40 1. Message from our CEO OUR TOBACCO BUSINESS SCOPE OF DATA AND IN FOCUS INFORMATION PRESENTED 4. Our year in brief 42. Building sustainable 18 IN THIS REPORT supply chains 6. Corporate profile Unless the context indicates otherwise, references RESPECT FOR 43. Non-tobacco materials, other in this report to ‘we,’ ‘us,’ ‘our,’ and ‘the JT Group’ products, and services are to Japan Tobacco Inc. and its consolidated HUMAN RIGHTS subsidiaries. References to ‘Torii Pharmaceutical’ are 45. Tobacco leaf sourcing to Torii Pharmaceutical Co., Ltd., our pharmaceutical 8 50. Promoting forestry on small-scale subsidiary. References to ‘TableMark’ are to TableMark OUR SUSTAINABILITY farms Co., Ltd., our processed food subsidiary that manufactures and sells the ambient and frozen foods STRATEGY 52. Reducing our environmental impact and its consolidated subsidiaries. in manufacturing IN FOCUS References to ‘Reduced-Risk Products’ and/or ‘RRP‘ 9. 4S model are to products with the potential to reduce the risks 54. Exceeding expectations with associated with smoking. 68 10. Our material issues products and services We have been guided by GRI Standards in preparation TACKLING THE ILLEGAL (Reduced-Risk Products) of the report. 11. The foundations of the JT Group We report data for the entire JT Group including TRADE OF OUR PRODUCTS sustainability strategy 64. Optimizing the regulatory subsidiaries, wherever possible. environment See our Basis of Reporting document for further details. 12. Tobacco business 68. IN FOCUS sustainability strategy Tackling the illegal trade of our products In this report we use the following scope notations: 13. Committed to the UN Sustainable Development Goals 74. Investing in people *A The entire JT Group, including subsidiaries: our international tobacco, Japanese domestic 14. Driving sustainability across tobacco, pharmaceutical, and processed food our tobacco business businesses 80 *B Solely our Japanese domestic tobacco and OUR PHARMACEUTICAL pharmaceutical businesses: Japan Tobacco Inc. BUSINESS (JT) 16 (excludes our international tobacco business, OUR WAY OF DOING BUSINESS processed food business, and subsidiaries of all businesses)

Absolute requirements for 84 *C Our Japanese operations, including subsidiaries sustainability OUR PROCESSED FOOD of Japanese domestic businesses: Japan BUSINESS Tobacco Inc. (JT) and Japanese domestic Group FY 2018 18. IN FOCUS companies (excludes our international tobacco Respect for human rights business)

24. Improving our social impact *D Our Japanese domestic tobacco and pharmaceutical businesses - Japan Tobacco Inc. 26. Improving our environmental impact 88 ABOUT THIS REPORT (JT); and our international tobacco business - 32. Good governance and Japan Tobacco International (JTI) business standards *E Solely our international tobacco business: Japan Tobacco International (JTI) 36. Our people 90 38. The JT Group health and safety GRI INDEX Any data without annotated scope in this report strategy covers the entire JT Group including subsidiaries: *A.

FRONT COVER IMAGE: A view of the rooftop-mounted fresnel collector at our Jordan factory in Amman. Awarded the ‘Environmental Stewardship Award’ by the Ministry of Environment in Jordan and the World Bank, this is the first tobacco factory in the world to use direct solar steam generation for process heating and cooling. The factory’s ultimate ambition is to be 100% carbon neutral. Message from our CEO

A sustainable society

Global affairs and regulations continued to evolve In the meantime, we have seen major societal and rapidly in 2018. business shifts towards sustainability around the world. Corporations are showing greater awareness Reduced-Risk Products meanwhile have shown for environmental issues triggered by climate change, strong growth over the last few years and we have a greater respect for human rights that extends to a witnessed a surge in this new category. corporation’s supply chain, and a sustained uptake Although the risks surrounding our business have in Environmental Social and Governance (ESG) increased, new opportunities have emerged, as the initiatives. Society now expects corporations to be tobacco industry goes through a period of significant proactive about creating a sustainable and inclusive transformation. future.

Sustainability at our Group

Our management principles and our approach to Division at the JT Group head office in Tokyo, and sustainability are governed by our 4S model, under appointed a dedicated Senior Vice President for which we strive to fulfill our responsibilities to Sustainability. This reflected our focus in 2018 as our our valued consumers, shareholders, employees, sustainability strategy was formulated. and the wider society, carefully considering the We outlined three ‘absolute requirements’ for respective interests of these four key stakeholders, sustainability, which apply to the whole Group: and exceeding their expectations wherever we can. Respect for Human Rights, An Improved Social and We engage with our stakeholders and work on Environmental Impact and Good Governance and our sustainability issues to fulfill our responsibility Business Standards. Our core business, tobacco, as a member of society. The JT Group prioritizes has already set out its four focus areas, and each investments in its business: we invest in our products remaining business division will establish its own and services, our production facilities, in innovation, focus areas. Our pharmaceutical division and our people, and, at times, through acquisitions. These processed food business are currently defining their investments enable our business to create value, own approaches. Both our sustainability strategy and which is distributed to our stakeholders in a balanced the philosophy of our 4S model is perfectly aligned manner. Our ethos is to grow together, in a viable with the objectives of the United Nations’ Sustainable fashion. Development Goals (SDGs) which seek to achieve With sustainability at the heart of our management, 17 global goals, for the realization of sustainable and early 2019 saw a reorganization of our organizational inclusive society. structure. We created a Sustainability Management

3 1 The JT Group’s Sustainability within our Sustainability Strategy tobacco business

Let’s look at our sustainability strategy in more Our tobacco business has set out four focus areas for its detail. Our Group strategy is based on three sustainability strategy. These are ‘Products and Services’, absolute requirements for sustainability: ‘Respect ‘People’, ‘Supply Chain’ and ‘Regulatory Environment for Human Rights’, ‘An Improved Social and and Illegal Trade’. Environmental Impact’, and ‘Good Governance and Business Standards’. Within ‘PRODUCTS AND SERVICES’, we will be a Sourcing a sustainable supply of quality tobacco leaf total tobacco company offering consumers an even at an optimum cost is essential for the sustainability greater choice of products by focusing on quality, of our business. In 2018, our Agricultural Labor RESPECT FOR HUMAN RIGHTS continues to be a priority for our Company. We have been innovation, and reduced-risk potential. Specifically, Practice (ALP) program, the core program for building upon an important step forward we made in 2016, when we set out the JT Group we will lead in providing the widest range of managing our leaf SUPPLY CHAIN, showed solid Human Rights Policy. A Group-wide e-learning module enabled employees to gain a better consumer choice in the Reduced-Risk Products progress: 96% of our directly contracted growers understanding of this subject. We then initiated our human rights due diligence process, category. were observed against ALP, while 96% of our an ongoing management procedure for assessing human rights impacts, acting on the leaf merchants reported on ALP. Through ARISE Employees are one of the key stakeholders of our findings, tracking responses, and communicating our progress. We continue to work hard (Achieving Reduction of Child Labor in Support 4S model and investing in PEOPLE lies at the heart to embed this process into our organization’s Plan-Do-Check-Action (PDCA) cycle. of Education), we continued to tackle issues of what we do. Our efforts in this area have been fundamental to eliminating child labor in our leaf recognized by a number of external institutions. supply chain. Our Japanese operations was certified for a third consecutive year as an ‘Outstanding Company in The REGULATORY ENVIRONMENT surrounding Health and Productivity Management 2019 White the tobacco industry is becoming increasingly 500’, a program that recognizes large companies challenging; the way in which we operate in this IMPROVING OUR ENVIRONMENTAL IMPACT is critically important, as we seek to manage that strategically engage in improving employee heavily regulated environment is a key concern to our business while simultaneously protecting the environment. The greenhouse gas (GHG) well-being. We were also recognized as a ‘Nadeshiko our business. We will ensure that the Company is reduction target within our current plan, the ‘JT Group Long-Term Environment Plan 2020’ Brand 2019’ for our initiatives in encouraging included in policymaking leading to fair and balanced was achieved in 2017, three years ahead of target. Beyond 2020, we have set out a new women’s empowerment in the workplace. I am also regulation which meets societal concerns and plan, the ‘JT Group Environment Plan 2030’. This outlines clear objectives for energy and pleased to announce that our international tobacco supports business growth. emissions, natural resources (water and forestry), and waste. We will continue to engage business was certified as a Global Top Employer in ILLEGAL TRADE is another factor that can seriously with stakeholders such as CDP and have set and obtained approval for Science Based 53 countries around the world, and a Global Top affect the sustainability of our business. We work Targets for reducing our GHG emissions as well as employing scenario analysis. All this is Employer for the fifth consecutive year. to better understand the impact of climate change on our business and to integrate these hard to combat all kinds of illegal trade and will findings into our organizational structure. continue to engage in dialogue with law enforcement agencies to help reduce the presence of illegal To serve the needs of society in the areas in which we operate, we consider IMPROVING tobacco products around the world. OUR SOCIAL IMPACT to be an integral part of the JT Group’s sustainability strategy. We specifically target three areas: reducing inequalities, improving community resilience, and protecting the environment. By offering volunteering opportunities to our employees, we can help make communities more sustainable and inclusive. Working towards a sustainable future

Sustainability calls for our management to have a broad long-term perspective, and to ensure the GOOD GOVERNANCE AND BUSINESS STANDARDS is a priority for the JT Group business continues to create value, thus ensuring the management as we seek to continuously improve our framework for corporate sustainability of our business and of society, over the governance. To enforce our supervisory function and improve the transparency of our long term. If all corporations make similar efforts, our business, in March 2019 we welcomed one additional new external director, and one society can grow and flourish. With the full rollout of additional new external auditor and supervisory board member. An advisory panel on our sustainability strategy, the JT Group is moving nomination and compensation* was also established, comprised mostly of external into a new phase. Our Group will act as one, and directors. These initiatives will help us to ensure transparent, fair, timely and effective together with our stakeholders, we will jointly move decision-making. towards sustainable growth.

Masamichi Terabatake, President and Chief Executive Officer, Japan Tobacco Inc.

The Advisory Panel on Nomination and Compensation is a voluntary advisory body to the Board of Directors, which was newly established on * 2 March 20, 2019 by merging the functions of the existing Meeting for Talent Development and the Compensation Advisory Panel. 3 Our year in brief

REDUCED-RISK PRODUCTS We expanded our Reduced-Risk Products portfolio to provide consumers with greater choice: ANTI-ILLICIT TRADE ENVIRONMENT HUMAN RIGHTS

LOGIC COMPACT We provided information to law enforcement that We created the JT GROUP ENVIRONMENT PLAN 2030. LAUNCHED led to: The scope extends beyond our own operations. HUMAN E-Vapor IN THE U.K. RIGHTS IMPACT Our GHG emission reduction targets were COUNTERFEIT TOBACCO ASSESSMENTS FACTORIES AND STORAGE approved by the Science Based Targets initiative 5 PLOOM TECH+ AND + LOCATIONS RAIDED (February 2019). PLOOM S LAUNCHED We completed 5 Human Rights Impact 39 Assessments in high-risk markets. T-Vapor IN JAPAN (JANUARY 2019) OF ELECTRICITY IN OUR INTERNATIONAL FACTORIES WAS EITHER PURCHASED ILLEGAL % OR GENERATED FROM CIGARETTES + + 31 RENEWABLE SOURCES. 100 2.7 SEIZED BILLION YEN BILLION We are investing 100 billion Yen in Reduced-Risk Product development between 2018 and 2020.

AGRICULTURAL ARISE HUMAN COMMUNITY LABOR PRACTICES Achieving Reduction of RESOURCES INVESTMENT OF OUR DIRECTLY Child Labor In Support Our international tobacco business was certified as a CONTRACTED LEAF GLOBAL TOP EMPLOYER for the 5th consecutive year. GROWERS WERE of Education EMPLOYEES VOLUNTEERED OBSERVED BY We were certified as Top Employer by the Top 25,429 HOURS ON % LEAF PRODUCTION CHILDREN OFF FARMS Employers Institute in 53 countries around the 9,986 COMPANY TIME 96 TECHNICIANS AND INTO SCHOOLS world. 7,123 THROUGH THE ARISE PROGRAM EMPLOYEES SPENT 23,493 OF OUR LEAF HOURS OF THEIR OWN MERCHANTS REPORTED TIME TAKING PART IN % ON ALP 4,694 VOLUNTEERING ACTIVITIES 96 ORGANIZED BY THE COMPANY

4 5 SWEDEN RUSSIA Corporate POLAND UKRAINE

GERMANY profile SERBIA ROMANIA BANGLADESH SWITZERLAND KAZAKHSTAN PHILIPPINES GREECE TAIWAN CANADA TURKEY MYANMAR IRAN INDONESIA We are one of the world’s leading U.S. EGYPT JORDAN tobacco companies, with offices and DOMINICAN SPAIN (CANARIES) REPUBLIC factories in more than 70 countries REPUBLIC OF SUDAN and regions, and products sold in ETHIOPIA more than 130 countries and regions. Headquartered in Tokyo, Japan Tobacco JAPAN Inc. (TSE:2914) is listed on the Tokyo Stock Exchange.

We also operate pharmaceutical and MALAWI processed food businesses. BRAZIL ZAMBIA TANZANIA

CIGARETTE AND TOBACCO-RELATED FACTORIES

International 35

Japanese domestic 6 TOTAL REVENUE IN 2018 (%) NUMBER OF EMPLOYEES IN 2018 (%) TOTAL 41 1.4 0.3 Countries in which we directly source tobacco 9 5.1 7.3 8.3 2.9 Our businesses 28.0 ¥ INTERNATIONAL TOBACCO JAPANESE DOMESTIC TOBACCO 16.5 Our international tobacco business is headquartered Our Japanese domestic tobacco business is in Geneva, Switzerland. We manufacture and sell headquartered in Tokyo, Japan, and manufacturing 2,216 63,968 ready-made cigarettes, fine cut, cigars, pipe tobacco, and sales are largely focused on the Japanese BILLION YEN 59.2 EMPLOYEES 70.8 snus and kretek, water pipe tobacco, and Reduced- market. We are the market leader in Japan, which is Risk Products. one of the largest markets in the world. Our main markets include France, Italy, Russia, Spain, Our Japanese portfolio includes key brands such as Taiwan, Turkey, and the U.K. Winston, Mevius, Seven Stars, and Natural American Spirit as well as Ploom TECH for Reduced-Risk The portfolio includes leading brands in cigarettes Products. and fine cut, such as Winston, Mevius, Camel, and LD, as well as in Reduced-Risk Products*, such as Ploom and Logic. International tobacco business International tobacco business

Japanese domestic tobacco business Japanese domestic tobacco business PHARMACEUTICALS PROCESSED FOOD

Pharmaceutical business Pharmaceutical business Our pharmaceutical business focuses on the Our processed food business manufactures and sells research, development, production, and sales goods such as frozen noodles, frozen and packed Processed food business Processed food business promotion activities of prescription drugs, based cooked rice, frozen baked bread, pastries, and on three therapeutic areas: metabolic diseases, seasonings. Other Other autoimmune/inflammatory and viral infections.

6 7 OUR TOBACCO BUSINESS

4S model

Our management approach and our approach to sustainability are underpinned by our 4S model. Consumers, shareholders, employees, and society represent the four stakeholder groups (4S) at the heart of everything we do. Our commitment to serving these groups is represented in this model and throughout the report. Based on the principles of the 4S model, we always strive to exceed the expectations of our four stakeholder groups, wherever we can.

We strive to fulfill our responsibilities to our valued consumers, shareholders, employees, and the wider society, carefully considering the respective interests of these four key stakeholder groups, and exceeding their expectations wherever we can.

8 9 OUR SUSTAINABILITY STRATEGY

Our material issues The foundations of the JT Group For our Group to grow and build a sustainable future including employees, suppliers, investors, trade with our stakeholders, we have selected a list of unions, non-governmental organizations (NGOs), and material issues or key issues with high priorities. industry organizations. We are committed to carrying sustainability strategy This list was compiled for the first time in 2015, out materiality reviews on a regular basis in order to by engaging internal and external stakeholders, update issues that are important to us. Our sustainability strategy is based on our Group’s The foundations of our sustainability strategy, materiality assessment and underpinned by our 4S applying across the Group, are our ‘Three absolute model. It encourages us to look beyond our usual requirements for sustainability’: THE JT GROUP MATERIALITY planning cycle period and think about the longevity of our business, the future of our planet, and the society C we live in.

S Respect for

HIGH human rights E We are committed to respecting human rights across our global operations and R value chains, as expressed in the JT Group Human Rights Policy.

E I R An improved social and B A IMPORTANCE TO EXTERNAL STAKEHOLDERS TO IMPORTANCE A I environmental impact

MEDIUM E C E We are committed to protecting the environment and making a positive difference wherever we operate. C T

MEDIUM HIGH Good governance and IMPORTANCE TO THE JT GROUP business standards Value chain boundaries O O C O

We are committed to promoting transparent,

Since the first materiality assessment was carried out, we have noted increasing concern about the adverse fair, and timely decision-making that carefully effects on our environment. We share this concern and have therefore repositioned ‘Environment’ from Medium- considers the respective interests of consumers, Medium to High-High in the above matrix. We will continue to strive to reduce environmental impact on our planet. shareholders, employees, and the wider society. Read more on JT.com.

10 11 OUR SUSTAINABILITY STRATEGY

Tobacco business Committed to sustainability the UN Sustainable strategy Development Goals

We formulated and introduced our tobacco business In 2018, our sustainability strategy evolved further, sustainability strategy in 2017. It illustrates the with eleven specific targets set for each of the four Our commitment important choices we have been making for years focus areas. These will provide a solid basis for – and will continue to make – across all of our measuring and benchmarking our sustainability In order for our Group to achieve sustainable growth, markets and business functions to drive sustainability performance, and support the sustainability of the it is essential for our business to contribute to the throughout the entire organization. We have chosen JT Group. We will be updating our progress regularly, sustainable development of our society. We maintain four focus areas which we consider to be essential as we strive to contribute and fulfill our commitments ongoing dialogues with our stakeholders and work for the sustainability of our tobacco business and for that we have made to our stakeholders and to continuously on a variety of sustainability issues to our stakeholders. ourselves. To learn more about our targets, please fulfill our responsibilities. see page 14. Our Group supports the United Nations’ Sustainable Development Goals (SDGs) and their related targets in the context of its own business and operational environments. Our commercial strategies and The four strategic focus areas business practices support the global goals, and we have developed specific targets and initiatives that contribute to the SDGs’ global agenda. We take our responsibility to manage our business sustainability PRODUCTS AND SERVICES SUPPLY CHAIN very seriously. Our Group’s three businesses – We will be a total tobacco company We will reduce environmental and tobacco, processed food, and pharmaceutical – differ offering consumers an even greater social risks, and enable transparent by sector, scope, and size, and therefore each one choice of products by focusing on quality, and responsible practices across our contributes to the SDGs in different ways. innovation, and reduced-risk potential. supply chain. Prioritization process

WITH TARGETS SET FOR: WITH TARGETS SET FOR: In 2018, we determined how our approach to REDUCED-RISK PRODUCTS GREENHOUSE GAS EMISSIONS sustainable business is aligned with the SDGs. We WATER AND WASTE, FORESTRY mapped the activities of our tobacco business against AGRICULTURAL LABOR PRACTICES all 17 SDGs and concluded that our tobacco business SUPPLIER SCREENING contributes most significantly to the following nine goals. We intend to undertake the same process for the other two businesses in the Group.

