Pmi Integrated Report 2021

INTEG R ATED REPORT 2021
we were
we are transforming for good
we will be
Philip Morris International – Integrated Report 2021 Overview Strategy Product impact Operational impact Fundamentals Reporting and performance
Russian invasion of Ukraine
We have watched with horror the unfolding On February 25th, PMI announced the temporary Further, PMI announced that its Board of Directors and
armed conflict and Russia’s invasion of Ukraine. suspension of its operations in Ukraine, including at senior executives are working on options to exit the The aspirations, goals, and forward-looking plans
We condemn the violence in the strongest its factory in Kharkiv. While activities in the east of Russian market in an orderly manner, in the context of an contained in this report may be impacted by
possible terms and join those calling for an Ukraine remain the most heavily impacted, the company increasingly complex and rapidly changing regulatory and the February 2022 Russian invasion of Ukraine
immediate cease fire and restoration of peace. has seen some resumption of retail activities where operating environment. and its potential effects on our business over
safety allows, as it seeks to provide product availability the mid to long term, which remain uncertain.
Since the outset, PMI’s priority in Ukraine has been to PMI employs more than 3,200 people in Russia and will
and service to adult consumers, using existing finished As part of our broader plan to evaluate our
look after the safety and security of its more than 1,300 continue to support its employees there, including
goods inventories on hand. The company is also working published sustainability aspirations to ensure they
employees and their families in the country. Concretely, paying their salaries, while continuing to fulfill its legal
on future supply from other production centers, remain ambitious, reasonable, and achievable in
PMI has taken action to achieve three critical missions: obligations. The company will continue to make
although this may involve higher costs. PMI is applying the context of a dynamic and evolving smoke-
decisions with their safety and security as a priority.
1. Helping to evacuate more than 1,000 people from increased security and safety measures for personnel. free industry, we will also assess and reflect the
Ukraine and relocate more than 2,700 internally In 2021, Russia made up almost 10 percent of total impact of the invasion. Considering the volatility
In 2021, Ukraine accounted for around 2 percent of
displaced from conflict zones to locations in shipment volumes and around 6 percent of PMI net and rapidly changing environment, we continue to
PMI’s total cigarette and heated tobacco unit shipment
the country away from the heaviest fighting revenues. As of March 31, 2022, PMI’s Russian monitor the situation closely. We will communicate
volume and under 2 percent of PMI’s total net revenues.
operations have approximately USD 1.4 billion in any related changes within the next year.
2. Providing critical aid to employees who cannot As of March 31, 2022, PMI’s Ukrainian operations
total assets.
leave or who decide to remain in Ukraine have approximately USD 400 million in total assets. Aspirational targets and goals do not constitute
3. Providing those who have left seeking refuge outside On March 24th, PMI announced the concrete steps it financial projections, and achievement of
of Ukraine, in neighboring countries, with logistical, had taken to suspend planned investments and scale future results is subject to risks, uncertainties,
medical, financial, and other practical support down its manufacturing operations in Russia, following and inaccurate assumptions, as outlined
its related announcement on March 9th. This included: in our forward-looking and cautionary
PMI continues to pay the salaries of all its Ukrainian
statements on page 252 of this report.
employees, in addition to providing substantial • The discontinuation of a number of cigarette products
in-kind support to them and their families. offered in the market (representing approximately
In addition, we have already contributed around one-quarter of the company’s domestic cigarette
USD 10 million in funds and donated essential SKUs, including Marlboro and Parliament SKUs) and the “Our responsibility is to all our stakeholders, which include
reduction of its manufacturing activities accordingly
items across the country, directly to humanitarian
shareholders, governments and the public they represent, our
organizations and through our own employee-led • The suspension of its marketing
initiative, “Projects With a Heart.” These donations activities in the country employees—all our employees, and our consumers. Every decision
include: providing medicines, food, clothes, and a variety
• The cancellation of all product launches planned we make must find the optimum balance between the interests of
of other items to both our colleagues as well as the
broader population; the purchase of 25 ambulances; and
for 2022 in the market, including the launch these audiences. We do not act in a vacuum. We have a
of its flagship heated tobacco product IQOS
the set-up of a mobile hospital. Based on our current
ILUMA, originally planned for March 2022 responsibility to our people in Ukraine and our actions show the
visibility, we estimate an additional USD 25 million will be
incurred for additional support to employees this year. • The cancellation of its plans to manufacture lengths to which we are going to help them. In Russia, we built our
TEREA heated tobacco units for IQOS ILUMA business over a period of nearly 30 years, serving millions of loyal
in Russia (with an eventual annualized capacity
of more than 20 billion units) and the related adult consumers. We have a responsibility to our more than 3,200
ongoing investment of $150 million employees and their families. There are no simple solutions. We
have announced we are working on options to exit the Russian
market in an orderly manner and that is what we intend to do.”
Jacek Olczak Chief Executive Officer
2 3
Contents
PRODUCT
I M PAC T
2021 highlights 6 About PMI
PMI’s Statement of Purpose 7 Philip Morris International (PMI) is a leading This includes the building of world-class scientific
Letter from our Chief Executive Officer 12 international tobacco company working assessment capabilities, notably in the areas of pre-
to deliver a smoke-free future and evolving clinical systems toxicology, clinical and behavioral
Letter from our Chief Financial Officer 14
its portfolio for the long-term to include research, as well as post-market studies. The U.S.
Purposefully phase out cigarettes 60 Food and Drug Administration (FDA) has authorized
Overview products outside of the tobacco and
Maximize the benefits of smoke-free products 64 the marketing of versions of PMI’s IQOS Platform 1
Our company 18 nicotine sector.
Seek net positive impact in wellness devices and consumables as Modified Risk Tobacco
Global trends 20 and healthcare 90 Products (MRTPs), finding that exposure modification
The company’s current product portfolio primarily
Industry trends 22 Reduce post-consumer waste 98 orders for these products are appropriate to promote
consists of cigarettes and smoke-free products,
Stakeholder engagement 28 including heat-not-burn, vapor, and oral nicotine the public health. With a strong foundation and
products, which are sold in markets outside the U.S. significant expertise in life sciences, in February
Strategy
Since 2008, PMI has invested more than 2021, PMI announced its ambition to expand
Transforming for good 32 USD 9 billion to develop, scientifically substantiate, into wellness and healthcare areas and deliver
and commercialize innovative smoke-free products for innovative products and solutions that aim to
– Our business transformation 32
adults who would otherwise continue to smoke, with address unmet patient and consumer needs.
– PMI’s Business Transformation Metrics 34
O P E R AT I O N A L
– Anchoring sustainability at the core of our strategy 38
I M PAC T
the goal of completely ending the sale of cigarettes.
a For more information, please visit www.pmi.com
and www.pmiscience.com
– Setting ambitions and targets 44
Our 2025 Roadmap 46
PMI Sustainability Index 47 This report at a glance
Creating value 48
We are pleased to present our 2021 Integrated Report, This third annual integrated report is accompanied by
Letter from our Chief Sustainability Officer 50 Foster an empowered and inclusive workplace 120
which describes how we are delivering on our purpose a set of publications available for download on PMI.com:
Corporate governance and management 52 Improve the quality of life of people and provides detailed information about our strategic
in our supply chain 144 Reporting indices
Risk management 56 vision, performance, governance, and value creation.
Tackle climate change 162 The content is shaped by a formal sustainability Separate indices mapping content of this report against
Fundamentals Preserve nature 178 materiality assessment conducted during 2021. Unless internationally recognized standards and frameworks
Conduct R&D responsibly and transparently 196 otherwise indicated, the data contained herein cover our
operations worldwide for the full calendar year 2021, or Performance data
Sustain product reliability 198 Our consolidated sustainability performance data
reflect the status as of December 31, 2021. Where not
Nicotine science 201 specified, data come from PMI financials, nonfinancials, all in one place
Uphold business ethics and integrity 205 or estimates. Unless explicitly stated, the data and
information in this report do not incorporate wellness ESG Highlights
Respect human rights 208 Highlights of our strategy and performance in 2021
and healthcare acquisitions made by PMI during 2021 of
Reporting and performance
Manage our supply chain sustainably 213 Fertin Pharma A/S, Vectura Group plc., and OtiTopic, Inc.
About this report 228 Case studies
Safeguard privacy and protect data 221 In 2021, the world—and our company—continued to
Performance in ESG ratings, rankings, and indices 229 Country-level case studies shedding light on our work
Apply fair fiscal practices 222 navigate the far-reaching impacts of the COVID-19 on priority sustainability areas
Performance metrics 232 pandemic. Throughout the year, our priority remained
Prevent illicit trade 224
Independent assurance report 245 to protect the health, safety, and well-being of our ESG KPI Protocol
employees and address the needs of our stakeholders Details on calculation methods, definitions, and scope
Glossary of terms and acronyms 248
while relentlessly working toward our purpose of of key sustainability performance indicators
Forward-looking and cautionary statements 252 achieving a smoke-free future. In this report, we
Notes 253 describe how COVID-19 has shaped the environment
in which we operate and impacted our work across a Read more about this report
various sustainability topics and how we have
responded and adapted to these new circumstances.
4 5
2021 highlights PMI’s Statement of Purpose

P R O D U C T I M PA C T
While Philip Morris International Inc. (“PMI” or the Nicotine, while addictive and not risk-free, is not the
“Company”) is widely known as a cigarette company, primary cause of smoking-related disease. The primary
in 2016 it announced its new purpose: to deliver cause is the harmful chemicals emitted while burning
a smoke-free future by focusing its resources tobacco and contained in the smoke. Eliminating
21.7 m 29.1% Marketing and
sales practices
on developing, scientifically substantiating, and
responsibly commercializing smoke-free products
combustion from nicotine-containing products is the
way to significantly reduce their toxicity. Thanks to
Total adult users of PMI’s smoke-free Of adjusted net revenues derived New Marketing Codes deployed that are less harmful than smoking, with the aim rapid advances in science and technology, and a strong
products, of whom 15.3 million have from smoke-free products, which globally for both combusted and
switched and stopped smoking were available for sale in 71 markets smoke-free (non-combusted) products, of completely replacing cigarettes as soon as PMI commitment, these products are now a reality.
(2020: 18.3 m; 13.0 m) worldwide by year-end1 published in 2022 on PMI.com possible. These innovative alternative products do
In 2016, with the full support of the Board of Directors,
SOCIAL
(2020: 23.8%; 64) not burn tobacco or create smoke, and therefore
Wellness emit significantly lower levels of carcinogens
the Company announced its new purpose of delivering
USD 9.2 bn 91% and healthcare a smoke-free future. Since then, the Company has fully
and other toxic substances than cigarettes.
The 2021 acquisitions of Fertin Pharma, aligned its employees with this purpose and swiftly
Cumulative investments behind Of total shipment volume covered by
OtiTopic, and Vectura have provided Building on the Board’s Letter to Shareholders and shifted its organizational focus and resources to smoke-
a foundation for progress toward our
smoke-free products since 2008² youth access prevention programs
ambition to generate at least USD 1 billion
the first Statement of Purpose in PMI’s 2017 and free alternatives. The Company is essentially disrupting
(2020: 8.1 bn) in indirect retail channels3 2020 Proxy Statements respectively, we reaffirm its traditional business from the inside out and is leading
in annual net revenues from products
(2020: 94%) in wellness and healthcare by 2025 PMI’s purpose and acknowledge that, as the the industry in this unprecedented transformation.
Company continues to transform its business and
PMI’s smoke-free product portfolio currently includes
86% 46 Smoke-free organization, its core effort to provide smoke-free
ENVIRONMENT
heat-not-burn products, nicotine-containing vapor

consumables alternatives that appeal to today’s adult smokers—
products, and oral nicotine products, all without
Recycling rate of IQOS devices Countries where our affiliates Programs deployed to take back smoke- and to work hard to convince them to switch—will
returned to our centralized recycling deployed cigarette butt anti-
combustion. Their development and manufacturing
free consumables after use by consumers not be enough. The Company needs to continue
hubs (weighted-average percentage littering campaigns focusing on in various markets, including Canada, follow high standards of quality and consistency.
of each device that is recycled)4 driving behavioral change Finland, Guatemala, and Switzerland earning the trust and active cooperation of a
(2020: 84%) host of stakeholders, from supply chain partners The Company is committed to scientifically
to regulators and public health authorities. substantiating the harm reduction potential of its
smoke-free alternatives compared to cigarette smoking,
O P E R AT I O N A L I M P A C T A smoke-free future is attainable, and the benefits
including through rigorous preclinical and clinical
it can bring to the people who would otherwise
assessments and sophisticated systems toxicology.
continue to smoke, and hence to global public
Our scientific findings are publicly available and peer-
health, are enormous. However, the Company
reviewed, and we have submitted many of our findings
cannot succeed alone. Together with governments
to regulatory authorities, including the U.S. Food and
and civil society, we can maximize this opportunity
Drug Administration. The totality of the scientific
39.7% Agricultural Labor
Practices 5 through a consensus that smoke-free alternatives,
when subject to proper government oversight and
evidence makes the Company confident that switching
SOCIAL
completely to smoke-free products is likely to present

Of management positions held Publication of a dedicated report Human rights impact assessments regulation, are part of a sound tobacco policy.
by women, on track to achieve our conducted since 2018 in highest-
less risk of harm than continuing to smoke. Post-
celebrating the 10-year anniversary of
2022 target of 40 percent5 PMI’s Agricultural Labor Practices (ALP) risk countries and action plans Smoking causes serious disease, and the best way market surveillance is necessary to continue building
(2020: 37.7%) program in its tobacco supply chain being implemented to avoid the harms of smoking is never to start or, this confidence and, over time, quantify the reduction
(2020: 4)
for those who smoke, to quit. For decades, tobacco in morbidity and mortality through epidemiology.
control has focused on strict fiscal, marketing, and
To be clear, these smoke-free alternatives are not
ENVIRONMENT
Low-Carbon
Transition Plan 100% Triple A other measures to deter initiation and to encourage
cessation. These must be continued. Nevertheless,
risk-free and should not be used by youth or adults
who would not otherwise continue to smoke or use
Of tobacco purchased at no Score from CDP for the second while smoking prevalence rates continue to slowly
Publication of strategy to decarbonize other nicotine products. The Company must market
our direct operations by 2025 risk of deforestation of primary consecutive year, recognizing our efforts decline, the World Health Organization projects
and our entire value chain by 2040 and protected forests to combat climate change, protect its smoke-free alternatives responsibly to minimize any
that the estimated number of 1.1 billion people who
(2020: 100%) forests, and promote water security unintended use while maximizing the switching of adult
smoke tobacco products today will remain largely
smokers who would otherwise continue smoking.
1 Number of markets where PMI smoke-free products were available for sale: 2021 figure excludes Belarus and the U.S. unchanged by 2025, reflecting population growth.1
2 Investments reflect research, product and commercial development, production capacity, scientific substantiation, and studies on adult smoker understanding.
3 Total shipment volume includes cigarettes, heated tobacco units, other tobacco products, e-cigarettes, and snus. In 2021, we evolved our minimum requirements for
effective youth access prevention (YAP) programs in indirect retail channels. 1 WHO Global Report on Trends in Prevalence of Tobacco Smoking 2015.
4 Including recycling (78%) and incineration with energy recovery (8%).
5 Calculation methodology updated in 2021 to expand data scope to employees on long-term leave (over 30 calendar days). 2020 data restated accordingly.
6 7
While cigarette sales today remain the largest part PMI’s key stakeholder constituencies, which are Employees The Company is urging this important stakeholder
of PMI’s business in most countries, this is changing fundamental to both the achieving of its purpose group to seize the immense opportunity that
rapidly. The Company is actively accelerating and to the pace of its progress, will be affected PMI’s ability to accomplish its purpose depends on smoke-free products present for advancing public
the decline of cigarette smoking beyond what in different ways by PMI’s transformation. The the skills, dedication, and relentless efforts of its health within the current generation of smokers.
traditional tobacco control measures can achieve Company will seek to engage and collaborate with employees. The Company’s focus on a smoke-free PMI asks the public health community to scrutinize
alone. To make its progress both measurable relevant stakeholders to speed the transformation future and long-term opportunities in wellness and its smoke-free products, to provide feedback for
and verifiable, the Company developed a set of while mitigating negative consequences. healthcare has enhanced its ability to attract the improvement, and to be open to considering that
bespoke key performance indicators called Business new talent needed to support its transformation. PMI’s purpose aligns with the societal goal to change
Transformation Metrics. This set of metrics and The Company compensates its employees fairly and the health trajectories of the people who smoke.
Consumers
related goals, which PMI reports on periodically, provides important benefits. It supports them with
allow stakeholders to assess both the pace and Adult smokers and adult nicotine users are at the enriching job experiences, training, and education
Supply chain
the scale of its transformation and showcase how core of PMI’s business transformation. The public to help them develop new skills and maximize their
it is allocating resources away from its traditional health benefit of smoke-free products depends not employability in a rapidly changing world. The People working in the Company’s supply chain around
cigarette business, aiming to base success on a only on their potential to reduce the risk of smoking- Company treats employees with respect, dignity, the world, including tobacco farmers, rely on PMI for
future where it no longer makes or sells cigarettes. related disease compared to continued smoking care, and fairness. It fosters diversity, inclusion, a substantial portion of their income. PMI deals fairly
but also on if they are actually used as alternatives equal opportunity, and equal salary policies to and ethically with its suppliers and is dedicated to
Although the Company’s transformation journey
to cigarettes by as many adult smokers as possible. ensure PMI’s workforce reflects modern society. acting as a good partner to other companies, large and
started with a vision centered on the critical mission
of phasing out cigarettes, this is not its sole or For smokers to switch to them, these alternatives small, that help us meet PMI’s mission. PMI recognizes
ultimate end goal. Researching and developing must be accessible. Increasing accessibility means Regulators that smoke-free products differ from cigarettes and
noncombustible alternatives that are scientifically improving consumer awareness, acceptability, entail change for some of its supply chain partners,
as well as the availability and affordability of our Regulators can decisively accelerate the industry’s and PMI is ready to help them in this transition.
substantiated to be less harmful than cigarettes was
smoke-free products. Acceptability means delivering transformation toward, and the speed at which
the first step. Broadening access for adult smokers
experiences that satisfy the needs of adult smokers adult smokers switch to, smoke-free products by
while simultaneously and deliberately working to Civil society
while significantly reducing the exposure to the implementing risk-proportionate regulations and
phase out cigarette smoking completed the equation
harmful and potentially harmful constituents of taxation for all nicotine-containing products and by Continued engagement and partnerships with civil
of its smoke-free purpose. In the process, the
cigarette smoke. It is vital that we engage with adult providing smokers with accurate information. PMI is society remain essential to the Company’s success.
Company has expanded its social, human, intellectual,
smokers to raise awareness of smoke-free products committed to engaging transparently with regulators, PMI respects the many communities and the
and manufactured capital in ways that allow it to
and their benefits compared with cigarettes. sharing its scientific research and post-market data. environment around the world where it operates. PMI
go a step further, moving from a value proposition
The Company is ready to support an industry-wide works hard to protect society and the environment
centered on doing less harm toward one where it While PMI will continue to responsibly sell cigarettes
gradual phaseout of cigarettes as soon as a majority through sustainable practices across its businesses,
can seek to have a net positive impact on society. as long as there is a significant legitimate demand,
of smokers in a country have switched to scientifically and to both address and prevent future social
PMI is now actively working to expand its purpose it will leverage its leading position to accelerate
substantiated smoke-free products. PMI believes and environmental challenges, including reducing
and evolve into a broader lifestyle, consumer switching to better alternatives, continuing to focus its
that with the right regulatory encouragement post-consumer waste (focusing on eco-design and
wellness and healthcare company, extending its value commercial efforts toward raising awareness of, and
and support from civil society, cigarette sales can circularity), tackling climate change, preserving
proposition and innovative capability to commercialize informing adult smokers in appropriate ways about,
end within 10 to 15 years in many countries. nature, improving the quality of life of people in
products that go beyond tobacco and nicotine. scientifically substantiated smoke-free products and
the benefits of switching versus continued smoking. our supply chain, and fostering an empowered
This is built on two key growth areas: (1) wellness The Company carefully monitors the results of its Public health community and inclusive workplace. The scope, metrics, and
products, where the Company is developing and marketing to minimize any unintended use of its progress on these areas are outlined in PMI’s annual
looking to commercialize scientifically substantiated smoke-free products by nonsmokers, especially youth. The public health community is, unfortunately, Integrated Report, published on PMI’s website.
consumer health products and solutions with the aim polarized on the issue of smoke-free products.
to improve people’s lives (2) healthcare products, where In addition, PMI’s new businesses will leverage Without question, their work to discourage
it has already committed resources to its development its know-how and capabilities in areas such as youth and nonsmokers from starting to use any
pipeline of over-the-counter and prescription products. inhalation and aerosolization to create better tobacco or nicotine product and to encourage
products to target unmet medical and consumer cessation should continue. At the same time,
This is part of a larger transformation that puts needs and deliver a better experience and when better alternatives to cigarettes exist, the
science, technology, and sustainability at the heart of enhanced products for consumers and patients. discussion should not be whether they should
PMI’s future by building on the Company’s expertise
be made available to the more than one billion
and investment in aerosol chemistry and physics,
people who smoke today, but how fast and within
device technology, clinical research, and best-in-
what regulatory framework to maximize their
class preclinical safety and inhalation models.
adoption while minimizing unintended use.
8 9
Shareholders It is management’s responsibility to ensure

that the Company’s purpose is achieved About PMI’s Statement of Purpose
The Company is confident in the core business through the appropriate structures,
growth prospects of smoke-free products and the systems, processes, and people. PMI’s 2017 Proxy Statement contained a letter In early 2022, PMI’s Board of Directors issued
significant additional long-term opportunity from to shareholders from the Board of Directors another letter reaffirming our purpose of
The Board oversees management’s efforts to announcing for the first time our company’s delivering a smoke-free future and announcing
innovating in wellness and healthcare. It is leading
enhance shareholder value responsibly and smoke-free vision. Building on this groundwork, the expansion of our business for the long-
the new, highly promising category of smoke-free
sustainably over the long-term in ways that our Board of Directors issued on March 26, 2020, term toward areas outside of tobacco and
products and leveraging its unique capabilities to
are consistent with the Company’s purpose. in our company’s 2020 Proxy Statement, a letter nicotine. This letter, our Statement of Purpose, is
capture further areas of growth. PMI is dedicated
Transparency and engagement between the Board that corresponds to PMI’s Statement of Purpose. replicated on the previous pages of this report.
to ensuring its shareholders continue to receive
and management are paramount, and we are all
strong and sustainable financial returns over time.
working toward PMI’s successful transformation.
It is aware of the growing tendency among some
investors toward exclusion and negative screening To better align with shareholder and other
but does not believe it is an effective driver of change stakeholder interests in achieving its purpose,
that can have a positive impact, especially with the introduction of the Sustainability Index
regard to driving behavioral change in convincing has allowed the Compensation and Leadership
Development Committee of the Board to enhance
Message from PMI’s Executive Chairman
people who smoke to quit or improve their lives. On
the contrary, by investing in PMI and holding the the company’s compensation practices, explicitly The changes introduced to our Statement of
Company accountable to its purpose and targets, linking it to ESG performance and further ensuring Purpose were made to ensure it remains a current
investors can combine positive societal impact a strong link between executive compensation and fair representation of our company’s strategy.
with long-term financial returns. The Company and both short- and long-term performance. Importantly, updating the company’s Statement of
welcomes suggestions, pressure, and support through Purpose maintains consistency and coherence with
In conclusion, PMI remains committed to
engagement with both current and potential investors. our company’s strategy and related reporting.
accelerating the end of smoking and laying the
The Company understands the need to continue foundations for a strong business in areas of Changes to our strategy and vision prompted the
to build legitimacy and trust by being honest, wellness and healthcare as we strive to develop revision of our Statement of Purpose, expanding
respectful, fair, and transparent and by aligning commercially successful products that have a net it to no longer have as its last horizon to achieve
actions with words across all areas of its business. positive impact on society. This means not only a smoke-free future, but also to encompass our
To assess the impact of PMI’s current and future transforming the Company to deliver on its purpose strategic efforts to venture toward becoming
value chains on society and the environment, the but also inspiring the industry to follow its lead. a wellness and healthcare company. Notably,
Company regularly conducts sustainability materiality we aspire to achieve at least USD 1 billion in
analyses and measures and reports its performance net revenues from such sources by 2025.
through financial, environmental, and social metrics This is a clear, strong, and proper way to articulate
that are key to a sustainable corporate strategy. our company’s purpose. It consists of a simple
declaration that clearly harmonizes commercial
success with social accountability and responsibility.
It transparently specifies those stakeholders most
critical to long-term value creation and sustainability.
PMI’s Board of Directors
Bonin Bough Lisa Hook Frederik Paulsen

André Calantzopoulos
André Calantzopoulos Jun Makihara Robert B. Polet
Executive Chairman
Michel Combes Kalpana Morparia Dessislava Temperley
Juan José Daboub Lucio A. Noto Shlomo Yanai
Werner Geissler Jacek Olczak
10 11
Letter from our Chief Executive Officer

Sustainability is the core of our We also celebrated the tenth anniversary of our
Agricultural Labor Practices program, aimed at
an initial milestone for a business with potential
to grow much further over the longer term.
company’s transformation improving labor practices and livelihoods in our tobacco

supply chain. We remain vigilant in our approach
Last year, we acquired Vectura, Fertin Pharma, and
OtiTopic—three leading and innovative companies
to tackling systemic issues and are encouraged by
with which we are excited to join forces to achieve a
Just like 2020, in 2021, amid the lingering the progress made so far in reducing child labor
common purpose: building world-class expertise in
headwinds of the COVID-19 pandemic and supply incidence and improving income levels across our
the research, development, and commercialization of
chain disruptions, our clear priority remained to contracted tobacco farms. In 2021, we continued
solutions that have a net positive impact on society.
protect the health, safety, and well-being of our to conduct human rights impact assessments,
Although this Integrated Report does not account for
employees. We took measures to prevent the completing one in our tobacco supply chain in Turkey
the impact of these acquisitions, 2022 will be a year
spread of infection, sustain our operations, and and commencing our sixth assessment in Malaysia.
when we further their integration so that the progress
support not only our employees and their families Promoting diversity, equity, equality, and inclusion is they achieve can be captured in our reporting efforts.
but also the communities in which we operate. paramount for our company and a priority for me.
Transforming our business means venturing into
Early in 2022, we watched with shock the war in Although we made continued progress over the past
a number of uncharted territories, each bringing
Ukraine unfold before us. Our immediate priority few years, much work remains to be done, and I am
unique challenges. I say this with pride in what we
was, and continues to be, the safety and security proud to be one of the commissioners of the newly
have already achieved, yet with a deep recognition
of our employees and their families. We condemn formed Business Commission to Tackle Inequality,
of the immense work ahead. We will always have
the violence in the strongest possible terms, spearheaded by the World Business Council for
critics, and we remain committed to engaging with
stand in solidarity with those who are suffering, Sustainable Development. We shall continue our
them honestly and transparently, pointing out the
and join the many voices calling for an immediate work to promote human capital development,
actions we are taking to address their concerns and
end to the war and the restoration of peace. ensure a living income for all our contracted
welcoming feedback on how we can do better.
farmers, and explore ways to ensure workers in our
Our ability to respond and adapt to change direct supply chain earn at least a living wage. Our actions—grounded in data, science, and
and sudden disruptions will be proven over facts—speak louder than words. That said, our
time, and I am confident that the resilience of Seven years ago, we set out to create a new future for
societal interactions, especially when it comes to
our people and strength of our purpose will PMI—a future in which cigarettes would be obsolete,
our company’s transformation, bring an emotional
allow our organization to live and prosper. replaced by less harmful, science-based alternatives. In
component that can carry a heavy weight.
2021, we kept our relentless focus on that ambition,
During 2021, and despite the challenging Consequently, we will work to promote constructive
dedicating 99 percent of our research and development
environment, we continued to deliver a strong dialogue and address our stakeholders’ legitimate
and 73 percent of our commercial expenditure to
financial and nonfinancial performance, and I concerns appropriately. We cannot make cigarettes
smoke-free products. Moreover, smoke-free products
am enormously proud of our achievements. obsolete in the absence of collaboration and coalition.
represented over 29 percent of our adjusted net
In a pivotal year for societal action on climate change, revenues and, by year-end, we estimate that more Without dismissing our past, I hope our 2021
we accelerated our targets for carbon neutrality in than 15 million adults in total had switched to IQOS Integrated Report provides a clear window into
“Our ability to respond our operations and net zero emissions across our and stopped smoking. The strong position of our our present, as well as a more detailed view of the
smoke-free business has allowed us to accelerate our future we envision. I hope, too, that this report will
and adapt to change and value chain, and detailed our strategies and roadmap
in our Low-Carbon Transition Plan. We continued timeline; early in 2021, we announced our ambition spark dialogue and that our stakeholders will accept
sudden disruptions will be to progress against our zero deforestation and water that by 2025 our smoke-free products would be sold the invitation to judge us not for the company
stewardship ambitions and took meaningful steps in 100 markets and at least 50 percent of our net we were but for the company we are today and
proven over time, and I am toward developing a holistic biodiversity strategy. revenues would derive from smoke-free products. are working hard to become, as well as by the
tangible progress we have made. It is through
confident that the resilience Our environmental sustainability leadership was PMI is committed to serving as an agent of change
constructive engagement that we will accelerate
and advocate of positive values. We understand that
of our people and strength recognized with a Triple A score by the CDP for the
second consecutive year. Committed to maintaining our business must become a provider of effective
the pace of meaningful and impactful change.
of our purpose will allow best-in-class performance, we must not forget the alternatives. To achieve this, we are positioning
environmental impact of our products and will continue ourselves at the forefront of consumer-centricity,
our organization to live to embed eco-design and circularity principles in their technology, science, and innovation. With an eye to
and prosper.” development and their end-of-life management. the long term, we are expanding our business into
areas beyond tobacco and nicotine such as wellness
Jacek Olczak
Chief Executive Officer
and healthcare. Our ambition is that by 2025, at
least USD 1 billion of our net revenues will derive
from these adjacent avenues of growth, marking
12 13
Letter from our Chief Financial Officer

Accelerating the pace of change: The relationship between the sources of tension will
disappear over time, as our legitimate ambition to
“Our purpose is clear: Our
committed to making cigarettes obsolete maintain market share in the declining combustible smoke-free business is our
product category does not mean we aim to
continue selling cigarettes in the long term. Our
focus area of growth, as these
Accelerating the pace of change at PMI requires purpose is clear: Our smoke-free business is our are the products needed to
continued dialogue with multiple stakeholders, focus area of growth, as these are the products
including governments and investors, to needed to enable our transformation, and, most enable our transformation,
unlock financing capacity, increase innovation importantly, to help make cigarettes obsolete.
We intend to continue expanding our leadership,
and, most importantly, make
and technology development, encourage
public support, and incentivize an industry portfolio, volumes, and markets for our smoke- cigarettes obsolete.”
shift away from combustible products. free portfolio to ensure we broaden adult smokers’
access to these products, maximize the benefits
Despite being well on our way to delivering a smoke- and minimize unintended consequences—with the The subsequent announcement of our company
free future, we still have some distance to travel, as intention of being present in 100 markets by 2025. entering into an agreement for its first business
our combustibles business still represents the majority
Strategy, Finance, and Sustainability—the three teams transformation-linked financing instrument—a new
of our revenues. Although this is shifting rapidly—in
I lead—play a critical role within today’s PMI and revolving credit facility for an aggregate amount
2021 almost 30 percent of our annual adjusted net
have the capacity to establish a roadmap for success of USD 2.5 billion—was testament to the success
revenues derived from smoke-free products, with
that not only responds to short-term needs but also of our integrated approach. I was pleased with the
the aim to derive at least 50 percent by 2025—the
accounts for medium- and long-term impacts. To broad engagement and support of investors, lenders,
operating cash flows generated by cigarettes serve
achieve our ambitions, it has been of paramount and bankers. This approach is critical to helping us
an essential role, supporting ongoing investments in
importance for our entire organization to recognize continue to drive change within our company. Further,
the growth of smoke-free products and in building
that sustainability and financial performance are I believe this kind of engagement can encourage
new capabilities in wellness and healthcare.
mutually reinforcing and part of the same strategy. industry transformation by demonstrating the
Staying competitive in the cigarette category during That is why integrated reporting is a top priority: It benefits of our company’s unique value proposition.
this interim period provides the infrastructure allows all our employees, including management, as Industry disruption only looks easy in hindsight.
needed to support our smoke-free growth, allowing well as the company’s Board, our shareholders, and At present, we are in mid-stride: with one foot
us to create a future where cigarettes no longer other stakeholders to understand how our financial in our past, operating in a fiercely competitive
exist. Notably, where permitted, it provides the and nonfinancial performance are interrelated. legacy cigarette business, and one foot in our
primary way we engage and connect with adult
A great example of the synergies from integrating bold future, building an entirely novel and
smokers and trade partners to raise awareness
sustainability into strategy, and making ESG issues improved category of products. We recognize
of smoke-free products and explain why they
a core part of our business priorities, was the the magnitude of the challenge and remain
are a better option than continued smoking.
publication of our first business transformation- committed to continuing to lead, tracking progress,
“We are convinced that Even though selling off our cigarette business would linked financing framework in 2021, which integrates and reporting on it transparently to ensure
make our company achieve its smoke-free ambition the company’s smoke-free transformation into cigarettes become obsolete as soon as possible.
impactful and systemic faster, it would not resolve the cigarette problem—it its financing strategy. Linking our most material
change can be best would just become somebody else’s problem to solve.
Our aim is not only to make our company smoke-
sustainability priorities to part of our financing
strategy strengthens our commitment and
achieved by transforming free, but to make cigarettes obsolete. To achieve this, underscores to all our stakeholders the seriousness Emmanuel Babeau
we will continue to responsibly and coherently sell
from the inside out, cigarettes taking a consistent, disciplined, and steady
of our ambitions. I believe this not only reinforces
our promise to reinvent our company but also
Chief Financial Officer
engaging constructively approach to one day completely leaving them behind. invites investors and lenders to engage with and
While contradictory on the surface, this is a necessary support our relentless work to accelerate the
with different parts of trade-off that is vital to expanding our leadership in end of smoking, continue to grow our smoke-
smoke-free products and driving a successful industry
society, and ultimately transition. We are convinced that impactful and
free business, and use our strong capabilities
to develop products in wellness and healthcare
replacing cigarettes with systemic change can be best achieved by transforming that can have a net positive impact on society.
from the inside out, engaging constructively
smoke-free products.” with different parts of society, and ultimately
replacing cigarettes with smoke-free products.
14 15
OVERVIE W
Our company 18
Global trends 20
Industry trends 22
Stakeholder engagement 28
16 17
Our company Total 2021 adjusted net revenue by PMI region

European Union 39%
Eastern Europe 11%
Middle East & Africa 11%
PMI is a global company Since 2016, we have set a new course for the company—staking South & Southeast Asia 14%
selling products in around our future on replacing cigarettes with scientifically substantiated, East Asia & Australia 19%
180 markets and employing less harmful alternatives. To date, we are the only company Americas (incl. the U.S.) 6%
approximately 68,500 people within the traditional international tobacco industry to have
committed to phasing out cigarettes, encouraging adult smokers
worldwide.1
who would otherwise continue to smoke to switch completely to Operations Center:
better alternatives. In addition to expanding our leading position Lausanne, Switzerland
in the smoke-free category, we now also seek to broaden our
South &
value proposition to develop products in wellness and healthcare European Southeast Asia
with the aim of having a net positive impact on society. Union Eastern
Europe
Our product portfolio

Smoke-free products
Our smoke-free product portfolio is composed of Headquarters:
Smoke-free two main product categories. Our leading smoke-free New York, U.S.1
29% product is a heated tobacco product commercialized

under the IQOS brand, available for sale in 68 markets
as of year-end 2021. IQOS uses sophisticated
electronics to heat tobacco in a controlled manner to
release flavors and nicotine without combustion. Our
e-vapor product, commercialized under the IQOS VEEV 1 In the fourth quarter of 2021, we announced that we will be Middle East & Africa
relocating our PMI corporate headquarters from New York, East Asia
brand, generates an aerosol by heating an e-liquid New York, to Stamford, Connecticut. This move is expected & Australia
to be completed by the third quarter of 2022.
formulation. IQOS VEEV was available for purchase in Americas
(incl. the U.S.)
seven markets as of year-end 2021. We also now have
a small presence in nicotine pouches, commercialized
PMI’s adjusted under the Shiro brand. This product contains no tobacco
net revenues in and is used by being placed beneath the upper lip. Proportion of 2021 adjusted net revenues from smoke-free products in each PMI region
2021
Combustible products
To accelerate our transition away from cigarettes
and encourage the industry to follow this path, it is
necessary to maintain our competitive position in the 59%
cigarette market during this transition phase (read
our Chief Financial Officer’s letter to learn more).
Our cigarette brands are sold in around 180 markets, 37%
Combustible in many of which they hold the number one or 33%
71% number two market share position. Our portfolio

includes a wide range of premium, mid-price, and
low-price brands, including Marlboro, L&M, Chesterfield,
Philip Morris, and Parliament, which are among the 4% <1% 3%
15 most popular brands in the international cigarette
market (which excludes China and the U.S.).
European Eastern Middle East South & South- East Asia Americas
Union Europe & Africa east Asia & Australia (incl. the U.S.)
1 Incorporating 2021 acquisitions of Fertin Pharma, Vectura Group, and OtiTopic, PMI employed approximately 69,600 people worldwide at year-end 2021.
18 19
We operate on a global scale in a fast-paced world. Our long-term Global trends intersect with our strategies and initiatives and inform how we interact with the external environment.
success requires that we monitor, anticipate, and respond to the Several trends discussed here existed before COVID-19 but have been amplified and accelerated by the pandemic,
challenges and opportunities shaping our reality today and in the future. causing disruptions to supply chains and business operations and making them even more relevant.
Global trends
Drivers Capitals impacted Stakeholder expectations How we are responding
Healthy lifestyles • Demographic shifts

• Consumer preferences
• Consumers: Healthier products
• Employees and supply chain: Occupational health and safety; Mental health
• Portfolio shifts driven by consumer centricity (transition to a
smoke-free future, innovation in wellness and healthcare)
Society is more attuned to mental well-being and physical health, leading to a push • Public health policy and regulation and well-being; Work-life balance • Workplace health and well-being programs and initiatives
for more conscious choices, active lifestyles, support, and better nutrition. Businesses • Civil society: Public health
are expected to expand and shift their portfolios to incorporate new services and • Policymakers and regulators: Public health; Quality of life; Social welfare
product offerings that contribute to better health, paying attention to the unique • Shareholders: Product offerings in line with consumer expectations to
needs of younger generations and older workers. To attract, retain, and optimize protect and expand market share
top-level talent, employers must prioritize mental and physical well-being in the
workplace, particularly as remote and hybrid work becomes more prevalent.
Climate and nature urgency • Civil society and consumer activism

• Investor focus and the expansion
• Consumers: Environmentally friendly and circular products
• Employees and supply chain: Job security and business continuity amid the
• Integrated risk assessments and robust GHG emissions
accounting to define new—and validate existing—strategies
Climate change, biodiversity loss, deforestation, water insecurity, and other ecological crises of impact investing climate crisis • Transparent, strategic, and science-based target setting and
threaten more than supply chains and physical infrastructure; they endanger progress and • Environmental policy and • Civil society: Greenhouse gas (GHG) emission reductions; Protection and disclosure of progress
business growth by exacerbating systems-level disruptions that affect our stakeholders. Policy, regulatory developments preservation of natural ecosystems; Resource efficiency • Investing in—and developing—scalable solutions that produce
regulation, civil society, and market forces continue to spur a transition to low-carbon solutions, • Impending institutional consensus • Policymakers and regulators: Science-based approach to target setting and co-benefits for climate and nature
investments in renewable energy, and actions to safeguard ecosystems. These also focus on on nature-related measurement related disclosures; Environmental welfare; Environmental regulation • Supporting and partnering with experts, science-based
embedding eco-design and circular considerations at the early stages of product development. and reporting frameworks enforcement initiatives, and advocacy organizations
• Shareholders: Future-proof business model; Useful environmental
disclosures; Low-carbon solutions; Investments in renewable energy
Inequality • Civil society and consumer activism

• Investor focus and expansion of
• Consumers: Inclusive and equal access to solutions, products, and services;
Socially responsible products
• Expanding the scope of human rights impact assessment
• Promoting living incomes and wages throughout the value
Globalization, rapid economic growth and widespread improvements in livelihoods in impact investing • Employees and supply chain: Inclusive and equal access to opportunities; chain
recent decades have failed to close—and have even exacerbated—the deep divides within • Human rights and other societal Workplace free from discrimination and harassment; Equal pay and living wage • Collaborating across the value chain and broader business
and across countries. Worsening inequalities have in turn triggered civil society to become policy and regulatory • Civil society: Climate justice; Access to jobs community to address inequalities in our supply chain
more aware of—and more vocal about—social injustices. Ongoing scrutiny and policy developments • Policymakers and regulators: Social welfare, including access to meaningful • Providing a workplace where employees have equal pay for
developments on issues pertaining to social inequality and human rights have highlighted • Impending institutional consensus jobs and protection of human rights equal work, equal access to opportunities and are free from
the role business can play by ramping up diversity, equity, equality, and inclusion efforts. on social-related measurement and • Shareholders: Organizations free from human rights controversies that discrimination and harassment
reporting frameworks appropriately manage governance concerns around inequalities in the
workplace
Erosion of trust • Mistrust of institutions

• Political turmoil
• Consumers: Transparency on the impact of products and operations on
health, society, and the environment; Scientifically substantiated claims
• Revised and expanded Statement of Purpose
• Explicitly linked financing instruments to ESG performance
Social cohesion and a shared reality founded on facts grounded in science and data are • Diminishing confidence in science • Employees and supply chain: Strong company culture; Clear business • Reporting against most relevant and widely used sustainability
increasingly challenged in an ever more digital world. The rising tides of distorted truth, • Expectation of increased purpose standards to promote transparency
misinformation, and polarization also impacts businesses, which cannot succeed in failed transparency • Civil society and supply chain: Traceability; Alignment of priorities with • Developed an ESG KPI Protocol with a path to provide full
societies and must work with all stakeholders to foster innovation, develop solutions, and • Social media platforms public benefit; Transparency assurance on nonfinancial data
drive impact. Companies are expected to demonstrate irreproachable behavior and radical • Policymakers and regulators: Standards and norms for quality and • Introduced model to link ESG performance transparently and
transparency, providing trustworthy information on their impacts along their value chain. robustness of data and related requirements for increased transparency objectively to executive compensation
• Shareholders: Consistent, reliable, and comparable ESG data and useful
information
Technological progress • Shift to online commercialization

channels
• Consumers: Consumer data protection; R&D for new solutions and better
products
• Investing in new technologies and acquisitions to accelerate
our company’s transformation, expand smoke-free product
New technologies, including in robotics, artificial intelligence, and virtual reality, are • Impact of automation on • Employees and supply chain: Adapting workforce skills and capabilities; Job offerings, and drive progress on sustainability priority areas
emerging rapidly. Companies are implementing automation and digital solutions that employment security; Protection of employee data • Data-based decision-making and investment in targeted
increase transparency, maximize efficiencies, and create opportunities for robust R&D • Growing availability of data and • Civil society and supply chain: Increased supply chain connectivity, operational improvements
activity and product innovation. Boosted by a rapid flow of data and information, the information transparency, and efficiency through emerging technologies • Strengthening cybersecurity and data privacy policies and
pace of change is unprecedented, with wide-reaching implications across industries. • Cybersecurity and data privacy • Policymakers and regulators: Data protection and prevention of practices
Within this context, concerns and risks around data privacy and cybersecurity are on concerns cybersecurity threats; Policymaking on technology and innovation • Employee lifelong learning and upskilling offers
the rise, and many actors are working to enhance data and infrastructure protection. • Shareholders: Companies leverage technological advancements to drive
product innovation, commercialization, and operational efficiency
Capitals: Human Manufactured Intellectual Natural Social Financial
20 21
Industry trends Heated tobacco products have been commercialized

for many years but did not gain commercial traction
The oral tobacco product category volume, including
products containing tobacco leaf (e.g., chewing
until the introduction and world-wide expansion of tobacco, snuff) and modern products such as nicotine
IQOS. Following this technological breakthrough, pouches, grew to reach almost 29 percent CAGR
other companies also began to commercialize heated over the past three years in the international market,
tobacco products. The heat-not-burn segment boosted by the significant growth of oral nicotine
Market trends Projected number of smokers in 2025 volume grew in the international market (which pouches. Nicotine pouches have emerged as credible
excludes China and the U.S.) at a compound annual smoke-free products in recent years, most notably in
Overview of the global nicotine business
The World Health Organization (WHO) projects growth rate (CAGR) of over 29 percent between 2018 markets with a history of oral tobacco consumption,
Products within the global tobacco and nicotine a decline in smoking prevalence (age 15+), from and 2021, driven both by increased adoption in the such as the U.S. and Scandinavia. While the category
business market fall into three main categories: 21.5 percent in 2010 to an estimated 17.1 percent first launch markets as well as geographical expansion. remains small outside these markets, it is growing.
combustible products, smoke-free products, and in 2025.2 At the same time, the global adult This category is the largest smoke-free category
Within the nicotine industry, the strong growth
therapeutic cigarette replacement alternatives (often population is growing by around 70 million people by both retail value and volume in the international
of smoke-free products over the past three
known as nicotine replacement therapies or NRTs). per year. The net effect of this population growth market (which excludes China and the U.S.).
years, including heat-not-burn and e-vapor,
• Combustible products (e.g., cigarettes, and declining smoking prevalence is a forecast of
The e-cigarette was invented in 2003 in China, is replacing combustible products.
fine-cut tobacco, pipe tobacco, cigars, and just under 1.1 billion smokers in 2025—essentially
and—after more than a decade of relatively
cigarillos) burn tobacco to deliver nicotine. the same as in 2010. Even if the faster reduction
limited success—the broader e-vapor category
in smoking prevalence that WHO member
• Smoke-free products deliver nicotine without has recorded significant growth, particularly in the
states are targeting is achieved (i.e., a 30 percent
combustion. These products include heated U.S., Canada, and certain European markets.
reduction in the prevalence of tobacco use
tobacco (also known as heat-not-burn), e-vapor, by 2025 versus 20101), we estimate there will
hybrid products (combining features of heated still be around 930 million smokers in 2025.
tobacco and e-vapor products), and oral
tobacco and nicotine products such as snus and
Emergence of smoke-free alternatives³
nicotine pouches. By eliminating combustion,
these products present, or have the potential In recent years, the development, commercialization, Industry volume split 2018–2021
2018 2021
to present, less risk of harm to adults who and subsequent adoption of various smoke-
Combustible products 96% 93%
switch to them versus continued smoking. free products have led to rapid growth of the
Of which Of which
category. Overall, we estimate this segment grew Smoke-free products 4% 7%
• Therapeutic cigarette replacement alternatives,
which include nicotine gum and patches, aim to help
by 3 points since 2018 to reach over 7 percent 2% 4%
of the international nicotine retail value (which are heated tobacco are heated tobacco
smokers quit smoking. They deliver nicotine and products products
excludes China and the U.S.) in 2021.
require pharma approval process to be followed;
further, in some countries, their use is subject R&D on smoke-free products that do not involve
to prescriptions from medical professionals. combustion, including pouches, e-cigarettes, and
heated tobacco, extends back more than two
Prevalence of tobacco smoking worldwide decades. These efforts were driven by a combination
Combustible products currently represent the largest of increased awareness of the harms of smoking,
share of the global nicotine market, with cigarettes evolving technologies, discoveries of different ways
remaining the dominant tobacco product used by to deliver nicotine, and a better understanding of 2018 2021
nicotine consumers worldwide. The prevalence of behaviors connected to smoking. The reduced risk
smoking is decreasing steadily around the globe, potential of these products, coupled with their
supported by public health policies and strategies availability and increased acceptability, is leading
focused on discouraging initiation and encouraging smokers to switch away from combustible tobacco
cessation. Despite this, an estimated 1.1 billion products and never come back to smoking. The
people worldwide still smoke cigarettes, and due potential of smoke-free products to contribute
to population growth, that number is projected to to reducing population harm and, eventually,
remain relatively stable for the foreseeable future.1 benefit public health, has led to the introduction of
progressive public health strategies based on the
concept of tobacco harm reduction. These strategies
1 WHO Global Report on Trends in Prevalence of Tobacco Smoking 2015. successfully complement traditional efforts, which
2 WHO Global Report on Trends in Prevalence of Tobacco Use
2000-2025, third edition (December 2019). encourage cessation and discourage initiation, Note: See glossary. Data exclude China and the U.S.
3 Estimates based on PMI financials and third-party sources (including
Euromonitor International).
in accelerating smoking prevalence decline.
22 23
Competition Oral tobacco and oral nicotine products are mainly

produced by the major tobacco manufacturers Our perspective at PMI
As in other consumer goods sectors, manufacturers
and traditional oral tobacco manufacturers. Key
in the tobacco industry compete primarily on product At PMI, we aim to base our success on a future By 2025, we expect that less than 50 percent
players are building internal capabilities in the
quality, brand recognition, brand loyalty, taste and in which we no longer make or sell cigarettes, of our adjusted net revenues will derive
oral tobacco and nicotine segment or acquiring
sensory experience, R&D, packaging, customer the most harmful form of nicotine consumption. from cigarette sales. In 2021, PMI smoke-
smaller existing players in this category.
service, marketing, advertising, and retail price. In stark contrast with our competitors, PMI’s free products represented 29.1 percent
Despite advances in science and technology, the value proposition is not to expand its portfolio of our annual adjusted net revenues and
Smoke-free products business strategy of all international cigarette of both combustible and smoke-free products 12.8 percent of our total shipment volume.
There is increasing competition in relation to manufacturers—with the exception of PMI— and offer more choice to consumers. Our goal
smoke-free products, with tobacco manufacturers is focused on continuing to grow cigarette Growing interest in the smoke-free product
is to lead an industry-wide transformation
shifting their resources toward the development, sales, while expanding their portfolios to offer category from other companies could be
whereby cigarettes are phased out completely.
acquisition, and commercialization of such products, (in addition) smoke-free alternatives. an opportunity and lead to the acceleration
particularly heated tobacco products, e-vapor Our strategy is centered on researching and of the global smoke-free agenda.
products, and nicotine pouches. Beyond this, Combustible cigarettes developing better products, promoting broad
As recent investments demonstrate, our long-term
some manufacturers are entering into strategic The global combustible cigarette sector includes access to them, and working to ensure these
plan extends beyond smoke-free into products
collaborations to explore growth opportunities in four large international manufacturers—British products replace cigarettes and make smoking
outside the tobacco and nicotine space. Our 2021
products that do not contain tobacco or nicotine. American Tobacco (BAT), Japan Tobacco (JT), Imperial obsolete. To achieve this, we are actively
acquisitions of Fertin Pharma, OtiTopic, and Vectura
Brands (IMB), and PMI—along with two major shifting and reallocating resources, setting
To date, competition in the heated tobacco category will allow us to better leverage PMI’s capabilities,
manufacturers focused primarily on their respective ambitious goals connected to this strategy,
is primarily among manufacturers of combustible accelerate the pace of our transformation, and
domestic markets: The China National Tobacco and transparently reporting on our progress.
tobacco products. With regard to e-vapor, the cement the foundation of our future in wellness
Corporation (CNTC) in China and Altria Group, Inc. and healthcare—all with the ultimate goal of
“open” products category (products which feature a
in the U.S. (Altria is the parent company of Philip having a net positive impact on society.
chamber that can be refilled with e-liquid) is heavily
Morris USA, which operates exclusively in the U.S.
fragmented and relatively commoditized among small
and is not affiliated with Philip Morris International).
or local manufacturers. In contrast, global tobacco
manufacturers are increasingly present in the “closed” PMI total international share (in %)
products category (with disposable products or
Heated tobacco units
reloadable systems with prefilled cartridges), which
is evolving rapidly with a number of startups. Cigarettes
Our global market share 2021, including

cigarettes and heated tobacco units BAT ~11%
Total: Total: Total:
IMB ~3% 28.3 27.6 27.3
JT ~8%
2.2
PMI 13.8% 3.0 3.5
CNTC ~46%
Altria Group, Inc. ~2%
Other ~16%
26.1 24.6 23.7
PMI
13.8% 2019 2020 2021
Note: Global market includes China and the U.S. Source: PMI financials or estimates. International market excludes China and the U.S.
Source: PMI financials or estimates.
24 25
Regulation and taxation For decades, public health strategies to reduce Illicit trade prevention Our perspective at PMI
tobacco-related morbidity and mortality focused
The harms associated with smoking have led primarily on preventing smoking initiation and The increasingly interconnected global economy
policymakers, legislators, and regulators to encouraging cessation. With the introduction of provides more opportunities for criminal For PMI, eliminating the illicit tobacco
impose rigorous restrictions on cigarettes, smoke-free products and the recognition of their networks engaged in illicit activities such as the trade has been a long-standing priority.
including high excise taxes, minimum age potential to accelerate the decline of smoking sale of counterfeit products, wildlife smuggling,
We focus our efforts on securing our
requirements, and designated areas for use. prevalence and contribute to public health, the narcotics, human trafficking, and excise fraud.
supply chain and protecting our products.
Additional restrictions and mandates apply to need for an updated approach to tobacco regulation The illicit tobacco trade provides a cheap and
packaging design and health warnings, ingredients Read more about our approach
has become urgent. While there is currently no unregulated supply of tobacco products. It
and flavors, marketing and advertising, and and progress in 2021 here.
global consensus on how best to regulate or undermines efforts to reduce smoking prevalence,
promotions and other forms of sponsorship. tax smoke-free products, a growing number of damages legitimate businesses, stimulates
Much of the regulation that shapes the tobacco authorities recognize that the risk profile of these organized crime, increases corruption, and
industry’s operating environment is driven by products differs from cigarettes and so should reduces government tax revenue. It is estimated
the WHO’s Framework Convention on Tobacco be regulated differently in order to promote their that illicit trade accounts for as much as 10 to 12
Control (FCTC) and its MPOWER measures. adoption as a better alternative for those smokers percent of global cigarette consumption and that
The FCTC has established a global agenda who would otherwise continue to smoke. governments worldwide are losing USD 40 to 50
to reduce the prevalence of tobacco use and billion in tax revenues each year as a result.1
nonsmokers’ exposure to tobacco smoke.
Our perspective at PMI Many countries have initiated or are considering
actions to prevent the illicit trade of tobacco
Government regulation of all nicotine- products. In 2012, the FCTC adopted the Protocol
containing products is essential. to Eliminate Illicit Trade in Tobacco Products,
which includes supply chain control measures
PMI supports a comprehensive approach
such as licensing, enforcement in free trade zones,
that discourages initiation and promotes
and the implementation of tracking and tracing
cessation, supplemented by commonsense
technologies. The protocol came into force in
regulation that encourages adults who smoke
September 2018, and parties to it have started
and would not otherwise quit to switch
implementing its measures via national legislation.
completely to smoke-free alternatives that
have been scientifically substantiated to be 1 U.S. Department of State, The Global Illicit Trade in
a better choice than continued smoking. Tobacco: A Threat to National Security, 2015
We advocate for a comprehensive and risk-

proportionate regulatory framework that
recognizes that not all tobacco- and nicotine-
containing products are the same. Regulation
and taxation should subject the most harmful
products to the most restrictive measures while
encouraging those adults who would otherwise
continue to smoke to switch to the less harmful
alternatives now available. Such an approach
would significantly accelerate the phasing out of
combustible products and promote public health.
26 27
Stakeholder groups Why we engage How we engage Key topics discussed
Stakeholder Consumers Adults who smoke and otherwise would not quit are at the heart of our
business transformation. We aim to persuade as many of them as possible
• Digital interfaces
• Surveys and questionnaires
• Product innovation
• Access to smoke-free products
engagement Adult smokers and nicotine

consumers
to replace cigarettes with scientifically substantiated better alternatives.
We do this by taking a consumer-centric approach to developing and
• Hotlines and call centers
• Consumer events
• Benefits of smoke-free products compared
with continued smoking
commercializing better alternatives that meet their preferences and • Stores and e-commerce • Quality and services
needs. We also raise awareness among these adult smokers of smoke-
PMI regards stakeholder engagement free products, how they work, and their benefits compared with
as fundamental to the creation of cigarettes so as many as possible will switch to them.
shared and sustainable value.
Our employees are drivers of change and the ambassadors of our • Regular surveys • Company strategy and performance
While PMI’s transformation is unwavering, we Employees purpose. Their engagement and dedication are essential to making PMI’s • Group-wide intranet and internal platforms • Diversity, equality, equity, and inclusion
recognize that we cannot complete the journey Employees, management, work vision and strategic goals a reality. We continuously communicate with • Performance and development reviews • Health and safety
alone. The kind of systemic change PMI is driving councils, trade unions and listen to our employees and strive to provide them with opportunities • Internal events and conferences • Mental health and well-being
for growth and development within an inclusive workplace. • Training programs • Talent attraction, development, and retention
can only be achieved through a collaborative
• Recognition schemes
multistakeholder approach, a fact we recognize
• Ongoing dialogue
in our Statement of Purpose. PMI’s reputation • Employee resource groups
is based on the perceptions of its various
stakeholders. Our ability to build and maintain Many of the people working in our supply chain rely on PMI for a • Compliance, audits, and risk assessments • Supply and delivery challenges
trust and legitimacy relies on consistency and
Supply chain and substantial portion of their income. PMI aims to treat its suppliers • Strategic partnerships • Opportunities for growth and innovation
coherence—on ensuring our words match our business partners fairly and ethically and is dedicated to acting as a good partner to • Supplier forums and events • Environmental and social impact of supply chain
other companies, large and small, that help us achieve our ambitions. • Meetings, workshops, and training sessions • Responsible commercialization practices
actions. Remaining open to dialogue with our Farmers and farmworkers, farmers’
Collaborating with others across our supply chain helps us to address • On-site visits
stakeholders allows us to understand their associations, contractors, suppliers,
social and environmental challenges and make progress against our • Digital retailer interface
wholesalers, business partners, third
expectations and respond accordingly. Continuous strategic goals.
party-operated manufacturers
engagement also allows us to build a shared
understanding of contingency issues, proactively
Engaging with the finance community is key to promoting a • Annual shareholder meeting • Business transformation strategy
respond to concerns, identify potential areas of Finance community comprehensive understanding of PMI’s unique value proposition, strategy, • Events and conferences • Financial and ESG performance
compromise, stay abreast of global trends and PMI shareholders, equity and and performance. Furthermore, investment decisions increasingly • Earnings calls, Investor Day, and ESG webcasts • Market and industry dynamics
market expectations, and find solutions that are fixed income investors, lending integrate environmental, social, and governance (ESG) criteria, and we • Presentations, reports and publications • Capital allocation
good for our stakeholders and business. We are institutions, insurance companies, are confident in the business opportunity our transformation brings. • Roadshows • Governance and remuneration
financial analysts, rating agencies • ESG ratings and rankings • Sustainability priorities
committed to driving transparent and responsible
• Financing instruments
change, and continuously work to earn the
• Perception studies
trust and confidence of our stakeholders.
Our periodic sustainability materiality
Dialogue with national and local governments and regulators allows us to • Ongoing dialogue • Product health impact and access to smoke-free
assessments provide us with valuable insights Regulators understand their priorities and concerns and share our views, objectives, • Forums and events products
and allow us to gauge the relevance of Policymakers, intergovernmental and scientific findings. We engage with governments, regulators, and • Public consultations • Regulatory compliance
different topics for key stakeholder groups. organizations, regulatory bodies, legislators in developing proposed legislation and regulations that may • Reports and publications • Fiscal and regulatory frameworks
standard setters, government impact a smoke-free future. The right regulation would accelerate the end • Trade associations • Sustainability priorities and performance
Our stakeholder engagement incorporates authorities (including legislators), of smoking, foster innovation, and minimize unintended consequences. • Training and presentations
both structured and ad hoc interactions. Above customs organizations
all, it is guided by transparency, integrity, and
respect and governed by our Guidebook
Engaging with the public health community is of utmost importance. • Conferences, forums, and events • Product innovation
for Success and its accompanying policies Public health community By conducting our R&D with scientific rigor, sharing our findings, and • Reports and publications • Product health impacts
(“Principles and Practices”), summarized in this Scientific community, academia, asking the community to scrutinize our products and the growing body • Articles and studies • Scientific research
overview of our engagement principles. researchers, public health agencies of scientific evidence surrounding them, we aim to engage constructively • Dedicated scientific website (PMIscience.com)
on this topic and collectively seize the immense opportunity smoke- • Online platforms for data transparency and
free products present for advancing public health within the current reproducibility in science
Constructive dialogue is essential to moving
generation of adult smokers. • Applications and submissions
society forward. To achieve the collective
action required to solve the world’s most From best practices and information exchanges to close partnerships, • Partnerships • Sustainability priorities and performance
pressing challenges, we must include all voices, Civil society engaging with civil society actors helps inform our strategy, define our • Communication campaigns • Business transformation
bringing together people with differing opinions, Academia, local communities, civil society priorities, and advance sustainable solutions to common challenges. • Social contributions • Product innovation
scrutinizing facts, and finding common ground organizations, NGOs, multistakeholder • Open dialogue
organizations and initiatives, media
upon which to build. Read more here on the
value of embracing dialogue to disarm hate.
28 29
S T R AT E G Y
Transforming for good 32
– Our business transformation 32
– PMI’s Business Transformation Metrics 34
– Anchoring sustainability at the core of our strategy 38
– Setting ambitions and targets 44
Our 2025 Roadmap 46
PMI Sustainability Index 47
Creating value 48
Letter from our Chief Sustainability Officer 50
Corporate governance and management 52
Risk management 56
30 31
Transforming for good
We are striving to become a company Our business transformation While a transformation of this magnitude and complexity is not achieved overnight,
that has a net positive impact on society. we are committed to making it happen as fast as possible.
Transforming our company is not only about
This ambition starts with researching, developing, substituting one product with a new one. It also
and commercializing less harmful alternatives to requires transforming our entire value chain, as Product The most visible part of our transformation is that related to our product lines.
Over the past decade and a half, we have harnessed scientific and technological
well as the way we engage with society. This
cigarettes for those adults who otherwise would
requires a holistic review and overhaul of our
transformation advances to develop alternatives to cigarettes that are scientifically
continue to smoke, ultimately allowing us to phase substantiated to be a better choice for adult smokers than continued smoking.
out cigarettes and become a fully smoke-free entire business model and value proposition, Innovating for Now, while continuing to improve and expand our portfolio, we are working to
which brings with it new opportunities as well as better products raise awareness about the benefits of these products in relation to continued
business. As a next step, we are expanding our
offerings to include products that fill critical unmet challenges throughout all aspects of our business. smoking, which contributes to increasing access by adult smokers. In 2016,
our company established its purpose: to phase out cigarettes by replacing
needs within the wellness and healthcare space. Sustainability stands at the core of PMI’s them with less harmful alternatives as quickly as possible to achieve a smoke-
To achieve our purpose, a radical transformation transformation and helps address some of the free future. With strong progress toward becoming a majority smoke-free
challenges resulting from the transition, while spurring company by 2025 in terms of net revenues, we are beginning to explore
of our business is required. Our strategy is to
innovation and better positioning the company for adjacent avenues of growth that will take our business into wellness and
responsibly transition from a cigarette company healthcare, with an eye to fulfilling unmet consumer and patient needs.
into a world-leading smoke-free business while success over the long haul. The complexity of our
simultaneously exploring adjacent avenues of strategy comes from simultaneously managing the
growth in wellness and healthcare. Our North Star impacts of two value chains—the one we are aiming to
is to create a net positive impact that benefits our move away from (our cigarette portfolio) and the one
company, shareholders, consumers, and society. we are moving towards (our smoke-free portfolio)— Internal Since announcing our transformation, we have undergone a meaningful
reorganization, and helped our employees build the skills and capabilities
while also managing the impacts of the transition itself.
transformation needed to contribute fully to our business transition, while also investing in
recruiting new talent and acquiring the capabilities needed to drive a successful
A new organization transformation. Read our case study on expanding our value creation model
and value chain here.
We have also incorporated new ways of working to become an increasingly
Product transformation portfolio digitalized, project-based organization, focused on consumer centricity, agility,
and data-driven decision-making.
Supporting
Beyond our own operations, every step of our value chain is being transformed
transformation to serve our company purpose. We recognize the challenges these changes
pose and are actively helping all those impacted by our transformation (in our
direct and indirect operations) to best manage the transition.
Growth External The way we engage with external stakeholders is critical to achieving our
purpose. Our ability to successfully transform depends not solely on us—
priorities
transformation working together with different parts of society, we can create a paradigm
shift where cigarettes become obsolete.
Changing the way we
engage with stakeholders Continuous engagement also allows us to build a shared understanding of
contingency issues, proactively respond to concerns, identify potential areas
of compromise, and find solutions that are good for our stakeholders, as well
Emerging as for our business and long-term success. Read more about our stakeholder
opportunities engagement efforts here.
32 33
2015 2025
Business Transformation Metrics Baseline 2019 2020 2021 Aspirations
PMI’s Business Transformation Although year-on-year progress is important to Adjusted R&D expenditure (in millions USD)¹* 423 465 495 566
monitor and disclose, sometimes the magnitude of the Adjusted R&D expenditure ratio (smoke-free/total)¹* 70% 98% 99% 99%
Metrics pace and scale of our progress is lost. Because of that, Number of R&D positions (FTEs)² n/a 942 934 981
We realize that business transformation is a we have introduced a baseline approach, whereby Patents granted in IP5 jurisdictions relating to
smoke-free products (cumulative, since 2015)³ n/a 740 1,300 1,770
very company-specific journey, which ESG we can highlight to our stakeholders the sizable
R&D
Number of studies completed by PMI on smoke-
reporting standards do not properly capture. cumulative progress that we have made to date. Pre- free products (cumulative, since 2015)
transformation (in 2015), our combustible product Toxicological assessment n/a 109 146 203
To make our progress both measurable and verifiable,
volume totaled 881 billion units, or 99.9 percent of Clinical assessment n/a 19 22 24
we developed our Business Transformation
our shipment volume ratio, and, since then it has Perception and behavior (premarket and post-market) n/a 13 (9 + 4) 30 (15 + 15) 44 (25 + 19)
Metrics, a set of bespoke key performance
declined by 26 percent. Over the same period, our Supply chain direct spend expenditure ratio (smoke-free/total)⁴ n/a 35% 33% 35%
indicators (KPIs) composed of both financial and
smoke-free shipment volume increased from 1 billion Cumulative investment behind smoke-free
Operations
Sourcing &
nonfinancial metrics. They showcase how we are
units to more than 95 billion units and represented products (since 2008, in billions USD)⁵ 2.4 7.2 8.1 9.2
allocating resources away from our traditional Number of factories producing smoke-free
12.8 percent of our shipment volume in 2021.
cigarette business as we advance toward a future products out of total number of factories⁶* 2 out of 48 8 out of 38 8 out of 39 8 out of 38
in which we no longer make or sell cigarettes. Aspirational goals linked to our Business Year-on-year change in number of
Transformation Metrics give us a clear SKUs—combustible products⁷ n/a (6%) (5%) 3%
By reporting periodically on these KPIs, we enable
roadmap and offer our stakeholders visibility Year-on-year change in number of SKUs—smoke-free products⁷ n/a 26% 38% 42%
external scrutiny and allow our stakeholders to assess
into the future we are working toward. SKUs ratio (smoke-free/total) 3% 10% 14% 18%
both the pace and scale of our transformation. Over
Number of markets where smoke-free
the years, in response to stakeholder feedback, we By 2025, we aim to become a predominantly smoke- products are available for sale⁸* 7 52 64 71 100
have significantly expanded the number of metrics free company, generating more than 50 percent Proportion of markets where smoke-free products are
Commercialization
to increase transparency and clarity about our of our total net revenues from non-combustible available for sale that are low- and middle-income markets⁹* 33% 35% 41% 43% >50%
progress. We review them periodically to ensure products. Within the same time horizon, we aspire Number of IQOS stores¹⁰ n/a 199 259 274
Number of retailers that sell PMI smoke-free
we continue reporting on meaningful indicators. to grow our annual smoke-free shipment volume
product consumables (in thousands) n/a 679 748 812
In 2021, we evolved our reporting efforts to to over 250 billion units, while simultaneously Commercial (marketing) expenditure ratio (smoke-free/total)* 8% 71% 76% 73%
broaden access to smoke-free products worldwide, decreasing our combustible product shipment volume Smoke-free product shipment volume (billion units)* 1 60 76 95 >250
by introducing an indicator on the number of to below 550 billion units. This means we aspire Combustible product shipment volume (billion units)* 881 732 654 650 <550
low- and middle- income markets where smoke- for smoke-free products to represent more than Change in combustible product shipment
free products are available for sale, replacing our 30 percent of our total shipment volume by 2025, volume (billion units) vs. 2015 baseline¹¹* n/a (17.0%) (25.8%) (26.3%) ~(40%)
previous reporting on non-OECD markets. and for our combustible product shipment volume Smoke-free product shipment ratio (smoke-free/total)¹¹* 0.1% 7.6% 10.4% 12.8% >30%
to decrease by around 40 percent by 2025 versus Total number of users of PMI smoke-
Consumers
a 2015 baseline. We also aim for our smoke-free free products (in millions)¹²* 0.2 13.5 18.3 21.7
Estimated number of users who have switched to PMI
products to be available for sale in 100 markets by
smoke-free products and stopped smoking (in millions)¹²* 0.1 9.6 13.0 15.3 >40
2025, with more than 50 percent of these being
Adjusted net revenues ratio (smoke-free/total)¹³* 0.2% 18.7% 23.8% 29.1% >50%
low- and middle-income markets, and for at least 40
Number of markets where adjusted net revenues from smoke-
million adults to switch to them and stop smoking. free products exceed 10% of adjusted total net revenues¹³* 0 31 38 47
Revenues
Finally, we introduced in 2021 a new aspiration to Number of markets where adjusted net revenues from smoke-
generate at least USD 1 billion in annual net revenues free products exceed 50% of adjusted total net revenues¹³* 0 4 6 10
from wellness and healthcare products by 2025. Annual net revenue from wellness and
healthcare products (in billions USD) n/a n/a n/a 0.1 ≥1
Looking ahead * The 2021 metrics marked with an asterisk (*) are subject to PwC’s Assurance Report
(see page 245).
6 Data reflect the number of factories operated and owned by PMI at the end of the respective
year. Number of factories fully or partially dedicated to smoke-free products includes seven
factories related to heated tobacco unit production and one factory related to e-vapor
In 2022, we plan to evaluate our published targets Notes: consumables production. 2021 figures exclude one factory dedicated to wellness and
healthcare products owned by Fertin.
to ensure they remain ambitious, reasonable, and Smoke-free products include heated tobacco units, e-cigarettes, snus, and nicotine pouches. Total
products include smoke-free products, cigarettes, and other combustible products.
7 SKUs stands for stock-keeping units. References to the number of SKUs are based on the latest
available data and categorization of our product portfolio into SKUs, therefore minor
achievable, in the context of a dynamic and evolving In 2022, we plan to evaluate our published targets to ensure they remain ambitious, reasonable, and
restatements in previous years’ data is reflected. The figures exclude China and the U.S.
8 Data reflect the status by the end of respective year. 2021 data excludes Belarus and the U.S.
smoke-free industry. In particular, we will account achievable in the context of a dynamic and evolving smoke-free industry. See page 34.
9 Excluding PMI Duty Free. Data reflect the status by the end of respective year. 2021 data
excludes Belarus and the U.S. For definition of low- and middle-income markets, see glossary.
for the learnings that we have gathered since setting 1 R&D expenditure in wellness and healthcare is included in both smoke-free and total R&D
expenditures. Adjusted R&D expenditure excludes asset acquisition cost related to OtiTopic, 10 Includes flagship stores and small, large, and temporary boutiques.
11 These indicators are calculated based on millions of units.
some of these aspirations in the early stages of our Inc. in 2021. Total reported R&D expenditure in 2021 including these items amounted to USD
12 These metrics are excluding PMI Duty Free and reflect the estimated number of legal age
617 million.
PLACEHOLDER IMAGE smoke-free journey. We will also assess and reflect 2 R&D positions include scientists, engineers, technicians, and support staff. Comparable data for (minimum 18 years) users of PMI IQOS heat-not-burn product (see glossary). In 2021, we
years prior to 2018 are not available as the scope of R&D positions changed following company evolved our methodology to estimate the total number of users of PMI smoke-free products, in
the impact of recent external factors—including organizational changes. order to better reflect the number of users for which PMI HTU represented at least a portion of
3 IP5 jurisdictions are Europe (patents granted by the European Patent Office), China, South their daily tobacco consumption over the past seven days. 2020 data was restated accordingly.
the COVID-19 pandemic and Russia’s invasion of Korea, Japan, and the U.S. Unavailability of sufficiently granular data did not enable us to restate figures for years prior to
4 Direct spend focuses on materials used in the manufacture of our products; it includes tobacco 2020. We also fine-tuned our methodology to estimate the number of users who have switched
Ukraine, where applicable. We intend to communicate leaf, direct materials, and electronic devices and accessories. to PMI smoke-free products and stopped smoking, in order to reflect the conversion rate of our
5 Investments reflect research, product and commercial development, production capacity, total user base at year-end, and restated 2020 data accordingly.
any related changes within the next year. scientific substantiation, and studies on adult smoker understanding. Figure does not include 13 Data reflect the status by the end of respective year. 2021 adjusted net revenues exclude the
commercial deployment costs. impact related to the Saudi Arabia customs assessments. 2021 revenues from wellness and
healthcare (USD 101 million) are included in both smoke-free and total adjusted net revenues.
See glossary.
34 35
Our value chain transformation
SOURCING OPER ATIONS COMMERCIALIZATION CONSUMERS & REVENUES
>350,000 2 /48 USD 423 m 7 0.1% 0.2 m 0.2%

