the first international over, in terms of both the content and new nicotine inhalation product called Voke. tobacco company to launch an e-cigarette, type of media in which they appear; This innovative product does not require Vype, in the UK. In 2014, we have further • Only be directed at existing smokers batteries or any other energy source and increased our understanding of the needs or existing consumers of other nicotine is activated simply by inhaling. of consumers and developed the range to products; and better meet their expectations. Following receipt of the relevant licences • Not be aimed at promoting the use of from the UK medicines regulator, we We will continue investing substantially tobacco products. are the first tobacco company to have a in the research, development and nicotine product licensed as a medicine. commercialisation of a pipeline of Amid unclear advertising rules for products. We will also use the insights e-cigarettes in the UK, we were one of a We plan to commercialise and launch from our experience in the UK to support number of companies in 2014 to have Voke in the UK by the end of 2015. one of our adverts challenged by the Vype’s launch in further markets. Advertising Standards Authority. We were Upholding high standards therefore pleased when the UK Committees of Advertising Practice launched a With all our e-cigarettes, we have consultation with a view to introducing voluntarily adopted appropriate warnings clarity in this area, to which we responded. on all our packaging and a robust approach We support the final advertising rules to manufacturing quality and product which took effect in November 2014 and assessment, including for all ingredients believe they provide a suitable framework and flavours. for responsible e-cigarette marketing, and we encourage other countries to adopt a similar approach. 4 Protecting Public Health: FDA Regulation of Tobacco Products, Director of the US FDA’s Centre for Tobacco Products, Legacy Foundation Warner Series webinar, June 2014 06 Sustainability Summary 2014 British American Tobacco Tobacco products Low-toxicant What’s next? smokeless tobacco Tobacco heating products Launch Voke, our innovative new Snus is a type of low-toxicant oral tobacco nicotine inhaler licensed as a Tobacco heating products heat the that we currently sell in Sweden and medicine, in the UK by end 2015. tobacco rather than burning it, so fewer Norway. It is proven by independent health Continue to build Vype, our smoke toxicants are produced than with studies to be substantially less risky than e-cigarette brand, in the UK and conventional cigarettes, making them a smoking. As such, we are disappointed that, launch in further markets. potentially less risky option. in the recent update of the EU Tobacco Publish our marketing principles for Our associate company Reynolds Products Directive (TPD), European nicotine products by end 2015. American developed its first product in regulators have not lifted the ban on the Continue to take a lead in advocating this category in the 1980s. However, at sale of snus in the EU outside Sweden. for regulation that has high the time, it did not prove popular. product standards and appropriate On the other hand, the US FDA is commercial freedoms. Today there is much greater consumer currently reviewing some snus products Present the results of our scientific interest in a new generation of alternative and considering re-categorising them research into next generation tobacco tobacco products. Technology has moved as modified risk tobacco. This process is and nicotine products to regulators on too and we are currently working on expected to conclude in 2015. We hope and other relevant bodies. products designed to have much wider other regulators will follow the FDA’s Work with scientists, public health consumer appeal for smokers. example and recognise the important role professionals, regulators and governments around the world to By the end of 2015, we plan to begin snus can play in reducing the public health impact of tobacco use. build support for innovative, less extended consumer trials of an upgraded risky products. version of an existing product. We hope to have our first tobacco heating product Progress against our previous goals: in a test market in 2016. All five are completed or on track. We will also continue working on an For further details see innovations pipeline of consumer relevant www.bat.com tobacco heating products for the future. /harmreductiongoals

Independent assurance Comment from Ernst & Young LLP

During our interviews with senior management at Group-level, all expressed the strategic importance of next generation products to the business. We have seen evidence of BAT’s engagement with a wide range of stakeholders on the possible benefits to public health and on the development of product quality standards. Continuing this type of dialogue will be critical as BAT seeks to develop and launch new products in markets beyond the UK.

www.bat.com/sustainability 07 British American Tobacco Sustainable agriculture ‘I choose to and farmer livelihoods grow tobacco

We are committed alongside my to working to enable prosperous livelihoods other crops’ for all farmers who supply our tobacco leaf, benefiting rural communities and the environment.

