INTEG R ATED REPORT 2022 L ARG ER TITLEINTEGR ATED REPORT 2022

we werewe are transforming for good
we will be

2022 SUSTAINABILITY PROGRESS

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Philip Morris International — Integrated Report 2022

About PMI
Philip Morris International (PMI) is a leadinginternational tobacco company working todeliver a smoke-free future and evolving its
portfolio for the long term to include products
outside of the tobacco and nicotine sector.
The company’s current product portfolio primarily
consists of cigarettes and smoke-free products. Since
2008, PMI has invested more than USD 10.5 billion todevelop, scientifically substantiate and commercialize
innovative smoke-free products for adults who would
otherwise continue to smoke, with the goal of completely
ending the sale of cigarettes. This includes the buildingof world-class scientific assessment capabilities, notably
in the areas of pre-clinical systems toxicology, clinicaland behavioral research, as well as post-market studies.
In November 2022, PMI acquired Swedish Match –a leader in oral nicotine delivery – creating a global

smoke-free champion led by the companies’ IQOS andZYN brands. The U.S. Food and Drug Administration(FDA) has authorized versions of PMI’s IQOS Platform 1
devices and consumables and Swedish Match’s Generalsnus as Modified Risk Tobacco Products (MRTPs). As of
December 31, 2022, PMI’s smoke-free products wereavailable for sale in 73 markets, and PMI estimates thatapproximately 17.8 million adults around the world had
already switched to IQOS and stopped smoking. Smokefree products accounted for approximately 32% of
PMI’s total full-year 2022 net revenues. With a strong
foundation and significant expertise in life sciences, PMI
announced in February 2021 its ambition to expand
into wellness and healthcare areas and, through its
Vectura Fertin Pharma subsidiary, aims to enhance life
through the delivery of seamless health experiences.

a

For more information, please visit www.pmi.com
and www.pmiscience.com

About this report at a glance
We are pleased to present PMI’s Integrated
Report 2022, which aims to provide an objective
description of our business model, strategy,
performance, and prospects in relation to our priority
economic, environmental, social, and governancetopics. Contents of this report are shaped bya formal sustainability materiality assessment
conducted in 2021 (read more about it here).

This report is accompanied by a set of publications
available for download on PMI.com or planned to
be issued shortly after this report publication:

Unless otherwise indicated, the data contained hereincover our operations worldwide for the full calendar
year 2022 or reflect the status as of December
31, 2022. Where not specified, data comes from
PMI financials, nonfinancials, or estimates.

• Country-level case studies and market stories shedding
light on our work in various sustainability areas

Unless explicitly stated, the data, information, and aspirationsin this report do not incorporate PMI’s Vectura Fertin
Pharma business (consolidating the 2021 acquisitionsof wellness and healthcare companies Fertin Pharma
A/S, Vectura Group plc., and OtiTopic, Inc.), nor the late2022 acquisition of Swedish Match AB. As we evolveand continue to integrate these business acquisitions,
we will, where material and feasible, include them into
our ESG reporting in future reporting periods.

©2023 Philip Morris International, Inc. All rights reserved.

Overview

Strategy

Governance

Product impact

Operational impact

Contents

I M PAC T

Overview
2022 highlights

04

PMI’s Statement of Purpose

05

Message from our Chief Executive Officer

06

Our global footprint

08

Maximize the benefits of smoke-free products

52

Message from our Chief Financial Officer

10

Purposefully phase out cigarettes

70

Megatrends

12

Seek net positive impact in wellness and healthcare

74

Industry trends

14

Reduce post-consumer waste

78

Stakeholder engagement

18

Strategy
Value creation

22

Transforming for good

24

Business Transformation Metrics

26

Anchoring sustainability at the core of our strategy

28

Our 2025 Roadmap

30

PMI Sustainability Index

31

36

Message from our Chief Sustainability Officer

38

Foster an empowered and inclusive workplace

98

Improve the quality of life of peoplein our supply chain

118

Tackle climate change

134

Preserve nature

150

40
46

• Performance data available in one place for download

Fundamentals• ESG Highlights summarizing the content of this report

Conduct R&D responsibly and transparently

166

Sustain product reliability

168

Nicotine science

170

Uphold business ethics and integrity

173

Respect human rights

176Manage our supply chain sustainably

179

Safeguard privacy and protect data

184

Apply fair fiscal practices

185

Read more about this report here

I M PAC T

Board of Directors and Company Management

Risk managementa

O P E R AT I O N A L

Governance and management

Sustainability governance and management

• PMI’s Task Force on Climate-related Financial
Disclosures (TCFD) Report 2022

Reporting and performance

PRODUCT• Reporting indices mapping content of this report against the
Universal Standards of the Global Reporting Initiative (GRI)
and the Sustainability Accounting Standards Board (SASB)• ESG KPI Protocol 2022, providing details on
calculation methods, definitions, and the scopeof key sustainability performance indicators

Fundamentals

Reporting and performance
About this report

188

Performance in ESG ratings, rankings, and indices

189

Performance metrics

190

Independent assurance report

202

Glossary of terms and acronyms

205

Forward-looking and cautionary statements

210

Notes

211

War in Ukraine

211

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Philip Morris International — Integrated Report 2022

P R O D U C T I M PA C T

SOCIAL

24.9 m

ENVIRONMENT

32.1%

73

Estimated total adult users of
PMI’s smoke-free products

Of net revenues derived fromsmoke-free products(2021: 21.7 m)1(2021: 29.5%)2

Markets where PMI smoke-free products
are available for sale, of which 42% in
low- and middle-income countries

USD 10.7 bn

91%

USD 0.3 bn

Cumulative investment behindsmoke-free products since 2008

(2021: 71, 42%)3(2021: USD 9.2 bn)4

Of total shipment volume covered byyouth access prevention programs
in indirect retail channels

86%

68%

Annual net revenue from wellness
and healthcare products(2021: USD 0.1 bn)(2021: 91%)5

Recycling rate of IQOS devices
returned to our centralized recycling
hubs (weighted-average percentage
of each device that is recycled)

Of shipment volume covered bymarkets with anti-littering programsin place for combustible cigarettes

8.5%

Of shipment volume coveredby markets with smoke-freeconsumables take-back programs7(2021: 86%)6

O P E R AT I O N A L I M PA C T

SOCIAL

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

PMI’s Statement of Purpose

2022 highlights

ENVIRONMENT

Overview

40.7%

7

Of management positions held by women,
exceeding our 2022 target of 40%

Human rights impact assessments conductedsince 2018 in highest-risk countries(2021: 39.7%)(2021: 5)55%

Triple A

Proportion of tobacco purchased at no risk of net deforestationof managed natural forest and no conversion of natural ecosystems(2021: 37%)

Score from CDP for climate,forest, and water security forthe third consecutive year

1	Figures pertain to total IQOS users. See Glossary.
2	For definition of net revenues related to smoke-free products, see Glossary. 2022 figure includes Swedish Match net revenues from November 11, 2022 (acquisition date)to December 31, 2022. 2021 data exclude the impact related to the Saudi Arabia customs assessments.
3	Including Swedish Match and excluding PMI Duty Free. Classification of low- and middle-income countries is based on World Bank report issued in July 2022.
4	Investments reflect research, product and commercial development, production capacity, scientific substantiation, and studies on adult smoker understanding.
5	Total shipment volume includes cigarettes, other tobacco products (OTPs), and smoke-free product consumables, See PMI’s ESG KPI Protocol 2022 for further details.
6 Recycling rate: percentage of the weight of each device that is recycled, weighted-average depending on device type and processing facility (includes 80% recycling and 6% energy
recovery). 2022 data cover CIRCLE hubs in Hungary and Japan.
7	Shipment volume includes heated tobacco units, e-vapor cartridges, and e-vapor disposables. See PMI’s ESG KPI Protocol 2022 for further details.

PMI aims to completely replace cigarettes assoon as possible with smoke-free products thatare scientifically substantiated to be less harmful
than smoking and to evolve in the longer term
into a broader lifestyle, consumer wellness,and healthcare company.
Our company’s purpose is clearly articulated in
PMI’s Statement of Purpose, a declaration issued by
our Board of Directors. The Statement of Purpose
also recognizes those stakeholders most criticalto long-term value creation and sustainability.
Excerpts from PMI’s Statement of Purpose:“The Company is actively accelerating
the decline of cigarette smoking beyond
what traditional tobacco control
measures can achieve alone.”“PMI remains committed to accelerating theend of smoking and laying the foundationsof a strong business in areas of wellness
and healthcare as we strive to develop
commercially successful products thathave a net positive impact on society.”“PMI’s key stakeholder constituencies,
which are fundamental to both theachieving of its purpose and to the paceof its progress, will be affected in different
ways by PMI’s transformation.”“PMI believes that with the right regulatory
encouragement and support from civilsociety, cigarette sales can end within
10 to 15 years in many countries.”

Message from PMI’s
Executive Chairman

André Calantzopoulos
Executive Chairman

PMI announced a bold change of vision in 2016:
to base its future success on smoke-free products,
with the aim for these products to completely
replace cigarettes as soon as possible for those who
continue to use nicotine. The company has been
disrupting itself from the inside out since then,focusing its resources on the development, thescientific substantiation, and the commercializationof smoke-free products that are less harmful
than smoking. In the process, it has accumulated
learnings and broadened its capabilities. This
has allowed us to expand our purpose beyond
the sole goal of phasing out cigarettes, with anintent to evolve into a broader lifestyle, consumer
wellness, and healthcare company commercializing
products that go beyond tobacco and nicotine.
PMI’s purpose is grounded in science, technology,
and sustainability, and sets PMI’s long-termhorizon. Clarity of purpose is fundamental toguide our efforts and resource allocation. It
enables the company to maintain consistency
and coherence as it transforms rapidly in orderto leave cigarettes behind and ventures into
areas that represent new avenues of growth.

aRead PMI’s full Statement of Purpose

About PMI’s Statement of Purpose
On March 24, 2022, PMI published its 2022 Proxy Statement, which contained a Letter from the Board of
Directors that corresponds to PMI’s Statement of Purpose. The groundwork for the Statement of Purpose
was laid in the 2017 Proxy Statement in a letter to shareholders from the Board of Directors announcing
for the first time our company’s smoke-free vision. It was reaffirmed in the 2020 Proxy Statement.

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Message from our Chief Executive Officer
Despite its many tests, 2022 was a remarkable yearthat brought our employees closer and saw us makemeasurable strides toward achieving our purpose.
As I look back, I see not so much the challenges aseverything that we were able to accomplish together.
Our company continued to transform at a pace andscale unprecedented compared to analogous transitions.
Almost seven years since we announced our visionof a smoke-free future, the volume of combustible
tobacco products made and sold by our company has
decreased by 27 percent. This past year, we kept ourrelentless focus on that ambition, dedicating 99 percent
of our research and development and 74 percent ofour commercial expenditure to smoke-free products. I
can proudly report that, in 2022, smoke-free products
represented 32.1 percent of our net revenues, and weestimate that, by year-end, almost 25 million adults
were using our main smoke-free product, IQOS.

“Our company continued totransform at a pace and scale
unprecedented compared toanalogous transitions.”

To further accelerate progress, we achieved two critical
milestones in 2022: our acquisition of Swedish Match andthe agreement to take full control of IQOS in the U.S. as
of April 30, 2024. With over 30 million adult smokers, theU.S. represents an immense opportunity to strengthen
our smoke-free position and achieve a future without
cigarettes. Swedish Match will also be a crucial componentof our growth. Like us, they are committed to a smokefree future. Bringing together our two companies has
expanded our portfolio and geographic footprint, placing
a future free from cigarettes more firmly in our grasp. This
Integrated Report does not comprehensively account for
the impact of this acquisition due to its recent nature, but
we look forward to sharing the progress achieved throughthe integration of our two businesses in our next report.
Our sustainability strategies continue apace as weseek to tackle the impacts of both our products (whatwe produce) and our operations (how we produce).
Managing the social impacts of our products by ensuringthat they do not reach unintended audiences is apriority, and we continue to put in place youth accessprevention safeguards in our direct and indirect retailchannels. Mindful of the importance of reducing postconsumer waste, we made progress in implementing
take-back programs for our smoke-free devices andconsumables. We increased our repair capabilities,
piloted IQOS ILUMA Refresh in Japan, and are on
track to reach a cumulative one million smoke-freeelectronic devices refreshed or repaired by 2025.

On the social side of our operations, we expanded accessto structured lifelong learning offers to an estimated 80
percent of PMI employees. To accelerate our progress onhuman rights, we published a strengthened Human Rights
Commitment and completed our sixth and seventh humanrights impact assessments, in Brazil and Malaysia. In our
tobacco supply chain, we are on track to reduce theprevalence of child labor among the farms from which PMI
buys tobacco and to increase the proportion of contracted
farmers supplying tobacco to PMI who make a living income.
On the environmental side, CDP recognized ourleadership with a Triple A score for the third consecutive
year. We continued decarbonizing our direct operations
and saw 13 PMI factories certified as carbon neutral.
Moreover, the Science Based Targets initiative has
validated our 2040 net-zero science-based target(scope 1+2+3). We are progressing well toward ourtarget to purchase tobacco at no risk of deforestation ofmanaged natural forests and no conversion of natural
ecosystems. In conjunction with the UN Biodiversity
Conference (COP 15) in December, we announced
new long-term biodiversity and water ambitions andstrategies, aligned with the post-2020 biodiversity
framework adopted by parties to the convention.
To further substantiate our commitment
to sustainability, we introduced PMI’s
bespoke Sustainability Index, representing
30 percent of our long-term performancebased equity executive compensation.
While we progressed well on our work toaddress our priority ESG issues, we know that
we must accelerate efforts in some areas.
Climate change, rising levels of natural resource
scarcity, and an increasingly fragmented and too often
disrupted global supply chain—coupled with unforeseen
events such as the war in Ukraine and its far-reaching
impacts—have hampered our ability to reduce our scope
3 emissions as quickly as we planned to. Nevertheless,we continue working towards reaching our goals
and focus on crafting and implementing innovative
solutions to drive better sourcing and supply chain
management that promotes resilience in the shortterm and allows us to achieve our decarbonization
ambitions for scope 1, 2 and 3 in the long term.

We continue to work towards improving our genderbalance in senior roles. We remain committed toachieving a more diverse, equitable, and inclusive
workplace, including increased female representationin leadership positions. We are cognizant that adiverse workplace can increase innovation and foster
better solutions, and will help our business grow.
Our geographic expansion to make our smoke-free
products available in more markets was slower thanprevious years, partly as a consequence of supply
chain disruption linked to the war in Ukraine. We
will continue our focus on the rollout of IQOS ILUMA
and to work on obtaining appropriate regulatory
and fiscal frameworks in markets in order tofurther our successful geographic expansion.
Our ability to respond and adapt to change and sudden
disruptions will continue to be tested over time, and I
am confident that the resilience of our people and thestrength of our purpose will allow our organization toprosper. Our Integrated Report 2022 provides visibility
into not only how we are performing today but how weare building preparedness to succeed in coming years. It is
my hope that this report will spark dialogue and that our
stakeholders will accept our invitation to judge us not forthe company we were but for the company we are today(including the tangible progress we have made thusfar) and, importantly, the one that we are working hard
to become. It is through constructive engagement that
we will accelerate the pace of meaningful and impactfulchange and complete our transformation, for good.

Jacek Olczak
Chief Executive Officer“Our ability to respond and adapt
to change and sudden disruptions
will continue to be tested overtime, and I am confident that theresilience of our people and thestrength of our purpose will allow
our organization to prosper.”

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Philip Morris International — Integrated Report 2022

Overview

Strategy

GovernanceOur product portfolio

Smoke-free products

32.1%

PMI’s netrevenues in
20221

Operational impact

Fundamentals

Reporting and performance

2022 overview by PMI segment

Our global footprint

Smoke-free products

Product impact

Our smoke-free product portfolio is composed ofthree main product categories: heated tobacco,e-vapor, and oral nicotine. Our leading smoke-free
product is a heated tobacco product (also referred
to as heat-not-burn product) commercialized underthe IQOS brand that uses sophisticated electronics
to heat tobacco in a controlled manner to releaseflavors and nicotine without combustion. Our
e-vapor products, commercialized in 2022 underthe IQOS VEEV and VEEBA brands, generate anaerosol by heating an e-liquid formulation. We arealso present in oral nicotine products, including
in nicotine pouches with the brand SHIRO, aswell as with the leading brand ZYN following theacquisition of Swedish Match in November 2022.

European
Union

EasternEuropeMiddle East
& Africa

South &Southeast
Asia

East Asia &Australia

Americas(incl. theU.S.)

SwedishMatch

Wellness
andHealthcare

38%

12%

12%

14%

16%

6%

1%

1%

40%

35%

9%

1%

58%

5%

78%

100%

28%

8%

4%

35%

5%

10%

9%

2%

13

3

4

10

2

6

14

1

Proportion of PMI’s total
2022 net revenues generated
by each segment
Proportion of 2022 net
revenues derived from smokefree products in each segment
Proportion of global
workforce by segment
Number of PMI-owned
manufacturing facilities
in each segment

Notes:
Figures in the above table are rounded. For definition of net revenues derived from smoke-free products, see Glossary.
As of December 31, 2022, we managed our business in six geographical segments, a Swedish Match segment (reflecting operating results from November 11, 2022 (acquisition date) toDecember 31, 2022) and a Wellness and Healthcare segment (which includes the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma). See Glossary.

71,070Operations Center:
Lausanne, Switzerland
Headquarters:
Stamford, CT, USA

Employees worldwide 1

73South &Southeast Asia

European
Union

EasternEuropeMarkets where PMI smoke-free
products are available for sale 2

Combustible tobacco products

Combustible tobacco products

67.9%

We seek to maintain our competitive positionin the cigarette market while we transition awayfrom combustible tobacco products. This helps
to finance our R&D into smoke-free alternatives,
their manufacturing and commercialization, andto accelerate our transformation, while opening
the way for the industry to follow our lead. In
addition, it gives us faster and direct access totrade and adult smokers. Our cigarette brands
are sold in around 175 markets, in many of which
they hold the number one or number two market
share position. Our portfolio includes a wide
range of premium, mid-price, and lower-pricebrands, including Marlboro, L&M, Chesterfield, Philip
Morris, and Parliament, which are among the 15
most popular brands in the international cigarettemarket (which excludes China and the U.S.).

1	For definition of net revenues related to smoke-free products and combustible tobacco products, see Glossary. Including Swedish Match
net revenues from November 11, 2022 (acquisition date) to December 31, 2022.

223,299

Contracted farmers supplying us withtobacco, located in 20 countries

24.9 mEstimated users of PMI
smoke-free products 3

Americas(incl. the U.S.)

PMI-owned
manufacturing facilities 4

53

Third-party
manufacturers

31

Middle East
& Africa

Third-party operators(in Indonesia)

38

East Asia& Australia

1	Incorporating Vectura Fertin Pharma, as well as the2022 acquisition of Swedish Match, PMI employedapproximately 79,800 people worldwide at year-end 2022.
2 Including Swedish Match.
3 Figures pertain to total IQOS users. See Glossary.
4 Including Swedish Match and Vectura Fertin Pharma.

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Message from our Chief Financial Officer
Nearly seven years ago, when our company
announced its smoke-free vision and related intention
to stop selling cigarettes, some responded withskepticism, arguing that if we were serious about
it, we would stop selling cigarettes immediately.
Over the years, we have tried to explain the complexity of
our endeavor. First, we estimate that approximately 130
million adults smoke our cigarette brands. Consideringthat there are over a billion smokers worldwide, if wewere to stop selling cigarettes overnight and those brands
suddenly became unavailable, other manufacturers
and vendors (both legal and illicit) would quickly stepin to meet the demand. Consequently, just as many
people as before would smoke, and we would haveaccomplished nothing from a public health perspective.
Second, and perhaps most important, our intention is
not only to make our company smoke-free—we wantto make cigarettes obsolete. This requires systemlevel change. This requires that we work with multiple
stakeholders to address root causes, build collective
responses, and craft permanent solutions that involvea change not just in attitudes and behaviors but alsoin laws and policies. Only in this way can we create aparadigm shift to a new system in which cigarettes nolonger exist. A clear roadmap agreed upon by political,
regulatory, and public health stakeholders, and supported
by both civil society and business, offers the bestprospect for further accelerating the end of smoking.

“A clear roadmap agreed uponby political, regulatory, andpublic health stakeholders,and supported by both
civil society and business,offers the best prospect
for further accelerating theend of smoking.”

As I reflect on the magnitude of the challenge, I see
parallels with many facets of our sustainability efforts.
Tackling climate change, promoting biodiversity
and protecting natural ecosystems, minimizing postconsumer waste, reducing all forms of inequality,
and advancing human rights demand the samekind of systemic approach—and are among themany issues we are working to address within ourvalue chain, both upstream and downstream.

The pace of our progress on all fronts is influenced byfactors beyond our immediate control. We operate on a
global scale in a fast-paced world. Global trends intersectwith our strategies and initiatives and inform how weinteract with the external environment. Safeguarding ourlong-term success requires that we monitor, anticipate,
and respond to the challenges and opportunities
shaping our reality today and in the future, ever mindfulthat the change we seek cannot be achieved in silos.
Recent and current events—from the pandemic to theongoing war in Ukraine—have deeply impacted theeveryday life of people across the globe, economic
systems, and business operations. They have exacerbatedvarious environmental, economic, political, and social
trends, providing even more evidence of the urgent needto build resilience by pivoting and adapting together.
Sustainability is a cornerstone of our corporate
strategy, and we work hard to address ESG
issues that are material to PMI. We acknowledge,
however, that there is a limit to how much we cando or influence on our own. To create long-standing,
impactful, and sustainable solutions, we must partner
and work with other parts of society—just as we
do in our work to achieve a smoke-free future.
Companies that claim to be transforming seem to be
everywhere. Yet when one examines more closely
whether organizations are truly redefining what they
are and what they do, one finds that cases of successfulchange are exceptionally rare. Transformation is nevereasy because change takes time. At present, ourcompany is in mid-stride: with one foot in our past,
operating in a fiercely competitive legacy cigarettebusiness, and one foot in our bold future, building anentirely novel and improved category of products.
While our commitment to transformation is unwavering,
we cannot complete the journey alone. The kind ofsystemic change PMI is driving can only be achieved
through a collaborative multistakeholder approach, a factthat we recognize in our Statement of Purpose. PMI’s
reputation is based on the perceptions of its various
stakeholders. Our ability to build and maintain trust
and legitimacy relies on consistency and coherence—on ensuring that our words match our actions.

“Transformation is never easy
because change takes time.
At present, our company is in
mid-stride: with one foot in
our past, operating in a fiercelycompetitive legacy cigarettebusiness, and one foot in
our bold future, building anentirely novel and improved
category of products.”
We are committed to transforming, for good. Deliveringa smoke-free future is our priority and primary focus.
Success requires that we reposition our core businesswhile actively investing in new areas of growth,
keeping the longer-term horizon in sight, and working
relentlessly to earn the trust and confidence of our
stakeholders. We recognize the magnitude of thechallenge and remain committed to continuing to lead,
tracking and reporting on our progress transparently toensure cigarettes become obsolete as soon as possible.

Emmanuel Babeau
Chief Financial Officer

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Megatrends
Capitals impacted

We operate on a global scale
in a fast-paced world. Our
long-term success requiresthat we monitor, anticipate,
and respond to thechallenges and opportunities
shaping our reality today
and in the future.
Global trends intersect with ourstrategies and initiatives andinform how we interact with theexternal environment. Several
trends discussed in this section
existed before COVID-19 andthe war in Ukraine (and their
far-reaching impacts) but havebeen amplified and accelerated
by these crises, disrupting
supply chains and business
operations and making thetrends even more impactful.

Drivers

How we are responding

Healthier lifestyles• Demographic shifts• Initiating portfolio shifts driven by
consumer centricity insights

Society is more attuned to mental well-being and physical health, leading to apush for more health-conscious choices, active lifestyles, mental health support,
and improved nutrition. Businesses are expected to expand and shift theirportfolios to incorporate new services and product offerings that contributeto better health, paying attention to the evolving needs of each generation.
Moreover, to attract, retain, and optimize talent, employers are expected toprioritize mental and physical well-being in the workplace, an issue that has
grown more complex with the increased prevalence of remote and hybrid work.

• Consumer preferences• Public health policy
and regulation• Implementing workplace health and wellbeing programs and initiatives

Human
NaturalManufactured• Civil society andconsumer activism

Climate change, biodiversity loss, deforestation, water insecurity, and other
ecological crises threaten more than supply chains and physical infrastructure;they endanger progress and business growth by exacerbating system-level
disruptions that affect our stakeholders. Policy, regulatory, civil society, andmarket forces continue to spur a transition to low-carbon solutions, investments
in renewable energy, and actions to safeguard ecosystems. They are also leadingbusinesses to embed eco-design and circular considerations in the early stages of
product development and cultivate strategies to address post-consumer waste.

• Investor focus• Conducting integrated risk assessments and robust
accounting of greenhouse gas (GHG) emissions todefine new—and validate existing—strategies• Environmental policy andregulatory developments• Setting transparent, strategic, and sciencebased targets and disclosing our progress• Impending institutional
consensus on naturerelated measurement andreporting frameworks• Investing in—and developing—scalable solutions
that produce co-benefits for climate and nature

Inequality• Civil society andconsumer activism• Expanding the scope of our humanrights impact assessments

Globalization, rapid economic growth, and widespread improvements inlivelihoods in recent decades have failed to close—and have even exacerbated—the deep divides within and across countries. Worsening inequalities have inturn triggered civil society to become more attuned to—and vocal about—social
injustices. Attention is now focused on the role businesses can play in addressing
social inequality and promoting human rights by ramping up their diversity,
equity, equality, and inclusion efforts. In addition to the societal benefits, suchactions strengthen the private sector’s ability to recruit and retain talent.

• Investor focus• Promoting living incomes and wages
throughout our value chain• Impending institutional
consensus on socialrelated measurement andreporting frameworks• Providing a workplace that affords employees equalpay for equal work, equal access to opportunities,
and freedom from discrimination and harassment

Erosion of trust• Mistrust of institutions• Promoting transparency by reporting against the most
relevant and widely used sustainability standards

Against the backdrop of the other megatrends presented on this page,
stakeholder expectations of businesses are shifting, and regulatory developments
are moving forward at pace. Companies are expected to demonstrate
irreproachable behavior and transparency, providing trustworthy informationon their impacts along their value chain and meeting mandatory reporting
requirements in a range of jurisdictions. Simultaneously, companies must
contend with rising levels of mistrust—including of science—exacerbated bymisinformation on social media channels. There is an increased demand forcapital markets to shift from perceived short-term, siloed, and sometimes
extractive behavior to a model of long-term, inclusive, and sustainable capitalism,
unfortunately still mostly relying on negative screening or exclusions.

• Diminishing confidencein science

New technologies are emerging rapidly. Companies are implementing
automation and digital solutions that increase transparency, maximize
efficiencies, create opportunities for robust R&D activity and productinnovation, and have implications on employability for workers. Boosted
by a rapid flow of data and information, today’s unprecedented pace ofchange has wide-reaching implications across industries. Within this context,
concerns and risks around data privacy and cybersecurity are on the rise, andmany actors are working to enhance data and infrastructure protection.

Capitals• Employee expectations

Climate and nature urgency

Technological progress

Strategy• Human rights and othersocietal policy andregulatory developments• Geopolitical turmoil• Expectation of increasedtransparency• Social media platforms

SocialIntellectual
Financial• Supporting and partnering with experts, sciencebased initiatives, and advocacy organizations

Sustainability
strategy
Purposefully phaseout cigarettes• Collaborating across our value chain and broader business
community to address inequalities in our supply chain

Maximize thebenefits ofsmoke-free products
Seek net positive
impact in wellness
and healthcare
Foster anempowered andinclusive workplace• Linking financing instruments to ESG performance• Developing an ESG KPI Protocol with a path toproviding assurance on key nonfinancial data

Improve the qualityof life of peoplein our supply chain• Linking long-term compensation transparently
and objectively to ESG performance• ESG integration

Reduce postconsumer waste
Tackle climatechange• Shift to online channels• Impact of automation
on employment• Growing availability ofdata and information• Cybersecurity and data
privacy concerns• Investing in new technologies and acquisitions
to accelerate our company’s transformation,
expand our smoke-free product offerings, anddrive progress in sustainability priority areas• Making data-based decisions and investments
in targeted operational improvements• Strengthening cybersecurity and data
privacy policies and practices• Enriching employee lifelong learning and upskilling offers

Preserve
natureFundamentals

aRead more about
our sustainability
strategy here

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Philip Morris International — Integrated Report 2022

Industry trends
Market trends

Prevalence of tobacco smoking worldwide

Overview of the global nicotine business
Products within the global tobacco and nicotine
business fall into three main categories: combustible
tobacco products, smoke-free products, andtherapeutic cigarette replacements (often known
as nicotine replacement therapies or NRTs).
Combustible tobacco products (e.g., cigarettes,
fine-cut tobacco, pipe tobacco, cigars, andcigarillos) burn tobacco to deliver nicotine.
Smoke-free products deliver nicotine without
combustion. These products include heated tobacco(also known as heat-not-burn), e-vapor, and oral
nicotine products such as snus and nicotine pouches.
By eliminating combustion, these products present,or have the potential to present, less risk of harm toadults who switch to them versus continued smoking.
Therapeutic cigarette replacements, which include nicotine
gum and patches, aim to help smokers quit smoking. These
products deliver nicotine and require a pharmaceutical
approval process to be followed; in some countries, theiruse requires prescriptions from medical professionals.

Combustible tobacco products currently represent
the largest share of the global tobacco and nicotine
business, with cigarettes remaining the dominant tobacco
product used by nicotine consumers worldwide.
The World Health Organization (WHO) projects a decline
in smoking prevalence (age 15+), from 21.1 percent in2010 to an estimated 15.4 percent in 2025.1 At the sametime, the global adult population is growing by around 70
million people per year. The net effect of this declining
smoking prevalence and growth in population is a forecastof just under 1.1 billion smokers in 2025—essentiallythe same as in 2010.2 Even if the WHO member statesachieve their accelerated target for reduced smoking
prevalence (a 30 percent reduction in the prevalenceof tobacco use by 2025 versus 2010), we estimate that
there will still be around 956 million smokers in 2025.
1	WHO, Global Report on Trends in Prevalence of Tobacco Use 2000-2025,
fourth edition (November 2021).
2 WHO, Global Report on Trends in Prevalence of Tobacco Smoking 2015

Strategy

Governance

E-VAPOROR AL NICOTINEHeats tobacco

Vaporizes e-liquid

Snus

Nicotine pouches

Uses real tobacco

No tobacco

Tobacco pouch designed
for oral use

Nicotine containing pouch
designed for oral use

Nicotine naturally
present in tobacco

Nicotine derived
from tobacco
added to e-liquid

Nicotine naturally
present in tobacco

No tobacco

No smoke,no ash, no burnNo smoke,no ash, no burn

Nicotine derived
from tobacco
No smoke, no ash, no burnOperational impact

Fundamentals

Reporting and performance

Competition

In recent years, the development, commercialization,and subsequent adoption of various smoke-free
products have led to rapid growth of the category.
Within the nicotine industry, smoke-free products are
beginning to replace combustible tobacco products.
Overall, we estimate this segment share has grown
4 points since 2019 and currently accounts for over
8 percent of the estimated international nicotine
industry volume (which excludes China and the U.S.).

As in other consumer goods sectors, manufacturers
in the tobacco and nicotine industry compete
primarily on product quality, brand recognition,
brand loyalty, user experience (convenience), taste
and sensory experience, R&D, packaging, customer
service, marketing, advertising, and retail price.

In particular, the heated tobacco segment volume grewin the international market (which excludes China andthe U.S.) at a compound annual growth rate (CAGR)
of 25 percent over the past three years, driven bothby increased adoption in the initial launch markets
and geographic expansion. This is the largest smokefree category by both retail value and volume in theinternational market (which excludes China and the U.S.).

Industry volume split 2019–2022
2022

2019

Combustible tobacco products

92%

96%

Smoke-free products

8%

4%

5%

3%

Note: See Glossary. Data exclude China and the U.S.

HEATED TOBACCO

Product impact

Emergence of smoke-free alternativesof which, heated tobacco products

Overview of major smoke-free product categories

No smoke,no ash, no burn

Overview

Our global share 2022, including cigarettes
and heated tobacco units
2022

China National Tobacco Corporation~32.2%

PMI

14.0%

British American Tobacco~12.1%

Japan Tobacco~10.3%

Imperial Brands~4.2%

Altria Group

~1.6%

Other

~25.6%

Note: Global market includes China and the U.S.
Source: PMI financials or estimates

Smoke-free products
There is increasing competition in smoke-free
products with more tobacco manufacturers
shifting their resources toward developing,acquiring, and commercializing these products.
To date, competition in the heated tobacco category
is primarily among manufacturers of combustible
tobacco products. Within the e-vapor category, “opentank” products (which feature a chamber that can be
refilled with e-liquid) is a heavily fragmented category
and relatively commoditized among small or local
manufacturers. In contrast, global tobacco manufacturers
are increasingly present in the “closed tank” products
category (featuring disposable products or reloadable
systems that use prefilled cartridges); this category is
evolving rapidly and involves a number of startups.
Oral nicotine products are mainly produced bymajor tobacco manufacturers and traditional oral
nicotine manufacturers. Key players are building
internal capabilities in the oral nicotine segment
or acquiring existing players in this category.

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Philip Morris International — Integrated Report 2022

Despite advances in science and technology that
present the opportunity to phase out combustible
tobacco products, the business strategy of allinternational cigarette manufacturers—with the
exception of PMI—appears to be focused on continuing
to grow cigarette sales while expanding theirportfolios to also include smoke-free alternatives.
To date, we are the only company to have committed
to phasing out cigarettes, encouraging adultsmokers who would otherwise continue to smoke
to switch completely to better alternatives.
We remain optimistic that the growing interestin the smoke-free category can both allow us
to continue advancing our transformation andalso lead the industry to adopt a similar strategy,
thereby accelerating the end of smoking.
Combustible cigarettes
The global combustible cigarette sector includes fourlarge international manufacturers—British American
Tobacco, Japan Tobacco, Imperial Brands, and PMI—
along with two major manufacturers focused primarilyon their respective domestic markets: China National
Tobacco Corporation in China and Altria Group, Inc.
in the U.S. (Altria is the parent company of Philip
Morris USA, which operates exclusively in the U.S.
and is not affiliated with Philip Morris International).

Our perspective
At PMI, we aim to base our success on a futurein which we no longer make or sell cigarettes,
the most harmful form of nicotine consumption.
In stark contrast with our competitors, PMI’svalue proposition is not to expand its portfolioof both combustible and smoke-free products
to offer more choice to consumers. Rather, ourgoal is to lead an industry-wide transformation
whereby cigarettes are phased out completely.
Our strategy is centered on researching anddeveloping better products than cigarettes, promoting
broad access to them by adult smokers who would
otherwise continue to smoke, and working to ensure
these products replace cigarettes and make smoking
obsolete as soon as possible. To achieve this, weare actively shifting and reallocating resources,setting ambitious goals connected to this strategy,
and transparently reporting on our progress.
Our 2022 acquisition of Swedish Match will allow
us to incorporate a leading oral nicotine portfolio
into the PMI family to create a global smoke-freechampion, cement the foundation of our futurein the U.S. marketplace, and accelerate the paceat which our company becomes smoke-free.
By 2025, we target that less than 50 percent
of our adjusted net revenues will derive fromcombustible tobacco product sales. As of yearend 2022, PMI smoke-free products represented
32.1 percent of our annual net revenues and15.1 percent of our total shipment volume.1

PMI total international share (in %)Category

Cigarettes
Heated tobacco units
Total

2022

2021

2020

23.6%
4.1%
27.6%

23.7%
3.5%
27.2%

24.6%
3.0%
27.6%

Source: PMI financials or estimates.
Note: International market excludes China and the U.S., reflects cigarettes andHTUs, and includes cigarillos in Japan. Sum of share of market by productcategories might not foot to total due to roundings.

1	For definition of net revenues related to smoke-free products, see Glossary.
Including Swedish Match net revenues from November 11, 2022 (acquisitiondate) to December 31, 2022.

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Regulation and taxation

Illicit trade prevention

The harms associated with smoking have led policymakers,
legislators, and regulators to impose rigorous restrictions
on cigarettes, including high excise taxes, minimum age
requirements, and designated areas for smoking. Additional
restrictions and mandates apply to packaging design andhealth warnings, ingredients and flavors, marketing andadvertising, and promotions and other forms of sponsorship.
Much of the regulation that shapes the tobacco industry’s
operating environment is driven by the WHO’s Framework
Convention on Tobacco Control (FCTC) and its MPOWER
measures. The FCTC has established a global agenda to
reduce the prevalence of tobacco use and nonsmokers’
exposure to tobacco smoke. While there is currently no
global consensus on how best to regulate or tax smokefree products, a growing number of authorities recognizethat the risk profile of these products differs from cigarettes
and should be regulated differently to promote theiradoption as a better alternative for those adult smokers
who would otherwise continue to smoke.

The increasingly interconnected and digitalized
global economy provides more opportunities forcriminal networks engaged in illicit activities such as
the sale of counterfeit products, wildlife smuggling,
narcotics, human trafficking, and excise fraud.

Our perspective
PMI supports a comprehensive approach to theregulation of all nicotine-containing products. In
addition to discouraging initiation and promoting
cessation, commonsense regulation should encourage
adults who smoke and would not otherwise quit toswitch completely to scientifically substantiatedsmoke-free alternatives, which can be a better
choice than continued smoking. We advocate for acomprehensive and risk-proportionate regulatory
framework that recognizes that not all tobacco- andnicotine-containing products are the same. Regulationand 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.
At the same time, acceptability of smoke-free products
for adult smokers must be balanced against theobjective of minimizing use by unintended audiences,in particular youth. Any regulation needs to accountfor this. Therefore, we support putting in place
safeguards against unintended use and robust
post-market monitoring of real-world data to assess
the actual impact of policy interventions, and to allow
targeted and timely policy adjustments. Such an
approach would significantly accelerate the phasingout of combustible tobacco products and promote
public health.

The illicit tobacco trade provides a cheap and unregulated
supply of tobacco products. It undermines publichealth policies across the world, hampers efforts
to reduce smoking prevalence, damages legitimate
businesses, stimulates organized crime, increases
corruption, and reduces government tax revenue.
It is estimated that illicit trade accounts for as muchas 10 to 12 percent of global cigarette consumption
and that governments worldwide lose USD 40 to
50 billion in tax revenues each year as a result.1
Many countries have initiated or are considering
actions to prevent the illicit trade of tobacco products.
In 2012, the FCTC adopted the Protocol to Eliminate
Illicit Trade in Tobacco Products, which includes supply
chain control measures, such as the implementation of
tracking and tracing technologies and effective controlson manufacturing and transactions in tobacco andtobacco products in Free Zones. The protocol came into
force in September 2018, and parties to it have started
implementing its measures via national legislation.
1	U.S. Department of State, The Global Illicit Trade in Tobacco: A Threat to National
Security, 2015

Our perspective
To prevent the smuggling and counterfeiting of our
products, we focus on securing our supply chain
and leveraging product security technology andinnovation to protect our products. These internal
efforts are coupled with strong cross-sectoralcollaboration. Illicit trade is a high-profit, low-risk
crime that needs to be tackled by public–private
coalitions able and willing to drive change. At
PMI, we collaborate with law enforcement andother government authorities all over the world
to counter illicit trade. To this end, we invest in
global programs and promote the implementationand enforcement of effective regulations, suchas the WHO’s FCTC Protocol to Eliminate Illicit
Trade in Tobacco Products. Public­—private
partnership and impactful regulatory frameworks
are fundamental to achieving positive progress.

aRead more about our approachand actions on PMI.com.

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Philip Morris International — Integrated Report 2022

Stakeholder engagement
PMI regards stakeholder engagement as
fundamental to the creation of shared andsustainable value. Actively seeking open dialogue
with our stakeholders allows us to understandtheir expectations and respond accordingly.
Continuous engagement also enables us to builda shared understanding of contingency issues,
proactively respond to concerns, identify potential
areas of compromise, stay abreast of global trends
and market expectations, and find solutions thatare good for our stakeholders and business.
While PMI’s commitment to its transformation isunwavering, we recognize that we cannot complete
the journey alone. Signed by every member of our
Board of Directors, PMI’s Statement of Purpose
articulates our company’s purpose and transparently
specifies those stakeholders most critical tolong-term value creation and sustainability.
Our periodic sustainability materiality assessments provide
valuable insights and allow us to gauge the relevanceof various topics among key stakeholder groups.
Our stakeholder engagement incorporates both
structured and ad hoc interactions. Above all, it isguided by transparency, integrity, and respect, andgoverned by our Code of Conduct and its accompanying
policies (Principles and Practices), summarized inthis overview of our engagement principles.
The table to the right features the most significant
topics discussed with our key stakeholder groups
and our responses to them; however, it is not an
exhaustive list. For further details on our approachand engagement with key stakeholder groups, aswell as our sustainability-related memberships andalliances, please see our dedicated page on PMI.com.