PEOPLE REGULATORY ENVIRONMENT We will be the AND ILLEGAL TRADE employer of choice by We will ensure the Company is included in investing in people. policymaking leading to fair and balanced regulation, and enhance our cooperation with governments to combat illegal trade.

WITH TARGETS SET FOR: WITH TARGETS SET FOR: ZERO INJURIES ENGAGEMENT COMMUNITY INVESTMENT ILLEGAL TRADE EMPLOYER OF CHOICE

12 13 OUR SUSTAINABILITY STRATEGY

The SDGs provide a shared blueprint for peace and prosperity for people and the planet, now and into the future. The goals Driving sustainability across recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests. That makes sense to us at the JT Group. We share and support these goals and here are the specific ways in which we believe, our tobacco business we can contribute to achieving some of the goals.

4 strategic focus areas aspirational goal target* sdgs

PRODUCTS We will be a total tobacco company offering REDUCED-RISK PRODUCTS AND SERVICES Reduced-Risk Products (RRP) offer real benefits to consumers and consumers an even greater choice of products by society. Our responsibility as a manufacturer is to continuously focusing on quality, innovation, and reduced-risk develop and launch RRP that meet consumer expectations and to provide information on them. We will lead in providing the widest potential. range of consumer choice in the RRP category.

PEOPLE We will be the employer of choice by investing in ZERO INJURIES In line with our vision of zero workplace injuries, we will reduce injury people. rates by 25% by 2023 and 50% by 2030. (Baseline year: 2015).

COMMUNITY INVESTMENT Between 2015 and 2030 we will invest 600 million U.S. dollars to help make communities inclusive and resilient, with our employees contributing 300,000 volunteering hours.

EMPLOYER OF CHOICE We will be a certified employer of choice every year in at least 60 locations by focusing on talent management, rewards, and empowerment.

SUPPLY CHAIN We will reduce environmental and social risks, and GREENHOUSE GAS EMISSIONS We will reduce greenhouse gas emissions from our own operations enable transparent and responsible practices across by 35% and from our direct leaf supply chain by 40%, between 2015 our supply chain. and 2030. WATER AND WASTE We will reduce water withdrawal by 15% and waste by 20%, in relation to our own operations, between 2015 and 2030.

FORESTRY We will replace all wood from natural forests used in the tobacco curing process of our directly contracted growers with renewable fuel sources by 2030.

AGRICULTURAL LABOR PRACTICES We will implement our Agricultural Labor Practices (ALP) program in all sourcing countries by 2025.

SUPPLIER SCREENING We will screen all key suppliers against environmental, social, and governance criteria by 2023.

REGULATORY We will ensure the Company is included in ENGAGEMENT We will always protect our ability to participate in public policy debate ENVIRONMENT policymaking leading to fair and balanced AND ILLEGAL TRADE with the aim to achieve balanced regulation that meets societal regulation, and enhance our cooperation with concern and supports business growth.

governments to combat illegal trade. ILLEGAL TRADE We will engage in dialogue with law enforcement agencies, with the goal to exchange intelligence regarding illegal tobacco products, in order to support the reduction of illegal tobacco products.

14 * The targets are for the JT Group’s tobacco business, except for Community Investment which is a Group-wide target. 15 OUR TOBACCO BUSINESS

16 17 OUR SUSTAINABILITY STRATEGY OUR WAY OF DOING BUSINESS TOBACCO BUSINESS 19 NOVEMBER 2018 A Human Rights Impact Assessment place in takes and Myanmar Malaysia. OCTOBER 2018 OCTOBER Internal guidelines for the hiring and labor management are of foreign workers established in Japan. (*C) SEPTEMBER 2018 A Human Rights Impact Assessment place in Mexico takes and the Dominican Republic. We recognize respecting human rights human respecting recognize We absolute requirements as one of our for sustainability. made progress, Whilst we have is a journey, human rights respecting management and and our approach evolve of human rights issues will and mature. work still have much more We on to do and we will update you as our human rights our progress initiatives unfold in the coming years. Chigusa Ogawa, JT Senior Vice Sustainability Management, President, JUNE 2018 trained 75% of our We through a human employees rights e-learning module in our international tobacco business. APRIL 2018 Reporting The Concerns Mechanism is enhanced for in migrant workers Japan. (*C) MARCH 2018 A Human Rights Impact place in Assessment takes Tanzania. FEBRUARY 2018 FEBRUARY annual meeting The of the Human Rights External Advisory Board place. (*E) takes 2018 CONDUCTING CONDUCTING COMMITMENT TO OUR DILIGENCE HUMAN RIGHTS DUE In line with the UN Guiding Principles (UNGPs) on made human have Business and Human Rights, we part rights due diligence an essential and integrated enables us to identify and assess of our business. This as stated actual and potential human rights risks, Conducting in our JT Group Human Rights Policy. Rights human rights due diligence – through Human Impact Assessments – is part of our Company’s impacts on people adverse responsibility to prevent are and ensure the highest standards of behavior upheld within our business and value chain. committed to assessing 100% are this, we achieve To of our high-risk countries by 2025, in our tobacco business. OCTOBER 2017 OCTOBER Our international tobacco business launches a human rights e-learning program in 25 languages with a 68% completion rate. SEPTEMBER 2017 gap analysis An external a robust have concluded that we set of policies and procedures to address human rights risks in our international tobacco business. Our suppliers and growers throughout the world are throughout the world Our suppliers and growers adopting also obliged to respect human rights by labor and maintaining internationally recognized rights of workers, standards regarding child labor, do this in line They health and safety. and workplace Policy, with our JT Group Responsible Procurement Labor JT Group Supplier Standards, and Agricultural . Practices (ALP). Read more on page 46 Assess, Our strategy is based on three pillars: Inform, a crucial role in embedding Each plays and Improve. and human rights protections into the business approach This driving continuous improvement. way a consistent, efficient, and systematic provides us to of conducting ongoing due diligence and allows shape a strategic plan regarding human proactively rights. FEBRUARY 2017 FEBRUARY annual meeting of the The Human Rights External place. (*E) Advisory Board takes 2017 RESPECT FOR FOR RESPECT ABSOLUTE REQUIREMENTS ABSOLUTE HUMAN RIGHTS HUMAN DECEMBER 2016 A Human Rights Impact place Assessment takes in Japan. (*C)

A human rights e-learning for our program is provided in Japan with a employees 92% completion rate. (*C) NOVEMBER 2016

The JT Group Human Rights Policy follows the follows JT Group Human Rights Policy The by the UN Guiding Principles provided framework to monitor, on Business and Human Rights (UNGPs) business practices within influence, and improve and operations and those of our suppliers our own infringing the rights means avoiding partners. This our impacts of of others and addressing the adverse a responsibility not only have global operations. We the ability to also have to respect human rights – we the areas we advance and promote these rights in all operate. Our commitment to human rights is reinforced in both our Codes of Conduct and our Reporting listen Concerns Mechanism, which ensure that we of those whose human to and act on the grievances encourage rights are impacted by our activities. We and suppliers to speak up on human employees rights, without fear of retribution, about any concerns have. may they We operate in parts of the world where human rights are at risk, and are thereforehuman rights are at risk, and where in parts of the world operate We bribery and corruption, labor, issues, such as child to human rights-related exposed discrimination, and inequality. workplace three absolute requirements that are at the heart of by Our sustainability strategy is driven respecting human rights. do. One of these requirements is we everything

RESPECT FOR HUMAN RIGHTS HUMAN FOR RESPECT FOCUS IN Our Human Rights strategy Our Human Rights

SEPTEMBER 2016 JT Group Human Rights The is launched, formalizing Policy our commitment to respecting human rights.

18 2016 OUR SUSTAINABILITY STRATEGY OUR WAY OF DOING BUSINESS TOBACCO BUSINESS 21 HUMAN RIGHTS EXTERNAL HUMAN RIGHTS EXTERNAL ADVISORY BOARD Our Human Rights External Advisory Board us with a broad a vital role in providing plays in the human rights area. perspective external on business Made up of international experts on and human rights, the Board advises us all issues that the members consider relevant for the implementation of our human rights us with guides panel of experts The strategy. and challenges us where their expertise helping need to improve, we believe they on our human strengthen our efforts to deliver rights commitments. ARISE see page 48 Community Investment see page 24 & Inclusion Diversity see page 76 In our Japan operations, we agreed on action plans agreed on operations, we In our Japan office functions. head have sites (*C) which for 21 key enhanced we also to those local efforts, In addition Concerns policy and Reporting our corporate workers. migrant towards Mechanism engagement, further strengthen our external To partnered with Business for Social have we and KPMG Azusa Responsibility (BSR), Mazars, EY, technical provide organizations These Sustainability. due diligence support with our ongoing human rights human rights strategy. approach and overall

Code of Conduct see page 32 Health & Safety Workplace see page 38 (ALP) Labor Practices Agricultural see page 46 We have a long and complex supply chain and are exposed to a diverse range of human rights risks. To address range of human rights risks. To to a diverse chain and are exposed supply a long and complex have We on the pages Read more about them in place a number of corporate programs and initiatives. put have these, we listed below. In 2018, we developed five action plans with the action five developed In 2018, we timeline. each with an agreed countries, respective were 12 Human Rights Champions A total of as part of a within these countries, appointed is network of this responsibility The network. plans are managed and to ensure that action country and respect for human implemented by each in the business. rights is firmly established operations the breadth of the JT Group’s Given critical to establish an it was around the world, it believe structure. We appropriate governance rights is important to embed respect for human throughout our entire organizational structure. by our dedicated human rights team, is driven This and which is responsible for raising awareness Our Business engagement internally. improving role to Ethics Committee (*E) also has an important that to ensure governance overall as it provides play, and addressed rightsholders’ concerns are listened to effectively. the structure was Central to our governance establishment of a Human Rights Champions comprises employees network in 2018. This network conducted have from the countries in which we facilitates Human Rights Impact Assessments, and on human the sharing of guidance and best practice rights. it is advance the rights of our stakeholders, To listen to the advice, concerns, and important that we criticisms of people outside the JT Group. Therefore, counsel from our Human to take continued have we Rights External Advisory Board. Our programs Governance and Governance engagement stakeholder We also provide printed communication materials printed communication materials also provide We and strengthen awareness to increase employee of human rights. In 2018, we their understanding on respecting an educational booklet developed businesses in line with the human rights in our employees 25,000 this with over UNGPs and shared (*C). In addition, our in our Japanese operations include updated to revised Code of Conduct was rights. information on human To address issues identified through Human To Rights Impact Assessments and self-assessment action plans. These develop questionnaires, we and integrate improvements plans enable us to drive management human rights into our existing processes, in a consistent manner. defined responsibilities, clear plans have The performance timelines for implementation, and key indicators to monitor progress. IMPROVE ASSESS of Human completed our pilot year In 2018, we high-risk countries Rights Impact Assessments in five countries in our international tobacco business. These publicly identified through a risk analysis using were country risk human rights indices. available a mix of geographical regions and the covered They from farm breadth of our supply chain operations, Rights to store. In line with the UNGPs, the Human risk to Impact Assessments focused on the greatest Company and through people, both within our own business relationships with our suppliers. Impact Assessments took place in Dominican The and Tanzania, Myanmar, Mexico, Republic, Malaysia, countries demonstrating our willingness to go into been have where serious human rights violations reality. reported, and assess the on-the-ground Assessments In our Japanese operations, the Impact implemented through self-assessment were conducted due questionnaires and site visits. We diligence through self-assessment questionnaires in our processed food business in China and Thailand, by site visits and capacity which will be followed building in 2019. Our corporate policies are consistent with human rights best practice, as demonstrated by a third-party assessment. Human Rights Impact Assessments of these policies enable us to test the effectiveness where improvements on the ground, and make necessary.

INFORM of the JT Group awareness Our efforts to build human rights and provide Human Rights Policy training, start with information to employees is about This raising, and communication. awareness thinking into the culture of the getting human rights understand the employees Company and helping of business decisions. human rights implications on human rights through an train our employees We in e-learning module, available online human rights 2018, 75% of our employees 25 languages. By June had completed the module in our international without reach employees tobacco business. To a dedicated section have now computer access, we into face-to- on respecting human rights integrated face training on the Code of Conduct. organized an awareness 2018, we In November 81 employees raising session on human rights, which to of the session was objective (*E) attended. The through engage and educate our staff on the subject In line with our aim to harness voice. an external invited we as part of our strategy, expertise external Margaret Human Rights Managing Director, BSR’s a speech at the session. Margaret Jungk, to give rights directed the business and human previously Human department at the Danish Institute for Group a member of the UN Working Rights and was was on Business and Human Rights. Her speech Company recorded and shared with the rest of the via our intranet.

RESPECT FOR HUMAN RIGHTS HUMAN FOR RESPECT FOCUS IN Our approach and progress in 2018 in and progress approach Our 20 OUR SUSTAINABILITY STRATEGY OUR WAY OF DOING BUSINESS TOBACCO BUSINESS 23

Our work to promote and respect human rights will Our work to the changing economic and and adapt evolve operate. of the countries where we political context Our approach to human rights due diligence is on- change going, as the risks to human rights may will continue to act where actions are time. We over necessary and focus on our human rights priority areas. the list of high-risk markets will review In 2019, we to conducting Human committed have in which we will prioritize Rights Impact Assessments. We countries based on a set of risk-based criteria in order to assess our most high-risk countries first. Going are committed to assessing actual and we forward, potential human rights risks in at least six countries and will continue to embed respect for each year human rights within the business. In our Japanese operations, as a continuing process will make of Human Rights Impact Assessments, we site visits in our processed food business in China capacity building in these and provide and Thailand, operations. respective Going forward

MEXICO MALAYSIA Workers at a JTI supplier reported long working hours. at a JTI supplier reported long working Workers are not in ensure they hours, on working WE WILL: clarify with the supplier the labor laws hours. and increase sharing of best practice on working breach of the law, Mexico’s severe security concerns will continue to be taken into consideration when consideration when into be taken will continue to security concerns severe Mexico’s sales team As the third-party across the country. sales objectives designing routes and safety. to be properly trained on security and at JTI distributors need workers expands, will design anWe sales routes. security problems in fine-tuning WE WILL: consider Mexico’s can easily access information. so that any field sales force member online training platform safety. and personal will enable us to increase security levels This

developed a set of Group-wide guidelines on responsible labor management, with a set of Group-wide guidelines on responsible developed translated all contract worker contracts and pay slips into Burmese. All contracts and pay translated all contract worker relaunched the Your Voice communication in May 2018 to reach all employees. in May communication Voice relaunched the Your

The guidelines in some of our Japanese subsidiary companies are not fully aligned to guidelines in some of our Japanese subsidiary companies The in Japan. workers of migrant accommodate the rapidly increasing flux : WE HAVE Mechanism more made the Reporting Concerns We the focus on hiring of foreign workers. and Nepali. in Vietnamese by making it available accessible to migrant workers Transition to two shifts at the factory could lead to potential human rights risks. to two Transition to understand the potential impact of the amongst employees WE WILL: conduct a survey care. such as transportation, healthcare, and day shift change on factors outside of work, shifts, with to two risk-management activities are in place before moving will ensure key We controls around transportation, food service, and a safety training program. DOMINICAN REPUBLIC DOMINICAN MYANMAR slips, but this documentation pay written contracts and received have Contracted workers communicated in the local language. not was : WE HAVE Guide to mechanism and the ‘Your grievance Voice communication posters regarding the Your in both English and Burmese. available Making Ethical Decisions’ are now JAPAN TANZANIA We translated our communications and training programs into Kiswahili, the local language. Kiswahili, translated our communications and training programs into We on notice boards, leaflets, via and the Code of Conduct Voice promoted Your actively have We global In our continuous General Manager. and direct communication from the a launch event, targeted communicationsto provide we continue to speak up, effort to encourage employees in this regard. for markets Awareness of the Your Voice grievance mechanism can be improved to increase its overall to increase its overall mechanism can be improved grievance Voice of the Your Awareness effectiveness. : WE HAVE SOME KEY FINDINGS AND HOW WE ARE ADDRESSING THEM AND HOW WE ARE SOME KEY FINDINGS HUMAN RIGHTS IMPACT ASSESSMENTS RIGHTS IMPACT HUMAN the activities during Key and value streams. our main operations focus on Rights Impact Assessments Our Human and sales and distribution manufacturing, farming, processing, and observing include visiting Impact Assessment in our and workers, with employees of interviews conduct a series we During the assessments, operations. and partners. from suppliers, clients, as representatives business as well international tobacco RESPECT FOR HUMAN RIGHTS HUMAN FOR RESPECT FOCUS IN 22 ABSOLUTE REQUIREMENTS

AN IMPROVED OUR APPROACH In 2018, we revised our Community Investment Policy To measure the social impact of our work, we use the SOCIAL AND which determines a common goal for Community framework provided by the London Benchmarking Investment across the JT Group: “To contribute to the Group (LBG). According to this benchmark, the ENVIRONMENTAL development of sustainable societies, by helping to JT Group ranks 10th out of 96 companies for total IMPACT make communities more inclusive”. This will allow us community contributions. to maximize our social impacts and contribute more We encourage more accurate reporting and to our sustainable growth. measurement to ensure all of our programs deliver We believe that everyone should have the opportunity the social impact according to our policy.

to participate in society, and that inclusive societies OUR WAY OF DOING BUSINESS are also better for business. Our policy helps ensure Improving our that this philosophy is coherently implemented, both internally and externally, and that all of our programs social impact have a positive impact. Through long-term partnerships with various Community Investment has always been an inherent stakeholders, we are implementing 315 community part of the JT Group’s Corporate Sustainability programs that contribute to the development strategy. A cornerstone of our 4S model, which of inclusive and sustainable societies across 63 focuses on consumers, shareholders, employees, countries. The programs are based on global and and the wider society, is our belief that our business local needs, and three specific issues: can prosper only in stable and open societies. We are 1. Reducing inequalities, e.g. helping underprivileged therefore committed to making communities where people gain access to food and education. we operate more inclusive and resilient. 2. Improving community resilience in disaster-prone These activities also offer volunteering opportunities, An employee volunteering project to protect saplings in Kosuge, Japan areas, e.g. providing access to clean water and/or enabling employees to engage with our communities, electricity. develop new skills, and gain a sense of pride and satisfaction. Find out more about our projects in the 3. Protecting the environment, e.g. replanting ‘Investing in People’ section on page 74. trees with the help of our employees in severely OUR TARGET* deforested areas. Between 2015 and 2030 Our work is highly rated by external agencies, we invest USD 600 million including the Dow Jones Sustainability Indices to help make communities (DJSI), which recognized us as the industry leader in inclusive and resilient, corporate citizenship and philanthropy, with a perfect with our employees score of 100. contributing 300,000 CONTRIBUTING TO COMMUNITIES volunteering hours. Accessibility program, La Scala, Italy *This is a Group-wide target. TOTAL VALUE OF INVESTMENTS IN THE COMMUNITY IN 2018* (%)