Our approach

Working with our farmers to look after the environment, address child labour and other human rights issues, and build local infrastructure, resources and networks to support rural communities.

Providing on-the-ground advice and support for over 100,000 contracted farmers worldwide, helping them to build successful, profitable businesses.

Setting standards, advancing agricultural practices, developing new technologies and conducting cutting-edge research into more sustainable leaf varieties.

08 Sustainability Summary 2014 British American Tobacco A global crop

Around 35% of all global jobs are in agriculture, many of which are in developing economies.

Tobacco is a major global cash crop, which farmers grow in rotation with, or alongside, other crops Supporting farmers, such as fruit, vegetables, sustaining communities wheat, maize or cotton.

The farmers we work with are valued Our approach to supporting business partners and crucial to the farmers’ livelihoods focuses on Our agricultural success of our business – if they do well, five key areas: we do well. supply chain Farm income: helping our farmers to We are committed to a future where have profitable businesses, with tobacco We do not own tobacco farms all our farmers have the resources they grown alongside a diverse range of or directly employ farmers. need to be successful and farming other crops. More than 1,000 BAT leaf communities thrive. technicians worldwide Natural resources: preserving forests, support over 100,000 If our farmers are prosperous, they water, soil health and biodiversity contracted farmers. can encourage future generations to – all of which are essential for long- continue to farm and support their local term agricultural productivity. communities and the environment. For our business, this is a pragmatic Infrastructure and resources: and commercial approach that secures helping ensure tobacco growing We invest over £65 million our supply chain and ensures the integrity areas are viable places to live and each year in supporting and quality of our products to satisfy work, by providing farmers with our farmers. our consumers. access to technology and investing in community projects. Read details of our approach to Watch our They grow, we grow supporting farmers at Skills, knowledge and labour: video to see our partnerships promoting human rights, tackling with farmers in action in www.bat.com/farmers child labour, protecting the health Lombok, Indonesia. of farm workers and providing www.bat.com advice and training for running /farmervideo successful businesses. Community networks: helping to build and strengthen farmer networks, by providing the support and opportunities farmers need to be able to share best practice and become Watch online and in our app more self-sufficient and resilient.

Farmer viewpoint I get a fair price for the leaf I supply, the seeds We buy over 400,000 tonnes of tobacco leaf each are of good quality, and the training and year from our contracted technology I have accessed through Souza Cruz have farmers and third party helped me get the most out of my land – not just for suppliers worldwide. tobacco, but for my maize crops too. That is why I have chosen to work with them for the last 13 years. Sanges Alberto Klafke, Brazilian tobacco farmer supplying our subsidiary company, Souza Cruz

www.bat.com/sustainability 09 British American Tobacco Sustainable agriculture and farmer livelihoods

More than 170 million trees planted in the last seven years through our afforestation programmes