We were Tobacco farmers contracted Factories partially or fully Adjusted R&D expenditure Markets where PMI Of total shipment volume related Users of PMI Of net revenues from
2015
by PMI and our suppliers in
28 Countries
dedicated to manufacturing
smoke-free products 70% smoke-free products
are available for sale
to smoke-free products
1 bn units smoke-free
smoke-free products smoke-free products
Of adjusted R&D expenditure

related to smoke-free products product shipment volume
881 bn units combustible
product shipment volume
1
Smoke-free electronic
product commercialized
Reallocating R&D expenditure towards

Transitioning from a mainly agricultural Shifting revenue source from majority
smoke-free product innovation and scientific Moving from B2B to a consumer-centric
supply chain to an increasingly diversified cigarettes to majority smoke-free products
capabilities, while reorienting manufacturing model to commercialize smoke-free products
one, including electronics sourcing while addressing post-consumer waste
toward smoke-free products
>250,000 8/38 USD 566 m 71 12.8% 21.7 m 29.1%

Adjusted R&D expenditure
Tobacco farmers contracted Factories partially or fully Markets where PMI Of total shipment volume related Users of PMI smoke- Of adjusted net revenues
We are by PMI and our suppliers in
21 Countries
dedicated to manufacturing
smoke-free products
99%
Of adjusted R&D expenditure
related to smoke-free products
smoke-free products
are available for sale
to smoke-free products
95 bn units smoke-free
free products, of whom
15.3 m are estimated
to have switched and
from smoke-free products
product shipment volume stopped smoking

2021 650 bn units combustible
product shipment volume
10
35% Smoke-free devices and
over 40 taste variants for
62,000
Of direct supply chain PMI heated tobacco units Electronic smoke-free
spend related to devices refreshed
smoke-free products or repaired
We will be 100
Markets where PMI
>50%
Markets where PMI
<550
Combustible product
>250
Smoke-free product
>30%
Smoke-free product
~40%
Reduction in combustible
≥USD 1 bn >50%
Net revenues from wellness Adjusted net revenues
>40 m
Estimated number of users who
2025 aspirations smoke-free products smoke-free products are shipment volume shipment volume shipment ratio product shipment & healthcare products from smoke-free products have switched to PMI smoke-free
are available for sale available for sale that are (bn units) (bn units) (smoke-free/total) volume v 2015 products & stopped smoking
low-and middle- income
Note: In 2022, we plan to evaluate our published targets to ensure they remain ambitious, reasonable, and achievable, in the context of a dynamic and evolving smoke-free industry. We intend to develop
a new 2025 aspiration related to the total number of users of PMI smoke-free products. See page 35 for complete Business Transformation metrics and 2025 aspirations with accompanying footnotes.
36 37
Anchoring sustainability We dedicated much of 2021 to strengthening The right focus 1. Identifying ESG topics
and fine-tuning our approach to sustainability and Identifying all potentially relevant ESG topics
at the core of our strategy furthering its integration across our company. We
A robust sustainability materiality analysis allows
and compiling them in a long list of topics
us to identify, assess, and prioritize ESG topics. By
We can only achieve our purpose by describe in this section our recent sustainability
feeding findings from these regular assessments
embedding sustainability in all we do. materiality assessment, our revamped ESG 2. Gathering stakeholder perspectives
into our strategy, targets, KPIs, and reporting, we
framework, sustainability strategy, and 2025 Collecting the perspectives of our stakeholders
are able to keep pace with external and internal
For PMI, sustainability is more than just a means Roadmap. We also include details about our through in-depth interviews and a quantitative survey
developments and ensure our strategy addresses
to minimize negative externalities and mitigate new Sustainability Index and accompanying
those areas in which we can have the most 3. Assessing outward impacts
risks while maximizing operational efficiency and ESG KPI Protocol. We expect these instruments
significant impact. Our 2021 sustainability materiality Evaluating PMI’s impact on society and the
resource optimization. We see it as a fundamental to guide our work and add sophistication to
assessment, conducted in the second half of the planet at various stages of our value chain
opportunity for innovation, growth, and purpose- our strategy, performance, and disclosures.
year, helped identify those ESG topics that we
led, impact-driven, long-term value creation.
should focus on. In line with the principle of double 4. Assessing inward impacts
Accordingly, we work hard to integrate sustainability
materiality, it consisted of a five-pronged approach Evaluating the potential impacts of ESG
into every aspect of our business and activities.
that included evaluating both outward and inward topics on our company’s performance
impacts and considering stakeholder expectations.
5. Identifying our most material ESG topics
Building the materiality matrix, based on
2 feedback from our stakeholders and the results
of our impact assessments, and identifying
those areas on which we should focus
1 3 5
Purpose, Value, Technology, Operational Mitigating
& Impact Innovation & & Resource Risk & 4
Growth Efficiency Compliance
Valuing impacts
In support of the creation of a global impact We leveraged insights gathered during our first
measurement and valuation standard monetizing pilot of the VBA methodology conducted in 2020
and disclosing impacts of corporate activities, to feed into our recent sustainability materiality
PMI joined other companies in 2019 to co-found assessment and inform the evaluation of our
the Value Balancing Alliance (VBA), a nonprofit company’s impacts on society and the planet
organization. Impact valuation can help companies (“outward impacts”). At the end of 2021, we
identify, understand, improve, and demonstrate the started piloting the second version of the VBA
benefits and costs of their activities to society and methodology with a set of seven environmental,
the environment, translated into monetary terms. social, and economic topics covering companies’
operations and upstream supply chains.
Traditional reporting Impact measurement and valuation
$
Input Output Outcome Impact Value of impact
What resources What activities What changed How does the How do people
have been used have been as a result outcome affect value the change
for business undertaken? of the business society? in well-being due
activities? activities? to the impact?
Note: Visual adapted from Value Balancing Alliance, Methodology Impact Statement General Paper, Version 0.1 (February 2021).
38 39
To appropriately reflect the results of our recent Our sustainability strategy The biggest and most pressing negative
sustainability materiality analysis, we redesigned our Priority topics externality our strategy aims to address is the
Our approach to sustainability focuses on
ESG framework to better showcase the ESG topics In the below visual, those topics that require our health impacts of cigarette smoking. This is the
developing strategies that can successfully address
we should focus on and prioritize our resources. This urgent attention and prioritization are highlighted most important contribution we can make to
the environmental, social, and governance topics
framework recognizes two distinct forms of issues: in the most brightly colored boxes. These priority public health and is the cornerstone of PMI’s
identified as a priority by our sustainability materiality
those that relate to our products (what we produce) topics include all topics related to the Product purpose and business strategy. Addressing this
assessment. Accordingly, our strategy crystallizes
which are part of the “Product Impact” pillar and those Impact pillar: materials and product eco-design; critical issue requires a three-part approach:
the notion of these two distinct forms of social and
related to our business operations (how we produce), post-consumer waste; product health impact; environmental impacts—those generated by our 1. Develop better alternatives to smoking
which are part of the “Operational Impact” pillar. sales, marketing, and consumer communications; products (what we produce) and those generated Research, develop, and commercialize scientifically
We subsequently classified each issue, based on its innovation in wellness and healthcare; responsible by our business operations (how we produce). substantiated nicotine-containing products
environmental, social, or governance-related nature. R&D; product reliability; and nicotine science. Our
priority topics pertaining to our Operational This approach allows us to appropriately highlight that are less harmful than cigarettes
We provide details on the methodology and
Impact pillar include climate; water; biodiversity; that, consistent with our sustainability materiality
results of our assessment, as well as on our 2. Accelerate smoking decline
diversity and inclusion; socioeconomic well-being analysis results, addressing the social impacts
updated ESG framework, in our Sustainability Provide broad access to adult smokers, who otherwise
of tobacco-farming communities; human capital generated by our products is the core of our strategy.
Materiality Assessment Report 2021. would not quit smoking, to ensure these products
development; business integrity; respect for These are the areas on which we must focus our
resources, to innovate and develop solutions that can accelerate the decline of smoking prevalence
human rights; and sustainable supply chain
management. contribute to solving some of society’s most pressing
challenges. This also represents an opportunity for 3. Make cigarettes obsolete
growth and our strongest competitive advantage. Purposefully work to ensure these products ultimately
replace cigarettes, driving their obsolescence
E S G
ENVIRONMENTAL SOCIAL GOVERNANCE
PRODUCT
Materials and Product health Responsible R&D

product eco-design impact –
I M PAC T
– – Product reliability
Post-consumer Sales, marketing, –
waste and consumer Nicotine science
communications
–
Innovation in
wellness and healthcare
Diversity and inclusion

Business integrity
–
Climate –
Socioeconomic well-
– Respect for
being of tobacco-farming
Water human rights
communities
– –
–
Biodiversity Sustainable supply
Human capital
chain management
I M PAC T
development
Labor standards
– Stakeholder engagement
Operational discharge Health and safety at work –
– – Data privacy
Animal welfare Employee well-being –
– Fair fiscal practices
Philanthropy
40 41
Despite its critical importance, achieving a In parallel, we must responsibly manage the impacts
smoke-free future is not our final horizon. We are of our company’s operations throughout the value
simultaneously exploring adjacent opportunities chain. From a social standpoint, this includes ensuring
Connectivity and trade-offs between ESG topics
for growth in wellness and healthcare, leveraging fair treatment and empowerment of our employees
the capabilities we have accrued and developed and improving the lives of people across our supply Sustainability challenges do not exist in a While this consequence is fully intended, it also
while transforming our business. It is through chain. On the environmental front, this means tackling vacuum. They are often linked, and their necessarily translates into a gradual decrease
these avenues of growth that we will achieve our climate change and preserving natural ecosystems. interdependencies—including the direction of in demand for tobacco leaf, which will have an
ultimate goal: becoming a business that has a net causality and magnitude—must be considered undeniable impact on our contracted farmers.
As a result, our approach to sustainability addresses
positive impact on society and the environment. as we craft appropriate strategies and develop
our ESG priorities through eight impact-driven We seek to minimize the negative effects
programs to address our company’s impacts.
Our comprehensive strategy also recognizes the strategies. Four of these strategies focus on the by improving the socioeconomic well-
need to address other ESG issues related to our impacts derived from our products and the remaining We seek solutions that are mutually reinforcing. being and resilience of tobacco-farming
products and business operations. As we accelerate four strategies focus on the impacts derived from For instance, our approach to carbon communities (read more here).
our transition from cigarettes to smoke-free products, our business operations. Last, but not least, our compensation—supported by our portfolio of
Given the multifaceted and complex nature
we must also minimize any adverse effects of our strategy highlights the importance of governance- climate investments (read more here)—favors
of sustainable development, trade-offs
products on the planet. Our efforts in this area related topics, which cannot be overstated. Our nature-based solutions in our supply chain that
are inherent to decision-making. In some
include striving to design our products in a way that company’s policies, rules, and procedures define remove carbon by restoring and enhancing plants
circumstances, we are compelled to make
optimizes the use of materials and improves circularity, our ability to implement sound strategies that and the ecosystem while also providing benefits in
sacrifices in one sustainability area to obtain
as well as appropriately managing their end-of-life successfully address environmental and social issues. the areas of biodiversity, water, and social impact.
benefits in another, at least for a period.
to minimize negative environmental impacts.
In other instances, addressing a particular topic may
In designing our strategies and programs, it is
limit how we tackle another. For example, the core
vital that we accurately analyze, comprehend,
of our smoke-free strategy is to raise awareness
and account for situations of forced compromise,
of smoke-free products among adult smokers and
guided by our sustainability materiality assessment.
broaden access to them. In doing so, however, it
Incorporating three lenses (stakeholder
is critical that we limit our initiatives to minimize
perspectives, outward impacts, and inward
the risk that our messages will reach unintended
impacts), our sustainability materiality assessment
audiences—namely, nonsmokers and youth.
serves as a compass with which to calibrate
Necessary trade-offs such as this often occur and prioritize competing ESG issues. When
in the course of our business transformation. appropriately addressed, some trade-offs can be a
For instance, the manufacturing processes of source of innovation, as such compromises press us
smoke-free consumables are more resource- to come up with novel ways to address the tensions
intensive than for cigarettes—a circumstance that are present. By embedding an integrated
that runs counter to our energy and water approach to sustainability within our business,
conservation efforts in our direct operations. we are able to monitor and tackle multiple issues
We are tackling this challenge and improving simultaneously, identifying effective solutions that
operational efficiency to mitigate and reverse this leverage interdependencies to make progress.
impact (read more here). As another example, the
growth of our smoke-free business will result in a
simultaneous decline of our cigarette business.
42 43
Setting ambitions and targets The result is a revamped 2025 Roadmap. While Our 2025 Roadmap To form the Sustainability Index,
most goals are not new, they are formulated more we sought KPIs that were:
Progress requires clearly articulated targets clearly. Our roadmap now consists of 11 critical
Our roadmap outlines our key goals
and informs the route of our company’s • Well defined, allowing for accurate, reliable, and
and accountability for meeting them. objectives connected to our eight strategies. This
long-term plan. consistent measurement of progress over time
revamped guide offers straightforward direction
Measuring and reporting on progress is a backward- to our stakeholders by clearly outlining the social • Meaningful, enabling stakeholders to
looking exercise. To evaluate the effectiveness of PMI’s revised 2025 Roadmap comprises assess our company’s progress towards
and environmental impacts we aim to achieve with
our approach to sustainability and give clarity to 11 headline goals, running to the end of its priority sustainability topics
both our products and our business operations.
both internal and external stakeholders, setting 2025, connected to our eight strategies.
To link each goal to specific outcomes and impacts, This required us to revise certain KPIs included
clear targets is paramount. It allows us to define our We believe business can and must help to achieve
we developed a set of KPIs that precisely articulate in our former sustainability disclosures. Further,
direction, align on definitions and measurements of the Sustainable Development Goals (SDGs) adopted
how to measure progress and define success. These applying these criteria led us to introduce new,
success, and hold ourselves accountable for progress. by the United Nations’ member states in 2015.
19 KPIs constitute our Sustainability Index. Covering more relevant indicators for inclusion in the index.
When we introduced our 2025 Roadmap in our Accordingly, we explicitly link each of our eight
the full spectrum of our sustainability priorities, the We have defined annual targets and performance
first Integrated Report (2019), we did not yet have priority areas of action to the SDG(s) to which it
index will allow PMI and our stakeholders to track the ranges from 2022 to 2025 for each KPI in our
clarity on precisely how we would achieve these aligns. We identified the SDGs on which we believe
company’s progress toward its goals year-over-year. Sustainability Index. On an annual basis, using these
ambitions. Our recent materiality assessment we can have a real and lasting impact (read more
In parallel, to increase the robustness of our about our SDG mapping in our 2021 Sustainability predefined target ranges, we will assess and award a
and revamped ESG framework, together with
nonfinancial performance data and disclosures, Materiality Report). Our SDG Index maps the actions score to each KPI. Thereafter, using a weight assigned
the lessons learned from years of program
we developed a consolidated set of nonfinancial and ambitions described throughout this report with to each KPI, the total Sustainability Index score will
implementation, prompted us in 2021 to cast a
standards: PMI’s ESG KPI Protocol. The Protocol the relevant SDGs and their respective targets. be calculated on a scale from 0 to 150 percent, with
critical eye on our current aspirations and targets.
includes the definition, methodology, and a target between 90 and 110 percent every year.
As a result, we reassessed and redefined our scope of each of our main ESG KPIs to ensure PMI Sustainability Index The weighting applied to each KPI is informed by the
roadmap. The intention was twofold: First, we wanted measurable, verifiable, consistent, and accurate
Progress on our roadmap is measured with results of our sustainability materiality assessment.
to ensure our roadmap was comprehensive, coherent, reporting on progress. We will make the
a set of key performance indicators that Specifically, we attributed the highest weight to the
and consistent with our new strategy (based on our Protocol publicly available over the summer. social impacts of our products, where we believe
sustainability materiality results and ESG framework); collectively form our Sustainability Index.
our company can have the greatest impact.
and second, we wanted to evolve our approach to
target-setting and ensure our goals are connected to During 2021, we developed PMI’s Sustainability Index
to measure and communicate progress against our
Looking ahead
impact, not merely to strategic inputs. In some cases,
this has led us to restate our goals to ensure that they aspirations in a rigorous and quantitative manner, During 2022, we intend to develop a new 2025
are meaningful and viable, while remaining ambitious. using a set of clearly defined and verifiable metrics. aspiration related to the total number of users of PMI
To better align with shareholder and other stakeholder smoke-free products. Given the dynamic and evolving
interests, the introduction of this index has allowed smoke-free industry, coupled with the potential
the Compensation and Leadership Development impact of the Russian invasion of Ukraine (discussed
Committee of PMI’s Board of Directors to enhance on page 3 of this report) and its potential effects on
2 pillars 3 types 8 11 19 metrics to the company’s compensation practices, explicitly our business over the mid to long term, which remain
of impact of issue strategies goals measure progress linking them to sustainability and further ensuring uncertain, we are working to refine this ambition
a strong link between executive compensation and intend to communicate it within the next year.
and ESG performance (read more here).
H OW W E
E To better reflect our priorities, as defined by our
PMI’s Sustainability Index comprises 19 KPIs materiality analysis, we also intend to introduce
S T RU C T U R E D that are directly linked to our 11 roadmap goals. two new KPIs to the index, incorporating the
PRODUCT
OUR Sustainability
S T R AT EG Y S 2025 Index SI
As with our roadmap, we have split the 19 KPIs
according to two drivers: “Product Sustainability”
increasing relevance of water and biodiversity.
Roadmap
19 KPIs (11 KPIs) and “Operational Sustainability” (8 KPIs).
OPER ATIONAL G
44 45
Our 2025 Roadmap PMI Sustainability Index

Priority ESG topics Progress Contribution
2021 2025 KPI to total
Goals and primary SDGs in 2021 Key performance indicators performance aspirations weight index score
Smoke-free product shipment ratio 12.8% >30%
Purposefully 1 Intentionally work toward phasing out cigarettes Product health impact 1
by ensuring that smoke-free products represent at (smoke-free/total)
phase out
cigarettes least 30% of our shipment volumes and more than Smoke-free product adjusted net 29.1% >50%
2
half of our net revenues by 2025 while continuing revenue ratio (smoke-free/total)
to reduce our combustible shipment volume
3
Number of markets where PMI smoke- 71 100
free products are available for sale
Maximize the 2 Develop and commercialize science-based Product health impact;
benefits of smoke-free alternatives, making them available Sales, marketing, Proportion of markets where PMI smoke- 43% >50%
smoke-free in 100 markets (of which at least half in low- and consumer communications 4 free products are available for sale that
products and middle-income markets) and continuing to are low- and middle-income markets 85%
increase the total number of users
Total number of users of PMI’s smoke- 21.7
5
PRODUCT
free products (in millions)1

3 eploy robust youth access prevention programs
D
in indirect retail channels and ensure that sales Proportion of shipment volume covered by 91% >90%
I M PAC T
of our products abide by our Marketing Codes 6 markets with youth access prevention programs
in place in indirect retail channels.
Seek net 4 Leverage scientific and development capabilities Innovation in wellness and Annual net revenue from 0.1 ≥1
positive impact to generate at least USD 1 billion in annual net healthcare wellness and healthcare products
7
in wellness and revenues from products in wellness and (in billions USD)
healthcare healthcare
Proportion of shipment volume covered by markets with n/a ≥80%
8
anti-littering programs in place for combustible cigarettes
Proportion of shipment volume covered by 9 pilots ≥80%
9 markets with end-of-life take-back programs
Reduce post- 5 Reduce post-consumer waste and prevent Materials and product eco-design; in place for smoke-free consumables
littering by implementing comprehensive Post-consumer waste 15%
consumer waste
programs covering all our consumables Proportion of PMI smoke-free devices n/a 100%
10
with eco-design certification
6 ollow eco-design and circularity principles for all
F Cumulative number of smoke-free electronic devices 62 1,000
smoke-free electronic devices 11
refreshed or repaired since 2021 (in thousands)
Product Sustainability 100% 67%

Foster an 7 Nurture a more diverse culture that promotes Diversity and inclusion;
empowered equity and inclusion by providing access to Human capital development
and inclusive lifelong learning to all our employees and 12 Proportion of women in senior roles 31.1% 35%
workplace improving gender and local representation in
management globally Proportion of PMI employees who have access n/a 70%
13
to structured lifelong learning offers
Cumulative number of human rights impact assessments 5 10
14
conducted since 2018, with findings addressed 50%

Improve the 8 radicate systemic child labor in our tobacco
E Socioeconomic well-being of
quality of life supply chain tobacco-farming communities Prevalence of child labor among contracted 1.8% 0%
15
of people in our farmers supplying tobacco to PMI
supply chain nsure all contracted tobacco farmers make a
E
I M PAC T
9 Proportion of contracted farmers supplying 67% 100%

living income, and partner with our direct suppliers 16
tobacco to PMI who make a living income
to promote a living wage for their workers
Net carbon emissions in scope 1+2 357 0
17
(in thousands of metric tons)
Tackle climate 10 Achieve carbon neutrality in our operations and Climate
accelerate our decarbonization toward net zero Absolute carbon emissions reduction in scope 3 versus 17% 25%
change 18
across our value chain 2019 baseline (in line with science-based target) 50%
Proportion of tobacco purchased at no risk 37% 100%
19 of deforestation of managed natural forest
and no conversion of natural ecosystems
Preserve 11 Promote biodiversity, address critical water Biodiversity; Water
nature challenges, ensure no conversion of natural
ecosystems, and halt deforestation in both our Operational Sustainability 100% 33%
tobacco and pulp and paper supply chains
SUSTAINABILITY INDEX 100%
Progress with challenges On track Progress further than anticipated 1 During 2022, we intend to develop a new 2025 aspiration related to the total number of users of PMI smoke-free products. See page 45.
46 47
Creating value We harness our purpose and strategy to create value for our stakeholders through the deliberate
allocation of our human, intellectual, natural, manufactured, social, and financial capital.
Resources and relationships Key activities Value created
Human Our mission Human Natural

Our success depends on the dedication, talent, and consumer-centric Seek net positive impact as we • Reached a total of 21.7 million users of PMI smoke-free • Reduced total value chain CO2e emissions (scope 1+2+3) by
focus of our employees. As of year-end 2021, we directly employed products, of whom an estimated 15.3 million have 18% and emissions from direct operations (scope 1+2) by
accelerate the end of smoking and
68,547 people worldwide. 133 nationalities were represented within stopped smoking and switched 33% versus 2019 baseline
our workforce, and 42.2 percent of our employees were women.
evolve into a broader lifestyle, consumer
• Reduced prevalence of child labor among contracted • Maintained 100% of tobacco purchased at no risk of
wellness, and healthcare company.
farmers supplying tobacco to PMI from 3.5% in 2020 to deforestation of primary and protected forests
1.8% in 2021, of which 99% of identified cases have • Optimized 437,915 cubic meters of water in our tobacco
Intellectual What we do been resolved supply chain
Innovation is the backbone of our business transformation. We invested Transition away from a cigarette company into • Fostered a living income amongst contracted farmers • Achieved virtually zero waste to landfill from our
USD 566 million in adjusted R&D expenditures in 2021, of which 99 percent a world-leading smoke-free business while supplying tobacco to PMI (achieving 67%, up from 48% manufacturing sites globally
was dedicated to smoke-free products. Innovation also guides improvements simultaneously exploring adjacent avenues of growth. in 2020) and a minimum wage for tobacco farmworkers
in our processes, from sourcing to manufacturing, logistics, and sales. (achieving 95%, up from 65% in 2020) Manufactured
• Completed five in-depth human rights impact • Expanded smoke-free product portfolio, commercializing 10
How we do it assessments since 2018, and ongoing monitoring and different smoke-free heat-not-burn and e-vapor devices and
Natural While PMI’s presence in different markets implementation of action plans over 900 smoke-free consumable stock-keeping units to
takes diverse forms, the key activities • Maintained high proportion of our shipment volume meet the needs and preferences of various consumers
In 2021, we sourced 291,361 tons of packed tobacco, a material vital to our
products. Beyond tobacco, we use several other raw materials and natural and drivers on which PMI operates (91%) covered by youth access prevention programs in • Extended presence, with 71 markets where PMI smoke-free
resources such as timber-based products, metals, water, and energy to produce around the world include: indirect retail channels products are available for purchase, among which 43% are
our products. We seek to use these efficiently and to source them sustainably. • Introduced an aspiration to expand PMI’s lifelong learning in low- and middle-income markets
• Ownership and licensing of program across the organization, initially deployed in our
trademarks and intellectual property: Social
Operations function
Intellectual property allows PMI to • Purchased 98% of tobacco through direct contracts by PMI
Manufactured differentiate its offerings from the
• Improved representation of women in management
and our tobacco suppliers, enabling implementation and
Our assets—such as our two main R&D centers, 38 factories, more positions to 39.7% (up from 37.7% in 2020), and set a
competition, and is key to communicating monitoring of PMI’s Good Agricultural Practices
than 22,000 vehicles, 36 consumer call centers, and 274 IQOS baseline to measure inclusion among PMI employees
product information to the consumer, • Increased the proportion of critical supplier spend sourced
stores—allow us to develop, manufacture, deliver, and commercialize including meeting consumer needs, Intellectual sustainably to 83% in 2021
our products to meet the demands of our consumers. such as the quality, taste, image,
• Launched major new innovation in heat-not-burn, IQOS • Expanded employee resource groups, in partnership with
and value of the product.
ILUMA, with product advancements addressing consumer external subject matter experts, for employees to connect
pain points (read more about the 30 years of innovation based on shared characteristics or life experiences
Social • Product manufacturing:
behind our leading heated tobacco product here)
Building trust with our stakeholders is essential. We develop and sustain The manufacturing of PMI products Financial
involves different stages, from the sourcing • Reached 1,770 patents granted in PI5 jurisdictions
relationships with a network of more than 22,000 suppliers, 253,813 relating to smoke-free products • Derived 29.1 percent of our annual adjusted net revenues
contracted tobacco farmers, around 130 million adult consumers of our of tobacco leaf and other materials, as from smoke-free products, out of total adjusted net
well as smoke-free electronic devices, • Published 452 scientific publications since 2008 to share
cigarette brands, and over 21 million users of our smoke-free products. Our revenues of USD 31.7 billion
to the production process for cigarettes our methods and findings
relationships also extend to the retailers of our products, the communities • Reported USD 2.7 billion in corporate income taxes
in which we operate, government officials and regulators, nongovernmental and smoke-free consumables. • Completed 203 toxicological assessment studies, 24
clinical assessment studies, and 44 perception and • USD 76.8 billion in total excise tax paid by consumers on
organizations, and the multistakeholder initiatives in which we participate.
• Commercialization behavior studies on smoke-free products since 2015 PMI products
(marketing and distribution): • USD 5.00 annualized dividend based on a quarterly dividend
Once products are manufactured of USD 1.25/share, declared September 15, 2021; 14th
Financial under the relevant trademarks, they are consecutive year with a dividend increase since becoming a
Our business activities require financial capital, which we strive to commercialized in different geographies public company in 2008
allocate efficiently to optimize value and drive sustainable growth. The through various activities, including
capital is provided by our equity and debt holders, as well as by the cash distribution, marketing, merchandising,
flow generated by our operations. Our company’s market capitalization trade, and consumer engagement. C A S E S TU DY Although PMI’s transformation journey started with a vision centered on the
as of December 31, 2021, was approximately USD 148 billion, and critical mission of phasing out cigarettes, this is not its sole and ultimate end
PMI’s debt was USD 27.8 billion. At that time, PMI’s long-term credit
Impact of PMI’s expansion in goal. PMI is now actively working to expand its purpose and evolve into a
was rated A by Standard & Poor’s and Fitch and A2 by Moody’s. wellness and healthcare on broader lifestyle, consumer wellness and healthcare company, extending its
value proposition and innovative capability to commercialize products that go
different forms of capital beyond tobacco and nicotine. Read the dedicated case study on PMI.com.
Note: Presentation of information in this visual is informed by the Integrated Reporting Framework of the Value Reporting Foundation.
48 49
Letter from our Chief Sustainability Officer:

Measuring what matters
We dedicated much of 2021 to As sustainability matures and gains importance We believe that relying on a bespoke index, as
strengthening our governance and better inside and outside our company, the question of opposed to relative external indices, will allow PMI
integrating sustainability into our corporate how to measure ESG performance is something to align its resource allocation and efforts more
strategy. Our new sustainability materiality many continue to grapple with. We have long consistently and strategically with its most material
expressed our support for more rigor in sustainability- ESG topics. PMI’s Sustainability Index consists of
assessment helped us identify, prioritize,
related reporting and disclosures—and not just for 19 KPIs, which measure progress toward the 11
calibrate, and define the ESG topics to focus
companies, but also for ESG ratings and related goals in our 2025 Roadmap. We aim to continuously
on. The results allowed us to revamp our products. There is a need for greater transparency, improve our performance and drive material and
ESG framework, categorize topics according more robust methodologies, and better clarity on measurable progress—all communicated through
to their environmental, social, or governance definitions and assumptions. We certainly welcome open and clear reporting and disclosure.
nature, and introduce two pillars: our recent developments leading to more consistency in
Having an overarching global sustainability
products and our business operations. standards under strong governance frameworks.
strategy is as important as ensuring it is cascaded
Besides having a framework that clearly organizes Accordingly, 2021 was a year when we also focused down to our markets—PMI employees are
ESG issues, we introduced a new format that on developing a clear and accepted process for the heart, soul, and primary driver of change
helps us convey our approach to sustainability. establishing concrete definitions, documentation, within our company. They are the ones building
More concretely, this new format showcases how and controls for sustainability with the aim of a culture that embraces sustainability and
these ESG topics are organized and become inputs standardizing how we measure ESG performance. a community conscious of its impacts.
to a strategy that aims to be impact-driven. Taken together, these standards make up our ESG
Together we ensure that success is achieved while
KPI Protocol, which brings structure to the process
Addressing the impacts of our products remains respecting environmental and social boundaries. We
of defining success, concrete measurements of
at the core of our strategy. We, of course, start by recognize the essential need to continue building
progress, and clear governance and accountability
focusing on their health impacts. Beyond that, we legitimacy and trust with our stakeholders, who are
structures, and will be published later in 2022.
have established a clear distinction between the fundamental to our company’s purpose and can
environmental and social impacts that derive from Reporting is, by nature, a backward-looking exercise. accelerate the pace at which we achieve it. Our 2021
our products (what we produce) and the impacts That said, we understand that the value of embedding Integrated Report aims to address their demands
that derive from our business operations (how we sustainability into corporate strategy lies in thinking for more transparent, comparable, and reliable
produce). In addition, we have made corporate long term and being able to disclose forward-looking information on our ESG risks and performance.
governance an all-encompassing component ambitions, transition plans, and progress. Coupling
2021 was a year full of achievements, but challenges
of our strategy, recognizing its importance in comparable, meaningful, and reliable data with clear
remain, including in areas related to ESG. As we
embedding sustainability into corporate strategy. goals, long-term plans, and forecasted impacts is
continue to transform, learn, and discover better ways
central to stakeholders’ and investors’ ability to
to develop solutions that have meaningful impact, we
“PMI employees are the heart, Framing these different impacts and their origins
in this way crystallizes both our inputs and desired
incorporate ESG into their decision-making.
hope our transparency and willingness to engage will
soul, and primary driver of outcomes, bringing clarity to our organization in Another topic of debate relates to the optimum
way to maximize the alignment of incentives with
spark dialogue with those who can help accelerate
the pace of change. I invite you to reach out and
terms of how best to allocate resources and integrate
change within our company. sustainability into our ways of working. We hope sustainability-related results to meet the evolving share your feedback, to question, to challenge,
expectations of investors and other stakeholders. and above all, to engage with us as we remain
They are the ones building a it will also help external stakeholders understand
We are proud to have answered this demand focused on making our company better, focused
our approach to sustainability from an impact
culture that embraces perspective. This approach is composed of eight by introducing a Sustainability Index that lets us on sustainability, and committed to our purpose.
integrate ESG performance into long-term executive
sustainability and a community impact-driven strategies and intrinsically connected
to our 2025 Roadmap, which communicates our compensation in an easily understandable, strategic,
conscious of its impacts.” ambitious vision through a set of 11 headline goals. coherent, comprehensive, and credible manner.
Jennifer Motles
Chief Sustainability Officer
50 51
Corporate governance and management 2022–2024 Performance Share

Units (PSU) performance cycle
The Board retained the previously used metrics of
Total Shareholder Return (TSR), weighted 40 percent,
Long-term equity awards are intended to and currency neutral adjusted compound annual
motivate our executives to produce results diluted earnings per share (EPS) growth, weighted
that enhance sustainable shareholder value and 30 percent. It introduced as the final metric
PMI’s governance structure underlies our daily Executive compensation strengthen the Company over the long term. the Company’s Sustainability Index, weighted
activities to ensure that we conduct ourselves 30 percent, which consists of two drivers:
Our compensation and benefits program We use Performance Share Units
and our business in compliance with the (PSUs) as the three-year incentive in our • Product Sustainability, defined as an aggregation
supports our business, financial, and
highest ethical standards and with integrity. executive compensation program. of key performance indicators pertaining to social
strategic objectives, and aims to:
and environmental impacts generated by the
As set out in PMI’s Proxy Statement 2022, for the
Our Board of Directors • Support our ability to attract, develop, and retain
2022–2024 PSUs granted in February 2022, the
company’s products; measuring progress on its
world-class leaders in a controversial industry efforts to maximize the benefits of smoke-free
The primary responsibility of the Board of Compensation Committee established performance
• Align the interests of executives and shareholders products, purposefully phase out cigarettes, seek
Directors is to support the long-term success metrics at what it believes are appropriately ambitious
net positive impact in wellness and healthcare,
of our company. The Board is responsible for • Reward performance against pre- levels that reflect the Board-approved three-year plan.
and reduce post-consumer waste; and
establishing broad corporate policies, setting established objectives
strategic direction, and overseeing PMI’s Company • Operational Sustainability, defined as an aggregation
• Support long-term business growth, superior
Management—the individuals responsible for of key performance indicators pertaining to social and
financial results, sustainability efforts, societal
PMI’s day-to-day operations, as defined below. environmental impacts generated by the company’s
alignment, and integrity of conduct
business activities; measuring progress on its efforts
The Board has established various standing
• Promote internal fairness and a disciplined to tackle climate change, preserve nature, improve
committees to assist with the performance of its
assessment of performance the quality of life of people in its supply chain, and
responsibilities. It adopted corporate governance
foster an empowered and inclusive workplace.
guidelines, which—along with the company’s charter, • Align executive incentives with our
bylaws, charters of Board committees, code of ethics, risk management objectives In line with the Company’s sustainability materiality
code of business conduct and ethics for directors, assessment and their relative priority level in the
These objectives provide the framework for the
and related-person transactions policy—provide context of the company’s corporate strategy, Product
various components of compensation and benefits,
the framework for the governance of the company. Sustainability is weighted at 20 percent and Operational
which together form an aggregate package intended
All these documents are available on PMI.com. Sustainability is weighted at 10 percent, together
to be appropriately competitive. Our executive
amounting to 30 percent of the total PSU award.
PMI’s annual Proxy Statement contains detailed compensation program reflects our commitment to
information on our Board and committee put sustainability at the core of our corporate strategy.
structure, the independence and diversity Linking ESG performance to Executive compensation
The three components of total direct compensation
of its members, and the responsibilities and
for our executive officers are base salary, annual In February 2022, PMI’s Board of Directors decided to better reflect PMI’s commitment to
meeting frequency of each committee.
performance-based incentive compensation sustainability, which is the core of its corporate strategy, by including the Sustainability Index as
awards, and long-term variable equity awards. one of our performance metrics under equity awards. Following the index’s structure, its KPIs
Our Company Management are aggregated into two main drivers: Product Sustainability and Operational Sustainability.
We continue to incorporate key measures
PMI’s Company Management (also referred to as pertaining to our transformation into both our
our “Senior Management Team”) encompasses our annual and three-year management incentives. Sustainability Index
Chief Executive Officer, his direct reports leading our
30%
GR APHIC TO BE
In 2021, annual incentive awards were assessed on six
different business functions and regions, the Vice DISCUSSED
EPS 30% TSR 40%
President Treasury & Corporate Finance, the Vice growth measures, including a 20 percent weight for
10% 20%
President & Controller, and the Deputy Chief Financial our heat-not-burn shipment volume and a 15 percent
Officer & Head of Finance Transformation. Our weight on strategic priorities and enablers. Those
Company Management, which totals 24 employees are heavily focused on our transformation to smoke-
free products, and include the drive for material and
including four women as of March 11, 2022, includes
measurable progress in priority sustainability corridors,
PRODUCT S U S TA I N A B I L I T Y
the twelve employees who are executive officers
under Section 16 of the Securities Exchange Act of alongside transparent and clear sustainability
1934. A biography of each member of our Company reporting and disclosure. For more information,
Management team can be found on PMI.com. please refer to PMI’s Proxy Statement 2022. O P E R AT I O N A L S U S TA I N A B I L I T Y
52 53
Operational management
and program delivery
Sustainability governance and management
Integrating sustainability into our company relies on a formal structure Fully integrating ESG drivers into business strategy can
significantly enhance both sustainability agendas and
with clear accountabilities at different levels of the organization. financial performance. Accordingly, our CSO reports to
PMI’s Chief Financial Officer (CFO), a member of the
Company Management who heads the Sustainability,
Board of Directors Finance, and Strategy functions—three essential
components working hand-in-hand to drive strong and
Board of Directors coherent value creation and deliver long-term success.
Nominating and Corporate Governance Our CSO leads the integration of sustainability across
While the Nominating and Corporate Governance Other Committees of the Board
Committee (NCGC) our business. She updates the Sustainability Committee
Committee (NCGC) oversees the company’s ESG and
on a quarterly basis and hosts the Sustainability
sustainability strategies and performance and advises the
Group—composed of functional leaders—quarterly.
Board on sustainability matters, several other committees
are tasked with oversight responsibility for different Company Management The CSO heads PMI’s Sustainability Team, which
sustainability topics. For instance, the Audit Committee leads PMI’s sustainability materiality analysis, defines
oversees, among other matters, the risk management of strategy, manages reporting on performance, and
climate change, manufacturing and supply chain disruption,
Sustainability Committee coordinates strategy implementation across the
and the privacy and cybersecurity risk assessment, while • Members of Company Management, including Chief different business functions and markets.
the Compensation and Leadership Development Committee Chief Executive Officer Financial Program-specific working groups meet periodically
is responsible for executive compensation matters and • Meets every quarter
Officer to cross-functionally coordinate the strategy, targets,
will track and assess the company’s performance on the • Reviews and validates sustainability materiality analysis,
and performance of specific sustainability programs.
PMI Sustainability Index. The NCGC and full Board of strategy, commitments, goals, and annual reporting
Further, at the market level, dedicated sustainability
Directors are each updated at least once per year by
coordinators help ensure that sustainability priorities
the Chief Sustainability Officer (CSO) on sustainability-
are cascaded and programs are localized.
related matters, including progress in priority areas and
Operational management
an overview of key initiatives. In 2021, PMI’s Board of
Directors reviewed the results of PMI’s sustainability
and program delivery
materiality assessment and refreshed sustainability Our approach to sustainability programs
strategy, the establishment of PMI’s Sustainability
Index, and updated PMI’s Statement of Purpose.
Sustainability Group Our approach to designing and managing material
Chief
Sustainability sustainability topics is harmonized and relies on
• Senior representatives from global functions
• Meets every month Officer common foundational elements:
Company Management
• Ensures alignment and coordination of efforts • Deep understanding of the topic, context,
across the different functions in the company,
Anchoring our sustainability priorities with executive materiality, external expectations, and
provides recommendations for program portfolio,
responsibilities and accountabilities helps embed our interdependencies with other issues
and monitors performance
strategy into our daily operations. Members of our
Company Management are responsible for driving Sustainability Team • Governance structures and policies to formally
progress and delivering on our sustainability targets • Defines corporate sustainability guide our actions and ambitions
within their respective functions. As described above, materiality and strategy, coordinates
the Compensation and Leadership Development program implementation by working • Performance indicators to measure progress
Working groups
Committee has tied a significant portion of our Company closely with all business functions and evaluate our efforts, attached to targets to
Management’s compensation to the Sustainability Index. • Cross-functional representatives and with markets, and manages
drive improvement and provide clarity on our
• Meet periodically reporting on performance
Composed of members of the Company Management, • Coordinate development and deployment
desired outcomes
PMI’s Sustainability Committee meets at least four of specific cross-functional programs
times per year. In 2021, meetings of the Sustainability
• Concrete activities to achieve progress
Committee focused on reviewing the results of the against targets
sustainability materiality assessment and establishment
• Transparent reporting on progress, which
of refreshed strategy, the development of PMI’s
Sustainability Index and ESG KPI Protocol, PMI’s encourages dialogue by allowing stakeholders to
Drive execution of sustainability programs, including
performance in ESG ratings and rankings, and received Global functions and markets development of policies, procedures, and road maps, scrutinize our actions
updates on various sustainability initiatives. establishment of performance metrics and targets, and
monitoring and reporting on progress within the organization. The sustainability landscape is dynamic. We
continuously update and strengthen our programs
as knowledge improves, progress is made, or the
All PMI employees Play a critical role in delivering progress on sustainability. relative importance of specific topics changes.
54 55
Risk management In 2021, a Quality Compliance function was formed

to apply the existing risk management framework
Risk monitoring and compliance
Among other risk monitoring activities (e.g., reviews,
in the areas of research practices, product quality
advisories, assessments), our technical procedures
and stewardship, and regulatory compliance.
and internal controls over financial reporting comply
Corporate Audit, an independent function, with the Sarbanes-Oxley (SOX) Act. Risk & Controls
We designed our risk management and internal As part of its risk management practices, the company provides senior management and the Audit and our external auditors provide independent
control practices to address all significant has established a Corporate Risk Governance Committee Committee with objective assurance and advisory opinions on the design and operating effectiveness.
and/or emerging strategic, external, inherent (CRGC) made up of senior executive officers, including services designed to assess the adequacy
process, and project deployment risks that could the Chief Financial Officer, Senior Vice President & Our business, risk management, and Corporate
and effectiveness of the company’s internal
undermine our ability to achieve our strategic General Counsel, Chief Digital & Information Officer, Audit functions execute assurance gathering
control systems and use of resources.
business objectives and create value over time. Vice President & PMI Controller, Global Head of Risk activities beyond the SOX scope, addressing inherent
ESG-related risks and opportunities are considered & Controls, Chief Information Security Officer, Vice Taking a holistic approach, these functions process risks by leveraging the defined library of
within our enterprise risk management practices. President and Chief Ethics & Compliance Officer, and collaborate to continuously identify, assess, and Global Standard Processes, Risks, and Controls.
Vice President, Corporate Audit. In addition, the Chief respond to evolving or emerging strategic, external,
Following our risk response to the outbreak and
Risk governance Executive Officer and Vice President & Corporate inherent process, and project deployment risks.
spread of COVID-19 in 2020 and 2021, we have
We identify and prioritize key risk areas based Secretary are informed of the risk management structurally embedded certain risk management
Risk assessment
on four dimensions: the impact of a risk on observations and insights shared with the CRGC. activities (for instance, the mobilization of local
PMI were it to occur, its likelihood, its velocity, At the request of the CRGC, the Risk & Controls risk functions in the rapid testing and validation
The CRGC and the Audit Committee of the Board of
and its interconnectivity with other risks. function defines the company’s approach to risk of centrally issued guidance in response to risk)
Directors receive updates related to the company’s
management and coordinates a periodic enterprise in our overall approach to risk management.
PMI assigns ownership of each prioritized key risk risk management and internal controls practices at
risk assessment, which brings together the business,
area to a member of our Company Management, least once per quarter. Finally, we disclose the company’s risk factors
risk management, and Corporate Audit functions.
with oversight from the Board of Directors or in our 10-K and 10-Q submissions to the U.S.
Risk management ESG-related risks and opportunities are considered Securities and Exchange Commission. Our
a particular Board committee. With support
and insights provided by the risk management Risk management is facilitated through periodic within our enterprise risk assessment, which latest submissions are available on PMI.com.
and Corporate Audit functions, our Company alignment of “first line” business, “second line” risk also leverages the company’s sustainability
Management reports regularly on these risks to management, and “third line” Corporate Audit functions. materiality assessment process. More specifically,
the appropriate Board committees and to the the priority ESG topics identified by the latest
Beyond the primary business functions, our risk sustainability materiality assessment determine
entire Board of Directors throughout the year.
management framework involves Risk & Controls, which ESG risks and opportunities are
Ethics & Compliance, Information Security, Data considered in the enterprise risk assessment.
Privacy, and Corporate Audit. As the overarching risk
management function, Risk & Controls defines, In complement to our periodic enterprise risk
develops, maintains, and executes risk management assessments and regular sustainability materiality
policies and methodologies, including the Enterprise analyses, we have various risk evaluation
Risk Management framework. mechanisms in place to support the development As ESG objectives have
of tailored strategies and responses for our priority
ESG issues along our value chain. Focused on become a cornerstone of
First line
environmental and social issues, some of these
assessments include human rights risks saliency
our corporate strategy, we
Corporate Risk
Business functions Governance Committee mapping, periodic climate risk and opportunities will continue to strengthen
assessments, product life cycle assessments, and
External
risks
Strategic
risks deforestation and water risk assessments. the integration of ESG-
Second line Audit
related risks into our risk
Risk management
functions Inherent
Committee
management and internal
Project
process
risks
deployment
risks
control practices.
Board of Marie-Pauline Lauret
Third line Global Head of Risk & Controls
Directors
Corporate Audit
functions
56 57
PRODUCT
I M PAC T
Purposefully phase out cigarettes 60
Maximize the benefits of smoke-free products 64
Seek net positive impact in wellness and healthcare 90
Reduce post-consumer waste 98
58 59
Pre-transformation (in 2015), our combustible product volume totaled 881 billion units, or
99.9 percent of our shipment volume ratio, and, since then, in only seven years, it has declined by
more than 26 percent. Over the same period, our smoke-free shipment increased to 95 billion units,
PRO D U C T I M PAC T
representing 12.8 percent of our shipment volume in 2021.
Purposefully phase Our goal Intentionally work toward phasing out cigarettes by ensuring that
smoke-free products represent at least 30 percent of our shipment
out cigarettes
volumes and more than half of our net revenues by 2025 while
continuing to reduce our combustible shipment volume.
For many decades, public health strategies to reduce A future where PMI’s success is no
tobacco-related morbidity and mortality focused longer based on cigarettes
primarily on preventing smoking initiation and
Our priority is to address the health impacts
encouraging smokers to quit. Novel, scientifically
associated with smoking by offering smoke-free,
substantiated smoke-free products now provide
science-based alternatives that have been proven to
regulators the opportunity to supplement and
be a far better choice than cigarettes for those adults
significantly strengthen the existing public health
who would otherwise continue to smoke. However,
approach by encouraging adult smokers who do
we do not believe it is enough to simply offer more
not quit to switch to scientifically substantiated
choice to consumers. Rather, we are seeking to help
better alternatives to continued smoking.
adult smokers switch to the better alternatives now
available and put cigarettes behind them. And we are
seeking to work with policymakers to ensure these
products replace cigarettes as quickly as possible.
Our commitment is unwavering. We have set the
ambition to generate at least 50 percent of our
“ We can make an important contribution
adjusted net revenues from smoke-free products by
to accelerating the end of smoking. 2025—just 10 years after our first full IQOS launches.
To achieve this objective, we are
To accelerate our transformation, we are
dedicating the vast majority of our
dedicating the vast majority of our resources to
resources to commercializing our the commercialization of our smoke-free products
smoke-free products. Everyone and we have streamlined our cigarette portfolio
within our organization—regardless to offer fewer brands and variants. Specifically,
of business function—plays a crucial smoke-free products represented 73 percent of
role in delivering on this purpose. our commercial expenditure in 2021 (2020: 76
We recognize that PMI alone percent). Moreover, our combustibles product
shipment volume decreased by 26.3 percent
cannot achieve a smoke-free future.
versus 2015. Our Business Transformation Metrics
Such systemic change requires a provide a more comprehensive overview of our
collaborative multistakeholder progress and our efforts to shift resources to best
approach. In particular, we actively deliver on our company’s purpose (see here).
advocate for others in the industry to
follow our lead by transforming their
businesses, phasing out cigarettes, and
reporting transparently on progress.”
Jacek Olczak, Chief Executive Officer
60 61
To progress on our smoke-free journey, it is however Appropriate regulation and taxation Policy and regulation can accelerate or hinder
Purposefully phase out cigarettes
essential that we maintain our competitive position to drive cigarette obsolescence progress toward a smoke-free future. Our ability
in the cigarette market during the transition period. to maximize access is subject to (the right kind
Regulation of all nicotine-containing products
It allows us to focus our commercial efforts toward of) regulatory frameworks enabling systems
(including both combustible and smoke-free)
raising awareness of—and informing adult smokers change and allowing these new products to
is essential. We advocate for a comprehensive
about—smoke-free products and the benefits of replace cigarettes as rapidly as possible (see
and risk-proportionate regulatory framework
switching versus continued smoking. It also generates our Stakeholder engagement section).
that acknowledges that not all tobacco and
the financial resources needed to continue investing
nicotine products are the same. Regulation Currently, some countries do not permit the
in scientific research, and product development,
and taxation should subject the most harmful sale of smoke-free products. We nevertheless
and to the manufacture and commercialization of
products—those that combust tobacco—to the continue to engage with stakeholders in these
smoke-free products. In this regard, the extensive
most restrictive measures and should encourage markets to advocate for regulatory frameworks
commercial and distribution infrastructure in place for
those adults who would otherwise continue to that support tobacco harm reduction. We do not
our traditional tobacco business provides an effective
smoke to switch to less harmful alternatives. believe that banning smoke-free products is a
platform for launching smoke-free products at scale.
rational policy, especially considering that these
Several factors outside our control—government
While seeking to remain competitive in the cigarette countries permit the sale of the most harmful
action, in particular—influence how quickly we
segment for as long as needed, we carefully consider forms of tobacco and nicotine consumption:
can see an end to cigarettes. To speed up the
the commercial activities required to do so. We base cigarettes and other combustible tobacco
process, regulators and public health authorities
our decisions on consumer insights, compliance products. Banning smoke-free alternatives runs
can ensure that adult smokers have access to
with regulatory requirements, and adherence to our counter to the aim of ending cigarette use.
accurate information about smoke-free products.
Marketing Codes. We are guided by our conviction
They can introduce product standards to ensure
that people who do not smoke should not start, those
that only scientifically substantiated smoke-free
who do smoke should quit, and those adults who
products are commercialized. And, through risk-
won’t quit tobacco and nicotine altogether should
proportionate regulation and taxation, they can
switch to less harmful alternatives to cigarettes.
provide the right incentives to encourage adults
who smoke to switch from cigarettes to less harmful,
Supply and demand measures that can accelerate change
scientifically substantiated alternatives and incentivize
PMI is committed to delivering a smoke-free Such a roadmap may consist of
manufacturers to direct their investments and R&D
future. Once smoke-free products represent a elements addressing:
toward these better products. The acceptability
viable segment of the nicotine marketplace with
of smoke-free products for adult smokers must • Increased investment in prevention, quitting
the potential to move most adult smokers away
always be balanced against the objective of campaigns, and cessation services, with a
from combustible tobacco use, governments
minimizing use by unintended audiences such as particular focus on vulnerable populations
can implement additional industry-wide
never smokers, former smokers, and youth. • Measures to address adult smokers’ confusion
measures to phase out cigarettes altogether.
about the role of combustion and nicotine in
We believe that a clear roadmap agreed
the development of smoking-related disease
by political, regulatory, and public health
stakeholders, supported by both civil society • Regulatory and fiscal differentiation between
and businesses, offers the best prospect for combustible products and non-combusted
further accelerating the end of smoking. forms of tobacco and nicotine, coupled with
robust safeguards against unintended use
• Post-market monitoring and surveillance
to assess public health outcomes and
the impact of policy interventions
• Phase-out policies to help permanently
end smoked tobacco sales
• Post-phase-out support for adult
smokers who still continue smoking
• Robust anti-illicit trade policies
62 63
The right thing to do The business case

Cigarette smoking is the most dangerous form The future of nicotine is undisputedly in smoke-free
of nicotine consumption. People who do not products, which are experiencing rapid growth. Through
PRO D U C T I M PAC T smoke should not start. Those who do smoke our early and sustained investment in R&D and consequent
should quit. And those adult smokers who would leadership in technology and innovation, we have built
Maximize the benefits of

otherwise continue to smoke should switch to the a powerful position and competitive advantage.
better alternatives to cigarettes now available.
By focusing our commercial expenditure on
smoke-free products
Our priority is to address the health impacts encouraging adult smokers who otherwise would not
associated with smoking by offering scientifically quit, to switch fully to better alternatives, we aim to
substantiated options that have been demonstrated reach as many adult smokers as possible in as many
to be a far better choice than continued markets as possible; this includes the around 130
smoking. We then chose to go beyond that by million PMI cigarette smokers, as well as the hundreds
At PMI, we want to accelerate the end of smoking. To that end, we are giving these products the purpose of replacing of millions of adult smokers who buy competitor brands.
transforming our operations and value chain to develop and commercialize cigarettes, helping achieve the end of smoking. The business case is clear: Our smoke-free product
science-based better alternatives to smoking. Our purpose is to make our legacy product, cigarettes,
consumables drive higher net revenues per unit than
cigarettes, with accretive product contribution per
obsolete. The public health benefit of smoke-free
unit already helping to generate attractive returns on
products depends not only on their potential to
our significant upfront and ongoing investments in
reduce the risk of smoking-related disease compared
developing the category. We are also gaining share of
with continued smoking but also on adult smokers
the total tobacco market, thereby increasing our
using these products instead of cigarettes.
current and future revenue base. We are committed
This is critical to achieve the expected public health to marketing and selling our products responsibly.
benefit. For that, broadening access is key, and we are Concerns that our products, marketing, or sales could
committed to improving consumer awareness, while discourage smoking cessation, encourage initiation of
also making smoke-free products more acceptable, nicotine use, or hold particular appeal to minors would
available, and affordable to adults who smoke. undermine our credibility, harm our reputation, and
CONTENTS
potentially trigger adverse regulation, hampering our
ability to achieve a smoke-free future as fast as possible.
66 Our management approach
O U R A S P I R AT I O N S SI Sustainability Index
Progress in 2021
69 Developing science-based
alternatives to cigarette Maintain
>90% SI of shipment volume covered by markets with youth
access prevention programs in indirect retail channels
smoking
72 Broadening access to smoke-
free products
2023 100% of PMI smoke-free electronic devices introduced to the market
as of 2023 equipped with age-verification technology
83 Marketing and selling our

products responsibly 2025 ~40% <550 bn >250 bn
reduction in our combustible combustible product smoke-free product
product shipment volume shipment volume shipment volume
versus 2015 baseline
89 Looking ahead
>30% SI
>50% SI
100 SI
smoke-free product shipment net revenues (smoke-free/total) Number of markets globally

ratio (smoke-free/total) where PMI smoke-free
products are available for sale
>50% SI
>40 m
of markets globally where adult smokers globally who switch
PMI smoke-free products are to PMI smoke-free products
available for sale that are low-
and middle-income markets
Note: In 2022, we plan to evaluate our published targets to ensure they remain ambitious, reasonable,
and achievable in the context of a dynamic and evolving smoke-free industry. See page 34.
64 65
Our management approach Develop science-based, less harmful Developing and expanding our human, intellectual, and
Maximize the benefits of smoke-free products
alternatives to cigarette smoking social capital is key to our transformation. Our two
main R&D centers, located in Switzerland and Singapore,
Through more than a decade of substantial
employ hundreds of scientists, engineers, and other
investment in R&D, we have developed products that
experts working to develop, improve, and assess
provide the satisfying experience of consuming
Addressing the impact of our combustible In complement, a team led by our Chief Product smoke-free products. This work is headed by our
nicotine without burning tobacco.
Officer continuously develops and enhances PMI’s President Vectura Fertin Pharma and Chief Life Sciences
products on consumers’ health is at the core
smoke-free products, drawing on consumer feedback We implemented a rigorous scientific assessment Officer, Chief Product Officer, and President, Smoke-
of our strategy and company purpose.
and technological innovations. Our Operations program that aims to align with the U.S. Food and Free Products Category & Chief Consumer Officer,
We deploy a four-pronged approach: Drug Administration’s (FDA’ s) 2012 draft guidance on who are members of PMI’s Company Management.
function—led by our Senior Vice President, Operations—
1. Develop science-based, less harmful alternatives works to ensure our manufacturing capabilities meet modified risk tobacco products (learn more about how
to cigarette smoking the demand for smoke-free products. we conduct our R&D here and on PMIscience.com). Broaden access to smoke-free products
2. Broaden access to smoke-free products for Our program, in line with epidemiological and to help accelerate smoking prevalence decline
The smoke-free and combustibles category presidents toxicological principles, aims to compare the health
those adults who would otherwise continue to PMI is developing and scientifically assessing products
oversee the deployment of our marketing and sales outcomes of switching to smoke-free products versus
smoke, ensuring this helps accelerate smoking that present, are likely to present, or have the
activities and adherence to our Marketing Codes. continued smoking. In addition to aerosol chemistry
prevalence decline potential to present less risk of harm than continued
The Codes are subject to a robust governance and nonclinical and clinical studies, our assessment
3. Purposefully phase out cigarettes (read more here) smoking. Now, to achieve a smoke-free future faster
process established in 2021. The newly formed program incorporates consumer behavior studies.
4. Market all our products responsibly and put cigarettes behind us, we need to ensure that
Marketing Review Council guides the implementation These allow us to monitor and evaluate the use of our
of these Codes across the organization. adult smokers have access to these better products.
In 2021, we established a category management smoke-free products by intended audiences and not
structure to accelerate delivery of a smoke-free by youth, former smokers who have quit nicotine and By access, we mean that:
To make our progress measurable and verifiable,
future. Under this structure, strategic responsibility tobacco altogether, or those who have never smoked.
we developed a set of bespoke key performance • Adult smokers are aware of the benefits of
for our smoke-free and combustibles businesses, In addition, following market launch, we continuously
indicators (KPIs), which we call our Business switching to smoke-free products compared with
respectively, rest with two members of our monitor the safety profile of our smoke-free products
Transformation Metrics. These metrics, which we continued use of combustible tobacco products.
Company Management: our President, Smoke- to ensure that any new or different health risks associated
report on periodically, allow our stakeholders to
Free Products Category & Chief Consumer with their use can be identified in a timely fashion, • The products are accepted by adult smokers
assess both the pace and scale of our transformation.
Officer and our President, Combustibles should they occur, and are managed appropriately. We as a viable alternative to cigarettes.
Over the years, based on stakeholder feedback, we
Category & Global Combustibles Marketing. have put a rigorous global safety surveillance process • The products are conveniently available
have expanded the number of metrics to increase
Our President, Smoke-Free Products Category transparency and clarity about our progress. in place to monitor and respond to potential safety for sale to adult smokers.
& Chief Consumer Officer oversees smoke- signals. Based on the data collected, we provide
Our Business Transformation Metrics also • Smoke-free products are affordable to adult smokers.
free products, driving their growth trajectory, annual safety update reports, which include notifications
showcase how we are allocating resources away
fostering consumer-centricity, and leveraging received directly from consumers, and we share them In this context, a regulatory framework allowing the
from our traditional cigarette business, aiming
the strengths of our markets and regions. with several regulators, including the FDA. products to be sold and adult smokers to know that
to base our success on a future in which we no
these products exist and are available is essential.
longer make or sell cigarettes. Read more here.
Access to
smoke-free products
and cigarette phase-out Access
Science-based, Maximized
less harmful alternatives Consumer switching benefits of smoke-free
to cigarette smoking products
Responsible
Individual risk Population harm
reduction marketing reduction
Awareness Acceptability Availability Affordability
Reaching the
intended audience REGULATORY FR AMEWORK
66 67
Market all our products responsibly

Our commercialization activities across Progress in 2021 The results of our studies are publicly available, published
in peer-reviewed scientific publications, and have

Even as we work to make them obsolete, cigarettes the world are guided both by applicable been submitted to numerous regulatory authorities,
continue to represent the majority of our net laws and by a set of core principles: including the U.S. Food and Drug Administration (FDA).
revenues—and are likely to do so until 2025
(see our 2025 Roadmap). Accordingly, when we • PMI products are only for adults who smoke or In July 2020, the FDA authorized the marketing
establish policies and practices that guide the use other nicotine-containing consumer Developing science-based of the 2.4 version of PMI’s IQOS tobacco heating
products.
responsible commercialization of our products, alternatives to cigarette smoking system as a modified risk tobacco product
these include the totality of products being sold by • We warn consumers about the health effects of (MRTP) with reduced exposure information.
PMI—both smoke-free and combustible products. Scientific research and product innovation can
our products. This followed the agency’s April 2019 authorization of
advance tobacco harm reduction and benefit
Implementing appropriate supply and demand • We communicate about our products to enable the marketing of the IQOS tobacco heating system as
adult smokers, thereby positively impacting
measures can help maximize the public health adult consumers to make informed choices. “appropriate for the protection of public health” pursuant
public health. To this end, we will continue to
benefits smoke-free products bring at a population to the premarket tobacco product application (PMTA)
• We market our products truthfully and invest in science and in the development and
level. Raising awareness while minimizing the risk pathway. On March 11, 2022, the FDA authorized the
transparently, with claims that are accurate and acquisition of products and technologies.
of unintended consequences is vital. This includes marketing of PMI’s IQOS 3 tobacco heating system
not misleading. as an MRTP with reduced exposure information.1
ensuring these products are marketed and sold PMI’s scientific assessment
responsibly to adult consumers of nicotine-containing • We design, develop, and commercialize our of smoke-free products For our e-vapor products, we have performed
products. Fundamental to achieving this objective products in ways that are consistent with our
We dedicate almost all of our adjusted R&D preclinical assessment and are executing clinical
is conducting marketing and sales activities that smoke-free purpose.
expenditure (99 percent in 2021) to smoke-free and perception and behavior studies.
provide clear and meaningful information about our
products, including wellness and healthcare products. The totality of the scientific evidence makes us confident
products, including the risks associated with their use.
These expenditures include costs related to clinical that switching completely from cigarettes to smoke-free
studies, the development of machinery, prototypes, products is likely to present less risk of harm than continuing
and product acceptability testing, and innovation to smoke. Post-market studies are necessary to continue
in materials and design to create better and more building this confidence and, over time, quantify the
sustainable products. The remaining 1 percent is reduction in morbidity and mortality through epidemiology.
associated with our combustible tobacco products,
During the assessment of smoke-free products, several
largely allocated to meeting regulatory compliance
lines of evidence come into play and complement one
requirements and sustainability considerations,
another: Evidence from controlled scientific experiments
including the development and introduction of
answers precise, predefined questions, while evidence
more sustainable filter materials (read more here).
collected from the real world helps researchers
Since 2008, PMI has invested over understand the uptake, use, and health effects of a
USD 9 billion in research, product development, product in real-life settings. To date, real-world evidence
production capacity, scientific substantiation, indicates that introducing heated tobacco products can
and studies on adult smoker understanding. have a beneficial impact on a population as a whole. The
Our smoke-free product portfolio includes heat-not- launch of heated tobacco products in Japan coincides
burn and e-vapor products, as well as oral nicotine not only with a reduction in cigarette sales but also
products. They are developed and manufactured with a decrease in hospitalization rates due to chronic
according to high standards of quality and consistency. obstructive pulmonary disease exacerbation and
ischemic heart disease.2 We will continue to gather and
As of year-end 2021, our R&D work and its evaluate real-world data; in particular, epidemiological
associated innovations have resulted in 1,770 patents data from long-term follow-up studies that include
granted for smoke-free technologies by the five information on other variables that might impact the
largest intellectual property offices in the world (IP5). risk of developing smoking-related diseases as well as
Our most thoroughly assessed smoke-free lifestyle and other environmental factors (e.g., diet,
product is the IQOS tobacco heating system pollution). The cumulative evidence on our smoke-free
(see the next page). We apply rigorous science products to date, including both experimental and real-
to substantiate its harm reduction potential life data, points firmly in the direction of harm reduction.
1 Source: https://www.fda.gov/tobacco-products/advertising-and-promotion/
compared with cigarette smoking, including systems philip-morris-products-sa-modified-risk-tobacco-product-mrtp-applications.
toxicology, preclinical and clinical assessments, 2
Note: The FDA does not endorse or approve tobacco products.
Observational time-trend analysis looking at temporal associations and not
and perception and behavior assessments. designed to assess cause and effect. Specific factors associated with changing
hospitalization rates over time have not been fully analyzed. Subject to
inherent limitations of ecological analysis.
68 69
Overview of IQOS scientific substantiation