We strive to make a positive difference TOTAL in everything we do. Our Community 53 million 6,285,671 25,429 Investment program focuses on U.S. dollars BENEFICIARIES VOLUNTEER HOURS projects and initiatives that will help make the communities in which we 46,778,935 operate more inclusive. This enables

5,525,526 everyone to thrive and play an active role in their community. 717,987 Suzanne Wise, 315 839 Senior Vice President, Corporate Development, JT International 85,236 COMMUNITY INVESTMENT ORGANIZATIONS PROGRAMS SUPPORTED

24 * We applied average exchange rate in 2018 1 U.S. dollar = 110.44 Yen 25 THE JT GROUP ENVIRONMENT PLAN 2030 To create the JT Group Environment Plan 2030, we It also goes further than our current plan by firstly carried out a review of global environment addressing a broader range of issues and considering trends to understand which topics matter most to our not only our operations, but also key elements of our business and stakeholders. We then identified the key value chain. It contains longer-term objectives for environmental risks and opportunities associated with energy and emissions, along with quantified targets those topics in order to define the focus areas for by 2030. We will track performance and progress Improving our the plan, namely “Energy and Emissions”, “Natural towards our objectives and targets and we will revisit Resources”, and “Waste”. Our 2030 plan reflects the plan periodically to ensure that it remains relevant environmental impact changes in our business, societal expectations, and to our business and stakeholders. growing scientific understanding of the environment. Environmental issues are of increasing societal OUR WAY OF DOING BUSINESS concern and have brought many challenges to our society. For instance, today we are facing melting OUR OBJECTIVES AND TARGETS FOR 2030* ice caps, rising sea levels, and changing weather patterns, and we all need to address them. As a global organization, we recognize that we have a key ENERGY AND EMISSIONS NATURAL RESOURCES role to play in reducing our environmental impacts. As with most industries, the environment has a direct Energy Water influence on our business. We also know that our operations impact the environment, through resource Transition our operations to net zero carbon Support global water stewardship by reducing usage, emissions, and waste generation, but we Solar electricity generation in our Batangas factory in the Philippines energy supply. our water withdrawal and by encouraging strive to minimize this impact. By implementing water risk management in our supply chain. sustainable business practices, we are able to TARGETS conserve resources, reduce waste, manage costs, THE JT GROUP ENVIRONMENT We will double the proportion of renewable electricity that TARGETS and meet the growing consumer demand for more we use to 25% by 2030 and 100% by 2050. sustainable products – bringing benefits to both MANAGEMENT We will reduce water withdrawal associated with our tobacco business by 15%. the environment and our business. This approach is In our more complex operations, we align our explained in the JT Group Environment Policy. To better understand water risk and use in our supply approach to environmental management with Emissions chain, by 2022, we will implement a water risk Throughout our whole operation, we direct our internationally recognized standards – ISO 14001 management process in our manufacturing supply chain. environmental efforts towards: and ISO 50001*. In our smaller and less complex Reduce our greenhouse gas emissions to ›› Minimizing negative impacts on global climate operations in Japan (*B), we have implemented support the Paris Agreement on global climate change our own ‘JT Green System’, which promotes a change with the aim to achieve net zero Forestry ›› Protecting water resources simple and consistent approach to environmental management. carbon emissions from our operations. Ensure a sustainable wood supply for our ›› Eliminating and reducing waste ›› Promoting recycling and optimizing resource use. ISO 14001, which was revised in 2015, encourages TARGETS product supply chains and further contribute businesses to think more broadly about We will reduce greenhouse gas emissions from our own to forest conservation and rehabilitation. environmental issues – not only those associated operations by 32%. WHAT HAVE WE ACHIEVED with their direct operations, but throughout their TARGETS We will reduce emissions associated with our purchased SO FAR? entire value chains. We have successfully aligned our goods and services by 23%. This will be achieved through To further focus our efforts on sustainable forest Through our Long-Term Environment Plan 2020, we environmental management systems with the revised a 40% reduction from our direct leaf supply chain management, by 2020, we will have assessed the drivers committed to a 20% reduction in GHG emissions standard. A revised ISO 50001 standard was issued and reductions in our non-tobacco materials, such as for deforestation and forest degradation in communities between 2009 and 2020. These GHG emissions relate in 2018 and we are in the process of broadening our packaging. where we source tobacco and developed action plans for to both Scope 1 emissions (those for which we are approach to energy management according to the improved wood resource use, forest conservation, and directly responsible) and Scope 2 emissions (those new framework. We are also working to streamline forest rehabilitation. related to energy supplied by third parties). and better integrate our environmental and WASTE We will replace all wood from natural forests used in the We achieved the absolute emissions target three energy management systems with other business tobacco curing process of our directly contracted growers years ahead of schedule at the end of 2017. By the considerations, such as quality, occupational health with renewable fuel sources. end of 2018, we had reduced our absolute emissions and safety, and business continuity. Waste by 21.4% and our emissions intensity by 16.1%. To objectively review our approach to environmental Further reduce the environmental impacts management and our overall performance, we use We are on track to achieve the quantitative goals and of waste associated with our processes and commitments outlined in the 2020 Plan. external disclosures and ratings agencies, such as CDP and the Dow Jones Sustainability Indices (DJSI). products. We are proud to report that in 2018 we achieved WHAT ARE THE NEXT STEPS? leadership status for CDP Climate Change and TARGETS In 2019, we launched the JT Group Environment Plan management status for CDP Water Security. We also We will reduce waste associated with our tobacco 2030, which sets our new objectives and targets. greatly improved our rating in DJSI’s environmental business by 20%. Please see opposite. dimension, and achieved the maximum score in By 2020, we will have targets and action plans relating to Environmental Reporting. the appropriate use and responsible disposal of materials, including plastics, used in our products and packaging.

ISO 14001 and ISO 50001 are the internationally recognized standards for environmental management systems and energy management systems, * respectively. These standards do not prescribe absolute performance requirements. Rather, they provide us with a framework to help build effective 26 * Baseline year for all targets is 2015. Target year is 2030 unless stated otherwise. The overall plan is to be reviewed every 5 years. 27 management systems that deliver continual improvement in environmental and energy performance. MAKING PROGRESS IN ENERGY Through our Energy Opportunities Scheme, our As part of the JT Group Environment Plan 2030, we AND GHG EMISSION REDUCTION factories have identified over 150 no- or low- are committed to reducing emissions associated investment projects. These avoid over 7,600 tons of with our purchased goods and services by 23% Climate change is the biggest environmental In pursuing this target, we will double the proportion GHG emissions and represent a cost saving of over (2015-2030). We aim to achieve this through a 40% challenge facing society and our business. of renewable electricity that we use to 25% by 2030, 2 million U.S. dollars, with an average payback of 8 reduction in emissions from our direct leaf supply in support of our goal of reaching 100% by 2050. It will have serious implications for the supply months. chain and reductions in non-tobacco materials such as packaging. As such, we will continue to improve chain of our materials, as our products are mainly In our direct operations, the renewable electricity For programs and initiatives specifically related to our our existing curing barn projects and expand to more agricultural-based. target will be achieved through on-site generation tobacco business, please see page 52-53. and sourcing of third-party renewable energy. locations (read more on page 51). We will reduce We are committed to tackle this issue and we will the amount of wood used for curing, while at the be reducing our GHG emissions to support the Paris Our Renewable Energy Task Team has carried out a

same time ensuring that the wood we use comes OUR WAY OF DOING BUSINESS Agreement on global climate change, with the longer- factory-by-factory feasibility review of opportunities from renewable sources in Zambia and Tanzania, term aim of achieving net zero carbon emissions from associated with solar, hydro, wind, and biomass for instance. In addition, we aim to reduce leaf- our operations. power. Where feasible, and where it makes business related emissions by further optimizing the use of sense, we have included these opportunities in REDUCING OUR ENVIRONMENTAL crop inputs, such as fertilizers and crop protection our business planning and in our feasibility study IMPACTS IN SCOPE 3 EMISSIONS agents, wherever possible. We will also be working for the 2030 Science Based Target. The team has with suppliers to reduce the amount of packaging also reviewed options relating to zero or low- Beyond our own operations we take responsibility associated with our non-tobacco materials. carbon energy tariffs and green energy certificates. to positively influence the environmental impacts In addition, our locations are encouraged to consider of our value chain by working in partnership SETTING A SCIENCE fuel and emissions efficiency, and alternative vehicles with our suppliers. Most Scope 3 emissions for BASED TARGET when selecting fleet vehicles. our business are associated with the goods and services that we purchase and in particular with We are well on the way to achieving our 2030 We have set a Science Based Target (SBT) to ensure tobacco leaf, our main raw material. renewable electricity target. By the end of 2018, 31% that we fulfil our commitment to reduce GHG of electricity in our international factories was either emissions and our contribution to climate change. purchased*¹ or generated*² from renewable sources. We have committed to reduce GHG emissions from our own operations by 32% across the Group (2015 to 2030). Our target was validated by the Science Based Targets initiative (SBTi) in February 2019. GHG EMISSIONS INTENSITY FOR COMBINED SCOPE 1 AND 2 THE TOBACCO BUSINESS GHG EMISSIONS CO2e tons/million cigarettes equivalent CO2e thousand tons GHG EMISSIONS IN OUR VALUE CHAIN IN 2018 CO2e thousand tons 210 8 10 566 1 10 66

83 10 390 360 3 35 2 6,951

25 393 33 385 31 361 080 05 00 069 06 06

65 ,531 FY O FY

Combined Scope 1 and 2 GHG Emissions FY FY FY FY 2009 201 2015 2016 201 2018 2020 2009 201 2015 2016 201 2018 2020 B Y T B Y T Purchased goods and services

Capital goods

Transportation and distribution Scope 1 SCOPE 3 Others Scope 2

* 1 We purchase electricity from renewable sources in Canada, Germany, Poland, Romania, Sweden, and the Philippines. 28 29 * 2 We generate electricity on-site from renewable sources in Jordan, Nigeria, The Netherlands, The Philippines, and Turkey. To address pressing environmental issues, it is WATER essential for us to collaborate across the Group. Societal demand for water is increasing globally and water-related issues such as availability, quality, flooding, drought, or regulatory changes can have a major impact on society and our business. By working towards the same goal, we have Our tobacco and food manufacturing activities all use water. However, our main operation, the tobacco business, learned a great deal from each other and is not water-intensive and the water that is required for tobacco crops comes predominantly from rainfall. delivered solid results. As part of our ongoing program to address water-related risks to our business and further promote effective water management, by the end of 2018 we had completed water risk assessments at 60 of our 80 factories (75%). In order to achieve the targets of the JT Group Environment Plan 2030, we will continue to

OUR 2030 GOALS WATER RISK IN OUR SUPPLY CHAIN OUR WAY OF DOING BUSINESS In the JT Group Environment Plan 2030, we Many of our raw materials require water in their work together as one team. commit to supporting global water stewardship by production and water is an important resource for Peter Mitchell, reducing our water use and encouraging water risk many of our suppliers. To better understand water EHS Director, Environment, Global EHS, Corporate Sustainability, management in our supply chain. We have set a usage and water-related risk in our supply chain JT International target to reduce our tobacco business-associated across the Group, by 2022 we plan to implement a Yusuke Takaki, water withdrawal by 15% by 2030 vs 2015. This water risk management process. Manager, Environment, Sustainability Management, JT target was calculated taking into account site level water intensities and regional predictions for future water stress. We plan to achieve the target by using WATER WITHDRAWAL WASTE less freshwater for factory site irrigation, reducing Thousand m³ water use in our processes and improving leak From a societal and stakeholder perspective, waste, LONGER-TERM GOALS control, using more recycled water, and improving and particularly plastic waste is of increasing In our Environment Plan 2030, we commit to cleaning practices. concern. From a business perspective, all waste has further reducing the environmental impact of waste a direct cost (handling and disposal) and an indirect associated with our processes and products. Read about current best practices in our tobacco 12,958 cost (resource and processing costs etc.). business on page 52-53. By 2030, we will reduce waste associated with our Waste management is a key component of our tobacco business by 20% vs 2015. We will do this Environment Plan. Across the Company we apply by improving resource efficiency and rolling out 10,560 a ‘Reduce, Reuse, Recycle’ approach. We also innovative solutions across different sites. 10,155 10,093 9,875 10,035 set targets for waste reduction as we believe that Moreover, by 2020, we will have targets and action reducing waste helps to conserve resources, which in plans relating to the appropriate use and responsible turn helps to minimize our environmental impact and disposal of materials, including plastics used in our cut business costs. products and packaging. Read about how we reduce waste in manufacturing on page 53. WASTE GENERATION Thousand tons

BREAKDOWN OF WASTE GENERATED IN 2018 (%)

FY FY 18 2009 2014 2015 2016 2017 2018 FORESTRY

Ensuring a sustainable wood supply and further we will have assessed the drivers for deforestation 152 126 126 121 121 122 7 contributing to forest conservation and rehabilitation and forest degradation in communities where we are key objectives set out in the JT Group source tobacco and we will have action plans for 122 Environment Plan 2030. improved wood resource use, forest conservation, THOUSAND TONS and forest rehabilitation by 2020. We already have a number of programs and initiatives in relation to sustainable forestry and wood. Within the JT Group Environment Plan 2030, we have Through our ‘live barns’ initiative in Malawi, we are a target to replace all wood from natural forests in reducing the number of trees that are cut down to the tobacco curing process of our directly contracted 75 build curing barns, by constructing the barns out of growers with renewable fuel sources by 2030. For living trees. more examples and targets in our tobacco business, please see page 50 (Promoting forestry at small-scale In addition to our current programs and to further farms). focus our efforts on sustainable forest management, FY FY Recycling Recovery Disposal 2009 2014 2015 2016 2017 2018

30 31 ABSOLUTE REQUIREMENTS

GOOD We continued to provide training on the Codes of the Philippines and Indonesia. The same approach Conduct to our employees online and face-to-face applies to trainings on Anti-Bribery and Corruption, GOVERNANCE in 2018. In our Japanese operations, 99.4% of including Anti-illicit Trade and Conflicts of Interest. employees completed the online courses (*C). As part of our efforts to improve our workplace In our international tobacco business, we launched AND BUSINESS environment and better understand compliance in a Code of Conduct video that included messages the workplace, we distribute a compliance survey. from our executives to employees. 2019 will see the STANDARDS In our Japanese operations, the survey outcomes global launch of a new interactive training video in are reported to each executive officer and to each 25 languages to enhance understanding of the Code. department. The relevant departments then introduce For employees without computer access, we have measures in their annual compliance action plans to

adopted a Train-the-Trainer approach. So far we have OUR WAY OF DOING BUSINESS address any issues raised, using quantitative targets trained 91 local trainers, who provide face-to-face to evaluate the effectiveness of these measures. Conducting business in a responsible way is a top Our annual Corporate Governance Report shows our training in local languages to 15,777 employees, In 2018, 97.6% of employees completed the survey. priority for us. Our corporate governance is rooted in progress, as well as insights into our governance including those from the newly acquired entities in our adherence to the 4S model and our commitment framework and board structure. to our stakeholders. We have built a robust system of For more details about JT’s corporate governance, governance to support this commitment, to ensure including tax practices, risk management, and transparent, fair, timely, and effective decision- information security, see making. This means not only complying with local THE ROLE OF THE COMPLIANCE SURVEY IN OUR JAPANESE www.jt.com/sustainability/way_of_business. laws and regulations, but also proactively seeking OPERATIONS’ ACTION PLAN to exceed expectations and hold ourselves to higher standards. EMPLOYEES TAKE Our framework of governance allows us to enhance THE COMPLIANCE corporate value and achieve sustainable growth in CORPORATE GOVERNANCE SURVEY the medium to long term. This approach is outlined RELEVANT in the JT Corporate Governance Policy, which was JT COMPLIANCE DEPARTMENT revised in December 2018. RISK MANAGEMENT INFORMATION SECURITY OFFICE ANALYZES CARRIES OUT THE SURVEY RESULTS THE ACTION PLAN JT COMPLIANCE TAX PRACTICES OFFICE DEVELOPS THE ACTION PLAN

Our business ethics

Our JT Group Codes of Conduct form the foundation of our business ethics. Reflecting our commitment to the 4S In our Japanese operations, the latest survey results model, they outline our responsibilities towards our consumers, our shareholders, our employees, and the wider showed that preventing long working hours and society. Our Reporting Concerns Mechanism allows employees and business partners to report concerns in a harassment* remained top priorities in 2018. As a confidential manner. We take a zero-tolerance approach to bribery, corruption, and other financial crime, and we result, we shared recommendations and tips with actively manage risks related to these areas. our employees on how to prevent long working hours, and provided online training and seminars on harassment prevention. We will continue to monitor LIVING OUR CODES OF CONDUCT progress and make every effort to improve the Our Codes of Conduct allow us to conduct business We review and update our Codes of Conduct situation in these two key areas. ethically and be a responsible corporate citizen. continuously to improve our standards, and the In our international tobacco business, the Employee We ensure that they are implemented effectively latest revision took place in 2018. In our Japanese Engagement Survey covers compliance questions. throughout the entire business by running various operations (including the subsidiaries of our It is distributed every three years, and the last one training courses for employees. processed food division in China, Thailand, and was completed in 2018. The results showed that, the U.S.), the revised Code now includes new Our employees also sign an acknowledgment form compared to the previous survey, line managers sections such as Sensible Conduct as a Member of to show their commitment to following our Codes of are now understanding and enforcing the Code of Society, Prohibition of Discrimination, and Maintain Conduct. Conduct more effectively. and Promote Health. In our international tobacco Our international tobacco business and Torii business, we digitalized the Code into an accessible, Pharmaceutical have developed a version of the easy-to-read document, including a decision-making Codes of Conduct to reflect the needs of their guide to assist employees in making the right operations. choices. It is now available in 36 languages, and we provide printed booklets for those with limited internet access.

