RESPONSIBLE MARKETING PRACTICES AT PMI

RESPONSIBLE MARKETING PRACTICES AT PMI

DECEMBER 2019

AN ASSESSMENT OF OUR RESPONSIBLE COMMERCIALIZATION STANDARDS, OUR ADHERENCE TO THESE STANDARDS, AND AREAS FOR IMPROVEMENT

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Dear Reader,

While youth smoking rates have gone down in many develop our responsible marketing standards to countries around the world, youth continue to smoke. meet these new challenges. And with the advent of new nicotine-containing products, people are rightly concerned that youth Nonetheless, we recognize we can always do more. are also using these new products. To that end, I am pleased to present the results of our comprehensive assessment of the steps we Let me be clear. Youth should not use any nicotine- take across our commercial activities to restrict containing product; nicotine-containing products our product marketing and sales activities to adults. are addictive and not risk free. As the CEO of Philip We undertook this assessment at the request of Morris International, I do not want youth to use any one of our shareholders, Trinity Health, who asked of our products. us to report on our adherence to our responsible marketing standards. Manufacturers of tobacco and nicotine-containing products have a key role to play in guarding against I believe the results of our assessment demonstrate youth use of their products. We take this responsibility our strong adherence to our standards and our seriously. This is why we have worked consistently over commitment to doing our part in preventing youth the years to develop and embed in our organization use of tobacco and nicotine-containing products. global responsible marketing standards. And as we move forward in our mission to develop smoke-free I cordially invite you to comment on this report products that are better alternatives for men and and to continue to challenge and guide us on this women who smoke, we continue to strengthen and important matter.

André Calantzopoulos Chief Executive Officer

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INTRODUCTION

In November 2018, Philip Morris International Inc. (PMI)1 received a proposed shareholder resolution from Trinity Health and several co‑proponents.

The resolution raised questions about how to shareholders by November 2019.” and commercializing a range of smoke-free and women who smoke that better alternatives we market our cigarette brands. products that, while not risk free, are a much exist. Our marketing activities for smoke-free Members of PMI’s management team reached better choice than continued smoking. Our products are intended to do just that. As we Trinity Health is a Catholic health system out to representatives of Trinity Health to smoke-free product portfolio includes heated progress in our efforts to commercialize these that provides health care in communities discuss their proposal. We agreed to undertake tobacco products and nicotine-containing new products, we will continuously collect throughout the U.S. and engages in shareholder an assessment of our marketing practices and vapor products (e.g., e-cigarettes), and our feedback to ensure that we are continuing to advocacy on issues that are central to its to prepare a report, overseen by PMI’s Board innovative products are already available in reach the intended audience and minimizing mission, including reducing the negative of Directors, which would be made publicly over 50 countries. We are drastically shifting exposure of unintended audiences, most impact of smoking and tobacco usage. The available by the end of 2019. We also updated our resources in marketing and sales away importantly youth.3 proposal from Trinity Health referenced Trinity Health on the progress of our work in from cigarettes (“combustible products” in allegations that the Campaign for Tobacco August 2019. The review requested by Trinity Health has this report) toward our smoke-free products. Free Kids (CTFK) set out in a petition that been an important step in our efforts to Although Trinity Health’s shareholder resolution For instance, in 2018, 92% of our investment it and other organizations fled with the U.S. continuously improve. We have now completed was focused on the marketing of our cigarette in research and development and 60% of Federal Trade Commission regarding alleged the assessment and take this opportunity to brands, we expanded the assessment to include our global commercial expenditures were cigarette marketing practices on social media.2 make the results publicly available. We expect, the marketing of our smoke-free products dedicated to smoke-free products. Trinity Health requested PMI’s Board of and welcome, the public’s feedback on our because of the signifcance of these products Directors “to review worldwide corporate Unlike combustible products, which are known assessment and this report. to our business. adherence to Philip Morris’ own policies the world-round, smoke-free products are a aimed at discouraging smoking among young Our ambition is to replace cigarettes with new product category, still relatively unknown. people, and report the results of that review smoke-free products, and we are developing Our priority is to create awareness among men