P L AT FO R M • No combustion in our IQOS tobacco heating system: The primary cause of smoking- PERCEPTION • Good product understanding and low intent to use among nonsmokers: The results of our
D E V E LO P M E N T related disease is the long-term exposure to the high levels of harmful chemicals A N D B E H AV I O R premarket studies show that the adult consumer groups tested have a very good understanding
generated by burning tobacco. By avoiding combustion, we can significantly reduce or that IQOS presents less risk of harm than cigarettes but is not risk-free and that it is riskier
A smoke-free product’s risk eliminate the formation of harmful and potentially harmful constituents (HPHCs). Perception and behavior than nicotine cessation. Additionally, when assessed in the context of specific communication
reduction potential relies studies help us evaluate risk
• Reduction in emissions of harmful and potentially harmful constituents: We compared the materials, more than 90 percent of participants in consumer studies understood that IQOS is
on the quality of the initial perceptions and patterns of
chemical composition of the aerosol produced by IQOS with the smoke from a reference cigarette not intended for nonsmokers, and more than 80 percent comprehended that quitting the use of
product design and on strict use of smoke-free products
manufacturing controls to
designed for scientific research purposes and found that the levels of HPHCs in the aerosol are among various adult consumer
tobacco and nicotine altogether is the best way to reduce the risk of tobacco-related diseases.
ensure that the product reduced on average by 90 to 95 percent compared with those found in the reference cigarette’s groups. For smoke-free products • Post-market monitoring and use patterns: We constantly monitor reports to identify safety
delivers a consistent aerosol. smoke. In addition, extensive chemical characterization of the IQOS aerosol showed that there are to have an overall positive concerns and health-related adverse events potentially associated with the use of our smoke-
approximately 10 times fewer constituents in IQOS aerosol than in the reference cigarette smoke. impact on public health, it is
free products. Further, we conduct post-market studies to understand how IQOS is used and
• No negative impact on overall indoor air quality: We also conducted chemistry and quality important that adult smokers
by whom, helping us measure the extent to which adult smokers switch to the product. By
studies, which demonstrated that the use of IQOS does not negatively impact indoor air quality. use them, that those intending
to quit tobacco and nicotine conducting repeated studies in 53 countries among adult IQOS users, involving in total about
altogether are not dissuaded 70,000 participants, we have been able to measure IQOS use patterns among adult users
by these products, and that over time. Overall, the data from these studies confirm that IQOS is reaching the intended
TOX I CO LO G I C A L • Reduced toxicity: We conducted toxicological studies for IQOS, both in vitro and in
nonsmokers do not use them. audience of adult smokers (with a significant proportion of individuals who purchase the
ASSESSMENT vivo, to determine whether the reduced formation of HPHCs in the aerosol leads
product switching fully to it and stopping smoking) and is of very limited interest to adults
to reduced toxicity. Results from the in vitro studies show that the IQOS aerosol is
Toxicological assessments are who have never used nicotine products or who had already stopped using tobacco. Finally,
significantly less cytotoxic and genotoxic than the smoke from cigarettes. The in vivo
used to determine whether the our post-market studies confirm that consumers understand that IQOS presents less risk than
studies found that, compared with cigarette smoke, the reduced exposure to toxicants
reduced formation of HPHCs cigarettes but is not risk-free and presents more risk than tobacco and nicotine cessation.
results in significantly reduced lung inflammation and respiratory toxicity.
leads to reduced toxicity and
reduced risk of smoking-related
• Reduced risk of cardiovascular disease, chronic obstructive pulmonary disease (COPD),
diseases in laboratory models. and lung cancer in laboratory models: We conducted several systems toxicology studies to
assess the disease-relevant biological mechanisms affected by exposure to toxicants, using LO N G -T E R M • Long-term effects of product use: Long-term epidemiological data are needed to accurately
ASSESSMENT quantify the overall disease risk reduction effect associated with switching from cigarette
human-derived in vitro cell cultures and organotypic tissue cultures. These showed that,
smoking to the use of smoke-free products, as well as to evaluate the excess disease risk
compared with the reference cigarette smoke, the IQOS aerosol has a significantly reduced We continue to assess our associated with the use of these products compared with not using tobacco and nicotine.
impact on key mechanisms involved in the development of respiratory and cardiovascular smoke-free products after they
Generating reliable epidemiological evidence requires that smoke-free products be available on
diseases. We also completed an in vivo study to assess the potential of the IQOS aerosol to are on the market. Long-term
the market for many years. Further, the products must be used for a sufficiently long period by
reduce the risk of lung inflammation, emphysema, and lung cancer compared with cigarette assessment will confirm whether
a sufficient portion of adult smokers who have switched to them. This renders epidemiological
smoke. The results of this study show that, in contrast to cigarette smoke, the aerosol these products reduce the risk
of smoking-related disease. studies impracticable in a premarket setting or in the early phase of market introduction.
of IQOS does not increase the incidence and number of lung tumors. It also confirmed a
significantly reduced effect of IQOS aerosol on lung inflammation and emphysema. • Real-world evidence: We initiated time-trend studies in 2020 to complement our other research.
These studies use existing data to estimate the prevalence and incidence of disease. They explore
factors associated with health outcomes at the population level. Independent evidence already
CLINICAL • Nicotine uptake: When a smoker is switching to IQOS, the nicotine uptake and links the launch of IQOS to an accelerated decline in cigarette sales in Japan, the first country in
ASSESSMENT urge-to-smoke scores are comparable to continued smoking. This suggests that which IQOS was launched nationwide, in 2015. We assessed time series of Japanese hospital data
switchers can find IQOS acceptable and satisfying as an alternative to smoking. and health insurance claims for two smoking-related diseases (chronic obstructive pulmonary
Clinical assessments help • Reduced exposure to harmful chemicals: Our clinical studies on IQOS completed to date have
determine the extent to which
disease and ischemic heart disease) to detect a potential impact of the introduction of IQOS at
involved thousands of participants and up to 12 months of exposure. They have found that the population level. We obtained hospitalization rates for selected smoking-related endpoints:
adult smokers would find
smokers who switched completely to IQOS during the studies were exposed to significantly lower COPD, COPD exacerbations, and ischemic heart disease. This data came from two databases:
the product an acceptable
alternative to cigarettes. They
levels of harmful chemicals compared with those who continued to smoke. Further, they showed Medical Data Vision and Japan Medical Data Center. We compared rates of hospitalization for
assess whether a reduction that the levels of 15 biomarkers of exposure in participants switching completely to IQOS were these endpoints before and after the introduction of heated tobacco products (HTPs) in Japan.
in the formation of HPHCs comparable to the levels of those who quit tobacco and nicotine for the duration of the study. We found that observed hospitalization rates dropped below predicted rates shortly after
measured in the laboratory • Positive impact on smokers’ health: In a six-month clinical study of healthy volunteers, we launch. Those decreases so far are modest but measurable. There are many limitations to this
leads to a reduction in HPHC measured eight health indicators that are known to change favorably following smoking type of research, and these results by themselves do not indicate a causal relationship. We are
exposure when an adult smoker cessation. We observed that after participants had switched from smoking to IQOS for therefore assessing the possibility of running the same type of assessment in other countries
switches to the product and six months, each of these indicators improved in the direction expected upon smoking where HTP uptake is sufficient and real-world datasets are available. In addition, independent
investigate whether switching cessation, five of them with statistical significance. We completed a six-month extension
from cigarettes to a smoke-free
studies that measure disease risk using epidemiology are starting to emerge (see the example
study to understand what the same markers look like 12 months after switching. from South Korea using data from the National Health Insurance Service on the next page).
product has a beneficial effect
on a smoker’s health profile by
reducing the risk of smoking-
related diseases compared
with continued smoking.
a Visit PMIscience.com to read our scientific results to date with our smoke-free products
70 71
Growing external scientific consensus Broadening access to INCREASING AWARENESS Informing the world about the
smoke-free category
We welcome and encourage independent smoke-free products We want those adults who would otherwise continue
Unlike combusted tobacco products, smoke-free
research on our products, methods, and results. to smoke to understand the risks and benefits of
The public health benefit of smoke-free products alternatives are a new product category and are
Over the past several years, a growing number our smoke-free products compared with continued
depends not only on their potential to reduce the still relatively unfamiliar to most people. In 2019,
of organizations and institutions have initiated cigarette use. They also need to understand that
individual risk of smoking-related disease but also on we launched “Unsmoke”—a global corporate
studies of our smoke-free products or the quitting tobacco and nicotine altogether is the best
their actual use by adult smokers as alternatives to campaign deployed across various online and
methods and results surrounding them. option and that smoke-free products are not risk-
cigarettes and other combusted tobacco products. For offline communications channels to address
free and contain nicotine, which is addictive.
Several government agencies have already smokers to switch to them, these alternatives must widespread misconceptions about the smoke-
reviewed the available evidence or conducted be known and accessible. To the extent permitted, We apply strict principles regarding with whom, how, free category and the concepts that underpin it
research of their own (see overview on PMI.com). we deploy relentless efforts to improve and increase and where we communicate about the existence and (e.g., combustion, the role of nicotine, and the
In addition to studies on aerosol chemistry and consumer awareness, acceptability, availability, risks and benefits of our smoke-free products. These potential of these products for public health).
toxicology, the first independent clinical and and affordability of our smoke-free products. principles are crystallized in our Marketing Codes.
The campaign’s core message is simple:
post-market studies have begun to emerge.
Acting on these four access drivers will best position We seek to provide accurate and non-misleading
One example of encouraging real-world evidence us to achieve two critical ambitions by 2025: for information so that those adults who would otherwise “If you don’t smoke, don’t
supporting the harm reduction potential of
smoke-free products comes from South Korea.
our smoke-free products to be available for sale in
100 markets and for at least 40 million adults to
continue to smoke are motivated to switch. Our
premarket and post-market studies guide our
start. If you smoke, quit.
By using data from their National Health Insurance have switched to them and stopped smoking. We consumer-facing activities and communication, If you don’t quit, change.”
Service researchers were able to showcase that, want our smoke-free products to serve every adult including the internal assessment of product
compared with continued smoking, switching smoker who does not quit smoking, and we plan claims and consumer messages. A cross-functional Currently, the campaign encompasses
to smoke-free products was associated with 23 for at least half of those markets to be in low- and team of scientists, market researchers, lawyers, two distinct strands:
percent lower risk of developing cardiovascular middle-income markets, bolstered by new innovative communication experts, and marketers review
disease among both recent switchers and long- product claims and consumer messages about our • Unsmoke Your World (UYW): Calls for positive
solutions for consumers with lower purchasing power.
term switching.1 Long-term quitters, or those who product features and benefits, ensuring that all change by reinforcing that quitting tobacco and
As of the end of 2021, 21.7 million adults were nicotine altogether is the best choice and informing
had quit all products for more than five years, statements are accurate, clear, and non-misleading.
using our smoke-free products, of whom we the adult general public that better, smoke-
were associated with 37 percent lower risk.
estimate that 15.3 million had switched to these The lack of information about—and awareness free alternatives exist for those adult smokers
The list of independent studies (close to 280 in total) products and stopped smoking, and PMI smoke-free of—smoke-free products presents a big hurdle who would otherwise continue smoking. It also
published around PMI’s smoke-free products or our products were available for sale in 71 markets. to achieving tobacco harm reduction. It is also encourages the public to get involved and calls for
methods and results as of March 16, 2022 is available potentially the easiest to overcome: Public health regulation that would allow adult smokers access
on PMIscience.com. In general, these studies confirm policymakers, regulatory bodies, the scientific to—and information about—better alternatives.
PMI’s results. However, some approach the data community, and civil society have a big impact on
differently (e.g., using fresh air as the comparator
1 Source: Choi S, et al. Combined Associations of Changes in Noncombustible
Nicotine or Tobacco Product (NNTP) and Combustible Cigarette (CC) Use smokers’ decisions. It is therefore imperative that • Unsmoke Your Mind (UYM): Speaks to the
instead of cigarette smoke), have methodological
Habits With Subsequent Short-Term Cardiovascular Disease Risk Among South
these entities do their part in informing adult smokers regulatory and scientific community and other
Korean Men. A Nationwide Cohort Study. Circulation. 2021. Observation
differences (e.g., enrolled populations, studies that do

period 2018-Dec 2019 Source: Data available on https://doi.org/10.1161/
who otherwise would not quit about the risks and stakeholders with an interest in tobacco harm
CIRCULATIONAHA.121.054967
not follow OECD guidelines), or overstate conclusions. Note: The study has several limitations, including that the follow-up is too short
benefits of switching to smoke-free products. reduction policy. UYM challenges misconceptions
to make any conclusive remarks based solely on this study.
around the smoke-free category and calls for an
As of the end of 2021, we estimate that only open and transparent conversation to support
25 percent of adult smokers in the markets risk-proportionate regulation that differentiates
C A S E S TU DY in which PMI commercializes IQOS were smoke-free products from cigarettes. It
Association between the introduction of heated aware of the product’s features and benefits
compared with cigarette smoking.1
also urges policymakers to put science and
evidence at the center of decision-making.
tobacco products and declines in cigarette smoking
Minimizing tobacco-related harm at the population level depends not only on the degree of
risk reduction of the smoke-free products, but also on their adoption by adults who would
otherwise continue to smoke. This case study looks at the impact of the introduction of heated
tobacco products on cigarette sales and smoking prevalence in two countries with the highest
market share of heated tobacco products in the world, namely Japan and Lithuania.
a Read more in our case study here.
1 In 2021, we improved our market research methodology by expanding beyond
specific geographic focus areas (e.g., key cities) to full national coverage of our
surveys, making a year-on-year comparison impossible. Applying the previous
methodology and considering the same 54 markets covered in 2020, however,
the proportion has increased from 36 percent in 2020 to 40 percent in 2021.
72 73
Communicating and engaging with User experience and utilization

Reaching the right audience
adult consumers of smoke-free devices

Although smoke-free products have been As smoke-free products may not be as
commercialized in many countries and for many years, intuitive as cigarette smoking, we need to Our marketing efforts are governed by our These are necessary to confirm the results of our
a considerable proportion of adult smokers are still inform consumers of their proper use. Marketing Codes, which include provisions designed premarket perception and behavior assessment
unaware that they exist and thus continue to smoke to ensure all our activities are directed only to studies and to measure the extent to which adult
We do so while applying strict rules on adult current smokers and nicotine users and are smokers switch to our smoke-free products. They
cigarettes. Further, the lack of understanding of the
how we communicate and engage with not particularly appealing to minors (read more also help us monitor whether never and former
category and the potential benefits of switching
our adult consumers (read more here). here). Our commercial activities must strike the smokers use them. A cumulative total of more
to smoke-free products (compared to continued
smoking) leaves many smokers unmotivated to Further, to help adult smokers transition to right balance between encouraging adult smokers than 19,000 legal age adults in three markets
switch. There also continues to be a profound smoke-free products, we are shifting to a more to switch to smoke-free products and minimizing (Germany, Italy, and Japan) have participated in
lack of understanding that, when it comes to consumer-centric model. Establishing direct the risk of unintended consequences such as our cross-sectional population-based studies. The
cigarette smoking, it is combustion, rather than routes to consumers—including our stores and youth access, initiation, and use by nonsmokers. data from these post-market studies confirm that
nicotine, that is the primary cause of harm and e-commerce channels—allows us to explain IQOS is reaching the intended audience (adult
The results of our perception and behavior
disease (read more here about nicotine science). the products, their features, and their risks and consumers of nicotine products) and is of very
assessment studies conducted to date as part of
benefits compared with continued smoking. limited interest to adults who had never smoked
To raise awareness, resolve biases, and clear up the scientific assessment of our IQOS product show
or had already quit using tobacco and nicotine.
misconceptions, we engage with adult smokers that the adult consumer groups surveyed have a
Leveraging the power of our brands More specifically, the results show that more
to ensure they understand the facts underlying very good understanding that IQOS presents less
to drive positive behavior change than 99 percent of IQOS users in Germany, Italy,
scientifically substantiated smoke-free products risk than cigarettes but is not risk-free and is riskier
We engage with adult smokers in a variety of ways, and Japan were already using tobacco or nicotine
and why they can be a better choice than than tobacco and nicotine cessation. Additionally,
including, where permitted, by leveraging our products at the time they began to use IQOS.
continuing to smoke. We also make sure smokers when assessed in the context of specific
cigarette packaging. JustScan (formerly ScanPack) is communication materials, more than 90 percent In the U.S., our FDA MRTP exposure modification
are aware that these better alternatives are not a mobile digital platform that allows adult smokers
risk-free and in most cases contain nicotine, which of participants in consumer studies understood orders require that we submit a post-market
to access online content by scanning a QR code or that IQOS is not intended for nonsmokers, and surveillance and studies plan, which had to be
is addictive. This comprehensive approach has using a weblink (typically featured on the cigarette
been shown to improve consumer awareness more than 80 percent comprehended that approved by the agency. As part of that plan,
pack insert). For communication on combustible quitting the use of all tobacco is the best way an affiliate of Altria, who commercialized IQOS
and understanding of our products and the products, the platform uses third party-tested
science and data behind them year-on-year. to reduce the risk of tobacco-related disease. in the U.S., conducted a secondary analysis of
facial age-estimation technology to limit targeted their existing Underage Tobacco Use Survey
communication to adult smokers. In markets where Further, we conducted 12 studies of our heat-not-
data and found very low (less than 1 percent)
smoke-free products are available, we leverage burn (IQOS) and e-vapor (IQOS VEEV) products in
past-30-days IQOS use among U.S. youth.1
JustScan to drive awareness and support conversion six markets in 2020–21, including interviews with
to these products by providing adult smokers more than 23,000 adults who were not consumers Overall, data from our studies, as well as
with access to content related to our smoke-free of tobacco or nicotine products. The results of independent studies,2 confirm that IQOS is
products. For example, in November and December those studies show very low intention to use our reaching the intended audience—adults who
2021, our affiliate in Japan deployed JustScan smoke-free products among adult former users already smoke or consume tobacco or nicotine
to increase awareness of IQOS ILUMA, reaching of tobacco or nicotine products (0.6 percent) and products—and is of very limited interest to youth
close to 150,000 adult smokers. Globally in 2021, adults who had never used tobacco or nicotine and to adults who have never before used nicotine
we used JustScan to successfully engage with products (0.3 percent). We do not conduct studies products or had already stopped using them.
close to two million adult smokers in 50 markets involving individuals under the legal age to purchase
(2020: 850,000 adult smokers in 30 markets). tobacco products. However, results of our studies
among the youngest legal age adults who were
not consumers of tobacco or nicotine products— 1 Source: Estimates – July to November, 2021: https://sciences.altria.com/–/
media/Project/Altria/Sciences/library/Underage-Tobacco-Use-Survey/
those aged 18 (or higher, depending on the legal UTUS-Estimates-2021Q3Q4.pdf
2 East KA, Reid JL, Rynard VL, Hammond D. Trends and Patterns of Tobacco
age in the country) to 24—show a very low intent and Nicotine Product Use Among Youth in Canada, England, and the United
States from 2017 to 2019. J Adolesc Health. 2021 Sep;69(3):447-456. doi:
to use our smoke-free products (0.3 percent). 10.1016/j.jadohealth.2021.02.011.
Kuwabara Y, Kinjo A, Fujii M, et al. Heat-not-burn tobacco, electronic
We also conduct post-market studies to understand cigarettes, and combustible cigarette use among Japanese adolescents: a
nationwide population survey 2017. BMC Public Health. 2020; 20:741.
how our smoke-free products are used and by Orth B & Merkel C. Smoking among teenagers and young adults in
Germany: Findings from the Alcohol Survey 2018 and trends (in German).
whom once available for purchase in a market. Federal Center for Health Education (BzgA). 2019.
Delgrande Jordan M, Schneider E, Eichenberger Y, et al. La consommation
de substances psychoactives des 11 à 15 ans en Suisse—Situation en 2018
et évolutions depuis 1986. Rapport de recherche N°100, Addiction Suisse.
2019
74 75
STRIVING FOR HIGH During the switching journey, most users undergo In 2021, we were commercializing 10 different The role of flavors in smoke-
PRODUCT ACCEPTABILITY an adaptation process during which dual use heated tobacco and e-vapor devices and more free product acceptability
(concurrent use of cigarettes or another nicotine than 900 smoke-free consumable stock-keeping Smokers often find the difference in taste between
Adult smokers will only switch completely to smoke-
product) may occur. Only by switching completely units. Moreover, we also now have a small presence smoke-free products and their preferred cigarette
free alternatives if they prefer these products over
and abandoning cigarettes can consumers realize in nicotine pouches, with 23 stock-keeping units brand to be an obstacle to adoption or full conversion.
cigarettes. Several factors play a role in driving
the full health benefits of smoke-free products. commercialized under the Shiro brand, which were In this context, flavors play an important role in
consumer acceptance of smoke-free products:
Our goal is to support consumers in making this available for sale in 15 markets as of year-end 2021. helping adults who don’t quit tobacco and nicotine
user experience (e.g., sensorial experience, product
transition as quickly as possible. Consumers who use altogether to move away from cigarettes and
convenience, availability of product variants), Our success in smoke-free products is driven
switch from cigarettes may also use different smoke- accelerate their full conversion to better products.
their potential to present less risk of harm than by continuous innovation. In 2021, we
free products according to personal preferences
continued smoking, and their nicotine profile. launched IQOS ILUMA—the next generation To cater to a variety of tastes and maximize
and use occasions. Offering a broad range of
of IQOS devices, which use internal induction the probability of adult smokers considering
We consider the full conversion rate a critical acceptable smoke-free alternatives is thus critical.
heating—and TEREA heated tobacco unit (HTU) switching instead of continuing to smoke, we
indicator of whether our smoke-free products meet
consumables in Japan and Switzerland. make our smoke-free consumables available in
consumer expectations. This rate is the percentage Expanding our smoke-free portfolio
a wide range of taste variants (more than 40
of adults who switch to our smoke-free products and We understand that consumer tastes and We expect this innovative and intuitive device to
for our IQOS HTUs as of year-end 2021).
stop smoking cigarettes versus total adult users. In preferences vary, and so a broader portfolio is support easier switching and higher conversion
2021, the global average full conversion rate for our likely needed to phase out cigarettes entirely. rates. IQOS ILUMA has received an overwhelmingly We have a central governance process in place for
main smoke-free product, IQOS, was 72 percent. positive consumer response thus far, with strong new flavored heated tobacco products, e-vapor
We therefore continue to invest in improving
demand reflected in initial 2021 device sales products, and combustible products to assess the
our current products, developing new ones, and
notably in excess of past IQOS launches. risk of unintended use prior to commercialization.
acquiring products and technologies that meet our
The assessment framework takes into account,
scientific standards and can help us achieve our
among other things, the flavor dimension of the
purpose. Read about the 30 years of innovation
product, how the product will be labeled and
behind our leading heated tobacco product here. A new heating technology
marketed, and the regulatory and commercial
with IQOS ILUMA
environment. Read more about our approach here.
In 2021, PMI started commercializing a heated
tobacco product with a method of heating
the tobacco that is different from the previous
generation of products in its portfolio.
Heat-not-burn products E-vapor products Nicotine pouches
IQOS ILUMA uses the innovative bladeless
SMARTCORE INDUCTION SYSTEMTM. The
induction activates the heating element inside
the specially designed tobacco stick. The
tobacco is heated with improved draw and
taste consistency from stick to stick, without
IQOS ILUMA IQOS ILUMA IQOS IQOS VEEV SHIRO
the need for consumers to clean the device.
PRIME ONE ILUMA
IQOS ILUMA allows for two consecutive
uses without recharging the holder.
Read more about our heated tobacco
technologies here.
IQOS 3 IQOS 3 IQOS 3

DUO MULTI
IQOS 2.4 IiI IiI

PLUS SOLID HYBRID
76 77
The role of nicotine in smoke-free As of year-end 2021, we had 36 consumer call EXPANDING PRODUCT AVAILABILITY Making our smoke-free products
product acceptability centers, where adult users can contact us if they available on the marketplace
Whether we can make our smoke-free products
Nicotine plays an important role in helping adults have questions about the product or its use, In addition to external factors, internal
available to adult smokers depends on several
who would otherwise continue to smoke to transition as well as thousands of own or indirect retail constraints affect the rate at which we can
factors, including some beyond our control,
from cigarettes to better alternatives. By having a touchpoints worldwide. These retail outlets offer roll out smoke-free products globally.
that dictate our ability to scale and legally
nicotine profile that resembles that of a cigarette, personalized support to adult consumers, ranging
commercialize our products in certain territories. Building internal capacity
smoke-free products aim to offer a satisfying from explaining how the product should be used
experience to adult smokers who are trying to switch and how to clean it to offering more details about PMI is present in around 180 markets, but the
Advocating for risk-proportionate regulation
to them. Read more about the role of nicotine here. heated tobacco technology and its benefits. They size and capacity of our local organizations
Combustible tobacco and smoke-free product
also give adult smokers and nicotine users the vary. Not every market has the resources
marketing and advertising are subject to extensive
Supporting adult smokers in their option of trying the product before purchase. and capability to launch smoke-free products
restrictions worldwide, including outright bans in
conversion to smoke-free products In addition, there are premium resellers—select immediately. We evaluate the commercial viability
some countries. This regulatory environment makes
Purchasing and trying a smoke-free product is stores that adult smokers regularly visit to purchase of launching smoke-free products in each market
it difficult—or almost impossible in some countries—
only one step along the conversion journey of tobacco products—in which we provide, to the to prioritize internal resources adequately.
to make adults who smoke aware of available
adult smokers who seek to switch to a less harmful extent permitted by law, information about our
alternatives to cigarettes and inform them of how The ability to manufacture our smoke-free products
alternative to cigarettes. It is essential that we smoke-free products and an opportunity to have
and why they should use such alternatives instead. at scale requires significant investment in our
have the right infrastructure in place to support a session with trained staff to learn about the production capacity. In particular, the manufacturing
adult smokers along every step of this journey. products, their benefits, and how to use them. Encouragingly, we have witnessed growing
of smoke-free product consumables requires that
government support in recent years for science-
We are continuously strengthening the Digital capabilities also help us serve adult we build new factories or convert existing cigarette
backed smoke-free products. An increasing number
ecosystem through which we support consumers more efficiently, and we have factories and increase our capital expenditure—for
of governments now complement traditional tobacco
consumers in making this better choice. intensified our focus in this direction over the past example, to purchase new machinery. In 2021, eight
control measures (i.e., those intended to discourage
several years. For instance, in countries where of our 38 factories were dedicated, either partially or
initiation and encourage cessation) with a harm
this is permitted, adult smokers who express an fully, to the manufacture of our smoke-free products.
reduction approach (i.e., providing adults who would
interest in our smoke-free products are offered Since the start of the COVID-19 pandemic, many
otherwise continue to smoke with information
an online session with a remote IQOS coach. companies across a wide range of industries
about—and access to—scientifically substantiated
smoke-free alternatives). Visit PMI.com for an have been impacted by a global shortage of
overview of significant regulatory developments. semiconductors, which are used in a broad variety
of consumer products, including our smoke-free
We regard stakeholder engagement as fundamental
electronic devices. Persistent shortages of—and
to the creation of shared and sustainable value (read
growing demand for—this critical component have
more here). For PMI, responsible advocacy is about
affected the availability and assortment of our
engaging with individuals and organizations in a
smoke-free devices in certain markets, impacting
way that respects the law, adheres to professional
our ability to operate at full commercial capacity.
standards and ethical principles, and is consistent
During the year, we monitored this situation closely
with the company’s vision and internal policies. This
and took steps to limit the impact on our customers
means acting in a fair, honest, and respectful manner
and trade partners and on consumer availability.
when advocating our positions concerning issues
While the growth in IQOS users slowed in the third
on which we have a legitimate interest or concern.
quarter of 2021, we undertook extensive mitigating
Open and transparent dialogue with national and local actions and saw increased sequential IQOS user
governments and regulators allows us to understand growth in the fourth quarter despite continued
their priorities and concerns and share our views, device supply constraints. We have adjusted our
objectives, and scientific findings. We engage with device assortments, restrained commercial programs,
governments, regulators, and legislators to support and are managing our inventories in an effort to
the development of legislation and regulations that ensure, first, that current consumers are able to
will enable adult smokers to access smoke-free continue on their journey away from cigarettes
alternatives while minimizing access and use by and do not revert to smoking, and second, that
unintended users, including minors and nonsmokers. adult smokers can access our most advanced and
innovative alternatives to continued smoking.
78 79
Expanding our footprint in 2021 Enhancing in-market availability ADDRESSING PRODUCT Devices
As of year-end 2021, our smoke-free products Expanding the geographic availability of our smoke-
AFFORDABILITY Unlike cigarettes, some of our smoke-free
consumables require the use of devices. Adult
were available for sale in 71 markets, either free products to ensure they are conveniently We will only achieve a smoke-free future if all those
smokers who want to switch to our heat-not-
in key cities or nationwide (2020: 64).1 We accessible to adult consumers requires that we adult smokers who do not quit tobacco and nicotine
burn or e-vapor products, for instance, must
aspire to expand our footprint to make them leverage a variety of retail channels, including: altogether can afford to switch to better alternatives.
first buy a specific electronic device. These high-
available in at least 100 markets by 2025.
• Direct retail channels such as brand We have set a 2025 ambition for at least 50 percent quality devices rely on innovative technologies
During the year, we launched our heat-not-burn retail locations (e.g., IQOS stores) and of the markets where we commercialize our smoke- and require significant production costs to ensure
IQOS product in six additional markets (Aruba, Egypt, e-commerce websites (where permitted) free products to be low- and middle-income markets, they function consistently within the precise
Kyrgyzstan, Morocco, Tunisia, and Uzbekistan), bolstered by new innovative products for consumers specifications of our scientific evidence package.
• Indirect retail channels such as
bringing to 68 the total number of markets in which with lower purchasing power. As of the end of
tobacconists, convenience stores, gas To address the potential cost barrier for
the product was commercialized as of the end of 2021, our smoke-free products were available in
stations, consumer electronics stores or adult smokers who would like to switch,
2021. We also rolled out the commercialization of our 30 low- and middle-income markets (2020: 26).
vape stores, and online channels we deploy various solutions, such as:
e-vapor product in five new markets (Canada, Croatia,
While it is vital to increase the availability of our
Finland, Italy, and Ukraine). By the end of the year, As of the end of 2021, there were more than 1,700 • Initial lending of the device or payment over time
science-based smoke-free alternatives across
IQOS VEEV was available in a total of seven markets. exclusive brand direct retail touchpoints (including 274
countries, we must also ensure our products are • Enhanced battery and firmware performance
permanent PMI-owned IQOS boutiques and stores
The adverse determination by the U.S. International affordable to all adult smokers within each market so and increased longevity of devices, which lowers
worldwide).² We also ran e-commerce sites for IQOS
Trade Commission (ITC), which prohibits the import that they consider switching instead of continuing the average annual cost for the user while also
in 55 markets, allowing consumers to purchase the
of IQOS devices and HTU consumables into the U.S., to smoke. This means accounting for the purchasing improving the ecological footprint of our devices
product online and have it delivered to their homes.
was clearly an unwelcome development, albeit one power of adult smokers and deploying inclusive
• A broadened portfolio offering different price
that is currently immaterial to PMI. While this decision Regarding the indirect retail environment, we classify solutions to meet the needs of different segments of
points. For instance, in 2021, we continued to
will cause near-term disruption, we have contingency the general trade and key accounts universe into the population and geographies. Accordingly, we must
commercialize the licensed lil SOLID device, for use
plans underway and hope to be able to resume U.S. three groups according to the product portfolio account for the economics of innovative smoke-free
with Fiit consumables, at a price below the lowest-
supply as soon as possible. We continue to see a handled and the services provided to consumers: products, which can be significantly different from
priced IQOS device in select markets. Also, we may
large opportunity for IQOS in the U.S. over time. • Consumables sellers provide consumers with those of a centuries-old product such as cigarettes.
lower the price of existing device versions following
Based on our current geographic footprint, we a convenient option for everyday purchases the launch of new versions. The retail price of these
estimate that around 180 million adult smokers (i.e., of smoke-free consumables (e.g., the devices ranges from around USD 16 to USD 153,
71 percent of the total number of adult smokers in heated tobacco units for IQOS) and increase depending on model and country, with the global
the markets where we have launched) have physical awareness of smoke-free products in general average price for the lowest-priced heat-not-burn
access to purchase our smoke-free devices and and our product portfolio in particular device (including IQOS and lil) being USD 24.
consumables (2020: 150 million adult smokers, or • Device sellers allow consumers to purchase • Remarketing of used products collected from
64 percent of the total number of adult smokers in the smoke-free devices conveniently and to consumers and refreshed or repaired according
markets where we had launched at year-end 2020). access services such as device replacement to stringent standards (read more here).
• IQOS partners offer consumers a wide range
of services, including product trial³
As of the end of 2021, there were around 3,600
IQOS partners and more than 800,000 points
of sale at which IQOS HTUs were sold.
1 2021 figure excludes Belarus and the U.S.

2 Exclusive brand direct retail touchpoints are stand-alone touchpoints dedicated to PMI’s portfolio of
smoke-free products, representing the most experiential physical retail formats, and delivering the highest
level of experience with the broadest range of products and services to legal age consumers.
3 IQOS partners (indirect retail brand experience touchpoints) consist of a dedicated IQOS space within another
retailer’s premises where brand experiences and services are delivered to adult consumers by the retailer staff.
In this format both devices and consumables are generally commercialized.
80 81
Consumables These costs include, for example, our customer care Marketing and selling our Governance of the Marketing Codes
Our portfolio includes nicotine-containing call centers and follow-up to ensure users do not fall The Codes are intended to guide the design,
consumables to be used with our electronic devices. back into smoking during their conversion journeys.
products responsibly marketing, and sale of our products. They include the
These include the HTUs used with our heat-not- Consumer-centric product design, development, core principles, practices, and governance processes
Beyond production and commercialization costs,
burn products and the liquid nicotine used with marketing, sales, communications, and engagement we follow in developing, designing, marketing, and
a key factor driving tobacco and nicotine product
our e-vapor products. We also produce nicotine- drive our commercial success and propel our smoke- selling our products and in engaging with adult
retail prices is the excise tax. Excise taxes on
containing consumables (e.g., nicotine pouches) free mission. In this context, responsible sales and consumers of our products. Sometimes our Codes
cigarettes are generally higher than those on
that do not require the use of an electronic device. marketing practices are critical priorities for PMI. We impose more stringent provisions than required under
smoke-free products. Within the smoke-free
The recommended price of these consumables aim to design our marketing communications and local laws; in such cases, we follow our Codes. If the
category, electronic cigarettes tend to be taxed
(whether as a complement to a device or as stand- materials to appeal to adult smokers and adult users opposite occurs and local laws set a stricter standard
at a lower rate than heated tobacco products.
alone product) plays an important role in determining of nicotine products, and we follow strict principles to than our Codes, we, of course, follow the law.
affordability and consequently expanding access. Differential taxation is an appropriate fiscal policy minimize the risk of unintended consequences, such
The Codes are subject to a robust governance
given the fundamentally different risk profiles of as youth access to our products. This is an ongoing
The recommended price of our consumables process established in 2021 under the responsibility
combustible tobacco products versus smoke-free effort and we strive to improve continuously.
depends on R&D, production, compliance and of the newly formed Marketing Review Council,
alternatives. Applied appropriately, this approach
commercialization costs, as well as the excise taxation composed of members of our Company Management.
can incentivize adult smokers to switch away Rolling out our updated Marketing Codes
regime in the countries where they are sold. The council’s role includes guiding implementation
from cigarettes and other combustible tobacco
Consistent with our category-based organization, of the Codes across the organization.
Currently, the production costs of the heated tobacco products and encourage manufacturers to
our marketing and sales principles and practices
units used with IQOS devices are, on average, channel their investments and R&D away from Deployment Review Group
are codified in two separate Marketing Codes: one
somewhat higher than those of cigarettes. HTUs cigarettes and toward smoke-free alternatives. Each of our affiliates has a local cross-functional team
for combusted tobacco products (an enhanced
undergo a proprietary manufacturing process that is (a Deployment Review Group or DRG) in place that
The combined effect of manufacturer costs version of the previous Marketing Code that
vastly different from the manufacture of cigarettes, provides a robust process for reviewing and approving
and tax differences is such that the price to the had been in place for years) and one for smoke-
and they require an increased level of quality new products, packaging, consumer-facing programs,
consumer of IQOS HTUs is typically below that free (or “noncombusted”) alternatives.
assurance in factories. The manufacture of HTUs campaigns, and initiatives before they are deployed.
of premium cigarettes—or can even be at the low
also incurs other costs that do not apply to cigarettes, We rolled out these Codes internally early in
end of cigarette pricing. As of the end of 2021, we We expect every market to fully implement the
such as the costs of scientifically substantiating 2021, building on our previous Marketing Code
estimate that our HTUs are on average priced the Codes and are implementing a self-assessment
the reduced-risk profile of these products, and centered on combusted tobacco products and the
same as or lower than an adult smoker’s current process to confirm they do. Findings and actions
ongoing post-market studies. Importantly, they Good Conversion Practices we had established
cigarette brand for 58 percent of smokers in the resulting from these self-assessments will be
entail much higher commercialization costs to govern the marketing and sale of our smoke-
geographies where we commercialize IQOS. shared with regional and functional senior
compared with cigarettes due to the need to free products. During the year, we worked to
management before being reported to our
properly introduce consumers to these new To address potential affordability barriers, we are embed the norms of these Codes within our
President, Smoke-Free Products Category & Chief
products and explain their functionalities. also expanding consumers’ choice of HTUs by organization and trained employees and relevant
Consumer Officer and our President, Combustibles
offering brands at multiple price points in many third parties. We closely guided our markets
Category & Global Combustibles Marketing.
markets. As of year-end 2021, we offered a price during the roll-out period and encouraged them to
point below our main HTU brand in 21 markets. provide feedback and seek clarification as needed.
We have now published our two Codes on our
website and welcome stakeholder feedback on
our responsible commercialization practices.
Our Marketing Codes are accompanied by a
set of internal guidelines that provide more
detailed information on implementation. These
guidelines cover, among other things, how to
develop appropriate consumer messaging, set
up effective youth access prevention programs,
communicate digitally with consumers, and conduct
market research for smoke-free products.
82 83
Employee and third-party training Monitoring and remediation

Insider insights: Mystery shopping program
Our responsible commercialization efforts rely on Three functions (Ethics & Compliance, Risk &
the adherence and dedication of our employees Controls, and Corporate Audit) support and
and the third parties with whom we work. All PMI monitor compliance with the Marketing Codes and In addition to other controls we have in place, By the end of 2021, the MSP had been
employees involved in PMI’s commercialization their implementation guidelines through training, our bespoke mystery shopping program (MSP) implemented across our IQOS stores, contact
activities must be trained on the Codes and communications, controls, investigations, and audits. helps us monitor and measure adherence to our centers, and e-commerce sites (depending on the
follow them. Third parties involved in PMI’s requirements on youth access prevention as retail and support channels available) in 60 markets
Our Ethics & Compliance function investigates set out in our Marketing Codes across different where our smoke-free products are commercialized.
commercialization activities must also be trained on
potential incidents of noncompliance with laws and touchpoints. MSP leverages trained “mystery Where COVID-19 conditions allowed it, mystery
the relevant parts of the Codes and follow them.
PMI’s Marketing Codes. In 2021, there were 13 shoppers” commissioned by an independent third shoppers performed around 2,500 visits in 2021 to
We deployed new training in 2021 in parallel with violations of our Marketing Codes by PMI employees party. The shoppers are at least 19 years old, and all over 640 IQOS stores, visiting on different days and
the release of our Marketing Codes and their (2020: 29). As a consequence of these violations, of them are smokers. They are tasked with acting at different times of the day. In over 96 percent of
accompanying implementation guidelines to ensure we took disciplinary actions, of which 15 percent interested in PMI smoke-free products and with those cases, they reported that their age had been
employees and third parties understand our principles consisted of employment termination, 8 percent going through various service interactions, such properly checked prior to starting the conversation
and practices and embed them in their work. in suspension, 15 percent in written warning, and as making a purchase at an IQOS store, placing an about the product—unless their appearance
62 percent in verbal warning or counselling. online product order, or interacting with an IQOS made clear that the mystery shopper was above
In addition to global compliance e-learning, our
affiliates rolled out instructor-led classroom and Further, the risk of marketing and selling to coach. While doing so, they assess and record not the minimum legal age (or at least 18 years old in
online training sessions for employees and third youth is covered in our annual enterprise risk only their consumer experience and the quality markets without a minimum legal age). Although the
parties involved in the commercialization of PMI assessment and in our risk-based audit program. of service delivered, but also whether appropriate pandemic constrained our abilities to monitor on the
products to ensure wide reach and proper awareness control measures were exercised to determine and ground, the program was still implemented online.
Reviews by our Corporate Audit department in verify (a) their age and (b) whether they are smokers
and comprehension of the Codes’ expectations. The MSP is an additional and valued due diligence
2021 found that only a few affiliates experienced or users of nicotine products. We receive detailed
In 2021, more than 70,000 people participated tool that helps ensure we reach our desired
issues related to responsible marketing compliance, and regular reports on the mystery shoppers’
in at least one Marketing Codes-related training audience—adult smokers and users of nicotine
and these issues were mainly procedural. feedback, allowing us to identify cases in which
session (including on youth access prevention products—while minimizing the risk of unintended
requirements). Of this total, around 23,000 were During the year, Corporate Audit conducted 19 audits adherence to our requirements is not being met.
consequences such as access to and use of
PMI employees and around 47,000 were third-party covering 24 markets. Processes and controls were We piloted this program in seven markets our smoke-free products by youth. It provides
workers, including agencies, promotional staff, call reviewed in each of these markets, and members of in 2017, focusing on PMI’s IQOS boutiques. a powerful way to ensure our age verification
center agents, and shop assistants, among others. the Corporate Audit team visited a limited number In the ensuing years, we significantly requirements are implemented properly on
of points of sale (COVID-19 restrictions did not increased the scale of our efforts. the ground across selected consumer-facing
To ensure continuous reinforcement and proper
permit field visits to some) to assess the steps taken channels. And it is not only about measurement:
implementation of the Codes’ requirements,
to implement our Marketing Codes. No significant The wealth of data collected from the program
we plan to train all relevant employees and
issues related to youth access were identified in is turned into targeted actions to continuously
third parties on the Marketing Codes at least
the locations visited, except for one case where the guard against youth accessing our products.
every two years. Further, we expect to conduct
agreed implementation steps were not executed as
annual training on youth access prevention
planned, mainly due to COVID-19-related restrictions.
requirements among all affiliates’ salespersons
The affiliate implemented all four identified
engaged in brand retail or in our contact centers.
management action plans by October 2021 in line
with the requirements of the Marketing Codes.
In markets selling smoke-free products, we also
conduct a mystery shopping program. As part
of this program, we determine whether the
requirements on youth access prevention set out
in our Marketing Codes are being implemented
across our e-commerce websites, brand retail sites,
and contact centers. Read more on the next page.
>70,000
PMI employees and third-party workers
participated in at least one Marketing
Codes-related training session in 2021
84 85
Consumer communications and labeling Social media In addition, we strongly support regulation that Our YAP tools include templates for contract clauses
We do not use social media for marketing, advertising, ensures that only adults can buy tobacco and requiring that retailers ensure strict compliance with
Along with applicable laws, we apply
or any other promotional communications nicotine-containing products, as well as the strict minimum age laws or, in the absence of such laws,
strict rules governing how we present
related to our combustible products, whether enforcement of minimum age laws and penalties for that they refuse sales of nicotine-containing products
our products to adult consumers.
branded or not. The same rule applies to our those who sell or provide these products to minors. to anyone below 18 years old. The tools also include
contracted parties, including event organizers, educational modules and knowledge checks for both
Labeling The global youth access prevention requirements
third-party agencies, and brand ambassadors. combusted and smoke-free products, made available
We warn consumers about the health effects of our in our Marketing Codes apply to all our commercial
via the digital communication platform we use with
products. All advertising and consumer packaging Unlike with combustible tobacco products, we activities, even when not required by local laws.
our retail partners across more than 85 markets.
for combusted tobacco products and smoke-free maintain consumer-facing branded social media These stringent standards reduce the likelihood that
Other tools we provide include point-of-sale signage,
alternatives must contain clear and visible health accounts for our smoke-free products in certain our products and related consumer communications
communication templates, and talking points to
warnings, even in markets where not required markets. We do so only in countries where reliable will be of particular appeal to youth. These
guide in-person conversations with trade partners.
by law. Our smoke-free consumables packaging audience data show that the audience of the relevant requirements shape the content of our creative
indicates clearly that the product is for adults, is not social media platform is at least 75 percent adult. materials, ensuring, for instance, that they do not By the end of the year, markets representing
risk-free, and contains nicotine, which is addictive. In addition, we use all available native age gates. contain images of models who are, or appear to be, 91 percent of our total shipment volume were
under age 25 or images of youth-oriented celebrities. implementing these YAP programs in our indirect
In 2019, it was brought to our attention that some social
No product placement retail channels.
media posts, while in line with applicable laws, did not We have also implemented a central governance
With regard to both our combusted and smoke-
comply with our internal “digital influencer” guidelines. process under which new flavored heated tobacco
free products, we do not pay for product or brand Age verification in our owned channels (B2C)
Consequently, our Senior Management Team decided products, e-vapor products, and combusted products
placement in entertainment programs, films, radio, In owned channels (such as our IQOS stores and
to suspend the use of social media influencers for the are evaluated. Under this framework, flavored
video games, or any other program intended for e-commerce sites), our Marketing Codes, youth
purposes of online marketing. Since then, our company product propositions are assessed premarket to
or disseminated to the general public. Moreover, access prevention (YAP) guidelines, and training
has worked hard on strengthening and building more minimize the risk that their introduction in the
our advertising, marketing, and sales materials materials and tools require that consumers’ age
robust systems and processes, including by exploring marketplace generates unintended consequences.
must be placed where they are likely to reach adult is verified before they can access our products—
the use of previously unavailable age-control technology, While flavors are essential to encourage adult
smokers and not in places or channels frequented ensuring they are of legal age (or at least 18 years
to ensure our online engagement is reaching the right smokers to switch, and their use should be preserved,
primarily by minors (i.e., they can only be placed old in markets without a minimum legal age).
kind of audience. Further, and to limit the reach of our certain flavors could be particularly appealing to
in media channels whose audience is reasonably
marketing communications, we do not encourage adult unintended audiences and should not be used.
estimated to be at least 75 percent above legal age).
consumers to share commercial content related to our In all circumstances, every tobacco and nicotine
smoke-free products on their personal social media product should be regulated, including the way they What is a youth access
accounts. In 2022, we will continue to evaluate the are marketed, to ensure they do not particularly prevention program?
best way to continue responsibly increasing awareness, appeal to unintended audiences, including youth.
while preventing unintended consequences. A youth access prevention (YAP) program is a
Engaging with our trade partners (B2B) combination of guidelines and tools to help our
Preventing youth access and We do not own or control the vast majority of retail affiliates work more effectively with their trade
use of our products outlets in which people buy our products: Around partners to guard against sales of our combusted
99 percent of our sales occur outside our owned and smoke-free products to underage purchasers.
As a leading manufacturer of tobacco and
channels. To ensure retailers operate according to
nicotine products, we have a critical role to play
our standards, we set robust requirements for our
in guarding against youth access to our products.
trade partners. We work with them to ensure they
Accordingly, we have developed an enhanced suite
understand why they should not sell tobacco or
of measures designed to ensure a holistic approach
nicotine products to youth. To ensure compliance,
to guard against youth access to our products.
we monitor the implementation of youth access
We deploy measures to ensure consumers are prevention (YAP) programs in our indirect retail
age-verified across all access channels when being channels and are committed to maintaining high
provided with access to our products, including coverage of our shipment volumes (minimum 90 percent).
both PMI owned and operated boutiques and
In 2021, we evolved our minimum requirements for an
e-commerce platforms, and third-party retailers
effective YAP program in our indirect retail channels,
and online marketplaces. While the level of control
which have been integrated into our Marketing Codes.
we have over these channels varies, it is critically
important that we make every effort to guard against
youth access to our products regardless of venue.
86 87
We monitor compliance with our Marketing Key learnings from New Zealand highlighted that
Looking ahead
Codes and guidelines through mystery shopper it is critical to ensure a simple and easy to use
programs. An independent third party uses mystery mechanism for consumers to be age verified, as well
shoppers to assess the consumer experience as to activate their devices. Moreover, we learned
delivery, the quality of service offered, and that on the consumer conversion journey, an overly
compliance to our requirements (read more here). complex age-verification process would represent
a barrier in their decision to abandon cigarette
IQOS stores More than a decade ago, PMI set itself the goal We have a robust infrastructure for monitoring
smoking and switch to a smoke-free alternative.
At our physical brand retail outlets, any to re-focus its business and develop products compliance with our Marketing Codes, and
consumer who wishes to purchase our products We deployed a second pilot with VEEV in two cities that can reduce the risk of smoking-related we are committed to implementing our youth
is age-verified by a trained salesperson. The on the island of Corsica, in France in 2021. These diseases compared with cigarette smoking while access prevention efforts globally and ensuring
verification must be conducted in person and, pilots confirmed our learnings from New Zealand and in parallel phasing out cigarettes. Science and adequate monitoring of their enforcement.
if there is any doubt that the person is an adult, the need to further optimize these novel technologies, technology are at the core and key enablers for We will also continue to deploy YAP tools in
by checking an official identity document. processes, consumer journey, and user experience. this ambition. So far, we could demonstrate that our indirect retail channels. Currently, these
E-commerce During 2022, we plan to launch additional pilots which our heated tobacco and e-cigarette products programs cover more than 90 percent of
We implement age verification prior to selling our will include testing of different user experiences, significantly reduce the formation and exposure to our shipment volume, and we will continue
products online. This requires, for example, that we a suite of online age-verification mechanisms, and harmful chemicals as well as the risk of smoking- to engage with various stakeholders on this
can leverage databases from reliable and credible various methods to perform device activation. related diseases in animal models. But this is only topic, including retailers and governments,
sources (such as government organizations, telephone Fundamental to the viability of these efforts will be to the starting point. Moving forward, and building to find more effective solutions.
network operators, or banks) or scan an uploaded ensure that the underlying infrastructure is scalable. on the past decade of experience, capability Werner Barth, President, Combustibles
copy of a person’s identity document. Where the build up and scientific work, we have started Category & Global Combustibles Marketing
Secure and user-friendly age-verification technology to execute a significant program of biomarker,
necessary technology is not yet available, or where
is a novel advance in the smoke-free product category clinical outcome and real-world evidence studies
a person cannot be age verified using either of these
and requires strong partnerships with information to demonstrate the individual clinical and public
methods, alternative age-verification processes are
technology service providers, as well as with the health benefit of our smoke-free products.
applied—including face-to-face age verification on
owners of various software applications. Our teams
delivery by couriers or at collection pick-up points. Jorge Insuasty, President, Vectura Fertin
continue to engage with the leading hardware Pharma and Chief Life Sciences Officer
Enhanced electronic age-verification technology and software players in these industries, to ensure
Beyond our existing youth access prevention that the most robust and best-in-class technology
programs, we continue to develop technology is available for PMI’s smoke-free products.
to minimize unintended use and prevent youth
Based on the New Zealand and Corsica pilot
from initiating or using our smoke-free devices.
learnings, its benefits and challenges, during
An example of this is our proprietary age-
2022 we will continue to develop and test a We achieved remarkable progress in 2021 A clear consideration to improving access of adult
verification technology embedded in our VEEV
range of age-verification technologies, with a and have ambitious plans for 2022, including smokers to smoke-free products is affordability,
products. To test its efficacy, we began a pilot in
focus on online age-verification. We will utilize expanding and improving our product portfolio particularly in low- and middle-income markets.
2020, testing this technology in New Zealand,
these current and future learnings to guide our with a broader range of taste, price, and We plan to introduce a new heat-not-burn
which continued during the first half of 2021.
ambitions and assess our targets, remaining technology choices. We will continue to make device to expand the access for consumers in
This specific form of age-verification technology steadfast in our commitment to prevent access our heat-not-burn and e-vapor products available the medium and below segments in emerging
required the consumer to prove their age with to these products by unintended audiences. in additional markets. Building on its success in markets towards the end of 2022. This will be a
reliable online data, in order to be able to unlock, and Japan and Switzerland in 2021, we look forward simple, convenient, and affordable proposition
thereby activate the device prior to first use. If the to launching the latest generation of our heat- that can cater to local taste preferences without
device was not linked to an age-verified consumer not-burn product, IQOS ILUMA, across additional compromising on harm reduction. We believe
profile, the device would then remain blocked and markets over the coming years. Moreover, with this product can also help address the lower
unusable. On the contrary, once unlocked, the the acquisition of AG Snus and its Shiro nicotine price segment in developed countries.
device would be activated and the adult consumer pouch and Kapten snus brands in May 2021
We will continue to design and deploy a suite
would have the ability to lock and unlock it—at we have grown PMI’s capabilities and expect
of effective tools to ensure that our smoke-free
their convenience—to prevent unintended use. additional product and market launches in 2022.
products reach only the intended audience: adults
who smoke or use other nicotine products.
Stefano Volpetti, President, Smoke-Free Products
Category & Chief Consumer Officer
88 89
Researching and developing smoke-free alternatives Building on our company’s investment and
that are scientifically substantiated to be less expertise in aerosol chemistry and physics, device
harmful than cigarettes was the first step in our technology, clinical research, and best-in-class
journey to address our biggest negative externality: preclinical safety and inhalation models, we are
PRO D U C T I M PAC T
the impact of cigarette smoking on health. In the developing innovative and differentiated products
Seek net positive impact in

process, we have expanded our social, human, for unmet patient and consumer needs.
intellectual, and manufactured capital in ways that
Work is collectively overseen and delivered by Life
allow us to go a step further and develop products
Sciences, together with other teams such as Strategy,
wellness and healthcare

that seek to be better than “less harmful.” The aim
Finance, and Sustainability. Following PMI’s 2021
now is to use this capital to develop significant
acquisition of leading innovative companies Vectura,
growth opportunities in wellness and healthcare.
Fertin, and OtiTopic, we are joining forces with
We are now able to expand our purpose (read our these organizations’ experts in consumer health and
We are striving to become a company that has a net positive impact on society. Statement of Purpose). The critical next step in pharmaceutical to accelerate progress and propel our
PMI’s transformation is leveraging our expertise capabilities in wellness and healthcare. Read in this
Therefore, we are expanding our offerings to include products that will address
and capabilities to expand into products beyond case study how we see our company’s value creation
critical unmet consumer and patient needs within the health and wellness space, tobacco and nicotine as part of a natural evolution model evolving as the newly acquired companies
moving from a value proposition centered on doing less harm toward one into a broader wellness and healthcare business. strengthen PMI’s human and intellectual capital.
where we contribute to society in positive ways. Our strategy is built on two key growth areas: (1)
Although we are at the beginning of this journey,
wellness products, where we are developing and
the aspiration to generate at least USD 1 billion in
looking to commercialize scientifically substantiated
annual net revenues from wellness and healthcare
consumer health products and solutions with the
products by 2025 showcases both our strong
aim to improve people’s lives; and (2) healthcare
commitment to furthering the transformation
products, where we have already committed
of our company and our deep belief in the
resources to a development pipeline of over-
opportunity these adjacent avenues of growth
the-counter (OTC) and prescription products.
can bring in the long term, leveraging our ability to
PMI’s innovation in wellness and healthcare is monetize the skills and assets we have accrued and
CONTENTS
part of a larger transformation that puts science, developed in the process of our transformation.
technology, and sustainability at the heart of
To achieve this objective, we will rely on and
93 Research and development: our company’s future, delivering products and
expand upon our existing core capabilities,
new initiatives and initial focus solutions that aim to improve people’s lives and
seek partnerships with entrepreneurs and
94 Strategic acquisitions deliver a net positive impact on society.
companies that have the proper experience and
96 Venture funding credibility in relevant fields, and keep a strong
focus on specific benefit and disease areas.
97 Looking ahead
Our aspiration To demonstrate the seriousness of our

endeavor and the strategic relevance of this
aim, we introduced a new topic, “Innovation
≥USD 1 bn
in wellness and healthcare,” to our 2021
SI sustainability materiality assessment process,
following the introduction of this new
aspiration, which complements our Business
At least USD 1 billion in net revenues
generated from wellness and healthcare Transformation Metrics and 2025 Roadmap.
products by 2025
SI Sustainability Index
90 91
For example, in the inhaled therapeutics space, there Another area of interest is smoking cessation Research and development:
Seek net positive impact in wellness and healthcare
are significant unmet patient needs for fast and products, known as nicotine replacement
effective treatments in cardiovascular (e.g., myocardial therapies. We see an opportunity to provide
New initiatives and initial focus
infarction), neurology (e.g., migraine and chronic more effective solutions via consumer, OTC,
pain), and allergies that can be served via innovative and prescription pathways over time.
solutions. One of those solutions could be inhalable During 2021, 99 percent of our adjusted R&D Building upon these scientific capabilities, our
2021 was a pivotal year during which we
acetylsalicylic acid (commonly known as aspirin) for expenditure was allocated to our smoke-free business R&D investments seek to support our company’s
kicked off our wellness and healthcare
the prevention and treatment of myocardial infarction. and to innovation and pipeline development in the scientific and business strategy for the new wellness
strategy across three fronts:
We also see promising opportunities for chronic pain wellness and healthcare business. More concretely, and healthcare business, focusing on inhaled
management treatment with medical cannabis. 1. Continuing to invest in research and development
92 percent funded PMI’s internal scientific research drug delivery, botanicals, and consumer health.
For consumer and OTC wellness products, areas 2. Expanding our business via strategic acquisitions and development related to tobacco harm reduction,
We dedicated our May 2021 Scientific Update
such as sleep, energy, focus, and calm have while 7 percent was invested in innovation and
3. Financing innovation with our to examining the capabilities our research on
shown to be of high interest and are areas of pipeline development and expanding R&D capabilities
venture capital fund smoke-free products has given us and discussing
high unmet need. For example, we are evaluating to serve the wellness and healthcare business.
how we can apply those capabilities to develop
promising applications for cannabidiol (CBD) in Over the past decade, we have developed the new research initiatives and products.
some of these areas, notably through oral delivery, ability to combine scientific excellence with
as safe CBD dosage levels are being defined commercial rigor to continue elevating our business
by regulators, informed by clinical studies. transformation. Our expertise in inhalation science
and scientific assessment in that space can be
effectively repurposed to help address pressing
needs in the wellness and healthcare sector.
Over the years, many researchers in the field of harm reduction have asked us why
we are not using our knowledge in aerosolization and inhalable devices beyond the
tobacco harm reduction space. This was the right question to ask, and building upon
the research expertise and knowledge we’ve gained from developing and assessing
smoke-free products, we are in a really good position to work on, for example, inhaled
therapeutics. This method of delivering medicines is not as well developed or as widely
used as taking oral delivery forms such as a pill or a liquid. But delivery through the
lung can become important for society because it has advantages over the traditional
medication delivery methods and can address some of today’s unmet medical needs.
Medicines delivered via the respiratory tract allow a much more rapid onset of the
drug effect and potentially reduce side effects due to the lower dose that might be
needed—for example, compared with taking a pill. It’s similar for botanicals: We know
how to work with plant substrates, and we know how to aerosolize and assess botanical
products. In short, we are leveraging the areas where we have strong research and
technology expertise to strengthen our business while making a difference for society.”
Patrick Picavet Vice President New Business & Chief of Staff
92 93
Strategic acquisitions Within the context of our new wellness and

healthcare business, Vectura is well-positioned to

address this market growth while becoming the
backbone of the inhaled therapeutics arm. PMI has
made a clear commitment to advance Vectura’s
To complement our in-house science and innovation This speed is unprecedented and can have significant existing strategy, expand it geographically, and
capabilities, we made solid progress during 2021 implications for reducing the risk of morbidity extend the company into the development of
on our “Innovation in wellness and healthcare” and mortality. Cardiologists agreed that the rapid proprietary inhaled therapeutic products, alongside its
strategy with the acquisitions of three innovative and drug exposure and PD effects would be beneficial, existing CDMO business. This will benefit Vectura’s
forward-looking companies that we are excited to join especially during the time before the patient arrives differentiated technologies and development
forces with and that will form the backbone of our at the hospital. In the U.S. alone, someone has a expertise for the delivery of complex inhaled
purpose and new wellness and healthcare business. heart attack every 40 seconds. With its inhalable therapeutics and will enable us to bring our initial
version of ASA, OtiTopic has developed an asset pipeline of inhaled therapeutic products to market.
In August, we announced the acquisition of
that promises to have a much faster onset of effect Important to note is that we will be focusing on
inhaled drug specialist OtiTopic, a U.S. respiratory
compared with oral ASA. PMI looks forward to innovating in the method of delivery of existing
drug development company with a late-stage
completing the planned ASPRIHALE® registration approved and permitted molecules rather than
inhalable acetylsalicylic acid (ASA) candidate for
program and bringing this important treatment to on traditional new compound research, while
the prevention and treatment of acute myocardial
market to address a significant unmet medical need always having the demands of physicians,
infarction. ASPRIHALE® is a patented, dry
in a clinical condition where every second counts. payers, patients, and consumers in mind.
powder inhalation ASA, delivered through a
unique self-administered aerosol. It is designed for In September, we announced the closing of the
patients at risk of heart attacks. In clinical trials, acquisition of Fertin Pharma, a leading developer
ASPRIHALE® catalyzed peak plasma concentration and manufacturer of innovative pharmaceutical
and pharmacodynamic (PD) effect in two minutes and well-being products based on oral and intraoral
due to its inhalation approach, compared with delivery systems. With Fertin Pharma’s substantial
the 28 minutes coated chewable aspirin took. know-how and oral delivery platforms, we plan to
develop scientifically substantiated consumer health
products, including over-the-counter solutions and
supplements for better living in areas such as sleep,
Repurposing the tobacco plant beyond nicotine
energy, calm, and focus. By serving as a critical pillar
of the new wellness and healthcare business, as In 2021, the Quebec City-based biopharmaceutical Using a plant-based approach is relatively new but
part of PMI’s transformation, Fertin will be uniquely company Medicago—in which PMI has a has advanced rapidly in the past decade. For its
positioned to continue to innovate and grow— minority shareholding—applied for Canadian COVID-19 vaccine, Covifenz, Medicago is using a
delivering on our vision of enabling people to live approval for its COVID-19 vaccine candidate. virus-like particle grown in Nicotiana benthamiana, a
healthier lives. Our shared commitment to science close relative of the tobacco plant. This world-first,
and consumer-centric innovation forms a strong basis Medicago is a leader in proprietary plant-based
plant-derived COVID-19 vaccine was approved by
for a very successful future together. Fertin will also technology that uses virus-like particles (VLPs) to
Health Canada in late February 2022 and will be
continue to grow and serve external customers as develop protein-based vaccines instead of relying
available in the country for adults aged 18 to 64.
a leading contract development and manufacturing on animal products or live viruses. Virus-like
company (CDMO) in the oral formulation space. particles are used to create plant-based vaccines, Due to the close alignment of its own R&D and
which mimic viruses, enabling the body’s immune the potential synergies with this pharma company,
Furthermore, we acquired Vectura, a leading specialist system to recognize them and create an immune PMI acquired a stake in Medicago in 2013,
inhalation CDMO that provides innovative inhaled response. But they lack the core genetic material and currently holds approximately 23 percent
drug development solutions to help clients bring of a virus, so they are not infectious and cannot of the company’s shares, as part of a wider
inhalable medicines to patients. The market for replicate. Medicago’s technology only requires push into wellness and healthcare products.
inhaled therapeutics is growing rapidly outside the the genetic sequence of a viral strain, not the live
traditional spaces where inhalable medicines have virus itself. So, the company can mass-produce
been used over the years, focusing on specialty a therapy to attack a pandemic infection like
disease areas with high unmet medical need and COVID-19 soon after health officials identify it.
hence with significant potential to expand into new By comparison, traditional vaccine development
application areas beyond the current market offering. in chicken eggs takes six to nine months.
94 95
Venture funding Looking ahead

We announced plans in October 2021 to dedicate PMEP is focusing its investment activities to
a further USD 200 million to minority investments support PMI’s strategy in life science and wellness,
in early- and growth-stage companies through industrial technologies, product technologies, Our vision for the wellness and healthcare business is to develop best-in-class
PM Equity Partner (PMEP), our corporate venture impact investing, and consumer engagement consumer health and inhaled prescription products that will improve people’s
capital arm. This allocation follows a 2016 technologies. Through early- and growth-stage lives and address some of today’s significant unmet needs. With the acquisition
commitment of USD 150 million, which PMEP has investments, PMI will leverage its strengths to of Vectura, Fertin, and OtiTopic, we have brought the technology platforms and
since fully invested, and is intended to support help invested companies translate innovation talent on board that—combined with our scientific knowledge in preclinical safety,
PMI’s smoke-free and beyond nicotine ambitions. into commercial success. Learn more here. clinical, and regulatory—have laid the foundation for PMI to evolve into a broader
PMEP is focusing its investment activities on wellness and healthcare company. Vectura and OtiTopic will form the backbone
four distinct technology segments, investing of our ambition in the inhaled therapeutics and inhaled consumer health space,
in innovative and agile companies to drive where we have developed an initial pipeline of products that aim to bring revenue
and accelerate transformation at PMI: as of 2024. Fertin, with its differentiated, modern oral formulations, will become
the driving force behind our ambitions in the self-care wellness space. In addition,
• Life science innovations, such as inhaled we have brought on board senior leaders and other talent from the pharmaceutical
therapeutics and computational research and consumer health industry who will help us turn our ambition into reality.
methodologies. Portfolio companies, including
Jorge Insuasty, President, Vectura Fertin and Chief Life Sciences Officer
Biognosys (next-generation proteomics) and
Biofourmis (AI healthcare), reinforce the active
role of PMEP in this space. In addition, PMEP
scouts substantiated self-care wellness companies
in areas such as sleep, energy, calm, and focus.
• Industrial technologies such as robotics
and automation, the internet of things, and
technology-based process optimization.
• Product technologies, particularly those that
relate to inhalation and aerosolization, chemical Our scientific and technological leadership has enabled us to reinvent our
formulation, and biometric authentication. company in our pursuit of a smoke-free future. We will continue our journey,
aiming to generate at least USD 1 billion in annual net revenues from products
• Consumer engagement technologies, such as user
in wellness and healthcare by 2025, by leveraging and integrating recent
identification and age authentication, innovative
acquisitions that give us the capacity to keep developing in areas that have net
customer care, and experience management. For
positive impact. These acquisitions further highlight that our long-term plan
instance, the portfolio company BOW Group
is equal parts solid strategy, strong financials, and best-in-class sustainability
is actively involved in driving PMI’s consumer
performance. Through our venture capital arm, we also plan to invest in and
engagement with its products and technologies.
closely follow up on early- and growth-stage companies focused on life science
innovation, industrial technologies, product technologies, and consumer
engagement technologies that can help us propel progress on our purpose.
Emmanuel Babeau, Chief Financial Officer
96 97

At PMI, we believe we can and should play a Beyond ecological considerations, inadequate
role in reducing waste from our products and post-consumer waste management and litter
PRO D U C T I M PAC T addressing the issue of littering by helping carries societal and financial impacts ranging from
develop and scale up innovative solutions. cleanup costs to perceptions of untidiness and
Reduce post-consumer waste

reduced safety in areas with high litter prevalence.
Reducing and appropriately managing post-consumer
Appropriately addressing post-consumer waste
waste means we can extract, convert, and use
helps us enhance our brand equity and company
fewer raw materials from a planet with limited
reputation and meet consumer expectations.
natural resources. Moreover, committing to the
Beyond our primary focus of replacing cigarettes with less harmful alternatives safe and responsible disposal of this waste is the
It also allows us to mitigate implications for our
for adults who would otherwise continue to smoke—thereby reducing bottom line, as producers increasingly are asked to
right thing to do, as we share society’s concerns
participate in cleanup costs, for instance. Finally,
the negative impacts of our products on the health of our consumers— regarding the impacts of litter—such as pollution
it motivates us to innovate in a way that can drive
we understand the need to address the environmental impact of our products and harm to wildlife. We recognize our role in
competitive advantage by devising more circular
working to preserve natural environments.
by embedding principles of circularity and eco-design, implementing value chains. These value chains are linked not only
effective post-consumer waste management solutions, addressing litter, and to less waste and less litter but also to better use
promoting responsible disposal of products at their end-of-life. of materials and higher operational efficiency—all
of which are good for our triple bottom line.
Devices Consumables Packaging
2022 100%
recyclable inner liners by year-end¹
CONTENTS
100 Our management approach 2023 70%

effective recycling rate
of our IQOS devices²
Progress in 2021
2025 ≥1 million SI
≥80% SI
100%
101 Focusing on plastic smoke-free electronic of shipment volumes covered of packaging made with
devices refreshed or repaired by markets with anti-littering recyclable materials
102 Addressing cigarette butt littering (cumulative since 2021) programs in place for
combustible cigarettes
105 Managing waste from our
smoke-free consumables 100% SI
≥80% SI
95%
of smoke-free electronic devices of shipment volume covered of packaging materials coming
109 Improving circularity of our introduced on the market as by markets with end-of-life from renewable sources
smoke-free devices of the end of 2025 that have take-back programs in place
eco-design certification for smoke-free consumables
114 Reducing and improving packaging
100% 15%
of PMI smoke-free product reduction of packaging materials
117 Looking ahead users have access to collection weight versus 2018 baseline
and recovery of devices
80%
effective recycling rate
of our IQOS devices²
1 For all markets where possible in compliance with local regulatory requirements.
2 Effective recycling rate is calculated based on the proportion of device sales volume covered by the CIRCLE hubs program
multiplied by the recycling rate of devices at the CIRCLE hubs (weighted average).
98 99
Our management approach Progress in 2021