32 * Includes sexual harassment and bullying 33 REPORTING CONCERNS GIFTS, HOSPITALITY, AND ENTERTAINMENT ANTI-COMPETITIVE BEHAVIOR We offer multiple communication channels for Any concerns are then dealt with by specially trained Our internal policies and procedures help to prevent Our Codes of Conduct underpin the JT Group’s employees, customers, and business partners contact persons. Contact persons follow a mandatory bribery and to ensure an appropriate level of strong commitment to fair competition. to confidentially raise concerns about potential face-to-face training course. In our international exchange of gifts, hospitality, and entertainment, Our commercial strategy and actions must be violations of our Codes of Conduct or policies. tobacco business, there is a Reporting Concerns which must be transparent and reasonable, and determined independently of our competitors. We review all concerns raised, launch investigations Mechanism called Your Voice, which is available in 16 must respect local regulations. We therefore require Our international tobacco business has a policy and as needed, and take appropriate corrective actions. languages. Newly appointed contact persons receive all employees in our Japanese operations to seek guidelines in place, designed to ensure that business Employees are informed about our Reporting face-to-face training and a manual detailing their role. approval for anything they receive or wish to offer. operations are conducted fairly and in compliance Concerns Mechanism through various channels To ensure that compliance is well-embedded within with competition laws, wherever we do business. In 2018, we received 414 reports across the including the Group intranet. In 2018, our Japanese the organization, we conduct regular training and run Our employees are trained accordingly. JT Group, covering issues such as labor practices operations made the Mechanism available in four communications campaigns across the Group. OUR WAY OF DOING BUSINESS and discrimination. In the case of proven violations additional languages (English, Chinese, Vietnamese, of our Codes of Conduct, we took appropriate action In our international tobacco business, all exchanges and Nepalese) to meet the needs of our diverse in the form of dismissal, verbal or written warnings, with non-governmental third parties above 250 U.S. workforce. financial penalties, or other measures. dollars must be approved. For government and public officials, all requests, regardless of the amount, have to be approved. The number of gifts, hospitality, and entertainment requests sent for approval in 2018 was BREAKDOWN OF REPORTED CASES (%) 603, vs 740 in 2017.

17.6 19.1 2.9

1.6 32.4 2017 2018 40.1

445 15.9 414 24.0

23.4

23.4

Cases related to labor practices Cases related to corruption (excluding human rights)

Cases related to human rights Cases related to anti-competitive behavior

Cases related to fraud and misuse of Other Company assets

There were no cases related to anti-competitive behavior for 2017 or 2018.

PREVENTING FINANCIAL CRIME ANTI-BRIBERY AND CORRUPTION Financial crime is a global trillion-dollar issue that is our existing Anti-Money Laundering policy to include The JT Group has a zero-tolerance approach to In our international tobacco business, since 2016, of great concern to governments and businesses. other elements of financial crime. corruption and bribery, and all executives and 18,468 employees have taken our online course on Moreover, it can harm our society. The global policy sets out principles and guidelines to employees must respect and comply with our anti- anti-bribery and corruption, which included 1,546 The JT Group does not tolerate any form of financial prevent employees from being involved in any form bribery and corruption policy. new employees in 2018. The course has enabled us crime. In our international tobacco business, we of financial crime, including money laundering, tax to engage more closely with our employees on the In our Japanese operations, we run an e-learning abide by the EU Cooperation Agreement obligations, evasion, and facilitating tax evasion. topic. Employees without computer access complete course on anti-bribery and corruption once every two and take into account the U.K. Criminal Finances face-to-face training as part of the general Code of years. 2,179 employees took this course in 2017. Act 2017. We perform policy controls and provide Conduct training provided locally (read more on page In 2018, we prepared for the next e-learning course, program training, and we publish employee 32). which will take place in 2019. communications on the subject. In 2018, we updated

34 35 RESPECTING DIVERSITY IN THE WORKPLACE Our people We believe a diverse workplace brings a rich mix of We promote a workplace environment that allows all viewpoints and perspectives that can inspire new employees to fulfil their potential, and this includes TREAT ALL ideas, find solutions to complex issues, and drive working parents. In recognition of this, JT was EMPLOYEES FAIRLY AND our business forward. For us, ‘diversity’ means all certified as a childcare-supporting company by the JT Group Human RESPECTFULLY the ways in which current and potential employees Japanese Ministry of Health, Labor and Welfare in may differ from one another, such as age, gender, 2018. Resources Management ethnicity, religion, disability, sexual orientation, Philosophy education, and national origin.

In 2018, JT was included as a Gold Employer in OUR WAY OF DOING BUSINESS the PRIDE Index for the third consecutive year in In order to contribute to the company’s ENSURE recognition of our commitment to inclusive policies sustainable growth, and with the recognition TRANSPARENCY OF RULES AND for the LGBT community. In 2019, JT has been named that highly skilled, talented, and diverse people STANDARDS PROVIDE ALL a “Nadeshiko Brand 2019” company for the second are the foundation of its success, JT Group JT GROUP EMPLOYEES year running, in recognition of exceptional work in management proactively takes steps to WITH GROWTH promoting the success of women in the workplace. secure long-term employee engagement and OPPORTUNITIES satisfaction. We are also looking to create a more gender- balanced environment across the Group. In JT, we aim to have a minimum of 10% female representation within management by 2023. In 2018, the ratio was 5.7% which is approximately 4 times higher than LEARNING AND SHARING BUSINESS SKILLS when the target was set in 2013, when the figure was 1.4%. In our international tobacco business, the ratio Unlocking and maximizing our employees’ potential In 2018, we organized the Exchange Academy for of female to male directors was 28.4% in 2018, and is a vital element of our sustainable growth agenda. 25 employees from our domestic and international we are aiming to reach 30% by 2020. Today’s business environment is disruptive and tobacco business around the world as part of this uncertain, and it requires all of our employees to talent partnership program. They participated in a Recognizing that different people have different acquire advanced skills. We have implemented two-week joint training program, with one week working styles and needs, we encourage flexible initiatives globally and locally to help our people in Japan and one week in Switzerland. During the hours and remote working throughout the Company. flourish professionally. program, the participants worked in teams in order to analyze and formulate the JT Group strategy To develop the global capabilities of our employees for sustainable growth. Each team then gave a and to train our future business leaders, we provide ENGAGING WITH EMPLOYEES presentation and made a recommendation to senior various talent partnership programs for employees Our human resources programs have been developed executives within our Group. with different backgrounds to learn and network to motivate and empower our employees to address together. One of the programs provides specialist We provide comprehensive business training new business challenges. leadership training courses for future business programs for employees of all levels. Fundamental To evaluate the effectiveness of our programs and leaders, selected globally from across our operations. business courses in presenting, writing, or time the level of engagement of our employees, we carry management are available to those in junior out an Employee Engagement Survey every year in positions, while more advanced programs such as our Japanese operations, and every three years in task execution, negotiation skills, or leadership are our international tobacco business. The feedback we aimed at middle-management and senior positions. receive from employees helps us to understand our These courses are available to employees across our strengths, the progress we have made, and the areas organization, offering an opportunity to meet and where we need to keep improving. exchange ideas with colleagues from different teams. In 2018, in our Japanese operations 2,039 employees Importantly, our people also help us understand what completed these courses. To attract the best talent, we need to do differently to maintain our reputation we will continue to offer good career development as a top employer. and training opportunities. In 2018, the overall survey response rate was 99% in Moreover, we empower employees to hold regular our JT and 93% in our international tobacco business. performance and career discussions throughout the The survey includes a ‘Sustainable Engagement’ year, to ensure that we leverage the full potential category, which measures employees’ job satisfaction of our employees and boost their development and and long-term commitment to the business. In JT, career progression. In 2018, 68.7% of our employees the total favorable score for this category was 82%, participated in the performance review for the year which is 12 points ahead of the average score for 2017. Japanese companies. In our international business, Our high internal hire rate which was 94.2% in 89% of employees gave a positive response, placing 2018, is proof of our commitment to employee the Company one point above the Global High- development and sustainable business practices. Performing Companies Norm.

36 37 TOWARDS A BETTER WORKPLACE We care deeply about employee health and well-being, and preventing work-related disease. Our international tobacco business conducts general occupational hygiene and ergonomic assessments. In 2018, we started collecting data across the The JT Group health and Group to better understand our employees’ risk of occupational health issues. All reported cases are safety strategy investigated by local managers to identify the causes. If they are attributed to the work or workplace, we take appropriate measures immediately to protect OUR WAY OF DOING BUSINESS Health and safety in the workplace is extremely employees’ health and prevent recurrences. important to us, not only for our employees’ well-being but also for the sustainable growth In our Japanese operations, we focus on both of our business. We align our health and safety the psychological and physical well-being of our standards with OHSAS 18001 and always meet or employees. Programs for stress management are exceed legal requirements. When our standards are in place, and we work to raise awareness about a stricter than local laws, we require our local offices healthier lifestyle. As a result, JT was named a ‘White to comply with our standards. The scope of our 500’ company for the third consecutive year. This standards extends beyond our employees, covering award is presented by Japan’s Ministry of Economy, contractors and visitors to our operations as well. Trade and Industry. It recognizes large enterprises Well-being programs often include family members that are making outstanding progress towards better of employees. well-being and proactivity among their employees.

WORKPLACE HEALTH AND SAFETY DATA*1

2014 2015 2016 2017 2018 target THREE PILLARS OF SAFETY Employees 2 1 2 0 2 0 Our safety programs are based on three fundamental NUMBER OF FATALITIES*2 pillars: safe workplaces, safety competence, and a e e Contractors 3* 1* 1 2 1 0 Group-wide culture where the safety of our people always comes first. The level of risk varies from Employees 113 154 186 186 183 n/a location to location, but the highest risks across the NUMBER OF LOST-TIME JT Group are driving vehicles, riding motorcycles INCIDENTS (LTIS) Contractors 12*e 17*e 8 13 11 n/a (fleet safety), and working with machinery, as well as slips, trips, and falls. To mitigate these risks and prevent injuries, we EMPLOYEE LTI RATE conduct risk assessments throughout the whole 0.32 0.36 0.42 0.37 0.26 n/a (NUMBER OF LTIS PER 200,000 HOURS WORKED) supply chain. This helps us to identify hazards, implement appropriate measures, and ensure that our approach helps us to meet our targets. We also focus on raising awareness among employees and % OF CIGARETTE AND TOBACCO- RELATED FACTORIES CERTIFIED TO 81.0% 78.9% 77.8% 74.4% 76.9% 100% thoroughly embedding our safety culture in day-to- OHSAS 18001 (*D) day work. Regrettably, we had to report three fatalities among our workers and five among third parties in our workplaces in 2018. Although we have been running NUMBER OF VEHICLE ACCIDENTS 1,341*e 1,108*e 1,294*D 1,457*D 1,418*D n/a driver safety programs for many years, most of the cases involved vehicle accidents. To eliminate such risks, we continue to develop and improve our programs. VEHICLE ACCIDENT FREQUENCY RATE 5.9*e 4.8*e 4.4*D 5.2*D 3.46*D n/a (ACCIDENTS PER MILLION KILOMETERS) In the unfortunate event of a fatality, we work hard to support the affected families as much as we can. We also try to learn from the incident and develop informed and targeted measures to help reduce the likelihood of recurrence. The scope of reporting for contractor fatalities and LTIs, as well as vehicle accident data, expanded in 2016 compared to previous years. Further details * 1 on the scope of data can be found in the Basis of Reporting document. 38 39 * 2 Excludes third-party fatalities. OUR TOBACCO BUSINESS

Our core business is tobacco, which generates nearly 90% of our consolidated revenue. Our conventional tobacco products are manufactured in over 30 factories around the world and are distributed in more than 130 countries. In addition to conventional tobacco, we have a Reduced-Risk Product portfolio which includes e-cigarettes and tobacco vapor products. In this section, we will cover our approach to sustainability across our tobacco business. Having established the foundations of our sustainability strategy in 2017, in 2018 we identified 11 targets under 4 focus areas which will help us measure our progress. As the business environment and expectations from society change, we will be improving and adding to these targets over time. TOBACCO BUSINESS

TOBACCO BUSINESS SUSTAINABILITY GOALS

Regulatory environment Supply chain and illegal trade

We will reduce environmental and We will ensure the Company is included in social risks, and enable transparent and policymaking leading to fair and balanced responsible practices across our supply regulation, and enhance our cooperation chain. with governments to combat illegal trade.

Products and services People

We will be a total tobacco company We will be the employer of choice by offering consumers an even greater investing in people. choice of products by focusing on quality, innovation and reduced-risk potential.

40 41 OUR SUSTAINABILITY STRATEGY

OUR TOBACCO BUSINESS VALUE CHAIN

OUR TARGET: OUR TARGET: GREENHOUSE GAS WATER AND WASTE EMISSIONS We will reduce water withdrawal We will reduce greenhouse OUR COMMITMENT by 15% and waste by 20%, in 46,500+ 7 12 130+ gas emissions from our own We will reduce relation to our own operations, Directly contracted tobacco Tobacco leaf Leaf storage countries and regions operations by 35% and from our environmental and social between 2015 and 2030. leaf growers and tobacco threshing factories warehouses of distribution direct leaf supply chain by 40%, risks, and enable transparent leaf merchants between 2015 and 2030. and responsible practices OUR WAY OF DOING BUSINESS across our supply chain

OUR CUSTOMERS OUR SUPPLIERS OUR COMPANY AND CONSUMERS

OUR TARGET: OUR TARGET: OUR TARGET: FORESTRY AGRICULTURAL LABOR SUPPLIER SCREENING We will replace all wood from PRACTICES We will screen all key suppliers 450+ 27,500+ 35 70+ 500+ natural forests used in the We will implement our against environmental, social, Non-tobacco Suppliers of Factories O ces Warehouses tobacco curing process of our Agricultural Labor Practices and governance criteria by 2023. material suppliers other products worldwide directly contracted growers with (ALP) program in all sourcing and services renewable fuel sources by 2030. countries by 2025. TOBACCO BUSINESS

Non-tobacco materials, Building sustainable other products, and supply chains services Non-tobacco materials include packaging, filters, and cigarette-related materials. We also have a number Maintaining a well-managed supply chain is a priority Our contracted tobacco leaf growers and merchants of suppliers for factory machinery and logistics, for our business. All the stakeholders in our supply are also subject to the JT Group Principles in Leaf including freight. We manage the sourcing of most of chain are equally important and essential to build a Tobacco Production and our Agricultural Labor these centrally. Other products and services, which sustainable business. We work closely with them to Practices (ALP) program. flow through our supply chain, include marketing- reduce negative social and environmental impacts, related services, facility management, IT, and other based on a shared vision. professional services, which are sourced globally, regionally, and locally. Our factories produce ready-made cigarettes, other tobacco products, and some of our Reduced-Risk We develop strong partnerships with our key Products. We purchase approximately half of our suppliers in order to achieve mutual long-term tobacco leaf from directly contracted growers, and success. Our strategic relationships are built on the other half from tobacco leaf merchants. We don’t shared values and objectives, which allows us to find own any farms, and we don’t employ any growers sustainable solutions together, ensure a stable supply directly. in a dynamic environment, and be able to adapt to innovative technologies. In order to ensure the highest levels of sustainability and integrity across the supply chain, all of our For example, we worked with a number of suppliers suppliers are required to comply with our JT Group of pulp-based products to reduce our paper and Supplier Standards. We select suppliers based on board related waste. We achieved this by optimizing quality, service, and cost. This is reflected in our our product specifications, saving approximately JT Group Responsible Procurement Policy. 1,700 tons of waste per year.

42 43 SUPPLIER SCREENING Tobacco leaf sourcing We aim to achieve high standards of integrity across our business operations and supply chain. We can only achieve this through close Tobacco leaf sourcing is a key part of our supply 47% cooperation with our suppliers. chain, and a critical component of future business growth. We have been working closely with our LEAF In our international tobacco business, prior to directly contracted tobacco leaf growers and MERCHANTS*1 entering into a commercial relationship, our merchants to build security of supply and enhance (*E) key suppliers*1 undergo a screening process*2 leaf provenance. This gives us greater flexibility when 70 which includes onboarding and qualification. responding to changing market requirements. Contracted This process allows us to understand potential sources risks related to compliance, human rights, 53% environment, and health and safety. DIRECTLY CONTRACTED LEAF GROWERS *1 (*E) 30 Uncontracted sources If there are any risks identified, we offer support and collaboration on how to mitigate these risks OUR TARGET: and make necessary improvements. SUPPLIER SCREENING Since 2017, we have screened 61% of the key We will screen all suppliers in our international tobacco business. key suppliers against As our supplier screening target shows, we are In 2018, we contracted 46,500 tobacco leaf growers directly in Brazil, Ethiopia, Japan, Malawi, Serbia, Tanzania, environmental, social, committed to achieving 100% by 2023. Turkey, the U.S., and Zambia. The number of growers we work with will increase by approximately 65% in 2019, and governance as a result of our acquisition of United Dhaka Tobacco Company Limited in Bangladesh in 2018. For details on how we manage our suppliers in criteria by 2023. the Japanese market, please visit our website Contracting leaf growers directly allows us to monitor cultivation and labor practices more effectively. We www.jt.com/sustainability/our_business/tobacco/ currently employ 373 Leaf Production Technicians in our international tobacco business*2, who each supports value_chain on average 89 directly contracted growers. They visit every farm between seven and nine times during the

course of the cropping cycle to ensure the growers understand how to implement best practices. We encourage TOBACCO BUSINESS open dialogue, which allows continuous improvement on the farms. In our Japanese operations, our 126 Leaf Production Technicians are each assigned an average of 40 directly contracted growers to observe through site visits and questionnaire surveys.

THE SUPPLIER SCREENING PROCESS (*E) SUSTAINABLE AGRICULTURE As well as securing the long-term supply of quality our Minimum Agronomic Standards (MAS). These The supplier is Upon the calculation, tobacco leaf for our business, we also want to growers are contracted to grow tobacco under our invited to register the certification create shared value. We do this by providing stewardship. In return, they receive both credit for their information questionnaire is services that increase grower productivity, while at prescribed crop inputs as well as dedicated extension during the automatically triggered Our suppliers are the same time always trying to improve our social service provision from one of our Leaf Production onboarding and sent continuously and environmental impact. This results in higher Technicians. This support includes advice and process. to the supplier. assessed. yields and better quality, which in turn drives greater recommendations throughout the entire crop cycle. profitability. LOW LOW AUTOMATICALLY LOW AUTOMATICALLY Contracted large-scale commercial growers – notably CERTIFIED UPON RENEWED UNLESS WE ACKNOWLEDGING THE HAVE UPDATED OUR Grower return is based on more than price alone. in the U.S. – don’t require dedicated extensive service JTI SUPPLIER SUPPLIER STANDARDS STANDARDS. THAT THEY HAVE TO By enabling growers to become more productive provision from us. This is why not all of our directly ACKNOWLEDGE FIRST. and efficient in the way they grow, harvest, and contracted growers are required to comply with MAS.