1 PMI as used in this report refers to Philip Morris International Inc. and one or more of its affiliates, as appropriate in the context. 2 Campaign for Tobacco Free Kids et al. v. Philip Morris International, Inc., Request for Investigative and Enforcement Action to Stop Deceptive Advertising Online, Aug. 24, 2018, https://www.tobaccofreekids.org/assets/content/press_office/2018/2018_08_ftc_petition.pdf. 3 Throughout this report, the terms “youth” and “minors” refer to those who are below the legal age for smoking and/or vaping in their countries, or if there is no minimum age law in a country, below the age of 18. 3 RESPONSIBLE MARKETING PRACTICES AT PMI

METHODOLOGY AND PROCESS

Starting in early 2019, a cross-functional team undertook a comprehensive and critical review of the steps we take across our commercial activities to restrict our product marketing and sales activities to adults. The project team’s work was supervised by the Deputy General Counsel and the Chief Ethics & Compliance (E&C) Offcer, who report to the President, External Affairs and General Counsel, a member of our Senior Management Team. In December 2019, the Nominating and Corporate Governance Committee of PMI’s Board of Directors reviewed, commented on, and approved this report.

Our assessment started with the review of functions and in our market affliates, to gather e-cigarettes, alcohol, gambling) and those PMI’s existing principles, policies, guidelines, information on our marketing practices and to that that have come under scrutiny for their and practices related to the development, get their feedback on how we could strengthen marketing activities (e.g., confectionary and marketing and sales of both combustible and existing policies and practices. We also surveyed sugar-containing beverages). smoke-free products. The project team also market affliates on current youth access Following this review, the project team reviewed global training fgures, reported and prevention activities at retail. The Corporate identifed measures that PMI might introduce substantiated cases of non-compliance with Audit department also performed feld visits in to strengthen our existing policies and practices. PMI’s Marketing Code and Good Conversion several market affliates to check compliance The fndings were presented and discussed Practices, potential concerns raised on social with provisions of our Marketing Code. with members of the Senior Management Team. media and other channels ( ), www.pmi.com In addition to assessing our own policies and and corporate audit results. The results of our review and the improvements practices, we looked at publicly available we are putting in place as a result of this exercise We interviewed subject-matter experts policies and practices in other companies, are presented in the following sections. from across the company, both in our central including those in regulated sectors (e.g.,

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SUMMARY OF RESULTS

I. EXISTING PRINCIPLES, POLICIES & PRACTICES

PMI’s marketing practices must adhere to We also apply, as a minimum, guidelines We have policies that set out the standards and four core principles, without exception and to all our commercial activities to reduce requirements to conduct market research for regardless of the country or the type of product, the likelihood that they will be particularly combustible products and for our smoke-free as set forth in our Guidebook for Success4, appealing to minors; for example: products. The policies restrict such research which is PMI’s global code of conduct: to legal age adults who smoke or use other (i) we do not use images or promotional materials nicotine-containing products. All employees (1) We only market and sell our products that have particular appeal to minors, including and third parties who handle market research to adult smokers. youth-oriented celebrities or cartoons, or activities must receive training on the policies, brands, toys or other merchandise which are (2) We warn consumers about the health and relevant third-party suppliers must be primarily for, or used by, minors; effects of our products. contractually bound to comply with the policies. (ii) we do not use models who are or who (3) Our marketing is honest, transparent appear to be under the age of 25; and accurate. (iii) we do not use branding on promotional items (4) We respect the law and our high that is visible to others when the promotional standards. items are used; and (iv) we do not pay for product placement.

4 Our Guidebook for Success is available on our website, https://www.pmi.com/who-we-are/standards/compliance-and-integrity. 5 RESPONSIBLE MARKETING PRACTICES AT PMI