Our intention is to preserve resources, reduce Our strategies and related initiatives are guided Focusing on plastic
waste, and prevent inappropriate disposal, including by a set of policies and principles, including
littering. We do this by designing our products with our Environmental Commitment, Anti-Littering As a global manufacturer, we source plastic materials and plastic-containing items for products such
the principles of circularity and waste reduction in Policy, and Sustainable Design Framework, as our consumables (e.g., our heated tobacco units and cigarettes), devices, and packaging.
mind, accounting for the products’ environmental complemented by specific internal guidelines. Globally in 2021, we purchased around 136,000 tons of plastic. The largest share was bioplastics used
impact at the early stages of development, and in the filters of cigarettes and heated tobacco units.
In 2021, to accelerate the delivery of a smoke-free
offering consumers solutions to play their part and
future, PMI established a new category management
dispose of end-of-life products appropriately.
structure for its smoke-free and combustible PMI’s 2021 plastic footprint
To reduce post-consumer waste across our cigarettes businesses. Our President, Smoke-Free Cigarette filters 55.8%
portfolio, we seek to design and implement Products Category & Chief Consumer Officer and Heated tobacco unit filters 25.6%
impactful strategies tailored to our various products our President, Combustibles Category & Global Packaging 17.8%
Cigarette ﬁlters 55.8%
and packaging and tied to specific targets: Combustibles Marketing are responsible for driving Electronic devices 0.8%
our agenda on post-consumer waste management Heated tobacco 25.6%
• Cigarettes: We aim to reduce cigarette butt unit ﬁlters
for their respective categories. Additional efforts Note: Plastic footprint is calculated excluding KT&G
littering by encouraging behavior change Packaging 17.8%
commercialized by PMI, e-vapor products, and nicotine
are steered cross-functionally. With regard to our pouches. In 2021, we adjusted our methodology to calculate
through impactful awareness-raising campaigns Electronic devices
our plastic 0.8%
footprint and incorporated additional primary
smoke-free products, we set up a dedicated cross- data.
and by empowering consumers to dispose of
functional governance board in 2021 which oversees
cigarette butts appropriately. We also intend
strategies and progress related to our device life
to tackle the issue at the source, continuously
extension and consumables end-of-life programs.
working to replace the plastic in filters with
better, more sustainable alternatives.
• Smoke-free consumables: As we grow our
smoke-free business, we seek to ensure that
the consumables used with our electronic
devices are disposed of responsibly at their
end-of-life and that users have access to take- One of our main end goals is to tackle the plastic For this initiative, we teamed with Litterati, the
back and recycling schemes that have an pollution caused by the littering of our products. leading anti-littering organization, who collected
environmental benefit, are economically viable, During 2021, as announced in our 2019 Integrated litter data in more than 50 cities in 40 countries
and are valued by consumers. Further, we strive Report, we focused on better understanding our and photographed litter items in various urban
to design new generations of consumables with global plastic litter footprint. To measure this, we environments. Data analyst CARTO then extrapolated
waste reduction and recyclability in mind. combined data for our company’s overall plastics the georeferenced data collected locally to provide
• Smoke-free electronic devices: To reduce the footprint with data collected from consumer behavior us with global figures. A deeper analysis of the litter
depletion of finite resources, we aim to integrate in different countries and for different products. prevalence data revealed insights useful in improving
sustainability into our product design, drive More concretely, for relevant plastic-containing our anti-littering campaigns. For example, our study
circularity by improving recyclability, and increase products that we market (including consumables uncovered that cigarette butt litter is more prevalent
opportunities to refresh and repair used devices. and packaging), we assessed littering rates through in commercial, business, and commuting zones and
consumer surveys in our main markets. We then lower in residential areas. Food, drink, and leisure
• Packaging: We strive to minimize packaging calculated the resulting amount of plastic being establishments, bus and train stops, and areas
materials and improve their circularity by increasing littered by product based on full year sales data illuminated at night all showed higher litter prevalence.
their recyclability and promoting the use of multiplied by plastic content and by littering rate. Customizing awareness campaigns to users in these
materials made from renewable resources. areas, therefore, can be more effective. Working
In addition, following a 2020 pilot in Portugal, we
in collaboration with these partners allowed us to
fine-tuned our model to broaden its application and
generate detailed litter prevalence maps for cities and
measure the prevalence of plastic litter resulting
countries worldwide that will inform future campaigns.
from our cigarettes and heated tobacco units found
on the ground.
100 101
The combination of these two exercises—calculating Addressing cigarette butt littering With behavioral change being one of the key elements
our global plastic litter footprint and the prevalence of of our strategy, we understand the need to develop
plastic litter resulting from our consumables—proved Around one million tons of cigarette filters and implement actions that respond to local realities
to be a valuable learning experience, which honed are produced annually across the tobacco and the socioeconomic and cultural specificities of the
our understanding of both the complexity of the industry.1 Although most are disposed of various places where we operate. With this in mind,
issue and the need for concrete metrics to measure properly post-consumption, too many are we included a new ambition and corresponding KPI
progress and guide our actions moving forward, casually littered into the environment. in our revamped 2025 Roadmap and Sustainability
in a way that can prove useful and impactful. Index: for markets collectively covering more than
Our approach
80 percent of our combustible product shipment
While our original intent was to leverage this
To tackle cigarette butt littering, we volumes to deploy meaningful programs tackling
methodology annually to monitor progress towards
apply a three-pronged approach: cigarette butt littering by the end of 2025.
decreasing the amount of plastic littered, the exercise
revealed limitations to this approach. Limitations 1. Design for circularity: Invest in R&D toward
Design for circularity
include the lack of reliable and standardized consumer filters made of more sustainable, plastic-free
behavior studies as well as the exacerbated reliance alternatives that allow faster biodegrading, From an environmental perspective, the ideal and
on assumptions and extrapolations which made the resolving the issue of plastic litter altogether. most sustainable scenario would be for our products
methodology unreliable, very expensive, and not very 2. Encourage behavioral change: Inspire change in to generate zero litter post-consumption. We
impactful. We also realize there is a need to establish consumer habits through impactful anti-littering continue to work toward this goal, seeking design
tailored and context-based targets, accompanied awareness programs and initiatives to empower options that avoid, or at least significantly reduce,
by detailed strategies and initiatives that can best consumers to dispose of cigarette butts properly. the polluting impact of litter. Our intention is to
encourage behavior change, prevent littering, and These initiatives include communications develop filters with a significantly lower environmental
support cleanup activities, while defining concrete campaigns and cleanup activities to raise footprint. We are aware that materials changes alone
and clear ways to both define success and be able awareness, partnerships, portable disposal will not solve the littering problem, but they may
to measure progress towards achieving it. Moreover, solutions, and improvement of public equipment help mitigate the environmental impacts of residual
working toward removing plastic litter highlighted solutions. littering by those consumers who do not engage in
the opportunity business can have in offering 3. Reduce litter on the ground through efficient and behavioral change driven by anti-littering programs.
opportunities for innovation to resolve systemic cost-effective collection schemes. In the EU, Any new filter material or design must satisfy
For many years, we have been actively investing
issues, like the one that relates to plastic litter. cigarette manufacturers will be required to stringent criteria:
in R&D to explore and assess the viability of
contribute to the costs of collecting and cleaning alternative cigarette filter materials that have a lower • Comparable filtration efficiency and
There is a pressing need for our R&D to support
up cigarette butt litter. The Single-Use Plastics environmental impact than cellulose acetate (CA), performance consistent with CA filters
ongoing efforts that holistically resolve the issue
(SUP) Directive requires that producers an already renewable and partially biodegradable
of plastic pollution, starting from its source. This • Acceptable taste characteristics and
participate in industry-wide Extended Producer material. We evaluate alternative filter materials
means finding ways in which we can reduce experience for consumers
Responsibility (EPR) schemes. EPR is an via extensive analytical testing, machinability trials,
the amount of plastic used across our devices,
established governance scheme for circular waste biodegradation evaluations, and prototype testing • Similar or reduced material carbon
consumables, and packaging through better design
management; it is now being used for the first among consumers to understand their acceptability. footprint compared with CA filters
and the use of more sustainable materials.
time in the EU to address the problem of littering.
• Substantial improvement in marine,
We support the concept of an industry wide EPR,
aquatic, and soil biodegradation compared
provided such schemes are managed in a cost-
with CA filters or a significant reduction
efficient, proportionate, and transparent way that What are cigarette filters made of? in the plastic content of the filter
addresses the objectives of reducing litter and
changing consumer behavior. The main constituent of cigarette filters is • Conduciveness to industrialization at scale
cellulose acetate (CA), a bioplastic made Over the past years, some tested materials
from wood-based cellulose. Contrary to have met one or more of the above criteria
common belief, CA does biodegrade over but we are yet to find an alternative to CA that
several months or years (depending on the satisfies all five. We will continue to explore
surrounding conditions) and does not accumulate options as new materials and processes become
in the environment over time. In contrast, available, and science and innovation evolves.
conventional plastics made from petrochemicals
In 2022, we plan to continue our exploration
take hundreds of years to degrade, often
and use consumer research to better understand
breaking down to form microplastics.
1 https://www.pmi.com/media-center/news/new-pmi-survey-finds- and validate consumer acceptance of alternative
encouraging-signs-in-cigarette-butt-littering-behavior-and-attitudes-
and-key-areas-to-address non-plastic filters in some of our key markets.
102 103
Encourage behavior change Our efforts to raise awareness focus both on Raising awareness globally Managing waste from
specific littering hot spots—such as high-traffic As in previous years, we had the opportunity
While many consumers dispose of their waste
urban areas, squares, and parks identified as in 2021 to join the annual World Cleanup Day
our smoke-free consumables
properly, too much waste ends up in the environment.
priorities by local authorities—and on reaching (where COVID-19 conditions allowed it). Our We seek to minimize the environmental impact of
We seek to help change behaviors to prevent
significant numbers of consumers to drive societal affiliates’ participation in this global action—the the consumables used in our smoke-free category.
cigarette butt littering and encourage proper
change. Insights gathered from our litter prevalence world’s largest litter cleanup event—is part of our These include the heated tobacco units (HTUs)
waste disposal. To that end, we run global and
assessment in 2021 will help further guide our public sensitization efforts and signals our broader used with our heat-not-burn products (including
local awareness and anti-littering campaigns.
work, allowing us to strategically focus on those commitment to tackle the issue of cigarette butt the HEETS brand used with IQOS 3 DUO and
areas with the highest incidence of littering. littering. While the pandemic limited many of the previous generations, the TEREA sticks used with
Tackling the issues of cigarette butt littering locally
events we had planned, around 3,150 volunteers the new IQOS ILUMA, and the Fiit sticks used with
Smoking habits, environmental awareness, and Cleanup campaigns are predominantly designed
across 53 countries (including PMI employees and lil devices), as well as the VEEV pods used with
disposal practices vary by country, so combating to raise public awareness of the littering problem
their friends and family members) actively contributed our e-vapor device. With each product launch,
cigarette butt littering requires tailored approaches. in the communities in which they occur rather
to picking up around 17 tons of litter. We added we will evaluate the need for a consumables
Accordingly, our affiliates follow a global methodology than resolving the problem of littering or replacing
a global challenge element to the activity through take-back program based on environmental
while also focusing on impactful, context-based more cost-efficient public cleaning services. For
a partnership with Litterati, whereby participants impact, consumer need, and market feasibility.
strategies appropriate for their respective markets. instance, in Canada, through a collaboration with
These local anti-littering campaigns are run by our could download a mobile app allowing them to log,
the Great Outdoors Fund in 2021, we supported Long term, we aim to reduce our post-consumer
affiliates, with central support and guidance. In tally, and share how much litter they collected.
20 local organizations with cleanup initiatives waste by design and explore low-carbon,
2021, we had active campaigns in 46 countries. involving more than 600,000 volunteers who We also further developed Our World Is Not recyclable, and biodegradable alternatives to
collectively donated over 10 million hours of an Ashtray, a web-based corporate platform to the materials currently used in our smoke-free
their time to gather 1,700 tons of litter. educate, inspire, and engage the public on the consumables. In the interim, we are focused on
issue of littering. Through this campaign, we share establishing services to help our adult consumers
facts and figures, testimonials, and calls to action. reduce the end-of-life impact of our products.
A few of our affiliates also use this platform as
The consumption and post-consumption behaviors
a basis for local awareness-raising initiatives.
related to our smoke-free products differ drastically
In 2021, we also continued the deployment of our from cigarette consumption. Unlike cigarettes,
C A S E S TU DY Marlboro limited-edition “Leave No Trace” pack, HTUs do not need to be stubbed out after use,
Partnering up to tackle the which communicates anti-littering messages to

adult smokers in 11 markets (2020: nine). During
and they contain no smelly smoke residues, which
makes them easier to keep until proper disposal
littering problem through the year, more than 30 million packs were sold at
more than 482,000 points of sale, and we estimate
and therefore less likely to be littered. In 2020,
we ran a survey in Lithuania to complement past
innovation in Mexico they reached more than 2.3 million adult smokers. studies in Greece, Italy, and Japan to measure the
proportion of HTUs versus cigarette butts found on
We also partner with civil society organizations the ground. In partnership with third-party experts
on cigarette butt collection projects as part of our at Cortexia, we then compared that figure with the
wider awareness-raising efforts and with a view to market share of HTUs versus all tobacco products.
developing viable recycling solutions for cigarette Across the three major cities in Lithuania, the
butts. For example, our affiliate in Mexico developed percentage of used HTUs among tobacco products
a comprehensive communication campaign that littered was between 2.4 and 4.5 times lower than
engages adult smokers and other citizens in helping their sales market share. This finding suggests that
to solve the problem of waste management. The a heated tobacco unit is on average three times
initiative has created a nationwide network of less likely to be littered than a cigarette butt.
volunteer ambassadors who bring communities
together to collect cigarette butts, with more than
400 collection points nationwide. The team has also
partnered with Ecofilter, an organization that has
developed an innovative biotechnological treatment
that regenerates cellulose acetate into cellulose pulp.
104 105
Deploying anti-littering and Our affiliate in Canada launched its smoke-free For the launch of VEEV in Finland in 2021, we
take-back programs recycling program at the end of 2021, partnering took into account the consumer expectation of
with TerraCycle and inviting consumers to return convenient recycling solutions for pods. Collection
To further mitigate the risk of littering, we have set
their used heated tobacco units, VEEV devices, points have been established in 470 locations around
an ambition as part of our revamped 2025 Roadmap
and any branded vape pod (including VEEV) the country. We also provide reusable collection
to implement context-based, impactful anti-littering
at more than 120 convenient locations. pouches to consumers for greater convenience.
programs to collect and manage post-consumer
waste from our smoke-free consumables in markets
representing at least 80 percent of our smoke-free
shipment volume by the end of 2025. We will report
In March 2021, our affiliate in Mexico
our progress annually against this new KPI. The
launched its take-back program for HTUs,
programs align with global requirements to ensure
with special collection bags made available to
consistency and comparability over time but are
adult users at IQOS stores. The heated tobacco
adapted to deployment realities in each market.
units are then processed by our partner
In 2021, we piloted such programs in nine markets— Ecofilter using an innovative biotechnological
including those featured on the right—allowing us treatment that regenerates cellulose acetate
to gather valuable insights for a global rollout. into cellulose pulp. Read more in the case
As these pilots unfold, we will continue to monitor study available here. By year-end, more
their progress and share learnings globally. than one in 10 adult users was returning
The insights and improvement opportunities their used consumables to the stores.
will fuel the rollout of consumables take-back
and recycling programs globally by 2025. “The partnership between Ecofilter
and Philip Morris Mexico is a clear
example of how our commitment
to sustainability and to a smoke-free
future are one and the same. With
collaboration among stakeholders,
vision, leadership, and resources, in In Guatemala, we provide cornstarch resealable In Switzerland, at the end of 2021, we launched a
addition to science and technology, bags in which consumers can place their used HTUs pilot take-back and recycling program for heated
and return them to collection points across the tobacco units. Adult users of our smoke-free
a lot can be achieved, and we will
country. Meanwhile, in Costa Rica, consumables products can now collect HTUs in special bags
deliver a smoke-free future.” have been collected since December 2021 and used and return them to our IQOS branded stores in
Andrzej Dabrowski, Managing Director, PM Mexico for ongoing research by the Chemical Regency of person or via mail. We then send the collected
the University of Costa Rica. Various alternatives for HTUs to our recycling partner, TerraCycle.
recycling are currently under evaluation, including the
production of biochar, a soil improvement solution. “We are very excited to pilot this
innovative program for heated tobacco
“Consumers have responded
units in Switzerland, where sustainability
very well to the opportunity to reduce
plays an important role in day-to-day life.
their footprint and contribute to
The HEETS and TEREA take-back program
protecting the environment. We are
is only a first step toward reducing the
convinced that we must face great
waste generated by our products and
challenges together in this ambitious
is an expression of both our care and
journey for a more sustainable future.”
of our commitment to our consumers.
Susana Vásquez, Director, External Affairs,
PM Central America Markets
Sustainability is at the heart of PMI’s
transformation, and we look forward
to growing and evolving the program.”
Alina-Virginia Frincu Director, Marketing and Digital,
PM Switzerland
106 107
Introducing the innovative bladeless SMARTCORE INDUCTION SYSTEM™

Improving circularity of our To manage the end-of-life of our electronic devices,
our centralized CIRCLE hubs inspect, process, and

—IQOS ILUMA and TEREA sticks smoke-free devices separate materials for recycling. We continue to
By integrating sustainability considerations grow the capacity of these hubs, also implementing
At the heart of the SMARTCORE INDUCTION As we continuously work to enhance the
into our product design—from development repair and refresh capabilities, and to expand their
SYSTEMTM is a metal heating element, coated environmental profile of our products and support
to end-of-use—we can reduce environmental coverage by onboarding new markets. In certain
with stainless steel and placed at the core of the our littering reduction targets, the absolute weight
impacts as well as associated costs. instances (e.g., in the case of challenges related to
TEREA tobacco sticks. The heating element has of plastic content in TEREA sticks was reduced by
cross-border transportation of electronic waste),
been specifically designed to heat TEREA tobacco approximately 45 percent compared with HEETS. Our approach we will complement our centralized approach
sticks from within and release the taste of tobacco To further support our littering reduction ambition,
At PMI, we are committed to understanding and with local solutions. We expect to leverage the
consistently throughout the entire experience. the consumables end-of-life program, designed
managing environmental impacts across our entire learnings from our CIRCLE hubs to guide and
This technology allowed us to remove the heating to promote responsible post-consumer waste
value chain, including the life cycles of our products. centrally govern such local solutions, ensuring
blade from the ILUMA device, which simplified the management, is included in the TEREA launch and
Improving the sustainability profile of our smoke-free they are aligned with our standards and support
insertion and extraction experience, improved roll-out plans, giving adult consumers a user-friendly
products is particularly important as we continue progress toward our global recycling targets.
the consistency of each stick performance, and way to collect and return their used consumables
eliminated the need to clean the device. The to us for responsible disposal or recycling. to deliver technologically advanced products for
Embedding eco-design principles into
combination of consistent and satisfying taste adults who would otherwise continue to smoke or
our products
experience with the ease of use and lack of need use other nicotine products. These products are at
to clean the device creates a compelling value the heart of our transition to a smoke-free future. Each product generation we launch
proposition to further accelerate conversion of incorporates improvements in quality, ease
With respect to our smoke-free product
adult smokers, advancing tobacco harm reduction. of use, durability, or performance.
devices, our 2025 eco-design and
circularity ambitions are as follows:
Durability by design
• Provide access to device collection In 2021, we started the commercialization of the
and recovery to all IQOS users latest generation of our heat-not-burn devices, under
Innovative metal
heating element, the IQOS ILUMA brand. These bladeless devices offer
coated with stainless
• Continue to reduce the carbon footprint
Air-flow chamber that a cleaner way to heat tobacco from the core, without
steel and placed inside ensures that just the right of our smoke-free products in line
the tobacco stick amount of aerosol passes burning it, to provide a more consistent experience,
with our science-based targets
Front seal that keeps
through the stick for a no tobacco residue, and no need to clean the device.
satisfying and easy draw
the holder clean • Achieve eco-certification for all PMI This supports our objective to design products with a
after use and ensures smoke-free electronic devices introduced prolonged life cycle and to mitigate potential returns
easy insertion and
extraction of the on the market as of the end of 2025 due to consumer complaints. Further, it allowed us
tobacco stick to minimize product accessories thus reducing the
• Pursue improvements in areas such as
durability, design for repair, and recycling amount of resources and materials used, as cleaning
sticks and other tools are no longer needed.
Meeting these goals relies on a systematic approach
that considers sustainability from the start of the Reducing our product carbon footprint
product development process. Our work is guided In general, our smoke-free products have a higher
by our Sustainable Design Framework, which carbon footprint than combustible cigarettes. This
accounts for impacts related to materials selection is primarily due to the inclusion of an electronic
and sourcing, components production and product device, which involves new components and
manufacturing, distribution, use, and product end-of- requires electricity to charge. Additionally, the
life. The guidelines are embedded into our innovation process used to manufacture consumables such as
Cooling plug, made
of cellulose acetate, stage-gate processes, and we continually reinforce our HTUs is more energy intensive than for cigarettes
Protective
paper wrap
that cools down the requirements and principles at each design stage gate. due to the production of cast leaf tobacco.
Tobacco part, made of a aerosol temperature
finely ground and specially We are working to reduce the carbon footprint
prepared tobacco blend
of new versions of our smoke-free products
compared with previous ones through improved
manufacturing processes, extending the usable
Note: IQOS ILUMA is designed to be used only with TEREA SMARTCORE STICKS. IQOS ILUMA and TEREA SMARTCORE STICKS must not be
used with previous generations of IQOS, as this may damage the device. As TEREA SMARTCORE STICKS contain a sharp metal part that can
life of our electronic devices, and decreasing the
cause serious injury if swallowed, they must be kept out of reach of children and pets, and must not be ingested or disassembled. total carbon footprint through smart materials
selection and sustainable design practices.
108 109
We use life-cycle analysis (LCA) to assess the carbon Eco-design certification Extending smoke-free product life cycle Preserve through proper device care
footprint of our products, from tobacco sourcing to Product eco-design certification can drive performance The first pillar of our work is device life
We strive for our products to last and increasingly aim
device end-of-life impacts. This analysis applies to by raising the standards to pursue and provide extension through better care.
to refresh and repair them so they stay in use as long
IQOS devices, heated tobacco units, and packaging. comprehensive information to consumers, enabling
as possible. Achieving this starts with imposing high We strive to help users of smoke-free electronic
them to make more sustainable product choices when
In 2020, we finalized the results for our new standards of quality and reliability (read more here) products look after their devices so they serve
switching from cigarettes to smoke-free products.
heat-not-burn product, IQOS ILUMA, which and extends to proper care, steps to refresh, repair, them longer and to encourage them to return
In 2021, we conducted an in-depth assessment of
we launched in two markets in 2021. and refurbish devices, and recycling. In other words, the devices to us after use so we can give
certification schemes and established a roadmap to
we are evolving from a collection-for-recycling model them new life via a refresh, repair, or recycling.
IQOS ILUMA represents a new generation of meet our ambition of having all smoke-free electronic
to a collection-for-recovery one. This means we need We seek to minimize consumer pain points
products and therefore sets a new baseline for devices launched as of the end of 2025 eco-design
to develop criteria to facilitate the product triage with simple tips pertaining to regular device
carbon footprint. It comes with new induction certified. We also established a dedicated committee
needed to expand our refresh and repair capabilities. cleaning at home or professional cleaning in
technology and quality improvements that address composed of senior leaders from our Product team.
our boutiques, software updates, and proper
consumer pain points and aims to prolong the In this context, we have identified the following
Smoke-free products—and heated tobacco products, charging. These simple actions help reduce
product life cycle, hence reducing its environmental key dimensions to be addressed: (1) collection and
in particular—are a relatively new product category. the number of devices ending up as waste.
impact over time despite a slightly higher carbon triage of devices, distinguishing between those to
As such, they typically are not covered by existing
footprint than previous device generations that be recycled and those to be refreshed or repaired; Building on this work, we are leveraging processes
eco-design certification standards. Accordingly, we are
were based on blade technology. We strongly (2) refresh and repair capabilities that meet quality and tools in our sales channels (e.g., our stores,
implementing a two-pronged approach. Ultimately, we
believe that IQOS ILUMA will be a key driver to requirements; and (3) re-marketing of products. e-commerce websites, and IQOS coaches)
seek to develop and implement new category standards
support our smoke-free future objectives. to prolong the life of our devices and avoid
as necessary to achieve our certification goal. In the The first two pillars are highly interdependent, as the
e-waste through appropriate device care.
We aim to drive continuous improvement in shorter term, we are working to identify other ways to criteria and procedures for device triage are linked
future product generations. To this end, we have publicly disclose the sustainability performance of our to the extent of our refresh and repair capabilities. These efforts include avoiding unnecessary
designed assessment guidelines to further embed products through structured disclosure programs. As these capabilities will strengthen over time, the product replacements through proper device
sustainability (including carbon-related) considerations triage model will also evolve, allowing a greater diagnosis and streamlined procedures for returns,
A prerequisite to achieving our product eco-design
in the early stages of the development process. proportion of devices to be refreshed or repaired. warranties, and loyalty programs. In 2021, we
certification ambition is to continue cascading
We will start applying those guidelines as part of maintained or expanded several service-based
our criteria for sustainable design and integrating
our roadmap toward eco-design certification. solutions aimed at extending product lifetimes
eco-design certification requirements into our
through device optimization and maintenance.
materials selection and development processes.
Life-cycle assessment: Comparison of some PMI products (kgCO2e/year)
37
36 36
Supply of raw Manufacturing Commercialization Use Disposal
33 materials & process
32 32
components
24
19 Returned
devices
Preserve
Proper device care
Second life
Product refresh
or repair
IQOS 2.4+ IQOS 3 IQOS 3 IQOS 3 IQOS ILUMA IQOS ILUMA IQOS ILUMA
Recycle
Multi VEEV PRIME ONE ILUMA devices back into
raw materials
Combustible Heat-not-burn E-vapor Heat-not-burn
cigarette blade technology product induction technology
This graphic is an internal assessment based on data compiled from three different LCAs and assumes 20 heated
tobacco units per day. Scope includes materials, manufacturing, and end-of-life, but excludes logistics.
110 111
For instance, we released a global campaign and In 2021, to build a foundation for our device Enhance circularity: device recycling We remain committed to maintaining a recycling
made a mobile application available for IQOS users second-life program, we conducted pilots to test For those broken or end-of-service products rate of above 80 percent for our smoke-free
in 18 markets that provides tips on how to use and the IQOS refreshed value proposition in several that cannot be given a second life, our reverse- devices in our CIRCLE hubs while gradually
clean the devices, as well as basic troubleshooting markets across Europe and Asia. In five of these logistics program helps to recycle materials back expanding coverage. As new hubs and products
instructions. We also installed firmware upgrade markets (Austria, Germany, Japan, Switzerland, into the economy. Our CIRCLE program provides are introduced, we will continue to improve
retail solutions in all markets in which our smoke- and U.K.), we collected and refreshed devices centralized hubs that inspect, process, and separate our recycling capabilities. We aim to increase
free products are sold to make device maintenance returned by consumers at the end of the device trial materials from our electronic devices for recycling. our effective recycling rate from 53 percent in
more convenient and support product life-cycle period (our lending program allows adult smokers 2021 to our target of 80 percent by 2025.1
Our CIRCLE hubs in Hungary and Japan continued
extension. Overall, the combination of device to test the product for a maximum of 30 days).
to drive excellence in e-waste management in 2021.
quality improvements and consumer-facing efforts Product refreshes do not involve replacing internal Accessories
The recycling rate of our products in these two hubs
contributed to reducing our device return rate components but, rather, swapping in new external As we progress with device recycling, we are
combined stood at 86 percent for the year
by around one-third in the past two years. components when damaged, deep cleaning, and exploring possibilities to close the loop by reusing
(78 percent recycling and 8 percent incineration
repackaging. We worked with our partners at our materials to produce new accessories for our
with energy recovery). We also continued expanding
Promote device second life: refresh and repair CIRCLE hubs in Hungary and Japan to apply triage
CIRCLE hub coverage, bringing the total to 14 markets products. For instance, we have designed a
We strive to establish commercially viable criteria. We determined whether each component
covered by our CIRCLE program at the end of 2021. collection of IQOS 3 accessories made out of
programs that offer a second life to devices merited recovery or recycling, primarily focusing on
This allowed us to achieve 63 percent market volume IQOS devices recycled in our CIRCLE hubs.
and cycle them back into the economy. the IQOS chargers and holders. We also considered
coverage globally (up from 48 percent in 2020) and The collection consists of four SKUs and will be
We are in the early stages of moving from a user documents, packaging boxes, and charging launched in three markets as a pilot. We expect this
progress toward our target of 100 percent by 2025.
collection-for-recycling model to a collection-for- cables. We refreshed around 62,000 devices during initiative to further encourage consumers to play
this pilot phase and resold them in eight markets Considering regulatory restrictions related to
recovery model, which will help us attain meaningful an active role in reducing post-consumer waste.
(the five pilot countries plus Malaysia, New Zealand, e-waste transportation, we cannot fully leverage
circularity. We took steps in 2021 to prepare and
and Portugal), either as a pilot or as part of the our recycling standards at the centralized hubs.
scale up capabilities at our CIRCLE hubs to enable
standard product assortment. Overall, the results Hence, we will further assess potential CIRCLE
the processing of devices for a second life. To guide
of the pilots, along with consumers’ direct feedback capabilities that may be implemented locally yet
us in this journey, we have set an ambitious target
and research insights, confirmed the validity and governed by central standards. In 2022, we plan
to refresh or repair at least one million smoke-
potential of the second-life concept and encouraged to define a set of consistent criteria to account
free electronic devices by 2025 (cumulative since
us to continue our journey toward circularity. for local solutions under our CIRCLE program.
2021). Key prerequisites of a successful second-
Nonetheless, our key objective remains to drive
life strategy include the ability to collect and The refreshed products were sold at
centralization of our efforts, as we believe this
sort devices, distinguishing between those to be lower price points than new ones and
approach can bring several benefits, including
recycled and those to be recovered, and to repair demonstrated high consumer satisfaction.
economies of scale, regional investment, illicit trade 1 The effective recycling rate is calculated based on the proportion of devices
devices according to quality and safety standards. covered by the CIRCLE program multiplied by the actual recycling rate of
Also in 2021, we piloted an extended collection prevention, and quality enhancements (accelerating devices at the CIRCLE hubs in Hungary and Japan (weighted average), to which
we add the theoretical recycling rate of the Russian CIRCLE hub, established in
of used devices from consumers in two markets: design and manufacturing improvements). late 2021, multiplied by the CIRCLE program coverage of the Russian market.
the Czech Republic and Slovakia. Our take-back
“ Considering that we launched program has been designed to accept returns of
any used devices consumers no longer want. We
IQOS in the Czech and Slovak deployed dedicated collection boxes across our
markets back in 2017, naturally IQOS retail network, covering 56 shops in the Czech
some of our customers possess Republic and 19 in Slovakia. We then sent the
returned electronic devices to the CIRCLE hub in
devices that have reached the end
Hungary for recycling. The initiative has been met
of their technological life cycle. with a very positive reaction from consumers.
We would like to motivate them One of our next priorities will be to expand the
not to throw the electronic collection of used devices via other consumer
equipment in mixed waste, but programs and increase their processing for
a second life. We plan to further expand the
rather to return it to us so that we program’s geographic coverage and will continue
can take care of it on their behalf.” to increase our refresh and repair capabilities.
Marta Barbara Keszczyk Head of Direct Retail,
PM Czech Republic and Slovakia
112 113
Reducing and improving To deliver on these commitments, we Reduce packaging Meanwhile, we achieved significant progress in the
employ a twofold strategy: packaging used for our smoke-free devices and
packaging Our first ambition is to decrease the volume
accessories. In 2021, we launched a new IQOS
1. Reduce packaging: We aim to eliminate of materials used in our packaging.
Our approach to packaging contributes ILUMA packaging without any plastic shrink film
unnecessary packaging, in particular plastic
significantly to our efforts to preserve We focus first on board, the primary material used or plastic window, leading to a 9 ton reduction
packaging, and to implement solutions allowing
and protect the planet’s resources. in our packaging. In 2021, we estimate that over in plastics used. Packaging materials efficiency
us to reduce the amount of materials used.
70 percent of the volume of board and paper we was also improved, with new packaging formats
We use packaging for all our products, 2. Improve circularity: To prevent the depletion
sourced for our packaging came from suppliers with being 40 percent lighter and 20 percent smaller,
including cigarettes and smoke-free electronic of finite resources, we seek to increase the
Chain of Custody (CoC) certified according to the representing 43 tons of fiber-based packaging
devices, consumables, and accessories. recyclability of our packaging and to reduce the
Forest Stewardship Council (FSC), Programme for reduction while keeping equivalent product
use of materials made from non-renewable
the Endorsement of Forest Certification (PEFC), protection. Those improvements have significantly
Our approach sources, in particular aluminum and non-
or Sustainable Forest Initiative (SFI) standards. reduced packaging carbon emissions for IQOS ILUMA.
We aim to develop solutions that minimize recyclable plastics.
Working with our major suppliers, we continued We also worked to facilitate the proper disposal
packaging materials and improve their circularity Fundamental to our efforts is integrating circularity
to roll out the replacement of the packaging of packaging by consumers. For instance, we have
without compromising protection and convenience. considerations into the sourcing of renewable
board used in our HTU and cigarette packaging stopped using magnets in our device boxes and
We are driving our approach through ambitious materials, minimizing packaging, and reducing end-of-
with a 10 percent lighter alternative. By the end are taking steps to replace plastic laminated board
commitments. We aim to achieve: life implications. In the design stage, for instance, we
of 2021, we completed some of the projects to achieve complete recyclability of our devices
• 100 percent recyclable inner prioritize the use of recyclable mono-materials and the
within our board weight reduction program, and accessories packaging in the paper stream.
liners by the end of 20221 reduction of the void inside the packaging to optimize
enabling us to save an estimated 8,500 tons of
transportation, both of which reduce the product’s Overall, between 2018 and 2021, we
• 100 percent of packaging made with board without compromising pack quality.
carbon footprint. To ensure circularity, the packaging reduced our total packaging materials weight
recyclable materials by 2025 should be easily recycled by consumers. This requires by 8 percent and are on track to meet our
• 95 percent of packaging materials made that a recycling infrastructure be available for the 15 percent reduction target by 2025.
from renewable sources by 2025 materials selected in markets across the globe.
• 15 percent reduction in packaging weight Our teams in the Consumer, Product, and
by 2025 (versus 2018 baseline) Procurement departments work together to promote
the various elements of circular packaging design.
For all markets where such a change is possible according to local regulatory compliance.
Use of materials in our packaging in 2021
1
Paper and board 90%

(Packs and bundles, inner liners,
Paper andcases)
shipping board(385,167 tons) 385,167 tons 90%
Packs and bundles, inner liners, and
Plasticcases
shipping
(Overwrap of packs and bundles, pouches,

Plastic 6%
seal innerofliners
Overwrap packsand
and labels) 27,793 tons
bundles,(27,793 tons) 6%
pouches, seal inner liners, and labels
Aluminum
Aluminum 1%
(Inner
Inner liners
liners (including
(including seal)
seal) and and other
other 2,444 tons 1%
tobacco
tobacco product packaging) (2,444 tons)
packaging
Other
Other
Inks and composite materials used in 12,193 tons3% 3%
(Inkstobacco
other and composite materials used in
product packaging
other tobacco product packaging) (12,193 tons)
114 115
Improve circularity In a few markets, we will have to continue using

Looking ahead
non-recyclable aluminum inner liners to comply

Acting on our commitment to eliminate non-recyclable
with local regulatory requirements. To mitigate
materials and increase renewable material use to
the environmental and social impact, we seek
95 percent by 2025, we set up a program to replace
to source certified aluminum from our tier 1
aluminum inner liners with paper versions. We also
suppliers. In 2021, 89 percent of the aluminum
are consumer-testing alternatives to plastic packaging.
used in our packaging was Aluminum Stewardship
Initiative (ASI) certified, either under the
Eliminating aluminum Leveraging the learnings of the pilot programs we We will continue to systematically implement
Performance Standard or the Chain of Custody.
Our combustible cigarettes and HTUs are launched in 2021, we will expand our responsible our sustainable design principles throughout
encased in an inner liner inside the pack. post-consumer waste management programs for our product development. Research will
Substituting non-recyclable plastic packaging
smoke-free consumables to the global level. We continue to identify technologies and materials
More than 85 percent of the inner liners in our Currently, the plastic wrap around our packs of
will continue to combat littering and work to that could enhance the overall sustainability of
packaging are recyclable in the paper stream (2020: consumables and secondary cardboard packaging is
develop products that further integrate eco- our smoke-free product portfolio.
74 percent), and we are committed to eliminating the recyclable but is not made from renewable sources.
design principles, driving significant waste
use of non-recyclable aluminum foil in all markets As we continue to refine our products, we
We are exploring the use of renewable alternatives reduction and addressing the issue at the source.
in which that is permitted by the end of 2022. expect iterations at the design stage to leverage
to plastic. We have received positive feedback from
We will also take steps to commercialize second- our eco-design principles and further support
consumer panels and plan to pilot a new packaging
life devices on a larger scale. First, we plan to our second-life program ambitions. Meanwhile,
solution in one or more selected markets in 2022.
expand the collection of used devices and further we will continue to rollout our CIRCLE program
test first-level triage processes (e.g., at our IQOS across the markets in which we commercialize
stores) while improving the recovery process and our smoke-free products, amplifying our reach
our repair and refresh capabilities. As these while maintaining high recycling rates.
capabilities will strengthen over time and new
As we move along in our eco-design
product generations will be more repairable by
certification ambition, we are engaging with
design, we expect an increasing number of
eco-labeling organizations to support product
devices to be sorted for recovery and second life.
category definitions for electronics and
Stefano Volpetti, President, Smoke-Free Products translate the insights into our product
Category & Chief Consumer Officer
development process.
Bin Li, Chief Product Officer
In 2022, we will continue deploying and

expanding cigarette butt anti-littering programs
across the countries in which we operate, in
coordination with key stakeholders and partners.
Meanwhile, we remain committed to
We will intensify our efforts to research and investing in R&D to find solutions that can
apply effective solutions to increase awareness successfully help us remove plastic from
of the littering issue among adult smokers, our combustible products, by exploring and
and we will continue to use our brands as assessing alternative filtering materials that
carriers of those messages when possible. can completely replace cellulose acetate.
Werner Barth, President, Combustibles Category
& Global Combustibles Marketing
116 117
I M PAC T
Foster an empowered and inclusive workplace 120
Improve the quality of life of people in our supply chain 144
Tackle climate change 162
Preserve nature 178
118 119

Equitable and fair conditions of employment are Our long-term business success relies on human
crucial for societal harmony and well-being and are capital in the form of the dedication, talent, and
O P E R AT I O N A L I M PA C T central to a sustainable and prosperous future for passion of our employees. It is essential for us
all. Effective talent attraction, development, and to provide a fair and inclusive workplace that
Foster an empowered
retention ensure employees can pursue professional upholds good working conditions and labor rights,
opportunities and contribute meaningfully to society. protects the health and safety of employees,
promotes their well-being, and offers opportunities
and inclusive workplace

By protecting and promoting equality, diversity, equity,
to grow and improve their employability.
and fair treatment—human rights that are essential
to unlocking social and economic development—we Investing in our people and providing meaningful
seek to instill in our workers a sense of belonging and employment helps us to recruit and retain
maintain an inclusive workplace culture. Moreover, by talented individuals, achieve high productivity
Our employees are drivers of innovation and the ambassadors of our purpose. ensuring that all people who work with us enjoy a safe and efficient operations in a context of rapid
We aspire to provide meaningful and fair employment, opportunities to grow, and healthy work environment and by attending to change, and deliver on our company’s purpose.
and a workplace that champions well-being and inclusion. their physical and mental well-being, we can positively Furthermore, we regard diversity as one of our
impact their lives beyond their time spent at work. greatest assets. We strongly believe that a more
diverse and inclusive culture better attracts
talent and improves decision-making, innovation,
customer orientation, and employee satisfaction.
CONTENTS
Maintain
100% <0.65 <0.3
of employees earning at collision rate in our fleet integrated Total Recordable
122 Our management approach least a living wage Incident Rate (iTRIR) for
PMI employees, contracted
Progress in 2021
≥30 Global employees, and contractors
(per 200,000 hours worked)
employee Net Promoter Score EQUAL-SALARY certification
123 Providing fair employment

125 Developing our human capital 2022 40% 100%
129 Protecting the health and safety of management positions of PMI employees covered by
held by women new parental leave principles
of our employees
132 Fostering diversity, equity,
equality, and inclusion 2023 32%
of senior roles held by women
139 Promoting mental health
and well-being
2025 70% SI
>70% ≤60%
of PMI employees with access to perception of psychological well- representation of any one gender
142 Looking ahead structured lifelong learning offers being among our employees in management positions
35% SI
≥60% ≥20%
of senior roles held by women representation of local talent in representation of Asian talent
the executive management teams in senior roles globally
of at least 80% of our markets
120 121

Foster an empowered and inclusive workplace
Our ambition is to be an employer of choice, Dedicated teams within our People & Culture Providing fair employment This dialogue occurs at local, regional (e.g.,
fostering an inclusive culture wherever we function—headed by our Senior Vice President, European Works Council), and global (e.g., the
operate in the world. This means ensuring that People & Culture, a member of our Company All employees, irrespective of role, location, IUF – International Union of Food, Agricultural,
our employees experience fair working conditions, Management—lead efforts on labor relations, type of employment, or length of service, have Hotel, Restaurant, Catering, Tourism, Tobacco
opportunities to develop skills and boost their talent attraction and retention, learning and the right to work under fair and just conditions. and Allied Workers’ Associations) levels.
employability, and a workplace that protects and development, performance management, and Treating people with respect and dignity is central
promotes their health, safety, and well-being. compensation. Our Chief Diversity Officer oversees to the fundamental principles that guide our
the development and deployment of strategies to business conduct and unite us as a company.
Our Guidebook for Success and its accompanying
foster diversity, improve inclusion, and promote
set of internal Principles and Practices guide the Maintaining sound labor relations
well-being in the workplace. Our Senior Vice
work of our teams globally. These commitments
President, Operations oversees the company’s Labor rights are an integral part of human rights.
and policies are complemented by various internal
strategy and performance on health and safety We are determined to uphold high diligence in Labor relations in times
guidelines, standards, and toolkits. These include
across our manufacturing sites, fleet, and offices. recognizing employee rights, fostering stable and of business transformation
our Workplace Integrity policy, which aligns with our
collaborative labor relations practices, and observing
Commitment to Human Rights and relevant standards We develop and deploy specific programs In 2021, we continued the organizational
high standards of employment. Constructive
of the International Labour Organization (ILO), and accompanied by tailored commitments restructuring of our Operations Center
engagement with employee representatives
our Health, Safety, and Security policy, as well as our and targets that allow us to track progress in Switzerland to bolster our company’s
serves as a bedrock of effective labor relations.
general commitment to promote and protect human and adjust our actions as needed. transformation. Following 2019 and 2020
rights in accordance with the United Nations Guiding We ensure our employees are informed of their developments, four additional central
We use training and communications to help
Principles on Business and Human Rights (UNGPs). rights by their local People & Culture teams, our functions, as well as Duty Free, underwent a
employees understand the standards and processes
Guidebook for Success, and related principles full reorganization—including a consultation
relevant to their roles and how to apply them in their
and practices—including our Workplace Integrity process. Over the past two years, 354 Swiss-
daily work. We use multiple formats and languages
policy—and collective labor agreements. based employees have been dismissed
to optimize our reach across the organization.
We are committed to respecting the rights of due to restructuring while more than 150
Employees can speak up about employment-
employees to form or join trade unions and other employees have been redeployed internally.
related concerns, ask questions, and recommend
employee representative organizations of their Moreover, 282 employees decided to opt
improvements to their supervisors, P&C
choice. Collective labor agreements govern many for the voluntary program offered in the
teams, our Ethics & Compliance function, or
of our employees’ terms and conditions at work context of the Swiss reorganization.
through our helpline. Read more here.
and may include arrangements pertaining to Organizational restructuring is a delicate
working hours, occupational health and safety, phase in a company’s life, as it affects people,
holidays, wages, and procedures for dispute processes, systems, technologies, business
resolution. In 2021, we had 77 collective labor areas, and functions. When facing restructuring
agreements in 34 countries, covering 61 percent initiatives in such a challenging, complex, and
of our employees (2020: 79, 34, 62 percent). ever-changing environment, putting people first
Workplace integrity principles at PMI is our priority. In October 2021, following an
As a global company, we consider it our duty to
ensure that our entire workforce, regardless of local extensive assessment, a decision was made to
We strive to maintain an environment that is inclusive, safe, and
or national standards, is treated fairly, respectfully, cease production at one of our cigarette factories
professional. We promote diversity, equality, and equity in our
and in line with our standards. We operate in multiple in Russia, PM Kuban factory, as of February 2022.
organization, ensuring that all employment-related decisions are
countries with widely varying legal employment Regrettably, 244 employees (out of more than
merit-based. We do not tolerate harassment, discrimination, abuse
standards. In those countries where the right to 3,200 people employed in our Russian affiliate)
or misuse of company assets or resources, violence, or the misuse of
freedom of association is restricted, we strive to were impacted; we were able to reemploy 98 of
alcohol or drugs. We do not engage in or condone child labor, forced
work with employees’ consultative committees and them at our other Russian production facility in
labor, or other labor abuses. We encourage effective engagement
other suitable mechanisms of representation. Izhora and other affiliates. All impacted employees
and dialogue with employees and their representatives.
received financial assistance, support from
We value dialogue with employee representatives employment experts, and training opportunities.
(e.g., trade unions and works councils) and regularly
engage with them and learn from best practices.
122 123
Providing fair compensation We plan to conduct a living wage assessment Developing our human capital For instance, in 2021, we developed a playbook
at least every two years and initiate actions as to guide managers throughout their journey, from
We are committed to upholding and Human capital encompasses, among other things,
necessary to ensure we continue to meet our hiring to managing growth and development,
promoting a fair and just workplace, rewarding employee knowledge, skills, know-how, good health,
global living wage commitment to our employees. supporting their teams, resolving issues, and
employees based on their performance. well-being, training and education. Attracting, recognizing superior performance. Equipping
Equal pay for equal work retaining, and developing employees is increasingly supervisors with such knowledge and tools is
Rewarding employees important in a time of demographic shifts, disruptions
At PMI, we understand equal pay for equal work essential to providing meaningful employee
Our employee-centered approach to benefits in the world of work, and business transformation.
as the baseline standard for gender equality, and experiences, fostering engagement, and boosting
aims to foster a high-performance culture. We provide employees opportunities to learn,
we have committed to regularly assess and certify PMI’s attractiveness as an employer.
Our employees are individuals with varying that our pay practices match our good intentions. develop, and contribute towards our ambitious
motivations, values, skills, experience, and purpose while at the same time adapting to
In 2019, we became the first company to earn global
employees’ evolving needs and expectations. Anticipating the needs of tomorrow
aspirations—each of which can change over time—
certification from the nonprofit EQUAL-SALARY
and this shapes our reward offerings. Our suite of
Foundation following an intensive quantitative and Managing the employee journey As PMI evolves and progresses towards its
compensation, recognition, and benefits programs,
qualitative review of our pay and related practices. purpose, understanding and sourcing critical,
platforms, and policies differs by location, taking PMI’s vision of a smoke-free future helps to
This independent certification verifies that PMI pays strategic, future-fit skills is essential. Strategic
into account local regulations, agreements, needs, attract and retain talent. The opportunity
men and women equally for equal work everywhere workforce planning enables us to proactively
and preferences. However, there are some global to contribute to achieving the company’s
the company operates. The original certification manage and deploy talent, address potential
elements, such as our Employee Assistance Program, purpose is compelling to many, as is the
was valid until April 2022 and we are proud to risks, and capitalize on opportunities to
and most programs incorporate bonus plans, life chance to make a positive societal impact.
confirm the re-certification, valid until March 2025. better manage talents in the longer term.
insurance, long-term sickness plans, retirement-
related arrangements, and paid leave programs. As part of the process, we conducted a Recruiting and retaining talent In 2021, we took steps to enhance our shorter-
quantitative compensation assessment in 2021 Our overall employee turnover rate increased term operational workforce planning. We
We regularly review our offerings to ensure
that confirmed that men and women are paid from 9.7 percent in 2020 to 12.0 percent in 2021.¹ piloted an internal online platform that allows
they continue to meet the evolving needs of
equally for equal work. Moreover, auditors from After a year marked by the COVID-19 outbreak in employees to join projects based on their
our workforce. For instance, PMI’s Smart Work
PricewaterhouseCoopers validated additional 2020, the increase in 2021 reflects our continued skills, interests, and availability. We want to
policy—which we began rolling out in 2021—offers
qualitative aspects regarding equality such as the business transformation, as well as broader help employees grow by applying their skills or
greater flexibility and hybrid work options.
commitment of top management to gender equality shifts in workforce trends and preferences. learning new ones in contexts different from
and equal pay, the objectivity of our P&C pay their day-to-day jobs. The platform was made
Upholding a living wage In 2021, we hired close to 8,400 employees
policies and practices, transparent communication, available to around 1,200 employees in our
We are committed to ensuring that all employees worldwide and filled almost one out of five open
and employee perceptions on these matters. Commercial function across 35 markets in 2021.
across the geographies in which we operate positions with internal candidates. Our internal
earn at least a living wage. Paying at or above Equal pay for equal work is a first step in recognizing careers market provides current employees with
living wage benefits employees, families, the value of women’s work and their contributions transparency and easy access to opportunities.
communities, and our business. It fosters talent to society. With this foundation in place, we are now It helps us to mobilize our diverse talents
attraction, retention, and productivity while working to close our broader gender pay gap (the across the organization and support the career
securing our social license to operate. average pay for women versus the average pay for growth and satisfaction of our employees.
men), including by achieving a better gender balance
A living wage, distinct from a minimum wage, Achieving a high retention rate starts with
at senior levels of the company (learn more here).
provides an employee with the means to enjoy a effective onboarding processes for new
decent standard of living, including the ability to buy employees. In 2021, we continued to improve
goods and services and accumulate savings. A living these processes and our employee induction
wage takes local living standards into account. program, which includes training related to the
We have worked with Business for Social business, how we create value, our products,
Responsibility (BSR), a leading sustainability and our approach to sustainable development. Performance and career development
consultancy, since 2018 to assess living wages We leverage a holistic approach to employee Performance and career development reviews
globally. In 2021, we undertook a global survey listening to capture the needs and expectations support the personal growth of employees
and analysis, which confirmed that we continue of our workforce during different moments and contribute to skills management and the
to pay at or above the living wage level for our in their career, such as onboarding, a change development of human capital within PMI.
employees everywhere we do business. This of position, or a promotion. This helps
assessment covered all our employees worldwide. us develop focused interventions.
1 In 2021, we updated our methodology to expand scope and cover employees
on long-term leave (over 30 calendar days); we have restated historical data
accordingly.
124 125
Following pilots in 2020, we expanded our new Our training is delivered through our global e-learning We also launched two new global For example, our digital language learning program is
performance management program in 2021 to cover platform, FUSE. By the end of 2021, around pathways for key talent groups: available to all employees worldwide. As of the end
all managerial positions worldwide (representing 75 percent of our workforce had access to and were of 2021, 3,561 employees were actively learning
• Women empowerment: The first program,
more than 11,000 people), as well as around 2,000 actively engaged on the platform. Digital training or perfecting a new language, and the company
developed with our Inclusion & Diversity team, was
additional employees in non-managerial positions. programs available on FUSE range from foundational experienced a significant uplift in language proficiency.
for high-potential female employees. This initiative
This new program is aligned with our quickly evolving knowledge of our products, science, and transformation
recognized that women often operate within Meanwhile, our Operations function continued to
environment and ways of working—particularly to effective leadership, well-being management,
systems built on masculine norms—systems that expand its voluntary lifelong learning program. Designed
as we increasingly work in project-based, cross- and IT and digital capability development.
are still adapting to be fully inclusive. With a focus to improve equity, be inclusive, and enable growth,
functional, multidisciplinary, and virtual teams. The
Our Global Learning Network, made up of close to 800 on personal growth and development, the initiative the program empowers employees to choose the
approach is built on three fundamental priorities:
employee volunteers representing a broad range of was designed to provide participants strategies and skills they want to learn to shape their careers in the
clear objectives for all employees derived from
countries, functions, and seniority levels, plays a vital tactics with which to navigate common barriers, direction of their choice. There are no prerequisites for
the company strategy, continuous feedback from
role in informing the design and delivery of our learning create a sense of community and belonging, and signing up for a course, and PMI offers bridge courses
multiple sources, and the incorporation of the
products. Working closely with these team members focus on what is truly important to them in their so employees at all levels can enter the program
“how” element in line with PMI’s leadership model.
allows us to stay learner-focused in our approach and lives and careers. More than 50 senior female where they fit and progress toward higher levels and
This new approach provides a more holistic picture
truly understand what our employees need and value. leaders participated in the six-month program, which certifications. The online certification programs vary in
of the value and impact each employee brings.
incorporated virtual classrooms, one-to-one sessions length and difficulty, ranging from a few hours up to 18
Employees in non-managerial positions, who Targeted programs with an external coach, and group activities. months, with some counting toward a master’s or other
were not covered with the new performance We also create targeted programs to help employees advanced degree at a designated partner university.
• Leadership succession: The second program was
management approach in 2021, continued to acquire and develop the skills that will allow us to
designed to help us build a succession pipeline for In 2021, we rolled out access to all employees in
undergo a performance management approach meet our strategic targets. Every PMI employee
our Company Management. Participants in the our Operations function (totaling around 21,000
that leverages the PMI leadership model and sets owns their development, and we know that not
nine-month program first established individual people), as well as to specific additional functions
out a clear methodology for objective setting. everyone learns in the same way or at the same pace.
development plans. Through trainings by external and geographies. By year-end, the program counted
Consequently, our portfolio of learning products is
Overall, more than 92 percent of our employees were partners such as INSEAD and Duke Corporate around 3,000 active learners across 50 countries, who
flexible, incorporating online self-paced resources,
covered by formal performance reviews in 2021.1 Education, as well as individual and group coaching, logged an estimated 38,000 training hours during
virtual classrooms, and in-person sessions.
the program helped participants bolster the critical 2021 and obtained 1,680 academic certifications.
In addition to the new performance
Some of the new learning solutions we provided business and leadership capabilities they will need
management program, we improved our talent More broadly, in 2021, we started identifying and
to our people in 2021 include: to be ready to step into a senior management
review process in 2021 to ensure employees’ mapping potential training and education areas in which
• Consumer centricity: PMI’s first global learning game, role when the right position is identified for
careers and development are discussed in a to invest to meet the emerging demands of our company
Bee Wow, is a custom, data-driven training solution them. In addition to the core elements offered
structured, objective, and fair manner. and the job market. We will fine-tune and expand
focused on building consumer-centric behaviors, by our external partners, participants were able
this preliminary work in 2022, laying the groundwork
Continuous employee learning knowledge, and skills. Since its global launch in October to select from a number of elective elements
for a more holistic approach to lifelong learning. This
and development 2021, more than 1,500 employees have completed targeting their areas of expertise and interest.
will guide our progress toward our newly introduced
the game, gaining knowledge and confidence in the aspiration to provide 70 percent of our employees
We seek to provide employees access to Improving equity: providing access to
training subjects and implementing this learning with structured lifelong learning offers by 2025.
opportunities to develop their skills and careers. opportunities that boost employability
into their day-to-day work. The program continues
Our global approach to learning takes into account PMI is changing, and so is the world of work.
to achieve results and receive external recognition, Listening to our employees
what employees need and when they need it. New technologies are disrupting the business
including a silver medal for “Best Use of Games
Our learning culture aims to foster a skilled and environment, driving a need for new skills and Listening to our employees is an essential part of
or Simulations” at the 2021 Brandon Hall Group
confident workforce by giving people the tools capabilities. Continuous upskilling and reskilling our strategy and key to achieve our purpose. We
Excellence Awards in Learning. Both employee and
they need to perform to the best of their abilities is essential to ensure employees thrive and, as a conduct an extended company-wide employee
managerial feedback demonstrate that the training
within their current roles and to develop their result, improve the company’s performance. We survey annually, which we complement with
tool is effective, efficient, and well-received.
potential to be successful in future roles. seek to empower our employees to take ownership regular pulse checks throughout the year.
• Leadership development: At PMI, every employee of their career development by focusing on equity, The results of our annual survey in 2021—to
Digital learning is considered a leader, and it is vital that we provide granting access, and democratizing training by which 44,089 employees responded—showed an
In 2021, with many office-based employees the necessary support to enable everyone to offering a range of voluntary learning opportunities. overall improvement compared with 2020. With
continuing to work remotely, whether full- or grow, develop, and contribute to the success of the
an employee Net Promoter Score (eNPS) of 35,
part-time, we focused on strengthening our company. We have invested in leadership development
we achieved for the second consecutive year our
digital learning capabilities and offerings. offerings over the past several years and have put in
target of maintaining a minimum eNPS of 30, and
place solutions covering critical areas such as leading
we are 10 points above the global benchmark
change, first-level management skills, and resilience.

1
Based on a total of 55,276 employees maintained in PMI’s central HR system.
provided by our external partner Karian and Box.
126 127
Protecting the health Maintaining our safety-first position

in the era of COVID-19

and safety of our employees
We have long prioritized safety to protect our
Keeping people safe is a moral and
employees, contracted employees, and contractors
business imperative. We are committed to
in our premises. In response to the continued
providing a safe and healthy workplace that
COVID-19 pandemic, we maintained, reinforced,
promotes a culture of empowerment.
or adjusted various protective measures across
We have embedded clear methodologies, procedures, our sites and activities throughout 2021.
and robust controls in our factories, offices, and
As the pandemic evolved throughout the year in
fleet aimed at ensuring that our employees and
different geographies, our recovery plan focused
others on-site stay safe. The health and safety
on mitigating and managing risk. We took a
of employees and contractors is covered by our
conservative and precautionary stance, with clear
management systems, which are based on recognized
criteria to help our business units in different parts
guidelines and standards, including ISO 45001,
of the world identify when to take steps toward a
and assessed and audited internally and externally.
gradual return to the workplace, as well as when to
These systems enable us to monitor health and
reimplement restrictive measures, as warranted.
safety performance across all our manufacturing
facilities, offices, and in our fleet. We routinely
update our standards and train our staff to ensure
teams understand and align with the requirements.
The results underscore that employees feel highly

confident in the success of PMI’s transformation and Manufacturing of the future
inspired by the company’s purpose. Compared with
To thrive over the long term, we have embarked
2020, the survey data showed strong improvement
on a journey toward “manufacturing of the
in collaboration between markets and functions,
and in line managers asking for feedback.
future.” Our North Star: an agile, smart factory Promoting employee volunteering
with an end-to-end operations ecosystem,
Areas on which we need to focus further are advanced digital technology, upskilled teams, and PMI has a long-standing commitment to support This is in addition to the existing customary
employee reward and recognition, as well as career best-in-class safety, quality, and sustainability the communities where our employees live practice of giving employees paid leave for
opportunities. Moreover, while on a positive performances. We have set this vision and and work and where we source tobacco. This participating in initiatives organized by the
trend, our employee well-being rating—collected defined steps across all our manufacturing support is provided in the form of monetary company during traditional work hours.
as part of a separate survey—shed light on the sites to guide our progress. People capability contributions and in-kind donations (see the list
In 2021, amid the COVID-19 pandemic, we
need to promote and protect our employees’ development provides the foundation for this of our 2021 social contributions here), as well
piloted the guidelines without broadly promoting
mental health and well-being (read more here). journey. We want to support our factory workers as volunteer work by our employees. Beyond
them, and only a limited number of employees
We examine our engagement scores through a in shifting from reactive tasks to proactive supporting local communities, volunteering can
took part in the program. In 2022, we plan to
range of filters, including function, location, tenure, interventions by increasing their skill levels and motivate and enrich the lives of our employees,
significantly increase awareness of the program
age, gender, grade, and working arrangements supporting them with effective technology. help them develop new skills, and enhance their
among employees to empower them and
during COVID-19. This segmentation helps us Along the way, we are deploying extensive perception of PMI as a great place to work.
assimilate volunteer work as a regular practice.
to shape action plans more precisely. When we learning opportunities (with both internal and At the end of 2020, we established global
external certifications) to help ensure our Our efforts to promote volunteer work are
analyze results by gender, for instance, we see guidelines to further encourage those who
people are future-fit and highly employable. complemented by our employee-driven
the engagement results improved compared would like to contribute their time, energy, and
philanthropy “Projects with a Heart.” It is
with the previous year for both women (31 to Although we anticipate that this journey efforts to improving life in their communities.
a global grassroots movement established
32 points) and men (33 to 36 points), but the typically will take six or seven years to achieve, Every PMI employee is eligible to take two
and run by employees and endorsed by
gap between the genders has increased. the pace is specific to each manufacturing days per year of paid leave for volunteering
PMI. The internal platform connects would-
As with previous surveys, we will use the 2021 site and guided by the pillars of our Open+ activities. Moreover, the company commits
be volunteers with people in need.
results to deliver concrete improvements across the program, our lean methodology aimed at to match—with up to five additional paid
company, which we will disclose in our next report. eliminating losses and building the necessary leave days—any additional volunteer work
capabilities to deliver sustainable results. employees choose to do on their own time.
128 129
Health and safety performance in 2021 Manufacturing We use behavioral observation systems (BOS) in In 2021, we reviewed our global requirements for
our factories to instill a culture in which everyone fleet safety and issued a global policy governing
Our health and safety performance monitoring covers Health and safety in our factories is coordinated
involves themselves in openness, care, observation, the management of our fleet vehicles, along
PMI employees, contracted workers who are under centrally by our Global Manufacturing team. At
and behavior reinforcement. We advance this culture with operational guidelines. The goal of our
the direct supervision of PMI but employed by a site level, each facility has a dedicated team that
through communication with employees and safety fleet safety management program is to achieve
temporary employment agency (we had around 7,000 ensures standards are met on the ground.
alerts or notice boards. Every person’s contribution zero preventable accidents and to protect
contracted employees on average per month in 2021),
External certification helps us continuously counts—a fact we recognize through awards and employees and other road users, the company’s
and contractors when on PMI premises. Contractors
improve and drive efficiency. In 2021, all our other means of acknowledgment. Through BOS, we assets and reputation, and the environment.
are workers who are employed by or work on behalf
factories producing the equivalent of more are further embedding safety into the organization’s
of a third-party company contracted by PMI but who The challenges we face in delivering safe working
than three billion cigarettes annually achieved DNA in a planned, structured, and standardized way.
remain under the direct supervision of their employer. conditions relate to road conditions, law enforcement,
certification to ISO 45001. The global multisite
Typically, such workers are involved in specific projects and driving culture. Distracted driving (e.g., using a
certification process included third-party audits of Embedding a safety culture
(e.g., machine installation or construction), facility mobile phone or eating while driving) is the leading
a sample of our sites, which determined that best We conduct annual assessments and employee
management (e.g., building maintenance), logistics cause of vehicle collisions (research shows that
practices are embedded across all our factories. surveys to evaluate our sites’ safety culture level
(e.g., transportation or administration), or services people who drive while using their phones are far
and identify opportunities for improvement.
(e.g., canteens or medical centers on PMI premises). We conduct risk assessments to identify hazards and more likely to be involved in a crash, and this risk
implement necessary controls. Our corporate targets Every year, we invite all employees in our manufacturing multiplies for people who text while driving).
In 2021, across our factories, offices, warehouses, sites to participate in a survey and provide feedback
on incidents help us evaluate the effectiveness of
and fleet, our integrated total recordable incidents To improve driving behavior, we leverage awareness
our safety policies and programs. In 2021, in our on a wide range of cultural and behavioral issues
rate (iTRIR) was 0.09 (2020: 0.12), which breaks raising and connected fleet technologies. By the
manufacturing facilities, our LTIR for employees and related to the workplace environment and health and
down into 0.09 (2020: 0.11) for employees and end of 2021, 47 percent of our working-tool cars
contracted employees was 0.05 (2020: 0.07), and safety. The results serve as a direct effectiveness
contracted employees and 0.10 (2020: 0.16) for were equipped with telematics, which provide
our total recordable incident rate (TRIR) was 0.10 check of measures put in place as a result of our
contractors. We are proud of the progress made the driver and the company with data on driving
(2020: 0.13). Including contractors in the scope, regular culture assessments. These assessments are
to date and remain committed to maintaining an behaviors and proactively helps improve road
our TRIR was also 0.10, down from 0.14 in 2020. performed at our manufacturing sites each year by a
iTRIR below 0.30 in a sustainable manner. safety, reduce fatalities and injuries, and decrease
No employee, contracted employee, or contractor group of factory representatives from all levels of
carbon emissions (read more here). We aim to have
During the year, our lost time incident rate (LTIR) for fatality occurred in our factories in 2021. their local organizations.
all our working-tool vehicles equipped with tools
employees, contracted employees, and contractors Our ambition in our factories is to create an
All incidents in our manufacturing operations are and new ways of working in the medium term.
was 0.05 (2020: 0.08). More specifically, it was interdependent sustainability culture in which
subject to in-depth root cause analysis, and we
0.06 (2020: 0.07) for employees and contracted responsibility for health and safety and the
apply the same thorough approach to all incidents
employees and 0.05 (2020: 0.12) for contractors. workplace environment is owned by highly skilled
involving contractors in our manufacturing facilities.
We do not set targets on lost time incidents as we individuals and autonomous teams and in which
wish to handle every incident with the same level of sustainability is demonstrated and perceived as a
importance, quality of analysis, and mitigating action core company value. The combined survey and
regardless of whether the incidents result in lost time. assessment results provide our factories a detailed
overview of their progress toward that goal.
Top direct causes of injury in 2021 Fleet
We seek to protect our employees by providing safe
22% vehicles and driver safety awareness programs to
achieve zero preventable fleet safety accidents. Our
target is to reduce high-severity collisions, with an
ongoing goal of eliminating fatal accidents completely.
12% A dedicated team—led by our Director, Security and
11%
Market Safety in coordination with local fleet safety
7% committees—manages security and market safety.
6%
5% 5% This team develops and deploys programs and training
courses, fosters engagement at the country level, and
uses monitoring systems and performance indicators
to evaluate progress. PMI’s fleet safety management
Fleet Cut by a Slip, trip or Injury through Caught/ Hit by a Exposed to
crash sharp object fall on the manual handling trapped in, moving, flying or in contact system is based on recognized standards such as ISO
same level or lifting under or falling with harmful 14001 and ISO 39001 and covers risk assessment,
or between object substance
driver training, vehicle safety, and driver behavior.
130 131
While restrictions due to the COVID-19 pandemic Fostering diversity, equity, Advancing gender equality and improving equity to We also focus our efforts on specific business
prevented us from conducting standard training foster inclusion requires us to better understand and functions. For example, we initiated a program to
sessions “behind the wheel” in 2021, we launched
equality, and inclusion tackle structural barriers pertaining to these issues. identify the causes of low female representation
a global fleet safety e-learning program tailored to People are central to PMI’s value creation model. In 2021, we piloted Catalyst’s MARC initiative (Men at different levels of the sales organization
each driver’s core competency score and driving style. While always valuable, varied perspectives, Advocating Real Change) in two functions, and we and tailor initiatives to address them.
By year-end, 30 percent of company drivers had experiences, and problem-solving skills are will make this learning experience available globally
Our Chief Diversity Officer puts special attention
commenced the program, which includes eco-driving especially critical in times of change. We regard in 2022. We are committed to inspiring men to
on hearing the voices of frontline female employees
modules, and we intend to reach a participation rate our employees’ diversity as one of our greatest become aware of unconscious bias, understand male
worldwide to understand whether PMI’s strategy
of over 85 percent in 2022. We expect all drivers at assets. We therefore seek to cultivate an inclusive privilege, and leverage their power and position to
reaches all women in the organization.
PMI to undergo the training within a three-year cycle. environment where diversity can thrive and all advocate for tangible change that can advance equity
employees feel respected, supported, and engaged. and equality. As part of this process, we have begun
Together, our standards, programs, and technology
This is the only way diversity can be sustained and communicating about the importance of allyship in the
are leading to significant improvements in road safety.
our employees can be able to perform at their best, workplace through our internal social media channels,
Between 2019 and 2021, road-related collisions
contributing fully to our company’s purpose. with the aim of sparking a global conversation.
resulting in employee injuries or significant vehicle
damage decreased by 50 percent. In 2021, globally,
Enhancing diversity
the number of collisions per million kilometers driven
amounted to 0.44 (2020: 0.53). We remain committed At PMI, we aim to celebrate all types of diversity, Gender breakdown at different managerial levels in 2021
to maintaining a collision rate below 0.55. Our TRIR both demographic (e.g., race, ethnicity, sexual
in our fleet also shows a positive trend, having orientation, gender identity, age group, as well as
decreased globally from 0.09 in 2020 to 0.08 in 2021. visible or invisible disability) and experiential (how Senior leaders
people think, work, communicate, and live).
Although we continue to reduce collisions, it is to our
deep regret that we endured road traffic fatalities in Advancing gender equality and 75% 25%
2021, involving one PMI employee and two members empowering women
of the public. The accidents occurred in two countries Increasing female representation
in Asia and involved challenging circumstances related Men Women
A gender gap is a talent gap. Building a gender-
31.1%
(2020: 80%) (2020: 20%)
to basic motorbike defensive-driving techniques, balanced organization, therefore, remains one of
such as traffic anticipation, maintenance of safe our top priorities. Globally, 42.2 percent of our
speeds for the road conditions, and proper use of employees were women in 2021, and 39.7 percent
Directors
personal protective equipment such as helmets. of our managerial roles were held by women. women in senior roles, on track
Lessons learned from the investigations include the to achieve our goals of 32%
We are confident that we will achieve our target of 68% 32% by 2023 and 35% by 2025
necessity for motorbike-specific defensive-driving
training, along with the continued deployment of 40 percent of management positions held by women
by the end of 2022. Beyond that, our ambition
39.7%
our robust fleet safety management program. Men Women
is to maintain a minimum of 40 percent female (2020: 69%) (2020: 31%)
representation globally and have a maximum of
60 percent of any gender identity in management
Managers management positions held
positions in most of our business functions and
by women, on track to achieve
regions by 2025. During 2021, all business units set our goal of 40% by 2022
specific gender aspirational targets and focused their 59% 41%
agendas on gender-balanced external recruiting and
internal promotions. Our managerial new hires’ gender
Men Women
ratio for the year was 44.7 percent for women (an
(2020: 61%) (2020: 39%)
increase of 6 points versus 2020), and the proportion
of promotions to management positions that went
to women was 47.6 percent (2020: 45.0 percent). Non-managerial levels
To optimize our business, we believe it is critical that

we improve the gender balance in decision-making 57% 43%
roles. We are committed to having at least 32 percent
of senior roles held by women by 2023 and 35 Men Women
percent by 2025. In 2021, women represented 31.1 (2020: 58%) (2020: 42%)
percent of senior positions (2020: 29.6 percent).
132 133
Closing the gender pay gap There is no silver-bullet for closing the gender gap. Focusing on national representation
Encouraging career relaunches in Pakistan
Our global EQUAL-SALARY certification verifies Success requires an ecosystem of interrelated Another priority for us is to strengthen the diversity
that PMI pays men and women equally for equal actions across the entire employee life cycle: from of nationalities within our global workforce and,
In 2021, Philip Morris (Pakistan) Limited
work (read more here). Alongside equal pay, we are recruitment and training to retention and promotion. in particular, to grow local talent within executive
(PMPKL) launched MakeYourComeback, a
committed to fostering fairness in the workplace and Critical actions include having a commitment to management teams. Our employees represented
platform for women who have taken a break
closing our gender pay gap. The gender pay gap refers gender balance led from the top, crafting personalized 133 nationalities at year-end 2021, contributing to
from paid work and wish to relaunch their
to the percentage difference between the average career and development plans for female leaders, an international culture that many employees value.
careers. Through this program, PMPKL amassed
pay for men and women. PMI’s global EQUAL- celebrating female talent as role models, and providing
more than 400 applications from women, Despite this international makeup, there is a need for
SALARY certification gives us confidence that unequal female talent with opportunities to build connections
10 of whom were hired for various projects our executive teams to better reflect PMI’s geographic
pay for equal work does not contribute to the gender and gain mentoring and sponsorship support
based on their capabilities and experience. footprint and the diversity of its consumers. In
pay gap at PMI. Rather, the gap stems from the fact through networking events and leadership forums.
An extensive virtual onboarding program was particular, we have set a new commitment to increase
that women are underrepresented in senior leadership
put in place, including assigned “buddies” to Success also requires an environment that to at least 20 percent Asian representation in senior
roles. The imbalance also needs to be viewed in
help the new hires understand the culture and promotes and protects inclusion so that diversity roles by 2025. Asian nationals currently hold around
the context of our overall workforce demographics.
feel integrated into the PMI community. can thrive. A company culture that celebrates, 16 percent of PMI’s senior roles. In contrast, the
In particular, of the 68,547 people we employed as
welcomes, and appreciates diversity will not only South and Southeast Asia (S&SA) and East Asia
We are gathering learnings from this experience of the end of 2021, over a third were in Indonesia,
help increase and accelerate progress towards and Australia (EA&A) regions together represented
to determine whether we will replicate the where our workforce is predominantly composed
closing the gaps, but, more importantly, ensure 46 percent of our total workforce in 2021.
approach in other countries. of thousands of people, mainly women, who hand-
that this success is sustained over time.
roll cigarettes at our manufacturing facilities.
2019 2020 2021