MEDIUM MEDIUM AUTOMATICALLY MEDIUM RENEWED cure tobacco leaf, we ultimately help them to use CERTIFIED EVERY 3 YEARS. These farming practices are not limited to tobacco. UNLESS THE resources wisely and responsibly, and increase QUESTIONNAIRE We encourage growers to use seasonal crop rotation SCORE IS BELOW profits. For example, we help to cut costs by using TARGET. i.e. growing other crops such as groundnuts or maize REGISTRATION QUESTIONNAIRE QUALIFICATION RENEWAL fertilizers and agrochemicals more efficiently. This can on the same land in alternate seasons. This provides lead to cost reductions of up to 20%. HIGH HIGH HIGH-RISK SUPPLIERS HIGH RENEWED ARE ALWAYS SUBJECT ANNUALLY. extra income, improved food security, and soil TO AN APPROVAL FLOW*. All of our leaf suppliers are expected to follow conservation. If the supplier’s Good Agricultural Practices (GAP) as set out by the *ESCALATION: We are always looking to improve our understanding Upon registration, Our evaluation committee assesses the risk increases, Cooperation Centre for Scientific Research Relative of tobacco farming. Our investment in research the risk is case. If the Committee decides to certification with to Tobacco (CORESTA). The concept of GAP is to and development involves partnering with automatically certify the high-risk supplier, the the higher risk produce a quality crop while protecting, sustaining, or leading international academic institutions in the calculated by the supplier is given a year to make questionnaire will enhancing the environment with regard to soil, water, development of innovative new ways of producing application. improvements and showcase them in be sent air, animal, and plant life (see www.coresta.org). tobacco. See page 50 for more details. the next renewal phase. immediately. In addition to GAP, the majority of our directly contracted growers are also required to comply with Key suppliers are defined as suppliers with a planned annual spend greater than 500,000 U.S. dollars, suppliers who either purchase or handle * 1 Japan Tobacco International tobacco products, leaf merchants, suppliers representing Japan Tobacco International before government, and contract manufacturing, and licensees. * 1 Percentage rates are based on planned volume. 44 45 * 2 Formally known as Supplier Lifecycle Management. * 2 This number excludes Bangladesh as it was recently acquired and Ethiopia as it operates on a different model. TOBACCO BUSINESS 47 10 9 81 2018 Workplace health & safety Workplace Our international tobacco business is an active active Our international tobacco business is an Program (STP). member of the Sustainable Tobacco platform enables businesses industry-wide This safe to share best practices on labor standards, and sustainable tobacco agriculture. workplaces, ideas with other exchanged 2018, we Throughout the and improve STP members to further develop program. became part of the Guidance for In 2018, we pilot project. Responsible Agricultural Supply Chains Organization for Economic is run by the initiative This in conjunction with Co-operation and Development Agriculture Organization of the United and the Food have Nations. By participating in this project, we broaden our experiences, been able to share our own understanding, and benchmark against others. 10 7 2017 83 Child labor CASE STUDY 25 6 2016 69 Grower Clubs in Zambia Rights of workers TOTAL NUMBER OF ALP OBSERVATIONS (*E) (%) (*E) ALP OBSERVATIONS NUMBER OF TOTAL and leaf merchants. * Combined data, observations growers contracted of directly ENGAGEMENT IN 2018 in collaboration with internal and external Working to the progress and has been key stakeholders success of the ALP program. growers Our relationships with directly contracted continued to produce tangible results due to have Through face-to-face training and regular farm visits. 2018, we a series of global and local meetings in of to merchants about the strategic direction spoke helped to identify additional areas the program. This the ground, of interest, such as special training on mechanisms to manage and a need for innovative also engaged with government labor risks. We operate, in order agencies in the countries where we to address fair and safe labor conditions at a local level. Of the program’s three pillars, the rights of workers is the most challenging to observe. We have therefore spent a therefore spent a have We is the most challenging to observe. three pillars, the rights of workers Of the program’s among our leaf and raising awareness Production Technicians Leaf own considerable amount of time training our enables This years.* the last few in observations in this area over merchants, which has led to a steady increase measures. and prioritize ALP improvement us and our leaf merchants to better identify In Zambia, we have an established network of approximately 465 Grower In Zambia, we have an established network Clubs. Each Club is formed of 10 to 20 growers and led by a Chairman. The aim of the Clubs is to bring growers closer together and create more effective dialogue. The Clubs allow continuous communication and Agricultural Finance, engagement on a variety of topics such as Farmer Labor Practices, Minimum Agronomic Standards, and other best practices. In 2018, we trained over 452 Chairmen, in partnership with the As a result, all of our contracted government and the banking sector. growers in Zambia, for instance, now have bank accounts. % 96 AGAINST ALP AGAINST

WERE OBSERVED WERE OBSERVED OF OUR DIRECTLY OF OUR DIRECTLY CASE STUDY CONTRACTED GROWERS CONTRACTED GROWERS OUR TARGET: AGRICULTURAL LABOR PRACTICES will implement We our Agricultural Labor Practices (ALP) program in all sourcing countries by 2025. Our activities in Japan activities in Our JT FARM JT FARM cultivation share effective tobacco In order to in 2018 we established practices with growers, The farm functions as a in Japan. the ‘JT Farm’ where we try out new techniques development center, them to growers. and methods before introducing AND BALING ENHANCED CURING a new curing process for burley are implementing We hours by 15%. working tobacco, which can reduce to prevent the contamination This method also helps materials during green leaf of non-tobacco related baling. ALP IMPLEMENTATION IN JAPAN ALP IMPLEMENTATION a long-standing relationship with growers have We the ALP a 2017 pilot study, in Japan. Following carried fully implemented in 2018. We program was to address out farm visits and questionnaire surveys labor issues on tobacco farms. Based on our we will continue to make findings and observations, improvements. IN 2016 IN 2017 IN 2018 IN 2016 IN 2017 IN 2018

O A O A 21% 90% 96% 31% 73% 96% OUR PROGRESS AGAINST in coverage almost 100% able to achieve were We short period of time due to a successful a relatively pilot program in our international tobacco business 2013 and 2016. Our learning that ran between shaped our current approach and enabled effective implementation with both our directly contracted and tobacco leaf merchants. growers to include new broadened the target now have We acquisitions in countries such as Bangladesh and Ethiopia. THE TARGET AGRICUTURAL LABOR PRACTICES LABOR AGRICUTURAL on (ALP) are based Labor Practices Our Agricultural conventions Labor Organization’s the International consists of three program The and recommendations. respect for the rights of labor, pillars: tackling child and safety. health and ensuring workplace workers, or through source tobacco directly we Whether a all of our suppliers have tobacco leaf merchants, to implement our Agricultural contractual obligation a continual cycle ALP drives Labor Practices (ALP). a concept deeply and dialogue, of improvement about By speaking to growers rooted in our business. can face, we issues they and the their experiences ground and on the improvements constantly make on ALP in anticipate future challenges. Read more our booklet published on jti.com. made a commitment to implement previously We are pleased We ALP in all sourcing countries by 2019. 96% of our observed to share that in 2018, we and 96% of our tobacco directly contracted growers leaf merchants reported against ALP. 46 ARISE We work collaboratively with growers, OUR CONTRIBUTION TO PREVENTING CHILD LABOR Our flagship program, ARISE – Achieving Reduction communities, business leaders, and of Child Labor in Support of Education – has been 2016 2017 2018 committed to tackling child labor in our tobacco governments to create solutions that growing communities since 2011. address the root causes of child labor Brazil 34,640 31,991 23,848 In 2018, ARISE placed 7,123 children into formal whilst always keeping the child’s right to education, building on the impact of previous years. COMMUNITY Malawi 11,820 10,028 12,132 The program is forging real sustainable change quality education at the heart of what we MEMBERS EDUCATED by implementing robust solutions to prevent do. Year on year, we help more children IN CHILD LABOR child labor. For more details on the program, see ELIMINATION (*E) Zambia 1,384 8,166 99,658 ariseprogram.org. into formal education and create new In preparation for the next phase of the program opportunities for them and their families. Tanzania 879 5,060 55,160 starting in 2019, the ARISE team carried out a Social Elaine McKay, Return on Investment assessment of the program Social Programs Director, JT International Brazil 766 3,185 1,893 in 2018. The aim was to better understand the value of our investments, from the perspective of our Malawi 6,414 7,063 3,087 beneficiaries. The findings helped us to complete a CHILDREN OFF comprehensive review of all the program’s activities, FARMS AND INTO SCHOOLS (*E) showing their impact on both the beneficiaries and Zambia 2,562 4,167 This year has also seen a reshaping of the ARISE 1,546 our business. program and the contractual framework supporting The review identified a number of activities that are it. From 2019 onwards, we will continue to work Tanzania 0 680 597 particularly valuable in creating a positive impact. with our contractual partner Winrock International (a These include, for instance, income generating US based internationally renowned NGO) to deliver activities at a household level. the program. Although the International Labour Organization (ILO) will no longer be a contractual The assessment has affirmed the great value ARISE partner, we welcome the ILO’s commitment to TOBACCO BUSINESS has brought to the communities where we operate continue engaging with the program on the ground. over the last eight years. The findings will also enable ARISE to become a more scalable and leaner program in future. In 2018, we focused on raising awareness In the next phase of ARISE, we are committed to about child labor in the communities where Although the ARISE program is formally monitored scaling up the ARISE program together with Winrock, we operate, through radio programs and local and evaluated, it currently lacks a system to monitor and during 2019, we will embark on new and events. Therefore, our numbers of community the progression of children withdrawn from child innovative partnerships that will allow us to digitize members educated in child labor elimination labor over time. The program has incorporated our approach to child labor monitoring in our directly have increased significantly in Zambia and this learning into the design of the next phase, by contracted sourcing origins, where ARISE is currently Tanzania, in particular. An educated community digitizing our approach to child labor monitoring. active. will also enable us to increase the number of children taken off farms and into schools in the coming years.

GROWER SUPPORT PROGRAMS Our Grower Support Programs are investments that address social needs in our tobacco growing communities.

ACHIEVEMENTS THIS YEAR (*E)

90 2,000 489 800 2,500 water systems solar panels children benefited adults received growers benefited installed in provided to from access to literacy training from improved Malawi, Tanzania, growers in quality education in Zambia healthcare and Zambia Malawi through school facilities in construction in Malawi, Tanzania, Tanzania and Zambia

48 49 Promoting forestry on small-scale farms

OUR APPROACH MATOPE BARNS Responsibly managing the use of natural resources An innovative development of the ADET centers are within our operations supports the long-term viability Matope (mud) barns, a more fuel-efficient type of curing barn. of our business, and helps protect the environment. OUR TARGET: That’s why we have embedded forestry considerations FORESTRY Using Matope barns can lower wood consumption into internal management processes and strategic We will replace all wood by 75% and reduce carbon emissions by 12%. At the decision-making throughout the organization. from natural forests same time, cured leaf yields are 17% higher, while used in the tobacco We have been working closely with our growers to the quality of leaf also improves and grower returns curing process of our improve tobacco yield and quality. Reducing intensity rise by approximately 400 U.S. dollars per hectare. directly contracted in use of soil, water, and wood generates increased Growers in Zambia installed over 1,300 Matope barn growers with renewable returns for growers and a reduction in environmental units in 2018. fuel sources by 2030. impact – all of which makes our business more This is an important development, as the emissions sustainable. associated with curing tobacco leaf represent the In countries where tobacco production depends on largest single source of Scope 3 emissions for our wood for the curing process, we believe it is our business. Read about how we reduce emissions in responsibility to ensure this resource is managed our own operations on the next page. and used efficiently while also contributing to environmental conservation.

AGRONOMY DEVELOPMENT AND For me, as a researcher, JTI’s EXTENSION TRAINING commitment to the real quest for

We have model tobacco farms in Brazil and Zambia, TOBACCO BUSINESS also known as Agronomy Development and sustainability has been very motivating. Extension Training (ADET) centers. This is where Our partnership forms a sound CASE STUDY we carry out applied agricultural and environment related research and development related to soil foundation for developing energy management, mechanization, production cost sustainability strategies for small-scale Contributing to forest efficiencies, and cultural practices. tobacco growers. This in turn helps to These innovative centers enable us to study, test, rehabilitation in Brazil innovate, and calibrate our ideas, before taking generate income, reduce GHG emissions, them to growers as recommended best practices. and increase the productivity of planted JTI has partnered with the Wildlife Research and The ultimate goal is to ensure tobacco farming forests, securing a sustainable supply of Environmental Education Society to restore over 300 remains viable and profitable for our tobacco hectares of permanent protection areas in Brazil with growers, while respecting and complying with the wood for tobacco production. funding from the National Bank for Socio-Economic relevant environmental requirements and regulations. Development. These areas include land owned by Professor Dr. Jorge A. Farias, In our ADET centers, we focus on forestry research Federal University of Santa Maria, Brazil tobacco growers and part of the Irati National Forest. to improve wood production and efficiency in The restoration work started in 2018. In Irati National Forest, tobacco curing, as well as on forest conservation 35 hectares of pine trees were replaced by native species to help and rehabilitation. We identify the forestry challenges restore the natural landscape. The project also involved the along with applicable solutions to minimize our OUR MINIMUM FORESTRY STANDARDS training of 33 local college students in ecological restoration. impact on the environment at small-scale farm level. Through our ADET centers, we have developed our We defined priority areas in strategic river basins, based on Since 2013, we have been organizing ADETs days, to Minimum Forestry Standards – a set of forestry factors such as soil, rain, and proximity to other projects, to which growers from around the country are invited specifications and guidelines that our growers must create green corridors (strips of land with sufficient habitat to participate. Last year, more than 1,100 growers follow. We have established these standards in to support wildlife) connecting different regions. One of attended the day, the theme being “Preparing the all the countries where our growers use wood for the first sites we selected was the Taquaral river basin in soil for a new future”. The growers learnt about tobacco curing, either as a source of curing fuel or Parana State. We introduced the project through a series technological innovation in tobacco production, as for live barn structures: Brazil (2012) and Malawi, of mobilization meetings, attended by 200 local growers. well as in soil and environment conservation. Tanzania, and Zambia (2014). As a result, growers The partnership provides growers with technical assistance Another fundamental part of these model farms is in those countries are able to establish and manage and support, before and after the restoration work capacity building. There is a robust and continuous better quality woodlots. This approach brings us begins. We are committed to protecting and restoring cycle of training and engagement of our Leaf closer to achieving sustainability in wood supply. natural forests, and supporting local communities. Production Technicians, who pass on their knowledge It also reduces our environmental impact by helping of best agricultural practices and innovation to the to avoid deforestation and improve the conservation growers. Read more on page 45. prospects for natural woodland.

50 51 CASE STUDIES

Reducing our environmental impact in manufacturing 1 Sustainability is deeply embedded within our manufacturing operations. At our factories around the world, we work to minimize our environmental impact by focusing on energy GHG EMISSIONS EFFORTS IN JAPAN RUSSIA efficiency, GHG emission reduction, water efficiency, and is certified as an Eco Rail mark company JT OUR TARGET: SWEDEN waste reduction. by the Ministry of Land, Infrastructure, GREENHOUSE GAS Transport, and Tourism in Japan. This EMISSIONS In recent years, we have made a concerted effort towards group of companies is reducing GHG We will reduce greenhouse increasing the proportion of our energy that comes from emissions through techniques such as gas emissions from our renewable sources, and this has been reflected in our modal shift – changing from trucking to own operations by 35% expenditure. Since 2016, we have invested nearly 13 million container transportation via rail and sea and from our direct leaf U.S. dollars in renewable energy. – and improving truck-loading ratios. supply chain by 40%, We are further reducing water usage and improving between 2015 and 2030. received two recycling, enhancing our management of wastewater, and The JT Kansai factory awards from Kyoto City and Kyoto addressing water-related risks to our operations. Prefecture government for its excellent TURKEY In terms of waste, our focus is on improving yield, reducing emission reduction initiatives. The factory waste disposal, and decreasing secondary packaging. is proactively tackling the reduction of OUR TARGET: IRAN WATER AND WASTE GHG emissions through initiatives such JAPAN Read about our approach to environmental management on We will reduce water EGYPT as high efficiency freezer installation page 26. JORDAN withdrawal by 15% and eco-friendly compressor use. and waste by 20%, in relation to our own operations, between 2015 and 2030. TOBACCO BUSINESS 2 3 PHILIPPINES

HARNESSING RENEWABLE ENERGY WATER WASTE GREEN ENERGY SOLAR STEAM GENERATION SOLAR ELECTRICITY GENERATION We continue to identify ways to reduce Many of our factories reuse large tobacco VARGARDA, SWEDEN AMMAN, JORDAN BATANGAS, PHILIPPINES water usage in our factories. packing cases and wooden pallets. This The program minimizes Awarded the “Environmental In the largest self-consumption reduces the amount of waste generated. ›› Better irrigation processes and timing in CO2 emissions and energy Stewardship Award” by the rooftop solar system in South-East Jordan and Iran have reduced water demand Our factory in Iran has boosted its recycling consumption at the factory Ministry of Environment in Asia, 17,040 solar panels convert for irrigation by around 40% (around rate from 48% to 93% by changing its by combining green energy Jordan and the World Bank, this the sun’s energy into usable 19,000 m3 annually). waste management method for tobacco alternatives with a range of cost- is the first tobacco factory in the electricity. The use of solar energy dust and acetate tow. Tobacco dust is used effective energy-saving projects. world to use direct solar steam helps prevent approximately ›› Thanks to improved technology, our Turkey now as agricultural organic fertilizer, and The factory is connected to a generation. 4,000 tons of GHG emissions a factory is now able to reuse the majority of the the acetate tow as the raw material for a nearby bio-steam facility, which year. wastewater from its water filtration process. A rooftop-mounted collector, specific type of packaging production. heats the factory by burning CO2 steam storage, and a steam-driven ›› Our factory in Egypt reduced water neutral woodchips. The factory absorption chiller provide the site consumption by over 30% through improved also uses a steam-to-hot-water with energy and building heating container washing, a mixer project upgrade, Our Environment Program for Markets, conversion system to heat the and cooling. The system covers and boiler feed water reuse. which will be launched in 2019, aims to help offices, helping it to achieve a 85% of the plant’s annual steam our office and warehouse locations to raise remarkable 67% reduction in CO2 ›› By reusing recovered water (condensate) for consumption, and helps reduce awareness of our environmental impact, and emissions. its manufacturing process, our Yelets factory its CO2 emissions by 12% or 500 to develop programs to reduce this impact in Russia reduced water consumption by 5% by sharing guidance and best practices. To further reduce energy tons a year. (26,400 m3 per year). consumption, the team also plans The factory’s ultimate ambition is to rebuild the ventilation system, to be 100% carbon neutral. improve the heating and cooling system, install a better control system, and improve insulation.