A. MARKETING & SALES OF which was focused primarily on social media, • the advertising is not interactive. • A reliable third party, such as a bank, credit COMBUSTIBLE PRODUCTS we describe below additional guidance we institution, mobile phone operator, or public follow relating to our digital activities. Company Consumer Database and body responsible for population data, verifes Marketing and sales activities for our Combustible Product Content Website the accuracy of the age provided by the combustible products are also governed Social Media adult smoker in writing or electronically. by PMI’s Marketing Code. The Marketing We include only age-verifed adult smokers Code sets global standards that we follow Since July 2015, PMI does not use social in our company consumer databases, and In addition, the landing page for any company- along with applicable national laws. These media to market its combustible tobacco access to our consumer websites is limited to sponsored consumer website for our standards reinforce our aim to restrict product products. This applies to all advertising, direct age-verifed adult smokers. One or more of combustible products must be unbranded; marketing to adult smokers. A summary of the communications, campaigns or activities, the following age verifcation processes must must clearly state that the site is only for adult comprehensive standards in our Marketing whether they are branded or unbranded. The take place before an adult smoker is included smokers; and must require adult smokers to Code is available on our website. 5 same rule applies to contracted parties such in a database or allowed to access a consumer register before accessing the content on the as event organizers, third-party agencies or website for our combustible products: site. The homepage must also contain a link The head of each PMI market affiliate is brand ambassadors. to important information about the health accountable for the affliate’s compliance • A face and age technology that is tested effects of tobacco consumption. with the Marketing Code. For example, all and proven to be reliable confrms that the Advertising on the Internet activities subject to the Marketing Code consumer is at least of legal age (minimum must be reviewed by the affliate law and In countries where advertising on the internet 18 years of age in all cases). If the face and corporate affairs departments and approved is not prohibited, PMI may place advertising age technology is not suffciently reliable by the affliate head and the affliate head of for its cigarette brands on websites that are as a standalone protection, it must be used marketing and/or sales. These reviews and accessible to the general public, so long as: together with another technology that allows age verifcation of the adult smokers decisions must be documented. • the advertising is accessible only in that when they upload identity documentation; All PMI employees who are responsible for particular country; • When there is direct in-person contact with marketing and sales of combustible products, • the website has a user base that is reasonably the consumer, a face-to-face age check is and any third parties who are substantively estimated to be at least 75% adults6; involved in such activities on behalf of PMI, conducted by (i) looking at the individual’s must receive training on the Marketing Code. • the advertising is not placed on, or adjacent offcial photo ID and (ii) documenting this to, content or features that are directed check in writing; or We have also implemented additional guidance to minors; related to other aspects of the marketing of our combustible products. Because Trinity • the advertising consists only of banners that, Health’s proposal referred to the CTFK petition, for example, announce promotions or provide a link to a company consumer website; and

5 https://www.pmi.com/resources/docs/default-source/sustainability-reports-and-policies/overview-of-marketing-principles.pdf?sfvrsn=5dc091b5_2. 6 The 75% adult audience requirement is in line with standards applied by other manufacturers and providers of age-restricted goods and services, as well as regulators like the UK Committee of Advertising Practice. 6 RESPONSIBLE MARKETING PRACTICES AT PMI

B. MARKETING & SALES OF SMOKE- FREE PRODUCTS PMI’S GOOD CONVERSION PRACTICES In addition to the four core principles discussed previously, in May 2017, we articulated a set PMI offers a variety of quality, scientifcally substantiated smoke-free products that are much of rules – Our Good Conversion Practices better choices than continued smoking. Our vision is that our smoke-free products will one (GCPs) – to govern marketing and sale of our smoke-free products. In August 2019, we day replace cigarettes. updated these rules. Consistent with our aim to provide better alternatives to smokers, our goal is to convert adults who would continue Cigarette smoking causes serious PMI’s smoke-free products are Minors should not use tobacco to smoke or use other nicotine-containing diseases and is addictive. Without not risk free and contain nicotine, or nicotine in any form. products to our smoke-free products. This 1 question, the best decision 4 which is addictive. Switching to a 7 is the central focus of our GCPs. any smoker can make is to smoke-free product is, however, a quit tobacco and nicotine use much better choice than smoking. altogether.

PMI’s smoke-free products are We support our adult smoke-free Pregnant women, diabetics and for adults who would otherwise product users in their journey to people with heart problems should 2 continue to smoke or use other 5 full conversion through education 8 not use any tobacco or nicotine nicotine products. and guidance. product.

We do not offer PMI’s smoke-free For consumers to experience the products to people who have benefts of smoke-free products, 3 never used tobacco or nicotine 6 they must switch completely and products or who have quit using abandon smoking permanently. tobacco and nicotine products. Our smoke-free products are not an alternative to quitting and are not designed as cessation aids. RESPONSIBLE MARKETING PRACTICES AT PMI