Stakeholder groups

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Key topics discussed

How we are responding

Consumers• Access to and benefits of smoke-free products
compared with continued smoking

Adult smokers and other adultnicotine product users• Product innovation and circularity• Investing in R&D and strategic acquisitions to propel • Broadening access to smoke-free products for
adult smokers and nicotine users by working
our smoke-free vision and meet consumer needs
to improve consumer awareness and product• Moving from a business-to-business (B2B)
availability, affordability, and acceptability
to an increasingly consumer-centric model

Employees
Employees, management,
work councils, trade unions• Scientifically substantiated claims• Quality and services• Company culture and purpose• Diversity, equality, equity, and inclusion

to commercialize smoke-free products andsupport users in their conversion journey• Consistently and clearly embedding our
purpose across our company culture• Health, safety, and well-being (including work–life balance) • Promoting living wages, equal pay for equal
work, and equal access to opportunities• Job security, talent attraction, lifelong
learning opportunities, retention• Protection of employee data

• Providing flexible work, paid parental
leave, and volunteer time

• Raising awareness around mental healthand supporting employee well-being via
a variety of programs and initiatives

Supply chain and business partners• Supply and delivery challenges• Opportunities for growth and innovation• Grounding supply chain strategy in our
Responsible Sourcing Principles

Farmers and farmworkers, farmers’ associations,contractors, suppliers, wholesalers, business
partners, third-party-operated manufacturers• Working conditions (including wages, health andsafety, and other labor-related matters)• Transitioning to an increasingly
diversified supply chain• Responsible commercialization• Promoting safe and fair working conditions
throughout our supply chain

Finance community• Future-proofed business model

PMI shareholders, equity and fixed-income
investors, lending institutions, insurancecompanies, financial analysts, rating agencies• Regulatory and fiscal environment• ESG performance and expectations• Growth and returns from smoke-free transformation• Governance and remuneration• Capital allocation• ESG priorities, risks, and performance• Technological advancements to drive product innovation,commercialization, and operational efficiency• Continuing to grow our smoke-freebusiness while staying competitive in thecigarette category during our transition• Periodically refreshing our sustainability
materiality assessment• Reporting progress via our Integrated Reportand Business Transformation Metrics

19• Embedding eco-design and circularity principles
in product development and launching takeback services for our products’ end-of-life• Upholding workplace health and safety• Fostering an inclusive environment that unlocks
the potential of diversity among our workforce• Promoting global employee resource groups,
on a variety of diversity dimensions• Expanding employee access to lifelong learning
programs to promote upskilling and reskilling• Seeking science-based reduction of our scope 3
greenhouse gas emissions and collaborating with our
suppliers to address other environmental challenges• Assessing, monitoring, and helping improve thesustainability performance of our critical suppliers• Linking executive compensation to ESG
performance, including via our Sustainability Index• Integrating our smoke-free transformation
into our financing strategy• Supporting PMI’s smoke-free and wellness andhealthcare ambitions via disciplined investments• Quality of reporting on ESG and business transformation

Regulators• Risk-proportionate regulatory frameworkfor smoke-free products• Transparently publishing our scientific findings
on smoke-free products PMIscience.com

Policymakers, intergovernmentalorganizations, regulatory bodies, standard
setters, government authorities (including
legislators), customs organizations• Responsible marketing and commercialization,
including youth access prevention• Paying taxes commensurate with
our economic activities• Illicit trade prevention• Deploying youth access prevention
safeguards across retail channels• Environmental and social welfare• Fiscal and regulatory compliance• Data protection and cybersecurity• Standards for transparency and quality reporting

Public health community
Scientific community, academia,
researchers, public health agencies• Product innovation to reduce health impacts
at individual and population levels• Scientific research, including scientificmethods and protocols, data and results• Business transformation strategy andprogress in phasing out cigarettes• Preventing illicit trade via tracking andtracing processes and technologies
and funding PMI IMPACT• Improving the sophistication andstandardization of our ESG reporting• Implementing and monitoring compliancewith internal codes and standards,
especially PMI’s Code of Conduct• Developing science-based, less harmful
alternatives to smoking and expanding
our smoke-free product portfolio• Acquiring like-minded, science-driven companies
to continue evolving into a broader lifestyle,consumer wellness, and healthcare company• Investing in smoke-free product innovation R&D• Publishing findings and other scientificpublications on PMIscience.com• Initiating studies such as real-world evidence
studies analyzing the impact at the populationlevel of the introduction of smoke-free products• Partnering with leading civic organizations
to improve our ESG performance andimplement impactful solutions• Leveraging a range of media channels to
promote open dialogue and discussions aboutbusiness impacts and corporate strategy• Joining leading corporate sustainability
membership organizations (see here)• Transparently disclosing our ESG performance,sustainability materiality assessments, progress,
challenges, opportunities, and aspirations• Youth access prevention• Research transparency and data
• Product environmental impact

Civil society• ESG performance

Academia, local communities, civil society
organizations, nongovernmental organizations(NGOs), multistakeholder organizations
and initiatives, media• Business transformation• Sustainability strategy and reporting• Product innovation• Sharing data and progress with academicorganizations, enabling them to write
case studies analyzing our progress,
challenges, and opportunities

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Philip Morris International — Integrated Report 2022

Strategy
Value creation

p22

Transforming for good

p24

Business Transformation Metrics

p26

Anchoring sustainability at the core of our strategy

p28

Our 2025 Roadmap

p30

PMI Sustainability Index

p31

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Value creation
Resources and relationships

Key activities

Value created in 2022

Human

Our mission

Human

Manufactured• Expanded lifelong learning program to 80% of
PMI employees across the organization• Expanded the versions of smoke-free heat-notburn and e-vapor devices we commercialize to meetthe needs and preferences of adult smokers• Extended the number of markets in which PMI smokefree products are available for purchase to 73, of
which 30 are in low- and middle-income markets4

Our success depends on developing the skills, knowledge, and experienceof our 71,070 directly employed people worldwide.1 Our employees
represent 133 nationalities and 42% of them are women.

Intellectual
Innovation underpins our business transformation. In 2022, we invested
USD 642 million in R&D, of which 99% continues to be dedicated to smoke-free
products. Innovation also guides improvements in our processes, from sourcing
to manufacturing, logistics, and sales. Our acquisition of leading innovative
companies to advance our nascent wellness and healthcare business represents asignificant addition to our R&D through access to valuable patents and expertise.

Natural
In 2022, we sourced around 281,000 tons of packed tobacco, a material vital to our
products. Other raw materials and natural resources we use include paper andpulp-based products, metals, water, and energy. We seek to source these materials
sustainably and use them efficiently.

Manufactured
Our facilities—such as our R&D centers, 53 factories,2 48 consumer call centers,and 285 IQOS stores—and our nearly 21,700 vehicles allow us to develop,
manufacture, deliver, and commercialize a multi-category smoke-free productportfolio to meet the demands of our consumers.

Accelerate the end of smoking
by offering adult smokers who
would otherwise continue tosmoke scientifically substantiatedbetter alternatives than smoking
and evolve in the longer term
into a broader lifestyle, consumer
wellness and healthcare company.

Our value chaintransformation
To achieve this mission, all segmentsof our value chain—including sourcing,
operations, commercialization,and consumers and revenues—areundergoing rapid transformation.
Learn more by viewing our
expanded value chain transformation
infographic on PMI.com.

SocialBuilding stakeholder trust is essential. We develop and sustain relationships with a
network of over 30,000 suppliers, 223,299 contracted farmers supplying us withtobacco, around 130 million adult consumers of our cigarette brands, andapproximately 24.9 million users of IQOS3, which is one of our smoke-free products. Our
relationships also extend to the retailers of our products, the communities in which we
operate, regulators and other government officials, nongovernmental organizations(NGOs), and the multistakeholder initiatives in which we participate.

Financial
Our business activities require financial capital, which we strive to allocate efficiently
to optimize value and drive sustainable growth. This capital is provided by ourequity and debt holders, as well as by the cash flow generated by our operations.
Our company’s market capitalization as of December 31, 2022 was approximately
USD 157 billion, and PMI’s net debt was USD 39.9 billion. At that time, PMI’s longterm credit was rated A2 by Moody’s, A- by Standard & Poor’s and A by Fitch.

SOURCING

Intellectual• Reached around 2,500 patents granted in IP5
jurisdictions that relate to smoke-free products• Published 511 scientific publications since2008 to share our methods and findings• Completed 251 toxicological assessment studies, 26
clinical assessment studies, and 58 perception andbehavior studies on smoke-free products since 2015
• Invested a cumulative USD 10.7 billion insmoke-free products since 20081

Natural• Reduced total value chain CO2e emissions(scope 1+2+3) by 11% and emissions from direct
operations (scope 1+2) by 39% versus 2019
• Purchased 55% of tobacco at no risk of deforestationof managed natural forest and no conversion of natural
ecosystems, and maintained 100% of tobacco purchased
at no risk of deforestation of primary and protected forests• Covered 68% of shipment volume by markets with antilittering programs in place for combustible cigarettes

OPERATIONS• Covered 8.5% of shipment volume bymarkets with end-of-life take-back programsin place for smoke-free consumables2• Optimized 4.9 million cubic meters of waterin our tobacco supply chain since 2019

COMMERCIALIZATION• Achieved 86% recycling rate of IQOS devices returned
to our centralized recycling hubs (weighted-average
percentage of each device that is recycled)3• Refreshed or repaired a cumulative number of
157,000 smoke-free electronic devices since 2021

Expanding our resources and relationships via strategic acquisition
With the acquisition of Swedish Match, we expect to accelerate theachievement of our shared smoke-free ambitions, switching more adults
who would otherwise continue to smoke to better alternatives faster thaneither company could achieve separately. This combination impacts ourvalue creation model, and, consequently, the capitals described above.

• Heightened employees’ sense of belonging and ability toconnect with colleagues based on shared characteristics orlife experiences by facilitating employee resource groups
in partnership with external subject matter experts

CONSUMERS & REVENUES

1 Incorporating Vectura Fertin Pharma, as well as the 2022 acquisition of Swedish Match, PMI employed approximately 79,800 people worldwide at year-end 2022.
2 Including Swedish Match and Vectura Fertin Pharma.
3 Figures pertain to total IQOS users. See Glossary.

• Achieved virtually zero waste tolandfill in 97% of our factories

Social• Reached approximately 24.9 million IQOS
users, of whom an estimated 17.8 million haveswitched to IQOS and stopped smoking5• Maintained high proportion of shipment volume(91%) covered by youth access prevention
programs in our indirect retail channels• Continued to monitor and reduce prevalence of child labor
among contracted farmers supplying tobacco to PMI,
achieving 0.1% in 2022, and resolving 95% of identified cases• Fostered a living income among contracted farmers
supplying tobacco to PMI (achieving 73%) and a minimum
wage for tobacco farmworkers (achieving 99.9%)• Completed seven in-depth human rights impact
assessments since 2018, as well as ongoing
monitoring and implementation of action plans• Improved representation of women in management
positions to 40.7% (up from 39.7% in 2021) and set abaseline to measure inclusion among PMI employees

Financial• Derived 32.1% of our annual net revenues from smoke-free
products out of total net revenues of USD 31.8 billion6• Achieved a 15.1% smoke-free product shipment ratio• Generated USD 0.3 billion in net revenues fromproducts in wellness and healthcare in 2022
• Reported USD 2.2 billion in corporate income taxes• USD 73 billion in excise tax paid on PMI products• Increased annualized dividend rate to USD 5.08/per sharebased on a quarterly dividend of USD 1.27/share, declared
September 14, 2022; 15 consecutive years with a dividend
increase since becoming a public company in 2008

1 Investments reflect research, product and commercial development, production capacity, scientific substantiation, and studies on adult smoker understanding.
2 Shipment volume includes heated tobacco units, e-vapor cartridges, and e-vapor disposables.
3 Including recycling (80%) and incineration with energy recovery (6%). 2022 figure excludes Russia.
4 Including Swedish Match and excluding PMI Duty Free. Classification of low- and middle-income countries is based on World Bank report issued in July 2022.
5 Figures pertain to total IQOS users. See Glossary.
6	For definition of net revenues related to smoke-free products, see Glossary. Including Swedish Match net revenues from November 11, 2022 (acquisition date) to December 31, 2022.
Note: Presentation of information in this visual is informed by the Integrated Reporting Framework of the IFRS Foundation.

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Philip Morris International — Integrated Report 2022

Transforming for good
Our business transformation
We strive to become a company that has
a net positive impact on society.
This ambition starts with researching, developing, andcommercializing less harmful alternatives to cigarettes for
those adults who otherwise would continue to smoke,
ultimately allowing us to phase out cigarettes and become
an entirely smoke-free business. As a next step, we are
expanding our offerings to include products that fill criticalunmet needs within the wellness and healthcare space.
To achieve our purpose, a radical transformation of
our business is required. Our strategy is to responsiblytransition from a cigarette company into a world-leading
smoke-free business while simultaneously exploring
adjacent avenues of growth in wellness and healthcare.

Producttransformation
Innovating for
better products

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Simultaneously managing the impacts of two value chains—the one we are moving away from (our cigarette portfolio)
and the one we are moving toward (our smoke-free portfolio)—while also managing the impacts of the transition itself
makes our strategy even more complex.
Our North Star is to create a net positive impactthat benefits our company, shareholders, consumers,
and society.
Transforming our company is not simply about substituting
one product with another. It requires revamping ourentire value chain and the way we engage with society.
This necessitates a holistic review and overhaul of ourentire business model and value proposition, which brings
challenges and opportunities to all aspects of our business.

In formulating and implementing our sustainability strategy, we must consider a range of trade-offs among different
forms of capital. Read more here.
While a transformation of this magnitude and complexity cannot be achieved overnight, we are committed tomaking it happen as fast as possible.

Internaltransformation
A new organizationand value chain

Sustainability stands at the core of PMI’s transformation.
It spurs innovation, better positions the company
for long-term success, and helps to address certain
challenges stemming from our transition.

Our product lines are the most visible
aspect of our transformation. Over the
past decade and a half, we have harnessedscientific and technological advances todevelop alternatives to cigarettes that are
scientifically substantiated to be a better
choice for adult smokers than continued
smoking. We work relentlessly to phaseout cigarettes by replacing them withless harmful alternatives as quickly as
possible to achieve a smoke-free future.

Supportingtransformation

Overview

We are increasing access for adultsmokers by improving and expanding
our portfolio of smoke-free products tomeet their varying needs and preferences.
We are progressing toward becoming amajority smoke-free company by 2025
in terms of net revenues and are taking
concrete steps to grow our wellness
and healthcare business organicallyand through strategic acquisitionsof leading innovative companies.

Since announcing our smoke-freevision, we have undergone a meaningful
reorganization. We have helped our
employees build the skills and capabilities
they need to contribute fully to ourbusiness transition while also investing in
recruiting top talent and acquiring new
capabilities. We are also incorporating
new ways of working as we become anincreasingly digitalized, project-basedorganization focused on consumer
centricity, agility, and data-driven
decision-making.

Moreover, we are working to integrate
and leverage capabilities from ourrecent business acquisitions.
Beyond our own operations, we aretransforming every step of our value
chain to serve our company purpose. We
recognize the challenges these changes
pose and are actively helping all those
impacted (in our direct and indirect
operations) to best manage the transition.

SOURCINGOPERATIONSCOMMERCIALIZATIONCONSUMERS & REVENUES

Transitioning to anincreasingly diversified
supply chain, including
electronics sourcing

Reallocating R&D
expenditure towards smokefree product innovation andscientific capabilities, whilereorienting manufacturing
toward smoke-free products

Moving from B2B
to an increasingly
consumer-centricmodel to commercialize
smoke-free products

Shifting revenue sourcefrom majority cigarettes
to majority smoke-free
products while addressing
post-consumer waste

Read more about our value chain transformation

Externaltransformation
Changing theway we engage
with stakeholders

Engaging with external stakeholders is
critical to achieving our purpose. Ourability to successfully transform requiresthat we work together with various
segments of society to create a paradigm
shift in which cigarettes become obsolete.

Continuous engagement also allows
us to build a shared understanding ofcontingency issues, proactively respondto concerns, identify potential areas ofcompromise, and find solutions that aregood for our stakeholders, as well as forour business and long-term success.

Growthpriorities

Emerging
opportunities
Read more about our stakeholder engagement

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Philip Morris International — Integrated Report 2022

Business Transformation Metrics

To make our progress both measurable and verifiable, we developed our Business Transformation Metrics, a bespoke
set of financial and nonfinancial key performance indicators (KPIs). These metrics showcase how we are allocating
resources away from our legacy business as we advance toward a future in which we no longer make or sell cigarettes.
2015baseline

2020

2021

2022

0.2

18.3

21.7

24.9

0.1
0.7%

13.0
24.2%

15.3
29.5%

17.8
32.1%

>40
>50%

n/a

n/a

0.1

0.3

≥1

7

64

71

73

100

17%

39%

42%

42%

>50%

8%

76%

73%

74%

0.6%
5

10.9%
80

13.3%
99

15.1%
114

>30%
>250

877

650

645

641

<550

n/a

(25.8)%(26.4)%(26.8)%~(40%)

70%

99%

99%

99%

n/a

33%

35%

43%

3 out of 48

9 out of 39

Consumers & Revenues
Commercialization
Sourcing &Operations

Total number of users of PMI smokefree products (in millions)¹*
Estimated number of users who haveswitched to PMI smoke-free products
and stopped smoking (in millions)¹*
Adjusted net revenues ratio (smoke-free/total)²*†
Annual net revenue from wellness andhealthcare products (in billion USD)³*
Number of markets where smoke-free
products are available for sale⁴*
Proportion of markets where smoke-free
products are available for sale that are
low- and middle-income markets⁵*
Commercial (marketing) expenditure
ratio (smoke-free/total)*
Smoke-free product shipment
ratio (smoke-free/total)⁶*†
Smoke-free product shipment volume (billion units)⁶*†
Combustible tobacco product shipment
volume (billion units)⁶*†
Change in combustible tobacco product shipment
volume (billion units) vs. 2015 baseline⁶*†
Adjusted R&D expenditure ratio (smoke-free/total)⁷*
Supply chain direct spend expenditure(smoke-free/total)⁸
Number of factories producing smoke-free
products out of total number of factories⁹*†2025
aspirations

9 out of 38 24 out of 53* The 2022 metrics marked with an asterisk (*) are subject to PwC’s Assurance Report
Notes:In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the United States market. The Swedish Match acquisition
is a key milestone in PMI’s transformation to becoming a smoke-free company. PMI consolidated statements of earnings for the year ended December 31, 2022, include the results ofoperations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022, as presented in the Form 10-K for the fourth quarter and year ended December 31, 2022.
Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously
reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products.
Where applicable, prior years’ KPIs have been recalculated to reflect the reclassification on a comparative basis. Impacted metrics are marked with (†).
In 2023, we plan to evaluate our published aspirations to ensure they remain ambitious, reasonable, and achievable in the context of a dynamic and evolving smoke-free industry,
and impacts of our recent acquisitions.
1 Figures pertain to total IQOS users, for definition see Glossary.
2 For definition of net revenues related to smoke-free products, see Glossary. 2022
figure includes Swedish Match net revenues from November 11, 2022 (acquisitiondate) to December 31, 2022. 2021 figure excludes the impact related to the Saudi
Arabia customs assessments.
3 For definition of net revenues related to wellness and healthcare, see Glossary. 2021
figure includes portion of net revenues reported after acquisition of Fertin Pharma
A/S, Vectura Group plc. and OtiTopic, Inc. that took place in the third quarter of 2021.
4 Including Swedish Match. For definition of available for sale, see Glossary.
5 Excluding PMI Duty Free. World Bank report issued in July 2022 is used on acomparative basis for income level classification. For definition of low- andmiddle-income markets, see Glossary.
6 These indicators are calculated based on millions of units. For definition of smoke-free
products and combustible tobacco products, see Glossary. Smoke-free products
shipment volume includes volume of smoke-free products that can be converted into
cigarette equivalent units, such as heat-not-burn, e-vapor, and oral nicotine. Total
shipment volume includes the listed smoke-free products as well as combustible
tobacco products: cigarettes and other tobacco products expressed in cigarette
equivalent units. Data does not include Swedish Match and wellness and healthcare
products.

Strategy

Governance

Product impact

By reporting periodically on these KPIs, we enable
external scrutiny and allow our stakeholders to assess thepace and scale of our transformation. The KPIs also permit
tracking of both year-on-year and cumulative progress.
Aspirational goals linked to our Business Transformation
Metrics give us a clear roadmap and offer our stakeholders
visibility into the future toward which we aim to advance.

We realize that business transformation is a very company-specific journey,
which ESG reporting standards do not adequately capture.

Business Transformation Metrics

Overview

7 Adjusted R&D expenditure excludes asset acquisition cost related to OtiTopic, Inc. in
2021. Total reported R&D expenditure in 2021 including these items amounted to
USD 617 million.
8 Direct spend focuses on materials used in the manufacture of our products; it includes
tobacco leaf, direct materials, and electronic devices and accessories. Data excludes
Swedish Match and Vectura Fertin Pharma.
9 Data reflects the number of factories operated and owned by PMI at the end of therespective year, including Swedish Match and Vectura Fertin Pharma. 2022 factories
include eight facilities producing heated tobacco units, two producing othersmoke-free consumables and 14 Swedish Match owned facilities, primarily engaged
in the production of smoke-free products.

Over the years, in response to stakeholder feedback
and to increase transparency around our business
transformation, we have significantly expanded thenumber of metrics on which we report. In 2022, we
reviewed this expansive set of metrics with the objectiveof streamlining our reporting to focus on those metrics
that best measure our progress. The criteria we usedin this evaluation mirrored those used to select KPIs
for our Sustainability Index; namely, they should be
relevant, measurable, comparable, and verifiable.
Through this process, we reduced the number of BusinessTransformation Metrics from 28 to 14, allowing us tofocus on those KPIs that best assess the impact of ourtransformation on consumers, the availability of our
products, how our product portfolio is changing, andhow we allocate resources as we progress toward our2025 aspirations. Several metrics removed from thistable will continue to be reported in the Performance
metrics section of this report, with each data point
linked to one of our key strategies. The remainder,such as the number of stores or number of retailers
selling smoke-free products, are included in the bodyof this report as complementary data points, where
relevant. The efforts undertaken in 2022 to streamline
our Business Transformation Metrics were part of abroader ESG data relevancy review (read more here).
For all our Business Transformation Metrics, we aim toreport our historical performance, ensuring a consistentscope and calculation methodology, and strive for external
assurance. In 2022, 13 out of 14 Business Transformation
Metrics were subject to external assurance by our
statutory auditor, PwC, indicating that they are bothmeasurable and verifiable (read PwC’s limited assurance
report here). Supply chain direct spend expenditure(smoke-free/total) was not in scope of assurance.

Operational impact

Fundamentals

Reporting and performance

Looking ahead
During 2023, almost seven years since announcing ourtransformation, we plan to re-evaluate all our business
transformation aspirations to ensure that they remain
ambitious, reasonable, and achievable in the context of a
dynamic and evolving smoke-free industry and our recent
acquisitions. We will do this taking into consideration
learnings gathered since we set some of these aspirationsin the early stages of our smoke-free journey. In
particular, we will consider the impact of our businesscombination with Swedish Match, finalized in late 2022,
and our agreement with Altria granting PMI full rights tocommercialize IQOS in the U.S. as of April 2024. We will
also assess and reflect changes in our value chain and theimpact of recent external factors, including the COVID-19
pandemic and the war in Ukraine, where applicable. We
intend to communicate any related changes within 2023.

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Philip Morris International — Integrated Report 2022

Anchoring sustainability at the core of our strategy
We can only achieve our purpose byembedding sustainability in all we do.
Sustainability is more than just a means to minimize
negative externalities and mitigate risks while maximizing
operational efficiency and resource optimization. We see
it as a fundamental opportunity for innovation, growth,and purpose-led, impact-driven, long-term value creation.
Accordingly, we work hard to integrate sustainability
into every aspect of our business and activities.

I M PAC T
I M PAC TO P E R AT I O N A L

PRODUCT

Our approach to sustainability is guided by theoutcomes of our most recent sustainability materiality
assessment, which considered and prioritizeda long list of ESG topics (read more here).

The result was a structured ESG framework (depicted
below) that showcases those ESG topics we focus andprioritize our resources on. This framework recognizes
two distinct forms of issues: those that relate to our
products (what we produce), which are part of the“Product Impact” pillar, and those related to our business
operations (how we produce), which are part of the“Operational Impact” pillar. We classify each issue basedon its environmental, social, or governance-related nature.
Building on our ESG framework, we developed eightstrategies (discussed on the next page) targeting
our most pressing areas of impact. To accompany
those strategies, we established 11 goals, which form
the basis of our 2025 Roadmap and 19 metrics tomeasure progress via our Sustainability Index.

E

S

G

ENVIRONMENTAL

SOCIAL

GOVERNANCE

Materials andproduct eco-design–
Post-consumer
waste

Product healthimpact–Sales, marketing,and consumer
communications–
Innovation inwellness and healthcare

Responsible R&D–
Product reliability–
Nicotine science

Climate–
Water–
Biodiversity

Diversity and inclusion–
Socioeconomic wellbeing of tobacco-farming
communities–
Human capitaldevelopment

Business integrity–
Respect forhuman rights–
Sustainable supply
chain management

Operational discharge–
Animal welfare

Labor standards–
Health and safety at work–
Employee well-being–
Philanthropy

Stakeholder engagement–
Data privacy–
Fair fiscal practices

Overview

Strategy

Governance

Product impact

Our sustainability strategy
Consistent with the outcomes of our sustainability
materiality assessment, we have placed addressing
the social impacts of our products at the core of
our sustainability strategy. These are the areas onwhich we must focus our resources to innovate anddevelop solutions that can contribute to solving
some of society’s most pressing challenges. Thisapproach represents an opportunity for growthand our strongest competitive advantage.
The health impact of cigarette smoking is the mostsignificant and pressing negative externality our strategy
aims to address. Lessening this impact is the most valuable
societal contribution we can make and is the cornerstoneof PMI’s purpose and business strategy. Addressing
this critical issue requires a three-pronged approach:
1. Maximize the benefits of smoke-free products:
Research, develop, and commercialize nicotinecontaining products that are scientifically substantiatedto be less harmful than cigarettes, and then seek
to ensure that those adults who would otherwise
continue to smoke have broad access to these products
to expedite the decline of smoking prevalence.

Operational impact

Fundamentals

Reporting and performance

2. Purposefully phase out cigarettes:
Work to make cigarettes obsolete, with theaim that smoke-free products ultimately
replace cigarettes for those who continue to
use nicotine, driving their obsolescence.
3. Seek net positive impact in wellness and healthcare:
Despite its critical importance, achieving a smokefree future is not our final horizon. We are also
exploring adjacent opportunities for growth inwellness and healthcare, leveraging the capabilities
we have accrued and developed while transforming
our business. It is through these emerging
opportunities that we will achieve our ultimate goal.
Our approach to sustainability must also address othermaterial ESG topics related to our products and business
operations, including the environmental impact of our
products, and the environmental and social impacts
across our value chain. To address this broad range ofconsiderations, our three-fold approach to addressing
the social impact of our products is complemented
with five other impact-driven strategies. Altogether,
these eight strategies are equally divided between
those that focus on the impacts of our products
and those that focus on the impacts of our business
operations. Last but not least, all-encompassing
governance-related topics set the basis of our success.

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Running to the end of 2025, it comprises 11 headline
goals, each connected to our eight strategies, which
aim to address our priority ESG topics identified
by our sustainability materiality assessment.
You can learn more about this mapping exercise
in our 2021 Sustainability Materiality Report.

We believe business can and must help to achieve
the UN Sustainable Development Goals (SDGs)
adopted in 2015. Accordingly, we have explicitly linked
each of our eight strategies to the SDG(s) to which
it aligns and can contribute towards achieving.

1

2

Develop and commercialize science-based smoke-free alternatives,
making them available in 100 markets (of which at least half in
low- and middle-income markets) and continuing to increase thetotal number of users

3

Deploy robust youth access prevention programs in indirect
retail channels and ensure that sales of our products abide by
our Marketing Codes

4

Leverage scientific and development capabilities to generate
at least USD 1 billion in annual net revenues from products inwellness and healthcare

Innovation in wellness
and healthcare

5

Reduce post-consumer waste and prevent littering by implementing
comprehensive programs covering all our consumables

Materials andproduct eco-design

6

Follow eco-design and circularity principles for all smoke-freeelectronic devices

Post-consumer
waste

7

Nurture a more diverse culture that promotes equity and inclusion
by providing access to lifelong learning to all our employees andimproving gender and local representation in management globally

8

Eradicate systemic child labor in our tobacco supply chain

9

Ensure all contracted tobacco farmers make a living income,and partner with our direct suppliers to promote a living wage
for their workers

Tackle climate change

10

Achieve carbon neutrality in our operations and accelerate
our decarbonization toward net zero across our value chain

Preserve nature

11

Promote biodiversity, address critical water challenges, ensure
no conversion of natural ecosystems, and halt deforestation inboth our tobacco and pulp and paper supply chainsI M PAC T

PRODUCT

Seek net positive impact
in wellness and healthcare

Reduce postconsumer waste

I M PAC T

Foster an empowered
and inclusive workplace

O P E R AT I O N A L

Priority ESG topics

Intentionally work toward phasing out cigarettes by ensuringthat 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

Maximize the benefitsof smoke-free products

Improve the qualityof life of people in our
supply chain

Reporting and performance

We measure progress on our roadmap with aset of key performance indicators (KPIs) thatcollectively form our Sustainability Index.

Our roadmap offers straightforward direction to
our stakeholders by clearly outlining the socialand environmental impacts we aim to achievewith these strategies, in relation to both our
products and our business operations.

Goals

Purposefully
phase out cigarettes

Fundamentals

PMI sustainability index

Our 2025 Roadmap
PMI’s 2025 Roadmap, first introduced in
2019, outlines our key goals and informs theroute of our company’s long-term plan.

Operational impact

Product healthimpactProduct healthimpactSales, marketing,and consumer
communications

Diversity andinclusion
Human capitaldevelopment

Socioeconomic
well-beingof tobacco-farming
communities

ClimateBiodiversity
Water

Primary SDGs

In 2021, we developed PMI’s Sustainability Index tomeasure and communicate progress rigorously andquantitatively against our aspirations, using a set ofclearly defined and verifiable metrics. To better alignwith shareholder and other stakeholder interests,
the Compensation and Leadership Development
Committee of PMI’s Board of Directors has used
the index to enhance the company’s practices,
explicitly linking compensation to sustainability
and strengthening the link between long-termcompensation and ESG performance (read more here).
PMI’s Sustainability Index comprises 19 KPIs directly linked
to our 11 Roadmap goals. As with our Roadmap, each KPI
is aligned with one of two drivers: “Product Sustainability”(11 KPIs) or “Operational Sustainability” (8 KPIs).
Using predefined target ranges, we assess and award ascore to each KPI annually. Thereafter, using a weightassigned to each KPI (informed by the results of oursustainability materiality assessment), we calculate thetotal Sustainability Index score. Performance results fromthe fiscal year 2022 are summarized on the following page.
Our 2022 performance in the Product Sustainability
pillar has left us on track to meet our goals in termsof our youth access prevention program coverage,
and post-consumer waste management. That said,
our transformation agenda faced stronger-thanexpected headwinds due to various external factors—
most notably, the world geopolitical situation.
At the end of the year, we were broadly on track across
our Operational Sustainability pillar, with two exceptions.
Firstly, due to higher-than-anticipated female turnover andlower-than-anticipated internal promotions of women,
we have faced challenges when aiming to meet ourtargeted proportion of women in senior roles. Secondly,
uncontrollable and unforeseeable events, like the war in
Ukraine and its far-reaching consequences, compelled us
to adapt our supply chain and logistics, slowing the paceof our scope 3 greenhouse gas emissions reductions.

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Philip Morris International — Integrated Report 2022

Purposefully phaseout cigarettes

PRODUCT

Maximize the benefitsof smoke-free products

Seek net positive impact
in wellness and healthcare

PMI ESG KPI Protocol
Our ESG KPI Protocol 2021, published alongside
our Integrated Report 2021, provides details about
the PMI Sustainability Index. In conjunction with thecurrent integrated report, we are also publishing PMI’s
ESG KPI Protocol 2022, detailing the definition, scope,and methodology of each KPI included in the index.
This updated version accounts for efforts undertaken
during the year to make these KPIs even more robust.

1	These indicators are calculated based on millions of units. For definition of smoke-free
products and combustible tobacco products, see Glossary. Smoke-free products
shipment volume includes volume of smoke-free products that can be converted into
cigarette equivalent units, such as heat-not-burn, e-vapor, and oral nicotine. Total
shipment volume includes the listed smoke-free products as well as combustible
tobacco products: cigarettes and other tobacco products expressed in cigarette
equivalent units. Data does not include Swedish Match and wellness and healthcare
products.
2	For definition of net revenues related to smoke-free products, see Glossary.
2022 figure includes Swedish Match net revenues from November 11, 2022
(acquisition date) to December 31, 2022.
3	Including Swedish Match.
4 Excluding PMI Duty Free. World Bank report issued in July 2022 is used on acomparative basis for income level classification. For definition of low- andmiddle-income markets, see Glossary.
5	Figures pertain to total IQOS users. See Glossary.
6	Total shipment volume includes cigarettes, OTPs, and smoke-free productconsumables.
7	For definition of net revenues related to wellness and healthcare, see Glossary.
8	In 2022, we redefined the minimum criteria which must be met by each market to beconsidered as having a take-back program in place. Shipment volume includes heated
tobacco units, e-vapor cartridges, and e-vapor disposables.
9	To meet our 2025 aspiration, we may consider either a type 1 or type 2 and/or type 3
product environmental statements as defined by ISO 14020:2022, as constituting an“eco-certification”.
10	Our diversity and inclusion data cover around 94% of PMI’s total workforce, as theyexclude fixed term employees and those on salary continuation.
11	Our assessments prioritize countries which are assessed as highest risks from a humanrights standpoint. They are determined based on key parameters such as PMI’s
footprint and the country’s human rights risk profile, as determined by internationallyrecognized organizations.
12	Emissions from PMI-operated IQOS stores are partially excluded from scope 1+2
emissions, as de minimis. In 2022, a portion of PMI’s retail stores (representing approx.
10% of total retail surface area) have been included in the scope 1+2 emissions.
13	For definitions, please see PMI’s Zero Deforestation Manifesto.

Reduce post-consumer waste

Governance

Product impact

Operational impact

Fundamentals

2022
performance2022
progress

Reporting and performance2025
aspirations

1

Smoke-free product shipment ratio (smoke-free/total)¹*

15.1%

> 30%

2

Adjusted net revenues ratio (smoke-free/total)²*

32.1%

> 50%

3

Number of markets where PMI smoke-free products
are available for sale³*

73

100

4

Proportion of markets where smoke-free products are available
for sale that are low- and middle-income markets⁴*

42%

> 50%

5

Total number of users of PMI smoke-free products (in millions)⁵*

24.9

6

Proportion of shipment volume covered by markets with youth
access prevention programs in place in indirect retail channels⁶

91%

> 90%

7

Annual net revenue from wellness and healthcare products(in billions USD)⁷*

0.3

≥1

8

Proportion of shipment volumes covered by markets with
anti-littering programs in place for combustible cigarettes

68%

≥80%

9

Proportion of shipment volume covered by markets with end-oflife take-back programs in place for smoke-free consumables⁸

8.5%

≥80%

10

Proportion of PMI smoke-free devices
with eco-design certification⁹

n/a

1

11

Cumulative number of smoke-free electronic devices
refreshed or repaired since 2021 (in thousands)

157

1,000

Foster an empowered
and inclusive workplace

Improve the quality of lifeof people in our supply chain

Tackle climate change
Preserve nature

30.5%

35%

80%

70%

7

10

Prevalence of child labor among contracted
farmers supplying tobacco to PMI

0.1%

0%

16

Proportion of contracted farmers supplying
tobacco to PMI who make a living income

73%

100%

17

Net carbon emissions in scope 1+2 (in thousands of metric tons)12

297,236018CO2e scope 3 absolute reduction versus 2019baseline (in-line with science-based target)

7.9%

25%

19

Proportion of tobacco purchased at no risk of deforestation ofmanaged natural forest and no conversion of natural ecosystems13

55%

100%

12

Proportion of women in senior roles10

13

Proportion of PMI employees who have accessto structured lifelong learning offers

14

Cumulative number of human rights impact assessments
conducted since 2018, with findings addressed11

15

PMI Sustainability Index

Contribution
to total
index score

85%

15%

67%

50%

50%

100%

Operational Sustainability performance

Key

KPI
weight100%

Product Sustainability performanceO P E R AT I O N A L

Notes:The 2022 metrics marked with an asterisk (*) are subject to
PwC’s Limited Assurance Report available here.
Our inventory of GHG emissions (scope 1, 2, and 3) in 2022 is subject to externalverification by SGS (see the External Verification Statement for scope 1+2
here, for scope 3 here, and a list of the individual metrics verified here).
For further details on the definitions, scope, calculation methodology,
and data management for the metrics included in PMI’s Sustainability
Index, please refer to PMI’s ESG KPI Protocol 2022.

Strategy

Key performance indicators

Aligned with our sustainability materiality assessment
results, the Product Sustainability pillar—and,specifically, those KPIs linked to strategies addressing
the social impacts of our products—is the most heavily
weighted component of the index. Consequently,
despite good progress across the majority of our
ESG priority corridors, the total Sustainability
Index score fell slightly behind target in 2022.
Moving forward, we will attempt to ascertain thepotential impact of these factors on our forwardlooking statements and aspirations. Read more about
challenges and highlights for each of our eight strategies
in designated feature boxes in the Product Impact
and Operational Impact sections of this report.

Overview

33%
100%

Target missed

Target met

Target partially met

Target exceeded

PMI acquisition of Swedish Match
Our plans for 2022 included putting in place a methodology and aspiration for the number of users of our smoke-free
products. However, following the acquisition of Swedish Match in late 2022 and its material impact on our business, we are
now integrating it and assessing how to move forward with a comprehensive methodology that considers a new category.

33

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Philip Morris International — Integrated Report 2022

Governanceand management
Board of Directors and Company Management

p36

Message from our Chief Sustainability Officer

p38

Sustainability governance and management

p40

Risk management

p46

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

35

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Board of Directors and Company Management
PMI’s governance structure underlies our daily
activities to ensure that we act with integrity andhold ourselves and our business to the highest
ethical standards.

Our Board of Directors
The primary responsibility of the Board of Directors
is to support the long-term success of our company.
The Board establishes broad corporate policies,
sets strategic direction, and oversees Company
Management—the individuals responsible for PMI’s
day-to-day operations­—as defined to the right.
The Board has established various standing committees
to assist with the performance of its responsibilities
and has adopted corporate governance guidelines
that—together with the company’s charter, bylaws,
Board committee charters, code of ethics, codeof business conduct and ethics for directors, andrelated-person transactions policy—serve as thegovernance framework for the company. Eachof these documents is available on PMI.com.
PMI’s 2023 Proxy Statement contains detailed
information on our Board and committee structure, theindependence and diversity of its members, and the
responsibilities and meeting frequency of each committee.

Our Company Management
PMI’s Company Management primarily consists of ourChief Executive Officer, his direct reports leading ourdifferent business functions and regions, and other senior
management, such as the Vice President of Treasury andCorporate Finance, the Vice President and Controller, andthe Deputy Chief Financial Officer & Head of FinanceTransformation. Our Company Management, which
totals 25 employees as of March 11, 2023, of whomfour are women, includes the 11 employees who are
executive officers under Section 16 of the Securities
Exchange Act 1934. A biography of each member of
our Company Management can be found on PMI.com.

Linking ESG performance to executive compensation
In February 2022, PMI’s Board of Directors decided to better reflect PMI’s commitment
to sustainability, which is the core of its corporate strategy, by including the Sustainability Index
as one of our performance metrics under equity awards. Following the index’s structure, its
KPIs are aggregated into two main drivers: Product Sustainability and Operational Sustainability.

Sustainability
Index 30%

Executive compensation
Our executive compensation and benefits programsupports our business, financial, and strategic objectives
and is explained in detail in PMI’s 2023 Proxy Statement.
The three components of our executive officers’ total
direct compensation are base salary, annual performancebased incentive compensation awards, and long-term
variable equity awards. Our long-term executive
compensation program reflects our commitment toputting sustainability at the core of our corporate strategy.
In 2022, annual incentive awards were assessed on six
growth measures, including a 20 percent weight for ourheat-not-burn shipment volume and a 15 percent weighton strategic initiatives. Those measures are heavily
focused on our transformation to smoke-free products
and include the drive for material and measurable progressin priority sustainability areas, alongside transparent
and clear sustainability reporting and disclosure.
For 2023, we continued the practice of incorporating
measures focused on our smoke-free producttransformation and sustainability priorities into ourannual incentive and long-term equity performancegoals for executives.
For more information, please refer to PMI’s
2023 Proxy Statement.

10%

GR APHIC TO BEDISCUSSED
EPS
30%

20%

PRODUCTS U S TA I N A B I L I T Y

O P E R AT I O N A LS U S TA I N A B I L I T Y

TSR 40%37

38Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Message from our Chief Sustainability Officer
What is sustainability, what does ESG mean,and how are these two concepts connected?
This is something that many have been grapplingwith and attempting to define.
For PMI, sustainability is more than just a means tominimize negative externalities and mitigate risks
while maximizing operational efficiency and resource
optimization. We see it as a fundamental opportunity
for innovation, growth, and purpose-led, impact-driven,long-term value creation, as well as a way to respond tothe concerns of shareholders and other stakeholders.

“Our business transformation
connects sustainability andcorporate strategy, recognizingthat ESG issues are businessissues. As a consequence,sustainability, in all its
dimensions, is at the absolutecore of our business strategy.”

In order to achieve this, it is paramount that our company
understands ESG issues that are relevant to our businesssuccess. Managing well our company’s ESG performancecan create competitive advantages, such as ensuring
compliance with current and anticipated regulations,establishing a solid shareholder base, increasing
stakeholder trust, improving corporate reputation andbrand equity, mitigating the effects of supply chain
disruptions, preserving business continuity, enhancing
organizational resilience, and boosting employee morale,
workforce productivity, talent attraction, and retention.
To yield these potential benefits and mitigate legal,financial, and reputational risks, ESG considerations
are regularly assessed, addressed, and embedded in
an integral way throughout our business. As a result,at PMI, ESG is considered an input of our corporate
strategy, with sustainability being the desired outcome.
Our business transformation connects sustainability
and corporate strategy, recognizing that ESG issues arebusiness issues. As a consequence, sustainability, in allits dimensions, is at the absolute core of our businessstrategy. Accordingly, PMI has chosen to practiceintegrated reporting because this is the best way tocommunicate about a business transformation that hassustainability at its core. Our reporting addresses boththe material ESG risks related to our operations, as wellas those connected to our product. Since 2016, ourcompany has worked to professionalize its approachto ESG reporting by seeking alignment with the
expectations of voluntary standards and frameworks.
In addition, we have introduced bespoke reporting of key
performance indicators (KPIs) linked to our company’ssustainability materiality results, such as PMI’s BusinessTransformation Metrics and Sustainability Index.

Historically, ESG disclosures have been mostly
voluntary. However, that is changing rapidly.
Regulators and standards setters in various geographies
are working to create comparable and more reliable
standards for mandatory disclosures. We see thisin the U.S., for instance, through the Securities
and Exchange Commission (SEC), in the EU via the
Corporate Sustainability Reporting Directive (CSRD),
and globally through efforts led by the International
Financial Reporting Standards (IFRS) Foundation’sInternational Sustainability Standards Board (ISSB). We
have actively engaged in the consultation processes
led by the EU and the U.S. SEC, as well as with the
ISSB, and will continue to support efforts to set abaseline for sustainability-related disclosures.
Moreover, building on that preparedness, we havecompleted a new in-depth climate-related risk andopportunity assessment aligned with the framework of
the Task Force on Climate-related Financial Disclosures(TCFD). Alongside this year’s integrated report, we are
publishing PMI’s first TCFD report detailing activities
and targets related to its recommendations, anticipating
regulatory requirements that may result from the U.S.
SEC’s current climate-related disclosure proposal. We
welcome more rigorous and regulated sustainability
reporting requirements, as we believe this will further
strengthen our ability to produce sustainability-related
disclosures that are consistent, comparable, and reliable.
In turn, our shareholders and stakeholders will bebetter able to assess how we are managing andimproving on material ESG-related risk factors andhow this is contributing to long-term value creation.
Capturing high-quality data is essential to accurate
reporting. Accordingly, we are building systems andprocesses that can host a sound data governance model
to ensure that nonfinancial data reported are meaningful,well-defined, and verifiable, and that processes areappropriately documented. Further, we continue to build
synergies with our Legal and Finance teams to increase
rigor and improve the robustness of our ESG disclosures.
To enhance our reporting and prepare for upcoming
regulatory changes, we are also partnering with PMI’s
risk functions to build a roadmap to gradually expand
the scope of external assurance of our ESG data,
seeking further alignment with voluntary standards.