52 53 Exceeding A consumer-centric expectations with approach For products to have the potential to reduce the This approach to our Reduced-Risk Product research products and services risks associated with smoking, consumers must first and development is reflected in the Harm Reduction understand and appreciate their value. We therefore Equation, and helps us to concentrate on exceeding take a consumer-centric approach towards research the expectations of all of our key stakeholders: and development, and focus on four major factors consumers, shareholders, employees, and the wider As alternatives to traditional combustible products, that motivate consumers to consider Reduced-Risk society. e-cigarettes (E-Vapor) and tobacco vapor products OUR COMMITMENT Products: The success of any harm reduction intervention is (T-Vapor) are gaining popularity with consumers We will be a total tobacco company, ›› The potential for a product to reduce the risks dependent on two factors: its potential to reduce around the world. Our industry is changing, but our offering consumers an even greater associated with smoking the risks associated with a particular activity and commitment to consumer choice remains. choice of products by focusing on quality, the number of people who adopt the intervention. We are always listening and reacting to the changing innovation, and reduced risk potential. ›› Affordability and value for money After all, while non-combusted tobacco products and tastes of adult smokers and vapers around the ›› Social considerations – seeking products with low e-cigarettes drastically reduce the exposure to known world. We develop, test, and bring to market new smell, so as not to disturb others harmful constituents in tobacco, and therefore have and innovative forms of Reduced-Risk Products that the potential to lower the health risks of smoking, have the potential to reduce the risks associated ›› The convenience of being able to use a product in their potential value is lost when consumers do not with smoking and offer real benefits to consumers, a wide variety of locations and occasions. accept these alternative propositions. society, and our business. OUR TARGET Between 2018-2020, we are investing 100 billion We will lead in providing the widest Yen in Reduced-Risk Products, to further develop range of consumer choice in the our supply chain and expand our research and Reduced-Risk Product category. development capabilities. HARM REDUCTION EQUATION TOBACCO BUSINESS

PRODUCT RISK-REDUCTION X PRODUCT ACCEPTANCE = HARM REDUCTION

Recent third-party* reports from the U.K. and the U.S. on the relative safety of e-cigarettes state that, Evidence so far shows based on available evidence, the current generation of that e-cigarettes are e-cigarettes are less harmful than smoking. safer than smoking. We welcome further studies into the effects of long- term use of e-cigarettes. Cancer Research U.K., 2017

JT SCIENCE: AN ONLINE RESOURCE FOR ALL OUR CONSUMER-CENTRIC STRATEGY BENEFITS JT Science is a valuable online resource for FOUR KEY STAKEHOLDERS both scientists and non-scientists alike. Our mission is to inform, educate, and collaborate with all those interested in learning about the Science is at the very heart of our science behind Reduced-Risk Products – from RELEVANT & DIVERSE POTENTIAL FOR Reduced-Risk Products business. Through consumers to scientists and the regulatory PRODUCT OFFERING HARM REDUCTION community. With JT Science, we strive for JT Science, we aim to widen our audience, an open, balanced, and fair platform where CONSUMERS SOCIETY addressing people’s natural inquisitiveness factual scientific data and assessments are shared in a transparent way. The results of about science in a clear, concise, and easy to our studies that scientifically evaluate our Reduced-Risk Products are publicly available navigate manner. ENHANCED RETURNS NEW PROFESSIONAL on www.jt-science.com. IN THE LONG TERM HORIZONS Ian Jones PhD, Principal Scientist Vice President, R&D, JT International $ SHAREHOLDERS EMPLOYEES

* - E-cigarettes, Seventh Report of Session 2017–19. House of Commons Science and Technology Committee. 2018. HC 505 - Evidence review of e-cigarettes and heated tobacco products 2018. Public Health England. 2018 Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products 54 - American Cancer Society Position Statement on Electronic Cigarettes, February 15, 2018 or encourage smoking among consumers 55 Empowering consumer choice Reduced-Risk Products

We are committed to providing adult consumers with a relevant and diverse product offering, and to Supply chain communicating the benefits and reduced-risk potential of each product so that consumers can make an informed choice. We have established a dedicated supply chain for our Reduced-Risk Products, building strong supplier At the end of 2018, our Reduced-Risk Product portfolio was present in 13 countries with a choice of tobacco partnerships that support business expansion and vapor products (T-Vapor) and e-cigarettes (E-Vapor). meet the demands of our increasingly sophisticated portfolio. In addition to our in-house production WHAT IS T-VAPOR? WHAT IS E-VAPOR? capabilities, we source from manufacturers across Our portfolio in Reduced-Risk Asia and Europe. Out of seven supplier factories, five T-Vapor products contain tobacco that is heated Also known as electronic cigarettes, E-Vapor factories are ISO 14001 certified. (though not burnt) to create an inhalable vapor. products heat a liquid that usually contains nicotine, Products is true to our philosophy Consumers particularly enjoy the wider social but no tobacco. They create an inhalable vapour by of providing consumers with choice In 2018, we opened a new e-liquids production freedoms that they bring compared to conventional electrical heating of a liquid (known as an e-liquid) facility in Gostkow, Poland as an extension of our products. Our T-Vapor category currently consists contained within the device or a replaceable and quality. We are proud of our existing European Flavor House. Most of our e-liquids of Heated Tobacco and Tobacco-Infused Vapor cartridge. Consumers are particularly drawn to the wide range of products, both in that contain nicotine, and tobacco capsules, are now products: wide range of different devices and flavors available. produced in-house. They offer optimum levels of social consideration, e-cigarettes and tobacco vapor. Heated Tobacco delivers the satisfaction of a convenience, and affordability. Daniel Torras, tobacco experience; Senior Vice President, Reduced-Risk Products, JT International Tobacco-Infused Vapor addresses consumer needs of social consideration and convenience, whilst continuing to deliver a true tobacco taste experience. OUR REDUCED-RISK PRODUCTS SUPPLY CHAIN TOBACCO BUSINESS

OUR PRODUCT PORTFOLIO (as of January 2019) HEATED TOBACCO

U.K. POLAND T-VAPOR CHINA JAPAN

VIETNAM

INDONESIA TOBACCO-INFUSED VAPOR

Logic Power Logic LQD Logic Pro Logic Compact (Cig-a-like) (Open tank system) (Closed tank system) (Closed tank system)

Ploom Logic

A C A C E-VAPOR

C C U

C S I

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products 56 or encourage smoking among consumers 57 As of March 2019 in Japan, we offer A BETTER UNDERSTANDING OF T-Vapor Brand Focus: premium tobacco capsules in ten JAPANESE CONSUMERS flavors from the JT Group’s leading Ploom TECH tobacco brands, Mevius and Pianissimo Growth in the T-Vapor category has been mainly following the launch of a new white driven by Japan, which in 2017 accounted for over Ploom TECH is our Tobacco-Infused Vapor Ploom TECH device. 90% of global T-Vapor sales by volume. By increasing proposition that offers consumers a clear taste, with our share in the Tobacco Vapor category, we will less smell and high usability. The product is currently strengthen our position as the leading tobacco available in four markets. company in Japan. Ploom TECH has been specially developed for In order to maximize product acceptance, in consumers who enjoy tobacco but want to do so in a accordance with the principle of the Harm Reduction Equation (see page 55), we have carried out more considerate and convenient way. HOW WE ASSESS THE REDUCED-RISK numerous studies in Japan to identify consumer POTENTIAL OF PLOOM TECH Our scientific assessments to date reinforce the risk- motivations and needs. In one study of over 3,000 reduction potential of Ploom TECH. The data*1 show When it comes to the assessment of consumers, we learned that Japanese consumers are that compared with smoking, Ploom TECH offers a reduced-risk potential, we take a tiered motivated primarily by externally-driven needs, such more than 99% reduction in the key constituents of approach by: as social consideration and convenience. on these needs better than competing products, emissions that have been linked to health concerns.*2 and was rated significantly higher in terms of having ›› Characterizing the key constituents of They want an alternative to cigarettes that does not no smoke smell – a hugely important consideration The data*3 also shows that Ploom TECH use has the emissions disturb others with the smell of smoke, and is easy to in Japanese culture. With regards to convenience, minimal impact on indoor air quality, which explains use in a wider range of settings. ›› Examining exposure and uptake of why an increasing number of restaurants in Japan consumers rated Ploom TECH considerably higher emissions, i.e. what is absorbed into have allowed the exclusive use of Ploom TECH (see A subsequent study of over 4,300 Japanese than the competition in terms of ease of use, low the body below). consumers demonstrates that Ploom TECH delivers maintenance, and long battery life. ›› Investigating the effect (the impact of Details on this research can be found on our website: this uptake on the body) www.jti.co.jp/investors/library/presentation/2018_ PLOOM TECH ATTRIBUTES London/pdf/20180605_4.pdf ›› Looking at the impact on the SOCIAL CONSIDERATION CONVENIENCE surrounding environment (indoor air TOBACCO BUSINESS quality studies)

NO SMOKE SMELL EASY TO USE MINIMAL MAINTENANCE CONTINUOUS USE

CASE STUDY

“No Smoking, Ploom TECH only” in over 3,700 restaurants

As part of our commitment towards accommodating the desires of both smokers and non-smokers, we continue to provide businesses with information on Ploom TECH to help them satisfy their customer needs and decide whether to allow the use of Ploom TECH on their premises.

As of February 2019, many businesses across Japan, including over 3,700 restaurants, have chosen a policy of “No Smoking, Ploom TECH only.” This is the result of the unique ability of Ploom TECH to deliver on the no smoke-smell promise.

Following this success, similar efforts are underway to support companies across Japan in introducing “No Smoking, Ploom TECH Only” rooms in their workplaces. We are also building partnerships with car rental companies to benefit Ploom TECH customers.

We feel that this step towards a society that is more inclusive of those who choose to enjoy tobacco will lead to a greater understanding of the benefits of vaping products. The increased adoption and acceptance of Ploom TECH will benefit users and society as a whole, as well as Japanese businesses that wish to accommodate the needs of their customers.

Chemical analysis and in vitro toxicological evaluation of aerosol from a novel tobacco vapor product: A comparison with cigarette smoke. Takahashi et * 1 al. Regulatory Toxicology and Pharmacology. 2018. 92:94-103

It does not imply that the health risk associated with the use of the product is relatively small compared with that of cigarettes. It compares the amounts * 2 of nine constituents, the WHO recommend to reduce as a priority, which are contained in one puff of cigarette smoke and one puff of a tobacco vapor of Ploom TECH. Standard test cigarette (3R4F) was selected as the test cigarette product. 58 Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products 59 * 3 Indoor air quality (IAQ) evaluation of a Novel Tobacco Vapor (NTV) product. Regulatory Toxicology and Pharmacology. 2018. 92:278-294. or encourage smoking among consumers BUILDING ON THE SUCCESS OF THE PLOOM BRAND We are committed to continually improve our product offering. In line with this, we have developed two innovative new products in 2018, launched in January 2019 through the dedicated online store and Ploom shops in Japan. Our national expansion plans are on track and we will achieve full national coverage by the end of 2019. Thanks to their different heating temperatures, the new products offer consumers different experiences.

Ploom TECH+ (Plus) Ploom S This new tobacco-infused, low-temperature heating We have entered the Heated Tobacco category product leverages the unique features of Ploom with Ploom S, a high-temperature heating product TECH, such as less smell and high usability. It allows that offers a superior tobacco taste. Compared to consumers to enjoy a powerful rich tobacco vapor, cigarettes, it produces less than 5% of the odor*1 and while producing less than 1% of the odor*1 and provides a reduction of over 90%*2 in the levels of providing a reduction of over 99%*2 in the levels of measured potentially harmful constituents. measured potentially harmful constituents compared to cigarette smoke.

The launch of these products will be boosted by the strong support of the JT Group in Japan, with both devices co-branded with Mevius, the country’s #1 cigarette brand and benefitting from our leading in-market salesforce capabilities – a critical advantage. Please see page 56 to learn how these new products fit into our Reduced-Risk Product portfolio. TOBACCO BUSINESS

RECYCLING SCHEMES FOR PLOOM TECH We encourage consumers to dispose of empty capsules and cartridges from their devices in a responsible manner. In Japan, we introduced a recycling program where recycling boxes were sent out to almost 270,000 people so that they could return their empties for recycling conveniently and free of charge. The program was a significant extension of a similar pilot conducted in 2017, where 16,000 recycling boxes were distributed. In addition, we sent recycling boxes to shops selling Ploom TECH, thus providing consumers with the option to return the items in person. The 2018 program was a success, with 1,375,487 empty capsules and 329,394 empty cartridges returned for recycling. Following positive feedback from consumers, we will continue to investigate a more holistic approach to recycling and waste management. We have already begun a similar program in Switzerland and hope to roll out further programs across our Ploom TECH markets in 2019.

Results of the research based on the three-point comparative odor intensity indication method by six people who have passed the olfactory test. Cigarette * 1 smoke and Ploom TECH+ and Ploom S tobacco vapor, which contains constituents derived from tobacco leaves, were diluted with odorless air in the bags, and the odor of each bag was statistically quantified as the “dilution factor of just no odor”.

It does not imply that the health risk associated with the use of the product is relatively small compared with that of cigarettes. It compares the amounts * 2 of nine constituents, the WHO recommend to reduce as a priority, which are contained in one puff of cigarette smoke and one puff of a tobacco vapor of Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products 60 Ploom TECH+ and Ploom S. Standard test cigarette (3R4F) was selected as the test cigarette product. or encourage smoking among consumers 61 E-Vapor Brand Focus: Logic RESPONSIBLE RECYCLING AND DISPOSAL SCHEMES FOR LOGIC We take our responsibility for the environment very or dispose of Logic products at the end of their useful seriously and provide consumers with advice and life. This is tailored to local requirements, and more With 4 E-Vapor devices and 15 rich flavors, products Launched in the U.K. in 2018, Logic Compact is the support to help them conveniently and safely recycle details can be found on Logic websites. under the Logic brand ensure consumers can enjoy latest device in our lineup. By providing high levels a superior and flavorsome vaping experience. Logic of convenience in terms of both portability and ease products are currently sold in 11 countries and we of use, we expect that this new device will help us aim to expand this to 20 markets by the end of to deliver the benefits of vaping products to an even 2020. All products are developed in line with strict wider audience of adult smokers and vapers. HOW WE MANAGE LOGIC WASTE international quality standards*.

DIRECTLY WITH CONSUMERS THROUGH OUR PARTNERS

In the U.K. and Germany, we provide consumers In the U.S. and France, we partner with waste with a convenient way to return any old Logic tip, management specialists who help consumers battery, or charger to us for safe disposal. to easily and safely recycle or dispose of device components. logicvapes.co.uk/econo-weee logicvapes.us/social-responsibility TOBACCO BUSINESS

LATEST REGULATORY DEVELOPMENTS ON E-CIGARETTES IN 2018 It is in the public interest for regulation to be evidence-based, proportionate, and effective. We support the principles of Better Regulation (see page 65), which argue for measures that preserve consumer choice and market freedom. Regulation of Reduced-Risk Products is fast-moving and we monitor developments closely. The following are just a few examples of some key regulatory developments around the world in 2018.

Canada Switzerland U.K.

An important recent On April 24, 2018, the On August 17, 2018, the development in North Federal Administrative Court U.K. House of Commons’ American regulation is the ruled that the 2015 ban on Science and Technology legalization in Canada of retail of nicotine liquids for Select Committee published e-cigarettes containing e-cigarettes was illegal. its report on e-cigarettes and nicotine. This ruling is based on the novel tobacco products to The new Tobacco and Vaping “Cassis-de-Dijon” principle, widespread media coverage. Products Act establishes more whereby all goods permitted The report is highly supportive liberal provisions regulating for retail in the EU, should of liberalizing the regulation the commercialization and also be allowed to be sold in of e-cigarettes due to clear promotion of e-cigarettes. Switzerland. evidence that they are substantially less harmful than In 2019, it is expected that conventional cigarettes. provisions for manufacturers to make reduced-risk claims will be included in the Act.

* Global standards: IEC 60335-1, IEC 60950-1. – EU standards: EN 55014-1, EN 55014-2, EN 60335-1, EN 60950-1, EN 62133, Directive 2006/66/EC on Batteries and Accumulators, Regulations (EC) No. 1907/2006. – US standards: FCC, CFR 47 Part 15 Subpart B (Federal Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products Communications Commission. Code of Federal Regulations, Volume 47, Part 15, Subpart B), Electromagnetic compatibility, UL 1642 Standard for 62 or encourage smoking among consumers 63 Lithium Batteries (CEC). Optimizing the OUR TOBACCO PRINCIPLES

regulatory environment OPENNESS ABOUT THE RISKS OF SMOKING YOUTH SMOKING PREVENTION 1 Smoking is a cause of serious diseases, and 4 Minors should not smoke and should not be everyone should be appropriately informed able to obtain tobacco products. This belief about the health risks of smoking. is central to our Code of Conduct, marketing Championing better regulation practices, and the way we do business. for informed choice

TRANSPARENCY ABOUT OUR PRODUCTS We value and support the freedom for adults to make Smokers want to know what it is they are ACCOMMODATION BETWEEN SMOKERS informed choices, and we play our part by ensuring 2 smoking, and we provide information about AND NON-SMOKERS all consumers understand the associated risks when OUR COMMITMENT the ingredients we use. 5 Many people have concerns about exposure deciding to smoke or not. That is why we are as We will ensure the Company is to environmental tobacco smoke. We transparent about our positions on smoking and included in policymaking leading advocate tailored, practical, and effective health as possible. It is also why, no matter what we to fair and balanced regulation solutions, that separate smokers and do, we adhere to the five core principles that define and enhance our cooperation with non-smokers while accommodating the our attitude to smoking (see opposite page). We also governments to combat illegal trade. REDUCED-RISK PRODUCTS legitimate interests of both. Further to work in a highly regulated operating environment, We believe products that do not involve this, we are committed to developing and and monitor developments and prepare for changes 3 combustion and do not produce tobacco bringing to market Reduced-Risk Products in regulation well in advance. This is done in line smoke are products with the potential to that also have the potential to reduce the with our tobacco principles, so that we go above and reduce the risks associated with smoking. impact of smoking to others. beyond our obligations. We are committed to developing and bringing to market Reduced-Risk Products that meet consumer expectations. We will

OUR TARGET TOBACCO BUSINESS We will always protect our ability to help adult consumers to make informed participate in public policy debate with choices by providing factual information the aim to achieve balanced regulation acquired through scientific assessment that meets societal concern and supports about the products they may wish to use. business growth.

Our views on specific regulatory topics can be read SUPPORTING ‘BETTER REGULATION’ online: www.jti.com/about-us/our-business/our-views- on-regulation. Smoking carries risks to health, and appropriate and A key aspect of Better Regulation is a transparent proportionate regulation of the tobacco sector is both legislative process, one that involves all interested necessary and right. To meet public policy goals, and affected parties. whilst respecting the rights of all stakeholders, it is With regulation affecting our products and our important that regulation is evidence-based, practical, industry, we exercise our right to make our views PLAIN PACKAGING enforceable, and competitively neutral. known, by engaging openly and transparently with To help lawmakers develop Better Regulation, the government stakeholders (including regulators), non- OECD has endorsed the internationally-recognized governmental organizations, and all other relevant ‘Guiding Principles for Regulatory Quality and stakeholders. We seek to ensure that the regulatory Performance’, which we support. These can be environment encourages innovation, business E-CIGARETTES PRODUCT DISPLAY BANS summarized as: growth, and freedom of consumer choice so that we may better serve the needs of consumers, society, ›› Coherence and our business. ›› Openness We engage openly in regulatory process at all stages, STAKEHOLDER PARTICIPATION ATTRACTIVENESS ›› Proportionality and take part in public consultations by providing IN REGULATORY PROCESSES arguments supported by evidence and alternative ›› Participation solutions. ›› Effectiveness We support public discussions on the topics of good ›› Accountability governance, Better Regulation, and transparency. INGREDIENTS We demonstrate our commitment to Reduced-Risk Products and provide tangible solutions to societal issues.