Independent assurance Comment from Ernst & Young LLP

Agricultural supply chains face major economic, environmental and social challenges. During the course Local agriculture, of our work, we have seen specific examples of how BAT is addressing these challenges and strengthening global challenges its approach. However, we consider that BAT should ensure that its good practices are more consistently applied across all leaf suppliers, including third parties. The support we provide farmers is especially important given the serious pressures and challenges agriculture faces. These range from rural poverty and Supporting human rights Setting standards food security, to an increasing demand for land and natural resources. There are In 2014, we published our new Human All our tobacco leaf suppliers are reviewed also issues over access to clean water and Rights Policy in our revised Standards through our Social Responsibility in sanitation, child labour, urban migration of Business Conduct. It details our Tobacco Production (SRTP) programme. and ageing farmer populations. commitments to eliminating child labour, Suppliers’ annual self-assessments are no exploitation of labour and respect for independently validated by AB Sustain, But these challenges are not related to freedom of association. which also completes on-site reviews. any specific crops, they are issues that are In 2014, AB Sustain conducted 12 on-site The Policy is part of our continuing common to agriculture as a whole. reviews in eight countries. We publish commitment to the UN Declaration of suppliers’ self-assessment scores at Despite this, some organisations claim Human Rights. that tobacco has a more detrimental www.bat.com/SRTPdata. We are now working to develop a impact than other crops. They say this SRTP covers good agricultural practices strengthened, integrated and systematic is particularly true when it comes to and environmental management, such management approach to human deforestation, poverty and the social as soil and water conservation, sustainable rights due diligence aligned to the UN inequality caused by bonded labour, poor wood sourcing and protecting biodiversity. Framework and Guiding Principles on working conditions and occupational It also includes criteria on occupational Business and Human Rights. health risks such as green tobacco health and human rights, which are aligned sickness (GTS). Like any business with an agricultural to International Labour Organisation (ILO) We agree that tobacco, like all crops, supply chain, we sometimes face conventions and cover labour standards does have its impacts but our approach allegations of child labour. In recent years, and activities to prevent child labour. these have related to tobacco growing in to agriculture and working with farmers is The SRTP programme sets out the Malawi and the US5. We take these, and designed to mitigate and address them. minimum requirements we expect of our any allegations, very seriously and are suppliers. If they are not met, action plans For example, wood is often used as a fuel committed to open dialogue to address are put in place. Failure to comply with in tobacco curing processes. So we are any issues identified. helping farmers to preserve natural forests these could result in them losing their through afforestation programmes, which For example, in Malawi we have engaged position as a supplier to BAT. provide a sustainable source of wood. with government and international We also work to find locally available agencies at a national conference on alternative fuels, and are exploring ways child labour and are supporting the to reduce wood fuel consumption by Government’s national action plan using innovative designs for curing barns. through our membership with the As a result, in 2014, 94.8% of the wood Eliminating Child Labour in Tobacco our farmers used for curing did not come Growing (ECLT) Foundation. In the US, from natural forest. Find full details of we have engaged with the relevant our farmers’ wood fuel sources at parties and continue to promote a www.bat.com/wooddata. multi-stakeholder approach involving all key US-based stakeholders. 5 Tobacco’s Hidden Children: Hazardous Child Labour in US Tobacco Farming, Human Rights Watch, May 2014 10 Sustainability Summary 2014 British American Tobacco What’s next?

Aim for at least 70% of our spending on community investment activities Working together in tobacco growing countries to be The challenges facing agriculture We also run other projects focused on sustainable agriculture by end 2015. cannot be – and should not be – around the world in partnership addressed by one group working in with local stakeholders, Achieve less than 1% use of natural isolation. This is why we look to work including governments, academic forest for contracted farmers’ curing fuels by end 2015. in multi-stakeholder partnerships and institutions, NGOs, industry associations implement joint solutions. and development agencies. These range Not to exceed the Group’s long-term standard for our leaf suppliers to use from offering training and development We co-founded the ECLT no more than an average of 1.5kg opportunities to farmers and young Foundation and remain active of active chemicals per hectare of people living in rural areas, to providing members, along with others in tobacco per year. much needed local infrastructure and the industry, the ILO and Save the Develop and publish a supplier code, resources for communities, such as health Children. The ECLT focuses on best aligned to the UN Framework and services, clean water and electricity. Guiding Principles on Business and practice research and advocacy, working Human Rights, by end 2015. with governments to improve access For example, in 2014, our to education and social services for company in Bangladesh In support of our ongoing commitment to the UN Declaration children, and running long-term projects continued its collaboration of Human Rights, develop a in tobacco growing communities to with the Government’s Department of strengthened, integrated and address the root causes of child labour Agricultural Extension to establish farmer systematic management approach to with local stakeholders. clubs to provide training in agricultural human rights due diligence aligned skills. More than 50 farmer clubs have to the UN Framework by end 2015. Since 2001, as part of the so far been established. Souza Cruz, In response to completed biodiversity BAT Biodiversity Partnership, our Brazilian company, works with local risk and opportunity assessments, we have worked with three partners, such as the Centre for Rural implement action and monitoring major international conservation NGOs Youth Development (Cedejor) and the plans for all our leaf growing – Earthwatch Institute, Fauna & Flora operations in 2015. Union of Farmers’ Associations Ituporanga International and Tropical Biology (Uniagri), on a programme to help Association. The Partnership has worked develop the next generation of farmers. Progress against our previous goals: on projects to help protect and enhance Four are completed or on track and biodiversity in tobacco growing areas. two have not been met, which we are committed to meeting in 2015. For further details see www.bat.com/farmergoals