We intend to continue evolving our processes to
produce a leaner and more technical integrated report,
primarily aimed at serving the needs of the financial
community. To achieve this, we began a reporting
relevance review in 2022 whereby we assessed thematurity, significance, and robustness of all KPIs
disclosed in our integrated reports. As our organization
becomes more sophisticated and our approach to ESG
reporting further professionalizes, we aim to reduce
the number of KPIs by prioritizing quality over quantity.
To give our stakeholders visibility into this process, thisIntegrated Report 2022 describes the rationale andlogic behind this exercise. Ultimately, our intent is not
only to be transparent on what we report, but also to
be clear and precise in the way we communicate why,
what, and how we measure our ESG performance.
We recognize the essential need to continue building
legitimacy and trust among our stakeholders, who are
fundamental to our company’s purpose and can accelerate
the pace at which we achieve it. Our Integrated Report
2022 aims to address their demands for more transparent,
comparable, and reliable information on our ESG-relatedrisks and performance. As we continue to learn, transform,and discover better ways to develop solutions that havea meaningful impact, we hope our transparency andwillingness to engage will spark dialogue with those
who can help accelerate our pace of change. I invite you
to reach out and share your feedback, to question, tochallenge, and, above all, to engage with us as we remain
focused on making our company better, dedicated tosustainability, and committed to transform, for good.

Jennifer Motles
Chief Sustainability Officer“We welcome more rigorous and regulated
sustainability reporting requirements, as
we believe this will further strengthen ourability to produce sustainability-related
disclosures that are consistent, comparable,
and reliable.”

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Sustainability governance and management
Integrating sustainability into our company relies
on a formal structure with clear accountabilities
at different levels of the organization.
Board of Directors
While the Nominating and Corporate Governance Committee(NCGC) oversees the company’s ESG and sustainability
strategies and performance, and advises the Board on
sustainability matters, several other committees are tasked
with oversight responsibility for specific sustainability
topics. For instance, the Audit Committee reviews withmanagement, the internal and independent auditors, anysustainability information to be included in the Company’s
financial reporting framework and the internal controls andprocedures related to sustainability disclosures, while theCompensation and Leadership Development Committee(CLDC) is responsible for executive compensation matterswhich consists of, among others, evaluating the Company’s
performance in relation to the PMI Sustainability Index. The
Product Innovation and Regulatory Affairs Committee andConsumer Relationships and Regulation Committee haveoversight over product development and commercial practices,
including from an ESG perspective. PMI’s Chief Sustainability
Officer (CSO), a member of PMI’s management, updates the
CLDC, the NCGC and the full Board of Directors at least once
per year on sustainability-related matters, including progress inpriority areas and an overview of key initiatives.

Company Management
Anchoring our sustainability priorities with executive
responsibilities and accountabilities helps embed ourstrategy into our daily operations. Members of Company
Management are responsible for driving progress anddelivering on our sustainability targets within theirrespective functions. We have included feature boxes foreach of our eight strategies in dedicated chapters of thisreport to highlight reporting lines for specific topics.
As described above, the Compensation and Leadership
Development Committee has tied a significant portionof our Company Management’s compensation to the
Sustainability Index.
Composed of members of Company Management,
including our Chief Executive Officer, PMI’s Sustainability
Committee meets at least four times per year. In 2022,
quarterly Sustainability Committee meetings focused on
assessing PMI’s performance on the Sustainability Index,
receiving updates on various sustainability initiatives aswell as external developments, reviewing the company’s
disclosures, and discussing efforts to further embedsustainability within PMI, effectively manage ESG risks,and enhance ESG data reliability.

Board of Directors
Full Board of Directors

Nominating and Corporate
Governance Committee (NCGC)

Other Committees of the Board

Company Management
Sustainability Committee• Members of Company Management, including Chief Executive Officer• Meets every quarter• Reviews and validates sustainability materiality analysis, strategy,commitments, goals, and annual reporting

Chief
Financial
Officer

Operational management
and program delivery

Sustainability Group• Senior representatives from global functions• Meets quarterly

Chief
Sustainability
Officer• Ensures alignment and coordination of efforts
across the different functions in the company,
provides recommendations for program portfolio,
and monitors performance

Sustainability TeamWorking groups• Cross-functional representatives• Meet periodically• Defines corporate sustainability
materiality and strategy, coordinates
program implementation by working
closely with all business functions
and with markets, and manages
reporting on performance• Coordinate development and deploymentof specific cross-functional programs

Global functions and markets

All PMI employees

Drive execution of sustainability programs, including
development of policies, procedures, and roadmaps,
establishment of performance metrics and targets, andmonitoring and reporting on progress within the organization

Play a critical role in delivering progress on sustainability

Operational management
and program delivery
Integrating ESG drivers into business strategy cansignificantly enhance both sustainability agendas andfinancial performance. Accordingly, our CSO reports
to PMI’s Chief Financial Officer (CFO), a member ofCompany Management who heads the Sustainability,
Finance, and Strategy functions—three essential
components that work hand in hand to drive strong andcoherent value creation and deliver long-term success.
Our CSO leads the integration of sustainability acrossour business. She updates the Sustainability Committee
on a quarterly basis and hosts the SustainabilityGroup—composed of functional leaders—quarterly.
The CSO heads PMI’s Sustainability Team, whichleads PMI’s sustainability materiality analysis, defines
strategy, manages reporting on performance, andcoordinates strategy implementation across thedifferent business functions and markets.
Program-specific working groups meet periodically to
cross-functionally coordinate the strategy, targets, andperformance of specific sustainability programs.
At the market level, dedicated sustainability coordinators
help ensure that sustainability priorities are cascaded andprograms are localized. Under central guidance, market
coordinators meet monthly to ensure concerted effort andthat progress is achieved and tracked in a consistent manner,
including via KPIs derived from the PMI Sustainability Index.

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Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Approach tosustainability programs
Our harmonized approach to designing andmanaging material sustainability topics is built
on the following foundational elements:
A deep understanding of the topic,
context, materiality, external
expectations, and interdependencies
with other issues
Governance structures for target setting
and policies that formally guide ouractions and ambitions, oversee progress,and establish accountability
Performance indicators that allow us todefine success, measure progress, andevaluate our efforts and are attached totargets to drive improvement and provide
clarity on desired outcomes
Concrete activities to achieve progressagainst targets

Transparent reporting on progress,
which encourages dialogue by allowing
stakeholders to scrutinize our actions
The sustainability landscape is dynamic. We continuously
update and strengthen our programs as knowledge
improves, progress is made, or the relative importanceof topics fluctuates.

Understanding our impacts and prioritizing
ESG topics
A robust sustainability materiality analysis allows us to
identify, assess, and prioritize ESG topics. By feeding
findings from these regular assessments into our strategy,
targets, KPIs, and reporting, we are able to keep pacewith external and internal developments and ensurethat our strategy addresses those areas in which we canhave the most significant impact. Our 2021 sustainability
materiality assessment helped identify the ESG topics
on which we should focus. In line with the principle ofdouble materiality, the assessment consisted of a fivepronged approach that evaluated both outward andinward impacts and considered stakeholder expectations.
In addition to our formal sustainability materiality
assessments, we keep abreast of trends by engaging
continuously with stakeholders and externalorganizations (read more here). Further, our enterpriserisk assessment considers ESG-related risks andopportunities and leverages the company’s sustainability
materiality assessment process (read more here).
Additional targeted, topic-specific assessments—including,among others, climate risk and opportunities assessments,
human rights impact assessments and saliency mapping,and product life-cycle assessments—complement ourmore holistic efforts.

Connectivity and trade-offs
Sustainability challenges do not exist in a vacuum.
They are often linked, and we must consider theirinterdependencies—including the direction of causality
and magnitude—as we craft appropriate strategies anddevelop programs to address our company’s impacts.
Where possible, we seek solutions that are mutually
reinforcing. Addressing one topic may, however, limit
how we tackle another. Necessary trade-offs often
occur in the course of our business transformation.
Given the multifaceted and complex nature ofsustainable development, trade-offs are inherent
to decision-making. In some circumstances, we arecompelled to make sacrifices in one sustainability area
to obtain benefits in another, at least for a period.

In designing our strategies and programs, it is vitalthat we accurately analyze, comprehend, andaccount for situations of forced compromise. This
process is guided by our sustainability materiality
assessment, which serves as a compass with which
to calibrate and prioritize competing ESG issues.
When appropriately addressed, some trade-offs
serve as a source of innovation, as such compromisespress us to come up with novel ways to address thetensions that are present. By embedding an integrated
approach to sustainability within our business,
we are able to monitor and tackle multiple issues
simultaneously, identifying effective solutions thatleverage interdependencies to achieve progress.

Governance structures and policies

Performance indicators and targets

Integrating sustainability into our company relies on aformal governance and management structure with clear
accountabilities at every level of the organization. Read
more on the previous pages and in the reporting lines
feature boxes in each of our eight impact sections.

Clearly articulating success via aspirations and targets
and explaining how we measure progress is imperative.
For internal and external stakeholders, this provides
clarity on what we aim to achieve, visibility on the way
forward, and ensures that we hold ourselves accountable.

Our business is governed by a set of policies andprinciples. Our Code of Conduct sets clear standards
and expectations addressing key risk areas. It iscomplemented by a set of internal policies (called
Principles and Practices), which provide more specificguidance on the various topics covered by the code (readmore in the Business integrity chapter of this report).

Our complete set of sustainability-related
performance indicators—alongside our respective
goals, where applicable—can be found in theReporting and performance section of this reportand are available for download on PMI.com.

Within the sustainability area, a set of thematic public
commitments is available for download on PMI.com. These
commitments guide our work and express our view on
specific issues considered critical from an environmental orsocial perspective. Read more in the policies and standards
feature boxes in each of our eight impact sections.

In 2022, to enhance the robustness of our ESG
data management and reporting, we undertook an
extensive relevance review of all our reported ESG
metrics. As part of this exercise, we evaluated thestrength, validity, and maturity of the data reported.
We also assessed relevant developments, such as changes
in business priorities, revised methods of measuring
or capturing data, internal and external stakeholder
feedback, and developments related to mandatory
and voluntary reporting frameworks and standards.
We first categorized the full universe of our existing
ESG indicators by type and use. This categorization
allowed us to begin prioritizing our actions as weseek to increase the reliability of our ESG data,
and lay the groundwork for future efforts.
Certain indicators align with the requirements of ESG
reporting standards and frameworks or respond to
the expectations of external ESG ratings and rankings.
Others are bespoke KPIs that we developed to measure
and report progress against our priority ESG topics
where no external standard is available. Moreover, someindicators help us provide meaningful and consistentmeasurements of progress, while others complement our
narrative reporting on a more ad hoc basis. Reviewing
and categorizing our ESG metrics allowed us also toprioritize them, avoiding redundancies and focusing on
our most relevant and reliable data points. The visual
depicted on the next page showcases the criteria utilized
to determine relevance and prioritize ESG data, and will
act as a compass as we continue to fine-tune our internal
processes and expand internal and external assurance.

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Philip Morris International — Integrated Report 2022

Strategy

Governance

Product impact

The ESG data relevance review, which started
in 2022, has led, and will continue to lead, to a
reduction in the number of KPIs included in thisIntegrated Report—and is expected to result in further
reductions in subsequent reporting cycles. A tangible
illustration of this can be seen in this year’s BusinessTransformation Metrics, which we have streamlined
to ensure that we focus on the most meaningful
KPIs measuring transformation (read more here).

ESG data relevance review

Area of focus forheightened rigor
and data assurance

Metrics included inperformance tables

Overview

In 2022, we also strengthened our reporting on the
19 KPIs that constitute the PMI Sustainability Index.
Notably, we worked with our Risk & Controls function to
lay the groundwork for expanding the scope of external
assurance to cover all KPIs included in the index. Together,
we reviewed our internal standards and processes andsought opportunities to reinforce them where relevant.
The result can bee seen in our ESG KPI Protocol 2022,
which reflects updates to definitions and methodologies.

Metrics included in
PMI Sustainability Index
and subject to PMI’s
ESG KPI Protocol

Operational impact

Fundamentals

Reporting and performance

Engaging our employees
Our employees are drivers of change andthe ambassadors of our purpose. We seek toactively engage a broad range of employees
through a variety of channels, including ourinternal sustainability hub, interactive social
channels, training sessions and capability building,and global internal webcasts and events.
In 2022, we launched a series of employee challenges
to impart knowledge, build awareness, and increase
engagement with our sustainability strategy. We did
this by incorporating learning, action, and sharing
elements to drive active involvement. More than
2,000 employees across 42 markets participated in
PMI’s first Sustainability Challenge, which focusedon how their individual actions can impact society
and the environment. In September, a second
sustainability challenge focused on post-consumer
waste management, connecting externally with
the International World Cleanup Day (read morein our Post-consumer waste section here).

Bespoke

Sustainability metrics
Index linked to PMI’s
Metrics required by
ESG reporting standards
and frameworks

material ESG topics
but not coveredby externalrequirements or
expectations fromstandards, frameworks,
or rating agencies

Metrics expected to be reported by our company
according to ESG ratings, rankings, and indices

Rating agencies

Complementary

Complementary metrics supporting qualitative disclosure
metrics
and primarily linked to PMI’s
most material ESG topics

Activities to deliver on our ambitions

Reporting

We discuss activities in place to deliver on our
ambitions throughout the eight impact sections of thisreport. These activities are carried out by a range ofinternal functions. For each topic disclosure, we clearlyhighlight reporting lines that demonstrate who has
responsibility and accountability for each strategy.

Transparently reporting on governance, strategy,
targets, programs, and metrics, for our ESG priorities
helps us communicate progress in a structured way.
We complement our annual integrated report withadditional materials online, including reporting indices,
case studies, and downloadable data, as well as dedicateddisclosures that dive deeper into specific ESG topics.
You can learn more about our approach here and visit
our sustainability resources page here to learn more.

One important commonality shaping the way wedesign and implement programs is our understandingthat many of the challenges we face are systemic andcannot be addressed in isolation. Accordingly, we
support and engage with a range of organizations andinitiatives that seek to drive change. Learn more here.

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Risk management

Overview

Strategy

Our riskmanagement
framework

Governance

Product impact

Operational impact

Fundamentals

Reporting and performanceFirst line
Business functions

Externalrisks

Strategicrisks

Second line

We designed our risk management and internal
control practices to address significant or
emerging strategic, external, inherent process,and project deployment risks that could
undermine our ability to achieve our strategic
business objectives and create value over time.
Within this context, ESG-related risks andopportunities are considered as part of ourrisk management practices.
Risk governance
PMI assigns ownership of each prioritized key risk
area to a member of our Company Management.
Furthermore, risk oversight is conducted by the full Boardof Directors, as well as by Board committees in theirrespective areas of responsibility. Throughout the year,
Company Management regularly updates the Board andits committees on the evolution of key risk areas. Our
Enterprise Risk Management practices are designed tosupport Company Management and the Board in theirrespective roles and ultimately to ensure the adequacyof PMI’s responses against each prioritized key risk area.
Additionally, as part of our risk management practices,
PMI has established the Corporate Risk GovernanceCommittee (CRGC), consisting of a subset of Company
Management and other key leaders from the organization.
The purpose of the CRGC is to identify and monitor
developments in key risk areas and oversee the company’s
Governance, Risk Management, and Compliance (GRC)
environment and strategy, including the establishment,
maintenance, and enhancement of effective risk
management and assurance capabilities within PMI.
The CRGC consists of senior executive officers, including
the Chief Financial Officer, Senior Vice President andGeneral Counsel, Chief Digital & Information Officer,
Vice President & PMI Controller, Vice President Risk &Assurance, Chief Information Security Officer, and Vice
President and Chief Compliance Officer, among others. In
addition, the Chief Executive Officer and Vice President &Corporate Secretary are informed of any risk management
observations or insights shared with the CRGC andparticipate in these meetings. The CRGC receives
updates related to the Company’s risk management andinternal controls practices at least once per quarter.

Risk management

Risk management andassurance functions

Risk management is facilitated through periodic alignmentof “first line” business, “second line” risk management andassurance, and “third line” Corporate Audit functions.
“First line” business functions are responsible for and own
PMI’s response to risk. They are business stakeholders
who actively define and monitor their programs in
response to strategic risks and leverage PMI’s Risk Control
Self-Assessment (RCSA) capability to identify, self-assess,and evaluate operational end-to-end process risks andthe effectiveness of internal controls at an early stage.
Beyond the “first line” business functions, our risk
management framework involves Risk & Controls, Ethics& Compliance, Information Security, and Data Privacy
as “second line” risk and assurance functions. Additional
contributors are risk specialist functions, such as Quality
Compliance and Security & Market Safety. PMI’s “secondline” functions provide a combination of risk management,
advisory, and assurance activities to assist managementwith having an effective and efficient response to risk inplace. This includes our internal control environment.
As the overarching risk management function,
Risk & Controls defines, develops, maintains,and executes against the established GRC
environment, including the underlying Enterprise
Risk Management (ERM) and Operational Risk
Management (ORM) methodologies and practices.
Our “third line” comprises of Corporate Audit as
an internal, independent audit function. Corporate
Audit provides Company Management and the Audit
Committee with objective assurance and advisory services
designed to assess the adequacy and effectiveness of
PMI’s internal control systems and use of resources.
Taking a holistic approach, these functions
collaborate to continuously identify, assess, andrespond to evolving or emerging strategic, external,
inherent process, and project deployment risks.

Third line

Board of Directors

Inherent
processrisks

Project
deployment
risks
Board Committees

Corporate Audit functions

Risk assessment
The Risk & Controls function defines PMI’s approach
to risk management and coordinates a continuous
enterprise-wide risk assessment, which brings together
the business, risk management and assurance, andinternal audit functions. We identify and prioritize
key risk areas based on four dimensions: the impactof a risk on PMI were it to occur, its likelihood, its
velocity, and its interconnectivity with other risks.
ESG-related risks and opportunities are consideredwithin our enterprise-wide risk assessment, which
also leverages the company’s sustainability materiality
assessment process. More specifically, the priority
ESG topics identified by the latest sustainability
materiality assessment determine which ESG risks
and opportunities are considered in the enterprisewide risk assessment. Moreover, we also progressively
consider, among others, risks and opportunities that
could have an impact on PMI’s sustainability strategy
and the achievement of performance targets linked
to KPIs defined as part of the Sustainability Index.

“By fully integrating ESG into our Enterprise
Risk Management (ERM) and assurance
programs, we are ensuring that our ESG
efforts benefit from our strategic objectivecentric risk management practices, including
its structure, methodologies, technology, andprocesses. We are also deploying continuous
efforts to elevate the rigor and robustnessof our nonfinancial sustainability-related
disclosures. Our seamless collaboration
proves that together as awhole we are greater than
the sum of each individual
discipline on its own.”
Marie-Pauline LauretVice President Risk & Assurance

Corporate Risk
Governance Committee

Specialized ESG-related risk assessments
To complement our continuous enterprise-widerisk assessment efforts and regular sustainability
materiality analyses, we have various risk evaluation
mechanisms in place to support the developmentof tailored strategies and responses for our priority
ESG issues along our value chain. Focused on
environmental and social issues, some of theseassessments include human rights risks saliency
mapping, product life-cycle assessments, anddeforestation and water risk assessments. You
can learn more about PMI’s most recent climate
risk and opportunities assessment and how wemanage and govern significant climate-related risks
and opportunities in our 2022 TCFD Report.

Risk monitoring and compliance
Among other risk-monitoring activities (e.g., reviews,
advisories, assessments), our technical procedures andinternal controls over financial reporting comply with the
Sarbanes-Oxley (SOX) Act 2002. Risk & Controls andour external auditors provide assurance on the designand operating effectiveness of these internal controls.
Our business, risk management, and assurance functions
execute assurance-gathering activities beyond the scopeof SOX, leveraging the defined library of global standard
processes, risks, and internal controls to address inherent
process risks.
In early 2023, we started repositioning and strengthening
our Enterprise Risk Management (ERM) proposition, andcombining all audit and assurance practices under one
umbrella referred to as “Risk & Assurance”.
Finally, we disclose PMI’s material risk factors in our
10-K and 10-Q submissions to the U.S. Securities andExchange Commission. Our latest submissions areavailable on PMI.com.

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Philip Morris International — Integrated Report 2022

Product impact
Maximize the benefits of smoke-free products

p52

Purposefully phase out cigarettes

p70

Seek net positive impact in wellness and healthcare

p74

Reduce post-consumer waste

p78

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

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Philip Morris International — Integrated Report 2022

Our aspirations

SI

Number of markets where
PMI smoke-free products areavailable for sale SI>50%

Of markets globally where
PMI smoke-free products areavailable for sale that are lowand middle-income markets SI>40 m

Smoke-free product shipment
ratio (smoke-free/total) SI
2025

~40%

Reduction in our combustible
product shipment volume
versus 2015 baseline

Adult smokers globally
who switched to PMI smoke-free
products and stopped smoking

Combustible productshipment volume

Fundamentals

Reporting and performance

CONSUMABLES>250 bn

Smoke-free productshipment volume>50%

Net revenue ratio(smoke-free/total) SI≥ USD 1 bn

Net revenues generated from wellness
and healthcare products SI

Note: In 2023, we plan to evaluate our published aspirations to ensure they remain ambitious, reasonable, and achievable in the context of a dynamic
and evolving smoke-free industry, and impacts of our recent acquisitions.

PACK AGING

100%

Recyclable inner liners by year-end 3

70%

Effective recycling rate of oursmoke-free electronic devices1≥1 million

≥80%

100%

≥80%

Smoke-free electronic
devices refreshed or repaired(cumulative since 2021) SI

Seek net positive impact in wellness and healthcare
2025

2023

2025

<550 bn

Operational impact

MaintainPurposefully phase out cigarettes>30%

Product impact

Sustainability Index

>90%

100

Governance

DEVICESOf shipment volume covered by markets with youth accessprevention programs in indirect retail channels SI

2025

Strategy

Reduce post-consumer waste

Maximize the benefits of smoke-free products
Maintain

Overview

Of smoke-free electronic devices
introduced on the market asof the end of 2025 that haveeco-design certification SI

100%

Of shipment volumes covered bymarkets with anti-littering programsin place for combustible cigarettes SI

Of shipment volumes coveredby markets with end-of-lifetake-back programs in place forsmoke-free consumables SI

100%

Of packaging materials madewith recyclable materials

95%

Of packaging materials comingfrom renewable sources

15%

Reduction of packaging materials
weight versus 2018 baseline

Of PMI smoke-free electronic
device sales volume coveredby the CIRCLE program2

80%

Effective recycling rate of oursmoke-free electronic devices1

Notes:
Aspirations referring to smoke-free electronic devices exclude disposable products and non-PMI-designed devices.
We plan to recalibrate our 2025 packaging aspirations as we plan for 2030, taking a fresh look at being impactful in an ever-changing environment.
1 The effective recycling rate is calculated based on the proportion of device sales volume covered by the CIRCLE program multiplied by the actual recycling rate of devices at the active CIRCLE hubs
(weighted average), which includes actual recycling and energy recovery. Russia CIRCLE hub was discontinued in 2022 and is therefore excluded from the reported recycling numbers of 2022.
2 We plan to recalibrate this aspiration in 2023 to account for regulatory and market developments. In particular, as of 2023, depending on market circumstances (e.g., available waste treatment
infrastructure and regulatory frameworks), collected devices may be considered covered by the CIRCLE program if they are either processed at our centralized CIRCLE hubs, through local e-waste
streams, or by local recycling partners (under the governance of PMI central CIRCLE team to fulfill our standardized processing requirements and recycling rates performance).
3 For all markets where possible in compliance with local regulatory requirements.

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Overview

Strategy

Governance

Product impact

Management approach

Maximize the benefitsof smoke-free products

In order to maximize the benefits of oursmoke-free products to individual smokers
and the population as a whole, we deploy
a three-fold approach.

Through our early and sustained investment in R&D andconsequent leadership in technology and innovation, we
have built a powerful position and competitive advantage
in scientifically substantiated smoke-free products, which
can help accelerate the decline in cigarette smoking.

The best thing is to never start smoking. For those who
do smoke, their best course of action is to quit tobaccoand nicotine use altogether. However, many do not. Those
adult smokers who would otherwise continue to smoke
should have access to nicotine-containing alternatives
that are scientifically substantiated to be less harmful
than continuing to smoke. Scientific and technologicalinnovation have made such solutions available today.
The vast majority of harmful compounds found incigarette smoke and associated with smoking-relateddiseases are generated by combustion. Nicotine-containing
products that do not involve combustion (smoke-free
products), such as e-vapor, oral nicotine, and heated
tobacco products, while not risk-free, could present amuch better alternative than continued smoking.

By allocating the majority of our resources to thedevelopment and commercialization of smoke-free
products we are accelerating our progress toward
becoming a smoke-free company, and in doing so arebuilding legitimacy and stakeholder trust. Moreover, it
allows us to expand our market share in the nicotine
space, increasing our current and future revenue base as
we seek to encourage all adults who would otherwise
continue to smoke to switch to smoke-free products—
this includes the estimated 130 million adult smokers of
our cigarette brands, as well as the hundreds of millions
of adult smokers who buy competitor brands. Further,our smoke-free product consumables drive higher net
revenues per unit than cigarettes, with accretive productcontribution per unit already helping to generate
attractive returns on our significant upfront and ongoinginvestments in developing the smoke-free category.
It is critical to us to avoid that the marketing and sales of our
products could discourage complete nicotine use andsmoking cessation, encourage the initiation of nicotine
use, or be of particular appeal to unintended audiences(including youth). Disregarding this would undermine ourcredibility, harm our reputation, and potentially trigger
adverse regulation, hampering our ability to achieve asmoke-free future as fast as possible.
In this section

For adults who would otherwise continue to smoke,scientifically substantiated smoke-free products indeed
represent a significant opportunity, as switching tothese products has the potential to reduce the risk ofdeveloping smoking-related diseases versus continued
cigarette smoking. Seizing this opportunity to achieve apublic health benefit depends not only on thescientifically substantiated risk-reduction profile of theseproducts, but also on adult smokers successfully
switching to smoke-free products and stopping smoking
cigarettes. It is therefore critical that smoke-free products
are made available to all adult smokers, that adult smokers
be informed of their existence and understand theirbenefits, that they find them acceptable, and that they
can afford to buy them.

Developing science-based alternatives to cigarettes

54

Broadening access to smoke-free products

56

Marketing and selling our products responsibly

63

Secondly, we work to ensure that adult smokers
have access to and successfully switch to smokefree products, which can help accelerate the decline
in smoking prevalence. By “access”, we mean:• Awareness: Adult smokers are conscious thatsmoke-free products exist and understandthe benefits of switching to them (relative
to continued cigarette smoking)• Acceptability: Smokers who would otherwise
continue to smoke consider smoke-free products
an adequate and viable alternative to cigarettes• Availability: Smoke-free products are conveniently
attainable and for sale to adult smokers• Affordability: The cost of smoke-free
products is reasonable, to enable smokers
to acquire them, facilitating switching
In this context, an essential element to maximize
availability, awareness, acceptability and affordability is aregulatory framework that allows smoke-free products
to be sold in a particular market, permits engagementwith adults who smoke to heighten their understanding,and facilitates smoke-free portfolio expansion in orderto improve both acceptability and affordability.

Our commercialization activities across theworld are guided by applicable laws and by aset of core principles (read more here).
Access tosmoke-free
products andcigarette phase-out
Science-based,
less harmful
alternatives tocigarette smoking
Individual risk
reduction

Consumer switching

Responsible
marketing

Maximized
benefits of smokefree products

Population harm
reduction

Reaching theintended audience

Management
Developing, improving, and assessing smokefree products is a cross-functional responsibility
jointly headed by our Chief Life Sciences Officer,
Chief Product Officer, President of SmokeFree Inhaled Products and Chief Consumer
Officer, and President Oral Smokeless, who aremembers of PMI’s Company Management.
Our President of Smoke-Free Inhaled Products andChief Consumer Officer and President of Smoke-Free
Oral Products & CEO Swedish Match oversee PMI’s
smoke-free products growth trajectory, fostering
consumer centricity and leveraging the strengths ofour markets and regions. Their teams work hand-inhand with many other business functions within PMI
to support the responsible expansion of smoke-free
products worldwide and ensure the deployment of
all smoke-free product marketing and sales activities
occur in accordance with PMI’s Marketing Codes.
PMI’s policies and standards
PMI Science: Our Standards
Marketing Code for Non-Combusted Alternatives
Marketing Code for Combusted Tobacco Products

Reduce post-consumer waste

OUTWARD IMPACT: The right thing to do

Thirdly, we deploy responsible marketing and sales
practices to propel our smoke-free vision while
minimizing the risk of unintended consequences,such as youth access, to our products.

53

Seek net positive impact
in wellness and healthcare

INWARD IMPACT: The business caseFirstly, we focus on researching and developing lessharmful alternatives to continued cigarette smoking
for the benefit of adult smokers who would otherwise
continue to smoke. It is vital that the health risk profileof these smoke-free products be thoroughly assessedand scientifically substantiated. Our research programis inspired by long-held practices of the pharmaceuticalindustry and is in line with the draft guidance from the
U.S. Food and Drug Administration (FDA 2012) for
Modified Risk Tobacco Product (MRTP) applications.
We follow scientific standards, including the Good
Laboratory Practices (GLP) and Good Clinical Practices(GCP). Our assessment program covers a wide rangeof areas, pre- and post-market. It focuses on productdevelopment, laboratory clinical research, perception
and behavior, and monitoring the in-market use of
the smoke-free products we commercialize.

Reporting and performance

Purposefully phaseout cigarettes

At PMI, we are accelerating the end of smoking by making cigarettes obsolete.
To that end, we are transforming our operations and value chain to develop, assess,and commercialize smoke-free alternatives that are scientifically substantiated torepresent better alternatives than continued smoking.

Fundamentals

Maximize the benefitsof smoke-free products

PRO D U C T I M PAC T

Operational impact

Philip Morris International — Integrated Report 2022

Progress in 2022
Highlights

In November 2022, we acquired Swedish Match,a market leader in oral nicotine products; by joining
forces, we expect to accelerate the achievement of
our joint smoke-free ambitions, enabling more adults
who would otherwise continue to smoke to switch
to better alternatives faster than either company
could achieve separately.

Since 2008, PMI has invested USD 10.7 billion
in research, product development, production
capacity, scientific substantiation, and perception
and behavior studies, with the aim of maximizing
the benefits of smoke-free products andadvancing tobacco harm reduction.

PMI’s scientific assessment ofsmoke-free products
We continued to dedicate almost all of our
R&D expenditure (99 percent in 2022) tononcombustible products, which include smokefree and wellness and healthcare products.

We entered new product spaces and responsibly
launched nicotine pouches and e-vapor disposables,
two product lines that are important additions to oursmoke-free portfolio and help adult smokers, who
would otherwise continue to smoke, make the switch.
These products, however, have historically raisedvarious concerns related to environmental and social
impacts, including responsible marketing practices,which are critical but not always adequately regulatedor enforced. We are committed to address theseconcerns by setting the market standard with our
responsible marketing practices, working with othermarket players to encourage them to follow the same
approach, as well as proactively engaging withregulators to adequately regulate and enforce regulations,with particular focus on youth access prevention.

As of year-end 2022, our R&D work and its associatedinnovations have resulted in around 2,500 patents
granted for smoke-free technologies by the five largest
intellectual property offices in the world (IP5).
PMI’s smoke-free product portfolio currently includes
heat-not-burn products, nicotine-containing e-vapor
products, and oral nicotine products. As theseproducts do not involve combustion, they generatesignificantly lower levels of toxicants comparedwith cigarettes and are better alternatives for thoseadults who would otherwise continue to smoke.
We conduct rigorous scientific studies to substantiate
the harm reduction potential of our smoke-free products
compared with continued cigarette smoking, including
systems toxicology, preclinical, clinical, and perception
and behavior assessments. Our most thoroughly
assessed smoke-free product is the IQOS tobacco heating
system, and other smoke-free products are at various
stages of development and scientific assessment.

Product impact

Our scientific research
Our scientific assessment is built on a collaborative
approach and expertise in multiple fields such as
chemistry, biology, informatics, and medicine. Since
2015, we have completed a total of 251 toxicologicalassessment studies, 26 clinical assessment studies,and 58 perception and behavior premarket and postmarket (surveillance) studies on smoke-free products.
Our scientific results are available on PMIscience.com.
Further, our scientific booklet, which is periodically
updated and available here, provides the most
up-to-date findings on our assessment program.

Operational impact

Fundamentals

Reporting and performance

As next steps, we are evaluating the impact of switching toheated tobacco products on developing incident disease
in a long-term prospective epidemiological study as well as
assessing frequency of product use and possibly the influenceof switching to heated tobacco products on disease progression
using a real-world database. We will continue to gather andevaluate real-world data, in particular, epidemiological data fromlong-term follow-up studies, that include information on othervariables that might impact the risk of developing smoking-relateddiseases, such as as lifestyle or other environmental factors.
The totality of the evidence available to date on our smoke-free
products, including both experimental data and emerging realworld evidence, points firmly in the direction of harm reduction.
www.pmiscience.com/en/news-events/news/an-update-onour-time-trend-analyses,
www.pmi.com/2023Q2earnings

Platform
Development

Toxicological
Assessment

ClinicalAssessment

Perception
and Behavior

Long-term
Assessment

The results of our studies are publicly available on our
dedicated scientific website PMIscience.com, publishedin peer-reviewed scientific publications, and have been
submitted to numerous regulatory authorities, including
the U.S. Food and Drug Administration (FDA).
Post-market studies are necessary to continue building ourconfidence in the harm reduction potential of switching tosmoke-free products compared with continued smoking
and, over time, to quantify the reduction in morbidity andmortality through epidemiology. In 2022, we initiatednew clinical studies involving our leading heated tobacco
product IQOS. These studies are part of a program that will
examine clinically relevant health changes in adult smokers
who have already developed a specific smoking-relateddisease to determine whether switching from cigarettes
to heated tobacco products can slow the progression andimprove symptoms thanks to the significant reduction in
exposure to harmful toxicants versus cigarette smoke.
Independent researchers have also reported positive
findings associated with the use of heated tobacco
products. A study by Choi et al.2 for instance showedthat compared with those continuing smoking, men using
non-combustible nicotine products had a reduced risk ofdeveloping cardiovascular disease. Additionally, a study by
Fagerstrom3, indicated that countries with high adoptionof alternative nicotine products (such as heated tobacco
products and e-cigarettes) have been able to achieve
lower smoking rates. These findings suggest that adoptionof alternative nicotine products may help to reducesmoking prevalence faster than traditional tobacco control
measures solely focused on prevention and cessation.

55

amendment introduced on July 20, 2023

Growing external scientific consensus
We welcome and encourage independent research on our
products, methods, and results. Over the past several years, a
growing number of organizations and institutions have initiatedor completed studies on our smoke-free products, or on themethods and results surrounding them. These include publichealth institutions informing policy and regulation in several
countries, as shown here. The independent studies we areaware of that are published around PMI’s smoke-free products
or our methods and results are discussed on PMIscience.com. In
general, these studies confirm important elements of PMI’s
results. However, some research has approached the data
differently, has methodological differences, or overstates
conclusions.
1 Observational time-trend analysis looking at temporal associations and not designed toassess cause and effect. Specific factors associated with changing hospitalization rates
over time have not been fully analyzed. Subject to inherent limitations of ecological analysis.
2 Reference: Combined Associations of Changes in Noncombustible Nicotine or Tobacco
Product and Combustible Cigarette Use Habits With Subsequent Short-Term
Cardiovascular Disease Risk Among South Korean Men: A Nationwide Cohort Study –PubMed (nih.gov)
3 Reference: Can alternative nicotine products put the final nail in the smoking coffin?
– PubMed (nih.gov)

Reduce post-consumer waste

Developing science-basedalternatives to cigarettes

We incurred certain inefficiencies and limits on theavailability of IQOS ILUMA consumables, due to thecancellation of production in Russia, as we converted
and transitioned capacity from blade to induction
technology, in response to IQOS ILUMA success.

GovernanceSeek net positive impact
in wellness and healthcare

We improved access, by expanding our smoke-free
portfolio increasing acceptability, affordability, andavailability, thanks to the geographic expansion of ourflagship heat-not-burn product IQOS ILUMA, as well
as by offering broader choice for devices and taste
options for consumables. We kept improving user
experience via personalized engagement, andremoving potential price barriers by offering various
lower-priced options, with lil introduced by IQOS, thelaunch of BONDS by IQOS, our latest heat-not-burntobacco heating system, and VEEBA, a disposable
e-vapor product.

The geographic expansion to make our smoke-free
products available in more markets was slower thanprevious years, mainly as a consequence of supply
chain disruptions linked to the war in Ukraine,continued work on obtaining appropriate regulatory
and fiscal frameworks in markets to be able to launch
successfully, and a focus on rolling out our flagshipheat-not-burn product IQOS ILUMA.

Strategy

Purposefully phaseout cigarettes

We initiated the largest and most comprehensive
clinical study program investigating whether switching
to our leading heated tobacco product, IQOS, reduces
the harm and risk in adult smokers who have alreadydeveloped a specific smoking-related disease.

Challenges

Overview

Maximize the benefitsof smoke-free products

MA XIMIZE THE BENEFITS OF SMOK E-FREE PRODUC TS

54

Philip Morris International — Integrated Report 2022

Broadening access to
smoke-free products

INCREASING AWARENESS

As of the end of 2022, 24.9 million adults wereusing our smoke-free products worldwide, ofwhom we estimate 17.8 million had switchedto these products and stopped smoking.

Informing the general public
about the smoke-free category

SI

2022

24.9

2021

21.7

2020

18.3
10

20

30

40

Note: Figures pertain to total IQOS users. See Glossary.

Confusion about basic concepts underpinningthe category of smoke-free products leads tomisunderstandings about the harm reduction
potential of scientifically substantiated smokefree alternatives for adults who would otherwise
continue to smoke, and slows down progress inthe decline in cigarette smoking prevalence.

ACCESS

Awareness

Acceptability

Availability

R EG U L ATO RY FR A M E WO R K

Affordability

Product impact

To this end, we deploy “Unsmoke,” a global corporate
communications campaign, across various online
and offline channels. The campaign’s core message
is simple: Those who don’t smoke or use nicotine
products should not start; the best option for adultsmokers and users of smoke-free products is to quit
tobacco and nicotine products altogether; but for
those adults who don’t quit, smoke-free alternatives
are a much better choice than continuing to smoke.
Communicating and engaging
with adult consumers
We engage with adult smokers with the aim to improvetheir understanding of the smoke-free product category.
We also seek to enhance their knowledge of the existenceof smoke-free products, the associated benefits andrelative risks compared with continued smoking, andproper product use. We do so in several ways.
For instance, we deploy consumer-centric branded
campaigns aimed at motivating adult smokers to consider
switching while making it clear that quitting tobaccoand nicotine use altogether is the best choice. These
campaigns also aim to explain the smoke-free category andthe harm reduction potential that switching represents.
Another way we engage with adult smokers is via ourcigarette packaging, where permitted. JustScan is a
mobile digital platform that allows adult smokers toaccess online content by scanning a QR code or using
a weblink typically featured on the cigarette pack itself
or on an insert. In markets where smoke-free products
are available, we leverage JustScan to drive awarenessand support conversion to these products by providing
adult smokers with access to tailored content. In 2022,
we expanded our JustScan touchpoints from cigarette
packs only to communication materials placed inindirect retail points of sale and other locations, such as
hotels, restaurants, and cafes. This allowed us to reachapproximately 1.3 million adult consumers across 36
markets globally, increasing awareness of the existenceof our smoke-free products and explaining theirpotential benefits compared with continued smoking.
Engagement via JustScan proved successful, with over
40 percent of adult smokers who accessed it (subject
to age-gate process) demonstrating interest in receiving
more information or trying the smoke-free products.

Operational impact

Fundamentals

Reporting and performance

We plan to continue expanding efforts on such digitalcommunication channels and, where legally permitted, toleverage on-pack communications, in order to double thenumber of adult smokers reached in the years to come.
Our shift to a more consumer-centric and increasingly
B2C commercialization model with direct routes
to adult smokers (including our own stores ande-commerce channels) allows us to explain our
products, their features, and their risks and benefits
compared with continued smoking. It also enables
us to feed adult smokers’ perspectives back into
our processes and product development.

57

STRIVING FOR HIGH PRODUCTACCEPTABILITY
Consumer acceptance of better alternatives tocontinued cigarette smoking is a critical component
in our effort to move away from cigarettes entirely.
Even the product with the lowest level of risk would
not bring any benefit to adult smokers and publichealth if adult smokers did not switch to it.
We conduct post-market studies to understand how
our smoke-free products are used, helping us evaluate
their acceptance among adult users. In particular, byconducting repeated studies in 55 countries among
adult users of our heated tobacco products, involving
in total about 67,000 participants per month, we havebeen able to measure their use patterns over time.
We consider conversion a critical indicator of whether
our smoke-free products meet consumer expectations.
The conversion rate is the percentage of adults who
switch to our heated tobacco products and stop smoking
cigarettes versus total adult users.1 In 2022, the global
average full conversion rate for our main smoke-free
product, IQOS, was approximately 70 percent.2
1 Considering that individual consumption of PMI heated tobacco units represents thetotality of their daily tobacco consumption in the past seven days or, for markets where
there are also competitors’ heated tobacco products, at least 70% of their daily
individual consumption is with PMI heated tobacco products. See Glossary.
2 The 2022 global average conversion rate excludes Russia and Ukraine.

Reduce post-consumer waste

We seek to improve awareness of the smokefree product category among the general public,enhance understanding of key concepts underpinning
it—such as the role of combustion, nicotine, tar,and harm reduction—and address widespread
misconceptions about smoke-free products.

GovernanceSeek net positive impact
in wellness and healthcare

Total number of users of PMI’s
smoke-free products, in millions

0

As of the end of 2022, we estimate that around 29
percent of the adult smokers in the markets in which
PMI commercializes IQOS were aware of the product’s
features and benefits compared with cigarette smoking.
While this represents an increase on the previous year
(2021: 25 percent), it is clear that the lack of information
about—and awareness of—smoke-free products stillpresents a big hurdle to achieving tobacco harm reduction.

Strategy

Purposefully phaseout cigarettes

The public health benefit resulting from the introductionof smoke-free products in the marketplace depends not
only on their potential to reduce the individual risk ofsmoking-related disease versus continued smoking but
also on their actual use by adult smokers who would
not quit smoking. To the extent possible, we deploy
relentless efforts to improve and increase consumerawareness, as well as the acceptability, availability,
and affordability of our smoke-free products.

Adults who would otherwise continue to smoke should
understand the risks and benefits of switching toour smoke-free products compared with continued
cigarette use. They also need to understand thatquitting tobacco and nicotine altogether is the best
option and that smoke-free products are not riskfree and contain nicotine, which is addictive.

Overview

Maximize the benefitsof smoke-free products

MA XIMIZE THE BENEFITS OF SMOK E-FREE PRODUC TS

56

Philip Morris International — Integrated Report 2022

Expanding our smoke-free portfolio
Our product development is driven by consumer
needs and expectations, as well as by a reduced-risk
profile based on the absence of combustion. These
are two key components of consumer acceptance.

In 2022, we continued expanding our smoke-free productportfolio, with the scale-up of IQOS ILUMA, a revampof IQOS (IQOS Originals ONE and Originals DUO) andthe launch of two new products: BONDS by IQOS andVEEBA. These products complement our existing offeringof heated tobacco, e-vapor, and oral nicotine products.

A look inside our smoke-free products
In December 2022, we published our 17th
Scientific Update, which provides an overview of
PMI’s range of smoke-free products, discusses
the introduction of oral nicotine products to ouroffering and the available science on this categoryof products, and shows how heated tobacco units
are made to heat rather than burn tobacco.

