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Top 10 Takeaways from Philip Morris International’s Integrated Report 2022
*DISCLAIMER
This document should be read in conjunction with the Philip Morris International Inc. Integrated Report 2022, available on www.pmi.com. Key terms and definitions are set forth in the Integrated Report Referenced above.
DISCLAIMER
This report and related materials contain projections of future results and goals and other forward-looking statements, including statements regarding business plans and strategies. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties materialize, or underlying assumptions prove inaccurate, actual results could vary materially from those contained in such forward-looking statements. Pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, PMI is identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forwardlooking statements made by PMI. PMI’s business risks include: excise tax increases and discriminatory tax structures; increasing marketing and regulatory restrictions that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or ban certain of our products in certain markets or countries; health concerns relating to the use of tobacco and other nicotine-containing products and exposure to environmental tobacco smoke; litigation related to tobacco use and intellectual property; intense competition; the effects of global and individual country economic, regulatory and political developments, natural disasters and conflicts; the impact and consequences of Russia’s invasion of Ukraine; changes in adult smoker behavior; the impact of COVID-19 on PMI’s business; 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 effectiveness of its data privacy policies. PMI’s future profitability may also be adversely affected should it be unsuccessful in its attempts to produce and commercialize reduced-risk products or if regulation or taxation do not differentiate between such products and cigarettes; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; if it is unable to attract and retain the best global talent, including women or diverse candidates; or if it is unable to successfully integrate and realize the expected benefits from recent transactions and acquisitions. Future results are also subject to the lower predictability of our reducedrisk product category’s performance. PMI is further subject to other risks detailed from time to time in its publicly filed documents, including PMI’s Annual Report on Form 10-K for the fourth quarter and year ended December 31, 2022. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligations. In this and in related communications, the term “materiality”, “material”, and similar terms, when used in the context of economic, environmental, and social topics, are defined in the referenced sustainability standards, and are not meant to correspond to the concept of materiality under the U.S. securities laws and/or disclosures required by the U.S. Securities and Exchange Commission. The aspirational targets and goals in this do not constitute financial projections.
Forward-looking and cautionary statements
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PMI’s sustainability materiality assessment
1
PMI’s sustainability materiality assessment is the foundation of its sustainability strategy—it allows PMI to identify, assess, and prioritize ESG topics. In line with the principles of double materiality,the concept of reporting on sustainability topics both from the “inside out” as well as the “outside in,” PMI’s 2021 sustainability materiality analysis assessed the potential impact of these topics on its performance and business overall in terms of risks and opportunities that could have an impact on the company’s ability to create value.
View PMI’s sustainability materialtiy matrix
Product
Environmental
Materials and product eco-design Post-consumer waste
Read PMI’s 2021 sustainability materiality report
Read more about priorities for PMI’s sustainability strategy
Social
Product health impact Sales, marketing, and consumer communications Innovation in wellness and healthcare
Governance
Responsible R&D Product reliability Nicotine science
Sustainability matrix
Significance of PMI's impacts on society
Significance of ESG impacts on PMI
LOW
HIGH
ENVIRONMENTAL
SOCIAL
GOVERNANCE
Our most material topics
Emerging topics
Relevance to our stakeholders
Very high
High
Medium
Low
Climate Water Biodiversity Operational discharge Animal welfare
Business integrity Respect for human rights Sustainable supply chain management Stakeholder engagement Data privacy Fair fiscal practices
Diversity and inclusion Socioeconomic wellbeing of tobacco-farming communities Human capital development Labor standards Health and safety at work Employee well-being Philanthropy
Operational
PMI’s sustainability materiality assessment is the foundation of its sustainability strategy—it allows PMI to identify, assess, and prioritize ESG topics. In line with the principles of double materiality, the concept of reporting on sustainability topics both from the “inside out” as well as the “outside in,” PMI's 2021 sustainability materiality analysis assessed the potential impact of sustainability topics on its performance and business overall in terms of risks and opportunities that could have an impact on the company’s ability to create value.
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Jennifer Motles Chief Sustainability Officer
"The sustainability materiality assessment helps identify the environmental, social, and governance (ESG) issues that the Company should focus on. The assessment consists of a threefold approach that evaluates both outward and inward impacts in line with the principles of double-materiality, and accounts for the expectations of the Company’s stakeholders."
Statement of purpose
2
PMI’s 2017 Proxy Statement contained a letter to shareholders from the Board of Directors announcing for the first time our company’s smoke-free vision. PMI aims to completely replace cigarettes as soon as possible with smoke-free products that are scientifically substantiated to be less harmful than smoking and to evolve in the longer term into a broader lifestyle, consumer wellness, and healthcare company. The company’s purpose is clearly articulated in PMI’s Statement of Purpose, a declaration issued by its Board of Directors. The Statement of Purpose also recognizes those stakeholders most critical to long-term value creation and sustainability. In early 2022, PMI’s Board of Directors issued another letter reaffirming our purpose of delivering a smoke-free future and announcing the expansion of our business for the long-term toward areas outside of tobacco and nicotine.