64 65 OUR VIEWS ON REDUCED-RISK SPOTLIGHT: PRODUCT REGULATION BRANDING BAN The tobacco industry is undergoing a transformation The ability to build and use a brand is essential for What’s more, plain packaging has serious negative as Reduced-Risk Products gain popularity in many businesses to thrive and economies to prosper. consequences for society and consumers. It makes countries. We believe that these products offer real Distinctive branded packaging is vital for competition, counterfeit products easier to produce, distribute, benefits to consumers and society (see page 56), and and enables consumers to identify, obtain information and sell. This encourages criminality and impacts that consumers should be free to choose them. about, and choose their preferred brands of tobacco government tax revenues. Consumers and retailers Governments and regulators should avoid restrictive products easily and without confusion. However, struggle to tell the difference between brands, which regulation that suppresses innovation and prevents branding bans are imposed on the tobacco sector damages competition and affects business. It also adult consumers from selecting these products. in certain parts of the world, and these are not infringes our rights to property, expression, and trade, based on, or consistent with, a credible and without proper justification. We are committed to working with regulatory ENGAGING WITH OUR scientifically rigorous understanding of the behavior authorities, public health bodies, and the scientific In 2018, the WTO Panel on Plain Packaging ruled of smokers. These types of restrictions are also community, to create the best possible frameworks STAKEHOLDERS in favor of Australia. The decision is a major step being considered for other consumer products. for these products to reach their full potential, and a Whilst we are prevented from attending events such backwards for the protection of intellectual property Since the implementation of the plain packaging level playing field for all manufacturers. as COP8 or MOP1, we do attend other industry rights internationally. It sets a precedent that could policy in Australia in 2012, followed by France, the events such as the Global Tobacco and Nicotine encourage governments to ban branding on other U.K., Ireland, New Zealand, and Norway, no studies REGULATORY DEVELOPMENTS Forum (GTNF), where we are able to engage with products without providing any reliable evidence of a wide variety of stakeholders and make our voice have shown convincing evidence that it reduces the IN 2018 benefits to the public interest. The Panel decision heard. number of people choosing to smoke. has been appealed by the Dominican Republic and We continue to follow the evolution of the WHO We attended GTNF 2018 in London, a key Consequently, we believe these bans fail to achieve Honduras and the dispute is now before the WTO Framework Convention on Tobacco Control (FCTC). international conference where commentators stated public policy objectives and are, in fact, Appellate Body, which will deliver a final outcome. The Protocol to Eliminate Illicit Trade in Tobacco gathered to discuss the future of the tobacco and Products (the Protocol) came into force on 25 excessive and misguided. nicotine industry. The forum attracted over 315 September 2018, and October saw the eighth session participants from academia and public health Expert Reports on the impact of these plan packaging of the FCTC Conference of the Parties (COP8), as well authorities as well as the tobacco industry. A lively bans can be read here: as the first session of the Meeting of the Parties to TOBACCO BUSINESS debate reflected the mixed audience and discussions www.jti.com/about-us/our-business/key-regulatory- the Protocol (MOP1). focused heavily on the inconsistent regulation of submissions No new recommendations or decisions were taken Reduced-Risk Products. that directly impact the JT Group and its products at COP8 and MOP1. Although we continue to be denied a voice at such events, which we believe is wrong, we will persist in closely monitoring the evolution of the FCTC and the Protocol, and share our views with decision makers wherever possible.

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products 66 or encourage smoking among consumers 67 IN FOCUS TACKLING THE ILLEGAL TRADE OF OUR PRODUCTS

IN FOCUS Our approach TACKLING THE Our global Anti-Illicit Trade team investigates the Increasingly, we are examining ways to tackle illegal ILLEGAL TRADE OF illegal tobacco trade and protects consumers and trade across our entire value chain. This is resulting in society, as well as our business, from criminal a more transparent and collaborative relationship with OUR PRODUCTS elements. It is made up of dedicated professionals suppliers of items such as tobacco leaf and cigarette with many years of public service in law enforcement, filters. We have regular meetings with these suppliers regulatory bodies, and governments. A key part of and manufacturers to try to help them prevent their our business, the team works with our markets to products from falling into the hands of criminal secure our supply chain, and assist law enforcement networks. Our Anti-Illicit Trade team also supports our Experts estimate that over 10% of all cigarettes sold globally (excluding China) are illicit, with to remove illegal tobacco from the marketplace. It compliance and purchasing departments by carrying approximately 45 billion U.S. dollars in global tax revenue lost each year. This illegal trade maintains a robust dialogue with governments and out due diligence checks to ensure we are entering law enforcement agencies on the threat of illegal into contracts with trustworthy suppliers, and by fuels human trafficking, organized crime, and terror groups; and undermines legitimate tobacco through public-private partnerships. Our helping these departments to implement JTI’s policies tobacco businesses. It also causes harm to consumers, as uncontrolled products circumvent Anti-Illicit Trade team also supports other areas and procedures. of our business with research on illegal tobacco We continue to closely monitor the way in which regulations and quality controls. and raises awareness of the problem among our organized crime groups use shipping routes and we business partners, consumers, and society in general. are working with various law enforcement agencies Tackling illegal trade is a top priority for us, and our Anti-Illicit Trade team is recognized as The team protects the JT Group’s business and across the world, such as the World Customs reputation, supporting our long-term, sustainable the industry leader in combating this problem. Organization, Interpol, and Europol, to help them future. track containers suspected to be transporting illegal goods.

OUR COMMITMENT We will ensure the Company is included in policymaking leading THE JTI APPROACH TO TACKLING ILLEGAL TRADE to fair and balanced regulation TOBACCO BUSINESS and enhance our cooperation with governments to combat illegal trade. PROACTIVELY COMBATING ILLEGAL PREVENTING THE DIVERSION TOBACCO GLOBALLY OF OUR PRODUCTS BY CRIMINALS

2 3 2 3 OUR TARGET We will engage in dialogue with law O S I enforcement agencies, with the goal to C exchange intelligence regarding illegal S tobacco products, in order to support the A reduction of illegal tobacco products.

1 4 1 4

KEY WINS IN 2018 A A WE ADVISED 1,329 LAW OVER 2.7 BILLION ILLEGAL 32% DECREASE IN SEIZURES ENFORCEMENT OFFICERS ON CIGARETTES SEIZED OF OUR GENUINE PRODUCTS COUNTERFEIT RECOGNITION Thanks to intelligence reports Resulting from our efforts With the goal of reducing the provided by our team to law to ensure the security of our supply of illegal products enforcement supply chain

PRODUCT SEIZURES BY LAW ENFORCEMENT

68 69 IN FOCUS TACKLING THE ILLEGAL TRADE OF OUR PRODUCTS

Supporting business performance through anti-illicit trade programs

Our global anti-illicit trade programs create the opportunity for public-private partnerships to combat highly organized criminality. They are also designed to support our business performance by fulfilling all legal requirements, securing our supply chain, safeguarding and creating opportunities for volume and profit growth, while protecting our company’s reputation. We measure their effectiveness against the below KPIs: ›› Number of seizures based on information we share with law enforcement ›› The level of illicit trade in our top markets through analysis of empty pack surveys, and the reduction we help achieve ›› Implementation of our compliance programs ›› Strengthening partnerships with law enforcement agencies, especially through training. TOBACCO BUSINESS STRATEGY, INITIATIVES, AND PERFORMANCE CASE STUDY KEY STRATEGIES KEY INITIATIVES 2018 PERFORMANCE Making a positive impact

PROTECT OUR BUSINESS In 2018, new task forces were in the Philippines THROUGH ANTI-ILLICIT set up in our Russia, Ukraine, and TRADE OPERATIONS Anti-illicit trade task Belarus priority markets. 1 Focus on priority regions forces set up in priority In 2018, our intelligence led to In 2017, the JT Group acquired Mighty Corporation, the second largest tobacco company and markets markets the seizure of over 2.7 billion in the Philippines. The country faced challenges with regards to illegal trade, notably in Combat counterfeit cigarettes (or equivalent in tobacco) relation to locally made counterfeit packs, imported counterfeit products from China, and illicit whites packs of local brands with reused tax stamps, and illicit whites* with no tax stamps at all.

For our acquisition to make a positive impact to the business, we set up several tailor-made anti-illicit trade projects in late 2017. Working together with JTI Philippines and various government agencies, our Anti-Illicit Trade team successfully established processes for reporting illegal activity to law enforcement, who in turn took the necessary action against ENSURE ANTI-ILLICIT illegal trade. TRADE COMPLIANCE We responded to over 500 law E cient and eective responses Fulfil legal obligations enforcement information 2 to information requests by law requests in 2018, and are fully Through this new system, in 2018 we were able to pass on information about illegal Legitimate Market Demand enforcement agencies compliant with all of our legal factories, storage areas, and even large retail markets where illegal sales were taking place. analyses and seizure obligations The results have been very positive, with the latest available figures suggesting that illegal investigations trade dropped by around 50% from September 2017 to the end of 2018.

›› 110 million illegal cigarettes seized in 2018

›› Including 60 million counterfeit JTI cigarettes – an increase of 400% vs 2017

›› Over 25 machines used in the production of illegal cigarettes removed from factories STRENGTHEN OUR PARTNERSHIP WITH (this is crucial to reducing the counterfeiters’ future production capabilities) Global media CUSTOMERS, GOVERNMENT, Advise law campaigns to AND LAW ENFORCEMENT enforcement on educate In 2018, we advised 1,329 law Our Anti-Illicit Trade team continues to work with law enforcement to tackle illegal tobacco. 3 Knowledge sharing with law counterfeit consumers on enforcement o cers on enforcement recognition the impact of counterfeit recognition illegal trade Implement anti-illicit trade awareness programs

‘Illicit whites’ refer to tobacco products manufactured legitimately but without any product flow control measures afterwards, and smuggled and * sold in another market.

70 71 IN FOCUS TACKLING THE ILLEGAL TRADE OF OUR PRODUCTS

Protecting our business A GLOBAL RESPONSE TO ILLICIT TRADE The Protocol to Eliminate Illicit Trade in Tobacco (for cigarettes) and by 2028 (for all other tobacco Products is the first protocol to the WHO Framework products). In order for this regime to be effective, we In 2018 our Anti-Illicit Trade team provided 1,328 EU SEIZURES OF TOBACCO PRODUCTS Convention on Tobacco Control (FCTC). It entered support the implementation of an architecture based intelligence reports to law enforcement agencies, RESULTING FROM JT GROUP EFFORTS TO TACKLE ILLEGAL TRADE (IN MILLION STICKS) into force on September 25, 2018 and has so far been on “open standards” and interoperability for every leading to the seizure of more than 2.7 billion ratified by 48 Parties. actor in the supply chain, whilst taking into account illegal cigarettes. Based on our information, law existing systems such as the new EU-wide Track and enforcement raided more than 39 counterfeit tobacco This international treaty aims to eliminate all forms Trace system. factories and storage locations. of illicit trade of tobacco products, through several 165.8 provisions that are binding on its Parties. We support We also firmly believe that the fight against illicit As a direct result of our work to tackle illegal trade, the Protocol, as it provides a global response to the trade can only be effective if governments develop and based on seizure statistics, notified seizures global problem of illicit trade. ways to address products that are not covered by the of counterfeit products in the EU have increased Protocol, such as counterfeits or illicit whites. by 82% over the past four years. During the same One of the main requirements is that the Parties period, notified seizures of our own genuine products must implement a Track and Trace regime by 2023 in the EU have decreased by 57%, thanks to our 102.3 markets’ efforts in securing our supply chain, with the 90.9 support of the Anti-Illicit Trade team. This has been 84.9 acknowledged by both the EU and the U.K.’s HM Revenue and Customs, which recognized JTI as an industry leader in the fight against illicit trade.

31.7 19.8 17.1 13.6 Ensuring anti-illicit trade FY 2015 FY 2016 FY 2017 FY 2018 compliance C T TOBACCO BUSINESS

LEGITIMATE MARKET DEMAND TRACK AND TRACE PROGRAM Our Track and Trace program has been an important Companies worldwide seek to understand the element of our compliance policy for more than a demand for their products in their markets but there decade. It helps our global efforts to support law is a clear distinction between market demand, and enforcement agencies and has been developed with “Legitimate” Market Demand (LMD). many of the biggest technology companies across CASE STUDY the world, as part of our obligations within the EU JTI must comply with the European Union Cooperation Agreement. Cooperation Agreement signed in 2007. This means Taking the fight to the digital world supplying tobacco products only in volumes that A highly technical and complex process, our Track correspond with the legitimate demand of the and Trace program requires markings on all individual The illegal tobacco trade was once largely confined to social media. Our efforts continue to evolve to meet the intended market of retail sale. and aggregated levels of products. It helps us to track the movements of the products along the supply street corners or under the counter, but the digital age has changing patterns of this crime. With a commitment to doing the right thing, in the given rise to a new era, with social media exposing more chain and supports our supply chain analysis. As a In addition to successfully taking down these illegal right way, our Anti-Illicit Trade Research team has consumers than ever to the risks of illegal tobacco. result, when seizures are brought to our attention, advertisements, we continue to collaborate with law developed a global methodology to assist JTI’s we can identify the source of diversion of the seized Our project to tackle illegal online trade expanded across enforcement agencies, providing evidence that leads to markets with a consistent and accurate approach products and implement preventative measures. Western Europe in 2018. It yielded excellent results, prosecutions. In October 2018 for example, a JTI Private to annual LMD calculations. Our markets perform disrupting sales through the takedown of links and social Prosecution led to a conviction in the U.K. of an individual the LMD exercise in conjunction with their annual In 2019, some JTI markets will be implementing a media posts that advertise JTI products illegally. who pleaded guilty to six offences relating to illegal sales plan. This creates a proactive supply chain control mandatory Track and Trace system. Among those on Facebook. mechanism to make sure that the planned sales countries will be the 28 Member States of the In 2018, we took down: volumes are in line with LMD. European Union, as per the European Tobacco ›› Over 5,960 posts Drawing upon this continued success, similar projects Products Directive (TPD2). According to this directive, ›› Over 65,300 items have now launched in the Americas and Eastern Europe The components and parameters of the LMD products must be tracked to the last economic regions. estimation vary depending on each market’s unique operator before the first retail outlet in all Member These results represent 710,433 U.S. dollars worth of characteristics and JTI’s product portfolio in that States. potential product losses to the JT Group, a decrease For more information on how we tackle market, but the global methodology provides a logical of approximately 14% over 2017. We believe that this the illegal tobacco trade online, see and defendable standard. We are currently preparing for the important changes decrease is due to a change in tactics by criminals, who are www.jti.com/our-views/new-era-illegal-trade that the new EU Directive entails and are working increasingly selling products in secretive private groups on One common factor among these varying with key stakeholders in order to comply in the most calculations is that our demand estimations comply effective way, while ensuring our EU markets will not with all laws and regulations. be disrupted.

72 73 Investing in people Talent development

A fast-changing world continues to bring new and personal development opportunities in the best challenges to our Talent Management team. The skills possible working environment. With this in mind, in Our approach our company will need in the future could be very 2018 we rolled out a new global learning platform different to those we have within our business today. featuring various face-to-face and digital courses, Employees are fundamental to generating returns including leadership and language learning. These Our sustainability journey is dependent on the skills local communities and enhance their skills. In order and securing the long-term success of our business. courses are available to 20,000 employees who can and spirit of our people working together with the to assess how effective our management approach We aim to ensure that we attract the best candidates choose programs according to their interests. communities in which we operate. We are pleased to is in our tobacco business, we have set targets to work for our business, retain our top talent, and We explain our initiatives as a Group on page 36. be an employer of choice, and our positive workplace for ‘Talent Development’, ‘Workplace Safety’, and offer current and future employees professional culture and environment help us to attract and retain ‘Community Investment’, and we will be setting a talented individuals. We will continue developing the target for ‘Diversity and Inclusion’. skills and capabilities of our talented employees and take further steps to create a diverse and inclusive culture where everyone can feel comfortable and be themselves.

We provide a safe and healthy environment for our CASE STUDY employees as we believe our people have the right to OUR COMMITMENT a secure workplace. We will be the employer of choice by investing in people. To make societies cohesive and inclusive, we invest Spreading the word in the communities in which we operate, and in the people who live there. Through our community The tobacco industry is undergoing a major transformation, and we want to make people aware of the new investment programs, we create positive impacts and opportunities that our company offers. In recognition of our need for a stronger employer brand, we launched the give our employees the chance to volunteer in their ‘Join the Idea’ HR campaign in 2018 with the aim of making our company more visible and attracting the right internal

and external talent. Our ‘Join the Idea’ campaign was hugely successful, and after its launch, the JTI Facebook page TOBACCO BUSINESS gained five times more followers than before.

OUR TARGET Thanks to this campaign, we have significantly raised the profile of our brand, which is already rated as a first-class We will be a certified employer of choice every employer in 53 markets. Our intention is that by focusing on talent management, rewards, and empowerment, we will year in at least 60 locations by focusing on talent be recognized as a certified employer of choice every year, in at least 60 locations. management, rewards, and empowerment. In line with our vision of zero workplace injuries, we will reduce injury rates by 25% by 2023 and 50% by 2030. (Baseline year: 2015).

As the global authority on recognizing excellence in people practices, we are delighted to support your ambition to continuously improve the HR policies APPLYING OUR POLICIES AROUND that affect more than 45,000 employees THE WORLD worldwide. Over the years, we have As part of our drive to expand the business seen great progress with regards to best- geographically, we have made acquisitions in new markets. In 2017, we acquired tobacco manufacturers in in-class Talent practices throughout Indonesia and the Philippines, and in 2018 we acquired the organization. This is proven by the additional tobacco companies in Russia and Bangladesh. These acquisitions considerably increased the size of our consistent presence of JTI in the top workforce. regional ratings, and the Company’s We endeavor to introduce our HR and Health and Safety policies to our new employees as soon as we can, and certification as a Global Top Employer make sure that these are endorsed across the Group. since 2015. Please refer to the GRI index at the back of this David Plink, Report for detailed information about our workforce CEO – Top Employers Institute composition.