Evidence-based Driven by market dynamics and based on sound research and Shaping scientific evidence. the future Locally relevant Holistic Bodies such as the World Health Considers local Adopts a broad approach, Organisation’s Framework Convention political, economic and understands tobacco is on Tobacco Control (FCTC) are calling environmental factors, part of a mixed agricultural for tobacco farmers to be encouraged to gives precedence to local system and acknowledges switch to alternative crops. implications or priorities Our 5 core initiatives already underway and finds practical, principles to avoid duplication. We agree that, as with any commercial workable solutions. for guiding crop, governments should look at the future policy impacts of tobacco growing. But we believe this should be done in an inclusive and evidence-based way that takes into consideration the wider agricultural context. Inclusive Respectful of In 2014, we developed five core Allows the whole tobacco livelihoods principles that we believe can help guide growing supply chain to future policy decision making. We are participate in decision Prioritises farmers and their communities, and using these as we actively engage with making, is consultative and regulators and governments on this issue. does not restrict the tobacco ensures farmers continue industry’s existing support to be free to choose for farming communities. which crops they grow.

www.bat.com/sustainability 11 British American Tobacco Corporate behaviour ‘I think global companies can and should make We are committed to operating to the highest a difference’ standards of corporate conduct and transparency, benefiting governments, consumers, the environment and our people.

Our approach

Responsible marketing of our products, as well as providing clear and meaningful information about their risk profiles.

Working with retailers around the world to prevent children from getting access to tobacco products.

Engaging openly on regulatory issues, offering constructive solutions and being transparent about our views on key regulatory issues.

Fighting tobacco trafficking through international cooperation, industry-wide systems to secure the supply chain and working alongside law enforcement agencies.

Reducing our environmental impacts and making our operations more efficient.

Looking after our people and working to get closer to our goal of zero accidents.

12 Sustainability Summary 2014 British American Tobacco Raising standards, A global marketplace leading the industry We have over 200 brands and, in 2014, sold 667 billion cigarettes.

We understand that tobacco is a We monitor compliance to our IMP controversial industry and there remains through market audits and annual mistrust towards it across society. self-assessments. In 2014, we found Our five leading Global Building trust is crucial, which is why we three cases of non-adherence (2013: 8) Drive Brands are Dunhill, have adopted an open and responsible and immediate actions were taken for Kent, Lucky Strike, Pall approach everywhere we operate, each of these incidents as part of our Mall and Rothmans. working with transparency and clarity and commitment to 100% compliance. ensuring that our actions speak louder For snus smokeless tobacco, which is than our words. proven to be substantially less risky than Watch our Integrity and As an international business, with smoking, we have specific marketing Transparency video showing our brands sold in more than 200 markets standards consistent with the distinct corporate behaviour in action at worldwide, we can help to raise standards product category. We plan to publish our www.bat.com/corpvideo at a global scale. This supports our new marketing principles for nicotine business sustainability and benefits products by the end of the year. governments and society as a whole. Preventing youth smoking Marketing our We are committed to carry out youth Watch online products responsibly smoking prevention activities in all our and in our app For a business like ours with a range of markets where feasible and permitted. products, it is imperative that we provide Sometimes we are unable to carry out clear and meaningful information on our this work, such as in countries where websites about the different risk profiles to there is political instability, where we help consumers make informed choices. only operate through a distributor, or Our core marketing Ensuring we market our products where we are prevented from doing so principles for responsibly to adult consumers only is also by local legislation. tobacco products key. So for tobacco products, which pose In 2014, youth smoking prevention such serious health risks, our marketing is activities took place in 99% of our Truthful governed by our International Marketing markets that were able to do so. These We will not mislead about Principles (IMP) wherever they are sold include lobbying for minimum age laws the risks of smoking. around the world, often going beyond of 18 where none exist, and working with local legal requirements. more than two million retailers worldwide by raising awareness of existing laws, providing training and advice on Targeted checking IDs, and supplying in-store We will only market posters and other materials. our products to adult smokers.