Proportion of women in the company’s top pay quartile globally 32.9% 33.9% 35.1%
Proportion of women in the company’s upper-middle pay quartile globally 33.5% 34.4% 35.6% Top five nationalities Top five nationalities represented PMI’s workforce
Proportion of women in the company’s lower-middle pay quartile globally 20.4% 20.9% 22.4% represented in PMI’s workforce amongst employees in senior roles by region
Proportion of women in the company’s lowest pay quartile globally 79.4% 77.2% 76.2%
Company’s global mean (average) raw gender pay gap 1
34.6% 33.0% 33.5%
1 The mean gender pay gap is calculated as the percentage difference between the sum of annual base salary, bonus, and stock options.
Eastern Europe 10%

Indonesian 32.2% American 10.5% Eastern Europe 10%
Europe Union 29%
Polish 6.2% Swiss 9.3% European Union 29%
Americas (incl. the U.S) 11%
Filipino 5.9% German 9.0% Americas (incl. the U.S.) 11%
Middle East & Africa, 5%
Russian 4.9% Italian 7.0% Middle
and DufyEast
Free& Africa, 5%
and Duty Free
Italian 3.7% British 5.8% South & South East Asia 40%
South & Southeast Asia 40%
Other 47.1% Other 58.4% East Asia & Australia 6%
East Asia & Australia 6%
134 135
In this context, in 2021, our S&SA and EA&A regions Building a culture that promotes Following a year when inclusion and diversity efforts
Every ERG is open to all at PMI, led by a
launched a tailored program with the objective to and protects inclusion moved center stage amid the global pandemic,
build and accelerate the development of high potential the absence of a single authoritative approach committee of volunteers, sponsored by a member
We can put in place programs to increase diversity, of Company Management, and supported by an
Asian talents. A total of 64 employees in management to effectively measuring inclusion in business
but if we fail to welcome, protect, and empower external subject matter expert partnership. In
positions participated in the first year rollout. The has become even more apparent. To address the
diverse people and their voices to thrive, that sought 2021, around 10,000 employees participated in
program follows a blended learning approach from issue, on International Women’s Day (March 8,
after diversity will not be sustainable. Inclusion one or more of our ERG programs and events.
the Duke Corporate Education faculty, external 2021), we launched Inclusive Future, a year-long
means ensuring all people feel they belong and
experts, and PMI leaders to sharpen the agility and research and convening project to advance the PMI’s employee resource groups:
are an integral part of our company. If diversity is
management capabilities of the participants. It offers discourse and practices surrounding inclusivity.
marginalized, and not properly integrated, employees • STRIPES convenes employees around
course learnings and real business challenges that will In partnership with the International Institute for
are not only less likely to perform at their highest gender identity and provides a formalized
equip them with strategic and organizational skills Management Development (IMD) in Switzerland,
level, but also unlikely to be retained. Only a truly structure and global strategy for the local
that will be instrumental for their readiness to take we are working to devise effective and timely ways
inclusive culture can ensure we benefit fully from LGBTQ+ networks present in 29 markets.
on leadership roles in Asia and globally across PMI. to promote inclusive cultures within organizations
the value diversity can bring to our organization. In 2021, we partnered with Stonewall and
of all types. Inclusive Future will take stock of
Furthermore, we believe it is necessary to rebalance began reviewing together some of our internal
best practices and established thought leadership
local and foreign representation within market Measuring inclusion policies to ensure they are representative
and explore how recent events and the current
executive teams. While it remains important to offer We understand that inclusion unlocks the potential and inclusive of LGBTQ+ colleagues. We also
climate can inform the evolution of more effective
employees the opportunity to relocate for their of diversity. However, unlike diversity, inclusion can partnered with Accenture to start running an
approaches for driving inclusive cultures. We aim
development and for talent transfers to accelerate be challenging to measure and to track over time. intercompany training focused on allyship.
to better understand, develop, and advance the
progress in a market, we are clear that an inclusive
In 2021, we sought to capture employee sentiment discourse surrounding inclusion today and into the • EMBRACE aims to champion racial, ethnic,
and consumer-centric approach is paramount for our
on inclusion, leveraging our global employee future, aiming to explore more sophisticated ways and cultural equality by raising awareness
success in any given country. Accordingly, we have set
listening survey. We introduced a set of six new to measure it going forward. Read more here. and understanding of the challenges faced
a new ambition to develop local talent for leadership
questions derived from research by Gartner. by underrepresented groups. In 2021, we
positions, and we aim to achieve a minimum local Encouraging employees to take an active role
The responses identified the following critical partnered with the Racial Justice Institute
representation of 60 percent in at least 80 percent We strongly believe that promoting inclusion is a
dimensions of inclusion: fair treatment, integrating to advance PMI’s efforts in this area through
of our markets. In 2022, we intend to establish our collective responsibility and that education and
differences, decision-making, psychological safety, training, workshops, and engagement
baseline and design and implement a multiyear plan. awareness-raising is an essential first step.
trust, belonging, and diversity. We averaged the opportunities focused on racial justice,
scores attributed to those six questions to build an In 2021, we continued to promote our global allyship, and advocacy. As of year-end,
“inclusion index.” At 76 percent, the index showed employee resource groups (ERG) on women, race, we had four local race and ethnicity ERG
an overall high perception of inclusion within ethnicity, and LGBTQ+ inclusion, and we launched chapters in addition to our global ERG.
PMI. Around half of the participants responded a new ERG focused on disability. Our employee-led
• WIN (Women’s Inspiration Network) seeks
positively to all questions, and the experience of groups focus on particular dimensions of diversity
to provide a supportive place to inspire and
inclusion by women versus men did not highlight and are intended to provide a platform for building
empower women to advance their skills,
any significant discrepancy (inclusion index of a sense of belonging and sparking conversations.
expand their network and unlock their full
74 percent for women and 78 percent for men).
They organize events, provide mentoring potential. In 2021, WIN organized three global
However, the exercise shed light on notable opportunities, and host conversations in which events with external speakers and started
differences regarding individual questions. For employees are encouraged to share their weekly virtual coffee corners, providing a
instance, questions linked to “integrating differences” diverse perspectives and experiences to better networking opportunity to women (and men)
and “decision-making” scored high, while lower understand and support one another. of PMI. Currently, more than 40 markets
scores were accorded to questions linked to “fair have access to local WIN chapters.
treatment” and “psychological safety.” Also, the gap
• ABLE, launched in 2021, aims to foster a more
between women and men widened on questions
inclusive and diverse organization by attracting
related to psychological safety and fair rewards.
candidates and supporting employees with
The findings also revealed a lower experience of
different abilities. Following PMI becoming
inclusion among those employees who identify
a signatory to The Valuable 500 in 2020,
as belonging to an underrepresented group.
we brought on PurpleSpace as an external
This first attempt to measure inclusion helped adviser and collaborator for internal events.
us set a baseline of employees’ feelings and
to design programs tailor-made for every
function according to their results.
136 137
PMI’s global ERGs ran a year-end event attended Raising awareness and knowledge Promoting mental health In 2021, we created a global framework and
by our CEO. The event provided a platform through In 2021, we broadcast our first global I&D conference. established an integrated and data-driven roadmap
which employees could provide feedback and input Our Chief Diversity Officer hosted two sessions,
and well-being of priority actions to support the holistic well-
into the company’s broad strategic plans and activities available to all employees, and introduced the global Maintaining a happy and healthy workplace being of employees across the company. Our work
for the year ahead in alignment with the global I&D multiyear strategy. Our Chief Consumer Officer is key to employee engagement, productivity, was supported by insights gathered through our
inclusion and diversity (I&D) multiyear strategy. explained the IQOS inclusive brand principles, and satisfaction, and retention. We understand that employee listening surveys, benchmarks of best-in-
we announced the introduction of global ERGs. when people feel good, they are likely to contribute class practices, and the help of external experts.
In 2021, PMI also launched an inclusive language
more to their families, their work, and society.
toolkit in collaboration with its global ERGs to As part of our ongoing effort to gather diverse Under our holistic framework, well-being
provide guidance on terms and expressions to use input for our inclusion and diversity strategy and Our aspiration is to promote an environment that incorporates physical needs, psychological
and avoid when engaging in internal discussions. programs, we created an internal employee group supports employee well-being as an enabler of needs, and self-fulfillment. Our approach
(I&D Soundboard), which meets regularly to give professional and personal fulfillment, sustainable high is based on the following principles:
input and feedback to the I&D team. We also performance, and business results. The extraordinary
1. People’s energy is a critical enabler of
implemented monthly global I&D Office Hours. These circumstances of the COVID-19 pandemic further
performance
sessions offer a casual and safe setting in which precipitated focused attention on this area.
2. We take accountability as an organization to
employees worldwide can openly raise questions
support employee well-being
or topics with our Chief Diversity Officer and the Building a holistic approach to well-being
3. We expect employees to take individual
global I&D team and share their thoughts with While PMI has provided benefits centered on health accountability for their well-being as well
participants from different teams and business areas. and well-being for some time, these were primarily 4. We see well-being as a development opportunity
We also continued our efforts to build a culture focused on reactive support or led by local market and encourage people to look after their
of inclusive behaviors through our I&D learning teams without a unifying global framework. well-being
curriculum. We support teams in addressing
challenges through a set of e-learning experiences
in which employees learn about the origins of bias
and the various ways it shows up in organizations.
Participants receive practical tools and techniques
to combat prejudice and preconceived notions.
• Personal purpose and alignment with PMI’s purpose

• Inclusion and sense of belonging
• Career growth and skills development
• Volunteerism opportunities
Self-fulfillment
• Quality of relationships at work: Providing a work
environment that promotes psychological safety,
employee appreciation and recognition, and respect
for personal boundaries and work-life balance
• Support: Providing appropriate proactive (e.g.,
Psychological needs education, self-help tools) and reactive (e.g. Employee
Assistance Program, insurance) support to employees
• Comfortable workplace and access to facilities

or tools to encourage physical fitness
• Comprehensive benefits offer to support well-being
• Policies and norms that encourage healthy
behaviors and recharge energy
Physical needs
All underpinned by ways of working, leadership

behaviors, and psychological safety
138 139
Measuring well-being to drive action We believe it is crucial to raise awareness and Strengthening resilience In parallel, we launched an online platform in
We know data and insights are key to introducing encourage conversations around mental health To build a solid well-being program, we must 2021 that offers resources to support employees
relevant interventions in support of employee to equip employees to support themselves and also look at how society and the workplace will with the professional and personal challenges
well-being. others and also to remove the stigma around the evolve. An aging population—and workforce— they may experience as a caregiver.
issue. In May 2021, we organized a Mental Health coupled with new ways of working and increased
As part of our regular employee listening, we In addition, childcare facilities or contributions
Conference, which attracted a broad global audience digitalization mean that people will need to learn
ask employees three times a year to answer the are provided in 28 of our markets. Further,
and received positive feedback from our employees. new capabilities and skills and unlearn others (read
following question: “How would you rate your most of our sites offer dedicated spaces
Following this event, we organized a Mental Health more about our lifelong learning program here).
psychological or emotional well-being at present?” to be used as lactation rooms.
Week in October, inviting PMI employees to share
This is measured on a five-point scale from very Against this backdrop, we want to foster a mindset
their stories and hosting talks with internal and Supporting our employees and their families
bad to very good. In October 2021, 61 percent that helps our employees embrace change and
external experts on topics ranging from how to spot Our global Employee Assistance Program,
of employees responded “good” or “very good.” strengthens their resilience to maintain well-being
and prevent burnout to the power of listening and launched in 2020, offers first-line support to our
While the score increased, we did not achieve over the long term. In 2021, we piloted resilience
recognition. Encouragingly, we saw positive dynamics employees and their close relatives in the areas of
the target we set in 2020 of 63 percent by 2021, deep-dive workshops in South Africa, accompanied
in how employees feel about PMI’s concern for their psychological, financial, and legal counseling. Support
likely because of the unexpected continuation of by an online diagnostic tool. We intend to expand
mental health and their awareness of where to go is provided in local languages across 79 countries
the pandemic. The gap of nine percentage points those workshops in select geographies in 2022.
for help. Surveys of participants conducted in May under high standards of confidentiality. By the
between men (64 percent) and women (55 percent)
and October showed a significant improvement in Supporting our employees end of 2021, the program covered 96 percent
is substantial (and represents an increase from the
responses to the questions “How reassured do you of our total workforce, with the remainder being
gap of five percentage points recorded in October We aim to provide well-being offerings
feel about PMI’s concern for your mental health?” covered by local schemes expected to transition
2020) and requires further investigation. We will that fit employee needs and expectations
and “How familiar are you with support available to the global program in 2022 or 2023.
continue to track progress on this indicator and and that are anchored in the local context
for you at PMI for mental health & well-being?”
aim to achieve a 70 percent score by 2025. of where our people live and work.
We have also convened a Well-being Advisory Flexible working arrangements
To get deeper insights, we piloted a tailored well-being Even prior to COVID-19 and the shift to remote
Group, a diverse body that includes senior leaders Family and caregiver support
study across six of our markets (one per region) in work, PMI was promoting more balanced ways of
and well-being advocates from various functions Our goal is to promote an inclusive and equitable
2021. The study methodology incorporated a survey working. In 2021, around 95 percent of our markets
and regions. This group informed the development vision of care through our global parental leave
(to which more than 3,600 office-based employees already provided PMI employees with flexible
of the well-being framework and the roadmap of principles, which provide primary caregivers
responded) and analytics aggregating information working conditions, including remote work, part-time
initiatives for 2022 and beyond. It will continue to a minimum of 18 weeks of fully paid parental
on the use of computer-based tools by employees employment, unpaid leave, and flexible working time.
serve as a sounding board to help us recalibrate leave and a secondary caregiver a minimum
(data were drawn from those employees who agreed
our strategy and initiatives as we progress. of eight weeks fully paid parental leave.
to share such information on a confidential basis).
This two-pronged approach allowed us to analyze From our research and listening to the markets, we The rollout of those new global principles began in
the root causes of well-being, ranging from our know there is a lot of interest among employees in January 2021. By the end of the year, more than 52
ways of working and relationships with managers to improving their knowledge of mental health, how countries were aligned with the new global principles.
presenteeism and employees’ sense of belonging. to look after their own mental health, and how to We aim to cover all our markets by the end of 2022.
support others who might be struggling. To address
Leveraging the insights gathered, we aim to
this demand, we piloted Unmind, a workplace
develop a well-being performance indicator that
platform that provides a breadth of tools and
will allow us to measure holistic wellness, monitor
training backed by the latest psychological research.
progress, and identify appropriate interventions.
It is intended to help employees understand more
A global focus on mental health about and proactively look after and improve their
mental well-being and that of others around them.
Mental health is critical to employee well-being. The platform was made available in 10 countries
Worryingly, issues of mental health are a growing in late 2021. We will review the results of this
problem globally, affecting nearly 10 percent of pilot and, if it is successful, will roll it out further.
the world’s population and causing devastating
impacts for the individuals directly affected and
those close to them.1 There is also a business
impact: Depression alone is estimated to cause
USD 1 trillion in lost productivity every year.2 1 Saloni Dattani, Hannah Ritchie and Max Roser (2021) – «Mental Health».
Published online at OurWorldInData. org. Retrieved from: ‹https://
ourworldindata. org/mental-health›
2 World Health Organization – Mental health in the workplace, available at:
https://www. who. int/teams/mental-health-and-substance-use/promotion-
prevention/mental-health-in-the-workplace
140 141
Given the circumstances of the past two years, we

Looking ahead
found it necessary to revise our remote working

arrangements. Drawing on the experiences and Protecting the physical and psychological safety and well-being of our employees around the
changed expectations of employees during the world is a priority for our company. Just as we acted to keep our employees safe during the
pandemic, we developed a global plan in 2020 past two years of the global COVID-19 pandemic, we are now committed to protecting those
that adopted the concept of hybrid work (remote employees affected by the war in Ukraine. This commitment starts by helping our Ukrainian
and office-based). We call it “Smart Work.” colleagues and their families move from the areas hardest hit by the fighting and reach safety;
Its philosophy and principles are global, with the then helping those who can cross the borders to do so, and supporting them outside the country
general rule being that employees are permitted The health and safety of our employees in every way we can: financially, logistically, and providing for their needs such as healthcare,
to work remotely up to 60 percent of the time, will remain at the top of our agenda, childcare, food, accommodation and onwards travel. Our commitment extends to providing
with the remainder of the workweek spent on- and we will closely monitor how the critical aid to those who cannot, or who choose not to, leave the country. It also extends to
site. The program is deployed and adjusted locally pandemic evolves, adjusting our measures providing continued salary payments to all Ukrainian colleagues, whether they are in Ukraine or
to account for cultural, operational, tax, and legal as needed and seeking ways to best not, whether they are working or not, and to providing a package of support measures for the
implications, which vary at the national level. support our employees. Where conditions mid to long term including salary payments, more stable accommodation, and additional financial,
allow, we will continue the deployment healthcare, childcare, legal and administrative support. Our commitment and support to Ukrainian
In 2021, we continued to deploy Smart Work of Smart Work, fostering flexibility in people is the commitment and support of our people, who have come together to collect funds,
in markets where COVID-19 was receding and where employees work. In parallel, we organize shipments of critical goods, offer their homes to host displaced families and provide
where local circumstances allowed it. By year-end, will seek to formalize our health and psychological support to those in need. At the same time, we are also doing everything we can
four markets had implemented it, and our intent safety standards for remote work. to support our Russian colleagues, who have been affected by this situation as well. We will
is to launch it in most markets in 2022, subject not rest and we will not spare any efforts to help our colleagues affected by this horrible war.
to COVID-19 circumstances and restrictions. Continued development of our human
capital is critical to PMI. In 2022, we Massimo Andolina, Senior Vice President, Operations
Looking ahead, we plan to develop tailored plan to revamp our approach to learning
arrangements for non-office-based employees, to ensure employees get clarity on
such as our factory and sales workforces. the capabilities and skills that will both
boost their employability and contribute
Anchoring well-being initiatives in local realities
to the success of PMI, and we will
We have dedicated health and well-being committees
work to ensure they have access to
in 60 of our markets, and, in the majority of our Building on the learnings gathered throughout Meanwhile, we plan to expand many initiatives
training and education in these areas.
markets, we have deployed well-being-related 2021, we will continue to strengthen and deploy piloted in 2021, such as our Women in
To that end, we will expand access to
interventions and benefits, ranging from gym our employee well-being framework, with a Leadership program, resilience workshops, and
our lifelong learning program while
membership offerings to sports competitions, mental focus globally on mental health. We will also our program to increase the representation
seeking to strengthen it by developing
health–related webinars, cooking classes, and other continue to address the stigma associated with of women in sales and in senior roles. We
tailored approaches to the varied needs
activities. Since the pandemic outbreak in 2020, mental health and pilot initiatives to improve also expect to celebrate the achievement of
within our workforce and offering more
our primary focus has been on COVID-19 safety awareness and help employees develop the skills our 2022 target for female representation in
guidance and support to employees.
measures and psychological support, including and confidence to have conversations about it. managerial positions, and we are committed
encouraging employees to prioritize their well-being. We will continue to foster sound employee And we will continue rolling out our parental to fostering a gender-balanced organization
and labor relations, maintaining an open leave global guidelines, aiming to see them as we progress toward our 2025 targets.
For instance, our affiliate in Vietnam launched
dialogue and privileging the proactive implemented in all markets by the end of 2022.
Vibe, a locally led well-being initiative centered on Our activities in 2022 will also focus on
involvement and participation of our
helping employees connect via shared interests and In 2022, we will set up an Inclusion & Diversity raising awareness of the importance of
employees and their representatives
encourage one another to look after their well- Advisory Council to foster open and constructive psychological safety and a sense of belonging
in these times of change.
being. Meanwhile, in the U.K., our affiliate launched dialogue that will inform the development and at work through events and campaigns.
a network of well-being ambassadors, composed Charles Bendotti, Senior Vice President, execution of an integrated I&D strategy and
People & Culture We will also continue to expand
of employees trained in mental health first aid. monitor progress. We expect this council to
our employee resource groups
They offer non-judgmental listening and guidance guide our company in establishing meaningful
by supporting our markets in
to colleagues who are experiencing mental health strategies to meet our commitments to enhancing
establishing local chapters.
issues and are not sure where to go for help. diversity and promoting inclusion—in particular,
our new ambitions for 2025 related to gender- Silke Muenster, Chief Diversity Officer
We will continue to build on these initiatives by
balance in management and leadership, as well
broadening the reach of our well-being ambassadors
as an appropriate representation of nationalities
and training them in mental health first aid, as the
within executive management teams.
U.K. has done, and engaging employees in relevant
local events led or initiated by their colleagues.
142 143

Promoting and adhering to sustainable business Caring for the quality of life of the people in
practices helps safeguard human rights, improve our supply chain is consistent with our business
O P E R AT I O N A L I M PA C T labor conditions, protect workers’ health and safety, purpose and way of working and is a major
tackle social inequalities, and alleviate poverty. predictor of our long-term success. We prioritize
Improve the quality of life

our agricultural supply chain because it is a critical
Agricultural supply chains face specific sustainability
component of our business, and we understand
and human rights challenges. The tobacco we source
its vulnerability to poverty and labor abuses. We
of people in our supply chain

is cultivated in many regions of the world, including
prefer to work with farmers who make a decent
low- and middle-income countries, where it is typically
living from growing tobacco, among other crops,
grown on smallholder farms. The socioeconomic
or engage in other income-generating activities
well-being of farmers and their families depends
because they are more likely to think long term
on many factors, including the nation’s health and
Our supply chain connects us with millions of people, from the farmers and apply good agricultural practices such as
educational services, political stability, resilience
paying farmworkers at least the minimum legal
cultivating tobacco and other agricultural products to workers at to extreme weather events and conditions, access
wage or agricultural benchmark and avoiding child
the supplier companies that provide the products and services used in to markets, and public infrastructure. Our supply
labor, thus minimizing our risk of human rights
our products or necessary to run our business. chain activities and investments extend beyond our
violations, import bans, and reputational damage.
direct effect on farmers, impacting people’s assets,
capabilities, opportunities, and standards of living. We anticipate that the time, energy, and resources
we have invested in our Agricultural Labor Practices
As our business transforms, our supply chain
program will provide the insights needed to ensure
evolves as well. Promoting fair working and
similar standards are met throughout the rest of our
living conditions in our broader supply chain
supply chain as we continue on our transformation
is therefore increasingly important.
journey. We seek to implement targeted initiatives
that benefit the economies and societies in which
we operate while mitigating reputational and
operational risks in our working relationships.
CONTENTS
Progress in 2021 Maintain

>90% 100% 100%
of contracted tobacco farms of farmers and farmworkers of tobacco farmworkers
for which labor practices and having access to personal are provided with safe and
148 Alleviating poverty in our tobacco adherence to our Agricultural protective equipment for the adequate accommodation
supply chain Labor Practices Code are application of crop protection
systematically monitored agents and prevention of
151 Enhancing access to water, green tobacco sickness
sanitation, and hygiene among
tobacco-farming communities
2022
100%
of contracted farmers paying their workers at least the
151 Empowering women involved in minimum legal wage or agricultural benchmark
tobacco farming
152 Eliminating labor abuses in our
2025
100% SI
Zero SI
100%
tobacco supply chain: Promoting of contracted farmers child labor in our tobacco of critical suppliers from whom
supplying tobacco to PMI supply chain PMI sources sustainably
PMI’s Agricultural Labor Practices make a living income
159 Promoting fair working and living
conditions in our broader supply
10 SI
100%
highest-risk countries covered by external human of contracted farmers supplying tobacco
chain rights impact assessments, with findings addressed to PMI have basic water access
2030
160 Looking ahead

100%
of contracted farmers supplying tobacco to PMI
have access to basic sanitation and hygiene
144 145
Our management approach We use a risk-based approach to identify, prevent, In each sourcing region, a management team
Improve the quality of life of people in our supply chain
and mitigate incidents related to human rights oversees the implementation of ALP. A steering
and labor rights in our tobacco supply chain. committee works closely with the dedicated
For this undertaking, we collaborate with key local teams across our affiliates and suppliers.
stakeholders—such as suppliers, farmers and
Beyond tobacco, we will leverage the extensive
We emphasize good corporate governance. Sound Our ALP Code, based on International Labour farmer associations, civil society organizations,
learnings from the ALP program and our human
standards and practices to manage our supply chain Organization (ILO) conventions and aligned academics, governments, and the private
rights impact assessments to proactively adapt to
sustainably (read more here) and safeguard human with the United Nations Guiding Principles on sector—to more effectively tackle persistent
the specificities and challenges that derive from
rights (read more here) are vital prerequisites to Business and Human Rights (UNGPs), sets the and systemic issues in the agricultural sector.
our electronics supply chain. We will also explore
harnessing the connections in our supply chain principles and measurable standards applicable Since 2018, we have deployed a Step Change pathways to promote a living wage across our supply
to improve the quality of life of those involved. to all the contracted farmers from whom we approach to our ALP program focused on four priority chain. We are at the early stage of this journey and are
source tobacco. The ALP program is supported by areas: eliminating child labor, ensuring payment of at focused on building our understanding and identifying
A principal aim of PMI is to provide a decent livelihood
related policies, including our Good Agricultural least a minimum legal wage or agricultural benchmark, meaningful strategies to deploy in the years to come,
to all contracted farmers in our tobacco supply
Practices (GAP), Commitment to Human Rights, ensuring the availability and appropriate use of grounded in our Commitment to Human Rights and
chain. This has been a focus since we introduced our
and Responsible Sourcing Principles (RSP). personal protective equipment (PPE), and ensuring Responsible Sourcing Principles. We are committed
Agricultural Labor Practices (ALP) program in 2011,
supplemented by the ALP Step Change in 2018. Our Leaf teams, tobacco suppliers, contracted adequate accommodation for workers where farmers to sourcing sustainably from all our critical suppliers
farmers, and workers are regularly trained on the choose to provide housing. Step Change aims to (read more here) and conducting human rights impact
The mid- and long-term targets that we have resolve the root causes of these persistent issues in assessments in our 10 highest-risk markets by 2025
ALP Code. Our integrated production system
committed to cover labor standards, income, priority countries—which we assess periodically— (read more here). We will leverage the due diligence
enables traceability at the farm level (read more
work hours, health and safety, accommodation, and is run in collaboration with our long-term tools and learnings we have in place and seek
here). And we have a robust due diligence
and access to water, sanitation, and hygiene. strategic partner on the ALP program, Verité. meaningful ways to impact the significant number
framework in place to evaluate the implementation
of our ALP Code (read more in the box below). of workers involved in our global supply chain.
Our governance arrangements guide and
facilitate this work. PMI’s Senior Vice President
of Operations, a member of our Company
Monitoring the implementation of our ALP program Management, is accountable for our success
in this area, while operational responsibility
Our due diligence framework to evaluate the implementation of our ALP Code comprises lies with the head of our Leaf department.
internal farm-by-farm monitoring by field technicians, external comprehensive and focused
assessments by Control Union, and external verification by specialized third parties.
Internal monitoring: Field technicians collect External assessments: Control Union (CU),
and update individual farm profile data at the an independent third-party organization,
start of each growing season and visit the farms evaluates the management system in place for Sharing our experiences
throughout the season to evaluate, among other ALP implementation, reviews prompt action
things, how well labor practices align with the protocols and procedures to identify, record, Transparency on both the challenges and successes of our
principles of the ALP Code. These technicians raise and address issues, and examines the internal ALP program is critical because it lets us hear feedback
“prompt actions” to flag and trigger an immediate capacity to implement the ALP program. CU from stakeholders on how best to tackle systemic issues.
response to any serious violation. They also report also evaluates labor practices at the farm level, To that end, we publish regular updates, which we make
“nonconformities”—identifying risks before they assessing compliance with the ALP measurable available on PMI.com. Our first quarter ALP Progress
have evolved into issues, which helps us proactively standards. Its reports are available on PMI.com, Update in 2021 focused on PPE and accommodation.
mitigate them. Field technicians work with farmers and CU performs focused assessments to In 2021, we commemorated the 10th anniversary of
to develop remediation plans to address prompt evaluate the management systems in place our ALP program with a dedicated report (available here)
actions and nonconformities identified, and they relating to the Step Change priority areas, in in which we reflected on progress made, celebrated
then follow up on and monitor these plans. If the addition to the broader farm-level assessment. achievements, and recognized the challenges ahead. As
matter is not resolved within the agreed timeline, our company and supply chain continue to transform, we
External verification: Specialized third parties
it is further escalated and may lead to sanctions, envision the next 10 years looking dramatically different
verify our understanding of progress on the
which can include contract termination. from a sustainability and supply chain perspective.
ground, challenge our monitoring data, evaluate
the effectiveness of our initiatives, and, ultimately,
help us to better assess our impact. We work with
local expert partners in different geographies.
146 147
Progress in 2021 Alleviating poverty in Assessing income levels in our tobacco generated a 10 percent increase in yields and the
sourcing markets mechanized plowing itself has reduced by 37 percent

our tobacco supply chain the labor hours required for the land preparation of
Robust analyses and studies to define living income
Poverty leads to poor working and living conditions, one hectare in Malawi. Meanwhile in Mozambique,
values and assess current farmer incomes (and the
including the use of child labor. We are aiming to we initiated a mechanization pilot which we
potential gap between the two) across our sourcing
During 2021, we maintained relentless efforts to improve the livelihoods of the contracted farmers expect will cover 170 hectares. In Argentina, the
markets form the backbone of our approach.
deploy impactful initiatives across our tobacco supply supplying tobacco to PMI, thereby advancing the mechanization program continued in 2021 with the
chain and monitor adherence to our standards. socioeconomic development of the communities The insights captured in these studies allow us to objective to improve farm productivity, mitigate
We also took steps toward achieving our broader in which they live. We see this as fundamental track the proportion of contracted farmers making a potential risks associated with manual tasks, and
ambition covering our extended supply chain. to addressing social inequality, as well as other living income. This proportion increased significantly contribute to soil conservation. These services
issues in our tobacco supply chain, and our aim is in 2021, reaching 67 percent (up from 48 percent in included soil preparation, transplanting, CPA spraying,
for all the contracted farmers supplying tobacco 2020), as a result of both important progress achieved and harvesting, with the predominant activity
to PMI to make a living income by 2025. in some focus markets like Argentina, Malawi, and being soil preparation. In the North West region of
Mozambique, as well as increased data availability in Argentina where flue-cured tobacco is grown, the
countries like Brazil, Greece, and Turkey. Further, our mechanization initiatives generated a 30 percent
analysis showed that our contracted farmers in several reduction in the overall labor hours needed for the
markets, including Brazil, Greece, Pakistan, and Turkey, various crop stages. In the North East region, where
already make a living income. In other countries, such our Burley farmers are located, mechanized farmers
as Argentina, a significant proportion of them do so. were able to reduce by more than 50 percent the
Measuring income levels in our tobacco supply chain to drive meaningful action Based on the data, our studies confirmed the need labor requirements for land preparation and have
to continue focusing our actions on four markets: achieved an 18 percent increase in yields in the last
The living income value determines the net annual In parallel, we assess the income level of our Malawi, Mexico, Mozambique, and the Philippines. crop season compared with nonmechanized farmers.
income required for a household to afford a decent contracted farmers in each sourcing market, In India, the focus of the mechanization program
standard of living for all its members. We calculate including both on-farm and off-farm activities, Implementing targeted interventions is to increase labor efficiency and, in 2021, we
it based on official benchmark studies, reference net of production cost, and including remittances to close the living income gap implemented multiple initiatives with varying coverage
values, or internal desktop exercises. In 2020, we or other subsidies. On-farm activities include Driven by the results of our assessments, we among the farmer base. These initiatives included
tasked Social Accountability International (SAI) to income generated from the sale of tobacco implement various initiatives to improve income seeding machines, transplanters, cultivators combined
conduct official living income benchmark studies and the production of other crops and levels. While we tailor activities to local realities with fertilizer applicator, suckercide applicators, and
in two sourcing markets—Malawi and Pakistan—in livestock, while off-farm income comes from and needs, our overall strategy is universal: Firstly, stringing machines. The predominant initiative is
line with the Anker methodology. Regrettably, revenue-generating activities outside the farm we aim to improve tobacco crop productivity and combining cultivators with fertilizer applicators, with
COVID-19 restrictions delayed completion of such as waged employment. These analyses competitiveness. Secondly, we seek to support 69 machines to date covering over 2,200 hectares
the fieldwork and reporting. It was therefore rely mostly on our internal farm-by-farm households in diversifying their sources of income. and more than 2,800 farmers. In Pakistan, the focus
not until late 2021 that we received the final monitoring but may also incorporate third- of the mechanization program is to increase labor
report for Pakistan and a draft report for Malawi. party studies by local partners such as those Improving productivity efficiency while mitigating potential risks associated
In 2021, we also initiated official living income conducted in India and Mexico in 2021. Our first focus is on enhancing tobacco production with manual tasks. The initiatives implemented so far
benchmark studies in four additional countries and encouraging farm efficiency. We support the include mechanical earthing up machines, mechanical
When designing comprehensive action plans,
with SAI. By year-end, the initial engagement with farmers in maximizing efficiencies on their farms— transplanters, CPA applicators, and stringing
we aim to exceed the living income benchmark
the researchers and our regional teams and local for example, by hiring only the labor required, machines. The predominant initiatives are mechanical
targets that are required to achieve a decent
suppliers had commenced in India, Mexico, and making careful use of inputs such as fertilizer, and earthing up, where we have 109 machines, covering
standard of living. This affords a buffer to
the Philippines. The fourth study, in Brazil, will finding ways to increase yields per hectare. The 3,600 hectares and around 2,500 farmers and
accommodate potential fluctuations in farmer
commence in 2022. We expect all four studies mechanization of certain steps of tobacco cultivation stringing machines where we have 168 machines,
incomes due to climatic shocks or volatility due
to be completed and the final reports received (such as field preparation) can maximize efficiencies covering 549 hectares and 262 farmers. The results
to market dynamics. We periodically review
during 2022. In three other markets (Argentina, by achieving labor savings and elevating yields. obtained showed us that, with the mechanical
the living income benchmarks to account for
Mozambique, and Turkey), we use reference values transplanter, farmers were able to gain 41 percent
annual inflationary increases and revise farmer In 2021, we continued to expand our mechanization
conducted in previous years, which represent efficiency compared with manual transplanting, the
income studies to consider market dynamics program in Malawi and provide an opportunity
the typical or average living incomes for rural earthing up tools increased efficiency by 82 percent
that may impact farmers’ overall income. for farmers to improve their productivity in
areas within each country. In the remainder of versus the manual work, the suckercide applicator
our sourcing markets, we calculate the living tobacco. A total of more than 1,600 smallholder
led to a 25 percent efficiency gain, and, finally, the
income value based on an internal desktop farmers, covering nearly 2,900 hectares opted
stringing machine resulted in a 27 percent efficiency
analysis following the Anker methodology. for mechanization services provided by 32 local
gain compared with the manual stick and tying, also
entrepreneurs. This mechanization initiative, in
contributing to a reduction of child labor incidents.
combination with other agricultural practices,
148 149
Supporting households in diversifying

Mitigating the impact of the gradual
Enhancing access to water, Empowering women involved
their income sources

We also look at opportunities to implement other decrease in our tobacco demand sanitation, and hygiene among in tobacco farming
income-generating activities. Notably, the cultivation tobacco-farming communities Around the world, women participate in agriculture
The growth of our smoke-free business
of complementary crops beyond tobacco can improve The link between poverty and inadequate access both as members of family farming households
intentionally results in a simultaneous decline
farm income while enhancing resilience against to water, sanitation, and hygiene (WASH) is well and as hired wage labor on farms owned and
of our cigarette business. This translates into
climate change and economic uncertainty. In 2021, established. We know, too, that enhancing WASH operated by other households or companies.
a gradual decrease in our overall demand for
we estimate that around two-thirds of our contracted infrastructure can substantially improve the well-
tobacco leaf. Over the past five years, our Many of the gender inequalities faced by women in
farmers also grew crops other than tobacco. being and livelihoods of community members.
demand for leaf fell 21 percent, from 370 million general are exacerbated for women in agriculture.
For instance, during the year, we supported kilograms in 2016 down to approximately 291 To ensure all farmers within PMI’s footprint have Globally, less than 15 percent of agricultural land is
the establishment of microbusiness programs million kilograms in 2021. This resulted in a basic access to water by 2025 and to sanitation owned by women,1 and women involved in tobacco
in Indonesia with 104 women beneficiaries to reduction in the volume of tobacco we purchase and hygiene by 2030, we developed a framework farming often face structural and cultural barriers
produce backyard crops such as herbs, spices, in some markets and the elimination of our guided by the Joint Monitoring Programme for such as gender gaps in earnings, financial inclusion,
yams, and papaya. Meanwhile, in Argentina and sourcing activities in others. Such change has Water Supply, Sanitation and Hygiene (JMP), access to credit, employment segmentation, lack
India (reaching 236 and 360 farmers, respectively) an undeniable impact on contracted farmers, established by the WHO and UNICEF. of ownership of land and property, inadequate
we expanded the production of okra, cluster especially those whose primary source of income opportunities to receive training or technical support,
bean, tomato, cowpea, and maize. Additionally, in In 2021, we collected global WASH data through and difficulty balancing domestic responsibilities.
traditionally has derived from tobacco growing.
Pakistan, the initiatives to produce mushrooms and farm-by-farm monitoring and surveys, applying JMP’s
We are aiming to address and, to the extent we universal indicators. This research has identified Since the inception of our ALP program, gender
backyard vegetables were expanded to close to 600
can, minimize the negative effects of this shift. Argentina as an additional priority market for drinking equality and fair treatment have been incorporated
farmers and around 2,400 farmers respectively.
We do this through a dedicated assessment water access (alongside Malawi and Mozambique), as key principles in all the countries from which we
Lastly, in Mozambique, we expanded the treadle- of the unique realities and contingencies that and an implementation plan has been developed source tobacco. When we evolved the program to
pump and winter-crop support project to an additional define each country or region where we source focused on springs protection. We also developed include a Step Change approach in 2018, we seized
1,760 farmers, bringing the total beneficiaries to tobacco, building an understanding of the local water quality guidelines, water availability guidelines, the opportunity to strengthen our contribution
date to over 3,000, with an estimated 600 hectares ecosystem to tailor and implement sustainable and an animated training video that explains the to gender equality, taking into consideration the
under treadle-pump irrigation production. solutions that can help farmers transition to concepts and importance of WASH to our farmers. instrumental role women play in improving household
sustainable alternative livelihoods where needed. economic conditions and addressing child labor and
Joint efforts with our suppliers on providing other social challenges. Consequently, PMI’s ALP
In some cases, farmers are not heavily reliant drinking water access in Malawi and Mozambique program now deploys across our sourcing markets
on tobacco production for their livelihoods, continued in 2021, with the drilling of 114 new several initiatives focused on women empowerment.
have the means to easily switch to other handpump boreholes in Malawi, 55 in Mozambique, These initiatives include, for instance, self-help groups
crops, or will continue to grow tobacco for and the rehabilitation of 50 boreholes in in India through which women help one another start
other customers. In other geographies, we Malawi and 50 boreholes in Mozambique. Since microbusinesses, a women-only ALP task force to
provide additional support to help mitigate many boreholes are nonfunctioning in Africa, perform monitoring in Pakistan, and entrepreneurship
the negative impact of our reduced purchases rehabilitation is an essential part of our strategy. training and information on healthcare services for
(read, for instance, about our efforts in
women farmers and their spouses in Argentina.
Colombia—where we stopped purchasing
tobacco—in our 2020 Integrated Report). 1 Source: Food and Agriculture Organization of the United States.
More broadly, the initiatives we implement

to help contracted farmers earn a living
income support the elimination of farming
inefficiencies. They also promote practices—such
as mechanization and irrigation technologies—
that improve productivity of the tobacco
crop and also help farmers diversify their
production to other crops. We expect these
efforts to play an important role in minimizing
the potential negative economic impacts on
contracted farmers of our transformation and
consequential reduction in demand for tobacco.
150 151
Eliminating labor abuses in our Likewise, when the government in the Philippines This first year of monitoring highlighted non- The overwhelming majority of our relationships with
implemented restrictions in specific towns and conformities with our ALP Code that were extensively contracted farmers feature a shared commitment
tobacco supply chain: Promoting villages due to a rise in COVID-19 cases, our leaf discussed with SOTA (cooperative responsible for to continuous improvement in addressing social
PMI’s Agricultural Labor Practices suppliers’ technicians conducted remote monitoring the purchase of Swiss tobacco) and SwissTabac issues. If a contracted farmer is noncompliant and
Our ALP Code principles are as follows: No child labor, via mobile phones. We are committed to continually (Swiss tobacco farmers association) that contracts fails to address gaps identified, we may end our
fair income and work hours, no forced labor or human strengthening our monitoring to improve our visibility with the farmers. According to Swiss Tobacco business relationship with that farmer. In 2021, 875
trafficking, a safe work environment, fair treatment, of existing issues, take a more risk-based approach, Tax legislation, the Swiss government can oblige contracts were terminated due to ALP violations
freedom of association, and terms of employment. and more effectively address the issues identified. companies making and selling cigarettes in Switzerland (2020: 1,794). The decrease compared to 2020 is
to purchase a certain amount of tobacco cultivated mainly attributable to Mozambique, where robust
In 2021, 2,530 field technicians contracted by Our 2021 ALP monitoring farm-level data covers
in the country. In that regard, due to the uniqueness pre-contracting due diligence has been put in place.
either PMI or our leaf suppliers systematically 20 out of the 21 countries from which we sourced
of the contractual relationship our company has
monitored the implementation of the principles in 2021—data set for Switzerland was not included. To further support compliance with our ALP
through SOTA with SwissTabac and all of the Swiss
and measurable standards of ALP on 91 percent of For the first year, however, 100 percent of the Code, we consolidated training materials used
tobacco farmers, our ability to enforce our agricultural
all 253,813 contracted farms (2020: 93 percent). Swiss farms were monitored by an independent on the ground. After identifying training needs
labor practices is more limited, and so is our ability
The monitoring in 2021 continued to be impacted company. These farms were visited once during and best practices, we revamped these materials
to influence our ALP Code’s full adoption. This is
by COVID-19 restrictions in certain markets. In the season and the purpose of this visit was to and, with the guidance of Verité, developed a
because some of our ALP requirements (which align
Indonesia, where national restrictions limited their validate the results obtained from a self-assessment learning framework applicable to ALP professionals
with ILO’s standards and definitions of child labor) are
ability to physically visit farmers, field technicians questionnaire completed by the farmers. and field technicians around the world.
more stringent than Swiss law. We remain, however,
made contact and conducted remote monitoring committed to continue promoting our ALP principles This updated and standardized curriculum will
through mobile phones and digital applications. and furthering their implementation in Switzerland. ensure that suppliers and field technicians receive
consistent guidance about their responsibilities,
In 2021, field technicians reported a total of 9,918
the principles and standards they are expected
prompt actions across all sourcing markets, of which
to uphold, and the skills needed to carry out their
76 percent related to safe working environment
work. The content has been updated to reflect the
issues, 11 percent to child labor incidents, and
current state of the ALP program, including new
13 percent to income and working hours. In total,
Total prompt actions recorded by field technicians priorities, and deliver refreshed reference materials,
86 percent of the prompt actions raised were resolved
(2019–2021) Safe working environment issues handouts, training tools, and other resources such
during the year, with the remaining 14 percent
as case studies, practical exercises, and knowledge
Child labor of prompt actions followed-up yet not resolved,
tests. The format allows the customization of content
Income and working hours predominantly due to the timing of the crop stage.
to meet the different training needs of diverse
Other ALP principles In addition to internal monitoring, Control Union markets and learners. In 2022, we plan to roll out
Total: Total: Total: conducted external assessments in one market the revamped materials through webinars following
14,440 14,751 9,918 in 2021 (China). The assessment scheduled a “train the trainer” initiative with suppliers.
in Indonesia was postponed to 2022 due to
<1% <1% COVID-19 restrictions. External verification by
11% local third-party organizations was undertaken
8%
in six markets. Moreover, during the year, we
19% 16% actively collaborated with a peer company and
our common tobacco leaf supplier to conduct a
<1%
targeted human rights impact assessment in the
13% tobacco supply chain in Turkey (read more here).
11%
Across the countries from which we source
tobacco, the most recurrent and difficult challenges
73% 73% 76% relate to work performed by children, insufficient
use of personal protective equipment, and
payment of a minimum legal wage (or formalized
agricultural benchmark) to farmworkers. We have
developed and are implementing action plans to
address these recurrent issues in collaboration
2019 2020 2021 with key stakeholders, including our strategic
partner Verité, local NGOs, and governments.
152 153
Eliminating child labor Results over the past two years show a decline in During 2021, field technicians monitored 98 percent Field technicians further support our efforts to
the prevalence of child labor among our contracted of contracted farms for child labor-related issues remediate prompt actions and eradicate child
We maintain a relentless focus on
farms, from 3.5 percent in 2020 to 1.8 percent and recorded a total of 1,175 prompt actions (2020: labor by raising awareness and offering training,
preventing incidents of child labor and take
in 2021. This decrease is mainly attributed to 99 percent; 2,352 prompt actions). Of those, 1,121 promoting school access and attendance,
immediate action when they arise.
Argentina, Mexico, Mozambique, and Turkey, cases involved children performing hazardous tasks conducting vocational training, and supporting
Our objective is to eradicate child labor cases in where we observed the positive impact of years (2020: 2,285), 16 related to children under 15 hired initiatives to improve household income levels.
our tobacco supply chain that are repetitive and of implementation of the ALP Program. (2020: three), and 38 pertained to children under
See our ALP 10-year anniversary report
systemic by 2025. We acknowledge that isolated 13 performing light work (2020: 64). In total, these
We are, however, cautious of this positive published in 2021 for examples of projects
cases—even when systemic occurrences are fully prompt actions involved 1,609 children, with 93
trend, as in 2021, the COVID-19 pandemic we support on the ground to help eradicate
addressed—might persist due to farmer turnover percent of them being the farmers’ children. The most
continued to impact our initiatives and child labor child labor in our tobacco supply chain.
or unintentional misbehaviors, and we will remain common tasks field technicians found the children
remediation actions. Further, we acknowledge the
alert and tackle them promptly when identified. doing were harvesting or handling green tobacco and In many geographies, the findings of external
limitations of our monitoring system, as well as
stringing. A significant proportion of this reduction assessments related to child labor are reasonably
We use International Labour Organization standards the complex and persistent nature of child labor.
comes from Turkey, which can be mainly attributed well aligned with our internal monitoring data, which
to measure our progress toward our target of zero Nonetheless, our field technicians continued
to a change in sourcing footprint versus 2020. show continued improvement in our visibility on
child labor. Our traditional reporting approach centers to conduct farm-by-farm monitoring where
the ground and the accuracy of our internal data.
on preventing children from performing hazardous possible and to support farmers in addressing Of all child labor-related prompt actions recorded in
We remain focused on further strengthening our
tasks. In 2020, we introduced a new methodology to and remedying child labor risks and incidents. 2021, 99 percent were resolved, and the remaining
controls, for example by increasing the number
include the employment of children under age 15 and 1 percent had monitored action plans in place.
of unannounced visits and improving the training
children under 13 doing any tobacco-related tasks.
of field technicians on monitoring techniques.
This new methodology reinforces our risk-based
due diligence processes as it improves visibility and
granularity on child labor across our sourcing markets. Total number of child labor prompt actions recorded in 2021, by geography
Mozambique 610
Turkey 376
Calculating child labor prevalence
North Macedonia 69
The calculation of child labor prevalence, introduced Based on these enhancements, we calculate child
in 2020, is based on the introduction of two labor prevalence using the prompt actions and the Malawi 39
new elements to enhance our methodology: newly introduced self-declared nonconformities Pakistan 22
reported during the farm-by-farm monitoring,
1. Self-declared nonconformities: These are risks Indonesia 13
covering all types of child labor, and with respective
identified before they become issues. We Other 46
weighting factors of 100% (prompt actions)
identify nonconformities by reinforcing our
and 50% (self-declared nonconformities).
risk-based approach in our farm-by-farm
monitoring to strengthen procedures and We conduct this exercise for every sourcing
techniques to better identify risks. These are market, and the global prevalence is a weighted
identified through interviews with or direct average based on the number of farmers. Types of prompt action recorded in 2021 relating to hazardous work performed by children
observations from the farmer and workers on a Additionally, for priority markets, the methodology
farm or their direct observations brought to the supplements the internal monitoring data with
attention of field technicians. Their reporting data collected through third-party verifications. Harvesting or handling green tobacco 59%
helps us flag risks and proactively mitigate
The objective is to achieve higher accuracy in Stringing 24%
them.
our global and per-country child labor prevalence
2. Consolidated reporting: This means reporting Carrying heavy loads 4%
by integrating learnings from these assessments
child labor incidences raised as prompt actions Working with sharp tools 4%
(including issues raised) into our calculation. This
by field technicians by aggregating them per
comprehensive approach acknowledges the Driving a tractor or operating machinery 2%
type (children under 18 doing hazardous tasks,
limitations of our internal monitoring system: The Handling or applying CPA or fertilizer 2%
children under 15 hired, and children under 13
field technicians are only present on the farms for
doing any tobacco-related task). Other 5%
a limited time during the growing season, and the
issues we face are complex and often persistent.
154 155
Promoting a safe working environment

Implementing an individualized approach to mitigate Types of prompt actions recorded in 2021
the impact of COVID-19 on access to education In line with PMI’s ALP Code, we require farmers relating to safe working environment issues
to provide a safe workplace to prevent accidents
Our colleagues in Argentina, who are actively This is when the family accompaniment was and injury and minimize health risks.
engaged in our Porvenir program, acted fast created, reaching more than 800 families and 1,600 In 2021, field technicians recorded a total of
when COVID-19 entered their market. The children during 2020 and 2021. The benefited 7,514 prompt actions related to unsafe working
aim was to ensure that the most vulnerable families from El Soberbio, San Vicente, and San environments (2020: 10,816). Around 58 percent
farmer families and their children continued Pedro received bi-weekly visits from a liaison of these prompt actions related to handling green
having access to education by creating a to ensure children were regularly receiving and tobacco and applying crop protection agents (CPA)
nexus between families and rural schools. doing school homework and making progress without the proper PPE, 17 percent related to
toward the academic year. The approach was incorrect storage of CPA containers, and 15 percent
Historically, the Porvenir program in Misiones based
designed to target not only the kids but also their related to working at height without protection. The
its strategy on access to education and alternative
parents since they play a key role in mitigating and key focus areas remain to address the nonusage of
spaces to keep the children away from child labor
preventing child labor within the tobacco farm. PPE when handling green tobacco and incorrect
risks. Some of the main interventions were after-
school activities, workshops, and leisure events in The results of the family accompaniment program storage of CPA containers, whereas a new area
community spaces. COVID-19 restrictions led to were very encouraging, with 80 percent of of risk has been identified: working at height. In
school closures and social meetings prohibition, children at school age who continued schooling, all cases, targeted training will be delivered. Exposure to GTS due to not wearing proper PPE 40%
affecting the program’s normal execution. 20 percent of unschooled children who resumed During the year, we focused on maintaining access Exposure to CPA due to not wearing proper PPE 18%
Massalin Particulares and Conciencia Association their studies, and zero child labor cases identified. to appropriate PPE for all our contracted farmers
acknowledged that this situation, if not addressed CPA stored in a way that could cause
and farmworkers. In addition to being available, 17%
a health and safety accident
properly, could lead to an increase of child labor risk. PPE needs to be appropriately used. Understanding
the hazards related to certain tobacco tasks and Working at height without protection 15%
encouraging behavior change is key to safeguarding Unsafe or insufficient work accommodation 5%
the health and safety of those involved. Other 4%
Meanwhile, we also monitored the provision of safe
and adequate accommodation by farmers to workers,
when relevant (in 2021, around 5 percent of our
contracted farmers provided accommodation to
workers). Further, we rolled out a reinforced set of
global minimum accommodation standards (including
relevant WASH requirements) across all sourcing
markets to bring better sophistication and consistency
and further enhance the living and working conditions
of farmworkers. Around 5 percent of prompt actions
raised within the unsafe working environment in 2021
were related to the new accommodation standards
with all of them addressed within the same crop
season, with the exception of three prompt actions.
156 157
Advancing minimum wages for farmworkers Further, year-on-year change was also driven Promoting fair working With regard to our non-electronics supply base,
by improved data quality and availability, we successfully transitioned our supplier due
In a typical crop season, approximately 33 percent of
allowing enhanced measurement.
and living conditions in our diligence program to EcoVadis, the leading global
contracted farmers supplying PMI or our suppliers
broader supply chain provider of online ESG supplier assessments.
hire workers. Income earned by farmworkers While encouraged by the progress made so far,
We aim to leverage our experience in our tobacco This shift significantly strengthens our approach
during a pay period or growing season should be we know that wage-related challenges relate not
supply chain to promote high labor standards by allowing us to access a vast number of ESG
enough to meet their basic needs. Our ALP Code only to substandard payment but also to informal
and advance the socioeconomic well-being of scorecards commissioned by EcoVadis users. In
requires that the wages of all workers (including terms of employment, inconsistency between
workers across our broader supply chain. addition to providing fact-based and detailed
temporary, piece-rate, seasonal, and migrant workers) supply and demand of labor, and workers’ lack of
supplier evaluations, these assessments let us see
meet—at a minimum—the national legal standard knowledge about their rights. In the past, a challenge Our Responsible Sourcing Principles set out improvement programs undertaken. The assessments
or formalized agricultural benchmark standard. we faced in some countries related to the lack ambitions and expectations for our suppliers, are available on the EcoVadis digital platform,
of an applicable legal minimum wage, such as in including human and labor rights considerations.
In 2021, we monitored the wages of 91 percent which allows seamless sharing among all supplier
Indonesia, or formalized agricultural benchmark, We monitor adherence to the RSP and the
of our contracted tobacco farmers and found that and customer participants, creating an effective
such as in Argentina. In 2021, following extensive sustainability performance of our critical suppliers
95 percent of farmworkers were paid at least the collaboration ecosystem. In 2021, our critical suppliers
stakeholder engagement or introduction of new through tailored due diligence instruments, including
minimum wage (2020: 65 percent). Field technicians of direct materials assessed in EcoVadis achieved
legislation, the minimum wage rates have been set the EcoVadis platform for our direct materials
recorded a total of 1,154 prompt actions related an average social score of 56 (out of a maximum
and we are monitoring and reporting against those. suppliers and the Validated Assessment Program
to farmers paying less than the minimum wage score of 100). This first year of assessment will
to their workers (2020: 1,541). The data reflects Our two most challenging geographies regarding (VAP) of the Responsible Business Alliance (RBA) provide us the basis for deeper analysis, in order to
significant progress due to an increased focus minimum wage payments are Turkey (read more for our electronics suppliers (read more here). develop targeted programs in the coming years.
on minimum wage payment, along with relevant in this case study) and India (see below). In 2021, we joined RBA, the electronics industry Meanwhile, our broad and in-depth human rights
controls implemented during pre-contracting due initiative for sustainable supply chains. During our impact assessments—which we aim to conduct
diligence and the delivery of targeted training. first year of membership, we were able to use RBA’s in our 10 highest-risk markets by 2025—provide
best-in-class methodologies and tools, including us with granular insights into social challenges
on-site audit reports shared among members, to along our value chain. Read more here.
Tackling the challenges linked to minimum wage in India significantly enhance the evaluation and performance
of our suppliers. The RBA Validated Assessment
The issue of minimum wage payment in agriculture workers, actual wages paid, and the number Program is a leading standard for on-site compliance
in India is complex and widespread across the of hours they work, among others. Based on verification and effective, shareable audits.
country. In Vinukonda, the tobacco growing area these data points, a weighted average of the
Data gathered through the VAP in 2021 highlighted
falls across three different zones where each of combined tasks performed during the crop
a strong performance by our suppliers (our suppliers’
the local governments set their legal minimum season per farm is applied to determine if the
average initial VAP audit score was 160 out of 200,
wage, which is updated twice per year. Minimum farmer is paying the legal minimum wage. This
compared with an RBA average of 127), as well as
wage varies by tasks for all crops, resulting in some methodology is conducted on a representative
scope for continuous improvement. Identified areas
activities requiring higher wages than others. sample within the relevant zones with the
for improvement included working hours, one day off
results extrapolated to the total farmer base.
Based on engagement with stakeholders, farmers every seven days, and emergency preparedness—all
follow unofficial benchmarks agreed at the village In order to proactively address payment gaps, issues common to the electronics industry. In addition
level before the crop season starts and may not we have implemented two initiatives. Firstly, we to setting up suppliers’ improvement plans, we
align with the government legislation on minimum are rolling out mechanization for labor-intensive introduced RBA online training to electronics suppliers
wage rates. In addition, these unofficial benchmarks tasks such as transplanting, inter-cultivation, to enhance their awareness and understanding
may vary due to supply and demand for workers and stitching of harvested leaves, which aims to of best practices and provide new approaches
during the key crop stages and payment to women improve efficiencies on the farm. Secondly, we and tools to drive performance improvement.
workers is typically lower compared to men. are piloting the payment support to workers,
To further build our understanding, we worked
aiming to bridge the gap between the actual
Given the different wages paid to men and with Article One to conduct a human rights risks
average wage and the legal minimum wage by
women workers and the fluctuating unofficial saliency mapping focused on our electronics
directly providing payment support to eligible
benchmarks, PMI together with our local suppliers supply chain (read more here). Article One’s
workers at the end of the tobacco season. The
considered it necessary to monitor the payment findings and recommendations further support
impact of these initiatives will be assessed during
of wages throughout the various tobacco stages. the strategic relevance of our RBA membership.
its implementation and continuously monitored
The monitoring is based on key data collected, throughout 2022. Depending on the results, we
including the number of hired men and women will explore further expansion of these initiatives.
158 159
Looking ahead
Over the past ten years we have gained We are aware that this will require strong Our aspiration is to ensure that farmers and other workers in our supply chain enjoy
valuable expertise in tackling social challenges engagement with our suppliers, with our business a decent standard of living. The challenges we face as we work to establish a concrete
in our tobacco supply chain and understand partners, with others in the private sector as strategy include lack of transparency related to policies, practices, and concrete data on issues related
the power of building lasting capabilities and well as strong collaboration with specialized to living wage. Nevertheless, we are determined to build a robust strategy that can pave the way to
fair remuneration to address many inequalities. organizations, academics, and governments. With access meaningful information with which we will be able to craft engagement plans and programs
As our company continues to transform, so better visibility of the issues we are trying to solve, that are able to respond to the pressing need of expanding our ambitions to impact and improve
does our supply chain and with this come with quality data and with robust partnerships, the quality of life of people in our supply chain. In 2022, we will also update our Commitment to
new challenges and opportunities. we will be able to develop a social sustainability Human Rights and upgrade our Responsible Sourcing Principles to integrate new trends, external
strategy in our value chain that is leading and requirements, our latest sustainability materiality assessment, and refreshed corporate priorities.
During 2022, we will craft a strategy that can
innovative, and that supports the very purpose Diversity and inclusion together with equitable livelihoods will be among the new areas of focus.
comprehensively address this new context,
of our company transformation. In summary, we
including the specific challenges of the electronic Marcel Jacobs, Director, Social Sustainability Operations
will work to make sure that our transformation,
supply chain that are still somewhat new to our
strategy, and plans are viable, sustainable,
industry. Building on a wealth of experience
and create systemic net positive impact.
that we have acquired by working over many
Massimo Andolina, Senior Vice President, Operations
years and across multiple geographies on living
income programs, we will seek to expand our
impact more broadly in our supply chain.
Our intention is to champion the adoption of In 2022, we plan to strengthen our approach by
living income and high labor standards in the covering the full life cycle of tobacco production,
tobacco supply chain and we will continue including both the field and processing stages,
developing and implementing sound programs and focusing on the tobacco we purchase
that can do that. We will also continue to closely and use in our products. We expect this
monitor labor practices and address incidents enhanced approach to generate positive impact
raised, with a view to eradicating systemic child by influencing our partners who operate in
labor by 2025. A key focus in 2022 will be to tobacco growing countries to accelerate actions
continue promoting the payment of at least the and sustainably address ESG challenges. We
minimum legal wage to farmworkers and ensure will continue monitoring and having visibility
basic access to water to contracted farmers. on the wider tobacco farming communities,
We will keep seeking ways to strengthen our collecting the insights needed to continue
monitoring and remediation systems and plan to supporting farmers through tailored initiatives,
conduct external verification in priority markets. strengthening remediation programs for the
issues identified, and ultimately contributing
to the improvement of farmers’ livelihoods.
Pedro Braga, Vice President, Leaf
160 161
The right thing to do It may also threaten facilities and operations,

transportation, and distribution chains, as well
The climate crisis, as acknowledged by the
as access to power networks and water. Beyond
international community, threatens all livelihoods,
endangering physical infrastructure and supply
O P E R AT I O N A L I M PA C T but especially those who are most vulnerable,
chains, the impacts of climate change and its effects
exacerbating inequalities. It impacts human rights,
Tackle climate change

on biodiversity loss and water insecurity—among
biodiversity, water access, global health, and food
others—undermine progress and business growth by
security and exacerbates environmental changes
exacerbating systems-level disruptions for customers,
such as ecosystem degradation, drought, flooding,
investors, employees, and communities. Against
and desertification. While science tells us that climate
this backdrop, it is essential for us to strengthen
Climate change is among the greatest threats to society. There is broad scientific change is irrefutable and unavoidable, it also tells us
our mitigation efforts and our resilience to climate
consensus about the urgency of setting more ambitious emission reduction targets that it is not too late to limit global warming to the 1.5
impacts. This includes reducing our greenhouse gas
degrees Celsius threshold that is considered the limit
to limit the rise in the global temperature to 1.5 degrees Celsius above preindustrial (GHG) emissions, thereby increasing efficiency and
beyond which climate impacts will be catastrophic.
levels. These commitments now need to translate into concrete actions that support Achieving this goal will require fundamental
energy savings, which in turn results in fewer inputs
and are fully aligned with the Paris Climate Agreement. used over outputs and better profitability. It also
transformations of critical aspects of society—
means taking steps to apply innovative low-carbon
including how we grow food crops, use land, transport
technologies, which require higher investments
goods, and power our economies. The great challenge
upfront but offer meaningful emissions reductions
of our times is to find a way to effectively align the
and payback over the medium to long term. It
public and private sectors to take critical action and
is also key for us to voice support for effective
put aside existing siloed approaches and objectives.
national and global climate policies, which inject
more certainty into short- and long-term planning
The business case
and investment and position us to better anticipate
For a business like ours—with a diversified agricultural regulatory risks and seize economic opportunities.
supply chain sensitive to climate changes—abrupt
climate variations can have a profound impact on the
secure supply of our raw materials.
CONTENTS
Progress in 2021 2023 Zero

coal used as curing fuel for
166 Overview of our carbon footprint the tobacco we source
in 2021
168 Accelerating our efforts toward 2025
Carbon neutral
carbon neutrality in our direct
SI
100% 100%
of our manufacturing facilities of electricity used and purchased
carbon neutrality in our operations operations (scope 1+2) certified carbon neutral in our factories derived
from renewable sources
172 Leading carbon reduction in our
tobacco supply chain 35% 25% SI
reduction in absolute GHG reduction in absolute

175 Joining forces with our suppliers emissions in our tobacco supply scope 3 GHG emissions
chain versus 2019 baseline versus 2019 baseline
to achieve net zero
2030 50% 50% 50%

176 Looking ahead reduction in absolute scope reduction in absolute scope reduction in absolute GHG
1+2 GHG emissions versus 3 GHG emissions versus emissions in our tobacco supply
2019 baseline (SBT) 2019 baseline (SBT) chain versus 2019 baseline
2040 Net zero

GHG emissions in our value
chain (scope 1+2+3)
162 163
Our management approach Our decarbonization efforts cover our entire We periodically conduct a climate change risks and
value chain, which extends from the supply of opportunities assessment across our value chain.
tobacco and other materials to the production, The findings inform PMI’s overall risk management
packaging, commercialization, use, and end-of- approach and help us to better integrate climate-
life stage of our products. Guided by our GHG related issues into our overall risk mitigation response
Our climate strategy aims to address pertinent Our work to reduce absolute emissions is guided footprint model, we have specific mid-term and decision-making processes. This work aligns with
climate change risks and build resilience while by science-based targets aligned with a scenario targets and strategies in place that account for international expectations such as those of the Paris
seizing opportunities presented by a low-carbon of an increase in global temperatures of no more our most significant impacts on climate. Agreement to mitigate and adapt to climate impacts,
future. To deliver on our climate ambition, we than 1.5 degrees Celsius above pre-industrial as well as the recommendations of the Task Force
We use internal carbon pricing to incentivize and
rely on robust carbon footprint accounting, levels. Our targets, approved by the Science Based on Climate-related Financial Disclosures (TCFD).
drive reductions in GHG emissions. We implement
analysis of climate change-related risks and Targets initiative (SBTi), commit us to reducing a shadow price to internalize environmental costs Our governance and management systems help
opportunities, ambitious mitigation targets, clear our absolute scope 1+2 GHG emissions by 50 and factor them into investment decisions. And we ensure that climate-related risks and opportunities
management and governance structures, and key percent by 2030 versus our 2019 baseline, and use an internal carbon levy as an incentive to reduce are considered in relevant decision-making processes
enablers such as our internal carbon pricing. to reducing our absolute scope 3 GHG emissions GHG emissions and a way to generate funding for (read more about our governance arrangements here).
by 50 percent within the same timeframe. solutions to compensate for unavoidable emissions. Our Senior Vice President, Operations, a member
We accelerated our decarbonization ambitions
Moreover, our commitment to net zero emissions of Company Management, is tasked with addressing
in 2021. We now aim to achieve carbon Several corporate policies guide our approach to
(scope 1+2+3) by 2040 is undergoing validation climate change risks across all company activities.
neutrality in our operations (scope 1+2) by decarbonizing our operations and value chain.
by SBTi at the time of writing this report. He monitors and reviews progress against objectives,
2025 and net zero emissions across our entire The reduction of energy consumption and carbon
value chain (scope 1+2+3) by 2040. Once we have maximized our emissions reductions, strategies, and action plans related to climate change
emissions is embedded in our Environmental
we compensate for the remaining unavoidable and reports findings to the Nominating and Corporate
To deliver on those ambitious goals, we prioritize Commitment, our Guidebook for Success (PMI’s code
emissions. We prioritize insetting projects in our Governance Committee and the Audit Committee of
reducing absolute carbon emissions. We do so by of conduct), our Responsible Sourcing Principles,
supply chain when possible and purchase certified PMI’s Board of Directors. The SVP, Operations also
optimizing efficiency and reducing consumption and our Good Agricultural Practices program. Our
carbon credits when needed. Our portfolio of ensures that risk assessment and management of
while minimizing the use of fossil fuels and Zero Deforestation Manifesto covers our sustainable
climate investments brings both standardization and issues related to climate change are integrated into
promoting the switch to renewable energy (by forestry management, which contributes to climate
sophistication to our approach to compensation. long-term plans, objectives, budgets, and performance
procuring green electricity and installing technology regulation and carbon sequestration. Further, our
review processes. From an operational standpoint,
to self-produce or store green energy). Sustainable Design Framework guides the integration
our Operations, Combustible Category, Smoke-
of eco-design and circularity principles and efforts
free Category, and Finance functions coordinate
to minimize the carbon footprint of our smoke-
the company’s climate change-related activities.
free products. These policies are complemented
by internal Principles & Practices and operational
Our three-pronged approach to decarbonization standards, such as our Global Fleet policy.
PMI’s Low-Carbon Transition Plan
REDUCE S W I TC H O FF S E T Our Low-Carbon Transition Plan (LCTP), published

in October 2021, provides a transparent and
detailed view of how we plan to achieve our climate
ambitions, how we will measure success, and how
we will report on progress. It describes the various
tools and enablers—including our approach to carbon WE ARE
pricing, our portfolio of climate investments, and our

governance and management arrangements—that will
help us deliver on our climate targets. We believe that
Achieving our
Reduce consumption
and optimize efficiency
Minimize the use of
fossil fuels and promote
Compensate for the remaining unavoidable
emissions with instruments and activities in line transparency drives action, accountability, and change. climate goals
the switch to renewable with international best practices incorporating By openly sharing our objectives and methodologies PH I LI P M O R R I S I NTE R N ATI O N A L
LOW- C A R B O N TR A N S ITI O N PL A N
energy environmental and social integrity in our LCTP, we seek to accelerate the achievement O C TO B E R 2 021
of our ambitious net zero and low-carbon targets and

commitments (see an overview of our timeline here).
164 165
We incentivize relevant employees through