Technology

Technology

Tobacco-free, smokefree nicotine pouches

Heats tobacco
without burning it

Nicotine source

Nicotine source
Uses real tobacco,
nicotine naturally
present in tobacco

SMOKE-FREE
PRODUC TS

Product impact

The role of flavors and nicotine insmoke-free product acceptability
For a smoke-free product to be successful in reducing
the risk of harm compared with continued smoking,the product must present less risk compared with therisk profile of a cigarette (or other combustible tobacco
product), and it must be an acceptable alternative forcurrent adult smokers (so that full switching occurs). The
responsible use of flavors as well as nicotine are importantfactors in helping adult smokers make the switch.
The difference in taste between smoke-free products
and adult smokers’ preferred cigarette brand can often
be an obstacle to fully converting those adult smokers
to smoke-free alternatives. Flavors play an importantrole in helping adults who do not quit tobacco andnicotine use altogether to move away from cigarettes
and prevent relapse to smoking. Our smoke-free
portfolio encompasses various flavored options to caterto the preferences of adult users and increase theiracceptability as an alternative to continued smoking.
In order to increase acceptability with flavor offerings,
while also minimizing appeal to unintended audiences,including youth, PMI is committed to use—andcommunicate about—flavors and product features
responsibly, and we have a central governanceprocess in place under which all new flavored productvariants are evaluated prior to commercialization(read more about youth access prevention here).
Our smoke-free product portfolio is composedof products that provide nicotine in a significantly
less harmful way than via smoking. They are notrisk-free and contain nicotine, which is addictive
but not the primary cause of smoking-relateddiseases. Read more about nicotine here.

Operational impact

Fundamentals

Reporting and performance

Supporting adult smokers to switch to smokefree products—leveraging consumer programs
through a strong B2C partner ecosystem
In addition to product characteristics, it is essential that
we have the right infrastructure in place to support
adult smokers along every step of their journey towardsmoke-free products and away from cigarettes.
We seek to continuously strengthen the ecosystemthrough which we engage with our consumers, following
rigorous age verification. We have a set of programs
accompanying consumers along their journey. Some
programs provide support in the initial discovery phaseof our portfolio (for example, offering the opportunity
for adult smokers to book an appointment at an IQOS
store or with a remote IQOS coach to learn more about
our products); our guided trials and lending offering
provide the possibility to try our products; loyalty
schemes allow consumers to bond with our brands andfacilitate their commitment to our smoke-free alternatives;and our recently launched trade-in program allows
consumers to give back their old device in exchange
for purchase of a newer version with a discount, sothat they can benefit from our latest technologies.
Consumer programs are deployed in a holistic retailchannel ecosystem, allowing our consumers toconveniently find and purchase their product. Thisecosystem encompasses our exclusive brand direct
retail touchpoints (including permanent PMI-owned
IQOS boutiques, stores, and islands worldwide, as wellas temporary touchpoints), our IQOS.com website andthird-party e-commerce such as marketplaces (where
allowed by regulations), 48 consumer call centers where
adult users can contact us if they have questions about
using our products, as well as thousands of indirect
retail touchpoints worldwide, and IQOS partners(indirect retail stores and shop-in-shop formats withextended experiences and PMI brand presence).
Digital capabilities also help us serve adult consumers
more efficiently and engage with them in a more
personalized fashion, via a specific electronic customer
relationship management (eCRM) conversion journeybased on adult consumer needs and interests.

NO COMBUSTIONTechnology
IQOS VEEV / VEEV
uses MESH™ heating
technology
VEEBA uses wick andcoil technology

Nicotine source
No tobacco, nicotine added in e-liquidlil HYBRID combines heated
tobacco and liquid technologies

59

Reduce post-consumer waste

Nicotine containing
pouch designed
for oral use

GovernanceSeek net positive impact
in wellness and healthcare

BONDS by IQOS is PMI’s latest heated tobaccosmoke-free device that heats tobacco via resistive
external heating, with no blade. It is compact,easy-to-use, and affordable (read more here).

Finally, at the end of 2022, PMI acquired Swedish
Match, a global leader in oral nicotine products. This
will further increase the acceptability of our smokefree value proposition, as we expand our presence
into the oral smokeless category in harmony withchanging consumer trends and in line with a strategy
that contributes to a world without cigarettes.

Strategy

Purposefully phaseout cigarettes

No single product will address the individual preferencesof all adult smokers. We are therefore delivering a multicategory portfolio of better, science-based alternatives
to cigarettes offering a wide variety of user experiences,
technologies, tastes, and price options for adult smokers
who would otherwise continue to smoke cigarettes.

VEEBA is an all-in-one pocket-sized disposable vaping
device, which requires no charging, no cleaning,
and no refilling. We believe that the convenienceof VEEBA can play a significant role in encouraging
adult smokers to try an alternative to smoking
and engage in a conversion journey to smoke-free
products. Read here how we seek to minimize theenvironmental impact of VEEBA end-of-life disposal.

Overview

Maximize the benefitsof smoke-free products

MA XIMIZE THE BENEFITS OF SMOK E-FREE PRODUC TS

58

Philip Morris International — Integrated Report 2022

EXPANDING PRODUCTAVAILABILITY
Our ability to make our smoke-free products
available for sale to adult smokers depends on
several factors—including some beyond ourcontrol—that dictate our capacity to scale and legallycommercialize our products in certain markets.
Advocating for contemporary tobacco control
policies and risk-proportionate regulation

We believe regulation should continue to dissuade
smoking initiation and encourage cessation. However, we
are also convinced that sensible, risk-based regulation ofsmoke-free products, combined with further restrictions
on cigarettes (and other combustible tobacco products),
can encourage behavioral change, prompting adultsmokers who would otherwise continue to smoke
to switch to less harmful alternatives and therefore
helping to minimize the harm caused by smoking more
effectively than only the traditional regulatory measures.

100

2022

73

2021

71

2020

64
25

50

75

100

Note: Including Swedish Match

Our geographic expansion to make our smoke-free
products available in more markets was slower thanprevious years, mainly as a consequence of supply chain
disruptions linked to the war in Ukraine and continued
work on obtaining appropriate regulatory and fiscal
frameworks in markets to be able to launch successfully.
We instead focused on expanding the availability of ourdifferent smoke-free products in 2022—and notably
our flagship heat-not-burn product IQOS ILUMA. While
we incurred certain inefficiencies and limits on theavailability of IQOS ILUMA consumables as we converted
and transitioned capacity from blade to induction heated
tobacco products in response to the success of IQOSILUMA and the cancellation of IQOS ILUMA consumables
production in Russia, we made the product available
across an increasing number of markets. By year-end,
IQOS ILUMA was available in 16 markets (2021: 3),
while our e-vapor products, including IQOS VEEV and
VEEBA, were commercialized in 12 markets (2021: 7).

1 Including Swedish Match.

In October 2022, we announced an agreementwith Altria Group, Inc. to end the companies’
commercial relationship covering IQOS in the U.S. as
of April 2024. Thereafter, PMI will have full rights tocommercialize IQOS and other smoke-free productsin the U.S., providing a clear pathway to reach theestimated more than 30 million Americans whocurrently smoke cigarettes.1 We view IQOS as a very
substantial growth opportunity in the U.S. smokefree market. The opportunity for IQOS in the U.S. isparticularly significant given the clear demand from
American adult smokers for credible smoke-freealternatives to cigarettes, and the limited success todate of current offerings to enable adult smokers to
fully switch away from cigarettes. Furthermore, in
the U.S., there are ample opportunities to build adultsmoker awareness and understanding of smokefree products, something that is particularly true
for IQOS given its Modified Risk Tobacco Product(MRTP) authorizations, allowing the product to bemarketed in the U.S. with reduced exposure claims.
1 Source: Centers for Disease Control and Prevention.

Beyond external factors, such as the regulatory
landscape, the rate at which we can roll out smokefree products globally depends on certain internal
constraints. Notably, we must evaluate the commercial
viability of launching smoke-free products based on
the size and capacity of our local organizations acrossthe 175 markets in which our products are present,
and prioritize internal resources adequately.
Further, our ability to manufacture smoke-free products
at scale requires significant investment in our production
capacity to build new factories or convert existingcigarette factories, and modernize our productionlines as we launch new products. By the end of 2022,
including Swedish Match and Vectura Fertin Pharma,
24 of our 53 factories were either partially or fully
dedicated to the manufacture of our smoke-free products.
Among them, eight factories produced heated tobacco
units and two factories produced other smoke-freeconsumables. The Swedish Match acquisition expanded
our manufacturing footprint with the addition of 14
owned manufacturing facilities, which are primarily
engaged in the production of smoke-free products.

Operational impact

Fundamentals

Reporting and performance

Increasing availability within each market
In addition to international expansion, it is essentialthat we ensure that our smoke-free products areconveniently available to adult consumers within themarkets in which we have launched. We seek to do thisby leveraging a variety of retail channels, including:• Direct retail channels, such as brand retail locations(e.g., IQOS stores) and e-commerce websites(where permitted). As of the end of 2022, there
were over 1,800 direct retail touchpoints (including
285 permanent PMI-owned IQOS boutiquesand 140 temporary touchpoints) worldwide, andwe have e-commerce sites for our smoke-free
products in 60 markets (2021: >1,700; 274; 55).
• Indirect retail channels, such as tobacconists,
convenience stores, gas stations, consumer electronic
stores or vape stores, and online channels. Someof these only sell smoke-free consumables, others
allow consumers to purchase smoke-free devices,and others—called “IQOS partners”—offer consumers
a wide range of services and experiences, including
product trials. As of the end of 2022, there were
3,300 IQOS partners worldwide and approximately
848,000 points of sale at which our smoke-free productconsumables were sold (2021: 3,610; 812,000).

61

Reduce post-consumer waste

We engage with governments, regulators, and legislators
to support the development of differentiated legislation
and regulations that will enable adult smokers to
be aware of different nicotine-containing products
and their corresponding risk profiles compared with
continued smoking. In addition, we support regulationthat helps accelerate switching to maximize the benefitsof smoke-free products while minimizing the risk ofunintended consequences, like access and use byunintended users, including minors and nonsmokers.

Number of markets where PMI
smoke-free products are available for sale0

Product impact

Seek net positive impact
in wellness and healthcare

Encouragingly, we have witnessed growing scientific andregulatory consensus supporting science-backed smokefree products. An increasing number of governments
now complement traditional tobacco control measures(i.e., those intended to discourage smoking initiation andencourage cessation) with a harm reduction approach(i.e., providing adults who would otherwise continue
to smoke with access to scientifically substantiatedsmoke-free alternatives). Visit PMI.com for an overview
of significant regulatory developments in recent years.

SI

A SPI R AT ION

GovernanceUnlocking the opportunity for IQOS in the U.S.

As of year-end 2022, our smoke-free products wereavailable for sale in 73 markets1 either in key cities or
nationwide (2021: 71). We aspire to expand our footprint
to make them available in at least 100 markets by 2025.

2025

Strategy

Purposefully phaseout cigarettes

Tobacco and nicotine product marketing and advertising
are subject to extensive restrictions worldwide, including
outright bans in some countries. This regulatory environment
limits our ability to increase access, as it makes it difficult
or sometimes impossible to enter a market (by banning thesale of smoke-free products) or, even if present in amarket, restricting our chances to raise awareness among
adult smokers that better alternatives to cigarettes exist
and are available so that they could decide to switch ifthey do not quit tobacco and nicotine altogether.

Making our smoke-free products available
in an increasing number of markets

Overview

Maximize the benefitsof smoke-free products

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Philip Morris International — Integrated Report 2022

ADDRESSING PRODUCTAFFORDABILITY
In addition to increasing the availability of smoke-free
products across markets, we must also ensure that our
portfolio includes products that are affordable to all adultsmokers, including those with lower purchasing power, ineach market so that price is not a barrier to switching fromcigarette smoking. Our vision of a smoke-free future canonly materialize if all adult smokers can afford to switch
to better alternatives and actually do if they don’t quit.

2025

A SPI R AT ION

>50%
42%

2021

42%

2020

39%
25

50

75

Some of our smoke-free products—such as our heated
tobacco products—require the use of electronic devices
together with consumables. These high-quality devices
rely on innovative technologies and involve significant
development and production costs to ensure that theymeet our science-based harm reduction objectives.

Our smoke-free consumables are of three types: thosethat can be used without a device (e.g., nicotine pouches),
those that require a device (e.g., heated tobacco units
or e-liquid cartridges), and those that are all-in-one (e.g.,
our disposable e-vapor product). Their price plays animportant role in determining consumer affordability.

To alleviate the cost barrier that some adultsmokers who would like to switch may experience,
we deploy various solutions, such as:

The recommended price of our consumables
depends on R&D, production, compliance, andcommercialization costs, as well as the excise taxation
regime in the countries where they are sold.

• Lending or refund: Initial provision of the device
so that consumers can try the product for adefined period before paying the full upfront
price, and refunding when consumers return thepurchased device depending on conditions

100

Note: Excluding PMI Duty Free. World Bank report issued in July 2022 is used
on a comparative basis for income level classiﬁcation. For deﬁnition of low- andmiddle-income markets, see Glossary.

• Extended life: Enhanced longevity of devices, which
lowers the average annual cost for the user while
also improving the ecological footprint of our devices(read more here). Further, an extended set of free
support services is available in boutiques, flagshipstores and authorized partners, such as professional
cleaning of devices, airflow checks, and firmware
upgrades. Our contact centers assist consumers
with their devices and ensure that their purchase iscomplemented by a best-in-class after-sale support.
In addition, our diversified portfolio of products
offers different price points to facilitate accessto scientifically substantiated heated tobacco
products for consumers in the low- and middleincome segments irrespective of their income.
A milestone in that regard was the launch at theend of 2022 of BONDS by IQOS in the Philippines
and Colombia. This device offers an opportunity
to address consumer acquisition barriers for thesesegments, including affordability and taste satisfaction,in addition to also serving existing IQOS users.
In parallel, we expanded the commercialization of lil
SOLID 2.0 introduced by IQOS in five new European
markets in 2022, a sign that our efforts to decrease thepurchase barriers for our devices are not only limited tolow- and middle-income markets, but can also cater toprice-sensitive consumers in developed geographies.

Looking at our most broadly available product, IQOS,
product costs of the heated tobacco units are, on
average, somewhat higher than those of cigarettes, due
to additional R&D, manufacturing, and commercialization
costs. However, another factor driving tobaccoand nicotine product retail price is the excise tax.
Taxing products according to risk is a strong demandmeasure that can contribute to behavioral change,and smokers switching to less harmful alternatives.
Accordingly, excise taxes on cigarettes generally
tend to be higher than on smoke-free products.
The combined effect of manufacturer costs and tax
differences is such that the price at which the consumer
buys heated tobacco units is typically below that ofpremium cigarettes—or can even be at the low end ofcigarette pricing. As of the end of 2022, we estimatethat our heated tobacco units are, on average, priced thesame as, or lower than, an adult smoker’s current cigarettebrand for 65 percent of smokers in the geographies
where we commercialize IQOS (2021: 58 percent).

Operational impact

Fundamentals

Reporting and performanceMarketing and selling
our products responsibly
Our marketing and sales policies and practices crystallize
our commitments to market all our products responsibly toincrease adult consumers’ awareness and understanding of
our smoke-free product portfolio, thus improving access,while minimizing the risk of unintended consequences.

63

Marketing Codes
Our Marketing Codes embody PMI’s commitment andlay the groundwork for responsible product development,
design, marketing, consumer engagement, and sales practices.
In May 2022, we published on our website two Marketing
Codes: one Code for Non-Combusted Alternatives andone Code for Combusted Tobacco Products. The Codes
are accompanied by internal implementation guidelines.
These Codes guide our marketing and sales
practices and are based on core principles:• We do not encourage people to start smoking, nor
do we discourage cessation of nicotine products• We do not want minors to use PMI products
and we do not market them to minors• We remind adult smokers of the health effectsof smoking and encourage those who would
otherwise continue to smoke to consider
switching to smoke-free products• We also transparently inform consumers of thebenefits of switching to our smoke-free products
and are clear about the fact that, while switching
to smoke-free products is a better choice thancontinued smoking, these products are not riskfree, contain nicotine, and are addictive• All advertising and consumable packaging for both
combustible and smoke-free products must have healthwarnings, even if the law does not require them

Reduce post-consumer waste

2022

0

Smoke-free consumables• Second-life: Remarketing of used products
collected and refreshed or repaired following
stringent standards (read more here)

Proportion of markets where PMI
smoke-free products are available for salethat are low- and middle-income markets

Product impact

Devices• Payment in installments: We are piloting“buy now pay later” solutions in certain
markets where purchase barriers can hinder
the access to our smoke-free products

SI

GovernanceSeek net positive impact
in wellness and healthcare

We have set a 2025 ambition for at least 50 percentof the markets where we commercialize our smokefree products to be low- and middle-income markets.
As of the end of 2022, our smoke-free products
were available in 30 low- and middle-income
markets, or 42 percent of the markets where wecommercialize them globally (2021: 29; 42 percent).

Strategy

Purposefully phaseout cigarettes

This means deploying inclusive solutions to meet theneeds of different segments of the population, accounting
for the economics of smoke-free products—which
are significantly different from those of cigarettes.

Overview

Maximize the benefitsof smoke-free products

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62

Philip Morris International — Integrated Report 2022

Employee and third-party training

Our Marketing Codes-related training includes
a global compliance e-learning, instructor-led
classroom, and online training sessions for our
employees as well as for third parties.

Monitoring and remediation

Self-assessments
Our Codes impose the implementation of a selfassessment program to evaluate the level of compliancewith the Codes at market level. In 2022, we designed
the first wave of such a program, piloted it in the second
quarter of the year and rolled it out in all our markets
in the fourth quarter. The scope of this first wave
focused on the level of compliance with the Codes’
requirements with regard to the implementation of amarketing governance forum at market level as well as
the requirements applicable to our consumer databases,
the systematic presence of PMI’s good conversion

Our Ethics & Compliance function investigates
potential incidents of noncompliance with applicablelaws, regulations, and PMI Policies, including PMI’s
Marketing Codes. In 2022, there were 14 violationsof our Marketing Codes by PMI employees (2021:
13). As a consequence of these violations, PMI took
disciplinary actions against these individuals, including
employment termination, suspension, written warning,and verbal warning or counselling, as appropriate.
Reviews by our Corporate Audit department in 2022
found that only a few affiliates experienced complianceissues related to marketing, and these issues were mainly
procedural. During the year, Corporate Audit conducted
16 audits covering 21 markets. Processes and controls
were reviewed in each of these markets, and membersof the Corporate Audit team visited a limited number ofpoints of sale to assess the steps taken to implement ourMarketing Codes. No significant issues related to youth
access were identified in the locations visited based on
the checks performed by the Corporate Audit team.
We have minimum contractual requirements relating tothe obligations of our trade partners or service providers
not to sell tobacco and other nicotine products to
consumers below legal age and conduct age verification
imposed by our Codes. Those were generally implemented
in accordance with the Codes’ requirements and we are
not aware of any breach that would have required thetermination of an existing contractual relationship.

Product impact

Operational impact

Fundamentals

Reporting and performance

Ensuring that our commercial activities reach the intended audience
Our commercial activities must strike the rightbalance between encouraging adult smokers
who would otherwise continue to smoke tocompletely switch to smoke-free products and at
the same time minimizing the risk of unintended
consequences, such as youth access, initiation, andrelapse back to tobacco or nicotine products.
As part of our premarket assessment governanceprocess for flavored products (described above),
we conducted 13 studies on our heat-not-burn ande-vapor products in seven markets in 2022, includinginterviews with more than 22,000 adults who were
not consumers of tobacco or nicotine products. The
results of those studies show very low intention to use
our smoke-free products among adult former users of
tobacco or nicotine products (between 0 percent and5.6 percent across the 13 studies) and adults who had
never used tobacco or nicotine products (between 0
percent and 3.3 percent across the same 13 studies).
We do not conduct studies involving individuals under
the legal age to purchase tobacco products. However,results of our studies among the youngest legal age
adults who were not consumers of tobacco or nicotine
products—those aged 18 (or higher, depending on
the legal age in the country) to 24—show a very low
intention to use our smoke-free products (between
0 percent and 3.3 percent across the 13 studies).
1 AlMoosawi S, Bajec M, Mainy N, Kallischnigg G, Zwisele B, Fischer K, Magnani P,
Roulet S. Risk perception of IQOS™ and cigarettes: Temporal and cross-country
comparisons. SSM Popul Health. 2022 May 17;18:101123. doi: 10.1016/j.
ssmph.2022.101123. PMID: 35669892; PMCID: PMC9162949

Preventing youth accessand use of our products
We have developed a holistic and comprehensive
approach to guard against youth access to our
products through a suite of measures.
These measures are deployed to ensure consumers are
age-verified across all access channels when attempting topurchase our products, including PMI-managed boutiques,
PMI e-commerce platforms, and third-party retailers
and online marketplaces. While the level of control wehave over these channels varies, it is critically importantthat we make every effort to guard against youth
access to our products regardless of the point of sale.

We also conduct post-market studies to understandhow our smoke-free products are used and by whom,
once made available for purchase in the market. Thesestudies are necessary to confirm the results of ourpremarket perception and behavior assessment studies,measure the extent to which adult smokers switch to
our smoke-free products, and monitor whether neverand former smokers use our smoke-free products. The
data from recent post-market studies conducted in
Asia and Europe involving over 5,000 legal-age adults
from the general population as well as about 1,000
legal-age adults from IQOS user samples confirm that
IQOS is reaching the intended audience (adult smokers)
and that IQOS use by adults who had never smoked or
had already quit using tobacco and nicotine products
is very limited. Specifically, the results in these markets
show that less than 1 percent of smokers initiatedtobacco product use with IQOS, and about 3 percent
of smokers relapsed to or re-initiated tobacco productuse with IQOS. Moreover, more than 98 percent
of IQOS users in these markets were already using
tobacco products when they switched to IQOS.
Finally, the results from our premarket perception
and behavior assessment studies conducted aspart of the scientific assessment of IQOS whichshow that adult consumer groups surveyed
understand that IQOS presents less risk thancigarettes but is not risk-free, are confirmed by ourpost-market studies (AlMoosawi et al., 2022).1

Specific requirements set in our Marketing Codes
to guard against youth access to our products
The global youth access prevention requirements
included in our Marketing Codes apply to all ourcommercial activities, even when not required by
local laws. These stringent standards, combined with
our responsible approach to marketing (in terms ofchannels and content) reduce the likelihood that our
products and related consumer communications
reach or are particularly appealing to youth.
A fundamental requirement is that a consumer’s age must
be verified before they can purchase our products—
ensuring they are of legal age to purchase or at least 18
years old (in markets without a minimum legal age).

65

Reduce post-consumer waste

We have a robust infrastructure in place for monitoring
compliance with our Marketing Codes, and provide
clarifications to functions or markets having questionsor queries regarding their implementation.

Internal monitoring

GovernanceSeek net positive impact
in wellness and healthcare

Around 76,000 people participated in at least one
Marketing Codes-related training session in the past
two years. Of this total, around 24,000 were PMI
employees and around 52,000 were third-party workers.
Training sessions in 2022 were focused on delivering
Marketing Code refreshers, including specific training
on youth access prevention to PMI salespersons
engaged in brand retail or in our contact centers aswell as Marketing Code training to new hires.

Results showed a high level of adherence and timely
implementation of the Codes’ requirements. Markets
observing deviations reported them together withremediation plan and timelines. For example, certain
markets had not fully completed the training program
imposed by the Codes or were behind schedulewith regard to the implementation of the Codes’
minimum contractual requirements. In accordancewith our policies, these results, action plan, andtimelines were escalated to senior management.

Strategy

Purposefully phaseout cigarettes

Our responsible commercialization efforts rely on theadherence and dedication to responsible marketing of
our employees and the third parties with whom wework. All PMI employees involved in our company’scommercialization activities must follow the Codes andbe trained on them at least every two years. Third parties
involved in commercialization activities (including agencies,
promotional staff, call center agents, and shop assistants,
among others) must also be trained at least every two
years on the relevant parts of the Codes and follow theportions of the Codes that relate to the role they perform.

practices where needed, and the conduct of ageverification in relation to the sale of PMI’s products.

Overview

Maximize the benefitsof smoke-free products

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64

Philip Morris International — Integrated Report 2022

Assessment of new flavored
product propositions

Also, as we lead an industry-wide transformation,
there is increasing competition in the marketplacewith regard to flavors, and their use plays an importantrole in PMI’s ability to remain competitive.
Our product portfolio is composed of a wide rangeof taste variants so that it can adequately cater toindividual adult consumers’ taste preferences.
PMI is committed to using flavors in a responsible way
and, as mentioned above, has implemented a central
governance process under which all new flavored
product variants are evaluated (i.e., heated tobacco
products, and since 2022 e-vapor and combustible
tobacco products). Under this framework, flavored
product propositions are assessed premarket to minimize
the risk that their introduction in the marketplace
generates unintended consequences, including
appealing to youth and other unintended audiences.

The assessment framework takes into account, among
other things, the flavor dimension of the product, how
the product will be labeled and marketed, and theregulatory and commercial environment. Moreover, ourflavored product variants are named in a way that gives
either no specific indication to consumers about theflavor direction (beyond tobacco, menthol or kretek) for
combustible and heated tobacco products, or is entirely
factual (e-vapor and oral nicotine product), avoiding namesthat could particularly appeal to unintended audiences.

Product impact

Fundamentals

Reporting and performanceC A S E S TU DYHeightened engagement with retailers
to minimize the risk of youth having
access to our products in Thailand
In 2022, our colleagues in Thailand set out to strengthen their youth
access prevention efforts. Through a series of third-party verification
exercises, called mystery shopping programs, they gauged retailers’awareness of local regulation on selling cigarettes to underage groups.
Learnings from this exercise helped enhance their YAP strategy andcommunications with the aim of reducing sales to minors.

Social media influencers
Since 2019, we do not use product-related digital
influencers and do not engage with or pay any
individual in exchange for publishing product-relatedendorsements on their social media channels. In
2022, we piloted a digital content creators’ programin a limited number of markets, relying on the youth
access protection measures that digital platforms haveinstituted over the past few years to help prevent
unintended audiences accessing content aimed at
adults. On the understanding that adult consumers
rely heavily on digital content platforms to research,learn about, and discuss a variety of products prior to
making purchasing decisions, the content of the pilot is
primarily intended for educating adult smokers on ourscientifically-substantiated smoke-free alternatives
and their switching journey. It is subject to strict
controls intended to prevent access by unintended
audiences. These controls include ensuring that any
content posted is only visible to those social media
users who have confirmed they are of legal age(minimum 18 years) to purchase. We also only selectcontent creators who are at least 35 years old, andwe pre-screen the demographic audience of theirfollowers to ensure they are at least 75 percent adult.
The pilot is intended to assess the viability of using
carefully selected, industry-relevant content creators(i.e., an individual who has a specific story to tell
about IQOS, based on their own individual experiencesuch as their conversion journey from cigarettes
to smoke-free products) to further accelerate theachievement of a smoke-free future, and we will
evaluate the results when they become available.

Operational impact

67

Read the case study here

B2B Youth access prevention—
engaging with our trade partners

B2C Youth access prevention—­
efforts in our owned channels

We do not own or control the vast majority of retail
outlets that sell our products: Around 99 percent of oursales occur outside our managed channels. We set robust
requirements and work with retailers to ensure they
understand why they should not sell nicotine-containing
products to youth. These measures complement the
local regulations for youth access prevention which
we comply with and that retailers must enforce.

At our brick and mortar brand retail outlets, any adultconsumer who wishes to purchase our products must
be age-verified by a trained salesperson. In 2022, whenselling our products online, we implemented online age
verification methods integrating latest technologies in
23 markets. When performing age verification online,
this requires that we leverage databases from reliable
and credible sources (e.g., government organizations,
telephone network operators, or banks) or scan
an uploaded copy of a person’s identity document
ensuring frictionless consumer experience. Where
the necessary technology is not available, or where aperson cannot be age-verified using either of thesemethods, alternative age-verification processes areapplied, which include face-to-face age verification ondelivery by couriers or at collection pick-up points.

Our youth access prevention (YAP) programs in indirect
retail channels combine guidelines and tools to help ouraffiliates work more effectively with their trade partners
to guard against sales of our combustible tobacco andsmoke-free products to minors. They are based on threepillars: (i) communication by our affiliates’ heads to thetrade partners reinforcing the YAP requirements set out
in our Marketing Codes, (ii) online or in-person training
sessions with retailers’ staff, and (iii) materials such as
stickers, banners, or leaflets placed at the point of sale.
We are committed to maintaining high coverage of
our shipment volume (minimum 90 percent) with YAP
programs in indirect retail channels. By the end of2022, markets representing 91 percent of our total
shipment volume were implementing such programs.

Mystery shopper programs remain an effective way
to monitor compliance with our responsible marketingand commercialization requirements. In 2022, wemoved to a decentralized approach to allow markets
to decide on the most appropriate way to achieve thisimportant compliance objective in the local context.

Reduce post-consumer waste

By design, smoke-free products do not burn tobaccoand therefore provide a different sensory experience.
They also often require a change in ritual. These
factors may deter adult smokers from considering
them as acceptable alternatives to continued smoking
or prevent them from completely switching andabandoning cigarette smoking altogether. Flavors
can help adult smokers overcome these barriers.

GovernanceSeek net positive impact
in wellness and healthcare

Requirements in our Marketing Codes also shape thecontent of our creative materials, ensuring, for instance,that they do not contain images of models who are, orappear to be, under age 25 or images of youth-oriented
celebrities. They also guard against product placement inplaces or channels frequented primarily by minors; thismeans that our advertising, marketing, and sales materials
are placed, for example, where the audience is reasonably
estimated to be at least 75 percent above legal age.

Strategy

Purposefully phaseout cigarettes

The methods used to age verify adult consumers varychannel by channel and market by market. For instance,for online sales of our products through a branded
website, which is operated by PMI, individuals may
be asked to upload a copy of their ID which we thencheck, or to provide certain personal data about themwhich we then use to verify that they are adult in a
reliable third-party database (such as one which may be
operated by a financial institution or government agency).
Alternatively, when purchasing in brand retail, an individual
will be age-verified visually by a trained salesperson,
and asked for a copy of their ID in case of doubt.

Overview

Maximize the benefitsof smoke-free products

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Philip Morris International — Integrated Report 2022

SI

Proportion of shipment volume coveredby markets with youth access prevention
programs in indirect retail channels
2025

A SPI R AT ION

>90%

2022

91%

2021

91%

2020

94%
25

50

75

100

Enhanced electronic
age-verification technology

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

69

We are preparing for important regulatory submissions in the U.S.—including Premarket
Tobacco Applications (PMTAs) for IQOS ILUMA in 2023.

Badrul Chowdhury
Chief Life Sciences Officer,
Smoke-Free Products

We will continue to gather and evaluate real-world data on IQOS, and executecomprehensive clinical studies investigating whether switching to a smoke-free productreduces the harm and risk of smoking-related diseases upon switching to IQOS.

We have ambitious plans leveraging the progress made to date, including continuing tobroaden access and improve our product portfolio.

Stefano Volpetti
President, Smoke-Free
Inhaled Products andChief Consumer Officer

Since our ambition set in 2019 to equip 100% of ourelectronic smoke-free devices with enhanced ageverification technology—which was viable at thattime—our smoke-free portfolio has significantly evolved
and expanded; and today, PMI offers a broad rangeof better alternatives to continued smoking in termsof technology, usage, taste, and price options acrossmultiple categories (electronic and analog). Due to thesefactors, our initial ambition has not been achieved.
However, we remain steadfast in our efforts towards ouraspiration to equip our electronic smoke-free portfolio
offerings—when and where commercially feasible andviable—with enhanced age verification technologies.

In particular, we reached an agreement with Altria in October 2022 to take full control of
IQOS in the U.S. as of April 30, 2024. During this transition period, we plan to invest in
IQOS to bring it to market at scale across the U.S., leveraging the proven capabilities of ourcommercial engine. We are preparing for domestic manufacturing and developing U.S.
sales, distribution, retail, consumer engagement, and support capabilities.
We will continue to broaden access to our heat-not-burn products through a multi-tierportfolio approach for both devices and consumables that covers a range of price points.
This can already be seen in Japan, where our two-tier heated tobacco unit portfolio for
ILUMA is driving overall share growth, with premium-priced TEREA and mainstream-priced
SENTIA each gaining share in 2022.
While pursuing our efforts to act on all drivers of access, we will continue to design and deploy
a suite of effective tools to ensure that our smoke-free products reach the intended audience:current adult smokers or users of other nicotine products who otherwise would not quit.
We will continue to monitor through premarket and post-market studies that our smokefree products encourage adult smokers to switch away from cigarettes, while minimizing
the risk of unintended consequences, such as youth uptake, initiation, or relapse backto tobacco or nicotine products. In particular, we will evolve our study approach
to better account for our expanded portfolio of smoke-free products, including
our e-vapor products.

During 2023, we will continue to develop and test
a range of enhanced age-verification technologies.
We will utilize these current and future learnings to
guide our ambitions and assess our targets, remaining
steadfast in our commitment to prevent accessto these products by unintended audiences.
Lars Dahlgren
President, Smoke-Free Products(SFP) Oral Products and
CEO Swedish Match

Swedish Match joining PMI in late 2022 means significantly enhanced prospects toprogress toward accelerating our common goal to make cigarettes obsolete. Following
PMI’s acquisition of Swedish Match, we will contribute towards the expansion of, andincrease in access to, smoke-free products as together we are now present in the large,
attractive, and growing U.S. smoke-free market. We will also drive accelerated global
expansion opportunities for Swedish Match’s oral nicotine products through
PMI’s international commercial infrastructure.

Reduce post-consumer waste

This specific form of device activation technology
required the consumer to be age-verified using a
reliable online database, in order to be able to unlock,and thereby activate the device prior to first use. If thedevice was not linked to an age-verified consumer profile,the device would then remain blocked and unusable.
Continuous learnings from our ongoing pilot in Corsica
highlighted that it is critical to ensure a simple andeasy to use mechanism for adult consumers to be age
verified, as well as to activate their devices. Moreover,
we learned that on the consumer conversion journey,an overly complex age-verification process would
represent a barrier in their decision to abandon cigarettesmoking and switch to a smoke-free alternative.

GovernanceSeek net positive impact
in wellness and healthcare

Beyond our existing responsible marketing programs, we
continue to look for, test, learn, and develop technology
to guard against unintended use, unintended access to
product information and purchase and prevent youth frominitiating nicotine use or using our smoke-free devices.
An example of this is our parental lock feature embedded
in our closed-tank e-vapor device, IQOS VEEV, where theadult user can choose to lock and unlock their device at
any time, via connected capabilities, to prevent unintended
use. Additionally, we continue to test proprietary device
activation technology embedded into our smoke-free
products, where technical capabilities at the device level
allow. Efficacy tests conducted during pilots in 2020
through 2022 confirmed that, fundamental to our ability
to scale the deployment of these novel technologies, isthe underlying local technical infrastructure (e.g., wideavailability of Wi-Fi networks, mobile data, reliable
and credible third-party databases) which are notably
relevant for low- and middle-income markets.

Additionally, we are continuously scouting emerging
innovation and credible age verification technologies
to ensure robust age control, while aiming to simplify
the adult consumer experience and reduce the time ofsuch efforts required by them. For example, in 2022 webegan testing the use of facial age verification software.
This is a solution certified by Age Check Certification
Services Ltd. In the U.K. that is already being applied
by a wide range of international companies acrossdifferent categories including banking and medical
services. Complementary to our existing third-party
age verification methods, this new method is aimed
to accelerate and simplify the user experience with ahigh level of robustness. This technology is currently
being tested in two markets to obtain additional
evidence of the solution efficacy in preparation foran anticipated scaled deployment in the future.

Strategy

Purposefully phaseout cigarettes

0Note: Total shipment volume includes cigarettes, heated tobacco units,
other tobacco products, e-cigarettes, and oral nicotine products.

During 2022, we launched additional pilots which
included testing of different user experiences, a suiteof online age-verification mechanisms, and various
methods to perform device activation. Secure and userfriendly age-verification technology is a novel advancein the smoke-free product category and requires strong
partnerships with information technology service
providers, as well as with the owners of various software
applications. Our teams continue to engage with theleading hardware and software players in these industries,
to ensure that the most robust and best-in-classtechnology is available for PM’s smoke-free products.

Overview

Maximize the benefitsof smoke-free products

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68

70

Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Purposefully phaseout cigarettes

Our priority is to address the health impacts
associated with smoking by offering smokefree, science-based alternatives that have been
proven to be a better choice than cigarettes
for those adults who would otherwise continue
to smoke.

Our intention is not only to develop, scientifically substantiate, and responsiblycommercialize smoke-free products to offer a better alternative to adult smokers, but tomake sure these products ultimately, and as soon as possible, replace cigarettes completely.
OUT WARD IMPAC T: The right thing to do

Despite being well on our way to delivering a smoke-free
future, we still have some distance to travel, as our
combustible tobacco product business still represents
the majority of our revenues. The operating cash
flows generated by cigarettes serve an essential role,
supporting ongoing investments in the growth ofsmoke-free products and in building new capabilities
in wellness and healthcare.

Even though selling off our cigarette businesswould make our company achieve its smoke-freeambition faster, it would not resolve the cigarette
problem—and indeed would risk exacerbating
the issue as a new owner would more likely befocused on maximizing cigarette consumption.

Our legitimate ambition to maintain market share in the
declining combustible tobacco product category does
not mean that we aim to continue selling cigarettes in
the long term. Our purpose is clear: our smoke-freebusiness is our focus area of growth, as these are theproducts needed to enable our transformation and,most importantly, to help make cigarettes obsolete.
Importantly, smoke-free products offer the prospect ofhigher and more sustainable returns than cigarettes overthe long term, as also recognized by the stock market
in our valuation premium to cigarette-focused peers.
The business case is thus crystal clear, with compelling
financial incentives for us to transform as fast as possible.

While contradictory on the surface, this is a necessary
trade-off that is vital to driving a successful industry
transition for the benefit of public health.
We are convinced that impactful and systemic change
can best be achieved by transforming from the inside
out, engaging constructively with different parts ofsociety, and ultimately influencing our entire industry
to follow our lead and adopt business models that alsoseek to completely replace cigarettes with smoke-free
products for those who continue to use nicotine.

We also recognize that PMI alone cannot achieve asmoke-free future. Such systemic change requires acollaborative, multistakeholder approach. In particular,
we are seeking to work with policymakers to ensurethat scientifically substantiated smoke-free products
replace cigarettes as quickly as possible for those
who continue to use nicotine. We are also actively
advocating for others in the industry to follow ourlead by transforming their businesses, phasing out
cigarettes, and reporting transparently on progressby adopting our Business Transformation Metrics.
In pursuing our vision of a smoke-free future, we are
eager to see measures introduced that drive large-scaleconsumer switching as quickly as possible. We areconfident that the right mix of government leadership andcommercial initiative would dramatically accelerate efforts
to reduce the health burden of smoking. We believe that,with the right regulatory encouragement and support
from civil society, cigarette sales can end within 10 to 15
years in many countries (see our Statement of Purpose).

Allocating our resourcesto smoke-free products
Our efforts center on the development of scientifically
substantiated, better alternatives to smoking andbroadening access to smoke-free products for adultsmokers who wouldn’t otherwise quit smoking. The
Maximizing the benefits of smoke-free products chapterof this report details our approach and the progressachieved to date on that front.
Our efforts have led to a continued rapid increase in
the proportion of our total net revenues represented bysmoke-free products, reaching 32.1 percent in 2022.
SI

Adjusted net revenue ratio(smoke-free/total)
2025

A SPI R AT ION

>50%

2022

32.1%

2021

29.5%

2020

24.2%
0

25

50

75

100

Note: For deﬁnition of net revenues related to smoke-free products, see
Glossary. 2022 ﬁgure includes Swedish Match net revenues from November 11, 2022
(acquisition date) to December 31, 2022. 2021 adjusted net revenues exclude theimpact related to the Saudi Arabia customs assessments.

Moreover, as of the end of 2022, smoke-free products
represented over 50 percent of net revenues in 17 of the73 markets where we commercialized them (2021: 10),and over 10 percent of the adjusted net revenues in 52of these markets (2021: 49).
Our transformation also translates to a shift in the compositionof our total shipment volumes. In 2022, we shipped a totalof 114 billion units of smoke-free products (2021: 99) anda total of 641 billion units of combustible tobacco products(2021: 645). The proportion of smoke-free product out of
our total shipment volume grew to 15.1 percent in 2022,
versus 13.3 in 2021. Meanwhile, our combustible tobacco
product shipment volume decreased by 26.8 percent
versus a 2015 baseline, with an aspiration to reach an
approximately 40 percent reduction by the end of 2025.
While the global cigarette category is in structural decline
our intention is to accelerate that decline by maximizing
access to better alternatives.

Reduce post-consumer waste

Staying competitive in the cigarette category during thisinterim period provides the infrastructure needed tosupport our smoke-free growth, allowing us to create afuture where cigarettes no longer exist. Notably, wherepermitted, it remains the primary way we can engage
and connect with adult smokers and trade partners toraise awareness of smoke-free products and explain
why they are a better option than continued smoking.
Handing market share to competitors and others is
unlikely to provide them with strong motivation to follow
our smoke-free lead.

Our aim is not only to make our company smokefree, but to make cigarettes obsolete. To achieve this,we will continue to responsibly and coherently sellcigarettes, taking a consistent, disciplined, and steadfast
approach to one day completely leaving them behind.

To achieve this objective, we are dedicating the vast
majority of our resources to commercializing our smokefree products (see our Business Transformation Metrics).

71

Seek net positive impact
in wellness and healthcare

INWARD IMPAC T: The business case

However, we do not believe it is enough to simply offer
more choice to consumers. Rather, we are seeking
to persuade adult smokers to switch to the better
alternatives now available and put cigarettes behind them.

Reporting and performance

Purposefully phaseout cigarettes

Approach and progressFundamentals

Maximize the benefitsof smoke-free products

PRO D U C T I M PAC T

Operational impact

Philip Morris International — Integrated Report 2022

SI

Smoke-free productshipment ratio (smoke-free/total)1
2025

A SPI R AT ION

>30%

2022

15.1%

2021

13.3%

2020

10.9%
25

50

75

100

Combustible tobacco productshipment volume (in billions)1
2025

A SPI R AT ION

<550
641

2021

645

2020

650
500

525

550

575

600

625

650

Smoke-free product shipment
volume (in billions)1
2025

A SPI R AT ION

>250
114

2021

99

2020

80
0

50

100

150

200

250

Reduction in combustible tobacco productshipment volume (billion units)
vs. 2015 baseline1
2025

A SPI R AT ION

~40%

2022

26.8%

2021

26.4%

2020

25.8%
0

25

50

75

100

Product impact

Advocating for appropriate regulation andtaxation to drive cigarette obsolescence

Staying competitive in the cigarettemarket while hastening its end

Regulation of all nicotine-containing products (including
both combustible tobacco products and smoke-free
products) is essential. We advocate for a comprehensive
and risk-proportionate regulatory framework that
acknowledges that not all tobacco and nicotine products
are the same. Regulation and taxation should subject
the most harmful products—those that combust
tobacco—to the most restrictive measures and should
encourage those adults who would otherwise continue
to smoke to switch to less harmful alternatives.

Despite being well on our way to delivering a smokefree future, we still have some distance to travel.
Maintaining our competitive position in the cigarettemarket during the transition period is essential.

