Sustainability Report 2017 1 Philip Morris International Sustainability Report 2017 1 About PMI Philip Morris International In 2017, our products were sold in substantiation of the reduced harm Inc. (PMI) is a leading over 180 markets, and we operated potential of our new products, 46 production facilities globally. we aim to ensure that our smoke‑free international tobacco We are building our future on products meet adult consumer company with a diverse smoke‑free products that are preferences and rigorous regulatory workforce of 80,600 a much better consumer choice requirements. Our vision is that than continuing to smoke cigarettes. these products replace cigarettes people across the globe. Through our multidisciplinary, as soon as possible, to the benefit of state‑of‑the‑art capabilities in adult smokers, society, our company product development and scientific and our shareholders. For more information, see www.pmi.com and www.pmiscience.com. Raw aterials and other supplies Leaf Other +30,000 0,000 Farmers contracted by Suppliers worldwide PMI and our suppliers in 28 countries 1 Number of languages in Manufacturing and business facilities Retail Consuers 90% which PMI’s Responsible Of the tobacco we purchase Sourcing Principles is through direct contracts are available (by our leaf operations or our tobacco suppliers) $6bn Net earnings 2,00 80,00 46 5.m 1.01 10m +4.7 Field technicians providing Employees worldwide Manufacturing Retailers selling Fleet collision rate Consumers of PMI Adult consumers who $72bn support to contracted facilities globally PMI products (vehicle collisions combustible products have stopped smoking Excise taes on tobacco farmers for per million km driven) cigarettes and made PMI products GAP implementation 34.% the change to IQOS Employees at 31% 77,000 180 managerial level O e scope 1+2 Distributors 100% Markets where PMI 2 are women reduction since 2010 and wholesalers Tracking and products are sold 10,000 tracing (master Smokers switching RD 7% 22 case level) to IQOS every day Employees covered O2e emissions from by collective labor vehicles (g O2e agreements per km driven) 2 7% 4.% Research facilities Of our total R& Employee voluntary ependiture is turnover dedicated to our +400 smoke‑free vision World-class scientists, Good Agricultural Practices (GAP) Animal Marketing Principles Good Responsible Sourcing engineers and & Agricultural Labor Practices (ALP) welfare Conversion Practices Principles technicians hired to 2,900 support our best‑in‑ Patents granted Conflict Anti-diversion Guidebook for Success Human Rights class R& capability worldwide related minerals practices and tools (PMI ode of Conduct) Commitment since 2008 to our smoke‑free products Engagement Principles Creating value at PMI Sustainability PMI at For PMI, sustainability means creating long‑term value while minimizing the negative externalities associated with our products, operations and value chain. From the more than 350,000 farmers from which we source tobacco right up to the approximately 150 million consumers of PMI products, we have an important impact on the communities and the environment around us, which we are committed to address. We cannot achieve this alone. The engagement beyond our own operations is key, as this is where the most significant impacts take place. While operating in a highly regulated environment, Raw aterials and other supplies we strive to go beyond mere compliance to achieve a sustainable smoke‑free future. Leaf Other +30,000 0,000 Farmers contracted by Suppliers worldwide PMI and our suppliers in 28 countries 1 Number of languages in Manufacturing and business facilities Retail Consuers 90% which PMI’s Responsible Of the tobacco we purchase Sourcing Principles is through direct contracts are available (by our leaf operations or our tobacco suppliers) $6bn Net earnings 2,00 80,00 46 5.m 1.01 10m +4.7 Field technicians providing Employees worldwide Manufacturing Retailers selling Fleet collision rate Consumers of PMI Adult consumers who $72bn support to contracted facilities globally PMI products (vehicle collisions combustible products have stopped smoking Excise taes on tobacco farmers for per million km driven) cigarettes and made PMI products GAP implementation 34.% the change to IQOS Employees at 31% 77,000 180 managerial level O e scope 1+2 Distributors 100% Markets where PMI 2 are women reduction since 2010 and wholesalers Tracking and products are sold 10,000 tracing (master Smokers switching RD 7% 22 case level) to IQOS every day Employees covered O2e emissions from by collective labor vehicles (g O2e agreements per km driven) 2 7% 4.