Read PMI’s statement of purpose
Key Stakeholder Groups
Consumers
Employees
Supply chain business partners
Finance community
Regulators
Public health community
Civil society
André Calantzopoulos Executive Chairman
"PMI’s purpose is grounded in science, technology, and sustainability, and sets PMI’s long-term horizon. Clarity of purpose is fundamental to guide our efforts and resource allocation. It enables the company to maintain consistency and coherence as it transforms rapidly in order to leave cigarettes behind and ventures into areas that represent new avenues of growth."
Transforming the company
3
Transforming PMI is not only about substituting one product with a new one. It also requires transforming the company’s entire value chain, as well as the way it engages with society. This requires a holistic review and overhaul of the entire business model and value proposition, which brings with it new opportunities as well as challenges throughout all aspects of the business.
The most visible part of PMI's transformation is that related to its product lines. Over the past decade and a half, the company has harnessed scientific and technological advances to deve lop alternatives to cigarettes that are scientifically substantiated to be a better choice for adult smokers than continued smoking.
Product transformation
Innovating for better products
PMI's Business Transformation
Engaging with external stakeholders is critical to achieving PMI’s purpose. The company’s ability to successfully transform requires that it works together with various segments of society to create a paradigm shift in which cigarettes become obsolete.
External transformation
Changing the way PMI engages with stakeholders
Beyond PMI’s operations, the company is transforming every step of its value chain to serve the company’s purpose. PMI recognizes the challenges these changes pose and are actively helping all those impacted (in direct and indirect operations) to best manage the transition.
Internal transformation
A new organization and value chain
Hover and click diagram to explore
Click diagram to explore
Business transformation metrics
4
PMI realizes that business transformation is a very company-specific journey, which ESG reporting standards do not adequately capture. To make its progress both measurable and verifiable, it developed Business Transformation Metrics, a bespoke set of financial and nonfinancial key performance indicators (KPIs). These metrics showcase how the company is allocating resources away from its legacy business as it advances toward a future in which PMI no longer makes or sells cigarettes.
View the glossary
Commercialization
Sourcing & Operations
Consumer & Revenues
Business Transformation Metrics
2015 baseline
2020
2021
2022
2025 aspirations
Total number of users of PMI smoke free products (in milions)
0.2
18.3
21.7
24.9
Estimated number of users who have switched to PMI smoke-free products and stopped smoking (in millions)
0.1
13.0
15.3
17.8
>40
Adjusted net revenues ratio (smoke-free/total)
0.7%
24.2%
32.1%
29.5%
>50%
Annual net revenue from wellness and healthcare products (in billion USD)
n/a
0.3
>1
Read more about PMI's business transformation metrics
7
17%
8%
0.6%
10.9%
13.3%
15.1%
>30%
76%
74%
>250
73%
39%
42%
64
71
73
Number of markets where smoke-free products are available
Proportion of markets where smoke-freeproducts are available for sale that arelow- and middle-income markets
Commercial (marketing) expenditure ratio (smoke-free/total)
Smoke-free product shipment ratio (smoke-free/total)
Smoke-free product shipment volume (billion units)
Combustible tobacco product shipment volume (billion uints)
Change in combustible tobacco product shipment volume (billion uints) vs. 2015 baseline
5
877
80
650
(25.8)%
99
645
(26.4)%
114
641
(26.8)%
100
<550
~(40%)
70%
3 out of 48
9 out of 39
24 out of 53
9 out of 38
33%
35%
43%
99%
Adjusted R&D expenditure ratio (smoke-free / total)
Supply chain expenditure ratio (smoke-free / total)
Number of factories producing smoke-free products out of total number of factories
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≥0.3
Sustainability strategy
For PMI, sustainability is more than just a means to minimize negative externalities and mitigate risks while maximizing operational efficiency and resource optimization. PMI sees sustainability as a fundamental opportunity for innovation, growth, and purpose-led, impact-driven, long-term value creation. Accordingly, PMI works hard to integrate sustainability into every aspect of its business and activities. PMI's strategy crystallizes the notion of two distinct forms of social and environmental impacts—those generated by its products (what it produces) and those generated by its business operations (how it produces). This approach allows PMI to appropriately highlight that, consistent with its sustainability materiality analysis results, addressing the social impacts generated by its products is the core of its strategy. The company’s approach to sustainability addresses its ESG priorities through eight impact-driven strategies: four focus on product impacts, another four on impacts derived from its business operations. The company’s policies, rules, and procedures define its ability to successfully implement these strategies.