Each market affliate that sells smoke-free Market affiliates are required to products must implement the GCPs using maintain training records. Training is centrally developed guidelines, toolkits, reinforced through in-field observation training, and other resources. The guidelines and coaching by supervisors, as well cover four key areas: as online annual refresher trainings. (1) Recruitment: The GCPs must be (3) Display: The GCPs must be displayed for discussed with prospective employees staff and consumers at stores and other and third parties who will interact direct retail locations for our smoke-free with consumers of our smoke-free products that we own or control. products. We will hire employees or (4) Agreements: Each market affiliate must engage third parties only if they agree update relevant agreements with third to follow the GCPs. parties to reflect the GCPs and to ensure (2) Training: All employees and third parties contractual compliance with them. who interact with consumers of our All marketing and sales initiatives and smoke-free products must complete corresponding materials for smoke-free in-person training on the GCPs. That products are reviewed to check consistency training includes: (a) discussion of with the GCPs and implementation guidance. the core GCP principles and their importance to PMI’s overall vision; (b) role plays of consumer interactions that require application of the GCPs; (c) guidance on how to get help and each participant’s responsibility to speak up about potential violations of the GCPs; and (d) tests to facilitate discussion and learning by participants.

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In addition to the GCPs, we have developed global audience measurement frm to survey the • We maintain a list of online channels and • Of course, for purchases on our smoke-free guidelines for digital commercial activities related audience of the account, random surveys types of content that could be of particular product websites, we have implemented to the marketing of smoke-free products. The of individuals using questions designed to appeal to minors in and next to which we a variety of age verification measures guidelines incorporate best practices from various elicit whether someone is an adult, or asking will not publish our product content in different markets. The measures countries and industries and provide guidance individuals to confrm their age when they implemented vary market to market including on both the content of our digital marketing and contact PMI directly. Smoke-Free Product Websites third-party database checks, ID upload the tools we use to reduce the likelihood of youth • We require individuals to self-declare checks, and age verifcation on delivery, • In addition, we monitor and remove from all being exposed or, most importantly, attracted. they are legal age (minimum 18 years of and are designed to always comply with PMI-controlled social media accounts user- We describe those guidelines below. age) before they are allowed access to a the requirements of local law. generated content that does not comply with PMI-controlled product website. 7 our content guidelines or that is identifed Social Media Brand Activation Accounts to have been posted by a minor. • If an individual visits a PMI-controlled Company Consumer Database • We open an account on a social media product website, and self-declares to be At a minimum, we require individuals to self- platform only if it has its own native age- Advertisements on Third-Party Websites a minor, the individual is prevented from declare their age and confrm they are adults gating technology and if we have reliable and Other Media entering the website. who smoke or use other nicotine-containing audience measurement data in the country products before they are registered into a PMI • We place digital commercial content only • Where technically possible, we are that show the audience is at least 75% adult. consumer database. Before we give access on media for which reliable audience implementing technology on our product If the data are derived from self-declared to our smoke-free products to any of these measurement data show that the audience websites that can recognize a device previously age data (whether from the social media consumers, for example through a guided is at least 75% adult. For targeted digital used by someone who self-declared as being platform owner or a third party), we obtain trial, they are age verifed. commercial content, we take additional a minor. This enables us to block access to our further data to validate the accuracy of the steps to reduce the likelihood of minors website from that device for a period of time. self-declaration. being exposed to the content by using • PMI includes statements on its product • We take additional steps to assess the likely available targeting criteria to bias the likely websites explaining that its products are audience of a social media account, which audience towards adults and intentionally only for adults who smoke or use other may include engaging a reputable third-party excluding minors. nicotine-containing products.

9 7 “Social Media Brand Activation Accounts” are accounts focused on marketing our smoke-free products to adult nicotine users, and are distinct from customer care accounts, which provide customer support to existing adult users of our smoke-free products. RESPONSIBLE MARKETING PRACTICES AT PMI