Government action heavily influences how quickly
we can see an end to cigarettes. To expedite theprocess, regulators and public health authorities canensure that adult smokers have access to accurate
information about smoke-free products. They can
introduce product standards to ensure that only
scientifically substantiated smoke-free products arecommercialized. And, through risk-proportionate
regulation and taxation, they can provide the rightincentives to encourage adults who smoke andwould continue smoking to switch from cigarettes toalternatives that are scientifically substantiated to bebetter, thereby encouraging manufacturers to direct theirinvestments and R&D toward these better products.
We are encouraged by 2022 regulatory and fiscal
developments, where an increasing number ofgovernments have complemented, or committed tocomplement, traditional tobacco control measures(i.e., those intended to discourage smoking initiationand encourage cessation) with a harm reduction
approach (i.e., providing adults who would otherwise
continue to smoke with access to scientifically
substantiated smoke-free alternatives).
We continue to engage with governments, regulators, andlegislators to support the development of differentiatedlegislation and regulations that will enable adult smokers
to know about different nicotine-containing products
and their corresponding risk profiles compared with
continued smoking. In addition, we strongly support
regulation that helps accelerate switching to maximize
the benefits of smoke-free products while minimizing
unintended consequences, like access and use byunintended users, including minors and nonsmokers.
1 These indicators are calculated based on millions of units. For definition of smoke-free
products and combustible tobacco products, see Glossary. Smoke-free products
shipment volume includes volume of smoke-free products that can be converted into
cigarette equivalent units, such as heat-not-burn, e-vapor, and oral nicotine. Total
shipment volume includes the listed smoke-free products as well as combustible tobacco
products: cigarettes and other tobacco products expressed in cigarette equivalent units.
Data do not include Swedish Match and wellness and healthcare products.

It allows us to focus our commercial efforts on raisingawareness of—and informing adult smokers about—smoke-free products and the benefits of switchingversus continued smoking. As an example, it allows us
to deploy JustScan, a mobile digital platform allowing
adult smokers to access online content about smokefree products by scanning a QR code or using a weblink
typically featured on the cigarette pack itself or an insert(read more in the chapter on Maximize the benefits ofsmoke-free products). It also generates the financial
resources needed to continue investing in scientificresearch, product development, and the manufacture
and commercialization of smoke-free products.

Supply and demand measuresthat can accelerate change
We believe that a clear roadmap agreed by political,
regulatory, and public health stakeholders, supported
by both civil society and businesses, offers the bestprospect for further accelerating the end of smoking.
Such a roadmap may consist of elements addressing:• Increased investment in prevention, quitting
campaigns, and cessation services, with aparticular focus on vulnerable populations

Operational impact

Fundamentals

Reporting and performance

Looking ahead

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 cigarettesmoking 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 affectedin 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.
Jacek Olczak
Chief Executive Officer

Industry disruption only looks easy in hindsight. At present,
we are in mid-stride: with one foot in our past, operating
in a fiercely competitive legacy cigarette business, andone foot in our bold future, building an entirely novel
and improved category of products. We recognize themagnitude of the challenge and remain committed tocontinuing to lead, tracking progress,
and reporting on it transparently toensure that cigarettes become
obsolete as soon as possible.

• Measures to address adult smokers’ confusion
about the role of combustion and nicotine in
the development of smoking-related disease

Emmanuel Babeau
Chief Financial Officer• Regulatory and fiscal differentiation between
combustible tobacco products and noncombustible
forms of tobacco and nicotine, coupled withrobust safeguards against unintended use

Cigarettes continue to represent a sizeable portion of
our volumes and an opportunity to engage with adultsmokers around better alternatives than smoking. We arecommitted to selling them responsibly while transitioning
to smoke-free products. We will continue
implementing our youth accessprevention efforts globally andinvestigate ways of strengthening
their enforcement.

• Post-market monitoring and surveillance
to assess public health outcomes andthe impact of policy interventions• Phase-out measures that help to achievecountries’ set smoke-free targets• Post-phase-out support for adultsmokers who still continue smoking• Robust anti-illicit trade policies

73

Werner BarthPresident, Combustibles Category
and Global Combustibles Marketing

Reduce post-consumer waste

2022

GovernanceSeek net positive impact
in wellness and healthcare

2022

Strategy

Purposefully phaseout cigarettes

0Overview

Maximize the benefitsof smoke-free products

P U R P O S E F U L LY P H A S E O U T C I G A R E T T E S

72

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Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Seek net positive impact
in wellness and healthcare

OUT WARD IMPAC T: The right thing to do

As described in our Statement of Purpose,the critical next step in PMI’s transformationis leveraging our expertise and capabilities toexpand into products beyond tobacco andnicotine as part of a natural evolution into a
broader wellness and healthcare business.

Researching and developing smoke-free alternatives
that are scientifically substantiated to be lessharmful than cigarettes was the first step in ourjourney to address our biggest negative externality:
the impact of cigarette smoking on health.
In the process, we have expanded our social, human,
intellectual, and manufactured capital in ways thatallow us to move from a value proposition centeredon doing less harm toward one where we canseek to have a net positive impact on society. The
aim now is to use this capital to develop adjacentavenues of growth in wellness and healthcare.

Although we are at the beginning of this journey, ourintention is set: we are working towards furthering thetransformation of our company and our deep belief
in the opportunity these adjacent avenues of growth
can bring in the long term, leveraging our ability tomonetize the skills and assets we have accrued anddeveloped during the process of our transformation.

PMI’s investment and innovation approachin the wellness and healthcare space is partof a larger transformation that puts science,technology, and sustainability at the heart ofour company’s future, delivering products andsolutions that aim to improve people’s lives anddeliver a net positive impact on society.
To achieve this objective, we will rely on andexpand upon our existing core capabilities,
and seek partnerships with entrepreneurs andcompanies that have the proper experienceand credibility in relevant fields.

Management
In early 2022, we defined Vectura Fertin Pharma’s
operating model. We established the leadership teamfor this new business, the organizational buildup,
decision-making, and scientific governance, as well as
key processes. Vectura Fertin Pharma is operationallyseparate from other businesses owned by PMI.
This means that the business has its own executive
leadership team overseeing day-to-day operations
and a dedicated governance for projects. The
business is headed by the President of Vectura Fertin
Pharma, although it is collectively delivered with the
Vectura Fertin Pharma leadership team, the Vectura
Fertin Pharma employees, and a strong investment
by PMI to enable the buildout of this business. Its
operational model is based on product categories,
led by its category leads. The governance of Vectura
Fertin Pharma is designed to enable efficient deliveryof the product pipeline and comprises stage gate
review committees, scientific advisory boards, andfunctional review boards. Furthermore, revenues
generated by Vectura Fertin Pharma are reinvested
into its wellness and healthcare business.

Inhaled therapeutics: Developing theseproducts uses our expertise and experience indevice technology for medical applications anddelivery and scientific assessment of aerosols,
including preclinical safety and toxicology, clinical,
medical, regulatory, and quality capabilities.

2. Consumer health: Moving into consumer
health products will enable us to address
benefit areas such as “energy with purpose”.
In addition to therapeutical applications, weare also evaluating cannabinoids for consumer
health starting with CBD offerings, applying
our expertise in assessing efficacy and safety ofnovel oral delivery formats, inhalation scienceand technologies, and plant substrates.
3. Nicotine replacement therapies: There isan unmet need in the nicotine replacement
therapy market, which, combined with ourexisting expertise and ability to innovate,
positions us well to play in this market.
4. CDMO: Based on our unique technologies,
delivery platforms, and capabilities, we are
striving to grow our CDMO business in bothoral and inhalable solutions, and to expand
it geographically.
Our business model for wellness and healthcare is notnecessarily to pursue or internalize the entire value chain,from drug identification and upstream development todownstream commercialization. Instead, our aim is to use
our technology platforms to rethink and reposition existing
medication and consumer health products to address someof today’s unmet needs. Our skills in device and formulation
development, and our delivery capabilities will be at thecenter, together with our experience in product assessment.
For skills we do not have, we will partner, outsource, andorchestrate an ecosystem to bring products to market.

Reduce post-consumer waste

Leveraging our company’s expertise in aerosol
chemistry and physics, best-in-class preclinical safety
and toxicology and clinical research, and continued
investments in capabilities and R&D programs,
we are developing innovative and differentiatedproducts for unmet patient and consumer needs.

Vectura Fertin Pharma is centered on health,science, and technology to deliver innovative, bestin-class or first-in-class products and solutions thatare safe to use and can improve people’s lives.

1.

Seek net positive impact
in wellness and healthcare

INWARD IMPAC T: The business case

To complement our in-house science and innovation
capabilities, we acquired three innovative and forwardlooking companies in 2021 (read more in our Integrated
Report 2021). In March 2022, we launched a newwellness and healthcare business consolidating these
these three entities into Vectura Fertin Pharma. Vectura
Fertin Pharma brings together Vectura’s expertisein inhalation delivery systems used for prescription
drugs, Fertin Pharma’s leadership in oral and intra-oraldelivery systems, and OtiTopic’s inhaled aspirin asset.

We are aiming to deliver new innovations in fields
where a clear unmet medical or consumer needexists. We are focusing on specific opportunities inselected business areas, which comprise two growth
categories—inhaled therapeutics and consumer health,as well as two additional business areas—nicotine
replacement therapies and our Contract Development
and Manufacturing Organization (CDMO).

Purposefully phaseout cigarettes

Striving to become a company that has a net positive impact on society,
we are expanding our offerings to include products that will address criticalunmet consumer and patient needs within the wellness and healthcare space.

PMI has developed a strong foundation andsignificant expertise in life sciences—particularly
with product formulation, aerosol chemistry
and physics, device technology, clinicalresearch, and best-in-class preclinical safety
and inhalation models—gained during ourtransformation journey.

Maximize the benefitsof smoke-free productsManagement approach

PRO D U C T I M PAC T

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Philip Morris International — Integrated Report 2022

Progress in 2022

SI

Annual net revenue from wellness andhealthcare products (in billions USD)

≥1

2022

0.3

2021

0.1
0.6

Operational impact

Fundamentals

Reporting and performance

0.8

1

Note: For deﬁnition of net revenues related to wellness and healthcare,see Glossary. 2021 ﬁgure includes portion of net revenues reported after
acquisition of Fertin Pharma A/S, Vectura Group plc. and OtiTopic, Inc.
that took place in the third quarter of 2021.

Developing products aimed
at improving people’s lives
Vectura Fertin Pharma continued the organizationbuildup across its business categories alongsideongoing product development activities.
In inhaled therapeutics, the newly created teamexecuted the planned development of the inhaledaspirin product. The achieved milestones include thestart of pivotal clinical trials (Phase III) and launch ofactivities to prepare the commercialization engine.

In the neuropathic pain indication, Vectura Fertin
Pharma is working with a third party on an inhaled
drug-device combination, progressing work on the early
development pathway towards clinical proof of concept.
Vectura Fertin Pharma’s Consumer Health category isdeveloping “energy with purpose” dietary supplements,
as well as oral and inhalable CBD solutions, with the aim
to commercialize them using a partnership approach.
To make full use of PMI’s scientific expertise, we
decided to integrate the Singapore-located PMI
research laboratory, with its inhalation toxicology andsafety capabilities, within Vectura Fertin Pharma’s
inhaled therapeutic’s CDMO business, to form a
global one-stop-shop inhalation service provider. This
strategy will enable us to drive revenue growth andpursue co-development and business opportunities
that were not previously available to us.
Another area of interest is smoking cessation products,
known as nicotine replacement therapies (NRT). As
the NRT market holds significant potential for growththrough innovation, we see an opportunity to provide
more effective solutions via consumer, over-thecounter (OTC), and prescription pathways over time.
With over 200 patents and a dedicated science center,
Vectura Fertin Pharma’s ability to innovate a superior
product line means that it has the potential to radicallychange and disrupt the market as it stands today.

Venture funding
PM Equity Partner Sarl (PMEP), the corporate
venture capital arm of PMI, was launched in 2016
and, to date, has committed USD 350 million tobuild and develop a portfolio of minority strategic
investments, from early to growth stage companies
aimed at supporting and delivering our smokefree vision and beyond nicotine objectives. PMEP
invests across four main corridors, including:• Wellness and healthcare• Inhalable therapeutics• Reduced-risk products• Impact investing
Read more about PMEP here.

Jorge Insuasty
President, Vectura
Fertin Pharma

Vectura Fertin Pharma’s aim is to be a leader in the health and wellness space bydeveloping a pipeline of proprietary products that we can commercialize. This is an
unprecedented endeavor for our company. It requires once more a shift in mindset,
business model, and ways of working. It also means accepting a very different risk profile
from an investment perspective, as well as probability of success, and requires us todirectly compete with incumbent players that have significant experience and resources.
In 2023, we will continue to drive our technology platforms and DMO business, so that
we can invest in our proprietary pipeline. We will also work with partners to develop
new products.

77

In health, we are focused on products targeting areas of high unmet medical
need in two disease areas: cardiovascular and neurology. In the future, we willconsider expanding into other areas where we see strategic opportunities.
In wellness, a high growth sector, we are looking to develop high-quality, consumerappealing products directed at “energy with purpose,” helping consumers enhance
daily activities such as sleep and work. In 2023, we are focusing our efforts in the
U.S. market, where we believe the biggest opportunities lie. We are also developing
best-in-class oral formulations of nicotine delivery as nicotine replacement
therapy in certain markets, and exploring the opportunity to enter the cannabinoid
space for consumer health, an area we believe holds significant potential.
Our ambitions for Vectura Fertin Pharma will evolve as we develop our productportfolio and pipeline. In the immediate term, we must demonstrate our ability
to deliver and to bring the first product to market. Ultimately, our goal is tocreate a sustainable, long-term business, develop products that improve people’s
lives, and be a strong and successful part of the PMI transformation story.

Reduce post-consumer waste

A SPI R AT ION

0.4

Product impact

Seek net positive impact
in wellness and healthcare

Despite these headwinds, net revenues related towellness and healthcare products amounted to USD 0.3
billion in 2022. They primarily consisted of operating
revenues generated from the sale of inhaled therapeutics
and oral and intra-oral delivery systems through the
CDMO or co-development business. In parallel, Vectura
Fertin Pharma has re-evaluated the development of its
proprietary pipeline assets to ensure that it is focusing its
resources on projects with a high probability of success.

0.2

GovernancePurposefully phaseout cigarettes

Since the inauguration of Vectura Fertin Pharma in 2022,
it has consistently refined its business and portfolio
strategy, based on lessons learned, advice from its
scientific advisory board, and the current macroeconomic
challenges and business headwinds it is facing.

0

Strategy

Looking ahead

Vectura Fertin Pharma is currently developing
a pipeline of products so that at least USD 1
billion in net revenues is generated by PMI’s
wellness and healthcare business by 2025.

2025

Overview

Maximize the benefitsof smoke-free products

S E E K N E T P O S I T I V E I M PA C T I N W E L L N E S S A N D H E A LT H C A R E

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Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Our intention is to preserve resources,
reduce waste, and prevent inappropriate
disposal, including littering.

Reduce post-consumer waste
We understand the need to address the environmental impact of our products inaddition to their health impacts. We do this by embedding principles of circularityand eco-design, implementing effective post-consumer waste management solutions,addressing litter, and promoting responsible disposal of products at their end-of-life.

OUT WARD IMPAC T: The right thing to do

Many consumers consider the environmental
impact of products and services in their purchasedecisions. Regulators are also increasingly focusing
on corporate responsibility for use of materials suchas plastics, as well as for product repairability andend-of-life management. Appropriately addressing
post-consumer waste helps us enhance our brandequity and company reputation and meet consumer
expectations. It also allows us to mitigate implications
for our bottom line, as producers increasingly are
asked to participate in cleanup costs, for instance.

Reducing and appropriately managing postconsumer waste means that we can extract, convert,
and use fewer raw materials from a planet withlimited natural resources. This includes materials
used in packaging, combustible products, smokefree consumables, and electronic devices. Thiscan reduce our plastic and carbon footprints anddecrease our impact on the planet and society.

• Smoke-free electronic devices: To reduce thedepletion of finite resources, we are integrating
sustainability into the early stages of product design
to improve recyclability, resource efficiency, andrepairability. These measures will help increase
opportunities to refresh and repair used devices. By
extension, we will continue to look for opportunities
to use recycled materials in our products.
• Packaging: We strive to minimize packaging
materials and improve their circularity by designing
for recyclability and promoting the use ofmaterials made from renewable resources.

Addressing cigarette butt littering

80

PMI’s policies and standards

Managing waste from our smoke-free consumables

84

Environmental Commitment

Improving sustainability of our smoke-free devices

86

Reducing and improving packaging

90

Anti-Littering Policy
Sustainable Design Framework

PMI’s 2022 plastic footprint(percentage)

Cigarette filters

57.3%

Heated tobacco
unit filters

22.0%

Packaging

19.4%

Electronic devices

1.3%

Note: Plastic footprint is calculated
excluding nicotine pouches ande-vapor disposables.

Management
Our President of Smoke-Free Inhaled Products& Chief Consumer Officer and our President of
Combustibles Category & Global Combustibles
Marketing are responsible for driving our agenda
on post-consumer waste management for theirrespective categories. Additional efforts on productdesign and increased circularity are steered crossfunctionally, involving teams headed by our Chief
Product Officer and Senior Vice President Operations.
With regard to our smoke-free products, we have a
dedicated cross-functional governance board, which
oversees strategies and progress related to our device
life extension and consumables end-of-life programs.

Reduce post-consumer waste

Consumer expectations and regulatory trends also
provide us opportunities: motivating us to innovate
in a way that can drive competitive advantage bydevising more circular value chains. These value chainsare linked not only to less waste and less litter but
also to better use of materials and higher operational
efficiency—all of which are good for our bottom line.

Moreover, committing to the safe and responsible
disposal of this waste addresses society’s concerns
regarding the impacts of litter. Among others, there
are concerns over the pollution resulting from plastic,
tobacco, and other materials such as metals, potentiallyresulting in harm to wildlife and humans alike. We
recognize our role in designing better products andworking to protect nature and preserve the environment.

• Smoke-free consumables: As we grow our smoke-freebusiness, we seek to ensure that the consumables usedwith our electronic devices, as well as our disposable
vaping devices, are disposed of responsibly at their endof-life and that users have access to end-of-life takeback programs for smoke-free consumables. Further,
we strive to design new generations of consumables
that address plastic reduction and recyclability.

As a global manufacturer, we source plastic
materials and plastic-containing items for products
such as the filters in our heated tobacco units andcigarettes, devices, and packaging. Approaches toreducing plastic cut across our product categories.
Globally in 2022, we purchased approximately
140,000 tons of plastic. The largest share wasbioplastics used in the filters of cigarettes andheated tobacco units. Learn more about our plastic
reduction activities on the following pages.

Seek net positive impact
in wellness and healthcare

INWARD IMPAC T: The business case

• Cigarettes: We aim to reduce cigarette butt
littering by encouraging behavior change throughimpactful awareness-raising campaigns and byempowering consumers to dispose of cigarette butts
appropriately. We also intend to tackle the issue
at the source, continuously working to replace theplastic in filters with more sustainable alternatives.

Striving to reduce plastic

Purposefully phaseout cigarettes

To reduce post-consumer waste across ourportfolio, we seek to design and implement
impactful strategies tailored to our various products
and packaging and tied to specific targets:

79

Maximize the benefitsof smoke-free productsManagement approach

PRO D U C T I M PAC T

In this section

Overview

Philip Morris International — Integrated Report 2022

Progress in 2022
Highlights

We set a mandatory requirement for markets
to establish end-of-life take-back programsfor smoke-free consumables when launchingconsumables for VEEV and IQOS ILUMA products
and VEEBA e-vapor disposables in order tominimize their environmental impact.

Our combined efforts in material optimization in
2022 led to significant reductions in the volumes of
cardboard and plastics used across our packaging
for consumables, devices, and accessories.

We are yet to find a suitable material meeting
necessary criteria to replace cellulose acetate (CA)in our cigarette and heated tobacco unit filters inorder to reduce our plastic and carbon footprint.
Since they are a new product category, smokefree electronic devices are not covered by existing
eco-design certification standards, which can delay
progress toward the certification of our products.
We need to intensify efforts to increase refresh,
repair, and recycling of smoke-free electronic
devices within existing complex regulation
norming the transport and management ofelectronic waste and considering challenges
to identify local recycling partners.
We continued to convert our nonrecyclable
inner liner systems, such as laminated aluminum
paper, to recyclable alternatives where local
regulation allows. The remaining portion for fullconversion initially planned in 2022 was delayed
due to supply chain and local market challenges;
we anticipate to complete it in the coming years.

Sustainable design: Invest in R&D toward filters
made of plastic-free alternatives.
2. Encourage behavior change: Inspire change in
consumer habits through impactful anti-litteringawareness programs and initiatives to empower
consumers to dispose of cigarette butts properly,
regardless of filter materials. These initiatives
include communications campaigns and cleanup
activities to raise awareness, partnerships, portabledisposal solutions, and improvement of public
equipment solutions.

1.

Sustainable design
From an environmental perspective, the ideal andmost sustainable scenario would be for our products
to generate zero litter post-consumption. We continue
to work toward this aspirational goal, seeking design
options that avoid, or at least significantly reduce,
the polluting impact of litter. Our intention is todevelop filters with a significantly lower environmental
footprint. We are aware that materials changes alone
will not solve the littering problem, but they may
help mitigate the environmental impacts of residual
littering by those consumers who do not engage inbehavioral change driven by anti-littering programs.
We evaluate alternative filter materials via
extensive analytical testing, machinability trials,
and prototype testing among consumers tounderstand their acceptability.
Any new nonplastic filter material or design
must satisfy the following criteria:• Comparable filtration efficiency and performance
consistent with cellulose acetate (CA) filters• Acceptable taste characteristics andexperience for consumers• Similar or reduced material carbon
footprint compared with CA filters• Favorable to industrialization at scale

Product impact

Focus on filter materials
Tobacco product filters are traditionally madefrom cellulose acetate (CA), a bio-based material
considered to be one of the world’s first plastic
materials made using wood-based cellulose. The
material is also used in many other applications indifferent forms, such as in eyeglass frames, textiles,
and medical consumables, among others.
There are different scientific views about theenvironmental impact of CA, including the sustainabilityof feedstock, footprint, and end-of-life. In response
to consumer demands for alternatives to singleuse plastic across many markets and industries,
and policy shifts supporting such changes, PMI
continues to research the development of moresustainable, nonplastic alternatives for our filters.

In the past, some tested materials have met one or moreof these criteria, but we are yet to find an alternative
to CA that satisfies all of them. We will continue toexplore and test options as new materials and processes
become available, and science and innovation evolves.
In 2022, we accelerated our efforts to develop
different plastic-free filter prototypes composed ofmaterials and technologies which are classified as
nonplastic according to EU guidelines (associated with
the Single-Use Plastic Directive), and we have tested
some of them with consumers in multiple markets.
The results have encouraged us to further invest in
this endeavor and key learnings from these efforts
are helping us focus our efforts moving forward.

Encourage behavior change
While many consumers dispose of their cigarette butts
properly, too many of them end up in the environment.
We believe that to change this reality consumers
need to be more aware about the environmental
impacts of littering and, specifically, about the natureof the cigarette filter. Consumer insights data from
10 markets1 show us that only about one-quarter ofadult smokers are aware that CA is one of the main
constituents of cigarette filters and only about halfof them mention either the cigarette filter or theplastic wrap outside the pack as main pollutants.

1 Based on claimed response as part of PMI cigarette butt littering impact knowledge
check in France, Indonesia, Japan, Kuwait, Netherlands, the Philippines, Poland, Saudi
Arabia, Spain, and Switzerland.

Operational impact

Fundamentals

Reporting and performance

Biodegradation is often discussed as a solution toaddress the problem of the accumulation of litterin the environment. We acknowledge that current
standards for measuring biodegradability do notnecessarily reflect real-world conditions, and therefore
the ability to demonstrate the overall value of
biodegradation to address the problem of littering.
As science-based policies evolve, we will seek toalign our R&D activities that explore the viability ofalternative tobacco product filter materials with them.
Beyond these R&D activities, we will remain focusedon driving consumer behavior change to prevent
cigarette butt littering and implementing end-of-lifetake-back programs for our smoke-free consumables.

To drive behavior change we therefore need tocontinue focusing on raising awareness and ensuringthat littering is considered unacceptable. This requires
us to develop and implement actions that respondto local realities and the socioeconomic and cultural
specificities of the various places where we operate.
In 2022, we analyzed a range of solutions and created ananti-littering toolkit for markets focused on two aspects:
Reach activities focus on passing along
the message directly to consumers, mainly
using our own channels. Examples include
on-pack and point-of-sale messaging.
2. Impact activities involve initiatives to raiseawareness of the issue beyond the consumers ofour brands and develop solutions in partnershipwith civil society organizations, local governments,and other stakeholders. Examples include corporate
communication campaigns, initiatives to identify
litter hotspots and improve public infrastructure,making portable ashtrays available, etc.

81

1.

In order to meet their objective, our markets will deploy
at least one reach and one impact activity each year.
We are making strong progress toward our 2025
aspiration of 80 percent weighted coverage, within
regulatory restrictions.

Reduce post-consumer waste

Challenges

To tackle cigarette butt littering, we center our work
along two pillars:

GovernanceSeek net positive impact
in wellness and healthcare

The expansion of IQOS ILUMA in 2022 translates
into continuously improving device longevity
and lower return rates. In parallel, we continued
building our capabilities and accelerated our efforts
to refresh and repair used smoke-free devices,and we re-marketed them in nine markets.

Although most cigarette butts are disposedof properly, too many are casually litteredinto the environment.

Strategy

Purposefully phaseout cigarettes

Understanding that meaningful progress canonly be achieved on the ground, we reinforced
our guidance to markets to help them develop
and implement impactful end-of-life take-backprograms for smoke-free consumables and to
deploy cigarette butt anti-littering programs.

Addressing cigarettebutt littering

Overview

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

80

Philip Morris International — Integrated Report 2022

SI

Proportion of shipment volumes coveredby markets with anti-littering programs inplace for combustible cigarettes
A SPI R AT ION

2025

≥80%

2022

68%
0

25

50

75

100

It is important for us to tackle anti-littering with global
campaigns and activities to address the issue on a larger
scale and have a greater impact. We seek to educate
and engage employees, relevant external stakeholders,
and local communities in efforts to reduce littering, toensure consistency and coordination in our efforts,
leading to more effective and efficient use of resources.

We also continued to host “Our World Is Not an Ashtray,”an online corporate platform to educate, inspire, andengage the public on the issue of littering. Throughthis campaign, we share facts and figures, testimonials,
and calls to action. A few of our affiliates also use thisplatform as a basis for local awareness-raising initiatives.

We understand that scalable solutions require the rightkind of partnership, collaborating with industry peers,
working with anti-littering organizations, and engaging
with public authorities. With the learnings from thesebest practices, we aim to expand the activities beyond
the local level to global campaign and initiatives.

Single-Use Plastics Directive
In the EU, cigarette manufacturers will be required
to contribute to the costs of collecting and cleaning
up cigarette butt litter. The Single-Use Plastics (SUP)
Directive requires that producers participate inindustry-wide Extended Producer Responsibility(EPR) schemes. EPR is an established governancescheme for circular waste management; it is now
being used for the first time in the EU to address
the problem of littering. We support the conceptof an industry-wide EPR, provided such schemes
are managed in a cost-efficient, proportionate, andtransparent way that addresses the objectives of
reducing litter and changing consumer behavior.

Product impact

Operational impact

Fundamentals

Reporting and performance

Bulgaria

MexicoPM Bulgaria launched an ongoing national campaign
in 2021, which includes a range of awarenessraising activities such as public information boards incollaboration with nongovernmental organizations(NGOs) and art festivals, out-of-home visuals at 50 BlackSea beaches, and engagement with traditional nationaland regional media channels and online media outlets.

Since 2019, Philip Morris Mexico (PMM) has
moved beyond awareness-raising in anti-littering
campaigns by piloting an option to recycle
cigarette butts with a local start-up called Ecofilter(read more in last year’s case study here).

In 2022, the campaign once again generated media
coverage in national and regional media, helping uspass along the anti-littering messages to more adultsmokers and raise interest from NGOs for potential
collaboration with our affiliate in the future.
Italy
An awareness campaign on environmental protection
with particular focus on cigarette butt littering
was launched in 2019 on the coast of Sicily andexpanded to over 35 cities in 18 of the 20 regions in
Italy. Over the years, the campaign has evolved andexpanded the scope of its environmental mission,and it gained recognition from important Italian
institutions. The goal is to encourage the adoptionof appropriate behavior for smokers, creatingawareness of cigarette butt pollution, and making
thousands of portable ashtrays available to smokers.
From June to November 2022, more than 300,000
portable ashtrays were distributed across approximately
400 points of sale. Cleanup education activities
across six cities and communication campaigns onsocial media channels raised awareness on the proper
way to dispose of cigarette butts. This work wasdone in partnership with two major environmentalorganizations. Read more in this market story.

In 2022, PMM and Ecofilter jointly deployed acomprehensive strategy by enabling infrastructureand equipment in highly populated public spaces
nationwide, bringing people together to collectcigarette butts with nationwide activation work,
resulting in more than 160 collection events in 2022.
They used a countrywide awareness campaign
intended to drive behavioral change that can leadto the appropriate disposal of cigarette butts, theircollection, and where and how to contact Ecofilter’sambassadors nationwide to trigger a recycling
process. PMM also began assessing the feasibility ofthe technology for deployment beyond Mexico.
Nordics
Our efforts to raise awareness focus both on specificlittering hot spots—such as high-traffic urban areas,squares, and parks identified as priorities by local
authorities—and on reaching significant numbers ofconsumers to drive societal change. Insights gatheredfrom our litter prevalence assessment in 2021 helped
further guide our work, allowing us to strategically focus
on those areas with the highest incidence of littering.
For example, PMI developed portable ashtrays
which were branded, marketed, and sold by partner
NGOs and directly to retailers in 2019 in our Nordic
markets. The portable ashtray is a cheap, simple,
and reusable solution that stubs out cigarette butts,
prevents odor from leaking, and can contain up to
15–20 butts. In 2022, more than 160,000 portable
ashtrays were sold at indirect retailers across four
markets (Denmark, Finland, Norway, and Sweden).
In addition, we built on this project to see how it
could be more widely utilized across other markets.

83

Reduce post-consumer waste

Over 2,000 employees in over 60 countries participatedin the challenge as part of PMI-driven activities. We once
again partnered with Litterati, an app which uses datacollection to develop patterns and find long-term solutions
to littering; participants used the app consistently overthe challenge to raise their own awareness around
littering in their local communities. We estimate that
we reached over 10,000 people globally, including our
employees, their relatives, and partner organizations.

In this section, we have highlighted a handful of
examples from markets that have introduced reach andimpact activities. They serve as examples of what local
initiatives can look like and collectively address all levels,from on-the-ground activations, local partnerships,
experts, and trade partners to local authorities andonline campaigns. We believe that markets that
activate this multilevel campaign approach have an
increased chance of reaching the desired outcome
to change the socially acceptable habit of littering.

GovernanceSeek net positive impact
in wellness and healthcare

Cleanup campaigns are predominantly designed toraise public awareness of the littering problem in thecommunities in which they occur rather than resolving
the problem of littering or replacing more cost-efficientpublic cleaning services. In 2022, as part of our annual
mobilization around World Cleanup Day—the world’s
largest litter cleanup event—we expanded our employee
engagement by adding a digital learning component, in
addition to physical cleanups planned across many of ouraffiliates. Employees were invited to join a multi-weekchallenge designed to raise awareness on our holistic
approach to reducing post-consumer waste acrossall our product and packaging streams. Our affiliates’
participation in this global action is part of our public
sensitization efforts and demonstrates our broader
aspiration to tackle the issue of cigarette butt littering.

Global campaigns and activities to raise awareness andreduce littering are driven by individual markets, which
may have unique challenges and opportunities related
to the issue. For example, smoking habits, environmental
awareness, and disposal practices vary by country.
By allowing markets to drive their own activities, we
can ensure that the efforts are tailored to the specificneeds and circumstances of each market and are more
likely to be successful. Our affiliates therefore follow a
global methodology, while also focusing on impactful,context-based strategies appropriate for their respective
markets. These local anti-littering campaigns are run
by our affiliates, with central support and guidance.

Strategy

Purposefully phaseout cigarettes

Raising awareness globally

Tackling the issues of cigarettebutt littering locally

Overview

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

82

Philip Morris International — Integrated Report 2022

Managing waste from oursmoke-free consumables

Our findings suggest that a heated tobacco unit ison average three times less likely to be littered than acigarette butt.

We seek to minimize the environmental
impact of the main consumables usedin our smoke-free category.

Deploying end-of-life take-back programs

The consumption and post-consumption behaviors
related to our smoke-free products differ drastically fromcigarette consumption. Unlike cigarettes, HTUs, pods,
and disposable products do not require combustion to
be consumed; in turn, they do not need to be stubbed
out after use, and they do not contain smelly smoke
residues. Because of this, consumers are more likely tohold on to it post-consumption and keep it until they
can dispose of it properly. As a result, the likelihood of
littering is less compared to cigarettes. We have run
surveys over the past several years in key markets tomeasure the proportion of HTUs versus cigarette butts
found on the ground. In partnership with third-party
experts at Cortexia, we then compared that figure withthe market share of HTUs versus all tobacco products.

Product impact

Operational impact

Fundamentals

Reporting and performance

Addressing the impacts of our disposable VEEBA products

To mitigate the risk of littering, we set a goal as partof our revamped 2025 Roadmap to reduce postconsumer waste and prevent littering by implementing
comprehensive programs covering our smoke-freeconsumables. To serve this goal, we set an aspiration to
implement context-based, impactful end-of-life takeback 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 as part of our Sustainability Index.
The programs align with global requirements toensure consistency and comparability over time but
are adapted to deployment realities in each market.
SI

Whereas e-vapor disposables, similar to refillable orother reusable e-vapor products, offer adult smokers
who would otherwise continue to smoke anothersmoke-free alternative to cigarettes, their singleuse nature should lead producers to offer programs
allowing for waste circularity and correct disposal.
Specifically, noting the role of lithium in fuelingthe green economy, there are concerns about thewasteful potential for lithium batteries in disposabledevices to be lost and end up in landfill. Like for ourheat-not-burn electronic devices and consumables,
we are deploying voluntary end-of-life take-backprograms to ensure valuable materials from our
VEEBA e-vapor disposables are collected.

That said, even after collection, lithium recycling isdifficult and many recyclers do not recycle the lithiumcomponent when recycling lithium batteries due
to cost and technical difficulty. We have therefore
amended our recycling guidelines to make it aformal requirement for our chosen recycling partner
to be able to recycle the lithium alongside othersalvageable materials from VEEBA products.
We also communicate to our adult users, where
allowed, on proper disposal to prevent these products
from being disposed of in general waste streams or
littered in the environment. As increased regulations
for such e-vapor disposables are expected to be
adopted in the coming years, we actively support
regulatory frameworks seeking to set better ecodesign principles for reusability, repairability, andcircularity for all smoke-free electronic products.

Proportion of shipment volumes
covered by markets with end-of-lifetake-back programs in place forsmoke-free consumables
A SPI R AT ION

2025

≥80%

2022

8.5%
0

25

50

75

100

Note: Shipment volume includes heated tobacco units,
e-vapor cartridges, and e-vapor disposables.

In 2021, we developed and piloted a global internal
toolbox defining global standards for the preparationand execution of PMI end-of-life take-back programs.
In 2022, we developed further guidance for markets
following challenges some of them faced in finding
adequate collection and recycling infrastructures in
a complex and highly regulated environment. This
guidance includes scouting of global recycling partners
and recommends waste treatment in line with regulatory
requirements applicable to waste management.
During the year, we worked closely with markets to guideand support them during the deployment process. We
covered 8.5 percent of shipment volumes with end-of-lifetake-back programs by the end of 2022 despite theseidentified challenges. We also gained valuable insights
on next steps as we seek to scale up these programs via
enhanced materials to further support our markets.

C A S E S TU DY

Embedding convenience
into our smoke-freeconsumables take-backprogram in Switzerland
Switzerland launched the first consumables takeback program in December 2021, with the goal of
reducing waste from our products and improving
circularity in our value chain. In partnership withexternal stakeholders, the program enables consumers
to conveniently collect and return heated tobacco
units after consumption and we are now exploring
how they can be repurposed and given a new life.
Read the case study here

85

Reduce post-consumer waste

Over the long term, we aim to reduce our post-consumer
waste by design, and explore lower-carbon, recyclable,
and biodegradable alternatives to the materials currently
used in our smoke-free consumables. In the interim, weare focused on scaling our end-of-life take-back programs.

GovernanceSeek net positive impact
in wellness and healthcare

Since our smoke-free portfolio is diverse in terms of
product offering, so is the impact each of these products
can have on the environment based on their different
design, composition, and consumption. As our portfolio
evolves, we seek to design and deploy tailored programs
based on the specificities of each product category. In
2022, we required that our affiliates launching VEEV
pods, VEEBA disposable e-vapor products, and TEREAHTUs put in place end-of-life take-back programs (withan intent to recycle collected products), as a prerequisite
for product launches. We deem end-of-life take-backprograms for all of our smoke-free consumables to bebusiness critical based on their environmental impact,
consumer needs, and market feasibility (read more about
the composition of certain smoke-free consumables
here). We will therefore continue rolling out these
programs to other product categories moving forward.

Strategy

Purposefully phaseout cigarettes

These include the heated tobacco units (HTUs)
used with our heat-not-burn products (including the
HEETS used with IQOS ORIGINALS DUO and previous
generations, TEREA used with IQOS ILUMA, Fiit usedwith lil SOLID, and BLENDS used with BONDS by
IQOS), the VEEV pods used with our e-vapor device,and our new VEEBA disposable e-vapor product.

Overview

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

84

Improving sustainability of
our smoke-free devices
By integrating sustainability considerations into our
product design—from choice of materials, development,
to end-of-use and end-of-life—we can reduce
environmental impacts as well as associated costs.
We are committed to understanding and managing
environmental impacts across our entire value chain,including assessing the life cycle of our products.

Utilizing life-cycle analysis

On average1:• Our heat-not-burn product category (including
both consumables and devices) has an averagecarbon footprint of approximately 26.3 kg
CO2e/year, of which consumables contribute83 percent and devices 17 percent.
• Our e-vapor product category (including bothconsumables and devices) has an averagecarbon footprint of approximately 18.7 kg
CO2e/year, of which consumables contribute95 percent and devices 5 percent.
• Our cigarettes have an average carbon footprintof approximately 24 kg CO2e/year.

1 Figures are based on data compiled from different LCAs. Scope includes materials,
manufacturing, and end-of-life, but excludes logistics.

We aim to drive continuous improvement in future
product generations. To this end, we have exploredeco-design standards and identified the criteria
applicable to smoke-free products to further embedsustainability in the early stages of the productdesign process and across the product cycle.
These eco-design criteria address an end-to-end
approach to minimizing impacts related to materials
selection and sourcing, components production,
design for repairability, and product manufacturing,
distribution, use, and product end-of-life stages.
Product eco-design certification can drive productperformance by raising the environmental and social
standards to pursue and provide comprehensive
information to consumers, enabling them tomake more informed product choices.
Smoke-free products—and heated tobacco products,
in particular—are a relatively new product category.
As such, they are not covered by existing productcategory rules, making it challenging to find recognizedeco-labels for these products. We are exploring several
avenues to reach our 2025 goal, as well as continuing to
implement eco-design criteria in PMI’s product pipeline.

Operational impact

Extending smoke-free product life cycle
We strive to extend our product life cycles. Achieving
this starts with imposing high standards of quality andreliability (read more here) and extends to preserving
devices through proper device care, taking necessary
steps to enable the refresh, repair, and refurbishment ofdevices, as well as take-back programs. In other words,
we are evolving from a collection-for-recycling-onlymodel to a collection-for-reuse-and-recycling model.

Fundamentals

Reporting and performance

Capabilities (1) and (2) are highly interdependent, as
the criteria and procedures for device triage are linked
to the extent of our refresh and repair capabilities.
As these capabilities will strengthen over time, thetriage model will also evolve, allowing a greater
proportion of devices to be refreshed or repaired.

In the context of our CIRCLE program, in addition
to establishing best-in-class recycling standards,
we are expanding our capabilities to: (1) collect andtriage devices, perform diagnostics that allow us toestablish the state of the device and accordingly
send it to be recycled, refreshed, or repaired; (2)refresh and repair devices in a manner that meets
quality and hygiene requirements; and (3) remarket
refurbished products, giving them a second life.

Third-party partsand components

Disposal

Manufacturing
process

Commercialization

Use

Returned
devices

PMI parts
manufacturers

RecycleInto raw materials,
parts, or energy
recovery

Second life

Product refreshor repairPreserve
Proper device care

2025
Aspiration

SI

100%

Of smoke-free electronic
devices introduced on themarket as of the end of2025 that have eco-design
certification

87

Energyrecovery
Source: Adapted from the Ellen MacArthur
Foundation Butterfly diagram

Reduce post-consumer waste

In general, our smoke-free products have a higher carbon
footprint than combustible cigarettes. This is primarily due
to the inclusion of an electronic device, which involves
new components and requires electricity to charge.

Eco-design certification

Product impact

GovernanceSeek net positive impact
in wellness and healthcare

We use life-cycle analysis (LCA) to assess the carbon
footprint of our products, from tobacco sourcing todevice end-of-use and end-of-life. This analysis applies
to devices, consumables, and packaging. In 2022,
we deployed a standard baseline for devices andconsumables to be used by different LCA suppliers andrequested reports conforming with ISO standards. Inline with current market practice, we also sought review
of reported data by an independent entity. This will
enhance our confidence in LCA data moving forward.

In addition to the impact of electronic devices, the processused to manufacture consumables such as HTUs is also
more resource intensive than for cigarettes due to the
production of cast leaf tobacco which requires more waterand energy. Learn more about our efforts to conserve
water here and decarbonize our operations here.

Strategy

Purposefully phaseout cigarettes

Improving the sustainability profile of our smoke-free
products is particularly important as we continue
to deliver technologically advanced products for
adults who would otherwise continue to smoke or
use other nicotine products. These products are at
the heart of our transition to a smoke-free future.

To mitigate these additional product impacts, we aim
to decrease the total carbon footprint through smart
materials selection, sustainable design practices, thecollection and triage of devices, expanding our refresh andrepair capabilities, and remarketing refurbished products.

Overview

Our aspiration

Philip Morris International — Integrated Report 2022

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

86

Philip Morris International — Integrated Report 2022

Preserve through proper device care
We strive to help users of smoke-free electronic
products extend their device life cycles through bettercare. We seek to minimize consumer pain points withsimple tips pertaining to regular device cleaning at homeor professional cleaning in our boutiques, firmware
updates, and proper charging. These simple actions help
reduce the number of devices ending up as waste.

Promote device second life:
refresh and repair
We strive to establish commercially viable
programs for devices that, once returned, canfind a second life back into the economy.