Transparent It should always be clear to our consumers that our advertising Independent assurance originates from a tobacco company Comment from Ernst & Young LLP and that it is intended to promote the sale of our tobacco brands. For many years, BAT has had International Marketing Principles for tobacco products. Given the challenges faced to date when marketing e-cigarettes in the UK, and with further nicotine products in the pipeline, Trusted we encourage BAT to expedite the development and We will not seek to implementation of International Marketing Principles for influence the consumer’s nicotine products before launching in further markets. decision about whether or not to smoke, nor how much to smoke.

www.bat.com/sustainability 13 British American Tobacco Corporate behaviour

Open engagement Some regulations can also have unwelcome on regulation and unexpected consequences. For example, sudden and significant hikes in Our experience and expertise means excise rates can result in price disparities that we have much to offer governments between neighbouring countries, and regulators when it comes to helping increasing smuggling across borders. develop policies around tobacco. We We are transparent about what we think, believe that when new regulations are supporting some new proposals but being developed, decisions need to be disagreeing with others. When we do based on thorough research and open not agree with proposed regulations, consultation with those likely to be we try to be constructive and put affected, including the tobacco industry. forward alternatives that can still achieve We have long supported the Organisation government’s regulatory aims and for Economic Cooperation and public health objectives. Development’s (OECD) Principles for Transparency and Integrity in Lobbying. Read our views on key In 2014, we published our Principles regulatory issues at for Engagement, which provides clear www.bat.com/regulation guidance for our external engagement with regulators, politicians and other In 2014, a key focus of our engagement third parties. was on regulation for the plain packaging We would like to see effective, evidence- of tobacco products. This was introduced based regulation that meets public health in Australia in 2012 and is now being objectives but does not impede our ability considered by several other governments We think sound to compete, respects our legal rights and around the world, including the UK and regulation should be... does not damage livelihoods, such as Ireland. You can read our views and those of farmers or retailers. reasons why we think plain packaging is a serious error of judgement, as well as our response to the UK Government’s 2014 plain packaging consultation, at ...inclusive www.bat.com/plainpackaging. Takes a consultative approach, is shaped in collaboration with all stakeholders, and respects legal rights and livelihoods.

E-cigarette regulation ...effective ...evidence Many governments are still unsure becoming aware of and accessing Delivers its policy -based how to regulate e-cigarettes. This them. Different products need to be aims and recognises Based on robust was a key topic under discussion regulated appropriately according to unintended evidence and at the sixth conference of parties their risk profile. consequences. thorough research. of the World Health Organisation’s We are advocating for regulation that Framework Convention on Tobacco has high consumer safety and product Control (FCTC) in 2014. We quality standards and restricts sales to welcome its decision to establish an over 18s, while enabling companies independent expert group to look to freely innovate, and to distribute at the growing weight of scientific and market their products responsibly. evidence regarding e-cigarettes. Employee viewpoint For example, we are on the British We think overly restrictive regulation, Standards Institute’s steering group Most of the regulators that I such as bans or excise taxes similar to for developing an industry code of speak to are very surprised those for regular cigarettes, could be practice for e-cigarettes, including counterproductive. It stifles growth safety and quality standards. that we are not against regulation but and innovation, and prevents smokers rather we are for sensible, evidence-based regulations. We do our business in the open and not behind closed doors. Ezmir Hazizi Bin Azhar, Regulatory Affairs Manager, BAT Malaysia 14 Sustainability Summary 2014 British American Tobacco Fighting tobacco trafficking Keeping our own Implementing industry- house in order wide supply chain Due to their high value, weak penalties We support only legitimate trade in security systems and the relative ease with which they our products. can be produced and moved without We have a proven, automated system detection, cigarettes are among the We stop doing business with customers for tracking and tracing products as they most commonly traded products on or suppliers who are found to be move through the supply chain, which the black market. complicit in tobacco trafficking. we are implementing in our markets as part of our cooperation agreement with But it is an illegal trade that cheats We have ‘Know Your Customer’ the European Commission. governments out of some £30 billion guidelines and procedures, which We are founding members of the Digital each year in taxes. It also puts consumers require the volume of tobacco products Coding and Tracking Association (DCTA), at risk by flooding the market with we supply to be consistent with which promotes an agreed industry-wide unregulated and often sub-standard legitimate demand. approach to help governments ensure products, and criminals actively market taxes and duties are paid, and help and sell tobacco products to children. Working consumers and authorities validate a It is also a huge threat to legitimate product’s authenticity. businesses, such as BAT. with others We engage with governments and international organisations, such as the Fighting alongside law World Customs Organisation and the enforcement agencies More than Some OECD, to increase understanding and find ways to work together to address We gather and share intelligence. £50 £30 this global problem. We monitor the destruction of seized We work with the European Commission products and machinery. and its member states, and are We authenticate seized products million billion committed to providing funding of and carry out forensic analysis on € invested each year in in worldwide 134 million as part of our 20-year illegal goods. cooperation agreement, which the fight against the government taxes includes training border staff in new tobacco black market estimated to be security systems. evaded each year due We have agreements with governments to illegal tobacco and customs authorities in over 50 countries worldwide.