II. ADHERENCE TO EXISTING PRINCIPLES & POLICIES

PMI has a robust and tested infrastructure for that the content of those materials is not channels to employees and relevant third • The Corporate Audit Department, which ensuring compliance with its existing policies particularly appealing to youth. For global parties, including suppliers, retailers, and reports directly to the PMI Board’s Audit and processes. Three functions—Ethics & campaigns, marketing materials and initiatives hostesses. During the frst three quarters Committee, also monitors compliance with Compliance, Internal Controls, and Corporate are reviewed both at the global level and at of 2019, we provided approximately 7,700 our Guidebook for Success, the Marketing Audit—support and monitor compliance with the affliate level, including by members of training sessions on our Marketing Code. Code and GCPs. The Corporate Audit results the Guidebook for Success (i.e., our Code the Law Department. for 2018 showed that only a few affliates - Extensive training on GCPs is being of Conduct) and our Principles & Practices had issues related to Marketing Code • Third-party suppliers that provide relevant delivered to employees and relevant (P&Ps), through trainings, communications, compliance, and the few cases identifed services are contractually bound to comply third parties in the countries where we controls, investigations, and audits. were related to procedural issues. with the Marketing Code and the GCPs. sell smoke-free products. In 2018, we Overall, our assessment found strong adherence trained approximately 27,100 people • During 2019, Corporate Audit conducted • Relevant employees and third parties receive to our responsible marketing practices. Our and during the frst three quarters of a review of controls over various trade and training on a rolling basis on the Guidebook for main fndings are summarized below. 2019, we have trained approximately sales activities at our Indonesian affliate. Success, the Marketing Code, and the GCPs. 8 30,300 people on GCPs. The audit included the review of a new • Throughout PMI, people not only understand - Just in 2018, 86.9% of all PMI employees digital platform (i.e., a mobile application) but are passionate about the fundamental • Employees have the obligation to report participated in training sessions pertaining that allows retailers to share promotional principle that we should not target our potential misconduct. In relation to Marketing to our Guidebook for Success. The content related to PMI cigarette brands marketing and sales activities to youth. Code and GCPs violations, seven cases of sessions build awareness about risks, with registered consumers. The audit found Employees apply this standard routinely misconduct were substantiated in 2018, support good ethical judgment, and that, while no local laws were violated, and reliably when developing and deploying and 12 so far in 2019. Three of the cases prepare people to speak up if something the age control measures for the mobile marketing and sales activities, regardless of involved supplying a device used with our is wrong or can be improved. During application did not comply with PMI’s the product, activity, or country. This shared smoke-free products to a minor as a result of the frst three quarters of 2019, 74.5% Marketing Code. As part of the registration commitment is instilled in part through failure to verify age, and one involved sending of employees participated in training process, consumers were asked to provide extensive training on PMI’s Marketing promotional communications to a minor as a sessions pertaining to our Guidebook their name, date of birth, and identity Code and the GCPs and was reflected in the result of failure to verify age. The employee for Success. card number and to self-declare that they interviews we conducted with employees who failed to verify the consumer’s age in were adult smokers, but the consumers’ throughout the organization. - More specifcally, in 2018, we provided each instance was terminated. The remaining ages were not subsequently verifed as approximately 26,7009 training sessions cases did not involve allegations related to • Marketing materials and activities are required by the Marketing Code. Based on on our Marketing Code through different promoting or selling our products to youth. reviewed by relevant functions to ensure

8 Employees are notified if they are required to complete training and will receive additional notices and warnings if the training is not completed by the specified deadline. 9 2018 training numbers include trainings that were conducted during the year but reported after the publication of our 2018 Sustainability Report. 10 RESPONSIBLE MARKETING PRACTICES AT PMI

these fndings, an action plan was put into • On August 24, 2018, several public health • On May 10, 2019, we received an inquiry compliance. Following our investigation, place and several steps were immediately organizations, including CTFK, fled a petition from Reuters regarding certain social media two individuals received written warnings. taken to address the defciencies, including with the U.S. Federal Trade Commission posts that it believed did not follow our digital On October 16, 2019, senior management removing all data related to any underage urging it to take action against four tobacco influencer guidelines. Prior to this, we engaged issued new guidance making clear that we smokers from the consumer database and manufacturers, including PMI, for alleged with digital influencers in certain countries will no longer engage with anyone for the contracting with a third-party provider to promotion of cigarettes brands using social to promote our smoke-free products. We purpose of generating social media posts verify the accuracy of the age provided media. As discussed above, the use of social implemented several guidelines that applied about our products. by all adult smokers before they can be media to market our combustible tobacco to all of our activities with digital influencers,