Read more about PMI's approach to sustainability
8 IMPACT-DRIVEN STRATEGIES, UNDERPINNED BY STRONG GOVERNANCE
Maximize the benefits of smoke-free products
Purposefully phase out cigarettes
Seek net positive impact in wellness and healthcare
Reduce post-consumer waste
For PMI, sustainability is more than just a means to minimize negative externalities and mitigate r isks while maximizing operational efficiency and resource optimization. PMI sees sustainability as a fundamental opportunity for innovation, growth, and purpose-led, impact-driven, long-term value creation. Accordingly, PMI works hard to integrate sustainability into every aspect of its business and activities. PMI's strategy crystallizes the notion of two distinct forms of social and environmental impacts—those generated by its products (what it produces) and those generated by its business operations (how it produces). This approach allows PMI to appropriately highlight that, consistent with its sustainability materiality analysis results, addressing the social impacts generated by its products is the core of its strategy. The company’s approach to sustainability addresses its ESG priorities through eight impact-driven strategies: four focus on product impacts, another four on impacts derived from its business operations. The company’s policies, rules, and procedures define its abilityto successfully implement these strategies.
Jacek Olczak CEO
"While cigarette sales today remain the largest part of PMI’s business in most countries, this is changing rapidly. PMI is actively accelerating the decline in cigarette smoking beyond what traditional tobacco control measures can achieve alone. Our stakeholders, who are fundamental both to achieving our purpose and to determining the pace of our progress, will be affected in different ways by our company’s transformation. We will seek to engage and collaborate with all of them in an inclusive manner to speed our transformation while mitigating negative consequences"
PMI’s 2025 Roadmap
6
The company’s roadmap outlines its key goals and informs the route of its long-term plan. PMI’s 2025 Roadmap comprises 11 headline goals, running to the end of 2025, connected to its eight strategies.
Product Impact
Operational Impact
2025
2023
Click icons on the timeline below to explore
Intentionally work toward phasing out cigarettes by esuring that smoke-free products represent at least 30% of our shipment volumes and more than half of our net revenues by 2025 while continuing to reduce our combustible shipment volume.
Purposely phase out cigarettes
Product impact | Social
PRIORITY ESG TOPICS
• Product health impact
PRIMARY SDGs
Develop and commercialize science-based smoke-free alternatives, making them available in 100 markets (or which at least half in low-and middle-income markets) and continuing to increase the total number of users.
Deploy robust youth access prevention programs in indirect retail channels and ensure that sales of our products abide by our Marketing Codes.
• Sales, marketing, and consumer communications
Leverage scientific and development capabilities to generate at least USD 1 billion in annual net revenues from products in wellness and healthcare.
• Innovation in wellness and healthcare
Reduce post-consumer waste and prevent littering by implementing comprehensive programs covering all our consumables.
Follow eco-design and circularity principles for all smoke-free electronic devices.
Product impact | ENVIRONMENTAL
• Materials and product eco-design
• Post-consumer waste
Nurture a more diverse culture that promotes equity and inclusionby providing access to lifelong learning to all our employees and improving gender and local representation in management globally.
Foster an empowered and inclusive workplace
Operational IMPACT | Social
• Diversity and inclusion
• Human capital development
Eradicate systemic child labor in our tobacco supply chain.
Ensure all contracted tobacco farmers make a living income, and partner with our direct suppliers to promote a living wage for their workers.
Improve the quality of life of people in our supply chain
Operational impact | Social
• Socioeconomic well-being of tobacco-farming communities
Achieve carbon neutrality in our operations and accelerate our decarbonization toward net zero across our value chain.
Tackle climate change
OPERATIONAL impact | ENVIRONMENTAL
• Climate
Promote biodiversity, address critical water challenges, ensure no conversion of natural ecosystems, and halt deforestation in both our tobacco and pulp and paper supply chains.
Preserve nature
• Biodiversity
• Water
Progress on PMI’s 2025 Roadmap is measured with a set of 19 key performance indicators (KPIs) that collectively form PMI's Sustainability Index. These KPIs are directly linked to the 11 roadmap goals. The index has allowed PMI’s Board of Directors to enhance the company’s compensation practices, explicitly linking long-term executive compensation to ESG performance.