74 75 Diversity and inclusion Workplace safety

We strongly believe that diversity in the workplace We strive to achieve zero injuries and make safety We proactively identify the risk profile of our fleets leads to competitive advantage. Greater diversity of a priority so that all of our employees return home in the countries in which we operate. This allows us thought and experience leads to enhanced innovation unharmed by their work activities. to target and tailor our training programs to local and creativity. In addition, we are convinced that our conditions and to ensure our drivers and motorcycle In our tobacco business, the highest safety risk people prosper in a workplace where differences riders adopt best practices. relates to driving vehicles and riding motorcycles. are valued. In some respects, we are already highly diverse – our workforce includes over 100 nationalities in more than 120 countries. However, in order to further strengthen our organization, we wish to increase diversity in other areas and within senior management across our Group. CASE STUDY Reducing incidents by 50% At this stage, we are still developing targets for global diversity and inclusion programs. In our international through our Motorcycle tobacco business we have engaged external advisors and spoken to employees across the business to Safety program assess the strengths and weaknesses within our organization. The fair treatment of all employees is a Driving is a critically important area of safety for us, as it can lead to serious key element of our focus on diversity and The 17 members of the Executive Committee of our injuries and even fatalities. In countries where safety standards and awareness are international tobacco business are fully committed lower, and ingrained driver behavior is less risk-averse, the danger from driving is inclusion. I am delighted to announce to making the organization more diverse and higher. To address this issue, in 2016 we launched a motorcycle risk management inclusive, and they each have a personal mentor to program in countries where employees drive motorcycles daily, such as Zambia,

that we obtained Gender Pay Equity TOBACCO BUSINESS help improve their understanding and engagement. Malawi, and Tanzania. We are now planning to implement this program in certification in our Geneva office, led We have also created a diversity and inclusion our newly acquired operations in markets such as Indonesia and Ethiopia. by the EQUAL SALARY Foundation. framework to drive change and appointed a thought leader in Diversity and Inclusion to lead our efforts in The motorcycle program is designed to reduce risks by teaching the We still have more to do in our focus this area. technique of ‘defensive driving’ to reduce accidents, and focusing on the proper maintenance and inspection of vehicles. It emphasizes the need to areas, but we are determined to harness Read more about our HR philosophy and initiatives wear proper protective equipment, such as helmets, gloves, and high-visibility the richness of our talent, ideas, across the Group on page 36. jackets. Moreover, thanks to the Train-the-Trainer sessions, we now have 38 backgrounds, perspectives and skills, to specialized motorcycle trainers who can provide training in their countries. The program has had a significant impact on safety performance. In 2018, create business value. the number of motorcycle-related injuries in the countries where we Howard Parks, implemented the programs was reduced by 50% compared to 2016 and 2017. Senior Vice President, Human Resources & Chief Compliance Officer, JT International

76 77 CASE STUDY

Making a positive Building sustainability contribution to societies through resilience and relief OUR COMMITMENT We will be the employer of The JTI Foundation is a charity specializing in Disaster As a responsible business, we wish to create a choice by investing in people. Management. The JT Group contributes 2 million U.S. positive social impact in our local communities. dollars* every year, and all funds go towards disaster Our local programs are designed to make our relief, disaster recovery, and building resilience in communities more inclusive and resilient, while disaster-prone environments. Communities become also providing volunteering opportunities for our truly sustainable when they are not only able to employees to engage with local communities and respond to disasters and undertake reconstruction develop a variety of soft skills. We will continue work, but also when they are resilient to disasters. to make efforts to meet our target to help make In July 2018, a devastating earthquake struck the communities more inclusive and resilient. OUR TARGET* We explain our approach on page 24. Indonesian island of Lombok. Many of Lombok’s citizens Between 2015 and 2030 we will invest 600 were left in urgent need of shelter, sanitation, food, and million U.S. dollars to help make communities water. Through our partners, GEA and Shelterbox, the inclusive and resilient, with our employees JTI Foundation provided disaster relief. Just a few days contributing 300,000 volunteering hours. after the initial quake, humanitarian relief (blankets *This is a Group-wide target. and food) was delivered to 3,200 people and emergency shelters were distributed to 600 displaced families.

CASE STUDY TOBACCO BUSINESS When two massive earthquakes struck Mexico in Bringing water and hope September 2017, many families were left without a home. Together with our partner, Habitat for to rural Egypt Humanity International and its Mexico National Organization, the JTI Foundation provided In Egypt, more than 35% of the population lives matching funding for 140 low-income families below the poverty line, and in rural areas, many with new, safer houses or home improvements. people do not have regular access to clean water. We also offered training to better prepare the This situation contributes to a cycle of poverty, as ill- community for possible future disasters. health and the need to access water diverts residents’ time and resources away from work and business.

Recognizing that water poverty is part of a wider problem, we partnered with Resala, one of the country’s largest NGOs. With the help and supervision of Egyptian municipalities and the Egyptian Water Company, we built the infrastructure required to deliver piped clean water to eight villages. Local Although disaster-affected areas can be reconstructed, employees participated in the project as volunteers, resilience is key to ensuring the well-being of people and and approximately 300 houses have now received communities. In the Philippines, the JTI Foundation clean piped water, benefitting around 1,800 people. partners with Build Change to increase families’ physical, Our staff were involved in the project selection, decision- economic, and social resilience to natural disasters. In making, and overseeing the legal aspects of the work. particular, we have worked to build resilience among Volunteering created a sense of belonging in what is a the informal settlement communities located in the city relatively new market for the Company. For the inhabitants of Makati – these are built on unstable, disaster-prone of the villages, the project brought not only clean water flood plains in the region of Metro Manila. Our project but also hope. Until we reached out to them with water, ensures the long-term sustainability of communities most people there felt neglected by society. The success here. We helped retrofit 90 poorly built houses, trained of the project is not only seen in the clean water flowing 90 local builders and homeowners, and have also helped through the new pipes, but also in the improved health by offering innovative financing mechanisms securing and productivity in the communities we reached. affordable funding for 450 local slum dwellers.

78 * The amount in U.S. dollars was calculated using average exchange rate (1 U.S. dollars = 0.98 CHF). 79 OUR TOBACCO BUSINESS

In our pharmaceutical business, we aim to deliver innovative drugs to patients safely, securely, and in the shortest time possible. As this business has a direct impact on human health and life, we not only strictly comply with all laws, regulations, and industry codes, but are also guided by a strong sense of ethics and responsibility. This is particularly the case in areas such as clinical trials and promoting drugs, as well as animal testing and managing chemical substances.

While JT focuses on R&D, our pharmaceutical subsidiary, Torii Pharmaceutical, produces and promotes drugs in Japan. Outside Japan, we do not have a sales function, but we do license drugs to other pharmaceutical manufacturers.

In 2018, we started to develop a sustainability strategy for our pharmaceutical business.

OUR PHARMACEUTICAL BUSINESS VALUE CHAIN * PHARMACEUTICAL BUSINESS

1 License Clinical trial Joint Research & Factory Wholesale partners participants research development “Torii Pharmaceutical” & institutions partners

OUR CUSTOMERS OUR SUPPLIERS OUR COMPANY AND CONSUMERS

5 3 2 Suppliers Contracted Sales & promotions Warehouses Medical factories “Torii Pharmaceutical” “Torii Pharmaceutical” institutions and patients

80 * This diagram represents the value chain of products manufactured and/or developed by JT, and sold and promoted by Torii Pharmaceutical. 81 Educating employees Quality assurance

We strictly adhere to specific processes to ensure Employees based at JT’s Central Pharmaceutical of pharmaceutical Responsible that our pharmaceutical business activities are always Research Institute regularly attend educational products promotion of drugs carried out in a responsible and appropriate way. programs in areas such as ethics, animal testing, We provide e-learning to help employees understand managing chemical substances, and environmental the importance of drug safety and quality assurance. management. This helps keep their skills and We have developed our own guidelines on how Torii Pharmaceutical has its own code of practice on In 2018, all of the approximately 800 employees in knowledge up to date. to conduct annual inspections to ensure that our the ethical promotion of prescription drugs, based on our pharmaceutical business completed the course. production methods fully comply with government the code of practice of the Japanese Pharmaceutical recommendations. Since 2017, for our own factory Manufacturers Association (JPMA). Medical and half of our contracted factories, we have been Representatives (MRs) of Torii Pharmaceutical provide carrying out annual inspections that fully adhere to and gather information on drugs to/from healthcare Ensuring ethical integrity these guidelines, and there were no discrepancies in professionals, and run monthly training programs the annual inspections in 2017. In 2018, we started to ensure adherence to this code. Through internal following our own annual inspection guidelines for communications, we provide relevant and detailed Our research activities are carried out in an Our chemical management system covers every the rest of our contracted factories as well. information to our MRs to keep them up to date with ethical manner and comply with all relevant laws, aspect of the chemical handling process, from the latest promotional guidelines. We also conduct regulations, and industry standards. the moment we take delivery of the chemicals, training sessions, which include case studies of through to their storage, use, and eventual disposal. We have established in-house regulations on violations that have occurred in Japan and important It also provides employees with vital information, animal testing, based on government legislation. points to consider when providing lectures for such as how much remains of the chemical, and Our Institutional Animal Care and Use Committee medical personnel. the most up-to-date safety data sheet for each ensures that we follow the ‘3R’ concept: Replacing substance. Employees are regularly made aware of laboratory animals with other research materials chemical safety risks. Torii Pharmaceutical separates where possible; Reducing the number of animals chemicals into categories requiring different levels of used; and Refining tests so that animals do not suffer management, and has specific rules and procedures unnecessary pain and distress. We carry out periodic according to the characteristics and safety risks of in-house inspections and assessments to ensure each category of chemicals. that we comply with regulations. Our animal-testing practices are certified by the Japan Health Sciences We publish quarterly clinical development status Foundation, an external authority. updates on our website. When utilizing human tissue samples, our Ethical In 2018, we spent 37 billion Yen on R&D. Review Committee, which follows the relevant Japanese guidelines and consists of both internal and external members, examines the ethical justification and scientific validity of the research. PHARMACEUTICAL BUSINESS

Transparency of contributions

In order to develop more effective drugs, we build partnerships with research institutes, universities, and medical institutions. When we make financial contributions to our partners, we strive to ensure transparency by disclosing these payments on our website.

82 83 OUR TOBACCO BUSINESS

Our processed food business is dedicated to delivering safe, high-quality food products to consumers. We are also mindful of the environmental impacts of our products and operations, and we make continuous improvements to these wherever possible.

In 2018, we started to develop a sustainability strategy for our processed food business.

OUR PROCESSED FOOD BUSINESS VALUE CHAIN *1

60+ 25 Suppliers of Factories Distribution packaging material

OUR CUSTOMERS OUR SUPPLIERS OUR COMPANY AND CONSUMERS PROCESSED FOOD BUSINESS

300+ 50+ Wholesale trading Contracted Customers and companies * factories consumers

* 1 This diagram represents the value chain of products for frozen and ambient foods. We do not deal directly with raw material producers – such as growers – who provide raw materials to the trading firms 84 * 2 or to the contracted factories that supply us. 85 Delivering safe, Enhancing food quality Food communication FOCAL AREAS OF FOOD SAFETY

high-quality products Food quality control is an essential element of our We are always willing to provide details about our FOOD QUALITY daily operations. Along with quality improvement food products. We respond to consumers’ requests We have a rigorous quality and process control efforts on factory floors, we ensure that all of our for information and can disclose the precise factory system based on four areas: food safety, food employees receive training through customized where food products were made or the country of defense, food quality, and food communication. e-learning materials. origin of the main ingredients. Furthermore, in order This system, which also applies to our suppliers, to ensure food safety, we have introduced a system FOOD COMMUNICATION We also listen to our consumers and their aims to guarantee safety throughout our entire that records information about our products at every suggestions for improving product quality. We processed food business, from buying raw materials stage of the process, from the raw materials and swiftly share consumer feedback on our products to manufacturing and distribution. production right through to processing, distribution, with our factories and operations so that further and product sales. This means we can retrace our We regularly review our procedures to ensure that FOOD SAFETY FOOD DEFENSE improvements can be made. Our internal Quality product to any point, if necessary. our products are produced and delivered in the safest Improvement Committee enables us to effectively possible way. respond to their recommendations. The Committee is We also have toll-free numbers on our product labels made up of representatives from different divisions, for consumers to call for extra information. including Product Development, Manufacturing, We invite consumers and shareholders to our Sales, Quality Control, and our Consumer Call Center. Uonuma Mizunosato frozen udon (noodles) and Our consumer complaints management system is packed cooked rice factory, where we explain compliant with ISO 10002, the international standard our food safety approach by showing them our for customer satisfaction and complaints handling. manufacturing process. To enhance the quality of our correspondence with consumers, we introduced a voice transcription In 2018, we updated our website to make it easier for Food safety standards system at our Consumer Call Center. This system customers to find important information such as food transcribes and records correspondence with safety management or the customer inquiry form. Our processed food business has 31 factories our consumers on behalf of our operators. As a producing a variety of food products, from frozen result, our operators are able to focus more on foods to bakery goods and seasonings. 23 of these communicating with our consumers and providing factories are located in Japan, and eight are located excellent customer service. in China, the U.S., and Thailand. Our products are sold primarily in the Japanese market. All of our factories (frozen foods, bakery, and seasonings) were certified to the global food safety standard FSSC22000 in September 2018. FSSC22000 is recognized by the Global Food Safety Initiative, the Reducing our food industry’s global body for promoting food safety management. environmental impacts All the factories that are contracted to manufacture As part of our efforts to reduce environmental frozen food products on our behalf have been impacts within our operations, one of the companies certified to the food safety standard, ISO 22000 or within the JT Group, Thai Foods International, is FSSC 22000, as an assurance of food safety. building a biomass co-generation system for its In 2018, one of our factories received an award Thai factory, where it manufactures seasonings. for excellence in food hygiene from the Ministry of The system, due to be completed in 2019, will use Health, Labor, and Welfare in Japan. This award rice husks as an alternative fuel source. The factory is given to individuals and facilities for remarkable Food defense practices currently uses electricity supplied by a local company; achievements in promoting food safety and once the system is operational it is expected that sanitation. purchased electricity usage and the resultant ‘Food defense’ is about protecting our manufacturing Scope 2*1 greenhouse gas (GHG) emissions could We also call upon three independent advisors, who processes and products from intentional be significantly reduced (by 7,000 tons of CO2e*2 have helped to develop our approach to food safety

contamination. We apply robust food defense annually). This project, which has been adopted by PROCESSED FOOD BUSINESS since 2008. In 2018, these advisors visited our guidelines across the supply chain, both in our the Joint Crediting Mechanism of the Ministry of factories, sharing useful advice and giving talks to own factories and our contracted factories, which Environment in Japan, will not only help us to reduce our employees on industry topics such as food safety, are referred to during our annual audits. Recent energy costs but also contribute to GHG reduction or the laws and regulations relating to the Food initiatives to strengthen our defense mechanisms in Thailand. In addition, in 2018 we developed a Sanitation Act. These events provided employees against deliberate contamination include increasing compact tray for some of our packed cooked rice that with a greater awareness of new developments and our use of factory cameras and enhancing the way uses approximately 10% less plastic while holding the hot topics in the field of quality control. we manage chemical substances. These measures same amount of rice. There were no voluntary recalls of our food products also help to detect and prevent any incidences of in 2018. intentional contamination.

Scope 2 GHG emissions are those greenhouse gas emissions relating to the consumption of purchased energy, such as electricity, * 1 steam, or other energy sources. 86 * 2 CO2e stands for ‘carbon dioxide equivalent’ of GHG emissions, a standard unit for measuring carbon dioxide footprints. 87 We report annually on our sustainability activities AWARDS AND RECOGNITION and performance, and have been publishing environmental or Corporate Social Responsibility

(CSR) reports since 1998. Our last report, the JT Group Sustainability Report FY2017, was We are a member of the Dow Jones Sustainability In 2018, JT achieved the highest ranking Gold status Asia Pacific Index. for the third consecutive year in the Pride Index published in June 2018. www.sustainability-indices.com Report of Japanese employers, which highlights the most LGBT-friendly companies. JT also received the ‘Best Practice’ award for the second consecutive year.

EXTERNAL VERIFICATION AND REFERENCED GUIDELINES ASSURANCE In 2018, we were selected as a constituent of the We have compiled the FY2018 report according to This report is not externally assured, although some FTSE Blossom Japan Index, which is designed to the principles of the Global Reporting Initiative (GRI) of the information within it has been externally measure the performance of Japanese companies Sustainability Reporting Standards. We defined verified. This includes environmental data and that demonstrate strong sustainability practices. In 2018, JT was awarded the ‘Platinum Kurumin’ the content of this document using a materiality occupational health and safety performance data. www.ftse.com/products/indices/blossom-japan certification for creating a supportive workplace for assessment that covered the entire JT Group. employees with children. The environmental data includes Group-wide Scope Our GRI Standard Content Index shows the list of 1 and 2 GHG data, and some Scope 3 GHG data, Universal Standard Disclosures for which we have as we state on our website. Furthermore, energy

provided related information, either in this report or in consumption, water withdrawal, wastewater DISCLOSURE INSIGHT ACTION other public documents such as our Annual Report. discharged, and waste generation (including each of The identification of Specific Standard Disclosures is the sub-categories, i.e. waste recycled, incinerated In 2018, we achieved Leadership status for climate change and Management status for water with CDP, based on materiality assessments for the entire JT with/without heat recovery, and landfilled), have been Group. externally assured. a globally recognized platform for environmental disclosure. In 2018, our international tobacco business was In terms of occupational health and safety www.cdp.net certified as Global Top Employer, and JT was selected performance data, only the data relating to our In 2019, our approach to climate change was as a ‘White 500’ company for the third consecutive NOTES ON DATA international tobacco business is externally verified. showcased as an example of best practice. CDP year. Data in this report covers January to December 2018, In the future we will consider expanding the scope of Stories of Change Read more on pages 5 and 39. unless otherwise stated. In 2014, the JT Group moved assurance of our non-financial data and the contents its reporting period to the calendar year ending of this report. December 31. Until March 2014 the fiscal year for our Japanese domestic operations began on April 1 and ended on March 31. Historical data indicated with CHANGES IN STRUCTURE, SIZE, ‘FY’ covers those periods. OR OWNERSHIP In 2018, JT was selected as a “Nadeshiko Brand” that Although we report the overall JT Group figures In August 2018, we completed the acquisition of the In 2019, we have set a long-term GHG emission encourages women’s success in the workplace. wherever possible, in some areas this has not been fourth largest tobacco company in Russia, Donskoy reduction target in line with the Paris Agreement, Read more on page 37. possible. In such instances we have made it clear to Tabak. which was approved as an SBT by the Science Based which part of the business the data applies. In November 2018, we completed the acquisition of Targets initiative. In January 2019, our international tobacco business Please see our website for information about the data the Akij Group’s tobacco business in Bangladesh. www.jt.com/media/news/2019/pdf/20190227_E01. became the first Geneva-based multinational reporting hierarchy. pdf) headquarters to be certified as an equal salary www.jt.com/sustainability/report/index.html OTHER PUBLICATIONS employer by the EQUAL-SALARY foundation. We have shown how we calculate and consolidate Websites compliance, human resources (HR), health and JAPAN TOBACCO INC. (global site): www.jt.com safety, environment, and community investment data in our separate Basis of Reporting document, Japan Tobacco International (international tobacco which we will continue to update in the future. The business): www.jti.com Japanese Yen exchange rates against the U.S. dollar Torii Pharmaceutical Co., Ltd. (pharmaceutical CONTACTS AND FEEDBACK used in this report are the same as those used in our subsidiary): www.torii.co.jp/en consolidated financial reporting. Headquarters TableMark Co., Ltd. (processed food subsidiary): JAPAN TOBACCO INC. JT INTERNATIONAL SA www.tablemark.co.jp/english/index.html 2-1, Toranomon 2-chome Rue Kazem-Radjavi 8 For more information or to Minato-ku CH-1202 Geneva send us your feedback on this Publications Tokyo 105-8422 Switzerland report, please email JT Annual Report: www.jt.com/investors/results/ Japan annual_report/index.html www.jt.com www.jti.com [email protected]

88 89