Progress in 2021 Downstream, emissions generated by the transport Overall, in 2021, our emissions decreased in
monetary rewards or other forms of recognition and distribution, use, and end-of-life management absolute terms by 1.7 percent across our value
for the successful implementation of climate- of our products represented 5.1 percent of chain versus 2020, amounting to a total reduction
related initiatives (read more about our executive our total footprint in 2021. Emissions related of 84,000 tons of CO2e. More specifically, we
compensation here) and seek to raise awareness to the use and end-of-life management of our achieved an absolute reduction in scope 1 emissions
among our entire workforce of climate change Urgent action is needed to tackle climate change. products are slowly but steadily decreasing, mainly of 4.3 percent, in scope 2 of 28.9 percent, and
impacts through regular internal communications As a major multinational corporation with many due to improvements in our heated tobacco in scope 3 of 1.2 percent versus 2020.
and training. Moreover, our selection criteria stakeholders around the world, we are increasing units and device design (read more here).
take into consideration the transparency of the pace of our initiatives to mitigate climate
the suppliers of direct materials in disclosing impacts through emissions reduction measures
their emissions factors and demonstrating and bolstering our business’s resilience.
significant carbon intensity reductions.
The urgent and monumental task of combating Overview of our carbon Carbon emissions along our value chain in 2021
climate change cannot be accomplished by solo footprint in 2021
operators; it requires the input and collaboration
of partners across the public and private sectors. Accurate measurement and transparent reporting of
our carbon footprint help us to shape our strategy, UPSTREAM VALUE CHAIN OUR DIRECT OPERATIONS DOWNSTREAM VALUE CHAIN
PMI collaborates with, supports, participates in,
and is a member of sustainability-related initiatives set targets, and measure progress. We calculate our SCOPE 3: 85.9% SCOPE 1: 7.5% SCOPE 3: 5.1%
and organizations that harness the power of GHG footprint annually, following guidance from
the Greenhouse Gas Protocol and accounting for
1.3% 2.6%
collaboration to implement solutions at scale.
Among other collaborations, we participate in all emissions generated across our value chain (read
about how we calculate our GHG emissions here). Business travel Use of our
three World Business Council for Sustainable and employee Offices and products
warehouses
Development (WBCSD) working groups: Climate While we consider it vital to improve the commuting
Smart Agriculture (Scaling Positive Agriculture), environmental performance of our direct operations
Nature Action, and the Forest Solutions Group. (including our factories, offices, and fleet), most
We are also a signatory to the Business Ambition of our carbon footprint is generated in scope
for 1. 5°C commitment—having responded to 3 of our value chain. Consequently, working 15.8% 1.9%
a call-to-action for companies to step up their collectively with tobacco growers, suppliers, retailers, Tobacco growing Fuel consumption 1.2%
ambitions for the best chance of tackling the climate NGOs, local communities, and governments is 5.6% from our vehicles
and aircraft
Transport and
distribution
Fuel consumption
crisis. Moreover, in 2021, we publicly declared our crucial to attaining our environmental goals.
in our offices,
support for the TCFD and its recommendations. Our factories, and
Our upstream emissions represented 85.9 percent
affiliates also belong to national business associations of our total GHG footprint in 2021. Sources of these 14.4% warehouses
Transportation
that are engaging with governments to advance emissions included curing and fertilization in our and distribution
progress on climate protection at the local level. tobacco supply chain, the acquisition and transport SCOPE 2: 1.6%
of materials used in the manufacture of our products,
The robustness of our commitments is reflected in 54.5%
our achievement of an “A” score in each of the past the procurement of indirect materials and services Materials and services 1.3%
eight years on CDP’s climate change disclosure—a necessary to run our business activities, third-party purchased, and related
activities
1.6% Products
end-of-life
recognition of PMI’s action to combat climate disposal and treatment of waste, and business Indirect emissions from the
travel and employee commuting, among others. generation of purchased or acquired
change and transparently report on its activities. electricity, steam, heat, or cooling
consumed by PMI
2025
CARBON-NEUTRAL PATH TO
OPERATIONS BY 2025 DECARBONIZATION
2040
NET ZERO GHG EMISSIONS
ALONG OUR VALUE CHAIN BY 2040
Presentation of information aligns with guidance of the Greenhouse Gas Protocol. Figures are rounded.
166 167
Accelerating our efforts For example, in our factory in Switzerland, the Fostering carbon neutrality in our fleet
pyrolysis technology installed in 2020 allowed

toward carbon neutrality us to use operational waste instead of fossil
Our fleet of nearly 22,000 vehicles registered
in our operations fuels to produce steam and hot water; we are
over 380 million kilometers driven in 2021.
Most (80 percent) of our fleet vehicles are
Our sites and fleet are the parts of our value currently fine-tuning our pyrolysis setup, which is
working tool vehicles, used primarily to visit
chain over which we have the greatest control. expected to deliver significant carbon reductions
point-of-sale locations and distribute our
To achieve our ambition of carbon neutrality in in the years to come. Meanwhile, in Portugal, we
products, with the rest being benefit cars.
our direct operations by 2025, we combine good completed the installation of a solar carport at our
Tabaqueira factory, which we expect will reduce Following the development of our carbon neutrality
management practices with strategic energy-related
carbon emissions by up to 828 tons per year. strategy for our fleet in 2020 and the strengthening
investments. We invest in optimizing energy and
of our organizational capabilities with the setup of
process efficiencies and replacing fossil fuel-based Worldwide, 7 percent of the energy used in our
our fleet center of expertise, we instituted a new
energy with renewable sources. We compensate factories in 2021 was self-generated by innovative
Global Vehicle Fleet policy early in 2021. This policy
for our absolute carbon emissions as a last resort— technologies (2020: 2 percent). To increase this
frames our fleet strategy and moves us to a more
once we have maximized our emissions reduction. proportion, we developed an internal tool during 2021
centralized operating model to help ensure that
that creates a portfolio of zero-carbon technologies
Decarbonizing our factories every PMI affiliate contributes to our global goal of
and assesses them against specific risks and attributes.
becoming carbon neutral (scope 1+2) by 2025.
Reducing carbon emissions in our manufacturing This tool will help us select and implement the
sites relies first and foremost on promoting efficient To reduce carbon emissions in our fleet, we
most impactful solutions across our manufacturing
energy use. We achieve this through our Drive 4 Zero invest in sustainable powertrains and effective
sites. We are also considering the establishment
program, which establishes a common way of working driving to optimize energy consumption
of direct power purchase agreements with
across our factories, advances a zero-loss mindset, while improving operational efficiency.
large-scale solar, wind, hydro, and geothermal
and empowers employees to identify and implement installations and small-scale hydropower schemes. During 2021, we selected more environmentally
improvements. In addition to enhancing energy friendly powertrains such as hybrid and electric
efficiency, this program offers environmental benefits In 2021, 81 percent of the electricity used in
vehicles to guide the renewal of our fleet. We
such as reduced water consumption and waste. With our factories came from renewable sources (up
anticipate these new vehicles will emit 40 percent
regard to energy use, the program triggered more from 78 percent in 2020), and we are on track
less carbon emissions than the models they
than 200 projects worldwide in 2021, including, for to achieve our target of 100 percent by 2025.
replaced. Since rolling out our policy, more than
example, the optimization of compressed air, steam, Our efforts to enhance efficiency and switch to 40 percent of approved models are powered by We leverage eco-training and telematics to improve
and cooling systems, heat-recovery projects, LED renewables offset the increased energy required sustainable alternatives; this includes all of the newly driver behavior and further engage employees in
lighting, and electric motor replacement. We also look to produce our smoke-free product consumables approved models in the major markets of Australia, our sustainability agenda. By the end of 2021, one-
at opportunities to leverage technology to deliver compared with cigarettes (the extra energy required Canada, Europe, and New Zealand. We will remain third of company drivers were enrolled in the first
significant carbon savings. For instance, in 2021, we is mainly due to the additional steam needed in the focused on retiring our most polluting cars subject year of our fleet safety e-learning program, which
deployed across all our manufacturing sites a new manufacturing process). Indeed, our efforts in 2021 to the availability of appropriate infrastructure, incorporates eco-driving modules. We expect all
learning algorithm that allowed us to upgrade our led to an overall reduction of around 12 percent legislation, and technological innovation. drivers to enroll by the end of 2023. Of the group
ventilation and air conditioning system, decreasing in our absolute GHG emissions in our factories offered this training, 70 percent participated in the
By the end of 2021, vehicles with sustainable
the energy required to release the same humidity and versus 2020, approximately half of it driven by course. We anticipate the participation rate will climb
powertrains (electric or hybrid) represented
temperature factory conditions by around 20 percent. our efficiency initiatives and the remaining half to 85 percent in 2022. Nearly half (47 percent) of our
10 percent of our fleet globally (2020: 5 percent).
by our switch to renewable energy sources. working tool cars are equipped with telematics—a
In parallel, we are continuing our gradual switch
technology that provides the driver and company
to renewable energy sources. We implement During the year, we certified three additional sites
with data on driving behaviors to improve road safety
technologies to generate renewable energy, in the Czech Republic, Mexico, and Portugal as
and decrease carbon emissions (2020: 35 percent).
such as photovoltaic panels, biomass boilers carbon neutral, bringing the total to five factories
and heat pumps, and tri-generation processes certified to date. We are well on track to certify
(combining cooling, heat, and power). all our manufacturing sites by the end of 2025.
168 169
Reducing GHG emissions in our Pricing carbon Setting up our Portfolio of Climate Investments We also anticipate a decrease in the levy budget as
offices and warehouses our emissions profile shrinks. Where additional funding
Assigning a price—and hence a theoretical In 2021, we created a Portfolio of Climate Investments
will be required for specific investments (e.g., unlocking
We have offices and warehouses in more than cost—to emissions makes the intangible tangible (PCI) to standardize and provide transparency on our
innovative climate solutions and R&D), the advisory
80 countries worldwide, most of which we lease and further incentivizes action to reduce the approach to investments in offsets and insets. Such
committee that governs the PCI will decide on approval.
rather than own. Together, they accounted for emissions that contribute to global warming. investments compensate for unavoidable carbon
1 percent of our total carbon footprint in 2021. emissions related to our direct operations and are A set of mechanisms and rules—the PCI quality criteria—
PMI reviewed its carbon pricing policy in 2020
essential to achieving our 2025 carbon neutrality goal. allows PMI to efficiently evaluate which climate solutions
During the year, we continued to gain visibility into and took a pioneering approach by developing two
are most appropriate to pursue. Core carbon principles
energy use at those sites and prepared action plans complementary internal carbon pricing instruments: To ensure management’s endorsement and alignment
and additional attributes strongly support the development
to optimize energy consumption and promote the a shadow price of USD 65 per ton of CO2e and with the mid-term strategy of the company, the PCI
of nature-based solutions in PMI’s supply chain that
switch to renewable sources. We strengthened a carbon levy of USD 8 per ton of CO2e. is supervised by an advisory committee composed of
generate benefits beyond carbon reduction or removal,
our capabilities to collect accurate environmental cross-functional PMI senior leaders (including our Chief
Our shadow carbon price is integrated into the such as ecosystem conservation and enhancement and
data for all our offices and warehouses, up from Sustainability Officer and SVP, Operations, among
preparation and financial evaluation of business positive impacts on local communities. To assess whether
a third of them in 2020, extending accurate data others). The committee revises and validates the proposals
proposals that will impact our carbon emissions. This an investment will meet our quality criteria and generate
collection to over 400 locations worldwide. prepared by the project team and approves the allocation
was instrumental in helping justify the approval of a positive impact, we employ an external due diligence
And we continued to define minimum energy of resources to the proposed climate solutions
eight carbon emission reduction projects in 2021. process managed with a proprietary methodology
efficiency expectations for office equipment in the through an investment strategy that leverages the
developed with PMI’s carbon finance adviser Clarmondial.
markets where we have initially targeted carbon While the shadow price helps prioritize the business budget generated by PMI’s carbon levy scheme.
This methodology considers GHG mitigation, biodiversity
neutrality. We plan to extend these expectations case for investments in activities aimed at structurally
To support decarbonization efforts, PMI believes that conservation, and community benefits. Clarmondial also
to additional markets by the end of 2022. reducing carbon emissions, our carbon levy helps
limiting the use of market approaches (offsetting) in supported PMI in establishing relationships that can
determine the investments required to abate our
Overall, carbon emissions from our offices and the short-term by prioritizing direct investment in our support the company’s long-term climate, community,
emissions through offsetting or insetting initiatives.
warehouses decreased by 46 percent versus supply chain in the medium and long term (insetting) and nature-related targets in priority countries.
The levy is designed to internalize costs and support
the 2019 baseline, continuing the positive trend will result in a climate investment strategy that is
behavioral change by imposing a virtual internal tax In 2021, PMI’s PCI invested over USD 4 million in projects
from 2020. This is due, in part, to awareness cost-effective, transparent, consistent, and of high
on selected business units for their GHG emissions. in Brazil, Laos, Malawi, Mozambique, and Uganda, with
campaigns, more accurate internal emissions quality. We expect a higher annual budget in the first
This helps us determine a budget for a portfolio of a focus on forest protection, reforestation, and the
reporting, and reduced office use due to years of running the PCI, in line with PMI’s business
climate investments dedicated to projects focused on enhancement of quality of life through activities such as
COVID-19 restrictions and precautions. emissions profile, to support investments in a long-
nature-based solutions and community investments the provision of clean water access. Moreover, the PCI
term climate solution. The financial requirements of
in markets relevant to PMI’s supply chain and to focused on securing high-quality offsets to support
PMI’s PCI are expected to decrease once medium-
our global environmental strategy. These projects PMI’s decarbonization journey, and provided the
and long-term scope 1+2 carbon reduction
aim to generate high-quality carbon insets with required carbon offsets for the five manufacturing
investments become operational and generate
co-benefits such as biodiversity protection, water sites that achieved carbon neutrality certification
emissions reductions or removals.
stewardship, and livelihoods development. during the calendar year.
We revise our shadow price and carbon levy annually
to reflect changes in our risk and emissions profiles. Scaling deployment of carbon removal technologies
will be key for PMI to achieve its 2040 net zero ambition
Carbon removal
The application of a set of
technologies to sequester
Nature-based solutions (NBS) and store carbon from the Technology solutions
Leverage our supply chain to atmosphere into Produce innovative solutions
trigger projects (e.g., regenerative a physical risk for our manufacturing
agriculture in tobacco, improved sites and portfolio of products
forest management in pulp (e.g., biochar from waste,
and paper) carbon negative plastic).
170 171
Leading carbon reduction In 2021, an external partner audited our suppliers, In 2021, 100 percent of the tobacco we purchased We are working on providing guidance for selecting
mostly remotely due to COVID-19 restrictions was cured with no risk of deforestation of primary fertilizer providers taking into consideration their
in our tobacco supply chain on travel and partially on-site where conditions or protected forests. Read more about our forestry manufacturing emissions. We are also exploring
Our tobacco supply chain represented around allowed. These audits covered all flue-cured management ambitions and progress here. innovative technologies that could curb field
20 percent of our total carbon footprint in 2021, with origins to verify carbon reduction activities and emissions from nitrogen-based fertilizers. In particular,
Another driver of progress is our continued focus on
emissions generated mainly by the use of fertilizers, data on fuel use per kilogram of tobacco cured. we will test the impact of improved irrigation
the phase-out of coal via the conversion of curing
the process of curing tobacco, and mechanization. techniques on nitrogen volatilization and evaluate
infrastructures to enable the switch to renewable
Improving curing barn efficiency the difference in emissions that small changes in
In line with PMI’s 2040 net zero ambition and fuels. In 2021, 3 percent of the flue-cured tobacco we
As most farmers own their curing barns, we timing of application of the fertilizer can trigger.
our 2030 science-based target trajectory, we are purchased was cured with coal (down from
collaborate with them and our suppliers to provide Additionally, we seek to optimize the use of fertilizer.
committed to achieving an absolute reduction in 11 percent in 2020); all of it originated from
guidance and support to make the barns more This requires us to better manage the portion of
carbon emissions in our tobacco supply chain of the Yunnan and Guizhou provinces of China.
thermal-efficient. We support improvement applied fertilizers that is not taken up by the crop
35 percent by 2025 and 50 percent by 2030 versus In those regions, we continued to support the
projects, which typically aim to enhance combustion and therefore causes nitrogen volatilization.
our 2019 baseline. To deliver on these targets, multistakeholder initiative, led by the China National
we continue deploying efforts to decarbonize efficiency, ventilation, heating control, and insulation. Tobacco Corporation, to convert curing barns from
the tobacco curing process while implementing In 2021, the improvement projects we carried out coal to biomass and create a fuel pellets supply
additional reduction initiatives focused on increased the efficiency of 11,181 barns—adding chain produced from agricultural waste. Local
the use of fertilizer and mechanization. to a cumulative total of around 94,000 barns communities are playing a vital role in the project,
upgraded since 2014 across 13 countries. having created a network of pelletizing plants
Decarbonizing tobacco curing sufficient to provide enough bioenergy to support
In parallel, we continued to deliver training to
We mainly source three types of tobacco: Virginia, farmers through our suppliers on fuel efficiency, both the tobacco supply chain and the needs of local
Burley, and Oriental. While Burley and Oriental barn maintenance, and fuel sustainability. infrastructure such as public buildings. In 2021, 85
tobaccos, once harvested, are air- and sun-cured percent of the tobacco we purchased from China
to dry out the leaves, Virginia tobacco (which Increasing the use of renewable fuels was cured with biomass, up from 49 percent in
represents close to half of our purchased volume 2020. We remain committed to eliminating coal
To reduce GHG emissions, we are gradually phasing
and is sourced across 12 markets) is generally cured from our curing fuel portfolio by the end of 2023.
out fossil fuels such as coal and diesel in favor of
using an external heat source—a process called renewable fuels, including sustainable firewood and Reducing GHG emissions from fertilizers
“flue-curing.” Curing barns can be heated with coal, biomass. Our Monitoring, Verification, and Reporting
diesel, natural gas, firewood, or biofuels containing Framework for Sustainable Leaf Curing Fuels (MVR) In 2021, emissions related to the use of
agricultural or wood-sawing by-products. allows us to systematically monitor the sustainability fertilizers in tobacco production contributed to
of all fuel types used in our tobacco supply chain. 8.5 percent of PMI’s total carbon footprint.
The GHG emissions of flue-cured tobacco
represented 4 percent of our total carbon footprint In 2021, we exceeded our target of having Nitrogen-based fertilizers are essential in commercial
in 2021 and close to a quarter of the total GHG 70 percent of our purchased flue-cured tobacco agriculture to assist farmers in achieving appropriate
emissions generated in our tobacco supply chain. cured with renewables, achieving 75 percent. yields. Continuous decrease of fertilizer application
is challenging, therefore we are addressing fertilizer
Having achieved a 77 percent reduction in GHG Progress was driven primarily by our work to ensure emissions from different angles. The drivers that
emissions per kilogram of flue-cured tobacco that the firewood and other wood-based materials will help support emission reductions globally
between 2010 and 2020, we are now committed to a used to cure the tobacco we purchase do not include the preference in volume allocation to
further 75 percent reduction in emissions generated contribute to the deforestation of natural primary markets using fertilizers more efficiently, the
by curing one kilogram of flue-cured tobacco forests. Our MVR enables us to assess the risk of increase in input-output efficiency, and the gradual
by 2025 (versus our 2019 baseline). To deliver deforestation represented by different wood fuels, decrease in our overall tobacco demand.
on this ambitious target, we focus on improving collect sourcing information on the wood fuels
curing-barn efficiency and increasing the use of farmers use to cure tobacco, and cross-check that
renewable fuels. We made good progress in 2021, those sources have forest management plans in place
achieving a 64 percent reduction in emissions per highlighting the traceability of the forest products
kilogram of tobacco from flue-curing versus 2019. and the application of sustainable forestry practices.
172 173
Insetting in our tobacco supply chain to In designing activities, we prioritized co-benefits such Joining forces with our suppliers
compensate our direct emissions as the creation of safe drinking water access points
in line with our WASH approach and the contextual
to achieve net zero
We want to promote insetting by implementing
protection of natural forests that are providing With a significant portion of our GHG
nature-based solutions in our tobacco supply
ecosystem services to the rural communities emissions arising from our non-tobacco
chain. This allows us to compensate for
included in the project feasibility phase. We expect supply chain, engaging with our suppliers to
unavoidable emissions generated by our direct
implementation of the project to begin in 2022. contribute to their transition toward a net zero
operations while also advancing the well-being
economy is at the heart of our approach.
and socioeconomic development of tobacco- A second project is under assessment in Argentina,
farming communities and creating co-benefits where our farmers in the regions of Jujuy and Salta Beyond tobacco, the materials and services we
such as more resilient ecosystems and improved rely partially on firewood to cure Virginia tobacco. purchased in 2021 generated around 54 percent
safe water access for our farming communities. Leveraging the multi functionality of natural of our company’s total carbon footprint. Our most
managed forest and the concept of ecosystem carbon-intensive supplies (representing 40 percent
In 2021, using the two sets of quality criteria
corridors, we conducted a preliminary assessment of our non-tobacco supply chain emissions in 2021)
defined by the PCI for project selection—the eight
based on the provision of multiple services linked are the direct materials used in the manufacturing
core principles and the five PMI-specific additional
to forest restoration. To ensure the resiliency of our products, such as cellulose acetate tow, pulp
attributes—we identified an insetting project for
of the forestry landscape in a context where and paper, and our smoke-free electronic devices.
our supply chain in Mozambique. We worked with
ecosystem services are not monetized, we have
our tobacco supplier and a global carbon project We know it will take time to work with our suppliers
targeted value generation. We have focused on the
developer with a presence in the country to to identify and implement appropriate carbon
projected production of sustainable firewood in line
strengthen our feasibility study and understand the emissions reduction initiatives. As a first step, in
with our MVR requirements and the generation
needs of rural communities linked to our tobacco the past couple of years, we focused on intensive
of biodiversity and water benefits while testing
sourcing in more detail. We assessed the improvement engagement with key suppliers of direct materials. This
an impact assessment model that can provide a
interventions (including the distribution of cook stoves work allowed us to collect primary carbon data and
dollar figure for the improvements achieved at
and the drilling of boreholes) in the supply chain understand our suppliers’ GHG emission reduction
the ecosystem level. This approach is in line with
against the potential for carbon insetting generation. programs and targets. In 2021, we witnessed among
the holistic view of the natural managed forest
our suppliers a heightened understanding of their
we aim to pursue in our forest restoration. Our decision to accelerate our ambition to
climate impacts, in particular with regard to their
supply chains’ emissions. We attribute this to the achieve net zero emissions along our value chain
efforts we initiated in 2020 coupled with growing by 10 years—moving our target from 2050 to
societal expectations around climate change. Our 2040—means we must double our efforts to
engagement efforts have allowed us to develop encourage and support our suppliers in reducing
a roadmap for carbon reduction to 2025. their emissions. With this in mind, we announced
a new target in 2021 for all our critical suppliers
Another way the direct materials used in our to adopt science-based targets aligned with the
products can negatively impact our carbon footprint 1.5-degree pathway. Since 2019, we have piloted
Climate justice in global supply chains is through association with commodity-driven this engagement with two electronic suppliers in
deforestation. We aim to lead the shift toward close collaboration with CDP China, resulting in
a more environmentally sustainable pulp-based
Briefing paper
Sustainability issues do not occur in a vacuum (read more here). CLIMATE JUSTICE their targets being recently approved by the SBTi.
Building on our 10-year experience of developing and implementing IN GLOBAL materials sector by following the tenets of our
programs, especially in our agriculture supply chain, we have witnessed SUPPLY CHAINS Zero Deforestation Manifesto. Read more about Overall, in 2021, emissions from our non-tobacco
how climate change exacerbates human rights issues including social
A perspective for the private sector
our commitments and progress in 2021 here. supply chain decreased by 12 percent versus our
2019 baseline. In recognition of our actions and
October 2021
inequalities and disproportionately affects the most vulnerable.

The climate crisis concretely impacts human migration, access to strategies to reduce emissions and lower climate-
water, global health, agriculture productivity, and food security, related risks in our supply chain, CDP placed
among many other issues affecting our collective livelihood. PMI on its Supplier Engagement Leaderboard
in 2021 for the fifth consecutive year.
In 2021, we tasked Article One, our human rights advisers,
with preparing a briefing paper to allow us to better
understand how climate change and human rights impacts
intersect. Understanding those synergies is an essential
step in developing coherent and inclusive strategies.
174 175
Looking ahead
We are proud of the level of sophistication and ambition achieved to date by In 2022, we plan to reassess climate change- In our tobacco supply chain, we aim to
our climate strategy and by the capabilities of our organization in this field, and related risks and opportunities in line with further reduce emissions through continuous
aim to remain at the forefront of the climate neutral agenda. Conditions today a 1.5 degrees Celsius scenario and the improvements in tobacco flue-curing (through
are uniquely favorable to accelerate decarbonization actions and projects, to recommendations of the Task Force on Climate- efficiency efforts and further adoption of
reduce our overall carbon footprint and to increase our supply chain resilience by related Financial Disclosures, updating the renewable fuels) and additional initiatives related
managing climate-related risks proactively and seizing increasing opportunities assessment we conducted in 2018–2019. to fertilizers and mechanization to increase crop
in the low-carbon economy. To achieve this, we believe in the power of strong productivity and consequently reduce emissions
ambitions, bold strategies, and investments in innovative technologies. We will also intensify our investment in developing
intensity. We will monitor the implementation
tailored projects as part of the PCI strategy, in
To bolster our efforts and create a sound governance context internally, of our insetting projects and explore other
line with our expectation to trigger value on the
we also plan to revise our shadow price and carbon levy in 2022 in opportunities to deploy high-quality nature-based
ground by running carbon projects directly with
order to better reflect the changes in risk and emission profiles. solutions in other tobacco-growing geographies.
partners in our supply chain. Through the PCI
We are highly committed to playing our role in the decarbonization of our technological removal strategy initiative, we will During the year, we will refine our approach to
society through actions guided by our science-based targets. We will continue explore the carbon tech space by investigating helping critical suppliers set science-based targets.
to research and develop innovative solutions, explore new technologies, invest emerging solutions that could bring innovation
To further deploy fleet carbon neutrality
with impact to foster more and better innovation, and inspire all our people and market access to carbon direct removal.
programs, we plan to continue focusing on
and our business partners to join us in this journey. Our learnings will be Technological removals will be further expanded
eco-driving behaviors through telematics and
theirs to build upon, to drive a successful low-carbon transition, together. in our tobacco supply chain, where we aim to
awareness campaigns and training. In 2022, we
finalize the assessment of the potential and
will continue to renew our fleet, accelerating the
feasibility of biochar-based carbon sequestration
switch from internal combustion engines to more
Massimo Andolina, Senior Vice President, Operations within selected farming communities.
environmentally friendly powertrains such as
In our factories, we will continue to implement hybrid and electric vehicles. We will also continue
energy efficiency initiatives and increase the our efforts to minimize the carbon footprint
share of renewables in our energy mix. We plan of our offices and warehouses, and we expect
to certify additional manufacturing sites as carbon to certify our first carbon neutral markets.
neutral by the end of 2022. Building on results
In parallel, we will continue driving
to date, we will continue to deploy digital and
carbon reduction through diligent
artificial intelligence solutions in our manufacturing
eco-design of our products.
sites to deliver additional carbon savings.
Claudia Berardi, Director, Environmental Sustainability,
PMI Operations
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We collectively depend on soil, land, forests, and water, Our business activities rely on healthy ecosystems.
which provide resources and services critical to human The degradation and loss of natural capital can cause
O P E R AT I O N A L I M PA C T existence. Moreover, a healthy natural ecosystem plays a disruptions and increase production costs. The raw
vital role in tackling climate change, with land and oceans materials used in our products rely on fertile soil,
Preserve nature
absorbing and storing carbon from the atmosphere. stable climate conditions, and access to water. In
Yet biological richness and natural resources are our agricultural supply chain especially, even small
being lost at an alarming rate. Global scientific studies changes in the balance of ecosystems can lower crop
indicate that one million plant and animal species face productivity, increase production costs linked to
Natural capital is a wealth we all share and depend on. It is essential extinction, thousands of species are already extinct, remediation and adaptation measures, and negatively
that we protect, sustainably manage, and nurture it. and several million hectares of natural forest are lost impact farmers’ livelihoods. Promoting the efficient
each year despite international efforts to counter the use of natural resources and taking steps to protect,
trend. The unsustainable use of natural resources can preserve, and improve them help manage risks and
lead to soil loss and erosion, diminished landscape and prepare us to meet regulatory frameworks that
recreational value, and a subsequent loss of economic may emerge in response to increased awareness
value. Often, it is the world’s most impoverished of our limited environmental resources, ecosystem
communities that are most vulnerable to the negative degradation, and biodiversity loss. Further, we
impacts of changes in climate, biodiversity, and understand that we all have a responsibility to halt the
ecosystem function. Protecting forests and regenerating destruction of natural habitats and are committed to
ecosystems can help prevent the worst impacts of playing our part in helping address this global issue.
extreme climate events and improve livelihoods.
CONTENTS Maintain
Zero 100%
gross deforestation of primary of tobacco purchased without detection of residues
and protected forests associated attributable to the use of highly hazardous pesticides
with our tobacco supply chain
Zero >70%
virtually zero production waste of flue-cured tobacco purchased cured with renewable
Progress in 2021 to landfills fuel sources (self-sufficient firewood or biomass)
181 Halting deforestation

185 Managing water responsibly
2022 Zero 3.1
virtually zero waste to landfill water ratio in our manufacturing facilities (water withdrawn
in cubic meters per million cigarettes equivalent)
189 Reducing waste
191 Preserving natural ecosystems
2025 Zero SI
Net positive Zero
net deforestation of managed impact on forests associated gross deforestation of primary
natural forest and no conversion with our tobacco supply chain and protected forest associated
193 Looking ahead of natural ecosystems in with our supply of paper
our tobacco supply chain and pulp-based materials
100% 100%
of our tobacco-growing of our manufacturing facilities
areas covered by local certified to the Alliance for Water
water risk assessments Stewardship (AWS) standard
(cumulative since 2018)
2030
10 Zero
At least 10 million cubic meters of water optimized in net deforestation of managed natural forest
our tobacco-growing areas (cumulative since 2019) and no conversion of natural ecosystems in the
paper and pulp-based products supply chain
Water and biodiversity: During 2022 we will develop and introduce new KPIs and related aspirations for these two topics.
178 179

Preserve nature
We are committed to the responsible and sustainable Simultaneously, we are focused on improving water Where we operate, we consider the Protecting forests in our tobacco supply chain
management of natural resources. We understand efficiency and protecting the quality of the water surrounding ecosystems with the goal
We are committed to working with our tobacco
that forestry management, biodiversity protection, returned to the environment from our factories. of minimizing our negative impact.
suppliers and farmers to foster and implement
water stewardship, and waste reduction are deeply We are on track to have all our manufacturing sites
In addition to recognizing our leadership in sustainable agriculture practices that protect
intertwined. Moreover, robust ecosystems capture certified to the Alliance for Water Stewardship
environmental transparency and decarbonizing our natural capital and enhance livelihoods. In 2021, an
and store carbon from the atmosphere, thus playing a (AWS) standard by 2025. Mindful that a significant
value chain, CDP has acknowledged our efforts external audit of renewable curing fuels carried out
key role—alongside efforts to reduce GHG emissions portion of our water footprint comes from our
to preserve nature, awarding us an A rating for in our tobacco flue-cured supply chain confirmed
from man-made activities—in combating climate agricultural supply chain, we have set the ambition
our work advancing water security and forest that none of our suppliers poses a risk to primary
change. We seek to account for those synergies and to optimize at least 10 million cubic meters of
protection in 2021. The organization also placed or protected forests—i.e., that 100 percent of our
consider our impacts holistically when designing and water in our tobacco-growing areas by 2030.
us on its Supplier Engagement Leaderboard flue-cured tobacco is purchased at zero risk of
deploying our nature-related strategies and programs.
In a world with finite resources, we also aim to reduce in 2021 for the fifth consecutive year. gross deforestation. We are working to align natural
We have set targets and initiatives tied to various the waste we generate, promote its recycling, and managed forests with our zero net deforestation
aspects of natural capital, with a particular focus responsibly dispose of it. Our short-term target is to Halting deforestation requirements, including by establishing traceability
on the highest-risk segments of our value chain. achieve virtually zero waste to landfill across all our to the point of harvest and documenting our
When managed appropriately, forests provide
manufacturing sites by the end of 2022—meaning sustainable forestry practices. In 2021, 37 percent
With regard to forestry management in our tobacco a sustainable source of raw materials—some of
a landfill diversion rate of 99 percent or greater. of our purchased tobacco was externally verified
supply chain, having achieved zero gross deforestation which we use in our products and operations—as
as compliant with the ZDM’s net zero criteria.
of primary and protected forests in 2020, we are Several corporate policies guide our approach, well as essential services to local communities.
now raising the bar and are committed to achieving including our Environmental Commitment,
We are committed to achieving a deforestation-free Assessing deforestation risks in
zero net deforestation of managed natural forests Responsible Sourcing Principles, Good
supply chain for our tobacco and paper and pulp- our tobacco supply chain
and to having a net positive impact on forests Agricultural Practices, Zero Deforestation
based materials. These supply chains represent the Since 2020, we have used geospatial analysis
by 2025. In our paper and pulp-based materials Manifesto, and Water Stewardship Policy.
vast majority of PMI’s total land use and provide the performed with Global Forest Watch (GFW) to
supply chain, we target zero gross deforestation of
We routinely conduct global and local risk materials most often linked to the risk of deforestation digitally map forests in our tobacco-growing areas.
primary and protected forests by 2025 and zero
assessments to evaluate our impacts on forests, and the conversion of natural ecosystems. We have added in-depth assessments with primary
net deforestation of managed natural forest and
biodiversity, and water, and we prioritize input data from satellite imagery coming from
no conversion of natural ecosystems by 2030. In early 2021, we reinforced this commitment by
and adjust our actions accordingly. Sentinel 2 and European Space Agency (ESA) land
issuing our revised Zero Deforestation Manifesto
cover maps. For the granular analysis of attributes
Our efforts to protect natural capital are overseen (ZDM), further aligning it to the Accountability
beyond the scope of GFW, we have partnered
by our Senior Vice President, Operations, a member Framework Initiative guidelines and definitions.
with Remote Sensing Solutions, a Germany-based
of our Company Management. Our Operations This will improve transparency and allow us to
specialist organization that uses remote sensing to
team is responsible for developing and implementing benchmark the commitments we have set. The
offer solutions in land use classifications and land use
strategies to achieve our ambitions related to ZDM governs our forestry management efforts
changes at a minimum mapping unit of 0.2 hectares.
forests, biodiversity, water, and waste. Progress on and is designed to move us toward becoming forest
Our spatial assessments cover all tobacco types
the ground is delivered through close collaboration positive. With it, we reinforced our commitment to
and all suppliers from which we source across over
with our stakeholders, particularly our suppliers. protect and measure our impact on forests linked
40 tobacco-growing areas in 21 countries. We use
Protecting nature is a collective responsibility requiring to PMI’s supply chain. The manifesto establishes
geographic information system data to pinpoint the
both global ambitions and interventions tailored to the importance of covering both natural forests
farming areas where the tobacco we purchase is
local contexts. We collaborate with and participate (i.e., primary and protected forest areas) and natural
grown and then apply a 15-kilometer buffer to each
in several platforms and organizations, such as the managed forests (i.e., naturally occurring production
site to account for the potential impact of indirect
World Business Council for Sustainable Development forests) in our framework of action and specifies
land use change outside the tobacco cultivation areas.
(WBCSD), the Taskforce on Nature-related Financial criteria for on-the-ground interventions needed
We call this extended zone the tobacco-growing area
Disclosures (TNFD), CSR Europe, the International for us to meet our 2025 and 2030 targets.
(TGA). Globally, we monitor deforestation risk on
Union for Conservation of Nature’s SwissBiz4Nature, around 57 million hectares of land (a surface roughly
and the Alliance for Water Stewardship. equivalent to the size of France). This allows us to
focus our on-site audits and activities on those areas
where potential risks of deforestation are detected.
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Our approach so far has been intentionally broad, Further, our data revealed the need to account for Land use change In 2021, we fully embedded the updated
Preserve nature
to ensure sound due diligence. Based on learnings the specificities of the wood supply chain in Pakistan, requirements and ambitions of our Zero Deforestation
We estimate that approximately 221,000 hectares
gathered to date and our growing ability to more where most tobacco farmers source firewood in Manifesto in our MVR, and we communicated these
of land are used to grow the tobacco we source. The
precisely monitor and analyze data, we intend woodlots outside the parameters of our typical updates to our tobacco leaf suppliers through a set of
surface forest areas that produce wood for biomass
to localize the specific impact drivers for each 15-kilometer buffer. The forest districts we monitor tailored guidelines. We use our MVR to systematically
and curing fuel represent, by our best estimate,
tobacco-growing area on our mapping, restricting in northern Pakistan include dry terrain with sparse monitor the sustainability of all fuel types used in our
more than 41,000 additional hectares. Both land
our measurement to the area where those impacts vegetation cover, making satellite observation tobacco supply chain, which includes a requirement
use figures increased in 2021. This increase is due to
actually take place. This means we will become more extremely difficult and prone to error. We invested to maintain a full chain of custody for the firewood
changes in our tobacco volumes linked to our sourcing
targeted in our analysis and, consequently, we foresee in detailed analysis to precisely determine the forest used in the curing process. Data gathered through
strategy and the expansion of forest areas used for
a decrease in the total area we will monitor for types within our supply chain (natural protected, our MVR are verified by a third party. In 2021,
curing fuels, including the increase in biomass use
deforestation and natural habitat loss in future years. natural managed, planted, non-forest vegetation) all suppliers of flue-cured tobacco were audited,
in China in substitution to coal (read more here).
to cross-check our internal monitoring and external either with a desktop or on-site audit, across the
Our 2021 annual risk assessment showed a continued
audit results. This revealed that the outcomes of Risks associated with land use change resulting from countries where we source this type of tobacco.
need to prioritize the use of sustainable firewood
our 2019–2021 land cover satellite assessment tobacco farming are not considered significant. The
to cure Virginia tobacco and switch to sustainable Our efforts have delivered significant progress: In
were largely in sync with the figures reported for use of more-productive tobacco seed varieties and
sources of timber to build barns for the air-curing 2021, 75 percent of the flue-cured tobacco we
the farmers in our monitoring system, thereby the implementation of practices in line with PMI’s
of Burley tobacco in Malawi and Mozambique. purchased was cured using renewable and traceable
confirming the compliance of the renewable curing Good Agricultural Practices (GAP) principles and
fuels (2020: 67 percent). Further, between 2015 and
Beyond this, our 2021 evaluation highlighted fuel program we implemented in Pakistan with standards help maximize yield per hectare, improve
2021, across our global tobacco supply chain, the
potential deforestation risks related to crop our forest protection criteria and requirements. farmer income, and thus reduce pressure to expand
average amount of wood used for curing decreased
diversification in Misiones Province in Argentina, crops into surrounding forests. In light of these trends
from 5.7 kilograms to 3.9 kilograms per kilogram
where our granular assessment detected mosaic and the global contraction of the amount of land
of cured tobacco, a reduction of 32 percent.
land use change around the farming area. needed to fulfill our crop requirements, our analysis
shows no direct deforestation risk associated with our Building live barns for tobacco curing
tobacco sourcing. A 2019 land use change study by in Malawi and Mozambique
Example of land use analysis: Monitoring potential deforestation risks in Pakistan Quantis confirmed this, and our analysis of farming The Burley tobacco we purchase from Malawi and
areas is consistent with the figures on land use change Mozambique is air-cured in barns made of timber,
we calculate annually for our tobacco-growing areas, which needs to be replaced regularly, placing
including forest and natural ecosystems such as forests at risk. To reduce this risk, we promote
peatland, wetland, savanna, and native grassland. the use of “live barns,” which use living trees as
curing poles and remain in place for many years.
Promoting the switch to sustainable
fuels to cure Virginia tobacco During 2021, we partnered with our suppliers
The curing process for Virginia tobacco takes place to plant approximately 6,000 live barns in
in barns heated by a variety of fuel sources, including Mozambique and 12,000 in Malawi, reaching
firewood and woody biomass (pellets, woodchips). To a cumulative total of around 94,000 live barns
mitigate the risk of firewood collection contributing planted in both countries since 2014. From seedling
to deforestation, we are increasing the efficiency to live barn, collaboration with our suppliers,
of curing barns to minimize the use of fuel. We are farmers, and field technicians is fundamental to
also deploying our Monitoring, Verification, and ensuring high rates of tree survival and growth.
Reporting (MVR) Framework for Sustainable Curing
Fuels across our entire flue-cured supply chain; the
framework requires the traceability of firewood to
ensure it originates from sustainable sources. And
we encourage the use of agriculture-derived fuels
where they do not compete with food production or
negatively affect food security. For these reasons, the
agrofuels used are primarily by-products of upstream
food processing, such as olive pits and fruit stones
in Spain and Italy and mulberry prunings in China.
Land use analysis of the area identified as the firewood sourcing origin area for PMI’s flue-cured tobacco in Pakistan (source RSS).
182 183
Enhancing natural capital through Protecting forests in our paper and Managing water responsibly Since we started measuring it in 2018, the total
Preserve nature
reforestation and afforestation pulp-based materials supply chain water requirement related to our purchased tobacco
As part of our efforts to halt deforestation and From tobacco cultivation to manufacturing, volume has gradually decreased in absolute terms;
enhance natural habitats, we aim to restore Assessing deforestation risks in our paper our products require water. Our agricultural however, our supply chain is subject to off-trend
hundreds of hectares of forest by 2025. and pulp-based materials supply chain supply chain accounts for around half of our years. We experienced such a year in 2021, when the
For our paper and pulp-based products, we designed water footprint. The second-largest share of effects of climate change-driven events caused our
We require that our suppliers and farmers be our water use (around 40 percent) derives from
a risk assessment in 2021 that embeds the criteria water consumption to increase. The leading cause of
self-sufficient in supplying wood for curing and other sectors of our supply chain—in particular,
of the National Risk Assessment (NRA) of the Forest unforeseen water use is seasonal variability, where
construction. By 2025, we aim for them to grow the processes by which the filters, paper, and
Stewardship Council (FSC). We selected 17 criteria temperature and air moisture conditions vary outside
more trees than they cut. We will also work with packaging materials we source are manufactured.
relevant to our paper and pulp-based supply chain temporal series standard values, causing soil water
them on forest restoration, biodiversity, and Our direct operations are not particularly water-
and applied them to the list of countries from which stress conditions that can be mitigated by increasing
natural habitats, prioritizing ecologically valuable intensive, representing around 5 percent of
we source. This allowed us to identify the following irrigation volumes. We expect irrigation needs to
and sensitive land such as key biodiversity areas. our water footprint, with fresh water used for
origin countries as at high risk of failing to meet our increase in terms of intensity (i.e., water required per ton
Tree growing requires careful management and is zero gross deforestation target: Argentina, Bosnia manufacturing, sanitation, and other processes. of tobacco produced) as we are recording a continuous
limited to marginal lands where the carbon stock and Herzegovina, Brazil, Indonesia, Russia, Serbia, Water is a renewable yet finite resource shared increase in risk factors linked to seasonal variability
and existing biodiversity assets, including soil, and Thailand. We plan to establish an assurance by all. We can help combat water scarcity and in the tobacco-growing areas where we operate.
can be enhanced. Since 2019, we have restored system covering all the countries that are part of advance global health and food security by
165 hectares of forest to compensate for the our paper and pulp supply chain and will place responsibly managing our impacts on water, Assessing water risks
unsustainable sourcing of firewood used for curing particular focus on the high-risk origins (where we especially in water-stressed regions. Evaluating and understanding water risk across our
tobacco leaf. Additionally, aligned with the criteria will deploy on-the-ground audits, as needed). tobacco supply chain is critical to making informed
of our forest positive program in our tobacco Water stewardship in our tobacco supply chain decisions and effectively managing water resources.
We intend to leverage satellite monitoring
leaf supply chain we reported 190 hectares of
moving forward, replicating the operating model The quantity, quality, and timing of water availability We conduct a global water risk assessment annually
additional forest established since 2019. In our
in place in our tobacco supply chain, to analyze all impact the growth of tobacco plants. For about in our tobacco supply chain using the World
forest positive methodology, we account for
deforestation risk in the areas where our paper 60 percent of the farmland in our supply chain, Resources Institute’s Aqueduct risk-mapping tool.
contributions only if two criteria are fulfilled by the
and pulp-based product suppliers operate. the growing season is synced to the rain season, The tool analyzes physical water risks in all the
market that declares additional forest hectares:
Working with an external party to implement enabling crops to be rain-fed during the open field tobacco-growing areas from which we source
1. Zero gross deforestation conditions our zero-deforestation assurance framework, stage. Where we use irrigation, we are mindful of and forecasts patterns regarding the watershed
achieved and maintained we will leverage tools such as a complementary the risk of baseline water stress when conducting scale that is likely to emerge in coming years.
2. Zero net deforestation conditions achieved at risk assessment based on forestry news feeds. local risk assessments. Overall, irrigation accounts for Risks such as floods, upstream land use, and
end state (closing of the year), and additional around half the water used to grow the tobacco we baseline water stress influence water availability
forest hectarage considered only after Operationalizing our Zero Deforestation Manifesto source, with an average of 339 cubic meters used for agriculture and community use and can also
compensation for eventual deforestation risk In our paper and pulp-based materials supply for irrigation per ton of tobacco produced in 2021. impact our tobacco farmers. Therefore, our global
chain, we concentrated our efforts in 2021 on
Our MVR external auditor must validate the assessments take into account a wider hydrologic
communicating our updated Zero Deforestation
assumptions behind compensation activities region than that devoted to tobacco cultivation.
Manifesto to the suppliers of direct materials
submitted by our suppliers before PMI can consider
used in our products and device packaging.
the figures in its forest positive accounting.
We engaged intensively with them, providing
detailed implementation guidelines and hosting Impact of climate change on water
workshops and one-to-one training.
By year-end, these suppliers had all committed to Climate change is expected to affect rainfall patterns worldwide, placing pressure on water supplies
help achieve our 2025 and 2030 targets and agreed and potentially restricting water availability for agriculture and certain industry sectors. Given the
to undergo a compliance assessment in 2022. We global reach of PMI’s value chain, climate change-driven water scarcity could present a substantive
will replicate these efforts among our suppliers of threat to our business objectives in the mid to long term. Consequently, properly managing lands and
secondary paper and pulp-based products in 2022; water resources is a priority for PMI as we seek to increase the resilience of our production systems
these include, for instance, suppliers of shipping cases, and minimize operational risks. We conduct a global water risk assessment annually in tobacco-growing
marketing materials, and bundle closing and inserts. regions to identify potential hotspots for physical water risks that require adaptation measures. In the
past two years, we strengthened our water stewardship strategy, developing guidance for applying a
landscape approach to water optimization projects, protecting natural resources and recharge areas,
and improving the efficiency of irrigation systems to integrate better farm water management.
184 185
In 2021, we improved our methodology to assess Optimizing water Meanwhile in Brazil, many of our farmers have The assessment accounts for:
Preserve nature
water risks, taking into account the size of each As defined by the Alliance for Water Stewardship, water springs on or near their farms. To maintain
• A criticality evaluation, based on indicators and
tobacco-growing area, instead of single geographic a shared water challenge is a water-related issue, water quality and prevent contamination and runoff,
thresholds that define the criteria for a site to be
locations. Accordingly, our 2021 assessment revealed concern, or threat shared by the site and one or more we supported them in protecting water points by
considered critical for PMI’s business continuity.
that most tobacco-growing areas (79 percent) showed stakeholders within the catchment(s). Drawing on our installing fencing to keep away cattle and prevent
a “medium to high,” “high,” or “extremely high” level of experience and the findings of our risk assessments, contamination. Overall, since 2019, we have • Water risk scores, based on the results of the WRI
physical risk (including 32 percent identified as “high” we aim to go beyond water management toward water already optimized 437,915 cubic meters of water Aqueduct Water Risk Atlas. The relevant water risk
or “extremely high”). This assessment accounts for stewardship to tackle shared watershed challenges, across our tobacco supply chain. When designing indicators for PMI were identified according to the
overall watershed risk, including but not limited to leveraging a science-based approach to improve water projects, we seek to take a holistic approach that type of facility (e.g., factory, warehouse, or office).
drought, upstream land use, and baseline water stress. conditions for beneficiaries across each watershed. aims to both protect natural capital and generate Following our 2020 assessment results, we
water benefits for local watersheds. Nature- kept our focus in 2021 on four factories: three
To complement our global exercise, we routinely We have set a target of optimizing at least 10 million
based solutions are proven to bring significantly sites in Europe shown to have high criticality
conduct local water assessments, which leverage cubic meters of water (cumulative since 2019) in our
greater benefits than projects focused solely on and to face risk of drought or water stress and
primary data sources and interviews with stakeholders tobacco-growing areas by 2030 through dedicated
reducing water consumption at the farm level. one site in Asia at risk of riverine flooding.
to gauge both external and internal water risk on projects that address shared water challenges in
the ground. The external criteria assessment looks the watersheds where we operate. To achieve this
Water quality Accelerating water-efficiency efforts
at the drivers of risk at the watershed level that are goal, we plan to generate volumetric water benefits
When misused, crop protection agents (CPAs) Manufacturing cigarettes and consumables for
affecting all stakeholders, while the internal criteria through farm- and landscape-level interventions,
and fertilizers can pollute the local environment. our smoke-free products accounts for around
focus on tobacco farming, forecasting risk sensitivity leveraging our on-the-ground presence in collaboration
While CPAs protect crops and fertilizers 5 percent of our total water footprint and
for farmers in our supply chain. Since 2018, we with our suppliers and local stakeholders.
improve crop yield, these chemicals can infiltrate amounted to around 3.12 million cubic meters
have completed 31 local water risk assessments
In 2021, we partnered with the experts of Bluerisk groundwater or run off into surface watercourses, in 2021 (2020: 3.38 million cubic meters).
(representing approximately two-thirds of our
and Valuing Impact to apply the World Resource impacting aquifers and aquatic ecosystems.
total tobacco-growing areas), and we aim to cover The production of smoke-free consumables initially
Institute’s volumetric water benefit accounting
all tobacco-growing areas by the end of 2025. In We maintain a global integrated pest management was five times more water-intensive than the
(VWBA) methodology to our tobacco supply chain.
2021, we conducted on-the-ground water risk program to reduce the unnecessary use of pesticides, manufacturing of combusted cigarettes. While
This allowed us to better understand the potential
assessments in Argentina, Brazil, the Philippines, promote less hazardous alternatives, and manage both the public health benefits of smoke-free products
impacts of water retention interventions, whether
and Turkey. These assessments helped identify the appropriately (read more here). Further, to minimize justify the trade-off of increased water intensity,
positive (e.g., carbon sequestration due to increased
shared water challenges that are a necessary starting their negative impact, we promote more efficient ways we are accelerating our efforts to mitigate the
soil organic matter) or negative (e.g., increased water
point for properly designed risk mitigation initiatives. to apply fertilizers, such as through drip irrigation increased water demand in the manufacturing
withdrawals due to more efficient irrigation systems
A frequent challenge recorded in our 2021 local systems that distribute them in smaller quantities and process through enhanced efficiency. In 2021, we
that may trigger increased evapotranspiration).
risk assessments is competing demands for limited directly to the plants’ root systems. The interventions reduced water intensity by 44 percent versus 2018,
water supplies. For instance, in the Fırat-Dicle Basin The projects we undertake range from nature-based of field technicians—who help educate farmers—are achieving a ratio of 2.6 cubic meters per million
in Turkey, we see competition for water resources solutions to irrigation efficiencies and rainwater key to improving pesticide and fertilizer management. cigarettes equivalent, down from 4.7 in 2018.
between agriculture and manufacturing industries. collection. For example, in 2021, we modified our
farmer footprint in Turkey by supporting farmers Water stewardship in our operations We continuously work to improve our processes,
Other challenges identified include the awareness
in switching their previous crops to tobacco, which invest in novel technologies, and raise awareness
of farmers of water-related issues in the Alto Iguaçu We have a long-standing approach to driving
requires substantially less irrigation water. This change among our employees. Our Drive 4 Zero program
watershed in Brazil and groundwater decline leading water stewardship in our direct operations,
has helped address competing demand for limited plays a crucial role in improving performance. In 2021,
to dry wells in the Bicol River Basin in the Philippines. including our manufacturing sites.
water supplies in the water stressed Aegean Region, we were able to reduce total water consumption
In 2022, we will further assess challenges at across our manufacturing sites by 8.5 percent
reducing by more than 300,000 cubic meters the Assessing water risks
the watershed level, involving community despite the continued and significant increase in
amount of water withdrawn from the local watershed. We conduct periodic risk assessments, mapping our
stakeholders as warranted to mitigate risks. the production volume of heated tobacco units.
The results of this project have contributed to factories, offices, and warehouses against the World
our 2030 volumetric water optimization target. Resources Institute’s Aqueduct Water Risk Atlas to Our efforts are bearing fruit: Between 2018 and
We also trialed irrigation optimization sensors in identify those sites subject to physical water risks. 2021, we reduced water consumption at our
Italy, leveraging drip irrigation, liquid fertilizers, and manufacturing sites by 28.6 percent in absolute terms.
the deployment of a decision support system that
uses digital technology to ensure the most efficient
31
crop input amounts (of both water and fertilizers).
Our goal is to optimize the ratio between crop input
and productivity to minimize the use of resources,
local water risk assessments completed in including water, while maximizing crop yield.
our tobacco supply chain since 2018
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Water and wastewater quality Our goal is to certify all our factories to the AWS Reducing waste We do not count the materials reused by others
Preserve nature
Water quality plays a vital role in our operations. standard by 2025, and we are making good as waste because this reuse helps reduce the
progress. In 2021, our sites in Brazil, the Czech Adequate waste management creates efficiencies consumption of natural resources in other industries.
At our factories, high-quality fresh water is used in and allows for better use of finite resources. We
Republic, Greece, Indonesia, Italy, Mexico, the
manufacturing processes—including the preparation follow the waste hierarchy, whereby we aim first Another path is recycling, which currently represents
Philippines, Poland, Portugal, Romania, Russia,
of flavors and liquid products and the production to reduce the waste we generate, promote its most of our waste disposal (87 percent in 2021). This
South Korea, Switzerland, Turkey, and Ukraine
of smoke-free consumables—for sanitation and reuse and recycling whenever possible, incinerate includes segregating waste into paper, plastics, metals,
completed the certification process (or, for those
hygiene, and for landscape watering. To reduce it when this is the best option available, and, to and glass and often selling these materials to recycling
sites that previously had been certified, underwent
water dependency in the long term, we are the extent possible, avoid adding to landfill. companies so they can be turned into new products.
the annual surveillance audit), bringing the total
implementing technologies and efficiency initiatives
number of our factories certified since 2018 to 16. Recover: When recycling is not possible, we
to recycle and reuse water at our manufacturing Managing the waste generated seek to recover waste materials and use them
facilities. These technologies include, for instance, Our water risk assessments guide our certification in our operations to generate energy. In 2021, 11 percent of the
reverse osmosis and electrode ionization. timelines and levels of ambition. For instance,
We are committed to reducing the waste generated waste generated was incinerated with energy
we achieved Platinum AWS certification for our
Monitoring wastewater quality is standard procedure by our operations and to identifying and applying recovery, while only 1. 4 percent was incinerated
factory in Brazil, which is located in the same
at our manufacturing sites. We conduct sampling the most sustainable waste treatment options without energy recovery or disposed in a landfill.
catchment area as our smallholder tobacco farmers
following recognized protocols to measure standard available. We manage all waste from our production
in Rio Pardo and Taquari-Antas. During 2021, we Employee engagement is a critical driver in helping
effluent parameters. Although we conduct some sites, including waste from catering, rest areas,
launched a new project to analyze groundwater us to use less and reuse and recycle materials
laboratory analysis internally, most is handled externally laboratories, and healthcare facilities. We pay special
quality because it was found to have a naturally wherever we can. Our Drive 4 Zero program
by accredited labs. Our certified environmental attention to our most valuable waste streams, such
high concentration of fluoride, affecting drinking empowers employees to identify and implement
management systems help our sites remain in as tobacco, paper, card, and cellulose acetate tow,
water. To reduce the fluoride concentration, we improvement opportunities for waste reduction.
compliance with current and future statutory and and to hazardous waste, such as oils, lubricants, flavor
collaborated with the local university to develop a
regulatory requirements associated with water discharge. residues, paints, solvents, chemicals such as nicotine
green filter based on World Health Organization
Fostering best practices in water management from laboratories, and activated carbon filters.
literature and test it at farmers’ homes. The project,
Certifying our manufacturing sites to the
Disposal of waste generated in 2021
which is still ongoing, has more than six months of We apply a comprehensive approach
Alliance for Water Stewardship (AWS) standard proven efficacy and was presented at the annual to waste management:
is a critical component of our approach to water conference of the Brazilian Chemical Society.
Avoid and reduce: A core focus of our strategy
management. The AWS standard is a globally
Between 2019 and 2021, we also invested in is to reduce the amount of waste generated by
applicable framework that enables organizations
developing our internal capabilities to accelerate converting raw materials into products as efficiently
to understand their water use and impacts and
the rollout of the AWS program across our as possible. In 2021, we generated a total of
work collaboratively and transparently with
factories, accrediting close to 50 employees 114,043 tons of waste, of which 1 percent was
others to achieve sustainable water management
as internal AWS auditors through the AWS hazardous. This is 17 percent less waste generated
within the wider water catchment context. It goes
specialist training from the SGS Academy. than in 2020 and 29 percent less than in 2019.
beyond manufacturing to help companies engage
We also strive to eliminate or reduce waste at the
with the communities in which they operate.
source; for instance, by requiring suppliers to use
returnable pallets and containers when delivering
materials to our sites. With improvements to our lean
manufacturing processes and our continuous focus
C A S E S TU DY
on loss elimination, we have been able to reduce
Water stewardship the waste generated in production consistently.
Reuse and recycle: In parallel to optimizing our
in the Philippines processes to cut waste, we strive to responsibly
Recycled 87%
manage the waste we do generate. We first
In 2021, our manufacturing site in Batangas set out to seek to reuse materials ourselves or make them Incinerated with energy recovery 11%
become the first factory certified by the Alliance for Water available to others, extending their lifetimes Disposed to landfill 1%
Stewardship (AWS) in the Philippines. The certification was within the circular economy. For instance, we use Incinerated without energy recovery <1%
undertaken with the goal to promote sustainable water organic waste generated by our factory in Italy
stewardship practices in collaboration with local stakeholders. (e.g., food waste from the canteen) to produce

compost, which we then apply as fertilizer
to the green areas surrounding the site.
188 189
Total landfilled waste (tons)

Preserving natural ecosystems Over the past couple of years, we have focused on
Preserve nature
gaining visibility into and an understanding of our

We strive to reduce the negative impacts of our impacts on biodiversity. Leveraging the application
operations and sourcing activities on habitats and of the Mean Species Abundance (MSA) metric in our
4,944 ecosystems while looking for ways to contribute 2019 assessment, CSR Europe’s 2020 evaluation
to the diversity of plant and animal life. on the maturity of biodiversity practices, and our
own datasets and expertise, we identified the
Joining forces to protect biodiversity
following priority areas along our value chain:
3,067 We believe companies have a critical role to
play in tackling biodiversity loss by promoting • In our tobacco supply chain, our focus should
conservation in partnership with both international be on the tobacco cultivation process, which
organizations driving for global ambitions and local carries risks related to degradation of the natural
stakeholders who understand their surroundings environment linked to loss of ecosystem area,
and experience effects on the ground. chemical pollution, and invasive species.
326 We participate in international forums such as • In our non-tobacco supply chain, emphasis needs
CSR Europe’s Biodiversity & Industry Platform, to be put on the deforestation risks linked to the
2019 2020 2021 WBCSD’s working groups on nature and forests, sourcing of paper and pulp-based materials.
and Business for Nature, and we leverage the • In our direct operations, attention should be paid
Aiming for zero waste to landfill in our factories Fostering responsible waste work of the Science Based Targets Network to the proximity of our sites to protected and key
We apply a “zero waste” philosophy, but we practices in our supply chain (SBTN). As of 2021, we also participate in the biodiversity areas and the implementation of good
acknowledge that even the most efficient systems Beyond our operations, we seek to foster a member forum of the TNFD, providing support environmental practices at manufacturing sites.
inevitably involve a small amount of landfill; for positive impact on waste practices in our supply and contributing to collective action.
• Downstream in our value chain, we
instance, waste-to-energy ash residue, waste chain, particularly in our tobacco supply chain. We call on governments to adopt a common and should concentrate on preventing the
legally mandated for landfill, and greywater sludge. Our Good Agricultural Practices require that ambitious framework during the 15th meeting littering of our product consumables.
Therefore, our ambition is for our sites to achieve suppliers have waste management plans in place. of the Conference of the Parties (COP15) to the
a landfill diversion rate of 99 percent or greater.1 In addition to being compliant with relevant laws Convention on Biological Diversity (CBD) to set Biodiversity stewardship in our
and regulations, these plans should incorporate the stage for worldwide action on biodiversity.
In 2021, we achieved virtually zero production tobacco supply chain
identification of waste sources, improvement
waste to landfill globally, with a total of 1,232 In 2021, we partnered with the Biodiversity
measures, recycling programs, risk mitigation, and Designing a holistic biodiversity strategy
tons of production waste disposed to landfill Consultancy to identify the main dependencies and
communication with farmers regarding waste We understand that building a meaningful global
(representing a reduction of 77 percent compared impacts related to our tobacco leaf supply chain. Our
classification, storage, recycling, and disposal. approach to biodiversity requires the conscious
with the close to 5,375 tons in 2019). aim was to align strategy development with the SBTN
Further, we expect our tobacco suppliers to cross-pollination of various strategies and approach to set interim targets that have measurable,
We aim to achieve virtually zero waste to landfill interventions. The combined effects of nature
dispose of empty agrochemical containers safely actionable, time-bound objectives that will be revised
across each PMI manufacturing site by year-end degradation, climate change, water scarcity, and
and appropriately. In some countries, we provide once the global goals for nature have been formally
2022 while complying with all relevant waste forest loss—among other factors—are creating
additional support to ensure the collection and set by the Convention on Biological Diversity COP.
regulations and standards. By the end of 2021, a biodiversity crisis. To respond appropriately to
proper disposal of containers that held pesticides or
83 percent of our factories had achieved virtually this crisis, we must account for the synergies and As a first step, we assessed the programs currently
crop protection agents. In Indonesia, for instance,
zero waste to landfill. We now are focused on the interdependencies of environmental impacts along in place to deliver on biodiversity. These include our
we partnered with local stakeholders and Plastic
remaining sites to achieve our 2022 ambition. our value chain and put biodiversity protection at the Good Agricultural Practices program, integrated
Collective in 2021 to support the setup of a recycling
nexus of our climate, forest, and water strategies. pest management program, Zero Deforestation
All our manufacturing sites have annual waste targets center for other types of plastic waste in rural
Manifesto, renewable curing fuels program, and
supported by specific projects to ensure their delivery. communities. The project relies on a recycling hub
water stewardship efforts in addition to locally run
with 20 collection centers to provide a model for
biodiversity projects such as our diagnostic tool for
local community plastics recycling. The aim is to
environmental protection at farm level in Brazil.
recycle over 80 percent of single-use plastics in the
communities where the project is implemented, and We then focused on deepening our
to reduce environmental pollution by supporting understanding of our tobacco supply chain from
these farming communities with education and a biodiversity standpoint, evaluating its extent
economic incentives to participate. The initiative and the types of ecosystem it involves.