62
400

600

800

1,000

In 2022, we successfully established our first repair
process for IQOS ORIGINALS DUO. Overall, close to157,000 devices were repaired and refreshed, andreceived by markets for remarketing in 2022.
During the year, we continued to develop and enhance
our refresh and repair capabilities at our CIRCLE hubs.
In 2022, we initiated a retention program in Germany
that allowed IQOS users to return their damaged
electronic devices that were no longer under warranty
and in exchange purchase remarketed, refreshed devices
with the same warranty terms as a new device.
We are also looking at ways to integrate device refreshand repair activities into commercial opportunities.
We commercialized refreshed devices in nine markets:
Austria, Germany, Malaysia, New Zealand, the Philippines,
Portugal, Romania, Switzerland, and the U.K.
An important purchase driver for many adult smokers
considering converting to smoke-free alternatives is the
upfront price of the device. Typically, the refreshed devices
are priced 20 to 30 percent lower than new devices,
playing an important role in our portfolio by diversifying
price point offering. Read more about affordability
here. Overall increases in net promoter scores in our
e-commerce channels demonstrate that these offerings
have had a positive impact on consumer satisfaction.
Moving forward, we plan to expand the collection ofused devices via other consumer programs and increase
their processing for a second life. We plan to further
expand the program’s geographic coverage and willcontinue to increase our refresh and repair capabilities.

We are exploring how to expand device recycling
capabilities at a local level in markets such as Italy
and Korea. This could be through adapting ourcentralized CIRCLE hub approach to distinct markets,or looking at business models that would incorporate
agreements with third-party repair and recycle partners
that meet or exceed our minimum requirements,
complementing our CIRCLE hub approach.
We expect to leverage the learnings from our centralized
CIRCLE hubs to guide and centrally govern such local
solutions, ensuring that they are aligned with our standards
and support progress toward our global recycling targets.
We achieved a CIRCLE hub coverage of 61 percent market
volume globally in 2022 (2021: 63 percent).

Proportion of smoke-free electronic device
sales volume covered by the CIRCLE program
2025

A SPI R AT ION

100%

2022

61%

2021

63%

2020

48%
0

20

40

60

80

100

Note: Aspirations referring to smoke-free electronic devices exclude disposable
products and non-PMI-designed devices. We plan to recalibrate this aspirationin 2023 to account for regulatory and market developments.

During 2023, we plan to re-calibrate our initial aspiration
to expand the CIRCLE hub coverage to 100 percent toaccount for regulatory and market developments inparticular considering market circumstances (e.g., available
waste treatment infrastructure and regulatory frameworks).
While leveraging central CIRCLE hubs, we will also use
solutions to expedite and accelerate our market coverage.
These local solutions will operate under CIRCLE, meaning,they will be required to fulfill equivalent recycling rate
performance to follow the CIRCLE reporting standard.

Fundamentals

Reporting and performance

Our CIRCLE hubs in Hungary and Japan continued todrive excellence in e-waste management in 2022. The
recycling rate of our products in these two hubs combinedstood at 86 percent for the year (80 percent recycling
and 6 percent incineration with energy recovery).

89

Eﬀective recycling rate of our smoke-freeelectronic devices
2025

A SPI R AT ION

>80%

2023

A SPI R AT ION

70%

2022

53%

2021

53%

2020

40%
0

25

50

75

100

Note: Excludes disposable products and non-PMI designed devices.
The eﬀective recycling rate is calculated based on the proportion of devices
sales volume covered by the CIRCLE program multiplied by the actual recycling
rate of devices at the active CIRCLE hubs (weighted average), which includes
actual recycling and energy recovery. Russia CIRCLE hub was discontinued
in 2022 and is therefore excluded from the reported recycling numbers of 2022.

Accessories
As we progress with device recycling, we are exploring
possibilities to close the loop by reusing materials
to produce new accessories for our products.
In 2022, we launched a collection of recycled IQOS
ORIGINALS DUO pocket charger door covers madefrom pre-owned IQOS 2.4 pocket chargers recycled at
our CIRCLE hubs. The collection has been launchedin eight pilot markets. The door covers are the firstpiece of the device accessory made of recycledplastic obtained from our old products and that will
be launched in the IQOS ecosystem, demonstrating
our intention to further encourage consumers to play
an active role in reducing post-consumer waste.
In addition, we are investigating materials with lower
negative impact on the environment and have an ambition
to make these an integral part of our new product launchecosystems to gradually replace the existing accessories.

Reduce post-consumer waste

We are in the early stages of moving from a collectionfor-recycling-only model to a collection-for-reuse-andrecycle model. We took steps in the past two years
to prepare and scale capabilities in our CIRCLE hubs
to enable the processing of devices for a second life.
To guide us in this journey, we have set an ambitious
target to refresh or repair at least one million smokefree electronic devices by 2025 (cumulative since 2021),
which we are on track to achieving. Key prerequisites ofa successful second-life strategy include the ability tocollect and sort devices, distinguishing between those to
be recycled and those to be recovered, and to repair or
refresh devices according to quality and safety standards.

2021

Operational impact

Seek net positive impact
in wellness and healthcare

Overall, the combination of device quality
improvements and consumer-facing efforts havecontributed to reducing our device return rate bymore than two-thirds in the past two years.

≥1,000For those products that are broken or have reached
end-of-service and cannot be given a second life, ourcentralized CIRCLE hubs inspect, process, and separate
materials for recycling. We continue to grow thecapacity of these hubs and to expand their coverageby onboarding new markets. Nevertheless, in somegeographies we face logistic and regulatory challenges
to onboard markets into the centralized CIRCLE
program, which also limit our pace of deployment.

157

200

Product impact

Enhance circularity: device recycling

2022

0

GovernancePurposefully phaseout cigarettes

Building on this work, we are leveraging our B2C
commercialization model and related processes andtools in our sales channels (e.g., our stores, e-commerce
websites, and IQOS coaches) to prolong the life ofour devices and avoid e-waste through appropriate
device care. These efforts include engaging directlywith the consumer, explaining device functionality, andavoiding unnecessary product replacements throughproper device diagnosis and streamlined procedures
for returns, warranties, and loyalty programs.

A SPI R AT ION

StrategySI

Number of smoke-free electronic
devices refreshed or repaired(cumulative since 2021), in thousands
2025

Overview

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

88Philip Morris International — Integrated Report 2022

Reducing and improving
packaging
As our product portfolio changes, so does
our packaging range, which continues
to evolve in line with our expansion into
new product categories, adaptations
to better meet consumer needs, andshifts in regulatory expectations.

We aim to develop sustainable packaging solutions
that enhance the consumer experience, protect our
products, and comply with regulation. To deliveron our ambition, we employ a twofold strategy:

We continue to maintain and track progress on our 2025
targets for packaging material reduction, recyclability,
and renewable content. Reflecting recent changes in ourbusiness and product categories, we expect to re-baseline
our packaging portfolio for new and existing productand packaging systems and we anticipate integrationof these considerations into future reporting cycles.
We continue to work towards integrating materials comingfrom renewable sources, by removing unnecessary
plastic and replacing aluminum inner liners with paper
versions where possible, while maintaining a high shareof our packaging being made of paper and board.
We also continue to invest in proprietary researchand to test alternative materials and formats
for potential displacement of hard-to-recycle
packaging across our consumable portfolio.

2022

90%

2021

90%

2020

89%
40

60

80

100

Reduce packaging
Between 2018 and 2022, we reduced our total packaging
materials weight by 1 percent, versus our current
ambition to reduce our total packaging materials by
15 percent by 2025. This is a smaller overall reductionof packaging material weight in 2022 than in previous
years compared with our 2018 baseline, as these
efforts were largely offset by significant volume growth,changes in our product portfolio, and both inventory
recovery and forward planning to build resilience.

Reduction of packaging materials
weight versus 2018 baseline
2025

A SPI R AT ION

15%

2022

1%

2021

9%

2020

5%
0

5

10

Operational impact

15

Currently, the plastic wrap around our packs ofconsumables and secondary cardboard packaging is
recyclable but is not made from renewable sources.
In 2022, as part of our plastic reduction program, wereduced and optimized our current film solutions on ourheated tobacco packaging portfolio, removing 385 tonsof plastic film. We have similarly continued removing
unnecessary packaging and improving recyclability forour electronics device and accessories packaging.
On a like-for-like basis versus a year ago, through aseries of improvement initiatives across our IQOS
ORIGINALS heated tobacco portfolio, we have reduced
material consumption by over a third and increased
packaging efficiency by around 25 percent. Together,
these represent a reduction of 136 tons of fiber-basedmaterial and over 5 tons of plastic content. We havealso fully removed plastic wrap around our packs for all
our device and accessories packaging across our IQOS
portfolio and completed the removal of any packaging
components that compromise recyclability, such as
magnets which are commonly used for closure systems.

To drive improvements in our packaging footprint, we
focus on using recyclable materials, including recyclable
inner liners.

Proportion of packaging madewith recyclable materials
2025

A SPI R AT ION

94%

2021

94%

2020

93%

Paper
Packs and bundles, innerand board liners, and shipping cases
Plastic

Overwrap of packs andbundles, pouches, seal
inner liners, and labels

Inner liners (including
Aluminum seal) and othertobacco packaging
Other

Inks and composite
materials used in othertobacco product packaging

40

60

80

100

Proportion of recyclable inner liners
by year-end
2022

Weight (tons) Proportion

415,01420

We continue to transition from nonrecyclable inner liner
systems, such as laminated aluminum paper, to recyclable
alternatives in markets where regulatory requirementsallow. As of the end of 2022, we had transitioned morethan 88 percent of the total portfolio (2021: 85 percent).

Use of materials in our packaging in 2022
Description

100%

2022

0

A SPI R AT ION

100%

2022

88%

2021

85%

2020

74%
20

40

60

80

100

Note: For all markets where possible in compliance withlocal regulatory requirements.

92%

27,322

6%

2,495

1%

For reporting clarity, we consider a target of 95 percent
to be the full potential for conversion based on current
estimates. Due to supply chain and local market challenges,
the remaining portion for full conversion is anticipated in the
coming years.

2%

In 2022, 94 percent of the aluminum used in our packaging
was Aluminum Stewardship Initiative (ASI) certified, either
under the Performance Standard or the CoC.

7,379

91

Note: Prior years’ data has been restated to take into account more accuratecomputation of packaging material usage.

Within our e-vapor category, including our recently
launched VEEBA product, we have redesigned the
packaging to both reduce the amount of materials
required and remove all unnecessary plastic. For VEEBA
packaging, this has resulted in a 75 percent material
reduction and 94 percent decrease in plastic per pack.

Material

Reporting and performance

Improve circularity

0

In 2022, paper and board remained the primary material
used in our packaging, representing around 92 percent
of our total packaging portfolio. Of this, 85 percent was
sourced from suppliers with Chain of Custody (CoC)
certified according to the Forest Stewardship Council(FSC), Programme for the Endorsement of Forest
Certification (PEFC), or Sustainable Forest Initiative (SFI)
standards. We continue to work in close partnershipwith our major suppliers to drive towards full CoC for
our board supply chain. In collaboration with industrial
material and machine suppliers, we continue to focus on
reducing material consumption. By the end of 2022, we
activated an estimated annual reduction of 3,200 tonsof board across our portfolio. Between 2018 and 2022,
this work led to a reduction of more than 11,700 tonsof board across the majority of our packaging portfolio.

Fundamentals

In 2022, we launched a commercial initiative whereby
100 percent of our limited edition Marlboro packs in
Mexico were made with recycled content board from theindustrial waste generated within our own packaging value
chain. This is an important step in keeping renewablematerials within the circular economy.

Reduce post-consumer waste

Multistakeholder engagement and active participationin external coalitions and working groups remain a key
part of our strategy, which allows us to contribute to
the global sustainable packaging agenda, anticipate
regulation, and learn about recycling requirements,
recycled material availability, and testing anddata analytics associated with packaging.

95%

20

Product impact

Seek net positive impact
in wellness and healthcare

Reduce packaging: We aim to design our packaging
systems in a way that eliminates unnecessary
packaging waste, using only the materials
needed to deliver an optimal experience.
2. Improve circularity: We seek to ensure therecyclability of our packaging, increase the useof recycled content, and continue to increase
the use of materials from renewable sources.

1.

A SPI R AT ION

0GovernancePurposefully phaseout cigarettes

Our packaging sustainability strategy seeks to keep pacewith these changes, reflecting best-in-class leadershipon packaging recyclability and the role of plastics.

StrategyThis is equivalent to a material weight reduction forour cartons and consumer facing packaging of over 11
percent for our combustible and 7 percent for our smokefree categories without compromising pack quality.

Proportion of packaging materials
coming from renewable sources
2025

Overview

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

90

Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

Currently, multiple alternative filtration materials are evaluated through consumer
research studies. Based on these results, consumer feedback will be critical in shifting
the developments toward the direction pointed out. This approach, though time
consuming, will ensure that developments resonate with consumer needs leading
to a viable and sustainable product.

With initial eco-design criteria in place, we will be able to continue on our ecocertification journey. We are ensuring that we have a set of options that willallow our electronic devices to be eco-designed following electronic industry
sustainability best practices to ensure reliability, accuracy, and transparency.
Bin Li
Chief Product Officer

We will also continue to expand the CIRCLE hub capabilities to perform repair andrefresh activities and recycle products that cannot be recirculated, while also helping ourmarkets find alternatives where our centralized CIRCLE hubs are not a viable option.

Purposefully phaseout cigarettes

In addition to R&D investments, we will leverage our new, market-focused antilittering toolkit to assist in the development and deployment of local reach and impact
activities to prevent cigarette butt littering. For example, we plan to pilot emergency
ashtrays developed in our Nordic markets to additional markets around the world.
Werner BarthPresident, Combustibles
Category and Global
Combustibles Marketing

93

Maximize the benefitsof smoke-free products

R E D U C E P O S T- C O N S U M E R WA S T E

92

Seek net positive impact
in wellness and healthcare

In 2022, with the expansion of our product category and broadening of productportfolio, we continued to deliver a significant reduction in our packaging. In 2023,
we will continue our focus, looking at our footprint, regulation and making theright moves for the long term.

In 2023, we will continue our efforts to reduce the post-consumer waste
generated by our products by supporting our markets in the deployment of endof-life take-back programs for VEEV, VEEBA and IQOS ILUMA consumables andencourage them to also set similar initiatives for other smoke-free consumableproduct launches, where feasible, using our internal toolbox for guidance.
Stefano Volpetti
President, Smoke-Free
Inhaled Products andChief Consumer Officer

Beyond consumables, we will also continue to leverage our sales channels to
promote device durability and longevity, as well as device take-back, and look tocommercialize business models with partner organizations to perform repair andrefresh services that meet our global standards and help reduce e-waste.

Reduce post-consumer waste

Scott Coutts
Senior Vice President,
Operations

To reduce the overall carbon and plastic footprints of our cigarettes and smoke-freeconsumables, we will continue to research and test alternative materials to cellulose
acetate-based filters that meet our criteria for scale and focus on developing alternatives
to the materials currently used in our smoke-free consumables. To be an industry leader,
we must focus on a growth mindset in the way we approach innovation activities, working
internally and externally, learning from fundamental science and our consumers, improving
and adjusting accordingly, and not giving up until we solve this important global challenge.

94

Philip Morris International — Integrated Report 2022

Operational impact
Foster an empowered and inclusive workplace

p98

Improve the quality of life of people in our supply chain

p118

Tackle climate change

p134

Preserve nature

p150

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

95

96

Philip Morris International — Integrated Report 2022

Our aspirations

Overview

SI

Foster an empowered and inclusive workplace
Maintain

100% of employees earningat least a living wage
≥30 employee
Net Promoter Score

2022

100% of PMI employees covered byparental leave principles

2023

32% of senior roles
held by women

2025

70% of PMI employees withaccess to structured lifelong
learning offers SI
35% of senior roles held
by women SI<0.65 collision rate in our fleet
Global EQUAL-SALARY
certification
40% of management positions
held by women

Strategy

GovernanceOperational impact

Product impact

Fundamentals

Reporting and performance

Sustainability Index

Tackle climate change<0.3 Total Recordable Incident Rate
(TRIR) for PMI employees, contracted
employees, and contractors (per200,000 hours worked)≥60% representation of local talent
in the executive management teamsof at least 80% of our markets orclusters≤60% representation of any
gender in managerial roles in mostof our functions and regions>70% perception of psychologicalwell-being among our employees≥20% representation of Asiantalent in senior roles globally

2023

Zero coal used as curing
fuel for the tobacco we source

2025

Carbon neutrality in our direct
operations (scope 1+2) SI

100% of our manufacturing
facilities certified carbon neutral

25% reduction in absolute scope 3
GHG emissions versus 2019 baseline SI

35% reduction in absolutegreenhouse gas (GHG) emissions
in our tobacco supply chain
versus 2019 baseline

100% of electricity used andpurchased in our factories derived
from renewable sources

15% of suppliers by spend (coveringpurchased goods and services) will
have science-based targets (SBT)2030

50% reduction in absolute
scope 1+2 GHG emissions
versus 2019 baseline (SBT)

50% reduction in absolute
scope 3 GHG emissions versus
2019 baseline (SBT)

50% reduction in absolute GHG
emissions in our tobacco supply chain
versus 2019 baseline

2040

Net zero GHG emissions in our value
chain (scope 1+2+3) (SBT)

Preserve nature
Improve the quality of life of people in our supply chain
Maintain

Maintain>90% of PMI purchased tobacco
volume for which labor practices andadherence to our Agricultural Labor
Practices Code are systematicallymonitored

100% of contracted tobacco farmers
and farmworkers supplying tobacco
to PMI have access to personal
protective equipment for theapplication of crop protection agentsand prevention of green tobacco
sickness2022

100% of contracted farmers supplying tobacco to PMI paying their workers
at least the minimum legal wage or agricultural benchmark

2025

100% of contracted farmers
supplying tobacco to PMI makea living income SI

0% prevalence of child labor
among contracted farmers
supplying tobacco to PMI SI

10 highest-risk countries coveredby external human rights impact assessments,
with findings addressed SI
2030

100% of tobacco farmworkers areprovided with safe and adequate
accommodation 1

2025

100% of critical suppliers fromwhom PMI sources sustainably
100% of contracted farmers
supplying tobacco to PMI havebasic water access

100% contracted farmers supplying tobacco
to PMI have access to basic sanitation and hygiene

Note: In 2022, we strengthened our approach to monitoring the quality of life of people in our tobacco supply chain by introducing the Sustainable Tobacco Supply Chain (STSC) framework (read morein this section). Although it is still a requirement to monitor performance against our Agricultural Labor Practices (ALP) Code for all contracted farms, we decided to shift from reporting sustainability
progress on all farmers contracted by PMI’s suppliers or PMI leaf operations to farmers whose tobacco volumes are purchased and used in PMI products.
1

Scope is limited to farmers that provide accommodation to workers.

1

Zero grossdeforestationof primary andprotected forests
associated with ourtobacco supply chain>70% of flue-cured
tobacco purchased
cured with renewable
fuel sources (selfsufficient firewood
or biomass)

100% of tobaccopurchased without
detection of residues
attributable tothe use of highly
hazardous pesticides≤3.1 Water ratio in
our manufacturing
facilities (water
withdrawn in cubic
meters per million
cigarettes equivalent)

Zero net deforestation ofmanaged natural forest and noconversion of natural ecosystems
in our tobacco supply chain SI

Net positive impact onforests associated with ourtobacco supply chain

100% of our tobacco-growing
areas covered by local water risk
assessments (cumulative since 2018)

100% of our manufacturing facilities
certified to the Alliance for Water
Stewardship (AWS) standard1

Virtually zerowaste to landfill in
manufacturing sites

Zero gross deforestation ofprimary and protected forest
associated with our supply of
paper and pulp-based materials

2030≥10 million cubic meters of water optimized in our
tobacco-growing areas (cumulative since 2019)

Net zero deforestation of managed natural forest
and no conversion of natural ecosystems in thepaper and pulp-based products supply chain2033

No net loss on ecosystems
connected to PMI’s value chain

Scale solutions toward a positive impact on water resources,
measured as volume of water optimized and restored

2050

Contribute toward a net
positive impact on nature

Contribute toward a positive
impact on water resources

Aspiration pertains to priority manufacturing facilities identified based on-site overall risk in relation to the watershed, water withdrawal, water consumption, productportfolio, and other strategic considerations.

97

98

Philip Morris International — Integrated Report 2022

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Our ambition is to be an employer of choice,fostering an inclusive culture wherever we
operate in the world.

Our employees are drivers of innovation and the ambassadors of our purpose.
We aspire to provide meaningful and fair employment, opportunities to grow,and a workplace that champions well-being and inclusion.

We develop and deploy specific programs accompanied
by tailored commitments and targets that allow us totrack progress and adjust our actions as needed.

OUTWARD IMPACT: The right thing to do

Our long-term business success relies on ourpeople: human capital in the form of our employees’
dedication, talent, and passion. It is essential for us toprovide a fair and inclusive workplace that upholds
good working conditions and labor rights, protects thehealth and safety of employees, promotes their wellbeing, and offers opportunities to grow, increase theirskills and capabilities, and improve their employability.

Equitable and fair employment conditions are
crucial for societal harmony and well-being and are
central to a sustainable and prosperous future for all.
Effective professional development opportunities
ensure that employees can pursue professional
opportunities and contribute meaningfully to society.
By ensuring that all people who work with us enjoy asafe and healthy work environment, and by attending totheir physical and mental well-being, we can positively
impact their lives beyond their time spent at work.

Providing fair employment

100

Protecting the health, safety, and security of our employees

102

Developing our human capital

105

Fostering diversity, equity, equality, and inclusion

109

Promoting mental health and well-being

114

We ensure our employees are informed of theirrights by their local People & Culture (P&C) teams,
our Code of Conduct, and related principles andpractices—including our Workplace Integrity
policy—and collective labor agreements.
Employees can speak up about employment-related
concerns, ask questions, and recommend improvements
to their supervisors, P&C teams, our Ethics & Compliancefunction, or through our helpline (read more here).
As a global company, we consider it our duty to ensurethat our entire workforce (regardless of local or national
regulation) is treated fairly, respectfully, and in linewith our principles. We operate in multiple countries
with widely varying legal employment frameworks.
For example, in some countries the right to freedomof association is restricted; in such cases, we strive
to work with employees’ consultative committees
and other suitable mechanisms of representation.
We value dialogue with employee representatives(e.g., trade unions and works councils) and regularly
engage with them and learn from best practices. Thisdialogue occurs at local, regional (e.g., European Works
Council), and global (e.g., the IUF – International Unionof Food, Agricultural, Hotel, Restaurant, Catering,
Tobacco and Allied Workers’ Associations) levels.

Management
Employee-related matters are the responsibility of all
members of Company Management and functional
heads. Beyond reporting lines, dedicated teams within
our People & Culture function—headed by our SeniorVice President, People & Culture, a member of ourCompany Management—lead efforts on labor relations,talent attraction and retention, learning and development,
performance management, and compensation.
Our Chief Diversity Officer oversees the development
and deployment of strategies to foster diversity, improve
inclusion, and promote well-being in the workplace.
Our Senior Vice President, Operations oversees thecompany’s strategy and performance on health andsafety across our manufacturing sites, fleet, and offices.
Our team, headed by our Senior Vice President Global
Communications, plays a key role in facilitating greater
employee engagement and nurturing a positive
workplace culture via internal communications.

PMI’s policies and standards
Code of Conduct
Human Rights Commitment
Environmental, Health, and Safety (EHS)
Manufacturing Commitment
Fleet Safety policy

Preserve nature

Moreover, by protecting and promoting diversity,
equality, equity, inclusion, and fair treatment—essential
to unlocking social and economic development—weseek to instill in our people a sense of belonging andmaintain an inclusive workplace culture. This can havepositive spillover effects outside of our organization,and sets an example for corporate best practice.

Training and communications help employees
understand the standards and processes relevantto their roles and how to apply them in their daily
work. We use multiple formats and languages tooptimize our reach across the organization.

Tackle climate change

INWARD IMPACT: The business caseWe strive to maintain an environment that is inclusive,
safe, and professional. We promote diversity, equality,and equity in our organization, ensuring that all
employment-related decisions are merit-based. We
do not tolerate harassment, discrimination, abuse or
misuse of company assets or resources, violence, or
the misuse of alcohol or drugs. We do not engage inor condone child labor, forced labor, or other laborabuses. We encourage effective engagement anddialogue with employees and their representatives.

Improve the quality of lifeof people in our supply chain

This means ensuring that our employees experience
fair working conditions, opportunities to develop
skills and boost their employability, and a workplacethat protects and promotes their psychologicaland physical health, safety, and well-being.

Workplace integrity principles at PMI

99

Foster an empowered
and inclusive workplace

Foster an empowered
and inclusive workplace

In this section

Strategy

Our management approachO P E R AT I O N A L I M PA C T

Investing in our people and providing them withmeaningful opportunities helps us to recruit andretain talented individuals who can contribute to ourcompany’s purpose and achieve high productivity
and efficient operations in a context of rapid change.
Furthermore, we strongly believe that an inclusive
culture embracing diversity better attracts talentand improves decision-making, innovation, customer
orientation, and employee satisfaction.

Overview

Philip Morris International — Integrated Report 2022

Progress in 2022
Highlights

We continued to improve our employee Net
Promoter Score, exceeding industry benchmarks anddemonstrating strong employee engagement despitea difficult external context in many countries this year.
We took meaningful steps, laying the
groundwork for providing our employeeswith structured lifelong learning offers,
leveraging on digital and inclusive solutions.

We were included in the 2023 Bloomberg
Gender-Equality Index for the third
consecutive year (read more here).

Challenges

The majority of accidents in our manufacturing
facilities occurred in non-production areas, limiting
our oversight and ability to intervene.
As our company continues to transform, we must
continue to find ways to upskill, re-skill, and create
new experiences for current employees to fill skill
gaps and boost their employability.

Product impact

Operational impact

Fundamentals

Reporting and performance

Labor relations in Turkey

Calculating the footprint of recent acquisitions
We have begun collating workplace-related
figures pertaining to the wellness and healthcareacquisitions made in 2021, which we have sinceconsolidated into PMI’s Vectura Fertin Pharma
subsidiary. Vectura Fertin Pharma employed around
1,100 people in 2022. Due to the immaterial
impact on our global workforce-related dataand overall operational independence of thissubsidiary, data presented in this section of thereport do not represent consolidated figures.

Providing fair employment
All employees, irrespective of role, location,
type of employment, or length of service,
have the right to work under fair and justconditions. Treating people with respectand dignity is central to the fundamental
principles that guide our business conduct
and unite us as a company.

Maintaining sound labor relations
We are committed to respecting the rights ofour employees to form or join trade unions andother employee representative organizations of
their choice. In 2022, we had 79 collective labor
agreements in 35 countries, covering 61 percent
of our employees (2021: 77, 34, 61 percent).
During the year, we worked with markets to further
develop their own labor relations strategies. Strong
local labor relations strategies help us avoid disruption
with employees and social partners in light of changes
to our business needs, and other external trends suchas inflation, through consistent, open dialogue.

In August 2022, a dispute arose between a third-party
company that provides services in our Torbalı-İzmir
factory (PMTM) and the third-party’s employees
following the transfer of four individuals to otherfacilities. PMTM does not employ these individuals;
their contractual employment relationship is withthe provider of outsourced services and the facility
transfer is explicitly provided for in their employment
contracts. These transfers were wrongfully interpreted
as terminations and resulted in non-peaceful protests
in the factory, and damage to PMTM property.

Promoting employee volunteering
PMI has a long-standing commitment to support thecommunities where our employees live and work,and from where we source tobacco, in the formof monetary contributions and in-kind donations(see the list of our 2022 social contributions here),as well as volunteer work by our employees.
After deploying our global employee volunteering
guidelines in 2021, all PMI employees are
eligible to take two days per year of paid leavefor volunteering activities. Also, the company
commits to match—with up to five additional
paid leave days—any additional volunteer work
employees choose to do in their own time.
In 2022, we analyzed how these guidelines
were being used and gathered feedback fromour employees with a view to broadening theiradoption. Also, we looked into the potential tofurther leverage these guidelines to support Projects
with a Heart, a global grassroots, employeedriven philanthropic movement establishedand run by employees and endorsed by PMI.
Projects with a Heart connects internal employee
donors and would-be volunteers with people
in need. Read more about their work here.

Suggestions that have been made in the media andelsewhere that PMTM and Philip Morris International
are “union busting” or have engaged in actions that areinconsistent with PMI’s Human Rights Commitment
and the International Labour Organization (ILO)
standards on effective labor relations are erroneous.
PMTM worked with law enforcement and thethird-party company to de-escalate the situation.
We continue to be in close contact with thethird-party company to ensure that the situation
is managed in a lawful and appropriate manner.
First steps have been taken to address the thirdparty company’s employees’ concerns, including
those regarding their economic conditions.

101

Providing fair compensation
We are committed to upholding and promoting a fair and justworkplace, rewarding employees based on their performance.
Our suite of compensation, recognition, and benefits
programs, platforms, and policies differs by location, taking
into account local regulations, agreements, needs, andpreferences. However, there are some global elements,
such as our Employee Assistance Program, and mostprograms incorporate bonus plans, life insurance, longterm sickness plans, retirement-related arrangements, andpaid leave programs.
We regularly review our offerings to ensure that they
continue to meet the evolving needs of our workforce.
Upholding a living wage for our employees
We are committed to ensuring that all our employees
globally earn at least a living wage. Paying at or above
the living wage benefits employees, families, communities,
and our business. It fosters talent attraction, retention,and productivity, while securing our social license
to operate. A living wage, distinct from a minimum
wage, provides an employee with the means to enjoy
a decent standard of living, including the ability to buy
goods and services, and accumulate savings. A living
wage takes local living standards into account.
We have worked with leading sustainability consultancy,
BSR, since 2018 to assess living wages for our employees
globally. We plan to keep conducting a living wage
assessment at least every two years and initiate actions
as necessary to ensure that we continue to meet our
global living wage commitment to our employees.

Preserve nature

Higher-than-expected turnover of women coupledwith lower internal promotion rates of women in
management and senior roles (compared to men’s)
were the main factors limiting progress toward ouraspiration to increase representation of women insenior roles.

GovernanceTackle climate change

We continued to promote our employee
resource groups (ERGs) and prepared to launcha new ERG focusing on parents at PMI.

Strategy

Improve the quality of lifeof people in our supply chain

We achieved our 2022 target of 40 percent
women in management positions andsuccessfully renewed our global EQUAL-SALARY
certification, which will be valid until 2025.

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

100

Philip Morris International — Integrated Report 2022

Protecting the health, safety,
and security of our employees

Proportion of employees earningat least a living wage

Maintain A SPI R AT ION

100%

2022

100%

2021

100%
0

20

40

60

80

We have embedded clear methodologies,
procedures, and robust controls in ourfactories, offices, and fleet aimed atensuring that our employees and others
on-site stay safe.

100

We are also committed to improving the quality of life of
the people in our supply chain. Read more about our work
to promote a living income in our tobacco supply chain here.
Equal pay for equal work

Our health and safety performance monitoring covers
PMI employees, contracted workers who are under
the direct supervision of PMI but employed by atemporary employment agency (we had around 6,990
contracted employees on average per month in 2022,
compared with 7,300 in 2021), and contractors whenon PMI premises (see Glossary for definitions).

Total Recordable Incident Rate for
PMI employees, contracted employees,
and contractors
Maintain A SPI R AT ION

Equal pay for equal work is a first step in ensuringthat women’s work is not undervalued becauseof their gender. With this foundation in place, we
are now working to close our gender pay gap (theaverage pay for women versus the average pay formen), including by achieving a better gender balanceat senior levels of the company (read more here).

<0.3

2022

0.12

2021

0.09

2020

0.12
0

0.05

0.10

0.15

0.20

0.25

In 2022, our Total Recordable Incident Rate (TRIR) for
employees, contracted employees, and contractors
was 0.12 (2021: 0.09). We are proud of the progress
made to date and remain committed to maintaining
a TRIR below 0.30 in a sustainable manner.
Our Lost Time Incident Rate (LTIR) for employees,
contracted employees, and contractors was 0.07
in 2022 (2021: 0.05). We do not set targets on losttime incidents as we wish to handle every incident
with the same level of importance, quality of analysis,
mitigating action, and worldwide reapplication oflearnings regardless of whether the incidents resultin lost time. The top three direct causes of injury in
2022 included “cutting by sharp object” (20 percent),“contact with moving machinery” (15 percent), and“slip, trip or fall on the same level” (12 percent).

0.30

Our ambition is to create an interdependent
sustainability culture in which responsibility for healthand safety and the workplace environment is owned
by highly skilled individuals and autonomous teams.
In our markets, we use various communication
platforms to increase the level of engagement
on market and fleet safety, and sustainability
topics. Through our recognition programs in
2022, we identified over 600 improvement
initiatives embedded across seven main categories
slated for 2023, and over 40 employees
were awarded for their contribution to fleet
safety and environmental sustainability.
In our factories, we conduct annual sustainability
culture assessments with representatives from alllevels of their local organizations, combined withanonymous employee surveys, to evaluate oursites’ safety culture levels, identify opportunities
for improvement, and check the effectiveness of
our actions. In 2022, our employee survey drew
close to 15,000 participants with a result of 4.17/5(2021: 4.02/5). Site leadership teams take ownershipto continuously close any gaps identified.

Operational impact

Fundamentals

Reporting and performance

Safety in manufacturing
Health and safety in our factories is coordinatedcentrally by our Global Manufacturing Sustainability
team. At site level, each facility has a dedicated teamthat ensures standards are met on the ground.
As part of ISO 45001:2018 requirements, eachsite performs an annual management review,which highlights the main risks and opportunities
for each site, and actions moving forward alignedwith the whole management team of the site.
External certification helps us continuously improve anddrive efficiency. In 2022, 98 percent of our factories
producing the equivalent of over three billion cigarettes
annually achieved certification to ISO 45001:2018with zero major or minor nonconformities. The global
multi-site certification process included third-party
audits of a sample of our sites, which determined thatbest practices are embedded across all our factories.
This result highlights the excellence in some crucial partsof an effective occupational health and safety (OHS)
management system, including but not limited to:• Prioritization and integration of action plans
with quantified targets to address OHS risks• Integration of actions to prepare for andrespond to emergency situations

103• Evaluation of progress in reducing/preventing
health issues/risks against targets• Internal inspections• Procedures to investigate work-related
injuries, ill health, diseases, and incidents
All manufacturing sites perform full-scope risk
assessments to identify hazards and implement
necessary controls. Our corporate targets on
incidents help us evaluate the effectivenessof our safety policies and programs.
We regret to report that there were three contractor
fatalities in 2022 on PMI premises in Indonesia. All
incidents in our manufacturing operations are subject
to in-depth root cause analysis, and we apply thesame thorough approach to all incidents involving
contractors. Although our safety standards andprocedures complied with local regulations wherethese incidents occurred, we introduced new standards
to track contractor activities that go beyond local
regulation and build on industry best practices.

Preserve nature

Global EQUAL-SALARY
certification

Product impact

Embedding a safety culture across PMI

Maintain

Aspiration

GovernanceTackle climate change

In April 2022, we achieved re-certification of our initial
global EQUAL-SALARY certification from 2019. This global
certification verifies that PMI continues to pay female andmale employees equally for equal work in over 90 markets
where we operate. This is an important building block on
the road to creating a more inclusive gender-balanced
workplace and maintaining our status as a top employer.

These systems enable us to analyze safety losses
and to prioritize, plan, and monitor health andsafety performance. We routinely update ourstandards and train our staff to ensure teams
understand and align with the requirements.

Strategy

Improve the quality of lifeof people in our supply chain

In 2022, we continued to analyze the data, which confirmedthat we continue to pay at or above the living wage for all
our employees worldwide.

The health and safety of employees and contractors inmanufacturing facilities, offices, and our fleet is covered byour management systems, which are based on recognized
guidelines and standards, including ISO 45001:2018(Occupational Health and Safety Management Systems),
and assessed and audited internally and externally.

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

102

Philip Morris International — Integrated Report 2022

We use behavioral observation systems (BOS) in ourfactories to instill a culture in which everyone involves
themselves in openness, care, observation, and safe
behavior reinforcement. We advance this culture throughtwo-way communication with employees, addressing
the top-three unsafe behaviors through systematic
actions and safety alerts or notice boards. Every person’scontribution counts—a fact we recognize through awards
and other means of acknowledgment. Through BOS,
we are further embedding safety into the organization’s
DNA in a planned, structured, and standardized way.

In 2022, we also recalibrated our approachto safety training and developed a global
manufacturing comprehensive year-long program
covering leadership and culture, technical safety,
governance, environment, and the OHS agenda.

We seek to protect our employees and other road
users by providing safe vehicles and driver safety
awareness programs to achieve zero preventablefleet safety accidents. Our target is to reducehigh-severity collisions, with an ongoing goalof eliminating fatal accidents completely.
To improve driving behaviors, we leverage awarenesscampaigns, training, and connected fleet technologies.
By the end of 2022, 65 percent of our working-tool cars
were equipped with vehicle telematics systems, providing
drivers and the company with accurate data on driving
behaviors. Telematics and subsequent analytics allow us toproactively improve driving behaviors, reduce fatalities andinjuries, and decrease carbon emissions (read more here).
We aim to have all our over 17,400 working-tool vehicles
equipped with tools and new ways of working by 2024.
Our immersive, global fleet safety e-learning program
launched in 2021 is tailored to each driver’s corecompetency score, driving style, and local traffic
conditions. In 2022, we connected this program toonboard vehicle telematics systems where legallypermitted, extending the program to help us assess
driver competencies and real-world driving behaviors.
By year-end 2022, 66 percent of company drivers
had commenced the program, which includes ecodriving modules. We expect all drivers at PMI toundergo the training within a three-year cycle.
Together, our standards, programs, and technology areleading to significant improvements in road safety.

Product impact

Maintain A SPI R AT ION

<0.65

2022

0.44

2021

0.44

2020

0.53
0.2

0.4

0.6

Fundamentals

Reporting and performance

Developing our human capital

Vehicle collision rate in our ﬂeet
(collisions per million km driven)

0

Operational impact

0.8

1

Although we continue to reduce collisions, it is to ourdeep regret that the actions of our employees resulted
in road traffic fatalities in 2022 involving nine membersof the public. The accidents occurred in one country in
Asia and one in Latin America and involved challenging
circumstances related to the public use of motorbikes
on the road. Lessons learned from the investigations
highlighted the necessity for motorbike-specific defensivedriving training, along with the continued deploymentof our robust fleet safety management program.
Our Security & Market Safety department also maintains
a comprehensive security management program
to assess and mitigate physical security risks for allcompany personnel and assets. While physical security
incident data are collected and maintained separatelyfrom PMI’s health and safety performance metrics,
three security-related contractor fatalities occurredin 2022 in high-risk operating environments—two in
Mexico and one in an Eastern European country. All
incidents involved external circumstances of threat
to life, emanating from outside of PMI’s facilities.
As with our systemic approach to manufacturing safety,
all fleet and security incidents are subject to thoroughinvestigation and in-depth root cause analysis, including
cooperation with law enforcement authorities whereapplicable, and robust corrective actions have been
implemented to prevent the risk of reoccurrence inthese markets and in similar operating environments.

We provide all our employees with opportunities
to continue to learn, develop, and contributetoward our ambitious company purpose. Learning
new skills enables employees to adapt to ourevolving needs and expectations. It also improves
their sense of belonging at PMI and increases
the impact they have in their role. Developmentof our people also positively impacts on thecommunities in which they live and work.
We are proud to have been certified by the Top
Employers Institute as a global Top Employer for theseventh year in a row. PMI is one of only 15 organizations
awarded this recognition. Our affiliates were also
recognized as leading employers in 34 countries.

105

Listening to our employees
We conduct an annual company-wide employee
survey to better understand employee engagement
and satisfaction. The annual survey is supported with aregular cadence of shorter surveys throughout the year.
Ongoing listening to our employees helps us tounderstand what matters most to them and better
respond to their needs. The results inform datadriven analysis for different functions and regions
to deliver concrete action plans for improvements
and ensure that we have a robust and sustainableapproach to develop and engage our human capital.

Preserve nature

A second challenge in 2022 has been theresumption of full activity after the COVID-19
pandemic, as we work now to increase thecadence of site visits and simultaneously ensurethat remotely hired or working employees areproperly onboarded into PMI’s safety culture.

Through our fleet safety management program,based on recognized standards including ISO 14001
and ISO 39001, we equip PMI with standards,
tools, training, and capabilities to protect the safetyof all personnel driving company vehicles.

Governance

Employee Net Promoter Score (eNPS) is a universal
benchmark across industry of employee engagement
calculated by disregarding neutral responses andthen calculating the difference between positive
and negative responses. Evaluating eNPS at PMI
means we can track employee sentiment year
on year and externally benchmark ourselves.

Employee Net Promoter Score
2025

A SPI R AT ION

≥30

2022

56

2021

35

2020

33
0

10

20

30

40

50

Tackle climate change

One of the key challenges we encountered in 2022
was the proportion of incidents occurring in nonproduction areas within our manufacturing sites,
because historically there has been a greater focus
on safety on the production floor. We responded
to this challenge by reinforcing the frequency andbreadth of safety inspections by site leadershipteams outside of production areas to ensure thatunsafe conditions are identified and eliminated.

A dedicated team—led by our Vice President, Global
Security & Market Safety—manages safety in ourcommercial and sales environments, as well as physicalsecurity across PMI. This team works closely withstakeholders throughout our business, developing
and deploying risk-based procedures, programs, andtraining courses; fostering engagement at the country
level; and using technology, monitoring systems, andperformance indicators to evaluate progress. This
helps ensure the safety of company personnel in theoffice, in the field, on the road, and while traveling.

Strategy

Improve the quality of lifeof people in our supply chain

An Environmental, Health, and Safety (EHS) pillar isestablished in all manufacturing sites, which focuseson building capabilities across the organization toautonomously identify, classify, and mitigate risks, throughdaily management systems applied at all levels of theorganization. All incidents’ root causes are analyzed, andcommunicated for learning and reapplication. These
capabilities are an integral part of skill development
plans for our teams, enabling our manufacturing sites
to develop an interdependent sustainability culture.

Safety and security in our markets

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

104

60

Note: The eNPS score can range from -100 to +100. 2022 ﬁndings exclude Russia.

Philip Morris International — Integrated Report 2022

In 2022, we collected 46,306 responses and achieved
an eNPS of 56 (2021: 44,089, 35). This is 42 points
above the global benchmark provided by our external
partner Karian and Box, 26 points above our aspiration tomaintain an eNPS of 30, and our highest number to date.
The drivers of eNPS are consistent with past results,
with the increase being driven by improvements in key
areas such as our employees’ emotional well-being, andconfidence that our smoke-free journey will be successful.

Managing the employee journey

Recruiting and retaining talent
Our overall employee turnover rate has decreased from
12 percent in 2021 to 9.3 percent in 2022. This includes
4.6 percent voluntary turnover (2021: 4.7 percent).

While we recognize that with continuous transformation
comes the need to recruit external talent, we focus
on promoting internal mobility before hiring externallywhen possible. Our internal careers market provides
transparency and easy access to opportunities for
current employees. Supporting our employees togrow and move to new opportunities internally helps
to mobilize our diverse talent across the organizationand supports the career development and satisfactionof our employees. In 2022, around 4,500 employees
were promoted to more senior positions, with anadditional 9,200 employees moving positions. During
the year, we hired 12,457 people worldwide.

Product impact

Operational impact

Fundamentals

Reporting and performance

Beyond our company-wide employee surveys, we also
leverage a holistic approach to employee listening during
different moments in an employee’s career at PMI, suchas onboarding, a change of position, or a promotion.

The remainder of our employees continued with theexisting approach, which is also aligned to our behavioral
leadership model. In 2023, all employees will move to thesame process to support their performance reviews.