Sustainability index
1. Smoke-free product shipment ratio (smoke-free/total)
Product impact
Operational impact
KPIs
2022 performance
progress
KPI weight
Maximise the benefits of smoke-free products
2. Adjusted net revenues ratio (smoke-free/total)
3. Number of markets where PMI smoke-free products are available for sale
4. Proportion of markets where smoke-free products are available for sale that are low-and middle-income markets
5. Total number of users of PMU smoke-free products (in millions)
6. Proportion of shipment volume covered by markets with youth access prevention programs in place in indirect retail channels
7. Annual net revenue from wellness and healthcare products (in billions USD)
8. Proportion of shipment volumes covered by markets with anti-littering programs in place for combustible cigarettes
9. Proportion of shipment volume covered by markets with end-of-life take-back programs in place for smoke-free consumables
10. Proportion of PMI smoke-free devices with eco-design certification
11. Cumulative number of smoke-free electronic devices refreshed or repaired since 2021 (in thousands)
91%
68%
8.5%
157
>90%
≥1
≥80%
1,000
85%
15%
12. Proportion of women in senior roles
13. Proportion of PMI employees who have access to structured lifelong learning offers
14. Cumulative number of human rights impact assessments conducted since 2018, with findings addressed
15. Prevalence of child labor among contracted farmers supplying tobacco to PMI
16. Proportion of contracted farmers supplying tobacco to PMI who make a living income
17. Net carbon emissions in scope 1+2 (in thousands of metric tons)
18. CO2e scope 3 absolute reduction versus 2019 baseline (in-line with science-based target)
19. Proportion of tobacco purchased at no risk of deforestation of managed natural forest and no conversion of natural ecosystems
30.5%
80%
0.1%
297,236
7.9%
55%
Improves the quality of life of people in our supply chain
50%
10
0%
100%
0
25%
Progress
Emmanuel Babeau Chief Financial Officer
“I’m proud to be able to say that our executive compensation program reflects our commitment to put sustainability at the core of our corporate strategy. PMI’s Sustainability Index aligns us even further with the interests of shareholders and other stakeholders, forming a strong link between our executive compensation practices and the company’s short- and long-term ESG performance.”
8
ESG performance highlights
24.9m
Estimated total adult users of PMI's smoke-free products (2021: 21.7 m)
USD 10.7bn
Cumulative investment behind smoke-free products since 2008 (2021: USD 9.2 bn)
Of net revenues derived from smoke-free products (2021: 29.5%)
Of total shipment volume covered by youth access prevention programs in indirect retail channels (2021: 91%)
Markets where PMI smoke-free products are available for sale, of which 42% in low-and middle-income countries (2021: 71, 42%)
USD 0.3bn
Annual net revenue from wellness and healthcare products (2021: USD 0.1 bn)
86%
Recycling rate of IQOS devices returned to our centralized recycling hubs (weighted-average percentage of each device that is recycled (2021:86%)
Of shipment volume covered by markets with anti-littering programs in place for combustible cigarettes
Of shipment volume covered by markets with smoke-free consumables take-back programs
40.7%
Of management positions held by women exceeding our 2022 target of 40% (2021: 39.7%)
Human rights impact assessments conducted since 2018 in highest-risk countries (2021: 5)
Proportion of tobacco purchased at no risk of net deforestation of managed natural forest and no conversion of natural ecosystems (2021: 37%)
Triple A
Score from CDP for climate, forest, and water security for the third consecutive year
9
Task force on climate-related financial disclosure & business transformation financing framework
As PMI strives to remain at the forefront of a fast-evolvingenvironmental, social, and governance (ESG) reportinglandscape, the company released its first-ever TCFD Report to respond to the implementation guidance of the Task Force on Climate-related Financial Disclosures (TCFD). The report’s findings were informed by a structured Climate Change Risk and Opportunity (CCRO) assessment that PMI conducted in 2022, with guidance from an external expert organization and in line with TCFD’s recommendations, to identify relevant climate-related risks and opportunities.
Reduce Post-Consumer Waste Strategy
Low-Carbon Transition Plan
PMI's Ambition on Biodiversity
TCFD Report
Product health impact
Scott Coutts Senior Vice President of Operations
“We are acutely aware that climate change presents an increasing range of risks to all of PMI’s operations, and so we remain committed as ever to decarbonizing our direct and indirect operations—in line with the path set by the Paris Climate Agreement. We understand that it is essential, for the planet and for our business, that we manage, mitigate, and adapt to climate change”
PMI sustainability around the world
Read all of our Case Studies
As a strong complement to the content and data included in PMI’s 2022 Integrated Report, the company has developed 12 case studies and market stories that showcase impact and highlight how PMI affiliates worldwide drive sustainability. All case studies and market stories are available here.
Post-consumer waste
Switzerland
Human rights
Brazil
Women empowerment
Pakistan
Biodiversity and water
Indonesia
Slovakia
Well-being
PMI
Future of work
Youth access prevention
Thailand
Health & safety
Turkey
Malaysia
Italy
Decarbonization
Hover and click images to explore