registered to use the mobile application. products is prohibited by our Marketing including that digital influencers must be The assessment we conducted in response Code and implementation guidelines. over 25 years of age and adult smokers • During 2019, Corporate Audit conducted to Trinity Health’s proposal is, of course, Therefore, we immediately undertook an or users of smoke-free products. We also additional feld visits in each of PMI’s six not without limitations. We did not internal investigation of the allegations posted these guidelines on pmi.com. In business regions with a focus on checking conduct checks in every country or in the CTFK petition. Our investigation response to Reuters’ inquiry, we immediately compliance with Marketing Code provisions interview all employees who are involved confrmed that in none of the countries suspended our digital influencer program related to our responsible marketing in the marketing and sales of our products. identifed had any law or regulation been while we investigated the allegations. Our standards. Corporate Audit selected one Nonetheless, the fndings and data in violated. However, we identifed instances investigation was not limited to the social country in each business region (China, their entirety provide a solid basis for where there were insuffcient controls to media posts that Reuters identifed but Greece, Mexico, Indonesia, Russia and concluding that there is strong adherence ensure third parties complied with our extended to all countries where we were Turkey). Members of the Corporate Audit to our responsible marketing policies guidelines. Based on our fndings, we took engaging with digital influencers. Our team visited fve discrete points of sale in each and practices. While there have been a several steps: (1) we revised our existing investigation revealed that while no laws of these countries to assess compliance with few cases of non-adherence, relative to policies, guidelines and internal processes were broken, we fell short of our internal the Marketing Code provisions. No issues the size of PMI’s operations, the number to clarify that any use of social media for guidelines for digital influencer activities in related to youth access were identifed in of such instances is very low, and we combustible tobacco products is prohibited; certain instances. In one of the social media any of the locations visited. found no pattern that would suggest any (2) we communicated these changes to posts shared by Reuters we concluded systemic problems. The systems we have • PMI’s business activities are also subject marketing and sales employees, as well as that the paid digital influencer was above in place to detect non-compliance are to intense external scrutiny from the agencies and third parties with which the legal age for smoking but that she was working; we have taken all allegations government agencies, NGOs, media and we work; and (3) we strengthened our under the age of 25, as required by our of non-compliance seriously; and we other stakeholders. PMI takes seriously controls to effectively monitor compliance internal guidelines. Our global review found have acted promptly to address issues and investigates thoroughly any specifc with our principles and practices. additional instances in Russia and two others that have been identifed. allegation regarding youth targeting, usage in Europe where digital influencers were of or access, where the company may have legal age but were under 25. Though there been implicated. The results of two such was no intent to violate our guidelines, there investigations are summarized below. were insuffcient controls in place to ensure

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III. STRENGTHENING OUR EXISTING POLICIES AND PRACTICES

As part of our effort to continuously improve, we also considered whether there were opportunities to strengthen our existing responsible marketing policies and practices. Below we discuss several of the improvements we are making, including strengthening our programs with trade partners on youth access prevention, adopting additional measures to monitor compliance with our responsible marketing standards, and developing a new Marketing Code.

A. YOUTH ACCESS PREVENTION bring consistency through global guidance • Educational Modules for Trade Partners. • Point-of-Sale (POS) Materials. We developed PROGRAMS WITH THE TRADE on how to implement and strengthen such We developed educational modules on stickers for display at the entrance of retail programs. We have since developed a set of youth access prevention for our digital locations indicating that they do not sell PMI neither owns nor has any means of control tools for affliates to use to work more closely trade engagement (DTE) platform, which nicotine-containing products to minors. over the vast majority of the retail points of with their trade partners to guard against sales we use to communicate with our retail Additional POS materials are being developed sale around the world where people buy our to underage purchasers. The tools consist of trade partners in various countries. The and should be available for affliates in early products. However, we recognize that when the following: educational modules consist of banners, 2020. Sales representatives must document we have the opportunity, for instance with our informational slides, animations and other that the locations they visit contain signage • Model contract clauses. Beginning in direct trade partners, we have a responsibility interactive content designed to educate related to the prohibition of sales of nicotine- October 2019, all affliates were required to to set robust standards and to work with them trade partners on the topic of youth access containing products to minors. ensure that new contracts and amendments to guard against sales to underage purchasers. prevention for both combustible and to existing contracts signed with retailers smoke-free products. The modules also We conducted a survey of PMI affliates across contain specifc provisions related to youth include knowledge checks to assess trade the world to collect up-to-date information on access prevention. The model contract partners’ understanding of the information. youth access prevention programs with our clauses require retailers to ensure strict Trade partners who currently use the DTE trade partners. We also wanted to identify compliance with minimum age laws or, in platform will be required to complete the best practices that could be replicated in countries where such laws do not exist, to educational modules beginning in January other countries. refuse sales of nicotine-containing products 2020, and the information in the modules to anyone under the age of 18. Retailers Some affiliates confirmed that they had will be reinforced with all DTE users on a are also required to display and maintain ongoing programs or activities with trade semi-annual basis. Our DTE platform is any legally mandated signage about the partners related to youth access prevention, currently used by affliates in 68 countries prohibition to sell nicotine-containing but the scope of those programs varied with approximately 529,700 registered products to minors. greatly by country. Based on our fndings, we points of sale. concluded that there was an opportunity to 12 RESPONSIBLE MARKETING PRACTICES AT PMI