Digital learningThis ongoing listening approach, supported by realtime dashboards, helps us to understand the evolving
trends in employee expectations and requirements
and to take action as needed. For example, achieving
a high retention rate starts with effective onboarding
processes for new employees. In 2022, data highlighted
the importance of the line manager and their inclusionin the onboarding processes. Key focus areas for
improvement included breaking down barriers
between new hires and longer tenured employees,
better integrating underrepresented groups, andconsidering how differences between introverted andextroverted personality profiles impact new hires.

Our approach to talent review helps us to assess thesustained performance of employees and their potential
to take up more complex roles. The two main objectives ofthe process are: ensure that PMI has the right capabilitiesin critical roles to enable business success; and agree
upon individual development actions based on employees
career aspirations to support their development.

• Our FUSE digital learning platform has a wide range oflearning content to support employee development.
This ranges from developing foundational knowledgeof our products and science, to effective leadership,
well-being management, sustainable transformation,and IT and digital capability development

We continued to provide support for line managers
through a playbook, structured around the life cycleof a line manager. This was further enhanced in 2022
through the inclusion of additional modules relating
to onboarding, retention, coaching, mentoring,
managing hybrid teams and supporting well-being.
Performance and career development
Performance and career development reviews
support the personal growth of employees
and contribute to skills management and thedevelopment of human capital within PMI.
In 2022, 90 percent of our employees were coveredby formal performance reviews against theirindividual objectives (2021: 92 percent) overall.1
Our updated performance management approach
was tested in 2021 and continued in 2022 withover 14,000 employees participating. The approachprovides a holistic picture of the value and impact each
employee brings and is aligned with our expanding
focus on project-based, multidisciplinary, and virtual
teams. It is built on three fundamental elements:
clear objectives derived from the company strategy;
continuous feedback from multiple sources; and how
people behave aligned to our PMI’s leadership model.

1

The calculation is based on the 58,190 employees maintained in PMI’s central humanresources (HR) system as of November 1st, 2022.

Continuous employee learningand development
We know that external acquisitions of talent andbusinesses will not provide all the capabilities
we require in PMI. Creating opportunities for
current employees to upskill, re-skill and have newexperiences is also critical. Much of this employee
development comes from being supported to learn“on the job” and having access to opportunities tocontribute to projects alongside their day job.
We seek to empower our employees to take ownershipof their development and career, encouraging
them to complete an individual development planand identify their key areas for development,
supported by 360-degree feedback reports.
Our global approach to employee development
focuses on equity, granting access to digital learning
offers, democratizing training by offering a rangeof voluntary learning opportunities, and deploying
targeted programs that support strategic needs.
For over three years, all employees have access to across-company mentoring program, iGrow. The initiativeis employee-owned and driven and, in 2022, over
800 employees developed their leadership behaviors
such as active listening and communication skills.
They also significantly improved their ability to set
up trusted relationships across different cultures.

In 2022, we continued to focus on strengthening ourdigital learning offerings, expanding access for all digitallyenabled employees to different learning content platforms:• Our digital language learning program, throughour partnership with Rosetta Stone, continues
to be available to all employees worldwide. At
the end of 2022, nearly 5,300 employees wereactively learning or perfecting a new language• During 2022, we deployed a third open content learning
platform, Udemy. Our partnership with Udemy, an
external content library for digital learning, provides abroader range of offerings supporting the developmentof workplace skills to employees in multiple languages.
During the year, we established mechanisms whereby
any employee who can access FUSE can request andbe given access to both Rosetta Stone and Udemy, thus
allowing us to significantly exceed our initial aspiration.
In 2022, 80 percent of our employees worldwide
could access structured lifelong learning offers.

107

SI

Proportion of PMI employees withaccess to structured lifelong learning oﬀers
A SPI R AT ION

2025

70%

2022

80%
0

10

20

30

40

50

60

70

80

90

100

Providing access to these platforms is the first step.
Moving forward, we are curating learning journeys that
support the employee experience and engagement
around participating in learning. Our portfolio of learning
products is also continuing to evolve, incorporating
online self-paced resources, virtual classrooms,
and in-person sessions to provide flexibility andrespond to the different needs of our employees.

Preserve nature

To better understand the impact of employee
turnover, voluntary turnover was analyzed in 2022
to determine the areas requiring focus in PMI. We
developed a definition for the most business-critical
employees and a retention framework will be embedded
into performance management discussions.

GovernanceTackle climate change

PMI’s vision of a smoke-free future helps to attract
and retain talent by providing an opportunity
to make a positive societal impact. We seek toequip line managers with the tools and knowledge
essential to retain talent and to support the personal
growth of employees through regular performanceand career development conversations.

Strategy

Improve the quality of lifeof people in our supply chain

While on a positive trend, we need to continue tofocus on employee reward and recognition and career
opportunities. Ensuring reasonable workloads and finding
effective ways to work between markets, regions, andglobal functions are additional focus areas for 2023.

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

106

Philip Morris International — Integrated Report 2022

Targeted programs
In 2022, we continued to refine our workforce capability
model to identify the professional skills and criticalcapabilities required for PMI as we progress over the
next few years. Three cross-functional capabilities wereidentified as critical for PMI: data and digital literacy;
critical thinking; and sustainability. We continue todevelop and deploy targeted programs to support ouremployees to acquire and develop these critical skills
and capabilities. Some of our programs include:

For example, in our U.K. market, we have deployed
programs focused on early talent, targeting recent
graduates and apprenticeships. EVOLV, an 18-monthfast-track program for U.K.-based graduates, offers
individuals multiple placements within our company
to experience new functions and develop based on
their aspirations and the business need. In 2022,
the program welcomed four new graduates to theprogram, with a total of 60 graduates participatingover the five years of intakes. In parallel, we
introduced Embark in 2022, a new 18-monthapprenticeship program, targeted at school leavers
and welcoming five apprentices. This field-based
and sales-focused program gives apprentices theopportunity to achieve a professional qualification while
experiencing a range of functions across the business.

C A S E S TU DY

The future of work—lifelong
learning program in PMI
In 2022, our Operations function continued to expand its voluntary
lifelong learning program, granting all employees within the functionaccess to two digital learning platforms to encourage them to develop
skills to shape their career in the way they desire, and enable theirlong-term employability.
Read the case study here

Product impact

Fostering diversity, equity,equality, and inclusion
We regard our employees’ diversity as oneof our greatest assets. We therefore seek
to cultivate an inclusive environment where
diversity can thrive and all employees feel
respected, supported, and engaged.
Bloomberg has acknowledged our efforts
for transparency in gender reporting andadvancing women’s equity by including us in
the Bloomberg Gender-Equality Index (GEI)in 2023 for the third consecutive year.

Enhancing diversity
At PMI, we aim to celebrate all types of diversity, both
demographic (e.g., race, ethnicity, sexual orientation,
gender identity or expression, age group, creed,national identity, marital or family status, and visible
or invisible disability) and experiential (how people
think, work, communicate, and live). Our global
forward-looking aspirations, however, specifically
center on gender equality and nationality.
Advancing gender equality and empowering women
A gender gap is a talent gap. Building a genderbalanced organization and improving inclusion at
PMI are therefore two of our top priorities.
Increasing representation of women
Globally, 42.1 percent of our employees were women in
2022, and 40.7 percent of our management positions
were held by women (2021: 42.2 percent, 39.7 percent).
We are proud to confirm that we achieved our targetof 40 percent of management positions held by
women by the end of 2022. Our managerial newhires’ gender ratio for the year was 42.7 percent for
women (2021: 44.7 percent), and the proportion ofpromotions to management positions that went towomen was 47.5 percent (2021: 47.6 percent).

Operational impact

Fundamentals

Reporting and performance

Proportion of management
positions held by women
Maintain A SPI R AT ION

40%

2022

40.7%

2021

39.7%

2020

37.7%
0

10

20

30

40

50

Our ambition is to maintain a gender balanced
representation in management positions. To do so, we
aim to (i) maintain a minimum of 40 percent women in
managerial roles globally, and (ii) have a maximum of
60 percent of any gender in managerial roles in most of
our functions and regions by 2025. We will report on
this key performance indicator (KPI) moving forward.
In line with this aspiration, we are focusing
our efforts on specific business functions andregions. In 2022, approximately half our regions
and business functions were already alignedwith our gender representation aspiration.
To optimize our business, we believe it is criticalthat we improve the gender balance in senior roles.
We are committed to having at least 32 percent
of senior roles held by women by 2023 and 35
percent by 2025. In 2022, women represented 30.5
percent of senior positions (2021: 31.1 percent).
SI

Proportion of senior roles held
by women
2025

A SPI R AT ION

35%

2023

A SPI R AT ION

32%

2022

30.5%

2021

31.1%

2020

29.6%
0

5

10

15

20

25

30

35

109

Preserve nature• We designed our “License to lead” program for firsttime line managers and line managers who recently
joined PMI. It involved around 260 participants in 2022
and focused on developing the critical capabilities
new managers require in the first days in their role.

We seek to support early talent around the world to beequipped for the modern workplace through targeted
programs and initiatives. This helps ensure that PMI
has a next generation of leaders with the right skills.

GovernanceTackle climate change• Our high-potential development pathway “Accelerate”
identified 70 participants in 2022 for accelerated
development to more complex or critical roles.
It focuses on supporting them to become future
leaders at PMI, and will expand in 2023.

Attracting and developing young talent

Strategy

Improve the quality of lifeof people in our supply chain• The “Next Generation Leadership Pathway” is a twoyear program designed to support the developmentof an internal talent pipeline of future commercial
leaders. Female representation in this program
increased from 15 percent in 2021 to 50 percent
in 2022. The program includes a nine-montheducational curriculum featuring core elements,
including a module focused on sustainability andoffered by our external partners at INSEAD and Duke
Corporate Education. To date, eight participants
have been promoted to commercial leader roles, and20 others have taken on new or expanded roles.

• Our “Women in Leadership” program focuses on
personal growth, development, and senior leader
sponsorship. It is designed to provide participants withstrategies and tactics to navigate common barriers,build confidence, and create a sense of communityand belonging. It helps identify what is truly importantto them in their lives and careers. Over 70 female
leaders participated in the six-month program in
2022, which incorporated virtual classrooms, one-toone sessions with an external coach, group activities,
and impactful interactions with senior leaders.

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

108

Philip Morris International — Integrated Report 2022

Our current figures mainly result from higher turnoverof women in senior roles and lower internal promotion
to managerial roles of women compared with men in
2022. We plan to continue our centrally sponsored“Women in Leadership” program for women in senior
roles (read more here) to support retention efforts. We
also plan to launch a new program called “Elevate” forwomen in managerial roles to support their development
and career progression. This program was piloted in
2022 with women from our Market Safety & Security
team and we received very positive feedback.

As a result of our certification, we are confident
that unequal pay for equal work does notcontribute to the gender pay gap at PMI. Rather,
the gap stems from the fact that women are
underrepresented in senior leadership roles.
The imbalance also needs to be viewed in the context
of our overall workforce demographics. In particular, ofthe 71,070 people we employed by the end of 2022,
over a third are employees, mainly women, who hand-rollcigarettes at our manufacturing facilities in Indonesia.
Those employees are subject to a different salarystructure and are paid based on the number of pieces
they hand-roll. This employment opportunity, whichempowers thousands of women in the country, impacts
our global gender pay gap. When we look at our company
globally as a whole, the average male pay was 30 percent
higher than female pay in 2022 (2021: 34 percent). When
we exclude our Indonesian piece-rate employees, ouraverage 2022 female pay was 0.6% higher than male pay.
This is largely driven by the fact that, when excluding
the Indonesian hand-rollers, the majority of our lower
paying blue-collar roles are held by male employees.

2022

2021

2020

Top pay quartile globally

37%

35%

34%

Upper-middle pay quartile globally

34%

36%

34%

Lower-middle pay quartile globally

25%

22%

21%

Lowest pay quartile globally

73%

76%

77%

PMI’s global mean (average)
raw gender pay gap 1

30%

34%

33%

1

The mean gender pay gap is calculated as the percentage difference between the sumof annual base salary, bonus, and stock options.

Product impact

Focusing on national representation
We seek to strengthen the diversity of nationalities
within our global workforce and, in particular, to growlocal talent within executive management teams.
Our employees represented 133 nationalities at yearend 2022, contributing to an international culturethat many employees value. Despite this international
composition, employees in all management positions
need to better reflect PMI’s geographic footprint
and the diversity of its overall workforce.

Top five nationalities in PMI’s workforce
and their respective representation in
management positions and senior roles
Management
positions

Seniorroles

Indonesian

31.0%

7.5%

3.5%

Polish

6.2%

7.9%

3.5%

Filipino

6.1%

3.5%

2.3%

Russian

4.5%

6.0%

4.9%

Italian

4.2%

4.6%

5.6%

Other nationalities

48%

71%

80%

We set an ambition to develop local talent for leadership
positions, and we aim to achieve a minimum local
representation of 60 percent in at least 80 percent
of our markets and clusters. In 2022, we established
our baseline, finding we are at a good starting point
to meet this goal. Rather than launching dedicatedprograms, we focused on discussions with market
management teams to remind them of the goals andopportunities to bring more local talent on board.

Proportion of markets with at least 60%
representation of local talent in theexecutive management teams
A SPI R AT ION

≥80%

2022

58%
0

20

40

60

80

100

Considers Managing Directors and their direct reports within PMI markets andclusters who have local nationality registered in PMI HR systems. Excludes countries
where employee national identity is not collected in PMI HR systems.

Fundamentals

Reporting and performance

More specifically, Asian nationals held 17 percent of
PMI’s senior roles in 2022. In contrast, the South andSoutheast Asia (S&SA) and East Asia and Australia(EA&A) regions together represented 39 percent of
our total workforce in 2022. We aspire to have atleast 20 percent Asian representation in senior roles
by 2025 to help bridge this representation gap.

Representation of Asian talent
in senior roles globally
2025

Overall
workforce

2025

Operational impact

A SPI R AT ION

≥20%

2022

17%

2021

16%
0

5

10

15

20

111

For the purpose of measuring progress against this indicator, PMI uses thenationality data of employees recorded in our HR systems. The determinationof Asian nationalities is based on the regional groupings as listed by theUnited Nations, and we consider the following regions: Central and Southern Asia,
Eastern and South-Eastern Asia.

To support these efforts, in 2022 our S&SA and EA&A
regions continued the deployment of their regional
acceleration and development of the Asian talent
program originally launched in 2021. The program aims
to build high-potential Asian talent and accelerate their
preparedness to assume future leadership roles. A totalof 36 high-potential management-level participants
took part in 2022, with an equal representation fromboth regions. The program follows a blended learning
approach from the Duke Corporate Education faculty,
external experts, and PMI leaders to sharpen the agility
and management capabilities of the participants. It
offers course learnings and real business challenges thatwill equip them with strategic and organizational skills.
Approximately a third of the participants moved into moresenior roles following their participation in this program.

Preserve nature

Proportion of women in PMIGovernanceTackle climate change

Meanwhile in the U.S., we started a partnership with
NextUp in 2021, an organization with the mission toadvance women in corporate America and transform
workplaces. In 2022, 33 PMI employees participatedin their leadership programs, summits, and workshops
to help amplify women’s voices in the workplace andovercome gender-based challenges. In addition, PMI
U.S. partnered, in 2022, with a global organization
comprised of current and former Black CEOs andsenior executives at Fortune 1000 and Global 500
companies whose mission is to increase the numberof successful Black executives. PMI U.S. selected nine
employees, of which six were women, to participate inthese development programs. These programs were
deployed through our local employee resource groups(WIN and MOSAIC) with sponsorship from management.

Alongside equal pay, we are committed to fostering
fairness in the workplace and we seek to close our gender
pay gap. The gender pay gap refers to the percentage
difference between the average pay for men and women.

Strategy

Improve the quality of lifeof people in our supply chain

These global programs are complemented by local
or regional efforts. For instance, our Middle East &Africa and Duty Free and Eastern Europe regions
deployed a “Female Leadership Practices” program
involving 52 participants in 2022, which focused on
creating a sense of community and belonging and on
supporting women in navigating common workplace
challenges while improving their engagement.

Closing the gender pay gap
PMI’s global EQUAL-SALARY certification gives us
confidence that we provide equal pay for equal work.

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

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Building a culture that promotes
and protects inclusion
Only a truly inclusive culture can ensure we benefit fully
from the value diversity can bring to our organization.
Measuring inclusion

At PMI, we used the findings to help us further
establish inclusion at the core of our business—whichis key to unlocking the innovation, creativity, andsolutions required to deliver a smoke-free future.

Product impact

Our global ERGs include:• STRIPES convenes employees around gender
identity and provides a formalized structure andglobal strategy for the local LGBTQ+ networks• EMBRACE aims to champion racial, ethnic, and cultural
equality by raising awareness and understanding of
the challenges faced by underrepresented groups• WIN (Women’s Inspiration Network) aims
to provide a supportive place to inspire andempower women to advance their skills, expand
their network, and unlock their full potential• ABLE aims to foster a more inclusive and diverse
organization by attracting candidates andsupporting employees with different abilities
We also launched a platform open to all employees,
which brings together representatives of each ERG to
discuss an intersectional topic on a monthly basis. It
introduces the concept of ERGs and drives an inclusive
culture through open discussions among employees.
Raising awareness and knowledge

Encouraging employees to take an active role
Our employee resource groups (ERGs) focus on particulardimensions of diversity and provide a platform for building
a sense of belonging, visibility, and greater understandingof different experiences and dimensions of diversity in
our company. They organize events, provide mentoring
opportunities, and host conversations to enable
employees to better understand and support one another.
All our ERGs are led by a committee of volunteer
employees, sponsored by a member of Company
Management, and supported by an external subject matter
expert partner. They are open to all PMI employees.
In 2022, we continued to focus on the growth of
our global ERGs and on expanding them locally,
to be able to meet the specific needs of different
geographies. By the end of the year, we had over 40
local ERG chapters established, and participation in
our global ERG events reached up to 8,000 attendees.
We also developed a new global ERG focused onparents at PMI, which we will launch in 2023.

In 2021, we successfully broadcast our first global
Inclusion & Diversity (I&D) conference. To find additional
ways to engage with employees on I&D topics in 2022,
we conducted a range of activities throughout theyear. For example, we launched an inaugural campaign
during Well-being Awareness Month, organized
several ERG events, and our Chief Diversity Officer
launched a series of topic-specific “Let’s talk about it”
podcasts spread out over the course of the year andmade available on our intranet to all employees.
We also continued our monthly I&D office hours,
which offer a casual and safe setting in which
employees worldwide can openly raise questions
or topics with our Chief Diversity Officer and theglobal I&D team and share their thoughts withparticipants from different teams and business areas.
As part of our ongoing effort to gather diverse input for
our I&D strategy and programs, we also continued aninternal employee group (I&D Soundboard), which meetsregularly to give input and feedback to the I&D team. The
global I&D team also publishes I&D News—a quarterly
newsletter to encourage our continued unity and inclusion.

Operational impact

Fundamentals

Reporting and performance

We introduced monthly calls with our I&D representatives
in the markets to communicate and cascade the global
I&D strategy. During these sessions, we also take theopportunity to celebrate local I&D achievements:• PT SRC Indonesia Sembilan (SRCIS) was chosen by
UN Women as an SME Champion for the GenderInclusive Workplace Category at the 2022 Women
Empowerment Principles (WEPs) Awards at theIndonesia and Asia Pacific level (read more here)• Philip Morris Japan was awarded second place in
the Forbes Japan Women Award in the categoryof companies over the size of 1,001 employees
in recognition of the significant progress being
made to advance gender equality in the affiliate• We also celebrated the second year of Philip Morris
Pakistan’s “MakeYourComeback” program, a platform
for women who have taken a break from paid work
and wish to relaunch their careers (read more here)
We continued to offer our employees access to ourglobal unconscious bias and culture diversity training
as well as newly introduced psychological safety
resources. These e-learnings raise self-awareness of
implicit bias with an aim to understand the various
ways it shows up in organizations and how to minimize
our biases when we take decisions. Through thesee-learnings, participants receive practical tools andtechniques to combat prejudice and preconceived
notions that constitute barriers to inclusion.

113

Preserve nature

For the first time, we asked our employees to voluntarily
self-identify as part of an underrepresented group basedon gender, nationality, sexual orientation, ethnicity,disability, creed, or other dimension. We also asked how
likely they would be to recommend PMI to their friend orcolleague from an underrepresented group as an inclusive
place to work. The majority (77 percent) of respondents
voluntarily self-identified, of which 16 percent selfidentified as part of an underrepresented group. The total
PMI iNPS amounted to 56 (50 for women and 59 formen) while the iNPS for underrepresented groups stoodat 35. The iNPS was lower for employees who identified
as part of an underrepresented group based on gender or
ethnicity. To raise awareness about the need to improve
inclusion in the organization, we organized a workshop formembers of our Company Management with an external
expert consultant. The consultant conducted qualitative
research across the organization to assess the level ofinclusion perceived by different demographics and levelsof seniority. This work will help us to develop plans toincrease inclusion across all central functions and regions.

IMD’s extensive three-part analysis examines a broad
range of qualitative and quantitative approaches
and practices that organizations can implement tocultivate a more inclusive workplace. The reporthighlights the need for a comprehensive explorationof the six key dimensions of inclusion: (1) psychologicalsafety, (2) uniqueness, (3) fairness, (4) participation,(5) belonging, and (6) authenticity. The research
was published in March 2022 (read more here).

GovernanceTackle climate change

While there is no official standard established formeasuring inclusion, we enhanced our internal surveys
as a consequence of the Inclusive Future research we
conducted in partnership with IMD (see the featurebox on the right). Consequently, we introduced a
new metric called the “inclusion Net Promoter Score”(or iNPS) to complement the Inclusion Index.

In 2021, we sponsored the Inclusive Future researchwith the International Institute for Management
Development (IMD) in Switzerland. This is a yearlong research and convening project to advance thediscourse and practices surrounding inclusivity.

Strategy

Improve the quality of lifeof people in our supply chain

In 2022, we continued to capture employee sentiment
on inclusion as part of our global employee listening
survey (read more about the survey here). We analyzed
responses to six questions first introduced in 2021 thatcover key components of inclusion to understand pastand present behavior and to influence future behavior.
At 82 percent, the index showed an overall highperception of inclusion within PMI (2021: 76 percent).

Inclusive Future

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

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Promoting mental
health and well-being

Measuring well-being to drive action

We seek to promote an environmentthat supports employee well-being
as an enabler of professional andpersonal fulfillment, sustainable highperformance, and business results.

As part of our regular employee listening (readmore here), we ask employees three times a year
to answer questions related to perceptions of
psychological well-being. This is measured on a
five-point scale from very bad to very good.

One of the pillars of our I&D strategy is creating
an environment for sustainable high performance.
To do that, our vision is to create an environment
which nourishes people’s energy.

Under our holistic framework, well-being incorporates
physical needs, psychological needs, and self-fulfillment.

In March 2022, we piloted the inclusion of questions
in our employee listening surveys exploring
psychological safety for the first time. Psychologicalsafety underpins both inclusion and how comfortable
employees feel to have conversations related topersonal challenges and well-being needs.

A SPI R AT ION

>70%

2022

74%

2021

61%

2020

57%
0

20

40

60

80

Operational impact

Fundamentals

Reporting and performance

A global focus on mental healthSupporting our employees

Mental health is critical to employee well-being.

We aim to provide well-being offerings that fit employee
needs and expectations and that are anchored in thelocal context of where our people live and work.

Our research indicated that removing the stigma
around conversations on mental health should remain
a top priority. In order to equip employees to support
themselves and others, in 2022 we developed self-paced,online training on our internal e-learning platform, FUSE,
called “Mental Health for All.” This training offers insight
into the science of mental health, teaches how to spot
the signs of common problems, and introduces provenand easy self-care practices and basic skills to offer help
to others. It is translated in 10 languages, and we will be
rolling it out further in 2023, as well as incorporating it into
our leadership and management development programs.
Our employee-led Well-being Advisory Group is a diverse
body convened in 2021 that includes senior leaders
and well-being advocates from various functions andregions. In 2022, it helped us shape our plans for theyear and launch new initiatives. One such initiative wasa pilot training program of well-being champions. This
first global cohort received training on how to listen,
have supportive conversations, and act as a catalyst
for positive well-being initiatives in their locations.
We also trained over 50 employees to become trainers
themselves of well-being champions, our P&C and
Security & Market Safety colleagues, who will adjust
the training to local language and cultural nuances, anddeliver it locally to champions in 14 markets. Moving
forward, we will continue to grow this program throughthe “train the trainer” approach, to ensure that we expand
the reach of our network of well-being champions
across the globe (read more about this program here).
Strengthening resilience
Against the backdrop of rapid changes in the world,and following recent global events, including thehealth pandemic, we want to help our employees feelsafe within the ever-changing external environment,
and give them tools to strengthen their resilience
to maintain well-being over the long term.

Perception of psychological well-being
among our employees
2025

Product impact

After analyzing results of resilience deep-diveworkshops piloted in South Africa in 2021, we havedecided to build resilience training into broader
initiatives and resources, including our approach
to lifelong learning, as well as training programs forleaders and new managers (read more here).

Family and caregiver support
We seek to promote an inclusive and equitable vision ofcare through our global parental leave principles, which
provide primary caregivers a minimum of 18 weeks offully paid parental leave and a secondary caregiver aminimum of eight weeks fully paid parental leave (readmore on PMI.com). We are proud to announce we havemet our target of having all PMI employees covered bythese parental leave principles by the end of 2022.

Proportion of PMI employees coveredby new parental leave principles
2022

A SPI R AT ION

100%

2022

96%

2021

41%
0

20

115

40

60

80

100

Note: Excludes Russia

In parallel, we continued to provide access to an external
online platform called Circle-In, first launched in 2021,
that offers resources to support employees with theprofessional and personal challenges they may experience
as a caregiver, and we developed a new employee
resource group for parents (read more about ERGs here).
Back-up childcare services or childcare subsidies
through company or government support areavailable in 33 of our markets. Further, private space
to be used as lactation rooms or breastfeeding, or
lactation benefits, are provided by 83 markets.
Paid family or care leave beyond parental leaveis offered in 42 of our markets. Examples may
include care for a child, spouse, partner, dependent,
parent, sibling, or other designated relation
with a physical or mental health condition.

Preserve nature

We introduced additional questions in our fall 2022
survey relating to well-being control, demands,
and support, informed by an in-depth study weconducted in 2021. Survey results gave us additional
insights into priority areas, such as managing
workload and reasonable deadlines, which can beaddressed through organizational support, as well as
empowering colleagues to prioritize self-care. We willcontinue to track progress on this indicator, and aim
to continue achieving at least a 70 percent score.

GovernanceTackle climate change

We use a global framework and an integrated anddata-driven roadmap of priority actions supported
by insights gathered through our employee listening
surveys, benchmarks of best-in-class practices, andthe help of external experts to drive this vision.

In October 2022, 74 percent of employees responded“good” or “very good” (2021: 61 percent). This is apositive trend, which exceeded our annual target
and external benchmarks. Many drivers contributed
to this result, including external factors such as theeasing of COVID-19 restrictions in many countries,
for instance. Despite the overall positive trend, there
is still a 7 percent gap between how men and womenrate their psychological well-being, which will be afocus area moving forward (2021: 5 percent).

Strategy

Improve the quality of lifeof people in our supply chain

Building a holistic approach to well-being

Data and insights are key to introducing relevantinterventions in support of employee well-being.

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

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Anchoring well-being initiatives in local realities

Our global Employee Assistance Program offers first-line
support to our employees and their close relatives in theareas of psychological, financial, and legal counseling.
Support is provided in local languages across all 92
countries under high standards of confidentiality. By theend of 2022, the program covered 100 percent of our
total workforce maintained in PMI’s central HR system.1
The majority of countries are served by a global provider,with the remainder being covered by local schemes.

As we expand our well-being champions network globally(read more here), we will continue to draw on support
from market-level health and well-being committees
or dedicated market-level contacts for well-being,depending on the local context. We continue to offerwell-being-related interventions and benefits, ranging
from gym membership offerings to sports competitions,mental health-related webinars, cooking classes, andother activities that are rooted in local realities. We
are, however, seeking to use our well-being champions
network as the golden thread to foster discussion andactivity in a more harmonized way across markets
and to complement well-being benefits with more
direct employee engagement around the topic.

Flexible working arrangements
Even prior to COVID-19 and the shift to remote work,
PMI was promoting more balanced ways of working.

The calculation is based on the 58,240 employees maintained in PMI’s central
HR system.

Operational impact

Fundamentals

Reporting and performance

Looking ahead

Charles Bendotti
Senior Vice President,
People & Culture

Silke Muenster
Chief Diversity Officer

In 2023, we will utilize insights from our employee listening surveys to drive the formationof our strategy to address key pain points such as workload, reward and recognition,
career opportunities, and inter-office projects and work patterns to continue improving
our employee experience. We will move beyond providing access to lifelong learning
opportunities by structuring these opportunities for employees to help meet strategicorganizational objectives and boost employability. Human capital development remains
core to PMI values and to our long-term success, and as such we will continue evolving
our success measures to be more impact-driven. In 2023, we will also initiate actions asnecessary to ensure we continue to meet our global living wage commitment to ouremployees, focusing on at-risk markets.

In the coming year, our focus will continue to be growing the feeling of belonging for our
employees. We will carry on measuring our progress in this area through our inclusion Net
Promoter Score (iNPS). Throughout the year, we will leverage insights from this score andlaunch our new, parent-focused employee representation group to improve a sense of
belonging among employees. Because we know that fostering an inclusive culture is the only
way to really reap the benefits of diversity.
Another focus for us has been improving our employees’ well-being, taking into account howliving in different areas can impact everyone differently. To address this, we are expanding ourwell-being champions network globally and will use them to foster discussion and activity
across markets and find solutions.
While we have made huge progress in the last few years, especially with female
representation, we know that more work must be done. So, in 2022 we also started designinga supplier diversity framework that aims to make sure we use inclusive sourcing practices at
PMI by 2025. And we are working hard toward achieving our target of 35 percent of senior
positions held by women by the end of 2025, through targeted programs and initiatives acrossboth markets and business functions.

Looking ahead, we plan to develop tailoredarrangements for non-office-based employees, suchas our factory and sales workforce, based on findings
from the initial launch to office-based employees.

1

Product impact

Scott Coutts
Senior Vice President, Operations

We will maintain our focus on occupational health and safety, seeking to continue ourtrend of low Total Recordable Incident Rate. This will include ramping up training on
health and safety for our employees, contracted employees and contractors working
at our premises. Within our fleet, our focus will be on equipping all working-toolvehicles with telematics, and extending training on defensive driving techniques
to minimize incident rates.

117

Preserve nature

In 2022, we continued to deploy Smart Work inmarkets where COVID-19 was receding and where
local circumstances allowed it. By year-end, 87 percent
of markets had implemented it, and 12 percent werein the process of preparing for the launch; one market
had to pause it due to COVID-19 restrictions. We will
use our learnings to adjust our guidelines and provide
resources to support employees and managers to
help use time most productively in the hybrid world,
as well as to support an individual’s well-being.

GovernanceTackle climate change

Drawing on the experiences and changed expectationsof employees during COVID-19, we developed a global
hybrid work plan in 2020 called “Smart Work.” Its
philosophy and principles are global, with the general rule
being that employees are permitted to work remotely
up to 60 percent of their time in each month, with theremainder spent on-site. The program is deployed andadjusted locally to account for cultural, operational, tax,
and legal implications, which vary at the national level.

Strategy

Improve the quality of lifeof people in our supply chain

Supporting our employees and their families

Overview

Foster an empowered
and inclusive workplace

FOSTER AN EMPOWERED AND INCLUSIVE WORKPL ACE

116

118

Philip Morris International — Integrated Report 2022

Strategy

Governance

Product impact

Improve the quality of lifeof people in our supply chain

As our business transforms, our supply chain
evolves as well. Caring for the quality of life of thepeople in our supply chain is a major contributor tobuilding preparedness, resilience, and overall longterm success. Prioritizing our agricultural supply
chain allows us to focus on a critical componentof our business that is vulnerable to poverty andhuman rights abuses. This includes working with
farmers who make a decent living from growing
tobacco, other crops, or other income-generating
activity, which improves their livelihood and limits
our potential exposure to child labor, forced laborand other labor-related violations, import bans, andreputational damage. We anticipate that the time,energy, and resources we have invested in developing,
implementing, and monitoring the implementation of
our Agricultural Labor Practices program will provide
the insights needed to ensure similar standards
are met throughout the rest of our supply chain
as we continue on our transformation journey.

Promoting and adhering to sustainable businesspractices helps safeguard human rights,
improve labor conditions, protect workers’
health and safety, tackle social inequalities,
and contribute toward alleviating poverty.
Agricultural supply chains face specific sustainability
and human rights challenges. The tobacco we source
is cultivated in many regions of the world, including
low- and middle-income countries, where it is typicallygrown on smallholder farms. The socioeconomic
well-being of farmers and their families depends
on many factors, including the nation’s health andeducational services, political stability, resilience
to extreme weather events and conditions, accessto markets, and public infrastructure. Our supply
chain activities and investments extend beyond our
direct effect on farmers, impacting people’s assets,
capabilities, opportunities, and standards of living.

Promoting fair working and living conditions in our tobacco supply chain 120– Contributing toward alleviating poverty

121– Eliminating labor abuses

125

Promoting fair working and living conditions in our broader supply chain 130

Monitoring the implementationof our ALP program
Our due diligence framework to evaluate theimplementation of our ALP Code comprises internal
farm-by-farm monitoring by field technicians,
external comprehensive and focused assessments
by Control Union, and external verification by
specialized third parties. Learn more on PMI.com.
We use a risk-based approach to identify, prevent,and mitigate incidents related to human rights andlabor rights in our tobacco supply chain. For thisundertaking, we collaborate with key stakeholders—such as suppliers, farmers and farmer associations,civil society organizations, academics, governments,
and the private sector—to more effectively tackle
persistent and systemic issues in the agricultural sector.
PMI’s policies and standards
Human Rights Commitment
Agricultural Labor Practices (ALP) CodeGood Agricultural Practices (GAP)
Responsible Sourcing Principles (RSP)

Since 2018, we have deployed a Step Change approachto our ALP program focused on four priority areas:
eliminating child labor; ensuring payment of at least aminimum legal wage or agricultural benchmark; ensuring
the availability and appropriate use of personal protective
equipment (PPE); and ensuring adequate accommodation
for workers where farmers choose to provide housing.
Step Change aims to resolve the root causes of these
persistent issues in priority countries—which we assess
periodically—and is run in collaboration with our longterm strategic partner on the ALP program, Verité.
Beyond tobacco, we are taking steps to leverage theextensive learnings from the ALP program and ourhuman rights impact assessments to proactively address
challenges in our electronics supply chain. We will also
explore pathways to promote a living wage across our
supply chain. We are at the early stage of this journey
and are focused on building our understanding andidentifying meaningful strategies to deploy in the years
to come, grounded in our Human Rights Commitment
and Responsible Sourcing Principles. We understandthat promoting fair working conditions and a living
wage across a global and complex supply chain must
rely on data that are often not available or fragmented.
In that context, we actively participate in the BusinessCommission to Tackle Inequality (BCTI) efforts led by theWorld Business Council for Sustainable Development(WBCSD), a cross-sectoral and multistakeholder coalitionof organizations that seek to share challenges, learn
best practices, and explore ways to make progress.
We are committed to sourcing sustainably fromall our critical suppliers (read more here) andconducting human rights impact assessments in our
10 highest-risk markets by 2025 (read more here).
Management
PMI’s Senior Vice President of Operations, a memberof our Company Management, is accountable forour strategy related to supply chain management
and relevant programs. Regarding the agricultural
supply chain work, the operational responsibilitylies with our Vice President of Global Technical
Operations department, and in each sourcing region,a management team oversees its implementation.
When it comes to PMI’s work in the broader
supply chain, including electronics, the operational
responsibility lies with PMI’s Chief Procurement
Officer. Meanwhile, our Operations Sustainability
department is responsible for strategy development
and stakeholder engagement, and acts as the centerof expertise related to potential social issues.

119

Preserve nature

OUTWARD IMPACT: External impact

Reporting and performance

Tackle climate change

INWARD IMPACT: Risks and opportunities

A principal aim of PMI is to provide a decent livelihood to
all contracted farmers in our tobacco supply chain. Thishas been a focus since we introduced our Agricultural
Labor Practices (ALP) program in 2011, supplemented by
the ALP Step Change in 2018. The mid- and long-termtargets that we have committed to cover fundamentallabor standards such as child labor, income, work hours,
health and safety, accommodation, and access to water,
sanitation, and hygiene. Our Leaf teams, tobacco suppliers,
contracted farmers, and workers are regularly trainedon the ALP Code. Our integrated production systemenables traceability at the farm level (read more here).
And we have a robust due diligence framework in place
to evaluate the implementation of our ALP Code.

Fundamentals

Improve the quality of lifeof people in our supply chain

Our supply chain connects us with millions of people, from the farmers cultivating
tobacco and other agricultural products to workers at the supplier companies thatprovide the products and services used in our products or necessary to run our business.

Sound standards and practices to manage
our supply chain responsibly (read more herehere))and safeguard human rights (read more herehere))
are vital prerequisites to harnessing theconnections in our supply chain to improve
the quality of life of those involved.

Operational impact

Foster an empowered
and inclusive workplace

Management approachO P E R AT I O N A L I M PA C T

In this section

Overview

We continued activities to support farmer income
through enhanced productivity and alternative
income schemes.
We continued initiatives to keep children away fromfarms through various interventions, including
targeted training, after-school and school
improvement programs.

We launched targeted monitoring guidelines tosupport field technicians to better identify andaddress potential issues on the ground.

Challenges

Sustainability of water access, sanitation, andhygiene (WASH) infrastructure is one of the greatest
challenges, which we mitigate by working closely withlocal communities and by developing water committees
to keep infrastructure in good condition.
A gradual decrease in our overall demand for tobacco
leaf resulting from the increased share of smoke-freeconsumables in our overall product mix has impacts
on farmers that we continue to monitor and attempt
to mitigate.
Despite our best efforts, isolated cases of childlabor—even when systemic occurrences are
addressed—might persist, leading us to tackle them
promptly when identified.
Multistakeholder engagement is required to advanceglobal efforts toward increased visibility into supply
chain working conditions and promotion of living wages.

Because of this, it is important to note that, while
the data reported confirm that indeed the tobacco
we purchased is almost completely free from key
labor issues, this does not mean that labor issues,
including child labor, do not continue to exist in the
tobacco growing areas from which we source.

Reporting and performance

1.

PMI’s supplier farm base
All tobacco farmers from whom our third-party
leaf suppliers purchase tobacco in PMI’s tobacco
growing areas.

2.

Eligible farmers contracted by suppliers
and applying PMI’s GAP and ALP
The eligible farm base is composed of that subset of
tobacco farmers who have been contracted by suppliers
based on a set of sustainability requirements establishedby our suppliers, which include PMI’s GAP and ALP Code.
This preselection takes into consideration farmers’ past
year performance related to addressing child labor orforced labor issues, minimum wage payment, decent
accommodation for workers, and access to personal
protective equipment (except for newly contracted
farmers for which such information is not available).
Only a subset of these eligible farmers end up supplying
tobacco used in PMI’s packed products.

3.

1.

2.

plier farm b
I's sup
ase
PM
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r
i
l
s
p
a
p
n
u
d ap
by s
ply
ing
ted
rac
PM
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o

Eligible contracted
farmers supplying
tobacco to PMI

2.

3.

Eligible contracted farmers supplying tobacco to PMIThis corresponds to the portion of the eligible farm basewhose tobacco is, ultimately, included in PMI’s products.
This segment represented 223,299 farmers in 2022.
We refer to this group as “contracted farmers supplying
tobacco to PMI” throughout this report. This excludes spot
purchases that could represent up to 10 percent of our
total purchased volume (i.e., unplanned purchases forwhich we do not have access to sustainability data).

Our intention with the introduction of this new approachis to influence the rest of the industry, as well as ourpartners who operate in tobacco-growing countries, toaccelerate actions to address sustainability challenges.
We have updated a series of internal guidelines related
to farm-level monitoring and external verification, as
well as training materials in line with the STSC updates.
We will, however, continue to implement targeted
initiatives to address labor issues identified on the groundwithin our broader total farm base of contracted farmers.

121

1.

Contributing toward alleviating poverty
We aim to improve the livelihoods of the farmers
supplying tobacco to PMI, thereby advancing thesocioeconomic development of the communities
in which they live. We see this as fundamental
to addressing social inequality and other humanrights issues in our tobacco supply chain.
Assessing income levels in our
tobacco sourcing markets
Robust analyses and studies to define living income
values and assess current farmer incomes (and thepotential gap between the two) across our sourcing
markets are the backbone of our approach.
The living income value determines the net annual
income required for a household to afford a decent
standard of living for all its members. We calculate
it based on a variety of mechanisms, dependingon the economic characteristics of individual
countries from which we source tobacco.

Preserve nature

Methodology improvements on how we measure
and analyze a wide range of social concerns—thoughuseful moving forward—make it difficult to track anddiscuss year-on-year trends and progress.

Accordingly, we shifted from reporting sustainability
progress on the PMI’s supplier farm base to farmers whose
tobacco volumes are directly included in PMI’s purchased
tobacco (i.e., those eligible contracted farmers supplying
tobacco to PMI) to ensure better data quality andgranularity. See the visual on the right for further details.

Fundamentals

Tackle climate change

Around 125 leaf suppliers’ ALP coordinators weretrained using our new ALP program training materials ina “train the trainer” initiative in partnership with Verité.

Operational impact

The STSC framework breaks down our tobacco supply base into three categories:

We aim to continuously improve our approach andchallenge our work.
Accordingly, during 2022 we reviewed our methodology
in order to become more stringent in our purchasing
practices and hoping to further accelerate efforts toaddress labor issues in the industry. We have therefore set
a new baseline by implementing our Sustainable Tobacco
Supply Chain (STSC) framework, excluding prior year data,
throughout this report. This new approach focuses on thefull life cycle of tobacco production and targets actions
toward the tobacco we purchase and use in our products.

Product impact

Improve the quality of lifeof people in our supply chain

We introduced the Sustainable Tobacco Supply Chain(STSC) framework to strengthen our approach tomonitoring and reporting on the quality of life ofpeople in our supply chain.

Since the implementation of the ALP program
over a decade ago (read our 10-year ALP
anniversary report herehere),), we have put
in place several initiatives and strengthened
our processes and our methodologies.

Governancec

Highlights

Promoting fair working
and living conditions in
our tobacco supply chain

Strategy

Foster an empowered
and inclusive workplace

Progress in 2022

Overview

Eligiblefarm
ers

Philip Morris International — Integrated Report 2022

LP
nd A
Pa
GA
I's

I M P R O V E T H E Q U A L I T Y O F L I F E O F P E O P L E I N O U R S U P P LY C H A I N

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Philip Morris International — Integrated Report 2022

For identified priority and low- and middleincome countries, we used the following
methodologies (see Glossary for further details):• Reference value: When determining living income forArgentina, Mozambique, and Turkey, we use reference
values from previous years, which represent typical or
average living incomes for rural and urban areas withineach country. They are not location-specific, and so
are not representative of a specific region or city.

Moving forward, we intend to conduct a full benchmark
study in Indonesia and finalize one in the Philippines that
we started in 2022. We will also perform BSR studies inSouth Africa and Switzerland, and update all relevant 2022
benchmarks as needed (e.g., accounting for inflation).
These external approaches bring robustness tothe approach and replace the interim solution ofinternal desktop exercises used in the past.

