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