% Research facilities Of our total R& Employee voluntary ependiture is turnover dedicated to our +400 smoke‑free vision World-class scientists, Good Agricultural Practices (GAP) Animal Marketing Principles Good Responsible Sourcing engineers and & Agricultural Labor Practices (ALP) welfare Conversion Practices Principles technicians hired to 2,900 support our best‑in‑ Patents granted Conflict Anti-diversion Guidebook for Success Human Rights class R& capability worldwide related minerals practices and tools (PMI ode of Conduct) Commitment since 2008 to our smoke‑free products Engagement Principles Philip Morris International Sustainability Report 2017 1 Contents Sustainability at PMI Transforming Driving operational our business excellence Letter from the CEO 4 Replacing cigarettes with Ethics and compliance 26 smoke-free products 12 Our approach to sustainability 6 Responsible marketing 28 Our ambition for Sustainability governance a smoke-free future 14 Interacting with governments 29 and management 6 The rationale for our Our approach to corporate tax 29 Defining our focus 7 business vision 16 Data protection 29 Stakeholder engagement 8 Scientific assessment of our smoke-free products 16 Human rights 31 Our work and the UN Sustainable Development Goals (SDGs) 9 Encouraging scrutiny Tackling illicit tobacco trade of our science through and related crimes 32 SDGs and UNGC transparency and engagement 18 cross-reference index 10 Responsible supply chain 36 Investing in production capacity Responsible Sourcing for smoke-free products 18 Principles (RSP) 36 Good Agricultural Our commercialization efforts Practices (GAP) 38 behind smoke-free products 19 Our view on tobacco regulation 21 Business transformation metrics 24 2 Philip Morris International Sustainability Report 2017 About this report The report is structured around the This report has been reviewed by Sustainability PMI at important topics of our sustainability PMI’s Senior Management team, We are happy to share our third efforts, and our disclosures are mapped including our Chief Executive Officer, Sustainability Report. By publishing against the Ten Principles of the United Chief Financial Officer, Chief Operating this report closer to the release of our Nations Global Compact (UNGC) and the Officer and our President, External Affairs Annual Report 2017, we aim to provide United Nations Sustainable Development & General Counsel. a more comprehensive overview of our Goals (SDGs). See page 10. company and sustainability efforts earlier PricewaterhouseCoopers SA (PwC) in the calendar year. This report builds The data and information, including has assured our transformation metrics on the PMI Sustainability Report 2016, the infographics, cover the full year on page 25. issued in September 2017. As we progress 2017 and all our operations, unless We welcome your feedback on this report on our sustainability reporting journey, explicitly mentioned. by emailing us at: [email protected] business our Transforming we will provide deeper insights into our performance. This blue tint indicates the stories that relate to our business transformation. Managing our Reducing our Concluding remarks social impact environmental footprint Driving operational excellence operational Driving Working at PMI 40 Climate change – Next steps 64 Transforming our company a science-based approach 54 Forward‑looking and cautionary Managing our social impact culture 41 Science‑based targets statements 65 Inclusion and diversity 41 and renewables 54 Annex 1: Overview of marketing principles for combustible Labor relations 43 Greening our vehicle fleet 55 products 66 Rewarding our employees 43 Working with tobacco Annex 2: Overview of Living wage 43 farmers to reduce greenhouse engagement principles 68 Health and well‑being 43 gas emissions 56 Overview of our sustainability Safety in the workplace 46 Water: stewardship across performance 69 and beyond our operations 58 Agricultural labor practices 48 Glossary and acronyms 73 footprint environmental our Reducing Water stewardship in tobacco agriculture 58 Notes 74 Business Transformation Metrics – Conserving biodiversity and Independent Assurance Report 75 combatting deforestation 59 Biodiversity 59 Key developments since 2000 76 Responsible management of chemicals for crop protection 60 Deforestation 60 Waste management 60 Littering 61 remarks Concluding Philip Morris International Sustainability Report 2017 3 Letter from the CEO Dear reader, Clearly, we cannot achieve a smoke‑free As for operational excellence, we remain In my mind, sustainability encompasses future alone. It depends on a number of focused on securing the integrity of our four aspects. First, companies need to factors out of our direct control, mainly supply chain through our efforts to tackle reduce to the largest extent possible any support from regulatory and public health illicit trade in tobacco products.