• Written Communications to Trade Partners. B. MONITORING • We will introduce additional monitoring and The head of each market affliate must send controls for age-verifcation at delivery for As discussed above, PMI has a robust and tested a letter, based on a model template, to all our online sales of smoke-free products. infrastructure for monitoring compliance with active trade accounts by January 2020 that its existing policies and processes. Nonetheless, reinforces PMI’s commitment to not sell its we looked for opportunities to strengthen C. NEW MARKETING CODE FOR ALL products to minors and PMI’s expectation our monitoring, and are taking the following PRODUCTS that all retailers who sell PMI products will steps, some of which we referred to above: take steps to ensure our products are not Until now, our Marketing Code applied only sold to minors. • Concerns around marketing and sales to combustible products. After we began to youth will be included annually in our selling smoke-free products, we developed our • In-Person Conversations with Key Trade Integrated Risk Assessment as a global Good Conversion Practices (GCPs), discussed Partners. Each market affiliate sales risk. Corporate Audit will include the issue previously, as the foundational guidance for all team must have and document regular in its risk-based audit program each year. our marketing and sales activities for these new conversations with all signifcant trade products. Over time, as we gained experience, partners regarding PMI’s commitment • We will continue to use digital tools, including we developed more detailed implementation to guarding against underage sales of its social media listening and audience data guidelines. With several years of experience products. All members of each affliate’s analytics, to monitor our digital marketing and learnings, we are now in the process of sales feld force will be trained to conduct activities to ensure that we are reaching drafting a comprehensive Marketing Code these conversations by the end of 2019. intended audiences and to detect any governing the marketing and sales of all our inappropriate marketing activities controlled All affliates must submit the deployment plans products, including smoke-free products. or initiated by PMI affliates.PMI runs a for their youth access prevention programs mystery shopping program in a sample of The new Marketing Code will continue to be by the end of the year and will report on the our smoke-free product retail stores. PMI based on the same values and principles that implementation of their plans in April 2020. contracts with an independent third party already underlie all of our marketing and sales We are reinforcing the key principles of the that uses secret shoppers to measure the activities, including our responsible marketing youth access prevention program through quality of services offered in these stores standards. The new Code is expected to be internal communications to relevant employees as well as compliance with our GCPs. We fnalized during the frst quarter of 2020, regarding PMI’s commitment to do its part are evaluating whether this program can after which it will be rolled out to the entire to prevent the marketing or sale of our be scaled up and provide robust feedback organization. We anticipate providing a further update in our next sustainability report. products to youth. on the consistency of age controls at our smoke-free product retail stores.

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CONCLUSION

Overall our assessment showed strong But we cannot become complacent. Rather, adherence to our responsible marketing we must continue to look for opportunities standards. We are encouraged by the results to strengthen our standards and processes. and believe they reflect our consistent focus This assessment prompted us to do so, and on the responsible marketing of our products our report describes some of the additional and our employees’ commitment to these measures we are putting in place. fundamental principles. We will continue to improve and evolve the We acknowledge that there were a few practices, processes and controls, including instances when we fell short. Our assessment the use of technology, described in this report shows that when we learn about allegations of as we gain experience and learn more. And non-adherence to our responsible marketing we will report publicly again on our progress standards, we take them seriously, we investigate in two years. their veracity, and where they are substantiated, We also welcome the public’s feedback on this we take appropriate follow-up actions. In short, report and on the responsible commercialization our monitoring and compliance systems are of our products. working as intended. Finally, we sincerely thank Trinity Health for prompting this assessment and for their candid discussions with us on this topic.

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We welcome your feedback. If you have comments or suggestions, please contact [email protected]

Headquarters Operations Center Philip Morris International Inc. Philip Morris Products S.A. 120 Park Avenue Avenue de Rhodanie 50 New York, NY 10017-5579 1007 Lausanne USA Switzerland www.pmi.com www.pmi.com

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