1
Our calculation of zero waste to landfill does not include canteen and sanitary was launched in early November; in its first 30 days
waste, which do not relate to our production processes. It also excludes the
mandated waste, generally tobacco, that we are obliged to landfill to respect of collection, around 3.7 tons of single-use waste
local regulations.
plastic was collected by community members.
190 191
This work also included a mapping of key It leverages a network of 17 weather stations located
Looking ahead
Preserve nature
dependencies and potential impacts across land in the tobacco-growing areas to maximize the
use, agricultural practices, water consumption, precision and reliability of pest forecasting models.
and forest protection. This allowed us to scope The tool increased farmers’ awareness of IPM and
the areas of application of our strategy, which helped them optimize their use of agrochemicals.
we expect to cover land occupancy, ecosystem
Further, we have started to proactively promote
conversion, water stewardship, climate change,
the use of biological compounds instead of chemical
chemical pressure, and invasive species.
CPAs and are exploring the use of beneficial We are dedicated to setting very solid foundations for our biodiversity
Toward the end of the year, we also started insects as natural enemies. As an example, approach to be best positioned to drive progress in a complex area. We
piloting various measurement instruments. In among the various IPM strategies adopted in our will further develop our biodiversity strategy, covering all relevant areas of
particular, we applied the Integrated Biodiversity tobacco supply chain in Brazil, drones are used the company and its integration within our climate, water, forest, and waste
Assessment Tool (IBAT)—including the Species to release the insect Trichogramma pretiosum reduction efforts. Noting the relevance that biodiversity and water have in
Threat Abatement and Recovery (STAR) metric—and over tobacco fields. Trichogramma are a natural our overall climate strategy and aims to preserve nature, we look forward
combined it with our spatial footprinting to draw enemy of tobacco Lepidoptera pests. Over a billion to introducing 2025 targets that reflect our level of ambition. We expect to
preliminary insights to guide us in our selection of of these insects were released in 2021, helping have a full set of targets and actionable milestones by the end of 2022.
meaningful indicators and targets moving forward. to keep crop-damaging pests under control. Massimo Andolina, Senior Vice President, Operations
Across our supply chain, PMI prohibits the use of
Integrated pest management program
CPAs classified by the World Health Organization
Our Good Agricultural Practices and integrated
as Toxicity class I and permits those in class II
pest management (IPM) program aim to protect
in well-justified cases only. We achieved our
both the environment and farmers’ health and
target of eliminating the purchase of tobacco
safety. Improving crop productivity creates value
that contains residues indicating the use of highly
for farmers and for PMI. Using less surface area to
hazardous pesticides by crop year 2020 (on
grow the same amount of tobacco can free up land
which we are reporting in this 2021 report).
for food crops, other income-generating activities,
and, potentially, biodiversity conservation habitats. We will continue delivering on our ambition to Our 10 million cubic meter target is a measure
achieve a deforestation-free supply chain. In of progress that illustrates much more: strong
Under our IPM, pests and diseases are controlled
our tobacco supply chain, we plan to become stakeholder engagement at the watershed level
by a set of cultivation practices that include, as a
forest positive, leveraging initiatives linked to and a deep understanding of, and commitment
last resort, the correct and safe application of crop
Genetically modified tobacco nature-based solutions and providing multiple to, acting on shared water challenges with a
protection agents. These practices promote healthy
benefits to support ecosystem restoration and forward-looking interpretation of water needs.
crops and safeguard biodiversity on farms and in
In line with our GAP principles, genetically enhancement. In 2022, in accordance with our
surrounding areas. We have implemented IPM plans in We are focused on achieving our goal of virtually
modified (GM) tobacco is not acceptable to Zero Deforestation Manifesto commitments,
our main tobacco-sourcing areas and provide toolkits zero waste to landfill in our manufacturing
PMI. We have solid programs in place to avoid we will expand the scope of our engagement
that help farming communities identify and implement facilities by the end of 2022, having all our
the inadvertent introduction of GM tobacco with our paper and pulp-based materials
appropriate protection practices. In certain areas, we manufacturing sites below 1 percent of waste
into the products we commercialize. suppliers, encompassing all secondary pulp-
have developed models that can predict outbreaks to landfill in their operations, and continuing
based product categories and suppliers.
of particular pests and diseases, helping farmers Specifically, we require that each lot of tobacco to reduce our total waste generation.
to understand when the use of CPAs is strictly seeds used to produce crops destined for PMI We plan to certify five additional factories to Claudia Berardi, Director, Environmental Sustainability,
necessary. As an example, a decision support system be systematically sampled and tested to ensure the AWS standard in 2022 and to continue PMI Operations
was made available to tobacco farmers and field no GM tobacco is grown for our company. enhancing water efficiency and preserving
technicians in Italy to help prevent and manage pest Specialized laboratories analyze the seeds sent water quality in our manufacturing sites. In
and disease outbreaks. The system helps the decision by all our tobacco suppliers and provide the our tobacco supply chain, we will continue
process by integrating data from forecast models, results directly to both PMI and the suppliers. to deploy our new optimization strategy to
crop scouting, and remote sensing (satellite images). It Additionally, once the tobacco is grown and identify the most meaningful interventions,
is currently used by more than 100 farmers covering a prior to purchase, we have each lot of tobacco guided by our science-based approach.
surface of 3,000 hectares, all mapped and digitalized. tested—by the same specialized labs—to ensure
it has not been genetically modified. If any
GM tobacco is detected, the lot is rejected
and does not enter PMI’s supply chain.
192 193
F U N D A M E N TA L S
Conduct R&D responsibly 196 Manage our supply 213
and transparently chain sustainably
Sustain product reliability 198 Safeguard privacy 221
Nicotine science 201 and protect data
Uphold business ethics 205 Apply fair fiscal practices 222

and integrity Prevent illicit trade 224
Respect human rights 208
194 195
Conduct R&D responsibly and transparently

Fundamentals
World-class research and Our approach Sharing our methods and findings PMI’s Postdoctoral Fellowship Program
development is powering PMI’s Thirteen candidates have taken part in the two-year
Our R&D work is focused on developing and We recognize that scientific research from tobacco
delivery of a smoke-free future. scientifically substantiating smoke-free alternatives to companies may be met with skepticism. Sharing Postdoctoral Fellowship Program at PMI Science
cigarettes for adults who would otherwise continue our science and listening to feedback are critical since its inception in 2017, covering topics ranging
Conducting our research and development (R&D)
to smoke. Eliminating combustion reduces users’ to encouraging debate with experts and the from genome engineering to human behavioral
openly and transparently is of utmost importance.
levels of exposure to harmful and potentially harmful broader public. We produce a regular briefing psychology. The program provides early-career
When coupled with scientific integrity and rigor,
chemicals compared to smoking. In conducting R&D, through our Scientific Update publication, which scientists with a toehold in both academia and
transparency helps address skepticism and mistrust
we strive for excellence in line with international complements what we share throughout the year industry. Our R&D center in Switzerland—called
and fosters the sort of collaboration and cooperation
standards—with zero tolerance for compromise in via articles in peer-reviewed journals, presentations the Cube—houses the fellows, who are provided
needed to drive positive societal change. Evidence
either our scientific methods or their execution. at conferences, and our PMIScience website. with the tools, technical skills, and methodologies
resulting from robust scientific assessments
Since 2008, we have published more than 452 they need to reach their research potential. At
advances the debate on public health and tobacco Decision-making on R&D strategy and direction
papers on smoke-free products in peer-reviewed the end of the two-year program in 2019 and
harm reduction, to the benefit of adult smokers. is handled by specific committees at the product
publications. In 2021, we continued our Open 2021, both waves of talented scientists enrolled
assessment, project design, and Board levels. Among
At PMI, R&D is the catalyst for our business Science conference series, hosting webinars and in the program had made significant contributions
other responsibilities, the Board’s Product Innovation
transformation. The rigor with which we conduct making the recordings available on PMIscience. to PMI’s scientific research and innovation.
and Regulatory Affairs Committee monitors the
our R&D—and the openness with which we com. In addition, our scientists continued to present
company’s internal scientific research, including
share our methodologies and findings—builds
efforts to substantiate the risk-reduction potential
their findings at conferences and virtual events Animal testing
confidence in our science among the scientific throughout the year in the fields of toxicology,
of our smoke-free products. Our President, Vectura Animal studies allow us to confirm in vivo what
community, regulators, and our consumers, aerosol engineering, and respiratory drug delivery.
Fertin Pharma and Chief Life Sciences Officer holds pharmacology and toxicology studies show in
protects our company from reputational risk,
overall responsibility for our R&D strategy and plans, By sharing our scientific data and papers, we allow the vitro. We use human-derived cells in vitro, but
and, most importantly, allows us to commercialize
while accountability for scientific excellence and research community and broader public to gain an in- the animal studies in vivo allow us to assess
our smoke-free products around the world.
transparency rests with our Chief Scientific Officer. depth perspective into how PMI conducts R&D and scientifically the consistency of our findings.
our research findings. We welcome objective studies
We regularly interact with an extensive network of Despite toxicology standards accepting the
by external stakeholders that seek to contribute
stakeholders, including long-term study partners, use of rodents, we are working to replace
to a science-based debate on the important
research partners, production site personnel, animal testing with non animal-based testing
societal question of tobacco harm reduction.
universities, suppliers, consumers, and regulators. approaches to the extent possible. We apply
the “3R” guidelines: replacement, reduction, and
We adhere to high scientific standards, and INTERVALS
refinement (see our Standards for Animal Testing).
our research is aligned with the U.S. Food
To address concerns over the reproducibility
and Drug Administration’s draft guidance on We hope that in time we will be able to replace much
of research results, we created a platform
modified risk tobacco products (2012). or all animal testing with alternative methods. Our
called INTERVALS specifically for tobacco harm
animal welfare committee, composed of veterinary
In conducting our studies, we aim to align with reduction science. INTERVALS is meant to be a
and scientific PMI professionals with ample experience
available international standards, such as applicable comprehensive reduced-risk product research
in animal testing, is responsible for reviewing protocols
ISO standards, OECD’s Principles of Good repository with data from a variety of third-party
and examining them for compliance with scientific
Laboratory Practice, and Good Epidemiological sources, in addition to PMI’s research data.
and animal welfare criteria. Our in vivo facility is
Practices. Importantly, all our clinical studies are
By promoting the sharing of protocols, tools, and data, accredited by the Association for Assessment and
conducted in accordance with the Declaration
this platform enables independent data reanalysis Accreditation of Laboratory Animal Care (AAALAC)
of Helsinki and the principles of Good Clinical
and collaboration. It was designed to allow all International, which sets the gold standard in animal
Practice. These standards aim to ensure the quality
relevant stakeholders to share and explore toxicity welfare for the use of animals in scientific research.
and integrity of nonclinical and clinical studies.
assessment data produced in relation to product
alternatives to cigarettes. As of the end of 2021, a
total of 87 studies, 132 protocols, and 676 data sets
had been published on INTERVALS since 2018.
196 197
Sustain product reliability Product reliability also extends to the packaging, Heat-not-burn devices
Fundamentals
storage, and transport of finished goods to ensure The electronic devices for our heat-not-burn
they reach the consumer in proper condition. product are manufactured according to internal
Packaging has a crucial role to play in this regard and standards and ISO 9001 principles and certified
also helps ensure the traceability and identification according to applicable regulations and standards.
of our products so we can act promptly should The suppliers of the devices’ electronic parts and
Our ambition to accelerate the end of Our approach issues arise. Each packaging unit has a unique components, including batteries, must also operate
cigarette smoking rests on rigorous scientific
Our quality management system (QMS) covers all our serial number that allows us to trace the entire under these quality standards. Each finished device
assessment, highly reliable products, products: smoke-free and combustible. Governance supply chain journey, from factory to market, is subject to rigorous controls before shipment.
and strict regulatory compliance. and accountability for consistent product integrity, enabling backward traceability in the case of
In case of consumer complaints regarding
quality, and reliability sits at the highest management product quality issues. Additionally, each device and
Cigarette smoking causes serious health risks the devices, PMI has established a thorough
level at PMI and is guided by our QMS, as well consumables pack has a unique serial number. In
and disease and is addictive. We take our monitoring process enabling early detection of
as internal and external standards. Our work on the event of a product recall (of which there were
duty as a manufacturer seriously to ensure consumer pain points; these insights are then
product integrity and reliability is mainly carried out none in 2021) or an identified quality incident, we
that—for adults who continue to smoke—any used to improve our products and components.
by teams in our product development, procurement, can leverage this traceability to investigate the
additives used (e.g., flavorings) do not increase
manufacturing operations, and quality organization problem and undertake any necessary containment Since the reliability and durability of devices
the health risks inherent to cigarette use.
departments. Their collective efforts ensure we actions in an efficient and targeted manner. contribute to sustainability outcomes, we strive to
For adult smokers who switch to products that preserve quality, from raw material to the retail shelf. strike the right balance between extending a product’s
Moreover, we focus on the sustainability and longevity
do not combust tobacco, it is of paramount lifetime in use (thus lowering demand on natural
Our approach to product reliability starts with our of our products by embedding eco-design principles
importance that these alternatives are scientifically resources) and updating and improving the product’s
contracted farmers and suppliers. We work with them and post-use collection schemes. Learn more here.
substantiated to demonstrate that they present effectiveness and competitiveness in the market.
to secure high-quality raw materials and components,
less risk to health than continued smoking, and also
applying robust procurement processes, detailed Smoke-free products
that they are developed, tested, and manufactured Heated tobacco units
auditing, and rigorous quality assurance procedures.
according to applicable regulations and standards Smoke-free products include heated tobacco and IQOS heated tobacco units (HTUs) are inserted
to ensure consistent product integrity and quality. Our factories are designed to manufacture e-vapor products, which comprise consumables and into the device holder by the consumer. Each
our products to the highest quality standards, electronic devices subject to strict design controls. unit is composed of a tobacco plug (also
Delivering a smoke-free future relies on the
following the ISO 9001 certification principles. The process ensures that the product is developed containing a metal susceptor in the case of TEREA
development and commercialization of products
This includes, for example, the careful selection of according to predefined and controlled criteria consumables), hollow acetate tube, polymer-film
that meet both stringent scientific requirements and
materials that come in contact with semifinished and demonstrates reduced toxicity compared with filter, cellulose acetate mouthpiece filter, and filter
technical design criteria. Investments to maintain
and finished products during manufacturing cigarette smoking. Any alterations to the product papers. The uniquely processed tobacco plug is
and continuously improve the reliability of our
and the appropriate training of operators. are made under a strict change management made from a reconstituted blend of high-quality
products enable us to protect our reputation and
process that assesses the impact of the change tobacco leaves. We disclose the ingredients of
brand equity while complying with regulations. Our manufacturing quality management systems
on the product’s quality, safety, performance, our heated tobacco units on our website.
are subject to inspection by authorities and certified
and regulatory compliance. In addition, as part of
bodies. Globally, a team of around 1,800 product The manufacturing of heated tobacco units
product development, we apply use-hazard analysis.
quality associates ensures that quality assurance, demands high levels of precision and consistency.
We assess the risks related to the intended use
control, and improvement covers incoming materials, For instance, the diameter of the unit, as well as the
and foreseeable misuse of the product, and we
semifinished components, and finished products properties of the cast leaf, are crucial to product
implement appropriate mitigation measures.
across our global footprint. Additionally, we have performance. Heated tobacco units are also tested
more than 102 corporate quality professionals for stability, using standard protocols covering
who establish and embed standards throughout different temperature and humidity ranges. The
our QMS processes. We supplement these design and packaging aim to preserve product
measures with dedicated third-party quality quality and safety in the various conditions to which
management programs and by placing a PMI quality it may be subjected (read more on PMIScience).
assurance colleague on-site at each key electronic
manufacturing supplier of our smoke-free devices.
198 199
E-vapor products Combustible products Nicotine science For that to happen, adults who otherwise would
Fundamentals
Our e-vapor devices use a cartridge containing continue to smoke need access to nicotine products
an e-liquid. The product’s reliability depends on Our combustible products are also subject to that are less harmful alternatives to cigarettes.
the integrity of the tank; if the tank is tampered stringent product development controls. We strictly
adhere to product specifications and regulations for Among the leaders of change are public health
with, the product could fail. We recognize a trade-
cigarettes and apply further internal requirements organizations and regulatory bodies, whose opinions
off between product reliability and recyclability, Tobacco naturally contains nicotine.
to ensure the highest quality products. We disclose and decisions impact everyone involved. Many
but prioritize safety: We use closed tank systems
the ingredients used in our conventional products on Therefore, so do combustible tobacco scientific experts and public health organizations
in the development and commercialization of
our website. These ingredients undergo toxicological products such as cigarettes and cigars, as support the role of tobacco harm reduction as a
e-vapor products. We also test our packaging
to ensure compliance with local regulations, assessment to ensure their use does not increase the well as smoke-free products such as oral and complement to existing tobacco control measures.
inherent toxicity of cigarette smoke. We keep abreast heated tobacco. While e-cigarettes do not They also recognize the important role of nicotine
including the EU Tobacco Products Directive,
of strengthening or pending regulation, and a further contain tobacco, most do contain nicotine, in tobacco harm reduction to help smokers
and we engage external agencies that test the
transition away from the use of cigarettes.
integrity and safety of our e-liquid packaging. regulatory compliance assessment is performed to which typically is extracted from tobacco.
ensure compliance with applicable regulations. The U.K.’s Royal College of Physicians has said:
Nicotine is the best-known molecule in tobacco. “Nicotine is not [...] in itself a highly hazardous drug [...]
Besides tobacco ingredients, we use nontobacco
Because it is so well known and because smoking is It is inherently unlikely that nicotine inhalation itself
materials such as cigarette paper, filters, and
the most common source of nicotine uptake, people contributes significantly to the mortality or morbidity
packaging materials in our products. These
tend wrongly to attribute all the dangers of smoking caused by smoking. The main culprit is smoke and, if
materials also undergo toxicological assessment,
to nicotine. While nicotine is addictive and not risk- nicotine could be delivered effectively and acceptably
and we assess packaging materials following the
free, it is not the primary cause of smoking-related to smokers without smoke, most if not all of the
main requirements for food contact materials.
diseases. These diseases primarily are associated with harm of smoking could probably be avoided.”1
We warn consumers about the health effects chronic exposure to the high level of toxic substances
of our products. All advertising and consumer emitted in the smoke when tobacco is burned. In fact,
packaging for these products must contain clear nicotine is a key ingredient in nicotine replacement
and visible health warnings (read more about therapies designed to help smokers quit smoking. Cigarette
our marketing and sales practices here).
That said, nicotine is addictive, and it can be difficult Nicotine
to quit tobacco- and nicotine-containing products.
It can also cause an increase in a person’s heart rate
and blood pressure. Minors, pregnant women, nursing Made from
tobacco
mothers, and people with existing conditions such
Present in tobacco
as heart disease, high blood pressure, diabetes, or and other plants
epilepsy should not use nicotine-containing products.
Contains
Independent studies have shown the harm nicotine and
is addictive In cigarettes, most
reduction potential of making better alternatives
smoke-free
to cigarettes available to those adult smokers products, and nicotine
who would otherwise continue to smoke (read Lit on fire to replacement therapies
create smoke
Ingredients in our heated tobacco units and e-liquids more here). If nicotine could be provided in an
Addictive
amount, and with rate of delivery, acceptable to
Heated tobacco units and e-liquids are manufactured using ingredients compliant with all applicable adult smokers, it could be effective as a cigarette Produces tar and
regulatory requirements and with industry and PMI standards. The tobacco used in our heated substitute, and millions of lives could be saved. harmful chemicals
tobacco products is tested for the presence of crop protection agent residues to ensure it does not Not primary
exceed permissible levels per industry guidelines. Nicotine and nicotine salts used in e-liquids must cause of smoking-
related diseases
satisfy U.S. or European pharmacopoeia specifications. All other ingredients (with the exception of Causes
flavoring extracts from tobacco) are either food grade or satisfy U.S. or European pharmacopoeia smoking-related
diseases Certain groups
specifications. We do not use any ingredients classified as carcinogens, mutagens, or reproductive
of people should
toxicants. All consumable ingredients—and also non-substrate material, such as the plastic and not use
other components of cartridges that house the e-liquid and the paper and other components
that house the tobacco mixture—are subject to rigorous toxicological risk assessment.
1 www.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobacco-
harm-reduction
200 201
Our approach In this domain, we are acting on three axes: Analyzing the risks and potential Nicotine and addiction
Fundamentals
Nicotine plays a key role in the successful adoption 1. We continue to analyze the risks and potential benefits of nicotine use Nicotine is an addictive chemical compound present
of our smoke-free products. Its presence can help benefits of nicotine use when not in combination in tobacco and tobacco products. But the addictive
adults who would otherwise continue smoking to with combusted tobacco and share our findings to What is nicotine? properties of smoking involve a more complex
switch to less risky alternatives instead. In addition encourage a science-based debate on this interaction of factors than nicotine alone. Ritual,
Nicotine occurs naturally in tobacco and, at
to taste, ritual, and the sensory aspects, nicotine important societal question. More information the sensory experience, and social experiences
significantly lower levels, in some other plant
uptake that is comparable to cigarettes is important can be found in our eighth Scientific Update, also play a significant role in addiction. Exposure
varieties from the Solanaceae family, which includes
for adult smokers to accept novel alternatives to which is dedicated to a review of nicotine. to nicotine and the extent of its effects can also
tomatoes, potatoes, and eggplant. It is possible to
smoking. Taking these aspects into consideration, we 2. We understand the need for, and actively work be influenced by individual differences in smoking
extract nicotine from tobacco, as is done to derive
have researched and continue to develop a portfolio toward, commercializing tobacco and other behavior, metabolism, body mass, and genetics.
the nicotine contained in nicotine replacement
of smoke-free products that are a better choice for nicotine-containing products responsibly. We aim therapy (NRT) products and e-liquids for e-cigarettes. Continual use of nicotine may lead to dependence or
adult smokers than continuing to smoke cigarettes. to guard against marketing and sales of our It is also possible to produce synthetic nicotine. physiological adaptations to maintain homeostasis,
smoke-free products to nonsmokers and minimize While this process is relatively costly, there are an which are most evident in the emergence of withdrawal
We are working hard to achieve a future without
access for underage purchasers. Our increasing number of products (e-liquids and nicotine symptoms experienced during cessation. In addition
cigarettes. As society progresses toward the
commercialization practices support this business pouches) that are now using synthetic nicotine. to other physiological responses, long-term use of
elimination of cigarettes, the most harmful form
vision: To make adult smokers aware that better nicotine can induce changes in the brain’s reward
of nicotine delivery, there needs to also be The route of nicotine administration (e.g., via the lung,
alternatives to cigarettes exist and to move those and stress systems, which may manifest as anxiety,
education and a societal debate about nicotine mouth, or skin) influences the speed and amount
who otherwise would not quit cigarettes to our dysphoria, and other negative affect states during
that is grounded in science. The world will certainly of nicotine uptake into the body. When tobacco
smoke-free products. Doing this responsibly by long-term withdrawal. Physiological dependence,
be a better place without cigarettes, but it is smoke or e-cigarette aerosol is inhaled into the lung,
directing our marketing and sales activities coupled with altered responses from the reward and
difficult to envision how to achieve this in a timely it is rapidly absorbed into the bloodstream and can
toward adult smokers and providing them with stress system, can make quitting very difficult.
manner without nicotine-containing alternatives reach the brain as quickly as 10–20 seconds after the
accurate and relevant information about our
that deliver an acceptable sensory experience. puff is taken. Nicotine from oral tobacco products The rapid uptake and delivery of nicotine to the brain’s
products is fundamental to our long-term success.
Read more about our sales and marketing (e.g., snus, nicotine pouches, NRT gum) is absorbed reward system via lung delivery is thought to be a
practices here. into the bloodstream through oral tissues, and the primary reason for the addictive potential of cigarettes
nicotine concentration in the blood rises gradually, and other inhaled tobacco products. When someone
3. We conduct post-market studies to understand
reaching a plateau in about 30 minutes. The rise in smokes a cigarette, the nicotine levels peak quickly
how our products are used and by whom. Such
brain nicotine concentration is slower compared with (in about six to 10 minutes), and then the level of
studies verify the results of our premarket
the inhalation route. A certain amount of the orally nicotine drops fairly rapidly as it is metabolized. Most
perception and behavior assessments and
administered nicotine is swallowed and absorbed, nicotine replacement therapies do not provide this
monitor whether current adult smokers switch to
mostly in the small intestine, before passing to same pharmacokinetic profile, making them less likely
the products, as well as whether never or former
the liver, where it is metabolized (i.e., transformed to be addictive but also less likely to satisfy smokers.
smokers use them. By conducting post-market
to facilitate excretion of nicotine from the body).
studies, we are able to evaluate potential changes Two critical factors are the dose and rate of nicotine
Nicotine, when absorbed through the skin, reaches
in prevalence; assess initiation, relapse, and delivery. NRTs and other cessation products can help
a plateau concentration in the blood more slowly
complete-quit rates; and compare the use of address nicotine withdrawal symptoms. The use of
than via other routes of administration. However,
cigarettes and smoke-free products. NRTs is recommended for eight to 12 weeks, although
the level typically is maintained for a longer period.
use for six months or longer may be necessary to
Once nicotine is absorbed into the circulatory achieve optimal quit rates. It makes sense to use
system, it is distributed to all body tissues and NRTs to support smoking cessation for as long as the
organs, including the brain. There, nicotine binds individual feels at risk of relapse. NRTs, however, are
to specific receptor molecules, mimicking the not as satisfying as cigarette smoking. Firstly, they
actions of a naturally occurring brain chemical, do not provide the ritual, sensory experience, and
the neurotransmitter acetylcholine. Nicotine is social components that complete the experience of
metabolized mainly in the liver. Nicotine absorbed consuming nicotine via smoking. Secondly, the route
via the lung and oral tissues reaches the brain and speed of absorption of nicotine is different: Often,
directly without first passing through the liver to the NRTs that rapidly deliver high doses of nicotine,
be metabolized, whereas nicotine absorbed via the such as sprays and inhalators, are more satisfying to
gut passes first through the liver to be metabolized smokers than are those that slowly deliver nicotine
and is partially excreted before reaching the brain. at much lower doses, such as gums and patches.
202 203
Nicotine in our heat-not-burn product After reviewing the scientific package on IQOS, the
Uphold business ethics and integrity
Fundamentals
U.S. Food and Drug Administration (FDA) concluded,

For adult smokers who would otherwise continue
“[Pharmacokinetic] studies show Marlboro, Smooth
to smoke, scientific innovation provides increasingly
Menthol, and Fresh Menthol Heatsticks have nicotine
better ways to deliver nicotine while preserving the
delivery, addiction potential, and abuse liability
perceived benefits and enjoyment for the consumer.
similar to combusted cigarettes. This is potentially
Nicotine delivery from smoke-free products can beneficial for smokers trying to switch to IQOS as
We conduct business ethically and Our approach
with integrity. We clearly define the
resemble that of a cigarette; thus, these devices tend they are more likely to have satisfactory results We understand that PMI’s reputation comes from
to be much more satisfying for those switching to a
ethical and compliance expectations the sum of our actions. To ensure we conduct
and not resume [combusted cigarette] smoking.”2
less harmful substitute to cigarette smoking. Our IQOS
we have for ourselves and for the business ethically and with integrity, we maintain
heat-not-burn product is a smoke-free alternative Therapeutic delivery of nicotine third parties with whom we work, and an Ethics & Compliance (E&C) program. The
for adult smokers who would otherwise continue we back up these expectations with program is led by our Vice President and Chief
The public health and scientific communities
smoking and is not a smoking cessation product. governance and management systems Ethics & Compliance Officer, who reports to PMI’s
continue to explore ways in which nicotine, when
isolated, can be used as a potential therapeutic
to ensure we deliver on them. General Counsel and also reports periodically to
Nicotine plays an important role in encouraging
the Audit Committee of the Board of Directors.
adult smokers to switch from cigarettes to better compound.3 Scientists are studying nicotine as
Managing ethics is an integral part of any successful
alternatives such as IQOS. Therefore, it is important a possible active ingredient in pharmaceutical Our Guidebook for Success (PMI’s code of conduct)
business operation, and major decisions that affect
for IQOS to have a nicotine delivery profile similar applications for the treatment of certain disease sets clear standards and expectations. Its mandatory
a company’s bottom line often involve questions of
to that of a cigarette. In two studies conducted in states as it could confer specific health benefits. provisions apply to all PMI employees, officers,
ethics. We all depend on systems that apply laws fairly
Japan, the peak concentration of nicotine in the These include treatments for patients suffering from and directors. Key risk areas addressed in this
and protect fundamental rights. Without the rule of
blood occurred about six minutes after starting schizophrenia, depression, and anxiety disorders. document include anti-bribery and anti-corruption,
law, it is difficult for companies to operate successfully.
IQOS use and reached more than 88 percent of Scientists are also studying the effects of nicotine anti-competitive practices, conflicts of interest,
Issues such as corruption, unfair competition, and
the level attained with cigarettes. It, therefore, has on debilitating diseases and disorders such as information protection security and data privacy,
unsafe workplaces undermine societal well-being.
an addictive potential similar to cigarettes. But Tourette’s, Alzheimer’s, Parkinson’s, attention deficit responsible marketing and sales, scientific integrity,
at the same time, IQOS has the potential to be a hyperactivity disorder (ADHD), and others. While following the rules is critical, it is sometimes supply chain responsibility, and workplace integrity.
satisfying alternative to continued smoking, the not enough. It can be possible to behave unethically Internal policies—called Principles & Practices—
We believe a greater societal focus on the
most harmful form of nicotine consumption. even while complying with the law or other rules. provide more-specific guidance on these topics.
health impact of nicotine in isolation is needed,
Good ethical judgment helps us guard against
and we plan to play our part in furthering
such failures and build lasting business success. Evaluating our Ethics & Compliance culture
this understanding through our research.
We formally evaluate our E&C culture periodically,
using a global online survey to understand
HE ATED
TOBACCO
employee experiences and attitudes related
to ethical business conduct. For the last 15
years, PMI has been surveying its global
Heats
tobacco without employee population every two to three years,
burning including most recently in September 2021.
CI G ARE T TE S
According to the 2021 E&C survey results, PMI
is stronger on ethics than at the time of the 2018
survey. The global survey results showed improved
Contains real Smoke-free
tobacco Electronic or maintained performance across all categories
device of questions. Most notably, we saw very high
NICOTINE awareness among respondents of the company’s E&C
program, our Guidebook for Success, our compliance
Burns Heats liquid helpline, and the duty to speak up should concerns
tobacco nicotine
arise. Analyzing the survey results helps us identify
Releases smoke No
potential improvement opportunities. Current focus
and ash tobacco areas include reinforcing the importance of employees
speaking up when they observe potential misconduct,
even if they think someone else will report it, and
E-VAP OR
enhancing leadership communication on E&C topics.
2 The FDA does not endorse or approve tobacco products.
3 www.health.harvard.edu/newsletter_article/Nicotine_It_may_have_a_good_side
204 205
In addition to the employee surveys, we There is a strong speaking-up culture at Compliance investigations
Fundamentals
periodically work with third parties to assess PMI, with most employees communicating
At PMI, we take all reports received through our
elements of our E&C program, which we did directly with the E&C department and
speaking-up channels seriously and are committed to
in 2021 and plan to do again in 2022. disclosing their identity when speaking up.
following up objectively and in a timely manner. We
Employee communication and training Specifically, in 2021, only 22 percent of the investigate all reports that raise compliance concerns,
reports received by E&C were submitted and we involve other functions or line management
We use training and communication to help
anonymously. According to the 2021 E&C results, to help resolve other concerns. Corrective measures Looking ahead
employees understand which standards are
the vast majority of employees are aware of PMI’s are implemented to address investigation findings, Ethics and integrity are core components of
relevant to their roles and how to apply them in
anonymous reporting channels and do not fear and disciplinary actions are calibrated against past our culture at PMI. We are committed to our
their daily work. We reach broadly across the
retaliation for reporting potential misconduct. actions to keep the process fair. When investigating employees, our customers, our shareholders,
organization using multiple formats and languages.
These statistics indicate that employees feel suspected E&C violations, trained personnel adhere and our communities to conduct business
In 2021, 71.3 percent of employees received training comfortable speaking up and sharing their names. to PMI Investigations Standards, which are designed in an ethical manner and in compliance with
related to topics in the Guidebook for Success.1 to ensure a fair and respectful process. We run a
In addition, the E&C team continues to increase all applicable laws and regulations. In 2022,
Employees and third parties completed a total of post-investigation quality assurance program to get
its outreach to employees on PMI’s speaking- as our company progresses further on its
261,890 training sessions (2020: 198,170).2 Key feedback on how well we met these standards. We
up program. As part of our Inside E&C initiative, transformation journey, we plan to build on
topics addressed included workplace integrity, also have a Retaliation Check program to detect,
for example, the department shares quarterly this solid foundation and will continue to
speaking up, conflicts of interest, responsible remedy, and prevent retaliation against people who
statistics with employees globally about implement and enhance our global ethics and
marketing, privacy, intellectual property, insider speak up, which includes regular follow-ups with
speaking-up reports, compliance violations, and compliance program. Among our initiatives
trading, information protection, competition law, employees who have made a report. We also run
disciplinary actions, as well as anonymized real-life for this year, we will launch a new Code
and anti-corruption. Training completions for 2021 checks to ensure year-end performance assessments
examples of misconduct and advisory guidance of Conduct, roll out global training on key
continue to be recorded in the first quarter of 2022, are fair, and we review substantial employment
provided in response to employee questions. compliance risks, and continue to encourage
so a slight increase in these figures is expected. decisions regarding all people identified as at risk of our employees to speak up in case of concerns.
Furthermore, in 2021, E&C launched the retaliation before the decisions are implemented.
Speaking up #UnmuteYourself campaign to encourage
We received 929 reports of suspected misconduct Suzanne Rich Folsom, Senior Vice President
At PMI, there are many ways to speak up speaking up across all regions. The initiative
in 2021 (2020: 762). Around 43 percent of the & General Counsel
about potential misconduct, get help on was championed by members of the Company
Management team and resulted in management matters that were closed in 2021 did not involve
an E&C matter, ask a related question, or a compliance allegation and were resolved
recommend an improvement. Mechanisms teams and employees across PMI regularly
referring to speaking up during business calls. through E&C advisory services or referred to line
include, but are not limited to, the following: management or appropriate departments, such as
a. E&C in-person contacts (e.g., Regional Director, our People & Culture teams, for further action.
Preventing bribery and corruption
Cluster Head, E&C Country/Market Head) In 2021, we investigated and closed 508 cases that
b. PMI Global E&C email address Our standard is clear: We do not bribe anyone,
involved potential violations of PMI’s Guidebook
c. PMI Compliance Helpline (online or by anywhere, for any reason. We recognize that
for Success and compliance policies (2020: 431). At
telephone), which is operated by a third our refusal to participate in corrupt activities
least one violation was substantiated in 46 percent
party and available 24 hours a day, seven may make doing business more difficult in some
of these cases (2020: 54 percent), with “theft and
days a week, in all languages spoken at PMI markets, but bribery is unacceptable at PMI.
fraud” accounting for 30 percent of all violations
(employees may use the helpline anonymously, (2020: 22 percent), “workplace integrity” accounting Our anti-corruption standards regulate our
subject to local laws and regulations). for 22 percent (2020: 30 percent), and violations interactions with government officials and entities,
PMI also has implemented a Global Speaking related to speaking up (such as failure to speak up as well as with private individuals, both directly
Up Policy, the principles of which are reinforced or obstructing an investigation) accounting for 14 and through third parties. These standards prohibit
in the Guidebook for Success (PMI’s code of percent (2020: 20 percent). Corrective measures all forms of bribery and facilitating payments.
conduct) and in all PMI compliance policies. and disciplinary sanctions were implemented They also describe acceptable forms of giving
following these investigations. Specifically, in 2021, and receiving gifts or entertainment, govern
termination of employment accounted for 26 political contributions, and set clear pre-approval,
percent of the disciplinary actions issued from these reporting, and registration requirements.
cases, while suspension accounted for 5 percent,
We publicly disclose the very limited
written warning for 32 percent, and verbal warning
political contributions we make on PMI.
or counseling for the remaining 27 percent.
1 As of 2021 the calculation is based on the 55,276 employees
com, and we follow lobbying regulations.
maintained in PMI’s central HR system.
2 2021 training completion data as of March 17, 2022.
206 207
Respect human rights

Fundamentals
Protecting and promoting the rights of Our approach This umbrella approach is grounded in the UNGPs and centered on four pillars:
our stakeholders is paramount. As a global • A sound policy framework: Our work is governed • Remediation: We implement measures aimed at
Across our value chain, we aim to address our
company, we work on upholding human adverse impacts and maximize opportunities to by PMI’s Commitment to Human Rights, which is addressing adverse impacts and maximizing
rights within our organization and across our drive positive change for people. Setting a strong complemented by other PMI policy instruments opportunities to drive positive change for people
value chain. We work to ensure that human foundation and integrating mechanisms that promote such as our Guidebook for Success, Responsible across our value chain. We seek to collaborate with
rights are respected and upheld by our respect for human rights into our organization Sourcing Principles, Good Agricultural Practices, civil society organizations, governments, and the
business partners, including our suppliers. are essential. While this can be challenging given Marketing Codes, and internal policies such as our private sector on initiatives to design and deploy
the scope and complexity of the issues and the Workplace Integrity Policy. Together, these strong and impactful solutions.
Human rights are inherent to the dignity of human breadth of our operations, we believe that human mechanisms guide the implementation of PMI’s
• Transparency: A complex global value chain brings
life and a prerequisite for society to prosper. The rights are an absolute and universal requirement—a Commitment to Human Rights along our value
potential human rights risks that we need to
United Nations Guiding Principles on Business and requirement we are committed to upholding. chain. Awareness-raising and training help us embed
understand, manage, and continuously address.
Human Rights (UNGPs), as well as academia and civil those instruments and an ethos of respect for
We seek to continuously improve our policies Transparency on our progress and challenges
society, recognize that businesses can impact human human rights within our corporate culture.
and practices with respect to identifying through our annual reporting and targeted
rights both positively and adversely and should
and addressing risks and impacts to “rights- • Rigorous due diligence: We have robust programs communications is key to our approach.
account for and manage these impacts. At PMI,
holders” across our value chain by securing and processes in place to identify our adverse
fostering the promotion and continuous integration
our supply of raw materials responsibly. impacts across our value chain. These include our
of human rights considerations into our strategy,
company-wide integrated risk assessment, human
policies, and business practices is not just the right To strengthen our due diligence framework, rights saliency mappings, and HRIAs. We also deploy
thing to do; it also helps anticipate evolving legal proactively identify risks, and mitigate potential targeted due diligence programs focused on areas of
requirements and minimizes our financial exposure adverse impacts in our operations and value chain, we potential risk, such as in our tobacco and electronics
and the risk of supply chain disruptions. Further, have set an ambition to conduct human rights impact supply chains, as well as external assessments and
safeguarding and promoting human rights within assessments (HRIAs) in the 10 highest-risk countries verifications.
our value chain creates the basic environment and in which we operate by 2025. Our HRIAs are carried
conditions in which our stakeholders, including our out by independent expert organizations and follow a
employees and workers across our supply chain, formal process aligned with the UNGPs. They result in
can thrive and create value. In combination with a tailored action plans, which we monitor and report on.
positive, inclusive culture and sound management,
Our efforts to safeguard and promote human Policy
this provides the space and opportunity needed for
rights underlie many of the activities and framework
our key business enablers of innovation, collaboration,
programs described throughout this report. A
continuous improvement, and execution.
dedicated cross-functional team at our central
operations coordinates our approach.
Focus on
Transparency rights-holders Due diligence
Remediation
208 209
Moving forward, we will increase our reach by We then assessed our current risk-mitigation The cumulative learnings from each HRIA we Throughout 2021, we continued monitoring
Fundamentals
translating the modules into additional languages. instruments and mechanisms and benchmarked have conducted since 2018—along with the the implementation of actions recommended
them against international standards and monitoring of their action plan implementation— by previous HRIAs in Mexico, Mozambique,
In addition, we hosted tailored training sessions
other industry practices. This allowed us to help us to become more demanding, professional, Russia, and the Philippines. The local teams
for the executive teams in our Middle East &
develop recommendations to strengthen our and sophisticated in our approach. We aim to are strengthening their internal policies and
Africa Region to raise awareness of human rights
risk identification and response and further assess our 10 highest-risk markets by 2025. practices as they execute their action plans.
risks there and address them proactively.
build our capacity to address salient risks.
The completion of a second HRIA planned for 2021,
Identifying human rights risks in The exercise demonstrated that our visibility and risk in Malaysia, had to be postponed to 2022. Because of
our electronics supply chain management was robust at the tier 1 and tier 2 supply the COVID-19 pandemic and related precautions, the
Following the refresh of our global human chain levels, as well as for specific minerals—such as exercise is now designed to be conducted virtually. 10
cobalt and tin, tantalum, tungsten, and gold (3TGs)— Target
rights saliency mapping in 2020 (see details in This has necessitated pre-assessment trainings and
our 2020 Integrated Report), we undertook at the tier 3 level and beyond. It highlighted PMI’s
capacity building to ensure our local colleagues are
an analysis of our electronics supply chain, potential to influence human rights performance
sufficiently familiar with the concept and purpose
which we completed in early 2021. through direct engagement and capacity-building
of the assessments. Involving our local teams in
activities, as well as through the continued integration
In collaboration with Article One, who are leading the HRIAs is essential to maximize the value these
of circularity and social responsibility principles in our
advisers in the business and human rights arena, assessments bring both to the market and to the
product development processes. This exercise also
we mapped and prioritized salient human rights rest of our organization. Each HRIA informs the
affirmed that our visibility into the upstream plastics 5
risks for our extended electronics supply chain, way we operate and inspires adjustments to ensure
supply chain and subcontracted services contracted
which includes our electronics manufacturing the protection and promotion of human rights. 4
by our tier 1 and tier 2 suppliers remains limited.
services and mechanical and electrical components. Accordingly, this is an area of opportunity for PMI to The HRIA in Malaysia will incorporate potential
This assessment validated some of our existing use its leverage to advance respect for human rights human rights risks resulting from our downstream
assumptions around potential risks and surfaced supply chain for the first time, including some of our 2
further upstream in the electronics supply chain.
new ones that were less apparent to us. These IQOS retailers. We kicked off the HRIA in September
ranged from working hours and wage-related risks Conducting human rights impact 2021 and plan to communicate findings in our next
in the subcontracted services supply chain, to the assessments in our highest-risk markets report. Future assessments will be conducted in
responsible sourcing of minerals, metals, and plastics. person once the public health situation allows it. 2019 2020 2021 2025
A critical component of our due diligence framework
is having independent expert organizations carry
out HRIAs in our highest-risk markets in accordance
with the UNGPs. After each assessment, the third-
party organization presents its findings and suggests
ways to address issues identified. The report is
shared with the corresponding market leadership C A S E S TU DY
team, which develops a time-bound action plan in
collaboration with the relevant corporate function, Assessing human rights
assigning responsibilities for implementation
and progress measurement at the local level.
impacts in the tobacco supply
chain in Turkey
In 2021, we conducted our fifth HRIA since 2018.
Aiming to maintain our leadership in promoting
and protecting human rights, we took a collaborative
approach by engaging in a multistakeholder tobacco
leaf supply chain assessment in Turkey. This unique
industry-wide initiative seeks to better address
human rights issues on the ground by identifying
synergies between stakeholders.
a Read more in our case study
210 211
Empowering our low- and medium-risk Exploring climate justice—the intersection

Manage our supply chain sustainably
Fundamentals
countries to assess human rights impacts of human rights and climate change
To ensure all countries are assessed, not just those We recognize that climate change impacts not just
at highest risk, we piloted a new type of HRIA the environment but also people’s economic and
process and toolkit in 2021 aimed at enabling our social well-being. Climate change has exacerbated
medium- and low-risk country affiliates to self- human rights issues and disproportionately affects Our supply chain accounts for a Our approach to sustainable supply chain
identify salient human rights risks in their markets the most vulnerable people around the world. In significant portion of our potential social management is built on the following core principles:
and develop action plans to address them. 2021, we commissioned a briefing paper (available and environmental risks and impacts, • Proactive engagement is key to fostering open and
The tool was piloted in our Benelux market
here), prepared by our human rights advisers Article which we are committed to identifying, transparent relationships with our suppliers in which
(Belgium, the Netherlands, and Luxembourg), with
One, to explore where and how the issues of climate managing, and addressing responsibly. expertise is shared and built together.
change and human rights intersect in the agricultural
a focus on identifying human rights risks before • We take a risk-based approach, deploying tailored
supply chain. This is an essential step in developing Our operations rely on securing high-quality, cost-
they could have a significant adverse impact. tools and interventions and prioritizing areas in
coherent and inclusive strategies across our supply effective, and fit-for-use materials and services
The Benelux team developed a practical action which we can have the greatest impact.
chain to help mitigate the impacts of climate change. from suppliers who are expected to adhere to
plan with short-term objectives that allowed
PMI’s environmental, social, and governance (ESG) • We seek to support our suppliers in continuously
it to meet and exceed evolving standards and
Grievance mechanisms requirements. In addition to strengthening regulatory improving their sustainability performance and
stakeholder expectations across all three markets.
Providing access to effective grievance mechanisms compliance and preventing reputational risks, achieving the highest standards of compliance.
Our affiliate in Mexico also participated in the responsible supply chain management enhances
in our operations and across our supply chain • We leverage our reach and understanding of our
pilot phase of the human rights self-assessments. our resilience and supports our ability to secure
is a key requirement of the UNGPs and a core supply base to implement impactful programs and
This exercise had a two-fold objective: To account the resources needed to deliver on our company
element of our due diligence approach. accelerate progress in our sustainability corridors,
for potential risks related to the pandemic and to purpose. At the same time, it acts as a lever to make
Internally, we maintain clear policies, run regular such as our efforts to tackle climate change, protect
evaluate the status and progress of the action plan tangible positive contributions to environmental
training, and work to ensure that robust processes nature, and promote fair working conditions.
implementation following the 2018 HRIA (read and social issues. We seek to actively engage with
more here). The self-assessment in 2021 confirmed are in place to encourage employees to speak up our suppliers to minimize our social and ecological Our supply chain sustainability strategy is grounded
that we had strengthened our practices across all if things don’t seem right or can be improved (read footprint, and we strongly believe we can bring in our Responsible Sourcing Principles (RSP), which
areas identified in 2018. Moreover, engagement more here). The same applies to our supply chain, positive value to those with whom we collaborate. align with the UN Guiding Principles on Business
with external and internal stakeholders shed light where our Responsible Sourcing Principles (RSP) and Human Rights (UNGPs), the Ten Principles
specifically ask suppliers to provide their workers
on the need to focus on three additional topics: Our approach of the UN Global Compact, and International
(1) protecting employees’ work–life balance with easily accessible ways to raise concerns, Labour Organization (ILO) Conventions. The RSP,
while working from home; (2) promoting equal free from risk of retaliation. In our tobacco supply We aim to purchase goods and services from together with its corresponding Implementation
conditions for women and men, considering chain, our Agricultural Labor Practices (ALP) Code suppliers at best value, commensurate with business Guidance, detail our ambitions and set process
that women are often responsible for childcare; states: “Workers should have access to a fair, requirements, while appropriately managing supply, and performance standards for our suppliers of
and (3) supporting employees’ mental health. transparent, and anonymous grievance mechanism.” financial, legal, quality, and sustainability requirements. materials and services, from the direct materials
Such mechanisms are available in some countries We seek continuously to identify and address current used in manufacturing our products to the goods
We will fine-tune our self-assessment toolkit and potential risks while also seizing opportunities to
where we source tobacco and concerns can and services required to run our business.
with learnings from these pilots prior to rolling it create a positive impact in the communities in which
be raised with field technicians at any time.
out more broadly in the second half of 2022. we and our suppliers operate, thereby increasing We expect all our suppliers—and in particular our
We continue to review and look for opportunities critical suppliers—to demonstrate high sustainability
the sustainability performance of our supply chain.
to strengthen further the grievance mechanisms performance and compliance with the expectations
We work with suppliers and contracted tobacco
that exist in our operations and value chain. of our RSP and Good Agricultural Practices
farmers to achieve a solid economic performance and
tangible environmental and social improvements. (GAP). And we have set a commitment to source
Looking ahead sustainably from all our critical suppliers by 2025.
We remain committed to respecting and promoting human rights across our value chain. In 2022, we plan Adherence to our RSP—and GAP for our tobacco
to review our Commitment to Human Rights to identify potential opportunities to strengthen it. We will also supply chain—is built into our contractual agreements
translate our human rights e-learning into additional languages spoken at PMI to roll it out further across our with suppliers. We monitor the activities of our critical
organization. We plan to complete our HRIA in Malaysia, expanding it to assess downstream impacts, and we suppliers through a suite of tools, including third-
expect to conduct an HRIA in one additional market in 2022. In addition, we will fine-tune our human rights party assessments, on-site audits, and field visits.
self-assessment tool and plan to deploy it in several markets during the year. We will analyze the recommendations
generated by the human rights saliency mapping of our electronics supply chain and leverage our Responsible
Business Alliance (RBA) membership to address suppliers’ RBA audit findings and other areas of improvement.
212 213
We apply tailored due diligence instruments and The sustainable sourcing of goods and services Over the years, the management of our supply Monitoring the sustainability
Fundamentals
mechanisms within specific segments of our supply involves a broad cross-functional collaboration within chain has proven sufficiently robust, flexible, and
chain. In our tobacco supply chain, our work is PMI, driven by our Procurement and Leaf teams and efficient to support our operations’ evolving needs
performance of our critical
governed by GAP and our Agricultural Labor Practices overseen by our Senior Vice President, Operations. and PMI’s business transformation. Currently, our suppliers
(ALP) Code, which are operationalized at farm level global supply chain supports our two main finished Increasing the visibility of our suppliers’ sustainability
by field technicians working year-round with the Overview of our supply product streams, with a continued increase in the performance and implementing risk mitigation
farmers contracted by PMI and our suppliers. proportion of resources allocated to smoke-free
chain in 2021 products versus combustible cigarettes (smoke-free
and performance improvement measures
Our Procurement organization leverages the work are priorities. In recent years, we have taken
With over 29,000 tier 1 suppliers across more than products accounted for 35 percent of our supply
of the Responsible Business Alliance (RBA)—the critical steps to achieve and deploy tailored due
180 markets, our supply chain spend amounted chain spend in 2021, up from 33 percent in 2020).
parent organization of the Responsible Minerals diligence instruments across our direct materials,
to approximately USD 11.1 billion in 2021.
Initiative (RMI)—in our non-tobacco supply chain From a sustainability standpoint, the supply electronics, and tobacco supply chains.
and of EcoVadis in our direct materials, indirect Our global supply chain is organized into two main chain categories exposed to the highest risks Our efforts have translated into significant progress
materials and services, technical procurement, streams—direct spend (focused on materials used in pertain to our direct spend and include: toward our 2025 ambition: During 2021, 83 percent
and advanced procurement supply chains. the manufacture of our finished products) and indirect
• Tobacco production across Africa, Asia, and of our critical supplier spend was sourced sustainably.
spend (focused on goods and services necessary
Our RBA membership and EcoVadis South America, with the main risks in the areas Sustainable sourcing is determined based on a
to operate our business)—and seven categories:
partnership allow us to operationalize and of working conditions, child labor, climate minimum threshold score of 45 out of 100 in EcoVadis
implement due diligence in these complex and change, access to water, and the socioeconomic (for suppliers of direct materials) or 125 out of 200 in
dynamic segments of our supply chain. well-being of farming communities RBA (for electronics suppliers); all tobacco purchased
from contracted farmers under the integrated
• Electronics manufacturing, with the main
production system is considered to be sustainable.
risks relating to working conditions
2021 Supply chain spend Critical suppliers are those that manufacture
• Paper and pulp-based materials, with
DIRECT SPEND 41% or sell components used in the manufacture of
the main risks linked to deforestation,
PMI finished products (including direct materials,
Tobacco leaf 11% biodiversity loss, and climate change.
electronic devices and accessories, and tobacco
sourced from approximately 254,000
contracted farmers across 21 countries
During the year, the supply of direct materials has leaf). In addition to the nature of the component,
been under pressure due to high demand for primary supplier’s criticality is evaluated considering spend
Direct materials 19%
used to produce and package our commodities, a global transportation shortage, segmentation, as well as supply flexibility, as relevant.
products (e.g., cellulose acetate tow for congestion, and cost inflation, mainly driven by energy
ect spen prices. Thanks to robust business contingency plans Direct materials supply chain
Dir 41% d
cigarette filters, paperboard for packaging,
and nontobacco agricultural products and the efforts of our Operations team, we have been To strengthen our approach in 2021 further,
such as menthol and guar gum) able to manage shortages to ensure stable production Procurement successfully transitioned our
Electronic devices 10% in our manufacturing centers. We have also expanded
and accessories for heated tobacco
nonelectronics supplier due diligence program to
our supply base to secure additional supplies and EcoVadis, the leading global service provider of
and vapor products
mitigate the impact of inflation. Regrettably, the online ESG supplier assessments. This partnership
Advanced procurement 1%
prolonged impact of the global semiconductor allows PMI to access a vast number of suppliers’
to establish capabilities and supply sources
In 5
dire 9 % end to support PMI’s innovation pipeline
shortage limited our ability to realize the full potential ESG scorecards commissioned by EcoVadis users
c t sp of IQOS development and growth in 2021. (leading global companies across industries).
During the year, 87 suppliers representing 90
INDIRECT SPEND 59%
percent of our total direct material spend (excluding
Technical procurement 4% tobacco and electronics) were assessed. Of them,
to source the manufacturing 82 percent demonstrated a high sustainability
equipment used in our factories performance and compliance with our RSP, 18
R&D expenditure 2% percent were below the compliance level and
enabling us to conduct advanced
required to complete a corrective action plan
research (e.g., by acquiring clinical trials
services and laboratory equipment)
before doing a reassessment in 2022, and only
one supplier will require an on-site audit to be
Indirect materials and services 53%
necessary to run our business, such as IT,
conducted in 2022. The areas for improvement
office equipment, and consulting services mainly related to labor and human rights, followed by
environment, ethics, and sustainable procurement.
214 215
The fact-based and detailed EcoVadis supplier Electronics supply chain We also participated in RBA’s Validated Assessment While the quantities of cobalt required for our
Fundamentals
evaluations help drive continuous improvement in the Program (VAP)—the standard for on-site products are minor compared with the total global
In January 2021, we reached a major milestone:
areas highlighted. These assessments are available on compliance verification and effective, shareable market size, since 2019 we have deployed a due
joining the RBA, the electronics industry initiative
the EcoVadis digital platform, which allows seamless audits. Under the program, independent external diligence program based on the RMI approach and
for sustainable supply chains. During our first year
sharing among all supplier and customer participants, auditors reviewed our electronics suppliers’ tools to identify and address potential human rights
of membership, we were able to leverage RBA’s
creating an effective collaboration ecosystem. To sustainability performance against our RSP. In all, risks in the supply chains of our suppliers. In 2021,
best-in-class methodologies and tools, including
address the identified improvement opportunities, the RBA digital platform afforded us access to 31 all our battery suppliers fulfilled specific reporting
members’ audit reports, to enhance significantly
we plan to launch supplier corrective action plans in RBA VAP audit reports covering tier 1 and tier 2 requirements, including furnishing information on
the evaluation and performance of our suppliers.
2022. This will be followed by reassessments and on- suppliers representing 69 percent of our managed the smelters from which they source cobalt.
To increase their knowledge of best industrial
site audits for suppliers that have more gaps to bridge. electronics supply chain spend. The initial average
practices and use of RBA tools, we engaged new Subsequent due diligence deploying additional RMI
VAP audit score of our suppliers was 160 out of
In 2021, we also leveraged EcoVadis’ broad reach suppliers in the RBA online training platform. tools indicated that, as of December 31, 2021, each
200 compared with an RBA average of 127.
and existing supplier base to assess the sustainability of the 15 smelters from which PMI battery suppliers
performance of strategic noncritical suppliers in In 2022, we aim to achieve higher spend source cobalt were on either RMI’s conformant
other procurement categories of spend, including coverage of the RBA audit program to monitor list (11 smelters) or active list (4 smelters).
indirect materials and services and technical PMI-managed suppliers and ensure concrete
procurement. This allowed us to evaluate suppliers corrective actions are in place where needed. Tobacco supply chain
representing 22 percent of our indirect spend. PMI defines sustainable tobacco production
Conflict minerals
as the efficient and competitive production of
In certain conflict-affected and high-risk parts
quality tobacco in conditions that limit as much as
of the world, four minerals used in consumer
possible the impact on the natural environment
goods—tin, tantalum, tungsten, and gold (3TGs)—
and improve the socioeconomic condition of the
are sometimes mined using forced labor and used
Overview of our electronics supply chain people and communities involved in its production.
to finance armed conflict. As a result, they have
become known as “conflict minerals.” Companies PMI’s Good Agricultural Practices
As our company continues to transform It covers tier 1 suppliers and PMI-managed tier 2 are expected to demonstrate how they respect
and build new capabilities, we monitor risks suppliers. By recognizing their progress, PMI and In our tobacco supply chain, production adheres to
human rights and avoid contributing to conflict in our GAP, which define the principles and measurable
inherent to specific supply chains. A key area suppliers can motivate other companies within their mineral-purchasing decisions and practices.
of focus is our relatively new and expanding the supply chain to improve performance. standards to be met by all those who grow and
electronics manufacturing supply base in Our 2021 conflict minerals submission to the U.S. supply tobacco to PMI. GAP focuses on four areas:
To enhance our understanding of the challenges Securities and Exchange Commission, covering the governance, crop, environment, and people. The
Asia. The electronics supply chain is complex
we face, we teamed with Article One to year ended December 31, 2020, showed that the latter is governed by a dedicated ALP Code.
and dynamic and faces specific challenges,
conduct a human rights risks saliency mapping smelters from which our suppliers source 3TGs for
including the presence of conflict minerals. GAP is mandatory for all suppliers of tobacco to
focused on our electronics supply chain. Read our Covered Products (as defined in the submission)
Sustainability performance is an integral part more in our human rights section here. PMI and is reflected in the supply contracts of PMI
were either conformant with the Responsible Minerals and its affiliates. Whether we source tobacco from
of our balanced supplier program, which Initiative audit program (244 smelters) or were
consolidates financial and nonfinancial performance farmers directly or through third-party suppliers,
undergoing the assessment process (12 smelters). our GAP standards and related monitoring and
metrics and is used in regular management
reviews for business decision-making. Another mineral, cobalt, is also linked to remediation system apply at farm level. The absence
unethical mining practices. It is a critical raw of a clear commitment to act on issues identified,
material in the production of the batteries or a persistent lack of action and improvement, can
used in our smoke-free products. lead to contractual implications for both farmers and
TIER 1 TIER 2 TIER 3+ suppliers. PMI also reserves the right to terminate
contracts immediately in cases of severe violations
impacting people, the crop, or the environment.
Electronics Component Trading, Refining, Mining and

Manufacturing Manufacturing Smeltering, and Extraction
(“EMS”) Processing
216 217
Maintaining full traceability and monitoring IPS is vital in providing traceability and visibility
Overview of our tobacco supply chain in 2021
Fundamentals
in our tobacco supply chain in our supply base; it enables the deployment of
To a large extent, responsible sourcing stems from our GAP and ALP monitoring and remediation
As a consequence of our smoke-free transition, or by 16 third-party suppliers. Under our Living
strong relationships on the ground. PMI’s Integrated system down to the farm level. At the center of
the share of our purchased volume of tobacco Income program (read more here), we aim to
Production System (IPS) connects leaf suppliers this system are field technicians, employed by PMI
directed to the manufacture of combustible help farmers improve productivity, which may
and farmers beyond the customary boundaries or our third-party suppliers, who visit each farm
cigarettes is steadily declining while the include increasing the average surface of tobacco
of a commercial relationship and enables direct on average five to 10 times during the crop season
proportion dedicated to the production of grown per farm. Coupled with inventories
technical support, agronomic advice, financial and monitor how well sustainability requirements
consumables for heated tobacco products is corrections and the gradual decrease in our
loans, and various other services. IPS covered 98 are applied and commercial processes are working.
increasing. Overall, we are seeing a gradual tobacco requirements, these dynamics led to
percent of our tobacco purchases in 2021. The They provide agronomic assistance, deliver training
decrease in total volumes sourced, as heated a sizeable decline in the number of farmers
excluded purchases took place in Indonesia, where to farmers, identify and address labor issues, and
tobacco products use at most half the amount contracted in 2021 compared with 2020.
an increase in tobacco demand prompted additional ensure the implementation of improvement plans.
of tobacco required for combustible cigarettes.
During the year, we sourced over 291,000 purchases, and in Pakistan, where the gGovernment
In 2021, field technicians allowed us to monitor
In 2021, we sourced tobacco from 253,813 farmers. tons of packed tobacco grown across 21 mandated the purchase of nonallocated surplus
compliance with GAP on all contracted farms.
These farmers were contracted either directly countries, with most of our volume coming volume to absorb unpurchased tobacco left in
In a few countries facing stringent pandemic-
through our Leaf operations in five countries from Argentina, Brazil, China, and Indonesia. the market after the buying season was over.
related restrictions, farm visits were adapted
and remote support was offered as needed.
The monitoring of GAP implementation can also be
performed by third parties, such as specialized NGOs.
During the year, we expanded our collaboration in
PMI
Brazil with Produzindo Certo, a specialist company
Sustainable Tobacco Program helping farmers operate more efficiently and
sustainably. After a successful pilot carried out in
Since 2016, we have participated in the industry-
2020 with the participation of 123 farmers (read more
wide Sustainable Tobacco Program (STP) as an
GAP & GAP & in our 2020 Integrated Report), we extended the
RSP RSP additional way to evaluate our tobacco supplier
scope of the program in 2021 to cover nearly 2,300
performance. In 2021, in light of the status and
5 PMI leaf 16 third-party
farmers. Specialists from Produzindo Certo provided
maturity of our programs and the high ambitions
operations leaf suppliers each farmer a social and environmental diagnosis of
we have set to advance socioeconomic conditions
22% of volume 78% of volume their farm, as well as tailored action plans highlighting
in our tobacco supply chain invited us to reflect
purchased purchased opportunities for growth and development. Those
on what was needed for us to continue making
farmers who commit to adopting the action plan and
progress. This led us to make the decision to
implementing its recommendations will be visited
end our participation in the STP as of the end
annually by Produzindo Certo technicians, who will
of 2021. This will allow us to better target our
2,530 resources and efforts to address the most critical
provide assistance and monitor progress over time.
The feedback received so far from the farmers has
Field technicians support and challenges we face. We remain dedicated to
been very positive. They recognize that following
GAP monitor GAP implementation GAP working closely with our suppliers—who also work
the recommendations of this team of specialists will
with other tobacco manufacturers—to implement
better prepare them for the future, making their farms
meaningful programs. Moreover, we will continue
more sustainable, productive, and fully compliant
to work directly with other industry players
with market demands and local legislation. In 2022,
when appropriate to address shared challenges,
the work continues. Philip Morris Brazil has set
253,813
such as through joint human rights impact
12,400 241,413 assessments (as we did in Turkey this year, for
an ambitious target to expand the program to the
neighboring states of Paraná and Santa Catarina,
Farmers Total tobacco farmers Farmers contracted instance; read more here) and targeted projects.
covering 100 percent of the affiliate’s farmer base.
contracted committed to applying via third-party
by PMI GAP suppliers
218 219
Fostering collaboration To increase awareness of sustainability in our supply

Safeguard privacy and protect data
Fundamentals
chain, share learnings, and maximize impact, we host

with our network of suppliers virtual events, webcasts, and training sessions with
We need to engage and influence a large number strategic suppliers globally. These events cover both
of suppliers—companies with different strategies, general and specific topics, from supplier onboarding
priorities, and cultures—to onboard them on our and our due diligence platforms to our carbon In today’s data-driven world, data protection We also maintain a popular hub of resources on
sustainability journey and jointly commit to and footprint reduction targets, science-based targets, information security awareness, which is accessible
and cybersecurity are key. At PMI, we use an
deliver on our ambitions. Such partnerships are and partnering on our Zero Deforestation Manifesto. to all employees and contractors. These resources
array of state-of-the-art security solutions
crucial to sustainability, innovation, and growth, not only focus on good security practices to protect
allowing us to accelerate progress. To strengthen and
In 2021, for the second consecutive year, we that are supported by experts to help
organized a Global Supplier Recognition ceremony, user accounts and data from cyber risk, but also
broaden these partnerships, we seek continuously prevent, detect, and respond to events.
during which we honored those suppliers help our team remain vigilant to the indirect risks
to improve our collaborations with these suppliers that can arise from activities like online shopping or
that demonstrated excellent performance Together with our Guidebook for Success, internal
and our knowledge of their operations. connecting to wireless networks. To support our
and contributed most to PMI’s goals. policies and guidelines govern our activities. They
A dedicated section of our corporate website provide our company with clear guidelines on employees working remotely, we have adapted our
For the fifth consecutive year, CDP placed PMI network and systems and have released guidance to
describes our company, goals, and purpose to how to tackle our everyday work in a manner
on the CDP Supplier Engagement Leaderboard help remote workers to secure internet connections
current and potential suppliers, reinforcing the that is consistent with our values. In particular,
in recognition of our efforts and progress in and manage paper documents outside our offices.
expectations we have regarding our RSP. PMI’s global policy on data privacy sets a standard
engaging our suppliers in tackling climate change.
for privacy governance and accountability. PMI has a sophisticated and integrated program to
PMI’s Global Privacy Program (GPP) sets manage cyber risks, to protect PMI’s data, and to
standards for data privacy and security across safeguard the privacy of consumers and customers.
markets and functions. It governs the collection,
processing, and sharing of personal data by PMI
affiliates. Our privacy team regularly reports to
PMI’s Corporate Risk Governance Committee
on the business’ adherence to the GPP.
We use information systems to help manage
Looking ahead business processes, and collect and interpret data.
We also use these to communicate internally and
In 2022, we plan to review and update our Suppliers that did not achieve a sufficient
externally with employees, suppliers, consumers,
Responsible Sourcing Principles (RSP) to ensure EcoVadis score will be required to run corrective
and customers. Specialist third-party service
they stay relevant for PMI’s evolving business action plans. If a reassessment shows these
providers manage some of our information systems
landscape and supply chain, align with our plans did not lead to an improvement of the
and we work with internal specialists to protect
latest sustainability materiality assessment, and supplier score, our global auditing partners will
systems and data from unauthorized access.
incorporate ESG megatrends such as diversity complete an on-site audit on our behalf.
and inclusion, biodiversity, and climate change. Employees and contractors play a fundamental
Further, we will work with businesses, partners,
role in protecting data. By being aware of potential
We also intend to expand our partnerships and multistakeholder platforms to pave the way
threats and reacting to them appropriately, our
with EcoVadis and RBA and will consider toward greater transparency in key ESG areas
community can help keep PMI secure. In 2021,
adopting additional tools. and improve performance. Our supply chain
we provided our workforce with renewed training
represents a large share of our environmental and
We will continue to use our due diligence tools to assist everyone with identifying and reacting
social impacts, so we must work with suppliers to
to assess the performance of our suppliers to key cyber threats such as phishing and social
ensure they also improve their performance. In
and support them in making progress toward engineering attempts. We complement our training
particular, we will seek to gain better visibility on
more sustainable practices. PMI’s preferred with regular simulated phishing campaigns addressed
workers’ income levels in our supply chain in order
global auditing companies, which have been to our entire workforce to help everyone to practice
to develop a meaningful ambition to foster living
vetted to ensure they meet the highest level recognizing and reporting phishing attempts and
wages, as well as on the adoption of stringent
of competence and integrity, will conduct to identify any weaknesses in advance of any
science-based targets to tackle climate change.
on-site audits of those suppliers of direct real attempts that the business might face.
materials who did not demonstrate satisfactory
compliance with our RSP in 2021.
220 221
Apply fair fiscal practices Our mandatory practices encompass: PMI very much supports the work of the
Fundamentals
Organisation for Economic Co-operation and

• Roles and responsibilities: Clear definitions of roles
Development (OECD) and Group of Twenty (G20)
and responsibilities are formalized in each PMI
to prevent tax base erosion and profit shifting.
affiliate per PMI’s Tax Compliance Program.
PMI’s policies and practices ensure that we pay
• Escalation to and involvement of the PMI Tax taxes commensurate with our economic activities
To achieve the common goal of a safe, The table below provides an overview of the
2021 corporate income tax, excise taxes, VAT, and department: In accordance with PMI’s policies, PMI and substance in each country. We do not engage
functional, and prosperous society,
sales taxes reported by PMI and its affiliates in the affiliates consult with the PMI Tax department on all in aggressive tax planning, abuse tax havens, or
governments worldwide must have important transactions, whether recurring or new,
countries where we operate. In addition to the have in place any contrived tax structures. We
the financial resources to fund public as well as on business structures or operations with also do not operate “letter box” companies.
taxes reported by PMI legal entities, our importers
goods, services, and infrastructure. other PMI affiliates or unrelated parties, and
or distributors in many countries are responsible PMI conducts all intercompany transactions
for paying import duties and excise taxes on our together determine positions, exposures, or actions
Corporate income tax and other taxes can generate on an arm’s-length basis, in accordance with
products. Though such payments may not appear regarding material, non-routine tax, or customs
necessary revenues and avoid passing the bill for current OECD principles, and we support greater
in PMI’s financial statements, they represent a matters. Where there is sufficient uncertainty over
funding today’s society to future generations. Taxes transparency between taxpayers and tax authorities.
portion of the product taxes paid by our consumers the tax treatment of a particular transaction or a
can also ensure that societal costs are reflected When it is relevant and feasible, we have upfront
worldwide and so are also included in the table below. potentially significant impact, PMI obtains external
in a product’s price—for instance, in the case of conversations with tax authorities in the countries
advice.
fossil fuels and combustible tobacco products— PMI has implemented governance arrangements where we operate. In certain instances, we obtain
thereby encouraging consumers and producers of that set out clear accountabilities for the • Tax reporting and procedures: PMI’s Tax Standards tax rulings to provide a higher level of certainty
these products to shift to less harmful options. management of tax compliance risks and and Guidelines are designed to ensure that effective not just for PMI, but also for the tax authorities.
tax planning. We maintain a comprehensive, and predictable tax compliance and control
PMI is a good corporate citizen everywhere However, such rulings are not the only means of
effective, and practical risk management program measures are in place. Under these policies, all tax
we operate. Paying taxes commensurate securing transparency and certainty. For example,
with shared best practices, a structured and filing obligations must be accurately completed on a
with our economic activities is not only our in several countries, we have joined monitoring
documented control framework, appropriate timely basis and in accordance with applicable laws
duty but the responsible thing to do and programs with tax authorities. These programs
planning, and coordinated decision-making. and regulations.
a key component of our social contract in promote ongoing and transparent relations
every country in which we do business. • Documentation and tax records: Under PMI’s between taxpayers and tax authorities.
policies, PMI affiliates are responsible for the
appropriate creation and retention of all relevant
local tax records.
2021 taxes Total

(USD billion)
Corporate income tax 2.7
Total excise taxes on PMI products 76.8
• Excise taxes on PMI products reported by PMI affiliates 50.8
• Excise taxes reported by our importers and distributors 26.0
VAT and sales tax 9.0
222 223
Prevent illicit trade We also continued to support law enforcement PMI IMPACT
Fundamentals
agencies by inspecting and authenticating seized

We also support and fund external organizations
products, performing illicit products forensic
through our PMI IMPACT global initiative, launched
evaluation and profiling, sharing intelligence on
in 2016. By sponsoring third-party projects aimed
emerging routes and trends shaping the black
at addressing illegal trade, we are fostering and
market, and training officials on the innovative
Eliminating illicit trade is a long- Our approach authentication and security features we use to
mobilizing a network of like-minded organizations
standing priority for PMI. and institutions around this global issue.
To combat fakes and prevent the smuggling and protect our products. As new technologies emerge,
Illicit trade—including possible contraband and counterfeiting of our products, we focus our we make it a priority to understand how we can In 2021, PMI IMPACT launched its third funding
counterfeit smoke-free consumables and electronic efforts on securing our supply chain and leveraging leverage them to eliminate fakes and the contraband round. The new round, which will close its call for
devices—is often associated with organized crime, technology and innovation to protect our products. of our products, further secure our supply chain, submissions in August 2022, is focused on a wide
corruption, and human rights abuses. It exacerbates These internal efforts are coupled with strong and deter illegal actors from deceiving consumers. range of topics, including capacity building, restorative
inequality, fuels crime, increasingly serves as a vehicle cross-sectoral collaboration. Illicit trade is a high- justice and victim protection, and international
profit, low-risk crime that needs to be tackled by A focus on our smoke-free products cooperation. We also launched a video series in
to launder money through sophisticated trade-based
schemes, and even funds terrorism. It also diminishes public–private coalitions able and willing to drive 2021 explaining the scale and issue of illicit trade,
As our portfolio shifts toward smoke-free products,
government revenues, which potentially impedes change. We support the objectives and principles highlighting the role PMI IMPACT plays in this
we are incorporating into our internal product
sustainable development by lowering spending on of the WHO Framework Convention on Tobacco fight, and raising the profile of selected grantees.
standards illicit trade prevention requirements to
public services and civil infrastructure. Illicit trade Control (FCTC) Protocol to Eliminate Illicit Trade in
protect our smoke-free devices and consumables. To date, PMI IMPACT has allocated a combined
is prevalent in the tobacco sector, with 10 to 12 Tobacco Products because we believe that effective
These requirements may include both visible USD 48 million for the implementation of
percent of cigarettes smoked worldwide estimated regulation is fundamental to achieving progress.
and invisible elements on the device or critical 60 projects in 30 countries as part of the
to be illicit, causing governments to lose USD 40 For several years, we have successfully applied components and tamper-proof security features. initiative’s first and second funding rounds.
to 50 billion in tax revenue each year. Illicit trade a risk-based approach to prevent and fight the
In addition to product standards, we include strict
also has serious consequences for the consumers diversion of our products. PMI’s Anti-Diversion
provisions in our contracts (e.g., anti-diversion and
who purchase these products, particularly due to Governance Committee, which includes senior
anti-counterfeiting clauses with our distributors and
low-quality standards, unknown composition, and executives from the Finance (central and regions),
suppliers) and robustly controlled reverse logistics
the lack of reliability of counterfeit products. Risk & Controls, Law, Ethics & Compliance,
processes for our electronics products based on
To succeed in our mission of delivering a smoke- Commercial, and External Affairs functions, has
centralized inspection and recycling. We embed
free future, we must ensure there are no illegal corporate oversight on diversion risk prevention
product authentication checks in critical processes
actors sustaining a black market for cigarettes for our products. We also have a dedicated global
such as in-market product return and consumer Looking ahead
and other tobacco products. In a smoke-free team of specialists in illicit trade prevention (ITP).
care processes, as well as at the PMI reverse Three pillars need to thrive in 2022: public–
future, there should be no place for illicit trade. logistics hubs (CIRCLE), allowing us to identify private partnerships to ensure sustainable
Progress in 2021 suspected counterfeit devices and remove them solutions, technological innovation as
You can learn more about our efforts
In 2021, we pursued the enhancement of our set from the supply chain. As we launch smoke-free a disruptor of criminal operations, and
in this area on our dedicated illicit trade
of anti-diversion measures and controls, which are products in additional geographies, our global ITP enforcement that imposes concrete penalties
prevention page on PMI.com.
deployed in 20 markets identified as high risk for experts provide training to relevant markets to raise against those involved in illicit activities. We
illicit trade. We continued expanding the coverage of awareness of diversion and counterfeiting risks. need to work tirelessly to change perceptions
our tracking and tracing processes and technologies and show the real-life consequences of
reaching 140 countries and several factories, covering illicit trade because we are not just talking
new fulfillment centers and reverse logistics hubs. about an intellectual property or a tax
We collaborated with partners such as the Munich evasion issue: Illicit trade harms consumers,
Security Conference, the International Institute for destabilizes communities, and poses a
Strategic Studies, the OECD Task Force on Countering broader threat to peace and security.
Illicit Trade (TF-CIT) and the BIAC Expert Group on
Alvise Giustiniani, Vice President, Illicit Trade Prevention
Anti-Illicit Trade, the Italian Institute for International
Political Studies, and Rome MED-Mediterranean a You can learn more about our
efforts in 2021 on PMI.com
Dialogues, as well as with nonprofit organizations
such as Concordia, to tackle systemic issues.
224 225
We maintain
REPORTING AND
PERFORMANCE
About this report 228 Glossary of terms and acronyms 248
Performance in ESG ratings, 229 orward-looking and
F 252
rankings, and indices cautionary statements
Performance metrics 232 Notes 253
Independent assurance report 245
PLACEHOLDER IMAGES
226 227
About this report Unless otherwise indicated, the data and information
in this report cover our operations worldwide for the
Performance in ESG ratings,
full calendar year 2021 or reflect the status as of
December 31, 2021. Unless explicitly stated, the data
rankings, and indices
and information in this report do not incorporate
We are pleased to share our 2021 Integrated acquisitions made by PMI during 2021 of Fertin At PMI, we understand the value of participating in • Its value as a learning opportunity, including a
Pharma A/S, Vectura Group plc., and OtiTopic, Inc. ESG ratings: It helps us assess our sustainability sufficient feedback loop to allow us to improve over
Report, which follows our 2020 Integrated
Where not specified, data come from PMI financials, performance, benchmark ourselves against our peers, time
Report (published in May 2021) and constitutes
nonfinancials, or estimates. and, most importantly, identify areas for improvement.
our seventh consecutive annual disclosure • Resources required, which should not undermine
incorporating ESG content. This report PricewaterhouseCoopers SA (PwC) has provided We prioritize our participation in ESG ratings that are our company’s focus on performance improvement
describes our company’s progress in delivering independent assurance on select Business most useful to us and our stakeholders, based on:
Transformation Metrics, available on pages 35 and • The organization’s openness to dialogue, allowing us
on its purpose. • The credibility of the methodology and our ability to to understand expectations and results, share
232-233. For more details, see the Independent
Assurance Report on page 245. SGS has provided interpret and use the results knowledge, correct factual inaccuracies, and provide
The report content is shaped by a formal sustainability
external verification of our environmental and health input on ratings enhancements.
materiality assessment conducted in 2021, which • Recognition of the rating among the investor
incorporates an assessment of our company’s impacts and safety data (including our 2021 GHG emissions community, as well as participation by our
on society and the planet, an evaluation of the data). The verification statements are available on competitors and peers
potential impact of various ESG factors on our PMI.com.
2021 score (and year-
enterprise value, and the perspectives of diverse This report was completed with oversight from PMI’s on-year trend)
stakeholder groups. We have structured our ESG Board of Directors and reviewed by its Executive S&P Global PMI was selected for the second year in a row as a member 83/100
topics around two pillars: product impact and Chairman, as well as by all members of our Corporate of the Dow Jones Sustainability Index North America and
operational impact. Those topics pertaining to the Sustainability Committee—composed of Company Sustainability improved its corporate sustainability assessment score by
social impacts of our products are considered most Assessment 9 points versus 2020 (score as of January 21, 2022).
Management members, including our Chief Executive
material. These and other material ESG topics form Officer, Chief Financial Officer, and Senior Vice Sustainalytics PMI maintained its “Medium ESG Risk” classification, 22.9
the basis of our strategy, which is organized into eight improving its score to achieve an ESG Risk Rating of 22.9 (a
President and General Counsel. Additional
Sustainalytics score of zero out of 100 represents the lowest
environmental and social priorities and nine related information about our sustainability work, including ESG risk; score as of October 6, 2021).
governance factors. This report provides information previous reports and policies, is available in the
on context, relevance, management approach, targets, MSCI PMI maintained a rating of BBB in the MSCI ESG Rating BBB
Sustainability Resources area of PMI.com. assessment (score as of September 22, 2021).
performance, and outlook for our strategic priorities.
We welcome your feedback and suggestions. CDP Climate, PMI was awarded a Triple A score for the second consecutive AAA
It is complemented by case studies and additional
Please contact us at sustainability@pmi.com. Forest, Water year in recognition of its efforts to combat climate change,
materials available on PMI.com.
Security protect forests, and promote water security.
Aligning our disclosures with reporting standards and frameworks
CDP Supplier PMI earned a place on CDP’s Supplier Engagement Leaderboard
Engagement Leaderboard for the fifth consecutive year.
This report has been prepared in accordance with of the Agricultural Products, Hardware, and
the Global Reporting Initiative (GRI) Standards: Medical Equipment and Supplies standards.
Core Option. Our 2021 GRI Index is available Bloomberg PMI was included for the second year in a row in the Index
Finally, this report addresses some of the
on PMI.com. We consider the principles and Gender-Equality Bloomberg Gender-Equality Index (GEI) for its transparency member
recommendations of the Task Force on Index in gender reporting and advancing women’s equity.
standards of the UN Global Compact (UNGC) when
Climate-related Financial Disclosures (TCFD).
compiling our annual integrated report and map S&P ESG PMI scored 60/100, based on its ESG Profile Score (57/100) 60/100
Our reporting to CDP covers most of the
them against GRI indicators in our GRI Index. Our Evaluation and Preparedness Opinion (“Adequate”). The former is based
remainder of these recommendations, and we on entity-specific scores and sector/region scores (score as of
SDG Index describes how our work and ambitions
seek greater alignment each reporting year. May 13, 2021; report available here).
align with the UN SDGs at the Target level.
While we considered the World Economic Forum Tobacco PMI ranked second out of 15 tobacco companies assessed, 2.36/5
We take into account guidance from the Value Transformation leading the industry in the “Strategy and Management”
(WEF/IBC) Core ESG metrics during preparation
Reporting Foundation (VRF), including use of its Index category (2020 ranking—assessment is conducted every two
of this report, we did not include a separate years)
SASB Standards, Integrated Thinking Principles,
index this year to avoid overlap in disclosures
and Integrated Reporting Framework. Our ISS-oekom “C” score, achieving industry leadership (2019 score; C
and in anticipation of its consolidation within the assessment is expected to be updated in 2022).
SASB Index maps content within this report
International Sustainability Standards Board (ISSB)
and other available disclosures aligned with State Street Outperformer within the tobacco industry; industry average 65
recently convened by the IFRS Foundation Trustees.
the Tobacco Standard, as well as with aspects R-Factor score of 57 (score as of March 1, 2022).
228 229
Memberships and alliances