www.bat.com/sustainability 15 British American Tobacco Corporate behaviour

Independent Non-Executive Director viewpoint As of 2014 The Board CSR Committee are able to bring an impartial we have achieved... view, and make sure the business is living up to its principles and standards and are accountable for what they do. I believe that BAT has the will, and the means, to tackle tough issues 45% and the scale to make a difference. I have had the opportunity to see reduction in for myself the real progress being made. CO2e emissions Karen de Segundo, Chairman of the Board CSR Committee from our 2000 baseline 13% reduction in Global reach, responsible actions energy use from our 2007 baseline We are a successful, global business Using a mixture of performance that makes a valuable contribution to management and risk assessments, we economies around the world. While are constantly monitoring and reducing 24% we face many issues that are specific to our direct environmental impacts, our industry, just like any other global and developing new processes and reduction in business, we also have a responsibility procedures to make our operations more water use to act with integrity, address our efficient. We put particular effort into from our 2007 baseline environmental impacts and look after minimising our energy consumption and our people. carbon emissions. We have clear policies and standards in Our long-term targets to cut carbon 68% place that set the standard for the way dioxide equivalent (CO2e) emissions by reduction of waste 50% by 2030 and by 80% by 2050 from we do business and how we behave. sent to landfill www.bat.com/principles our year 2000 baseline are in line with UK Government targets. We have already from our 2007 baseline made significant progress, having achieved Reducing our a 45% CO2e reduction from the baseline. environmental impacts Water is an important resource for 92.6% As a major multinational, we have a tobacco growing and manufacturing. of our waste responsibility to minimise our impact on We have set ourselves a target to reduce recycled the environment. This is vital to ensuring water use across our direct operations our business, local communities and and are making good progress on this. ecosystems have access to the natural However, we still have much to do in resources needed for a sustainable future. relation to wider supply chain impacts It makes good economic sense for us to and longer term risk planning. use raw materials, energy and water in a To support this, we are now working on sustainable way and we recognise that we assessments of our strategic operations must maintain a clear strategic approach that we have identified as ‘high risk’. to managing our global footprint. These will help us better understand our long-term water supply and demand requirements and inform action plans. 16 Sustainability Summary 2014 British American Tobacco What’s next?