Investors and other financial stakeholders place an increasing value on reliable, robust,
and timely measures of ESG performance. While ESG ratings can play an important
role, their inherent limitations and the desire to take a more sophisticated approach on
par with financial analysis means they are but one part of the input dataset for many
institutional investors. Through this integrated report, and the ever-strengthening
processes and initiatives that underpin it, we aim to provide a holistic and extensive
view of our performance across the most material ESG issues for our business. This is
well-demonstrated by our new Sustainability Index, which meaningfully aligns ESG
performance with internal and external incentives.
James Bushnell, Investor Relations and Financial Communications
Business transformation–linked financing framework

In 2021, PMI published its Business Transformation–Linked Financing Framework, which integrates the company’s
smoke-free transformation into its financing strategy. The KPIs selected for the framework directly measure and
respond to the focus of PMI’s sustainability and corporate strategy and the company’s most material sustainability
topic: , which integrates the company’s smoke-free transformation into its financing strategy. The KPIs selected for
the framework directly measure and respond to the focus of PMI’s sustainability and corporate strategy and the
company’s most material sustainability topic: Addressing the health impact of its products.
PMI’s financing framework is aligned with the five core components of the
Sustainability-Linked Bond Principles published by the International Capital
Market Association (ICMA) in June 2020. SwissBiz
4Nature
It also takes into account the Sustainability Linked Loan Principles, Revolving credit facility
published by the Loan Market Association (LMA) in May 2021.
The framework was validated by S&P Global Ratings, which provided a second-party USD 2.5 billion
opinion (SPO). The SPO recognized the chosen KPIs and related sustainability
performance targets (SPTs) as material, measurable, ambitious, regularly reported,
a Read more here
and externally verified—in line with both the ICMA and LMA principles.
A business transformation-linked financing instrument was issued

in September 2021.
Other recognitions Taskforce on Nature-related

Financial Disclosures
WBCSD Reporting Matters DJSI Yearbook

PMI’s Integrated Report 2020 PMI was included in S&P Global’s
was included among the top 2022 Sustainability Yearbook,
ten reports globally according receiving two sustainability
to the 2021 Reporting Matters awards: Global Silver Class and
publication by the World Industry Mover.
Business Council for Sustainable
Development (WBCSD).
Global Top Employer Equal salary

PMI has been certified by PMI is globally EQUAL-SALARY
the Top Employers Institute certified. The certification
as a Global Top Employer verifies that organizations have
for the fifth year in a row. sustainable policies and practices
to ensure that they pay their
male and female employees
equally for equal work.
230 231
Performance metrics Business Transformation Metrics continued

2015 2025
Baseline 2019 2020 2021 Aspirations
Total number of users of PMI smoke-free products 0.2 13.5 18.3 21.7
SI
(in millions)¹²*
PRODUCT IMPACT
Consumers
Estimated number of users who have switched to 0.1 9.6 13.0 15.3 >40
PMI smoke-free products and stopped smoking
(in millions)¹²*
Adjusted net revenues ratio (smoke-free/total)¹³* 0.2% 18.7% 23.8% 29.1% >50% SI
Business Transformation Metrics
Number of markets where adjusted net revenues 0 31 38 47
2015 2025 from smoke-free products exceed 10% of adjusted
Baseline 2019 2020 2021 Aspirations
total net revenues¹³*
Revenues
Adjusted R&D expenditure (in millions USD)¹* 423 465 495 566 Number of markets where adjusted net revenues 0 4 6 10
Adjusted R&D expenditure ratio (smoke-free/ 70% 98% 99% 99% from smoke-free products exceed 50% of adjusted
total)¹* total net revenues¹³*
Number of R&D positions (FTEs)² n/a 942 934 981 Annual net revenue from wellness and healthcare n/a n/a n/a 0.1 ≥1
Patents granted in IP5 jurisdictions relating to n/a 740 1,300 1,770 products (in billion USD)
smoke-free products (cumulative, since 2015)³
R&D
* The 2021 metrics marked with an asterisk (*) are subject to PwC’s Assurance 7 “SKUs” stands for stock-keeping units. References to the number of SKUs are
Number of studies completed by PMI on smoke- Report (see page 245). based on the latest available data and categorization of our product portfolio
into SKUs, therefore a minor restatement in previous years’ data is reflected.
free products (cumulative, since 2015): Notes: The figures exclude China and the U.S. Note: As part of maintaining share in
• Toxicological assessment n/a 109 146 203 Smoke-free products include heated tobacco units, e-cigarettes, snus, and nicotine
combustibles, remaining competitive on product range in line with consumer
preferences best positions us to retain access to adult smokers and increase
• Clinical assessment n/a 19 22 24 pouches. Total products include smoke-free products, cigarettes, and other our capability to switch them to smoke-free products.
combustible products 8 Data reflect status by the end of respective year. 2021 data exclude Belarus
Perception and behavior (premarket and post- n/a 13 (9 + 4) 30 (15 + 15) 44 (25 + 19) and the U.S.
In 2022, we plan to evaluate our published targets to ensure they remain ambitious,
market) reasonable, and achievable in the context of a dynamic and evolving smoke-free
9 Excluding PMI Duty Free. Data reflect status by the end of respective year.
2021 data exclude Belarus and the U.S. For definition of low- and
industry. See page 248.
middle-income markets, see glossary.
Supply chain direct spend expenditure ratio n/a 35% 33% 35%
Sourcing & Operations
1 R&D expenditure in wellness and healthcare is included in both smoke-free and 10 Includes flagship stores and small, large, and temporary boutiques.
(smoke-free/total)⁴ total R&D expenditures. Adjusted R&D expenditure excludes asset acquisition 11 These indicators are calculated based on millions of units.
12 These metrics are excluding PMI Duty Free and reflect the estimated number
Cumulative investment behind smoke-free 2.4 7.2 8.1 9.2 cost related to OtiTopic, Inc. in 2021. Total reported R&D expenditure in 2021
of legal age (minimum 18 years) users of PMI IQOS heat-not-burn product (see
including these items amounted to USD 617 million.
products (since 2008, in billions USD)⁵ 2 R&D positions include scientists, engineers, technicians, and support staff. glossary). In 2021, we evolved our methodology to estimate the total number
Comparable data for years prior to 2018 are not available as the scope of R&D of users of PMI smoke-free products, in order to better reflect the number of
Number of factories producing smoke-free 2 out of 48 8 out of 38 8 out of 39 8 out of 38 positions changed following company organizational changes. users for which PMI HTU represented at least a portion of their daily tobacco
products out of total number of factories⁶* 3 IP5 jurisdictions are Europe (patents granted by the European Patent Office), consumption over the past seven days. 2020 data was restated accordingly.
China, South Korea, Japan, and the U.S. Unavailability of sufficiently granular data did not enable us to restate figures
4 Direct spend focuses on materials used in the manufacture of our products; it for years prior to 2020. We also fine-tuned our methodology to estimate the
Year-on-year change in number of SKUs— n/a (6%) (5%) 3% includes tobacco leaf, direct materials, and electronic devices and accessories. number of users who have switched to PMI smoke-free products and stopped
combustible products⁷ 5 Investments reflect research, product and commercial development, smoking, in order to reflect the conversion rate of our total user base at
production capacity, scientific substantiation, and studies on adult smoker year-end, and restated 2020 data accordingly.
Year-on-year change in number of SKUs—smoke- n/a 26% 38% 42% understanding. Figure does not include commercial deployment costs. 13 Data reflect the status by the end of the respective year. 2021 adjusted net
free products⁷ 6 Data reflect the number of factories operated and owned by PMI at the end of revenues exclude the impact related to the Saudi Arabia customs assessments.
the respective year. Number of factories fully or partially dedicated to 2021 revenues from wellness and healthcare (USD 101 million) are included in
SKUs ratio (smoke-free/total) 3% 10% 14% 18% smoke-free products includes seven factories related to heated tobacco unit both smoke-free and total adjusted net revenues. See glossary.
Number of markets where smoke-free products are 7 52 64 71 100 SI
production and one factory related to e-vapor consumables production. 2021
figures exclude one factory dedicated to wellness and healthcare products
available for sale⁸* owned by Fertin.
Proportion of markets where smoke-free products 33% 35% 41% 43% >50% SI
are available that are low- and middle-income Responsible marketing and sales practices
Commercialization
markets⁹*
Number of IQOS stores¹⁰ n/a 199 259 274 2019 2020 2021 Goals
Number of retailers that sell PMI smoke-free n/a 679 748 812 Total number of people (PMI employees and third parties) who n/a n/a 70,011
product consumables (in thousands) participated in at least one Marketing Codes-related training
Commercial (marketing) expenditure ratio (smoke- 8% 71% 76% 73% session¹
free/total)* • Number of PMI employees n/a n/a 22,774
Smoke-free product shipment volume (billion units)* 1 60 76 95 >250 • Number of third parties n/a n/a 47,237
Combustible product shipment volume (billion 881 732 654 650 <550 Number of violations of the Marketing Codes resulting in 42 29 13
units)* substantiated cases of misconduct
Change in combustible product shipment volume n/a (17.0%) (25.8%) (26.3%) ~(40%) Breakdown by type of disciplinary actions as a result of violations
vs. 2015 baseline¹¹* of the Marketing Codes:
Smoke-free product shipment ratio (smoke-free/ 0.1% 7.6% 10.4% 12.8% >30% SI • Termination of employment n/a n/a 15%
total)¹¹* • Suspension n/a n/a 8%
• Verbal warning or counseling n/a n/a 62%
• Written warning n/a n/a 15%
Proportion of shipment volume covered by markets with youth n/a 94% 91% >90%
SI
access prevention programs in place in indirect retail channels² (ongoing)
1 Indicator introduced in 2021, replacing the indicator “number of compliance training sessions conducted on PMI’s Marketing Code,” following the release of new
Marketing Codes.
SI Indicators included in PMI Sustainability Index 2 Total shipment volume includes cigarettes, heated tobacco units, other tobacco products, and e-cigarettes. In 2021, we evolved our minimum requirements for effective
youth access prevention (YAP) programs in indirect retail channels.
232 233
Reduce post-consumer waste OPER ATIONAL IMPACT

2019 2020 2021 Goals
Proportion of shipment volumes covered by markets with n/a n/a n/a ≥80% by
SI
anti-littering program in place for combustible cigarettes¹ 2025
Cigarette butt

littering
Number of affiliates participating in World Cleanup Day 31 n/a 53

Number of affiliates with anti-littering strategy 31 47 46 2019 2020 2021 Goals
Number of anti-littering initiatives conducted 54 33 53 Number of PMI employees 73,542 70,849 68,547
Fair working
conditions
Number of PMI full-time equivalent (FTE) positions 71,795 70,560 67,291
Proportion of PMI smoke-free devices with eco-design n/a n/a n/a 100% by
SI Proportion of employees covered by Collective Labor Agreements 63.3 % 62.1 % 61.1 %
certification² 2025
Cumulative number of smoke-free electronic devices refreshed or n/a n/a 62 >1 million Total number of countries with Collective Labor Agreements 35 34 34
SI
repaired since 2021 (in thousands)³ by 2025
Smoke-free devices and consumables
Employee overall turnover rate¹ 13.6% 9.7% 12.0%

Volume of shredded materials coming from dismantled devices in 150 191 178
Talent attraction, retention, and employability

the CIRCLE hubs (in tons) Women employee overall turnover rate¹ 14.4% 9.7% 9.4%
Effective recycling rate IQOS devices⁴ 29% 40% 53% 70% by Employee voluntary turnover rate¹ 5.1% 3.1% 4.7%
2023, 80% Proportion of open positions filled in with internal candidates n/a 21% 18%
by 2025 Number of newly hired employees 9,020 5,835 8,381
Proportion of IQOS device sales volume covered by the CIRCLE 39% 48% 63% 100% by Spend for learning per FTE (in USD) total 513 551 506
program 2025 Average hours of training spend per FTE 15 11 17
Recycling rate of IQOS devices at the CIRCLE hubs (weighted 74% 84% 86% 80% Proportion of PMI employees who have access to structured n/a n/a n/a >70% by
SI
average)⁵ (ongoing) lifelong learning offers² 2025
Proportion of shipment volume covered by markets with end of n/a n/a n/a ≥80 % by Proportion of employees covered by performance review¹,³ 79% 93% 92%
SI
life take-back programs in place for smoke-free consumables⁶ 2025 Employee Net Promoter Score⁴ 16 33 35 ≥30
(ongoing)
Proportion of packaging material that is recyclable 94% 94% 95% 100% by
2025 Lost time incident (LTI) rate per 200,000 hours worked—PMI 0.14 0.08 0.05
Proportion of packaging material that is renewable 89% 89% 90% 95% by employees, contracted employees, and contractors⁵
2025 0.06
Packaging
LTI rate per 200,000 hours worked—PMI employees and 0.12 0.07
Total weight or volume of materials that are used to package PMI’s n/a n/a 427,597 contracted employees
primary products in tons (percent renewable/percent non- (89.7% / LTI rate per 200,000 hours worked—contractors 0.23 0.12 0.05
renewable) 10.3%)
Integrated total recordable incidents rate (iTRIR) per 200,000 0.22 0.12 0.09 <0.3
Reduction of packaging materials used versus 2018 baseline⁷ 1% 5% 8% 15% by hours worked—PMI employees, contracted employees, and (ongoing)
2025 contractors
Employee health and safety

1 In 2021 we defined the minimum criteria which must be met by each market to be considered as having an anti-littering program in place. We will begin reporting progress on this TRIR per 200,000 hours worked—PMI employees 0.20 0.11 0.09
new indicator in 2022.
2 Our aspiration is to have eco-design certifications for all smoke-free devices which are launched as of the end of 2025. Given the long-term nature of this aspiration, we have TRIR per 200,000 hours worked—contracted employees 0.17 0.06 0.07
developed internal metrics based on key milestones that will allow us to track our progress in the interim years leading up to our 2025 aspiration. TRIR per 200,000 hours worked—contractors 0.32 0.16 0.10
3 For the definition of refreshed or repaired devices, see glossary.
4 In 2021, the effective recycling rate is calculated as the actual recycling rate in Hungary and Japan, multiplied by the IMS coverage of these hubs plus the theoretical recycling rate Number of fatalities – PMI employees, contracted employees, and 1 2 1
in the newly established Russian hub, multiplied by the IMS coverage of the Russian market. contractors⁶
5 Recycling rate: percentage of the weight of each device that is recycled, weighted-average depending on device type and processing facility (includes 78% recycling,
8% incineration with energy recovery). 2021 data cover CIRCLE hubs in Hungary and Japan. Number of fatalities—members of the public 10 5 2
6 In 2021 we defined the minimum criteria which must be met by each market to be considered as having a take-back program in place. We will begin reporting progress on this
new indicator in 2022. Occupational illness frequency rate (OIFR) per 200,000 hours 0.000 0.000 0.001
7 Includes portfolio/volume mix and inventory movement. Includes shipping cases. worked—PMI and contracted employees
Collision rate within PMI’s fleet of vehicles per year (collisions per 0.87 0.53 0.44 <0.65
million km driven) (ongoing)
Proportion of PMI fleet equipped with telematics⁷ n/a 35% 47%
Proportion of manufacturing facilities with ISO 45001 98% 100% 100% 100%
certification⁸ (ongoing)
SI Indicators included in PMI Sustainability Index
234 235
Foster an empowered and inclusive workplace continued PMI’s workforce at year-end 2021
2019 2020 2021 Goals 2021
Proportion of women in PMI’s workforce¹ 41.7% 41.8 % 42.2% Number of employees by employment contract (permanent and temporary), by gender
Proportion of management positions held by women¹,⁹,¹⁰ 36.6% 37.7% 39.7% ≥40% by Women employed on a permanent contract 27,759
2022 Women employed on a temporary contract 1,183
Proportion of women employees at different managerial levels:¹,⁹,¹⁰ Men employed on a permanent contract 37,819
• Managers 38.0% 39.3% 41.4% Men employed on a temporary contract 1,786
• Directors 31.4% 31.0% 32.0% Number of employees by employment contract (permanent and temporary), by Region
• Senior leaders 17.6% 20.2% 25.3% Employees on a permanent contract in European Union region 18,295
Proportion of women in senior roles¹,⁹,¹⁰ 29.5% 29.6% 31.1% 35% by Employees on a temporary contract in European Union region 1,622
2025, 32% SI
Employees on a permanent contract in Middle East & Africa region, including PMI Duty Free 3,009
by 2023
Employees on a temporary contract in Middle East & Africa region, including PMI Duty Free 123
Proportion of new hires in management positions that are 40.7% 38.7% 44.7%
Employees on a permanent contract in Eastern Europe region 6,423
women¹,⁹,¹⁰
Employees on a temporary contract in Eastern Europe region 161
Diversity, inclusion, and well-being
Proportion of new hires at junior levels that are women¹,⁹ 41.0% 40.3% 40.7%
Employees on a permanent contract in South & Southeast Asia region 26,866
Proportion of new hires that are women¹,⁹ 41.0% 40.1% 41.3% Employees on a temporary contract in South & Southeast Asia region 454
Proportion of promotions to management positions that are 40.7% 45.0% 47.6% Employees on a permanent contract in East Asia & Australia region 3,948
women¹,⁹ Employees on a temporary contract in East Asia & Australia region 120
Proportion of women on PMI’s Company Management¹⁰,¹¹ 8.0% 16.0% 16.7% Employees on a permanent contract in Americas (including U.S.) 7,037
Proportion of women on PMI’s Board of Directors¹² 25.0% 15.0% 23.1% Employees on a permanent contract in Americas (including U.S.) 489
Mean gender pay gap¹³ 34.3% 33.1% 33.5% Number of employees by employment type (full-time and part-time), by gender
Proportion of employees at different age groups: Women employed on a full-time contract 27,822
• Below 25 5.0% 4.0% 4.2% Women employed on a part-time contract 517
• Between 25 and 34 29.0% 29.0% 29.0% Men employed on a full-time contract 38,994
• Between 35 and 54 62.0% 62.0% 62.7% Men employed on a part-time contract 211
• Above 55 4.0% 4.0% 4.1% Note: All data as of December 31, 2021. Presentation of information and data aligns with guidance of GRI standard 102-8 (2016).
Proportion of women in STEM-related positions¹⁴ 36.7% 36.0% 37.4%
Proportion of women in management positions in revenue- 32.3% 33.4% 35.7%
generating functions¹⁵
Number of nationalities among PMI’s employees 128 131 133
Number of markets with access to local LGBTQ+ networks 27 28 29
(local chapters of STRIPES employee resource group)
Employee self-assessment psychological well-being measure¹⁶ n/a 57% 61%
Note: The 2021 indicators in the above table are calculated based on 68,547 PMI employees, which excludes PMI 2021 acquisitions in wellness and healthcare. Incorporating
2021 acquisitions of Fertin Pharma A/S, Vectura Group plc., and OtiTopic Inc. PMI employed approximately 69,600 people worldwide at year-end.
Select 2021 health and safety metrics are subject to external verification by SGS (see the External Verification Statement here).
1 In 2021 we updated our methodology to expand scope and cover employees on long-term leave (over 30 calendar days); we have restated historical data accordingly.
2 We will begin reporting progress on this new indicator in 2022.
3 2021 data based on a total of 55,276 employees maintained in PMI’s central HR system.
4 We measure the engagement of our workforce using the employee Net Promoter Score (eNPS), following a methodology similar to that which we use to measure
consumer engagement. The score can range from -100 to +100.
5 For definition of contracted employee and contractor, see glossary.
6 PMI employees and contracted employees: 1 fatality in 2021; contractors: zero fatalities in 2021.
7 Scope covers PMI’s working tool cars (representing 75% of PMI’s total fleet).
8 Scope covers manufacturing facilities producing more than 3 billion cigarette equivalents annually.
9 Our gender diversity data cover around 95% of PMI’s total workforce.
10 For definitions of managers, directors, and senior leaders see glossary.
11 Data as of March 11, 2022 (24 Company Management members, of whom 4 were women). See PMI Annual Report 2021 for further details.
12 Data as of March 25, 2022 (13 members of PMI’s Board of Directors, of whom 3 were women). See PMI 2022 Proxy Statement for further details.
13 The mean gender pay gap is calculated as the percentage difference between the sum of annual base salary, bonus, and stock options.
14 This figure is an estimate based on the total headcount within functions where the primary skills required for employees in their daily responsibilities related to science,
technology, engineering, or mathematics.
15 Employees holding management roles in revenue-generating functions (i.e., functions responsible for core business objectives or profit and loss).
16 The indicator represents the percentage of employees who responded “good” or “very good” to the question “How would you rate your current psychological or
emotional well-being at present?” in our regular employee listening survey. The indicator was updated based on new information available, so a slight shift in previous
years’ data is reflected.
236 237
Improve the quality of life of people in our supply chain Preserve nature
2019 2020 2021 Goals Scope 2019 2020 2021 Goals
Proportion of contracted tobacco farms for which labor practices 92% 93% 94% >90% Proportion of tobacco purchased at no risk of 97% 100% 100% 100%
have been systematically monitored (adherence to PMI’s ALP) (ongoing) gross deforestation of primary and protected (ongoing)
Agricultural Labor Practices (ALP)
Total number of prompt actions recorded by field technicians 14,440 14,751 9,918 forests¹
• Proportion due to safe working environment 73% 73% 76% Proportion of tobacco purchased at no risk of net n/a n/a 37% 100% by SI
• Proportion due to hazardous work performed by children 19% 16% 11% deforestation of managed natural forest and no 2025
conversion of natural ecosystems¹
• Proportion due to income and working hours 8% 11% 13%
Total hectares of forest grown PMI tobacco n/a n/a 355
• Proportion due to other ALP Principles <1% <1% <1%
• Due to restoration of at-risk forest supply chain n/a n/a 165
Forest
Total number of ALP prompt actions resolved 8,137 10,772 8,540
• Contribution to forest positive n/a n/a 190
Number of terminated contracts due to ALP violations (per crop 641 1,794 875
season) Proportion of flue-cured tobacco purchased that 51% 67% 75% >70%
is cured with renewable fuel sources (self- (36% + 15%) (45% + 22%) (44% + (ongoing)
Proportion of contracted farmers supplying tobacco to PMI who n/a 48% 67% 100% by SI
sufficient firewood and biomass adoption) 31%)
make a living income¹ 2025 Approximate total number of curing barns 80,800 82,519 93,700
Proportion of contracted farmers in tobacco supply chain covered 93% 93% 91% upgraded since 2014 (cumulative)
Income levels
by monitoring on wages CDP Forest rating PMI value A- A A A

Proportion of farmers paying their workers at least the minimum n/a 65% 95% 100% by chain
legal wage or agricultural benchmark 2022
Cubic meters of water optimized in our tobacco- 717 8,968 437,915 ≥10 million
Number of ALP prompt actions recorded by field technicians 1,158 1,541 1,154 growing areas (cumulative since 2019) cubic meters
relating to non-payment of minimum wage to farmworkers
by 2030
Prevalence of child labor in PMI's tobacco supply chain² n/a 3.5% 1.8% Zero by SI
Proportion of tobacco-growing areas which are 36% 57% 66%
covered by local water risk assessments PMI tobacco
2025 supply chain
(cumulative, since 2018)
Child labor prevention
Number of ALP prompt actions recorded by field technicians 2,712 2,352 1,175
relating to child labor³ Quantity of blue water used per ton of tobacco 330 307 339
• Hazardous tasks⁴ 2,712 2,285 1,121 produced²
Water
• Under 13 working⁵ n/a 64 38 Total amount of water used (’000 m3) 138,200 115,009 133,674
• Under 15 hired n/a 3 16 Total amount of water consumed (withdrawn 1,883 1,619 1,481
minus discharged) (’000 m3)
Proportion of ALP prompt actions recorded by field technicians 88% 75% 99%
relating to child labor that were resolved Total amount of water withdrawn (’000 m3) PMI factories 4,008 3,375 3,120
Water ratio (water withdrawn in m3 per million 3.9 3.5 2.6 <3.1
Proportion of contracted farmers who have access to water⁶ n/a n/a 87% 100% by units of cigarettes sold)³ (ongoing)
2025 CDP Water rating PMI value A A A A
Proportion of farmers and farmworkers having access to personal 99% 100% 100% 100% chain
Well-being
protective equipment (ongoing)

Proportion of tobacco farmworkers provided with safe and 80% 100% 100% 100% Proportion of tobacco purchased without 97% 100% n/a 100%
adequate accommodation⁷ (ongoing) detection of residues attributable to the use of (ongoing)
highly hazardous pesticides (HHPs), as defined by
Biodiversity
FAO and WHO guidelines in 2016⁴ PMI tobacco
supply chain
Proportion of tobacco purchased without 100% 100% n/a 100%
Note: Our 2021 farm-level ALP monitoring data cover 20 out of the 21 countries from which we sourced in 2021; data exclude Switzerland, where we sourced from detection of residues attributable to the use of (ongoing)
approximately 120 tobacco farmers in 2021. Read more here. WHO TOX1 group of crop protection agents⁴
1 As we progress with the independent analysis, the percentage of farmers achieving a living income is currently based on a combination of external living income
benchmarks, farmer income studies, and PMI internal data. Total amount of waste generated (in metric tons) 131,104 119,750 114,043
2 Includes all prompt actions raised and self-declared nonconformities reported for all contracted farms monitored for child labor. Read more here.
3 The number of children estimated to be involved in these prompt actions is 1,609.
• Recycled 84.0% 85.5% 87.3% 85%
4 Includes children of any age found to be involved in hazardous work. (ongoing)
5 Includes light work only.
6 Estimated data based on surveys that indicated that the farmer has an improved source within 1 km. Data exclude China. • Incinerated with energy recovery 11.6% 11.4% 11.4%
7 Scope is limited to farmers that provide accommodation to workers (approximately 8% of the total farmer base in 2021). • Incinerated without energy recovery <1% 0.3% 0.3%
PMI
Waste
• Disposed to landfill⁵ 4.1% 2.8% 1.1% <1%
operations
Amount of hazardous waste generated 1,486 1,266 1,057
• Incinerated with energy recovery 49.0% 42.6% 57.3%
• Recycled 33.0% 37.6% 20.9%
• Incinerated without energy recovery 10.0% 12.7% 13.5%
• Disposed to landfill 8.0% 7.1% 8.2%
238 239
Preserve nature continued Tackle climate change

Scope 2019 2020 2021 Goals 2019 2020 2021 Goals
Manufacturing facilities certified to ISO 14001⁶ 98 100 100 100 Total energy consumption in PMI factories, offices, and fleet 9,456,576 7,909,157 7,721,166
Environmental management
(gigajoules)
33%
Energy consumption in PMI

Proportion of total energy consumed that is from renewable 27% 29%
PMI factories sources
direct operations
Number of environmental fines 1 1 2 Energy intensity (gigajoules per million cigarettes equivalent)¹ 11.95 10.83 10.37
(and approximate amount in USD)⁷ (25,000) (32,000) (48,000)
Fuel consumption from non-renewable sources (gigajoules) 5,819,072 4,733,193 4,541,721
Fuel consumption from renewable sources (gigajoules) 128,967 91,680 123,033
Total electricity consumed (MWh)² 959,723 832,292 865,166
Note: Select 2021 waste- and water-related metrics for our manufacturing sites are subject to external verification by SGS (see the External Verification Statement here).
Total electricity consumed that is from renewable sources (MWh) 623,940 621,620 674,903
1 For definitions, please see PMI’s Zero Deforestation Manifesto.
2 Blue water refers to water used for irrigation, excluding rainfall.
3 Water intensity is measured in cubic meters per million cigarettes produced equivalent. In 2021, we updated our methodology to account for the conversion factor of
heated tobacco units to conventional cigarettes of 5:1 and have restated historical data accordingly. Absolute CO2e scope 1 (metric tons)³ 397,210 322,633 308,822
4 The 2021 crop season data were not available at the time of the publication of PMI’s Integrated Report 2021.
5 Disposal to landfill includes sanitary waste, canteen waste, and waste mandated by authorities to be disposed of in landfill. Absolute CO2e scope 2 (metric tons)³ 158,672 90,366 64,217
6 Scope: Manufacturing facilities producing more than three billion cigarette equivalents annually.
7 Fines above USD 10,000 (or equivalent in converted currency). 2021 figure is a provision for two administrative offenses related to failure to comply Absolute CO2e scope 1+2 (metric tons)³ 555,882 412,999 373,040
with water resource use permit and availability of financial guarantee in Portugal. In both cases, PMI has submitted its opposition. • Absolute reduction versus 2019 baseline n/a 26% 33% 50% by
2030 (SBT)
Carbon offsetting certificates (metric tons)⁴ 1,242 3,297 16,128
Net CO2e scope 1+2 (metric tons)³ 554,640 409,703 356,911 Carbon
GHG emissions – Scope 1+2

neutrality SI
by 2025
CO2e scope 1+2 intensity (kg per million cigarettes equivalent)¹ 702 556 501
Scope 1+2—Manufacturing
Absolute CO2e scope 1+2 (metric tons) from manufacturing 394,447 305,381 267,783
Proportion of electricity used and purchased that is from 72% 78% 81% 100% by
renewable sources 2025
Number of carbon-neutral factories 1 2 5 All by 2025
Scope 1—Fleet
Absolute CO2e scope 1 from fleet (metric tons) 111,400 79,457 78,018
• Absolute reduction versus 2019 baseline n/a 29% 30%
CO2e emissions from fleet (kg CO2e per km driven) 222 216 200
Proportion of hybrid or electrical vehicles in our fleet n/a 5% 10%
Absolute CO2e scope 3 (in thousands of metric tons) 4,494 3,793 3,748
• Absolute reduction versus 2019 baseline n/a 16% 17% 25% by SI
2025
50% by
2030 (SBT)
GHG emissions – Scope 3

CO2e scope 3 biogenic emissions (in thousands of metric tons) 2,471 2,185 2,271
Scope 3 – Tobacco supply chain
Absolute CO2e scope 3 (in thousands of metric tons) from tobacco 1,264 909 804
supply chain
• Absolute reduction versus 2019 baseline n/a 28% 36% 50% by
2030
CO2e intensity reduction in tobacco curing versus 2019 baseline n/a 44% 64% 75% by
2025
Proportion of Virginia tobacco purchased cured with coal 16% 11% 3%
Absolute CO2e scope 1+2+3 (in thousands of metric tons) 5,050 4,206 4,122 Net zero
by 2040
GHG emissions –
Scope 1+2+3
• Absolute reduction versus 2019 baseline n/a 17% 18%

CO2e scope 1+2+3 intensity (kg per million cigarettes equivalent)³ 6,381 5,760 5,534
• Reduction versus 2019 baseline n/a 10% 13%
CDP Climate Change rating A A A A
Note: Our inventory of GHG emissions (scope 1, 2, and 3) in 2021 is subject to external verification by SGS (see the External Verification Statement for scope 1+2 here and
for scope 3 here).
1 Intensity is measured in CO2e per million shipped cigarette equivalent. 5 For further details on Scope 3 calculation please see PMI Value Chain
2 Excludes electricity consumption from fleet. Methodology. In 2021, we reviewed our carbon footprint model, taking into
SI Indicators included in PMI Sustainability Index 3 Emissions from PMI-operated IQOS stores are excluded from scope 1+2 account more primary data from suppliers and updating our methodology,
emissions, as de minimis. leading to more accurate figures for our scope 3 emissions. We have
4 2021 figure includes carbon offsetting certificates purchased in our restated our 2019 and 2020 data according to the new model. Other
factories in Czech Republic, Lithuania, Mexico, Portugal, Switzerland, and figures that include scope 3 emissions have also been restated.
our Operations Center in Switzerland.
240 241
Managing our supply chain sustainably

FUNDAMENTALS
2019 2020 2021 Goals
Total number of suppliers¹ >33,200 >28,000 >29,000
Total supply chain spend (in billions USD)² 11.4 10.1 11.1
Total
Business integrity Proportion of critical suppliers from whom PMI sources n/a 67% 83% 100% by
sustainably³ 2025
2019 2020 2021
Proportion of current employees who participated in training n/a n/a 71.3% Total procurement spend (in billions USD)⁴ 9.9 8.9 9.8
sessions pertaining to PMI’s Guidebook for Success¹ Number of critical suppliers⁵ 95 154 162
Total number of compliance training sessions completed by employees 253,763 198,170 261,890 Critical suppliers, expressed as a proportion of total procurement 35% 35% 29%
and third parties spend
• Employees 222,533 174,755 150,270 Number of critical suppliers assessed in EcoVadis or Responsible n/a n/a 104
• Third parties 31,230 23,415 111,620 Business Alliance (RBA)⁶
Total number of reports received involving compliance allegations and other 980 762 929 Number of critical suppliers identified as having significant actual n/a n/a 15
concerns or potential negative social impacts⁷
Total number of cases closed 978 767 891 Number of critical suppliers identified as having significant actual n/a n/a 16
• Involving compliance allegations 653 431 508 or potential negative environmental impacts⁷
(unsubstantiated cases/substantiated cases) (284/369) (198/233) (272/236) Direct Materials
• Not involving compliance allegations 325 336 383 Number of critical suppliers of direct materials assessed with EcoVadis n/a n/a 87
Proportion of critical spend on direct materials assessed with n/a n/a 90%
Non-tobacco supply chain

Note: Training and cases are updated based on new information available, so a slight shift in previous years’ data is reflected.
EcoVadis
1 In 2021, we adjusted our methodology to exclude employees who are no longer employed by PMI as of December 31, 2021. As the basis for this year’s calculation is
different, it is not comparable to last year’s reported number
Average total EcoVadis score for critical suppliers of direct n/a n/a 56.5
materials⁸
• Average score: Environment n/a n/a 60.5
• Average score: Ethics n/a n/a 54.2
• Average score: Social n/a n/a 55.8
• Average score: Sustainable procurement n/a n/a 50.8
Electronics
Number of critical electronics suppliers assessed with RBA⁹ n/a n/a 17
Number of site level RBA audits completed¹⁰ n/a n/a 31
• Average RBA score achieved by electronics suppliers n/a n/a 160
during site level audits
• Percentage of electronic supply chain spend covered by n/a n/a 69%
these audits
Number of tier 2 electronic suppliers completing supplier-level n/a n/a 21
self-assessment in RBA
• Of tier 2 electronics suppliers assessed at supplier level, n/a n/a 43
the number of site level self-assessments completed
Number of tobacco farmers contracted by PMI and PMI tobacco 335,000 285,898 253,813
suppliers
Proportion of tobacco purchased through direct contracts by PMI 96% 99% 98% >90%
and PMI tobacco suppliers (ongoing)
Tobacco supply chain

Number of third-party tobacco suppliers with whom PMI has a 13 14 16
direct contractual relationship¹¹
Number of PMI leaf operations that contract tobacco farmers 8 6 5
directly
Number of countries where PMI sources tobacco from 24 23 21
Number of field technicians providing support to contracted 2,875 2,675 2,530
farmers and monitoring the implementation of PMI’s Good
Agricultural Practices (GAP) and Agricultural Labor Practices (ALP)
1 Suppliers refer to tier 1 suppliers (parent companies). 6 In 2021, we transitioned our supply chain due diligence assessments to the
2 Total supply chain spend includes procurement spend and tobacco leaf EcoVadis and RBA platforms. This figure represents the number of
sourcing spend. completed assessments on these platforms to date. In 2022, we will work
3 Indicator introduced in 2020. As of 2021, following the transition of our to expand the scope of the assessments to additional critical suppliers.
due diligence program, sustainable sourcing is determined based on a 7 Based on a score below 45 on the social or environmental theme of
minimum threshold score of 45 out of 100 in EcoVadis (direct materials) or EcoVadis assessment, or the results of on-site audit from RBA. Comparable
125 out of 200 in RBA (electronics). All tobacco purchased by contracted historic data not available due to transition of due diligence platforms in
farmers, thereby covered by PMI’s integrated production system, is 2021.
considered sustainable. 8 EcoVadis score ranges from 0 to 100, with a minimum threshold score of 45
4 Procurement spend excludes tobacco leaf sourcing. demonstrating satisfactory sustainability performance.
5 Suppliers’ criticality is evaluated considering spend segmentation and 9 This figure includes 17 out of 23 of our electronic critical suppliers. In 2022
nature of component, as well as supply flexibility (single-source/not easily we will work to expand the scope of the assessments to additional critical
substitutable) as relevant. 2021 figure includes tier 1 suppliers of direct suppliers.
materials and electronics, tier 2 directly managed electronic suppliers, and 10 Due to COVID-19 restrictions, in 2021 it was not possible to complete
tobacco leaf suppliers. on-site audits at each of the 42 sites.
11 Data refer to parent companies.
242 243
Respect for human rights

2019 2020 2021 Goals
Independent practitioner’s limited assurance report
Cumulative number of human rights impact assessments 2 4 5 10 on Business Transformation Metrics Reporting 2021 to the Board of Directors of Philip Morris International Inc.
conducted since 2018, with findings addressed¹ highest-risk Lausanne
SI
countries
by 2025
1 Our assessment prioritize countries which are assessed as highest risks from a human rights standpoint. They are determined based on key parameters such as PMI’s
We have been engaged by Management to perform • Estimated number of users who have switched
footprint and the country’s human rights risk profile, as determined by internationally recognized organizations. assurance procedures to provide limited assurance on to PMI smoke-free products and stopped
the specified Key Performance Indicators in the smoking
Community support Business Transformation Metrics Reporting 2021 of
• Adjusted net revenues ratio (smoke-free/total)
2019 2020 2021 Philip Morris International Inc. and subsidiaries (’PMI’)
Total number of social contributions supported by PMI 170 702 356 for the period from January 1, 2021 to December 31, • Number of markets where adjusted net
• Charitable donations 145 681 317 2021. revenues from smoke-free products exceed
• Community investments 25 21 39 10% of adjusted total net revenues
Number of partner organizations supported by PMI’s social contributions 147 600 293 The specified Key Performance Indicators (“KPI”)
Number of countries where projects supported by PMI’s social contributions 43 78 54 forming part of the Business Transformation Metrics • Number of markets where adjusted net
were implemented of PMI for the financial year ended December 31, revenues from smoke-free products exceed
Value of cash contributions (in millions USD) 17.0 47.8 32.9 2021 are included in the Integrated Report 2021 and 50% of adjusted total net revenues
• Charitable donations 14.8 46.0 29.2
comprises the following in our scope: b. The application of the PMI Business
• Community investments 2.2 1.8 3.7
Approximate value of in-kind donations (in thousands USD) 205 12,190 2,150 a. The following Business Transformation Metrics as Transformation Framework for the preparation of
Approximate total number of volunteer hours by PMI employees 16,700 15,272 12,673 disclosed on pages 35 and 232 of PMI’s the specified Key Performance Indicators in
1 Our Social Contributions Policy and list of 2021 social contributions are available on PMI.com. Integrated Report for the year ended December Business Transformation Metrics Report
31, 2021, respectively. published on pages 35, 232 and 248 to 251
Illicit trade prevention (Glossary).
• Adjusted R&D expenditure (in millions USD)
2019 2020 2021 Goals The Business Transformation Metrics Reporting 2021
Coverage for tracking and tracing—master case level¹ 100% 100% 100% 100% • Adjusted R&D expenditure ratio (smoke-free/
was prepared by Management of PMI based on the
Tracking and tracing – proportion of packs sold with 100% 100% 100% 100% total)
Business Transformation-Linked Financing Framework
unique code applied²
• Number of factories producing smoke-free (or “Business Transformation Framework” in short)
Additional Framework Cooperation Agreements signed with law 2 11 9
enforcement agencies/governments in a given year—number of products out of total number of factories and made available under https://www.pmi.com/
countries investor-relations/overview/business-transformation-
• Number of markets where smoke-free products
Number of law enforcement officers trained on how to 6,617 4,981 16,943 linked-financing-framework¹). Further, PMI defines the
authenticate PMI products³ are available for sale
calculation of the specified KPIs (together the “suitable
Number of countries with law enforcement agencies trained on 23 22 17
• Proportion of markets where smoke-free Criteria”) in the footnotes on pages 35 and 232 as well
how to authenticate PMI products
PMI IMPACT grants allocated in USD million⁴ n/a 48 48 100 products are available that are low- and as in the Glossary (page 248 to 251) in the Business
middle-income markets Transformation Metrics Reporting.
Note: Data cover PMI combustible tobacco products and smoke-free product consumables and devices.
1 Full coverage equates to 95% tracking and tracing in our supply chain (excluding kretek business). 5% of master cases are not covered; these are destined for countries • Commercial (marketing) expenditure ratio
that are not identified as a source of potential diversion or where PMI sells to a single customer in the country.
2 Excludes kretek business. While our internal rules mandate a unique code on every pack (hence 100% mentioned), some exceptions remain, which are managed and
(smoke-free/total)
reviewed with the impacted markets on an annual basis.
3 The number of training sessions delivered each year depends on specific needs and requests raised locally by law enforcement agencies.The significant increase in 2021 • Smoke-free product shipment volume (billion
was driven by larger numbers of participants taking part in online training sessions.
4 PMI pledged USD 100 million to PMI IMPACT. Goals related to PMI IMPACT are stated for the period 2016–2025. units)
• Combustible product shipment volume (billion
Responsible and transparent R&D units)
2019 2020 2021
Cumulative number of scientific publications by PMI since 2008 365 418 452 • Change in combustible product shipment
Cumulative number of studies published on INTERVALS platform since 2018 38 63 87 volume vs 2015 baseline
Cumulative number of protocols published on INTERVALS platform since 2018 103 122 132
• Smoke-free product shipment ratio (smoke-
Cumulative number of data sets published on INTERVALS platform since 2018 354 556 676
free/total)
Note: As of 2021, we no longer report on indicators related to sbv IMPROVER which was an initiative executed by PMI between 2011 and 2020, with the scope of verifying
methods and concepts in systems biology used at PMI R&D. More information can be found in sbv IMPROVER (intervals.science).
• Total numbers of users of PMI smoke-free
1 ‘The maintenance and integrity of PMI’s website and its content are the
products (in millions) responsibility of the Management; the work carried out by the assurance
provider does not involve consideration of the maintenance and integrity of the
PMI’s website, accordingly, the assurance providers accept no responsibility for
any changes that may have occurred to the reported Business Transformation
SI Indicators included in PMI Sustainability Index Metrics Reporting 2021 since they were initially presented on the website.
244 245
Independent practitioner’s limited assurance report continued
Inherent limitations PricewaterhouseCoopers SA applies International We performed the following procedures, among We permit the disclosure of our report, in full only and
Standard on Quality Control 1 and accordingly others: in combination with the suitable Criteria, to enable
The accuracy and completeness of the Business
maintains a comprehensive system of quality control Management to demonstrate that they have
Transformation Metrics Reporting 2021 are subject to • Interviewing PMI representatives responsible for the
including documented policies and procedures discharged their governance responsibilities by
inherent limitations given their nature and methods internal reporting and data collection.
regarding compliance with ethical requirements, commissioning an independent assurance report over
for determining, calculating and estimating such data. • Test samples from PMI operations concerning the
professional standards and applicable legal and the specified Key Performance Indicators tables in
In addition, some KPIs are derived from different completeness, accuracy, consistency and
regulatory requirements. Business Transformation Metrics, without assuming or
frameworks to form the Business Transformation classification. accepting any responsibility or liability to any third
Metrics, thus the quantification of some selfdefined
Practitioner’s responsibility parties on our part. To the fullest extent permitted by
KPIs is subject to inherent uncertainty because of • Inspecting relevant documentation on a sample
Our responsibility is to perform a limited assurance basis, including PMI policies, management reporting law, we do not accept or assume responsibility to
incomplete scientific definition or knowledge used to
engagement and to express a conclusion on the structures and documentation. anyone other than the Management of Philip Morris
determine factors related to such KPIs and the values
specified Key Performance Indicators in the Business International Inc. for our work or this report.
needed to combine. Our assurance report will • Reviewing and assessing the management reporting
therefore have to be read in connection with the Transformation Metrics Reporting 2021. We PricewaterhouseCoopers SA
processes for Business Transformation Metrics data
Business Transformation-Linked Financing Framework conducted our engagement in accordance with the
and consolidation and their related controls.
prepared by PMI, its definitions and procedures in the International Standard on Assurance Engagements
document “Business Transformation Framework“ and (ISAE) 3000 (Revised) ‘Assurance engagements other We believe that the evidence we have obtained is
the footnotes on pages 35 and 232 and glossary than audits or reviews of historical financial sufficient and appropriate to provide a basis for our
Chad Mueller Reto E. Huber
(page 248 to 251) in the Business Transformation information’. Those standards require that we plan conclusion.
Metrics Reporting. and perform our procedures to obtain limited Lausanne, Switzerland
assurance whether anything has come to our Conclusion May 12, 2022
Managements’ responsibility attention that causes us to believe that the Business Based on the work we performed, nothing has come
Transformation Metrics Reporting 2021 are not free to our attention that causes us to believe that the
Management is responsible for preparing the Business
from material misstatement. specified Key Performance Indicators on the pages 35
Transformation Metrics Reporting 2021 in accordance
with suitable Criteria. This responsibility includes the Based on risk and materiality considerations, we and 232, respectively, (the metrics with an asterisk (*))
design, implementation and maintenance of the performed our procedures to obtain sufficient and in the Business Transformation Metrics Reporting
internal control system related to the preparation of appropriate assurance evidence. The procedures 2021 of PMI for the period from January 1, 2021 to
the Business Transformation Metrics Reporting 2021 selected depend on the assurance practitioner’s December 31, 2021 are not, in all material respects, in
that are free from material misstatement, whether due judgement. A limited assurance engagement under accordance with the Business Transformation
to fraud or error. ISAE 3000 (Revised) is substantially less in scope than Framework and the footnotes on pages 35 and 232 as
a reasonable assurance engagement in relation to well as in the Glossary (page 248 to 251).
Independence and quality control both the risk assessment procedures, including an
understanding of internal control, and the procedures
Intended users and purpose of the report
We are independent of PMI in accordance with the
performed in response to the assessed risks. This report is prepared for, and only for, the Board of
International Code of Ethics for Professional
Consequently, the nature, timing and extent of Directors of Philip Morris International Inc. and solely
Accountants (including International Independence
procedures for gathering sufficient appropriate for the purpose of reporting to them on the specified
Standards) issued by the International Ethics
evidence are deliberately limited relative to a Key Performance Indicators tables in Business
Standards Board for Accountants (IESBA Code). We
reasonable assurance engagement and therefore less Transformation Metrics Reporting 2021 and no other
have fulfilled our other ethical responsibilities in
assurance is obtained with a limited assurance purpose. We do not, in giving our conclusion, accept
accordance with the IESBA Code, which is founded
engagement than for a reasonable assurance or assume responsibility (legal or otherwise) or accept
on fundamental principles of integrity, objectivity,
engagement. liability for, or in connection with, any other purpose
professional competence and due care, confidentiality
and professional behaviour. for which our report including the conclusion may be
used, or to any other person to whom our report is
shown or into whose hands it may come, and no other
persons shall be entitled to rely on our conclusion.
246 247
Glossary of terms and acronyms HPHCs – The harmful or potentially harmful constituents
which have been identified as likely causes of tobacco-
NCGC – Nominating and Corporate Governance
Committee of PMI’s Board of Directors
related diseases by various public health institutions
Net revenues related to combustible products – The
Human Rights Impact Assessment, or HRIA – Assessments operating revenues generated from the sale of these
to identify human rights risks and adverse impacts products, including shipping and handling charges billed to
3TGs – Tin, tantalum, tungsten, and gold CPA – Crop protective agent customers, net of sales and promotion incentives, and
Human rights salient issues – Those human rights that
excise taxes. PMI recognizes revenue when control is
Aerosol – Gaseous suspension of fine solid particles and/or Downstream supply chain – Those stages in the supply stand out because they are at risk of the most severe
transferred to the customer, typically either upon shipment
liquid droplets chain in which materials (mostly in the form of finished negative impact through the company’s activities or
or delivery of goods
products) flow away from the organization to the business relationships (source: UN Guiding Principles)
ALP – Agricultural Labor Practices Net revenues related to smoke-free products – Represent
customers/consumers. Illicit trade – Domestic non-tax paid products
AWS – Alliance for Water Stewardship operating revenues from the sale of non-combustible
Directors – The term we use to refer to employees in salary ILO – International Labour Organization products, including shipping and handling charges billed to
CA – Cellulose acetate grade 14 to 16 customers, net of sales and promotion incentives, and
In-market sales, or IMS – Sales to the retail channel,
Caregiver – A person who has responsibility for the care of E&C – Ethics & Compliance excise taxes
depending on the market and distribution model
a new-born child or newly adopted child including the child’s
E-liquids – A liquid solution that is used in/with e-cigarettes. NGOs – Non-governmental organizations
biological parent, the child’s adoptive parent, a person Insetting – The act of generating a carbon credit within the
E-liquids contain different levels of nicotine in a propylene corporate’s sphere of influence and retiring the unit on Non-combustible products – The term PMI uses to refer to
having legal parental responsibility for the child such as the
glycol and/or vegetable glycerin-based solution with various behalf of 1 ton of carbon that has been emitted by the products, excluding cigarettes and OTP. This may include
child’s guardian, a stepparent, or a child’s parent through
flavors. corporate (source: International Carbon Reduction and heated tobacco units, heat-not-burn devices and related
surrogacy
E-vapor product – Electrical product that generates an Offset Alliance) accessories, other nicotine-containing products, primarily
Primary caregiver – The caregiver who has the
aerosol by heating a nicotine or non-nicotine containing e-vapor products, and products in wellness and healthcare
primary responsibility for the care of the new-born or IPM – Integrated Pest Management
liquid, such as electronic cigarettes (or “e-cigarettes”) NRTs – Nicotine replacement therapies
newly adopted child following the child’s arrival IPS – Integrated Production System
Employee resource groups, or ERGs – Employee-led OECD – Organisation for Economic Cooperation and
Secondary caregiver – A caregiver who is not the IQOS heat-not-burn devices – Precisely controlled heating
groups that focus on particular dimensions of diversity and Development
primary caregiver devices into which specially designed and proprietary
are intended to provide a platform for building a sense of
Combustible tobacco product, or combusted tobacco belonging and sparking conversations. tobacco units are inserted and heated to generate an Offsetting – The act of purchasing a carbon credit
product – A manufactured consumable product that aerosol generated outside the corporate’s sphere of influence and
EPR – Extended Producer Responsibility retiring the unit on behalf of 1 ton of carbon that has been
combusts tobacco and/or generates smoke inhaled directly ITP – Illicit trade prevention
by the user when it is used as intended. Combustible ESG – Environmental, social, and governance emitted by the corporate (source: International Carbon
tobacco products include, for example, cigarettes, cigarillos, KPIs – Key performance indicators Reduction and Offset Alliance)
FAO – Food and Agriculture Organization of the United
cigars, “roll your own,” and pipe tobacco LCA – Life-cycle analysis Other Tobacco Product, or OTP – Primarily roll-your-own
Nations
Combustible products – The term we use to refer to LCTP – Low-Carbon Transition Plan and make-your-own cigarettes, pipe tobacco, cigars and
FCTC – WHO Framework Convention on Tobacco Control
cigarettes and OTP, combined cigarillos, and does not include smoke-free products
FDA – U.S. Food and Drug Administration Low- and middle-income markets, or LMIMs – Markets
Combustion – The process of burning a substance in comprised of countries classified by the World Bank as P&C – People and Culture
oxygen, producing heat and often light GAP – Good Agricultural Practices low- and middle-income economies based on Gross PCI – Portfolio of Climate Investments
Company Management – The term we use to refer to the Gender pay gap – Calculated as the percentage difference National Income (GNI) per capita; or where no World Bank
PMI Regions – We manage our business in six geographical
senior management of the company, as presented on our between the sum of annual base salary, bonus, and stock classification exists, those with GNI per capita below the
segments and an Other category: the European Union
www.PMI.com site (also referred to as “our leadership team” options. World Bank LMIC threshold
region (EU); the Eastern Europe region (EE); the Middle East
or “senior management team”) LTIR – Lost Time Incident Rate & Africa region (ME&A), which includes PMI’s international
GHG – Greenhouse gas
Contracted employee – We define a contracted employee Management positions – The term we generically use to Duty Free business; the South & Southeast Asia region
GPP – Global Privacy Program
as an employee who is under the direct supervision of PMI refer to all positions in a defined salary grade (10) and (S&SA); the East Asia & Australia region (EA&A); the
employees but employed by a temporary employment Heated tobacco product, or HTP – A manufactured above, regardless of their job title or function. Americas (AMCS); and Other, which includes our third
agency tobacco product that delivers a nicotine-containing vapor quarter 2021 acquisitions of Fertin Pharma A/S, Vectura
(aerosol), without combustion of the tobacco mixture Managers – The term we use to refer to employees in Group plc., and OtiTopic, Inc.
Contracted farmers – Tobacco farmers supplying to PMI salary grade 10 to 13
and contracted either directly by PMI (through the Heated tobacco units, or HTUs – The term we use to refer PMI heat-not-burn products – Include licensed KT&G
company’s leaf operations) or through third-party leaf to heated tobacco consumables, which for PMI include the Market share for HTUs – Total sales volume for HTUs as a heat-not-burn products
suppliers company’s HEETS, HEETS Creations, HEETS Dimensions, percentage of the total estimated sales volume for
cigarettes and HTUs QMS – Quality management system
HEETS Marlboro and HEETS FROM MARLBORO (defined
Contractor – We define a contractor as a person employed R&D – Research and development
collectively as HEETS), Marlboro Dimensions, Marlboro MRTP – Modified Risk Tobacco Product
or working on behalf of a third-party company contracted
HeatSticks, Parliament HeatSticks and TEREA, as well as the
by PMI, who remains under the direct supervision of his or MVR – Monitoring, Verification, and Reporting Framework RBA – Responsible Business Alliance
KT&G-licensed brand, Fiit and Miix (outside of South Korea)
her employer rather than PMI and is often involved in for Sustainable Leaf Curing Fuels
project-specific or outsourcing arrangements
248 249
Refreshed devices – Smoke-free devices resulting from the TNFD – Taskforce on Nature-related Financial Disclosures Key definitions related to our work to Living income benchmark studies are studies conducted in
care and maintenance refresh services (which may include improve tobacco farmer livelihoods: specific regions or areas to estimate the net annual income
Tons – “Tons” equates to “metric tons” throughout this
unpacking, diagnostics, cleaning, firmware update, cosmetic required for a household to afford a decent standard of
report A living income and living wage are both about achieving a
parts replacement, battery charging, and repacking of living for all members of that household.
Total IQOS users – The estimated number of legal age decent standard of living. A living income is the net annual
devices) that meet the agreed quality requirements to allow
income required for a household to afford a decent standard Living Income Reference Values represent a living income
for their re-use as pre-owned devices (minimum 18 years) users of PMI heat-not-burn products,
of living for all its members and applies to, for example, for typical families in rural (or urban) areas of low-income
for which PMI HTUs represented at least a portion of their
Repaired devices – Smoke-free devices resulting from the self-employed farmers. A living wage is applied in the and middle-income countries.3 Reference Values provide a
daily tobacco consumption over the past seven days.
care and maintenance repair services (which may include context of hired workers (e.g., in factories or on farms) credible estimate of living wage or income at a country level,
unpacking, diagnostics, testing, cleaning, battery charging, The estimated number of adults who have “switched to (source: The Global Living Wage Coalition). for rural and urban areas. They offer an insightful reference
firmware update, cosmetic part or battery replacement, IQOS and stopped smoking” reflects: beyond the currently available indicators for many
A minimum legal wage, as defined in PMI’s ALP Code, is a
component harvesting, and repacking of devices) that meet countries, which are mostly limited to poverty lines and
• for markets where there are no heat-not-burn wage for all workers (including temporary, piece-rate,
the agreed quality requirements to allow for their re-use as minimum wages.
products other than PMI heat-not-burn products: daily seasonal, and migrant) that meets, at a minimum, the
pre-owned devices
individual consumption of PMI HTUs represents the national legal standard or formalized agricultural benchmark Farmer income studies are conducted, through third-party
RSP – Responsible Sourcing Principles totality of their daily tobacco consumption in the past standard. An agricultural benchmark may be formalized service providers, to assess all legal income sources of
seven days; where a minimum legal wage is not available or applicable to contracted farmers within PMI’s tobacco supply chain,
SBT – Science-based target
a specific context. including tobacco, complementary crops, and off-farm
• for markets where PMI heat-not-burn products are
SBTi – Science Based Targets initiative income.
among other heat-not-burn products: daily individual Child labor, as defined by the ILO, is work that deprives
1 Schep LJ, Slaughter RJ, Beasley DM (September–October 2009). “Nicotinic
SDGs – Sustainable Development Goals consumption of HTUs represents the totality of their children of their childhood, their potential, and their dignity, plant poisoning.” Clinical Toxicology.
daily tobacco consumption in the past seven days, of and that is harmful to physical and mental development.
2 Adapted from the FAO/WHO (2014) International Code of Conduct on
Senior leaders – The term we use to refer to employees in Pesticide Management.
which at least 70% is PMI HTUs. Under PMI’s ALP Code, the minimum age for admission to 3 Reference values are built on data and knowledge gained from 40 complete
senior leadership roles; it includes all employees in salary Anker methodology benchmark studies. Since they are based on a statistical
grade 17 and above Note: The above IQOS user metrics reflect PMI estimates, work is not less than the age at which compulsory schooling analysis, they have a margin of error for typical rural (or urban) areas of a
country, which is generally around +/– 10% using a 95% confidence interval.
which are based on consumer claims and sample-based is completed and, in any case, is not less than 15 years or Sources: Living Income Reference Values | livingincome (living-income.com)
Senior roles – The term we generically use to refer to all the minimum age accepted by the country’s laws, whichever and Anker Living Wage and Living Income Reference Values | Global Living
statistical assessments with an average margin of error of Wage Coalition.
positions in a defined salary grade (14) and above, regardless age limit affords greater protection. No person below age
+/-5% at a 95% Confidence Interval in key volume markets.
of their job title or function 18 should be involved in any type of hazardous work. In the
The accuracy and reliability of IQOS user metrics may vary
Smoke – A visible suspension of solid particles, liquid based on individual market maturity and availability of case of family farms, a child may only help on the farm
droplets, and gases in air, emitted when a material burns information provided that the work is non-hazardous, and the child is at
least 13 years old or above the minimum age for such work
Smoke-free products, reduced risk products (RRPs), or Total shipment volume – Includes cigarettes, OTPs, and as defined by the country’s laws, whichever affords greater
noncombusted alternatives (NCAs) – The terms we use to smoke-free product consumables protection.
refer to products that present, are likely to present, or have
TRIR – Total Recordable Incident Rate. The integrated Total Hazardous work means work that, by its nature or by virtue
the potential to present less risk of harm to smokers who
Recordable Incident Rate (or iTRIR) covers PMI employees, of when or where it is carried out, is likely to harm the
switch to these products versus continuing smoking. PMI
contracted employees, and contractors. health, safety, or morals of children or others. The following
has a range of smoke-free products in various stages of
development, scientific assessment and commercialization. UNGPs – United Nations Guiding Principles on Business can, for example, be hazardous, particularly without the
PMI’s smoke-free products contain and/or generate far and Human Rights proper PPE: applying crop protection agents (CPA); stalk
lower quantities of harmful and potentially harmful cutting; stringing; carrying heavy loads; working with sharp
Upstream supply chain – Those operations in which the tools; working in extreme temperatures; and working after
constituents than found in cigarette smoke.
materials flow into the organization (i.e., it mainly refers to dark.
Smoke-free product consumables – The term PMI uses to procurement activities and inbound logistics)
refer to heated tobacco units used with heat-not-burn Green tobacco sickness, or GTS, is a type of nicotine
VAP – Validated Assessment Program of the Responsible poisoning caused by the absorption of nicotine from the
products, and cartridges containing e-liquids that are used
Business Alliance (RBA) is a leading standard for on-site surface of wet, fresh, green tobacco leaves through the skin.
for e-vapor products and oral nicotine products including
compliance verification and effective, shareable audits The characteristic symptoms of GTS include nausea,
snus and nicotine pouches
WASH – Water access, sanitation, and hygiene vomiting, weakness, dizziness, stomach cramps, difficulty
SUP – Single-use plastics breathing, excessive sweating, headache, and fluctuations in
WBCSD – World Business Council for Sustainable
TCFD – Task Force on Climate-related Financial Disclosures blood pressure and heart rate. They can last from 12 to 48
Development
hours.1
TGA – Tobacco-growing area
WHO – World Health Organization
Personal protective equipment, or PPE, in tobacco farming
Tier 1 suppliers – Suppliers that directly supply goods,
ZDM – Zero Deforestation Manifesto refers to any clothes, materials, or devices that provide
materials or services to PMI
protection from exposure to CPA and GTS during specific
Tier 2 suppliers – Suppliers that provide their products and activities throughout the crop cycle.2
services to the Tier 1 suppliers
250 251
Forward-looking and cautionary statements Notes
This report and related discussion contain projections effectiveness of its data privacy policies. PMI’s future In this report, “PMI,” “we,” “us,” and “our” refer to Philip Unless otherwise stated, references to total industry,
of future results and other forward-looking profitability may also be adversely affected should it Morris International Inc. and its subsidiaries. total market, PMI shipment volume, and PMI market
statements. Achievement of future results is subject be unsuccessful in its attempts to produce and share performance reflect cigarettes and heated
In this report and in related communications, the term
to risks, uncertainties and inaccurate assumptions. In commercialize reduced-risk products or if regulation tobacco units
“materiality,” “material,” and similar terms, when used
the event that risks or uncertainties materialize, or or taxation do not differentiate between such
in the context of economic, environmental, and social References to total international market, defined as
underlying assumptions prove inaccurate, actual products and cigarettes; if it is unable to successfully
topics, are defined in the referenced sustainability worldwide cigarette and heated tobacco unit volume
results could vary materially from those contained in introduce new products, promote brand equity, enter
standards, and are not meant to correspond to the excluding the U.S., total industry, total market and
such forward-looking statements. Pursuant to the new markets or improve its margins through increased
concept of materiality under the U.S. securities laws market shares are PMI estimates for tax-paid products
“safe harbor” provisions of the Private Securities prices and productivity gains; if it is unable to expand
and/or disclosures required by the U.S. Securities and based on the latest available data from a number of
Litigation Reform Act of 1995, PMI is identifying its brand portfolio internally or through acquisitions
Exchange Commission. internal and external sources and may, in defined
important factors that, individually or in the aggregate, and the development of strategic business
instances, exclude the People’s Republic of China and/
could cause actual results and outcomes to differ relationships; or if it is unable to attract and retain the This report contains references and links to websites
or PMI’s duty free business.
materially from those contained in any forward- best global talent, including women or diverse operated by third parties. These references are
looking statements made by PMI. candidates. Future results are also subject to the provided as a convenience to you and as an additional 2020 and 2021 estimates for total industry volume
lower predictability of our reduced-risk product avenue of access to the information contained in and market share in certain geographies reflect
PMI’s business risks include: excise tax increases and
category’s performance. those sources; they should not be viewed as an limitations on the availability and accuracy of industry
discriminatory tax structures; increasing marketing
endorsement by us of the content of these references data during pandemic-related restrictions.
and regulatory restrictions that could reduce our PMI is further subject to other risks detailed from time
and linked sites or opinions of their authors.
competitiveness, eliminate our ability to communicate to time in its publicly filed documents, including the Operations Center
with adult consumers, or ban certain of our products Form 10-Q for the quarter ended March 31, 2022. Unless otherwise stated, all references to IQOS are to
in certain markets or countries; health concerns PMI cautions that the foregoing list of important our IQOS heat-not-burn devices and consumables. Philip Morris Products S.A.
relating to the use of tobacco and other nicotine- factors is not a complete discussion of all potential Avenue de Rhodanie 50
Trademarks and service marks in this report are the
containing products and exposure to environmental risks and uncertainties. PMI does not undertake to 1007 Lausanne
registered property of, or licensed by, the subsidiaries
tobacco smoke; litigation related to tobacco use and update any forward-looking statement that it may Switzerland
of Philip Morris International Inc., and are italicized or
intellectual property; intense competition; the effects make from time to time, except in the normal course shown in their logo form.
of global and individual country economic, regulatory of its public disclosure obligations.
and political developments, natural disasters and
conflicts; the continuing effects of the COVID-19
pandemic; the impact and consequences of Russia’s
invasion of Ukraine; changes in adult smoker behavior;
lost revenues as a result of counterfeiting, contraband
and cross-border purchases; governmental
investigations; unfavorable currency exchange rates
and currency devaluations, and limitations on the
ability to repatriate funds; adverse changes in
applicable corporate tax laws; adverse changes in the
cost, availability, and quality of tobacco and other
agricultural products and raw materials, as well as
components and materials for our electronic devices;
and the integrity of its information systems and
252 253
Headquarters*
Philip Morris International Inc.
120 Park Avenue
New York, NY 10017-5579
USA
Operations Center
Philip Morris ProductsBack
S.A. cover ?
Avenue de Rhodanie 50
1007 Lausanne
Switzerland
www.pmi.com
* Note: In the fourth quarter of 2021, we announced

that we will be relocating our PMI corporate
headquarters from New York, New York, to
Stamford, Connecticut. This move is expected
to be completed by the third quarter of 2022.
Design and production

Friend Studio
www.friendstudio.com
Photography
George Books; Welin Nagyová;
Bradley Secker; Nobu Arakawa;
Tino Konino; Reto Cortesi;
Valeriy Belobeev; Mónica Godefroy;
Diego Sierra; Lucia Dellacha;
Andrea Fischer; Ari Riyanto;
Agung Lawerissa; Ronny Santoso;
Matteo Buonomo; Agha Fawad;
Lisa Konczal; Csaba Jobbagy

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INTEG R ATED REPORT 2021

Russian invasion of Ukraine

2021 highlights PMI’s Statement of Purpose

heat-not-burn products, nicotine-containing vapor

completely to smoke-free products is likely to present

Shareholders It is management’s responsibility to ensure

PMI’s Board of Directors

Bonin Bough Lisa Hook Frederik Paulsen

Letter from our Chief Executive Officer

company’s transformation improving labor practices and livelihoods in our tobacco

Letter from our Chief Financial Officer

Our company Total 2021 adjusted net revenue by PMI region

Our product portfolio

29% product is a heated tobacco product commercialized

71% number two market share position. Our portfolio

Healthy lifestyles • Demographic shifts

Climate and nature urgency • Civil society and consumer activism

Inequality • Civil society and consumer activism

Erosion of trust • Mistrust of institutions

Technological progress • Shift to online commercialization

Capitals: Human Manufactured Intellectual Natural Social Financial

Industry trends Heated tobacco products have been commercialized

Competition Oral tobacco and oral nicotine products are mainly

Our global market share 2021, including

26.1 24.6 23.7

13.8% 2019 2020 2021

We advocate for a comprehensive and risk-

Stakeholder groups Why we engage How we engage Key topics discussed

engagement Adult smokers and nicotine

Transforming for good

Our value chain transformation

SOURCING OPER ATIONS COMMERCIALIZATION CONSUMERS & REVENUES

>350,000 2 /48 USD 423 m 7 0.1% 0.2 m 0.2%

Of adjusted R&D expenditure

Reallocating R&D expenditure towards

>250,000 8/38 USD 566 m 71 12.8% 21.7 m 29.1%

We are by PMI and our suppliers in

product shipment volume stopped smoking

Materials and Product health Responsible R&D

Diversity and inclusion

Our 2025 Roadmap PMI Sustainability Index

free products (in millions)1

Product Sustainability 100% 67%

conducted since 2018, with findings addressed 50%

9 Proportion of contracted farmers supplying 67% 100%

Resources and relationships Key activities Value created

Human Our mission Human Natural

Letter from our Chief Sustainability Officer:

Corporate governance and management 2022–2024 Performance Share

Risk management In 2021, a Quality Compliance function was formed

The right thing to do The business case

Maximize the benefits of

83 Marketing and selling our

smoke-free product shipment net revenues (smoke-free/total) Number of markets globally

Market all our products responsibly

in peer-reviewed scientific publications, and have

Overview of IQOS scientific substantiation

differences (e.g., enrolled populations, studies that do

Communicating and engaging with User experience and utilization

adult consumers of smoke-free devices

Uphold business ethics 205 Apply fair fiscal practices 222