100% adherence to our International Marketing Principles by end 2015. Looking after our people If any cases of non-adherence are Worldwide, we employ over 57,000 In 2014, we launched a new programme identified, ensure immediate actions are put in place. people, of more than 130 different for our trade and distribution teams, which nationalities. They work in a diverse range provides tangible tools, guidance and 100% adherence to our global approach to youth smoking of environments and conditions, from city procedures for security and driver safety. prevention in all markets where offices to factories, from remote farms to We expect this to help address this high risk feasible and allowed by end 2015. spending long periods out on the road. area of our business and lead to a reduction As part of our cooperation agreement Our goal of zero accidents reflects our in fatalities. with the European Commission, commitment to keeping them all as safe We also have programmes around the implement track and trace as possible. technology in all markets covered by world that protect and promote health the agreement where we annually As a result of this continuing focus on and wellbeing for employees, their families supply 25 million cigarettes or more safer working conditions and behaviour, and local communities. These include to multiple customers, by end 2016. we have been able to reduce total medical services and insurance, healthy Reduce our CO2e emissions by accidents across the Group – down by lifestyle and fitness schemes and family- 46% by 2017, 50% by 2030 and 19% in 2014, with 72% of our sites friendly policies and initiatives, such as 80% by 2050 against our 2000 achieving zero accidents. flexible working and help with childcare. baseline of 1.52 tonnes per million cigarettes equivalent. However, we have seen an increase in In 2014, such programmes were in place Reduce our energy use towards our fatalities – from six in 2013 to eight in in 95% of our reporting markets. 2017 target of 9.82 gigajoules per 2014 as a result of road traffic accidents million cigarettes equivalent produced, and armed attacks on trade and Find out about how we are building 17% lower than our 2007 baseline. distribution personnel. These all took a diverse, rewarding and engaging Reduce our water use towards our place in some of the more challenging culture in the Winning Organisation 2017 target of 3.6 cubic metres per environments in which we operate, section of our Annual Report. million cigarettes equivalent produced, where there is political instability and www.bat.com/annualreport 26% lower than our 2007 baseline. high security risks, or roads and transport Sustain our waste to landfill at no infrastructure are poor. more than 0.016 tonnes per million cigarettes equivalent produced, 36% We deeply regret this loss of life and the lower than our 2007 baseline, and suffering caused. We carry out detailed recycle at least 85% of our waste. reviews of all accidents and fatalities Complete assessments of long- to learn lessons and identify actions to term water supply and demand reduce the chances of similar events requirements in 10 strategic happening again. operational sites identified as ‘high risk’ by end 2015. Ensure the right policies, governance and practices are in place to enable us to get closer to our goal of zero accidents.

Progress against our previous goals: Eight are completed or on track and two have not been met, which we are committed to meeting in 2015. For further details see www.bat.com/ corpbehaviourgoals www.bat.com/sustainability

More detailed information on our sustainability agenda, as well as other key areas, including governance, stakeholder engagement and materiality.

Performance centre Sustainability app Progress against our goals, performance All our latest sustainability and focus charts, Global Reporting Initiative (GRI) reports in one place – read them any G4 reporting, independent assurance time, anywhere, including additional statement and our response interactive content and embedded videos. to assurance. Search for BAT Sustainability www.bat.com in the iTunes App Store (iPad) or /sustainability/data Google Play Store (Android tablets)

British American Tobacco ANNUAL REPORT 2014 Delivering today

Annual Report 2014 Investing in tomorrow

SUPPORTING FARMERS’ HARM LIVELIHOODS REDUCTION The opportunity The opportunity Sustainability Focus Report 2014

Sustainability Focus Report 2014

Focus reports Annual Report In-depth information on specific Our Group vision, strategy, topics, including our two most recent business model, governance reports on harm reduction and and financial reporting. farmers’ livelihoods. www.bat.com www.bat.com /annualreport /sustainabilityfocus

www.youtube.com/ www.flickr.com/ @BATPress welcometobat welcometobat

About this Report This is the British American Tobacco p.l.c. Sustainability This report has been printed in the UK by Pureprint, a Summary 2014. It reports on the activities of British CarbonNeutral® company using their pureprint and alcofree American Tobacco companies in the UK and internationally environmental printing technology. Printed on Amadeus 50 for the calendar year 2014. Associate companies are Silk which is produced using 50% recycled post-consumer excluded. References to ‘British American Tobacco’, waste and 50% wood fibre from fully sustainable forests with ‘BAT’, ‘we’, ‘us’ and ‘our’ when denoting opinion refer to FSC® certification. All pulps used are Elemental Chlorine Free British American Tobacco p.l.c. (the Company), and when (ECF). The manufacturing mill holds the ISO 14001 and EU denoting tobacco business activity refer to Group operating Ecolabel (EMAS) certificates for environmental management. companies, collectively or individually as the case may be. This document is recyclable. Designed and produced by This Report contains forward-looking statements that are Flag. Photography by David Hares. subject to risk factors associated with, among other things, the economic and business circumstances occurring 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 that could cause actual results to differ materially from those currently anticipated.