In 2023, we will roll out this new methodology
with our suppliers and internal operations. In our
next integrated report, we will report our progress
based on this new methodology, and restateprior year data to account for progress, which
will then define a baseline moving forward.

Operational impact

Product impact

Implementing targeted interventions
to close the living income gap
Driven by the results of our assessments, we implement
various initiatives to improve income levels. While
we tailor activities to local realities and needs, ourstrategy is universal: We aim to improve tobacco crop
productivity and competitiveness while supporting
households in diversifying their sources of income.
When designing comprehensive action plans, our aim
is to exceed the living income benchmark targets thatare required to achieve a decent standard of living. Thisaffords a buffer to accommodate potential fluctuations
in farmer incomes due to climatic shocks or volatility due
to market dynamics. We periodically review the living
income benchmarks to account for annual inflationary
increases, and revise farmer income studies to consider
market dynamics that may impact farmers’ overall income.
SI

Proportion of contracted farmers
supplying tobacco to PMI whomake a living income
A SPI R AT ION

2025

100%

2022

73%
0

20

40

60

80

100

Note: Excludes China and Switzerland

Improving productivity
We support farmers in maximizing efficiencies on theirfarms—for example, by hiring only the labor required,making careful use of inputs such as fertilizer, finding
ways to increase yields per hectare, improving irrigation,and mechanizing certain steps of tobacco cultivation.
For example, in the 2022 crop year, we undertook
mechanization projects of Burley tobacco in Vinukonda,
India. The distribution of 12 seeder machines, 294
cultivator and fertilizer applicators, 805 sucker applicators,
and 511 sewing machines helped improve productivity
by reducing labor demands per hectare by 18 hours, 23.8
hours, 13 hours, and 200 hours respectively. Increased
productivity and reduced labor requirements translated
to cost savings for farmers. Based on the latest study,
we are currently able to reduce the labor hours by up to
eight percent, which translates into savings of USD 63
per hectare with the combination of seeder machine,
cultivator, sucker application, and sewing machine.

Fundamentals

Reporting and performance

We also undertook initiatives to promote sun-cured
production for around 353 hectares in India during crop
year 2022. By targeting a proper crop window withconsideration of weather and field selection and ensuring
farmers followed best practices like plant spacing, andproper fertilizer application and top dressing, we wereable to increase farm productivity by 18 percent.

123

Although at a small scale, these projects are indicativeof projects we implement on the ground.
Supporting households in diversifying their income
We also look at opportunities to implement otherincome-generating activities. Notably, the cultivationof complementary crops beyond tobacco can
improve farmer income while enhancing resilienceagainst climate change and economic uncertainty.
In 2022, we estimate that around 70 percent of ourcontracted farmers grew crops other than tobacco.
For example, in Mozambique, we developed a treadle
pump program in 2018 in a bid to tackle child labor issues
by providing farmers with an innovative way to irrigate
their tobacco nursery crop. We found that the pumps
also provide a means to more effectively irrigate wintercrops. We therefore incorporated a starter kit of wintercrop seeds and fertilizer to be provided to treadle pump
beneficiaries in their first year of receiving the pumps. A
2020 internal study found that farmers who grew two to
three crop cycles per year generated an additional USD
300 to 400 income (i.e., representing approximately 15
percent of the average annual income). Furthermore, a2022 farmer income study demonstrated these farmers
are able to increase their vegetable garden sizes, thereby
increasing the amount of vegetables they can produce
per cycle for either sale or consumption. During 2022,
we distributed a further 1,320 pumps and distributed
winter crop kits to 1,760 treadle-pump beneficiaries from2021. Since 2018, 6,120 pumps have been distributed.
Beyond Mozambique, we deploy similar targeted
initiatives to support households in diversifying
their income in various tobacco-growing countries,
such as India, Indonesia, and Malawi.

Preserve nature

For establishing the living income status of farmers inhigher-income markets where we source tobacco, wepiloted a new strategy leveraging PMI’s global providerof living wage estimates on our own employees, BSR.
It provided living wage benchmarks in high-income
countries from which we source tobacco (e.g., Canada,
Greece, Italy, North Macedonia, Poland, Spain, andthe U.S.). We used these estimates, alongside thereference family size to assess whether the farmers
in these countries are achieving a living income.

During the year, as our Living Income Program became
more sophisticated and mature, we started developinga more granular approach to analyze farmers’ income,based on extensive research on existing methodologies.
More specifically, we explored ways to further segment
our farmer base in order to account for household size
(instead of relying on averaged data). Doing this will
enable us to compare—in a more accurate way andwith more granularity—the income per hectare withthe family size, and assess whether they can achieve
the equivalent living income, thereby allowing us tobetter identify potential income gaps and help focus
our efforts on the most vulnerable households.

GovernanceTackle climate change• Regional adjustments: In 2022, we began using a
new approach to establishing income levels developedby the Anker Research Institute. We deployed thismethodology in Brazil and Malawi. The approach relies
on previous full benchmark assessments conductedin the country and splits the country into regions thatshare similar characteristics. If needed, they are thencomplemented with on-the-ground adjustments by
researchers from the Anker Research Institute.

Our new STSC framework will also dictate
the way in which we report our living income
KPI in 2022 (i.e., reporting on contracted
farmers supplying tobacco to PMI).

Strategy

Improve the quality of lifeof people in our supply chain• Full benchmark: Since 2020, we have tasked Social
Accountability International to conduct full living
income benchmark studies (in line with the Anker
methodology) which start from the analysis ofsecondary data (e.g., government-issued household
welfare surveys). The resulting benchmarks arethen adjusted through on-the-ground field visits. In
2022, we finalized full benchmarks in Mexico andIndia, bringing the total number of countries wheresuch benchmark studies have been completed tothree, alongside our 2021 study in Pakistan.

In parallel to establishing the living income value, we
assess the income level of farmers supplying tobacco
to PMI in each sourcing market in order to estimate thepotential gap between the two. To do so, we include
both on-farm and off-farm activities, net of production
cost, and including remittances or other subsidies.
On-farm activities include income generated from thesale of tobacco and the production of other crops andlivestock, while off-farm income comes from revenuegenerating activities outside of the farm such as waged
employment. These analyses rely on our internal farmby-farm monitoring and also incorporate third-party
studies by local partners. Learn more about our living
income methodology in PMI’s ESG KPI Protocol 2022.

Overview

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and inclusive workplace

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124

Mitigating the impact of the gradual decrease in our tobacco demand

We seek to minimize the negative effects of thegradual decrease in tobacco demand by improving
the socioeconomic well-being and resilience of
tobacco-farming communities. We do this througha dedicated assessment of the unique realities andcontingencies that define each country or region
where we source tobacco, building an understandingof the local ecosystem to tailor and implement

sustainable solutions that can help farmers transition
to sustainable alternative livelihoods where needed.
In some cases, farmers are not heavily reliant on
tobacco production for their livelihoods, have themeans to easily switch to other crops, or will continue
to grow tobacco for other customers. In othergeographies, we provide additional support to help
mitigate the negative impact of our reduced purchases.
The initiatives we implement to help contracted
farmers earn a living income improve the productivityof their tobacco crop and help them diversify
their production to other crops. We expect these
efforts to play an important role in minimizing
the potential negative economic impacts oncontracted farmers of our transformation andconsequential reduction in demand for tobacco.

We have implemented the STSC framework in
the way we report our ALP monitoring data andrelevant KPIs in 2022, based on contracted farmers
supplying tobacco to PMI. This sets a new baseline
for data in this section (read more here).

Proportion of purchased tobacco volume forwhich labor practices and adherence to ourAgricultural Labor Practices Code aresystematically monitored
Maintain A SPI R AT ION

>90%
95%

20

40

60

80

Fundamentals

Reporting and performance

They were visited once during the season tovalidate the results obtained from a self-assessment
questionnaire completed by the farmers. Read
more about the reasons behind this on pages
152-153 of PMI’s Integrated Report 2021.

Our ALP Code principles include no child labor, fairincome and work hours, no forced labor or humantrafficking, a safe work environment, fair treatment,
freedom of association, and terms of employment.

2022

Since our ALP Step Change in 2018, our ALP program
has deployed several initiatives across our sourcing
markets focused on women empowerment. For
example, we discussed how we provided “train the
trainer” workshops to empower women in India in
our 2020 Integrated Report. To date, a total of 650
women from 67 Self-Help Groups (SHG) have been
trained on SHG governance, leadership, and microentrepreneurship development. Since 2020, a total of
498 micro-enterprise businesses have been established,of which 325 were directly funded by PMI and 173
have been funded by SHG members themselves who
previously established their own businesses (readmore in our dedicated ALP Progress Update here).

Operational impact

100

In 2022, 3,128 field technicians contracted by either
PMI or our leaf suppliers systematically monitored
the implementation of the principles and measurable
standards of ALP on 95 percent of tobacco volume
purchased by PMI. The remaining percentage pertains
mainly to spot, unplanned purchases for whichsustainability data were not available.
Our 2022 ALP monitoring farm-level datasets
cover 19 out of the 20 countries from which wesourced in 2022. Switzerland was not included inthis dataset, however 100 percent of the Swiss
farms from which we source were monitored by anindependent company for the past two years.

In 2022, field technicians reported a total of 6,101 prompt
actions across all sourcing markets, of which 90 percent
related to safe working environment issues, 3 percent tochild labor incidents, and 7 percent to income and working
hours. In total, 84 percent of the prompt actions raised
were resolved during the year, with the remaining 16
percent of prompt actions followed up yet not resolved,
predominantly due to the timing of the crop stage.
Across the countries from which we source
tobacco, the most recurrent and difficult challenges
relate to a safe work environment and usage of
personal protective equipment (PPE). This is an area
where we continue focusing our efforts throughregular training and continuous improvementsof the PPE in terms of comfort and usability.
To further support compliance with our ALP Code, we
fine-tuned and deployed our ALP training materials in
2022. We rolled out the revamped materials throughwebinars following a “train the trainer” initiativewith suppliers. Verité’s professional trainer teams
delivered three virtual sessions, reaching 77 PMI
employees and supplier staff responsible for ALP
implementation in three regions. Over 70 percent
of post-training survey respondents mentioned thatthe training sessions increased their knowledge of
the ALP program as well as their facilitator skills andoverall confidence. Our ALP program team, comprisingregional sustainability managers, delivered the same
training session to an additional 48 participants. These
125 participants will extend relevant knowledge
and skills to field technicians who are implementing
the ALP program across PMI’s sourcing markets.

Supporting monitoring activities at the farm level
In 2022, we issued targeted ALP Farm Monitoring
Guidelines to support field technicians to better identify
and categorize potential issues to be recorded as prompt
actions and nonconformities. This allows us to further
standardize the reporting of these issues, strengthen
capabilities of field technicians to identify certain
types of issues, and enhance data reporting to support
ALP country teams toward better decision-making.
1

Source: Food and Agriculture Organization of the United Nations. (FAO)

The new guidelines include more detailed examples
of how to categorize different types of issues and risk
factors and escalate them, especially when it comesto forced labor and human trafficking. We expect thatthe implementation of the new guidelines will lead toa more proactive approach to detect potential issues(nonconformities) before they evolve into prompt
actions and thus a more adapted remediation.

125

Preserve nature

Many of the gender inequalities faced by women ingeneral are exacerbated for women in agriculture.
Globally, less than 15 percent of agricultural land isowned by women, and women involved in tobacco
farming often face structural and cultural barriers.1

Product impact

Tackle climate change

Around the world, women participate in agriculture
both as members of family farming households
and as hired wage labor on farms owned andoperated by other households or companies.

Governance

Eliminating labor abuses

0

Empowering women involved in tobacco farming

Strategy

Improve the quality of lifeof people in our supply chain

The growth of our smoke-free business will resultin a simultaneous decline of our cigarette business.
While this consequence is fully intended, it also
necessarily translates into a gradual decrease indemand for tobacco leaf, which will have an undeniable
impact on our contracted farmers. Since 2016, ourdemand for leaf has fallen approximately 25 percent.
This has resulted in a reduction in the volume of
tobacco we purchase in some markets and theelimination of our sourcing activities in others.

Overview

Foster an empowered
and inclusive workplace

I M P R O V E T H E Q U A L I T Y O F L I F E O F P E O P L E I N O U R S U P P LY C H A I NPhilip Morris International — Integrated Report 2022

Philip Morris International — Integrated Report 2022

Strengthening our controls

In addition, external verification by local third-party
organizations was undertaken in Argentina, Mexico, andTurkey, covering our eligible farm base of contracted
farmers. The outcomes of all external verifications
were positive. In Turkey, especially, there was aclear decline in data discrepancy between suppliers’
internal monitoring and external verification results.

Updating our External Verification Guidelines
First introduced in 2018 as a key component of
our ALP Step Change approach, our External
Verification Guidelines define a consistent, global
framework on how to select third-party assessors
and the overall methodology, including scope,
farmer sample, field activities, and reporting.
In 2022, we revised the guidelines to help clarify
the role of external verification under the STSC
framework (read more about the frameworkhere). We also slightly modified the aim of theguidelines to focus on increasing confidence ininternal monitoring data, validating this data,and identifying potential data discrepancies withthe aim of implementing corrective actions.

GovernanceOperational impact

Product impact

Eliminating child labor
We maintain a relentless focus on preventing incidents ofchild labor, and we take immediate action when they arise.
Our objective is to eradicate by 2025 child labor cases in
our tobacco supply chain that are repetitive and systemic.
We acknowledge that isolated cases—even when systemic
occurrences are fully addressed—might persist due tofarmer turnover or unintentional misbehaviors, and we willremain alert and tackle them promptly when identified.
We updated our methodology for calculating child labor
prevalence in 2022 in line with our new STSC framework.
Child labor datasets now depict the prevalence of childlabor among contracted farmers supplying tobacco to
PMI purchased volume. This sets a new baseline moving
forward. Learn more in PMI’s ESG KPI Protocol 2022.
We use International Labour Organization (ILO) standards
to measure our progress toward our target of zero childlabor. Our methodology centers on preventing theemployment of children under age 18 doing hazardous
tasks, under age 15 being hired, and under age 13 doing
any tobacco-related tasks. It reinforces our risk-based
due diligence processes by improving visibility andgranularity on child labor across our sourcing markets.

Fundamentals

Our field technicians continued to conduct farm-by-farmmonitoring and to support farmers in addressing andremedying child labor risks and incidents. During 2022,
field technicians monitored 100 percent of contracted
farms supplying tobacco to PMI for child labor-related
issues and recorded a total of 175 prompt actions.
In total, these prompt actions involved 211 children,with 52 percent of them being the farmers’ children.
This granular information on child labor, which
provides the age breakdown and the type ofissues identified, allows us to address them more
efficiently with targeted interventions.

Total number of prompt actions recorded in 2022
relating to child labor among contracted farms
supplying tobacco to PMI, by type2022

Children under 18 performing hazardous tasks

155

Children under 15 hired

14Children under 13 performing light work

6

Total number of child labor prompt actions
recorded in 2022 among contracted farms
supplying tobacco to PMI, by country

SI

64

Philippines

51

Mozambique

45

Zero

Indonesia

10With this communication, the OHCHR independent
human rights experts highlighted a number ofconcerns in relation to human trafficking affecting
tobacco farmers in Malawi (including forced labor,child labor, discrimination against women, and debt
bondage) and asked PMI for its observations on theconcerns brought forward, as well as the steps that
PMI as a company was taking to prevent such abuses
and protect farmers’ human rights in the country.

While there was no legal obligation to do so,
PMI responded in the hope of advocating for,raising public awareness of, and sharing good
agricultural practices (see the letter here). In
particular, we reiterated our commitment torespect human rights and the due diligence wecarry out, our tobacco purchasing requirements,
and the most relevant social and environmental
initiatives and remediation programs in place.
Finally, PMI extended to the OHCHR’s independent
human rights experts a formal invitation to meet withthe company in Malawi, in order to facilitate further
engagement and drive progress in the country.

2022

0.1%

Pakistan

5

0

0.2

0.4

0.6

0.8

1

Child labor prevalence was 0.1 percent in 2022 in ourpurchased tobacco. While this data point does notreflect child labor prevalence in our total contracted
farm base, the continuous reduction in child labor
incidences among farmers supplying tobacco to PMI
that we have observed gradually, is due to years of
implementation of our ALP program, continuous
training, and targeted interventions. While isolatedcases of child labor do persist, systemic cases have beenbroadly eradicated in the farms we contract with.

The decrease in child labor incidences is mainly
attributed to Malawi, North Macedonia, and Pakistan
where we observed the positive impact after many
years of implementation of the ALP program.
Malawi is a good example of where our targetedinterventions led to a significant reduction of childlabor prevalence. A key initiative was our primaryschool feeding program, piloted in 2019. In 2022,
we increased the number of schools with this setup,leading to a total number of 11 schools with over 9,000
children participating. Realizing that only 41 percent of
those who start school complete primary education,in combination with the fact that only 16 percent of
the 14- to 17-year-old children enroll in a secondary
school, we decided to upscale our current work. In
close collaboration with a local nongovernmentalorganization (NGO), we plan to support a total of 625
participants by 2023 with comprehensive scholarships.

Preserve nature

On July 5, 2022, the Special Procedures Branch of
the UN Office of the High Commissioner for Human
Rights (OHCHR) addressed to PMI a communication
regarding human trafficking allegations affecting
tenant farmers in tobacco farms in Malawi. The
same communication was also addressed to threenational governments and to six other companies
active in the tobacco industry in Malawi.

A SPI R AT ION

2025

2022

TurkeyPrevalence of child labor among contracted
farmers supplying tobacco to PMI
Addressing potential human trafficking concerns in Malawi

127

Reporting and performance

Tackle climate change

We postponed external verifications in Malawi andMozambique because our STSC framework was still indevelopment stages. We replaced these assessmentswith interim internal shadow assessments.

Strategy

Improve the quality of lifeof people in our supply chain

In addition to internal farm-by-farm monitoring, during2022 Control Union conducted an external assessment
in Indonesia, evaluating the management system inplace for ALP implementation, reviewing prompt action
protocols and procedures to identify, record, andaddress issues, and examining the internal capacity to
implement the ALP program. We also published findings
from the 2021 assessment in China. This brought the
total number of Control Union external assessments
conducted on our total farm base of contracted farmers
to 38 since 2013 (all of them are available on PMI.com).

Overview

Foster an empowered
and inclusive workplace

I M P R O V E T H E Q U A L I T Y O F L I F E O F P E O P L E I N O U R S U P P LY C H A I N

126

Philip Morris International — Integrated Report 2022

on the ground and the accuracy of our internal data.
We remain focused on further strengthening our controls,
for example by increasing the number of unannounced
visits and improving the training of field technicians onmonitoring techniques.

Through this initiative, we wish not only to address
child labor issues in our supply chain but also tocontribute to the development of future leaders in
Malawi by providing end-to-end educational support
for children in tobacco-farming communities. To ensure
successful implementation, the primary school feeding
program will continue while focusing on increasing
the attendance and completion rate (with a target of
60 percent) supported by after-school activities.

Promoting a safe working environment

Despite the improvements reflected above, we stayalert and continue focusing on addressing potential
child labor issues in all sourcing markets, with particularattention to Mozambique, the Philippines, and Turkey.

2022

32%

Stringing

24%

Harvesting or handling green tobacco

18%

Carrying heavy loads

8%

Working with sharp tools

6%

Driving a tractor or operating machinery

2%

Other

10%

Of all child labor-related prompt actions recorded in 2022,
95 percent were resolved, and the remaining 5 percent
had monitored action plans put in place.
Field technicians further support our efforts to remediate
prompt actions and eradicate child labor by raisingawareness and offering training, promoting school accessand attendance, conducting vocational training, andsupporting initiatives to improve household income levels.
In many geographies, the findings of external assessments
related to child labor are aligned with our internal monitoring
data, which show continued improvement in our visibility

2022

23%
21%

Exposure to CPA due to not wearing proper PPE

19%

Unsafe or insufficient work accommodation

2%

Other

5%

These topics are always part of annual training provided
to farmers, and a focus of our efforts on the ground.

MaintainNote: We did not collect this data in 2022 due to the shift to our new STSC
framework. We will resume collecting this data in 2023.

20

40

60

80

100

Note: Scope is limited to farmers that provide accommodation to workers(approximately 2 percent of the contracted farmers supplying tobacco to PMI in 2022)

Advancing minimum wages for farmworkers
In a typical crop season, approximately 32 percent offarmers supplying tobacco to PMI hire workers. Income
earned by farmworkers during a pay period or growing
season should be enough to meet their basic needs.
Our ALP Code requires that the wages of all workers(including temporary, piece-rate, seasonal, and migrant
workers) meet—at a minimum—the national legal standard
or formalized agricultural benchmark standard.

30%

Working at height without protection

100% of contracted tobacco farmers andfarmworkers supplying tobacco to PMI haveaccess to personal protective equipment for theapplication of crop protection agents andprevention of green tobacco sickness

100%
100%

0

Types of prompt actions recorded in 2022
relating to safe working environment
issues among contracted farms supplying
tobacco to PMI

Aspiration

Proportion of tobacco farmworkers provided
with safe and adequate accommodation

Proportion of contracted farmers
supplying tobacco to PMI paying theirworkers at least the minimum legal
wage or agricultural benchmark
A SPI R AT ION

2022

100%

2022

99.9%
0

20

40

60

80

100

In 2022, we monitored the wages of 100 percent of
the contracted tobacco farmers who hire workers andfound that 99.9 percent of farmers paid their workers
at least the minimum wage. Field technicians recorded
a total of 436 prompt actions related to farmers paying
less than the minimum wage to their workers.

Operational impact

Fundamentals

Reporting and performance

Despite a set of targeted initiatives such as awarenessraising, remediation, and increasing efficiencies in
the farms, some isolated issues related to minimum
wage payment were still reported in India and Turkey.
In both countries, it was mainly attributed to theinformal agricultural labor market, often temporary,
and to complex and changing wage structures.

129

Tackling the challenges linked
to minimum wage
While encouraged by the progress made so far,
we know that wage-related challenges relate not
only to substandard payment but also to informal
terms of employment, inconsistency between
supply and demand of labor, and workers’ lack ofknowledge about their rights. We will continue
monitoring this topic to proactively address potential
payment gaps. We are implementing targeted
initiatives, which include rolling out mechanization
for labor-intensive tasks or piloting payment
support to workers, aiming to bridge the gap.

Enhancing access to WASH amongtobacco-farming communities
There is a well established link between poverty
and inadequate access to water, sanitation, andhygiene (WASH). Enhancing WASH infrastructure
can substantially improve the well-being andlivelihoods of community members.
To ensure that all farmers within PMI’s footprint havebasic drinking water access by 2025 and sanitation andhygiene access by 2030, we developed a framework
guided by the Joint Monitoring Programme for Water
Supply, Sanitation and Hygiene (JMP), established by
the World Health Organization (WHO) and UNICEF.
We performed an internal assessment and found thatsome PMI tobacco sourcing locations in rural areas
do not have basic drinking water access. Argentina,
Malawi, and Mozambique were identified as our priority
markets for drinking water interventions. We haveintegrated WASH monitoring into our broader ALP
monitoring process and have implemented solutions
to bring safe drinking water to these locations,
including drilling boreholes, protecting springs, andproviding continuous household-level solutions.

Preserve nature

The most common tasks field technicians found thechildren performing were stringing and handling or
applying crop protection agent (CPA) or fertilizer. A
significant proportion of the overall reduction in prompt
actions comes from Malawi and Pakistan, which was theresult of interventions such as the introduction of stringing
machines.

We also monitored the provision of safe andadequate accommodation by farmers to workers,
when relevant (in 2022, around 2 percent of farmers
provided accommodation to workers). Issues identified
during monitoring were all resolved according to ourstandards. We also plan to update our ALP Global
Accommodation Standards, first issued in 2020, in 2023.

2022

During the year, we focused on maintaining accessto appropriate PPE for all our contracted farmers andfarmworkers. Understanding the hazards related to certain
tobacco tasks and encouraging behavior change is key tosafeguarding the health and safety of those involved.

Exposure to green tobacco sickness (GTS) due to not
wearing proper personal protective equipment (PPE)Crop protection agent (CPA) stored in a way that could
cause a health and safety incident

Product impact

Tackle climate change

Handling or applying CPA or fertilizer

Governance

Maintain A SPI R AT ION

The key focus areas remain to address the nonusage of personal protective equipment (PPE) whenhandling green tobacco, incorrect storage of CPA
containers, and working at height without protection.

Types of prompt actions recorded in 2022
relating to hazardous work performed bychildren among contracted farms supplying
tobacco to PMIStrategy

Improve the quality of lifeof people in our supply chain

In line with PMI’s ALP Code, we require all our contracted
farmers to provide a safe workplace to prevent
accidents and injury and minimize health risks. In 2022,
field technicians recorded a total of 5,490 prompt
actions related to unsafe working environments.

Overview

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and inclusive workplace

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Philip Morris International — Integrated Report 2022

Proportion of contracted farmers supplying
tobacco to PMI that have basic water access
A SPI R AT ION

2025

100%

2022

75%
0

20

40

60

80

100

Note: Estimated based on surveys that indicate whether the farmer has an improved
drinking water source within one km or 30-minute round trip. Excludes China.

Aspiration

2021

83%

2020

67%
20

40

60

80

100

Our Responsible Sourcing Principles (RSP) set out
ambitions and expectations for our suppliers, including
human and labor rights considerations. In 2022, webegan a review and update of our RSP (read more here).
We monitor adherence to the RSP and thesustainability performance of our critical suppliers
through tailored due diligence instruments. For ourelectronics suppliers (read more here), we rely on the
Validated Assessment Program (VAP) and Customer
Managed Audits (CMAs) of the Responsible Business
Alliance (RBA). For our direct materials suppliers (readmore here), we rely on the EcoVadis platform.

Fundamentals

Reporting and performance

Our electronics supply chain

Our direct materials supply chain

We aim to proactively address specific social
risks in our growing electronics supply chain.

Our supply chain, beyond tobacco and electronics,
is broad and complex (read more here), facing a large
set of social risks. These are mainly related to working
conditions, a lack of strong policies in place aroundsocial dialogue, career management, and training. Ourassessment highlights that our suppliers have room
for improvement in reporting on material humanrights topics, beyond health and safety issues.

In 2022, we also completed a human rights impact
assessment in Malaysia, our first end-to-end exercise,looking at upstream as well as downstream. This
work covered our main electronics supplier in the
country, and we worked with them to develop a robust
action plan to tackle findings (read more here).

To address these risks, we focus on critical suppliers(read more here). In 2022, our critical suppliers of directmaterials assessed in EcoVadis achieved an average Socialscore of 58 out of 100. In order to address the issues
identified, we engaged with the suppliers showing lower
sustainability performance. We organized deep-divereview sessions of their corrective action plans before
their reassessment. Consequently, 80 percent of these
suppliers improved their sustainability performance.
Considering the positive impact of this approach, wewill continue engaging closely with our suppliers tocontinuously improve their policies and practices.
In 2022, we completed two remote corrective action“health check” reviews that focused on determining
supplier alignment with PMI’s RSPs. Our partner,
Verité, focused on the progress and status of PMI’sefforts to address its labor and management systems
issues. They did this through a series of remote
and in-person reviews, which started two years
ago in the paper and pulp supply chain in Asia.
In general, suppliers included in the health checks havesteadily improved some labor procedures pursuant
to corrective action plan recommendations. For
example, several training sessions have improved
worker awareness on a variety of policies andprocedures. However, there are corrective actions
that are either not yet in place or were still being
implemented at the time of the most recent visits
and will require continued efforts and oversight.
Meanwhile, our broad and in-depth human rights
impact assessments—which we aim to conduct in our 10
highest-risk countries by 2025—provide us with granularinsights into social challenges along our value chain. Read
more about how we tackle human rights issues here.

131

Preserve nature

100% of contracted farmers
supplying tobacco to PMI have basic
sanitation and hygiene

93%

Operational impact

Tackle climate change

2030

100%

2022

0

Product impact

We continued to leverage resources from the RBA
and gathered data through the VAP and CMAs
during the year. These highlighted that the mostcommon social issues relate to working time.

Proportion of spend with critical suppliers
from whom PMI sources sustainably
A SPI R AT ION

GovernanceIn 2022, we performed an extensive analysis of PMI’s
current footprint and due diligence framework in ourelectronics supply chain, considering evolving regulations
and available benchmarks. We also considered Article
One’s findings and recommendations following thehuman rights saliency mapping it conducted in 2021 that
focused on our electronics supply chain (read more here).

We aim to leverage our experience in our
tobacco supply chain to promote high labor
standards and advance the socioeconomic
well-being of workers across our broader
supply chain.

2025

Strategy

Improve the quality of lifeof people in our supply chain

Since its inception, we estimate that our WASH programin Africa has benefited approximately 250,000 community
members. Women and children benefited the most fromthis initiative, which reduces the amount of time they must
spend collecting water supplies. This has had a positive
impact on women-led businesses and school attendance.
In Argentina, by protecting springs, both farmers andcommunity members have access to water that is lesslikely to cause runoff contamination. Sustainability of
WASH infrastructure is one of the greatest challenges,
which we mitigate by working closely with the local
community and developing water committees.

Promoting fair working
and living conditions inour broader supply chain

Overview

Foster an empowered
and inclusive workplace

I M P R O V E T H E Q U A L I T Y O F L I F E O F P E O P L E I N O U R S U P P LY C H A I N

130Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

Hafed Belhadj
Chief Procurement Officer

Tackle climate change

Noting the change in reporting to increase granularity and accuracy of thedata pertaining to the tobacco we purchase, during 2023, we plan to conduct
two audits to assess the quality and governance of our suppliers’ data and also
introduce in the contractual conditions the requirement for them to expand theireligible farm base year-on-year. During 2023, we plan to publish a dedicateddisclosure detailing rationale behind the change in reporting. This report will sharedetails related to our desired impact, benefits, challenges, and actions that wewill take in order to mitigate potential unintended consequences derived from
reporting data which relates only to that tobacco we purchase, instead of thetotal contracted farm base of our suppliers in the tobacco growing areas where
we purchase, which include farmers that are not part of our supply chain.
As our company transforms and welcomes Swedish Match organization,
we will work to integrate its supply chain to find synergies that may
result in changes to sourcing supply. We will, accordingly, assess socialand potential social impacts and adjust our strategy as needed.

Pedro Braga
Vice President Global
Technical Operations

Building on a solid foundation established over the past decade, we will continue
strengthening our policies, processes, and programs to address social issues
and create a positive change across our value chain. We will continue working
on respecting human rights within our organization and across our value chain,taking a systematic approach following the United Nations Guiding Principles on
Business and Human Rights. Beyond our tobacco supply chain, we will enhance
our efforts and expand our strategy and focus into our electronics supply chain,by further leveraging our Responsible Business Alliance membership.

Preserve nature

Mimi Kurniawan
Vice President Operations
Sustainability

We remain committed to provide a living income in our tobacco supply chain. To support
our ambition, we plan to take a number of steps to make our data more robust, reliable,
and meaningful. For example, we expect to undertake living income benchmarks inhigher-income countries, including South Africa and Switzerland, and update 2022
benchmarks in other countries, in the coming years. We’ll also implement a new
methodology to analyze farmers’ income at a more granular level with the support ofour suppliers. We plan to report progress based on this updated methodology in next
year’s integrated report. We will also implement our new farm level monitoring guidelines,
seeking to take a more proactive approach to detecting potential issues at an early stage.

In 2023, we will further leverage our partnership with the Responsible Business
Alliance (RBA) and the tools and resources it provides to foster improvement insocial conditions in our electronics supply chain. In particular, we will continuebuilding our internal capability and that of our suppliers to be better equipped tomonitor and address identified issues. We will also pilot relevant initiatives, such as
the RBA Workers’ Voice as well as the Responsible Factory Initiative (RFI), whichassists suppliers to gain further insights and improve their sustainability journey.
Depending on the outcome and the learnings acquired, we will explore the possibilityof expanding such initiatives to our broader supplier base. In parallel, we will
enhance our participation in working groups hosted by RBA and the Responsible
Minerals Initiative (RMI) to expand our knowledge and gain insights into humanrights trends in the electronics supply chain as well as share good practices.

Improve the quality of lifeof people in our supply chain

Scott Coutts
Senior Vice President,
Operations

Proud of the progress we have achieved in our tobacco supply chain, we willcontinue to expand and develop a social sustainability strategy that is able torespond to our transforming supply chain addressing impacts present in the restof our value chain, increasing transparency, and ensuring robust data reporting.
We are aware that this will require strong engagement with our suppliers,
with our business partners, with others in the private sector as well as strong
collaboration with specialized organizations, academics, and governments.

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Foster an empowered
and inclusive workplace

I M P R O V E T H E Q U A L I T Y O F L I F E O F P E O P L E I N O U R S U P P LY C H A I N

132

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Philip Morris International — Integrated Report 2022

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Tackle climate change

For a business like ours—with a diversified agricultural
supply chain that is sensitive to climate changes—
abrupt climate variations can endanger physicalinfrastructure, supply chains, and undermine
progress. It can also become a risk for businessgrowth by exacerbating systems-level disruptions forcustomers, investors, employees, and communities.

The climate crisis, as acknowledged by the international
community, threatens all livelihoods, but especiallythose who are most vulnerable, exacerbating
inequalities. It impacts human rights, biodiversity,
water access, global health, and food security, andexacerbates environmental changes such as ecosystemdegradation, drought, flooding, and desertification.

It is therefore imperative for us to develop andimplement strong mitigation and adaptation strategies
that can prepare and mitigate how climate change
may impact our business. We do that by reducing our
GHG emissions, which increases efficiency and energy
savings, and results in better profitability, as well as fewer
inputs used over outputs. We are also planning andinvesting in innovative low-carbon technologies, which
require higher investments upfront but offer meaningful
emissions reductions and payback over the medium andlong term. These actions position us to better anticipate
climate-related regulation, support climate policies,
and seize climate-related economic opportunities.

While science tells us that climate change is irrefutableand unavoidable, it also tells us that it is not too late
to limit global warming to the 1.5oC threshold thatis considered the limit beyond which climate-related
impacts will be catastrophic. Achieving this goal will
require fundamental transformations of critical aspectsof society, including how we grow food crops, use land,transport goods, and power our economies. The greatchallenge of our times is to find a way to effectively alignthe public and private sectors to take critical action andput aside existing siloed approaches and objectives.

Overview of our carbon footprint

137

Carbon neutrality in our direct operations

139

Carbon reduction in our value chain

144

We incentivize our employees through monetary
rewards or other forms of recognition for the
successful implementation of climate-related
initiatives, and seek to raise awareness among ourentire workforce on climate change impacts throughregular internal communications and training.

We prioritize reducing absolute carbon emissions by
optimizing efficiency and reducing consumption while
minimizing the use of fossil fuels and promoting theswitch to renewable energy. We compensate for theremaining unavoidable emissions in our direct operations
by prioritizing insetting projects in our supply chain
when possible and purchasing certified carbon credits
when needed. Our Portfolio of Climate Investments(PCI) guides our approach to compensation.

Our direct materials supplier selection criteria take
into consideration their transparency in disclosing
emissions factors and demonstrating significant carbon
intensity reductions.

Our three-pronged approach to decarbonization

Combating climate change can not be done in isolation.
PMI engages with sustainability-related initiatives andorganizations, including the Business Ambition for 1.5°C,
and we have publicly declared our support for the Task
Force on Climate-related Financial Disclosures (TCFD) and
its recommendations. Our affiliates also belong to national
business associations that are engaging with governments
to advance progress on climate protection at the local level.

Management
REDUCES W I TC H

OFFSETWe support the Paris Agreement and have set a sciencedriven decarbonization roadmap. Our near-term 2030
absolute carbon emissions reduction targets and longterm 2040 commitment to net zero emissions havebeen approved by the Science Based Targets initiative(SBTi) and aligned with a scenario of an increase in global
temperatures of no more than 1.5oC above pre-industrial
levels. In addition, we set a new target validated by the
SBTi in 2022 on the percentage of supply chain spend
covered by suppliers with their own science-based targets.
Our decarbonization efforts cover our entire value
chain. Guided by our GHG footprint model, we havespecific mid-term targets and strategies in place that
account for our most significant impacts on climate,
and we conduct periodic climate change risk andopportunity assessments to inform our efforts.

Our Senior Vice President, Operations, a memberof Company Management, is tasked withaddressing climate-related risks across all company
activities. He reports findings to the Nominating
and Corporate Governance Committee and the
Audit Committee of PMI’s Board of Directors.
From an operational standpoint, our Operations,Combustible Category, Smoke-free Category,
Product, and Finance functions coordinate thecompany’s climate change-related activities.

PMI’s policies and standards
Environmental Commitment
Responsible Sourcing Principles
Good Agricultural Practices
Zero Deforestation Manifesto
Sustainable Design Framework

Preserve nature

OUTWARD IMPACT: The right thing to do

To deliver on our climate ambition, we rely on robust
carbon footprint accounting, analysis of climate changerelated risks and opportunities, ambitious mitigation
targets, implementation of adaptation measures,clear management and governance structures, andkey enablers such as our internal carbon pricing.

Tackle climate change

INWARD IMPACT: The business caseWe use internal carbon pricing to incentivize anddrive reductions in GHG emissions, including carbon
shadow pricing and an internal carbon levy.

Improve the quality of lifeof people in our supply chain

Climate change is among the greatest threats to society. There is broad scientificconsensus about the urgent need to reduce greenhouse gas (GHG) emissions to limit
the rise in the global temperature to 1.5oC above pre-industrial levels, aligned with theParis Agreement.

Our climate strategy aims to address pertinentclimate change risks and build resilience while seizing
opportunities presented by a low-carbon future.

135

Foster an empowered
and inclusive workplace

Management approachO P E R AT I O N A L I M PA C T

In this section

Overview

Philip Morris International — Integrated Report 2022

Progress in 2022
Highlights

We completed a new and more extensive climatechange risk and opportunity assessment andwill publish our inaugural TCFD Report shortly
after publication of this integrated report.

We continued to strengthen our carbon accounting,notably increasing the proportion of primary GHG
emissions data collected from our suppliers.

Product impact

Overview of ourcarbon footprint
Challenges
The geopolitical situation in Europe, war in Ukraine,
and adverse impact of supply chain disruption have
impacted our decarbonization plans, especiallythose focused on scope 3, requiring us at times
to assume trade-offs between financial andnatural capital to ensure business continuity.
To guard the success of our carbon neutrality target
and minimize adverse impacts of the geopoliticalsituation in Europe, we decided to increase ourclimate investments in projects generating carbon
credits, avoiding or removing carbon from theatmosphere with strong focus on nature-based
solutions, though our primary focus remains
on reducing our absolute GHG emissions.
Many office spaces and facilities are not owned
by PMI, making it difficult at times to undertake
emission-reduction activities. To mitigate this, we arefocusing on increasing the share of green energy used
and accelerating the deployment of energy-saving
initiatives in those facilities under our ownership.

We seek to improve the environmental performanceof our direct operations that represent 7.3 percent of
our overall carbon footprint and where we haveoperational control.
Our upstream emissions represented 87.6 percent of our
total GHG footprint in 2022. We therefore work across our
supply chain to drive impact by working within our tobacco
supply chain and with our broader supply chain partners.
Downstream emissions represented 5.1 percent of our
total footprint in 2022. We have aspirations to embedeco-design principles in all our smoke-free products by2025 and to extend our electronic smoke-free device
life cycle (read more here).
Overall, in 2022, our emissions decreased in absoluteterms by 11.2 percent across our value chain versus 2019.
Although our emissions have dropped from our baseline
year, they have not fallen as much as planned. In particular,
in 2022, they increased versus 2021 due to the adverse
impact of supply chain disruption and geopolitical shifts
resulting from the war in Ukraine.

Absolute GHG emissions in our value chain(scope 1+2+3) (in thousands of metric tons)
WE ARE

Achieving our
climate goals

2040

Net
zero

A SPI R AT ION

2022

4,597

2021

4,122

2020

4,267

PHILIP MORRIS INTERNATIONAL
LOW- CARBON TR ANSITION PL AN
OC TOBER 2021

0

1,000

2,000

Fundamentals

Reporting and performance

3,000

4,000

5,000

Climate-related figures presented in this report
do not include GHG emissions from wellness
and healthcare acquisitions made in 2021, which
we have since consolidated into Vectura Fertin
Pharma. These emissions represented 1.6 percent
of PMI’s scope 1+2 emissions and 2.1 percent of
scope 3 emissions in 2022 and were calculated inline with PMI’s methodology. They are currently
excluded from the inventory as they are below
our materiality threshold set at 5 percent for
scope 1+2 and 10 percent for scope 3, and are
therefore not considered material. GHG emissions
from Vectura Fertin Pharma will continue to be
calculated on an annual basis, and will be integrated
into the inventory if they become material.
The data and information in this report also do
not incorporate PMI’s acquisition of Swedish
Match made at the end of 2022. We plan to fully
integrate climate-related data in the near future.
For more information on PMI’s approach to
GHG calculations and materiality thresholds,
please refer to our ESG KPI Protocol 2022 here
and carbon footprint methodology here.

137

Preserve nature

In 2022, we conducted a climate change risks andopportunity assessment across our value chain alignedwith international expectations such as those of the Paris
Agreement and the recommendations of the TCFD. We
are preparing to publish our inaugural TCFD Report 2022
shortly after this integrated report, which we will makeavailable on PMI.com.

PMI’s Low-Carbon Transition Plan

Operational impact

Calculating the footprint of recent acquisitions

We calculate our GHG footprint annually,following guidance from the Greenhouse
Gas Protocol and accounting for all emissions
generated across our value chain.

We were awarded an A score by CDP for
the ninth consecutive year in recognition of
our efforts to combat climate change.

Our Low-Carbon Transition Plan (LCTP), publishedin October 2021, provides a transparent anddetailed view of how we plan to achieve ourclimate ambitions. It describes the various tools
and enablers—including our approach to carbon
pricing, our portfolio of climate investments,and our governance and management
arrangements—that will help us deliver on
our climate targets. By openly sharing our
objectives and methodologies, we seek toaccelerate the achievement of our targets
and commitments (read more here).

GovernanceTackle climate change

During the year, we revised and increased our two
internal carbon pricing instruments (shadow priceand carbon levy) to boost investment decisions
favoring projects accelerating emission reduction andanticipate evolution in the carbon offset market.

Strategy

Improve the quality of lifeof people in our supply chain

We exceeded targeted reductions needed tomeet our science-based target for reduction
in absolute scope 1+2 GHG emissions andour carbon neutrality ambition in our direct
operations, in particular with increased focus ondelivering efficiency gains and continued efforts
to certify our factories as carbon-neutral.

Overview

Foster an empowered
and inclusive workplace

TA C K L E C L I M AT E C H A N G E

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Philip Morris International — Integrated Report 2022

UPSTREAM VALUE CHAINOUR DIRECT OPERATIONSDOWNSTREAM VALUE CHAINSCOPE 3: 87.6%

SCOPE 1: 6.4%

SCOPE 3: 5.1%

2.3%
Use of our
products

Offices andwarehouses

1.7%

15.7%

16.5%

1.0%

Fuel consumption
from our vehicles
and aircraft

Transport anddistribution

SCOPE 2: 0.9%

53.7%

Materials and services
purchased, and related
activities

0.9%

Our direct operations are the parts ofour value chain over which we have thegreatest control. Combined, our scope 1+2
emissions represented 7.3 percent of our
total carbon footprint in 2022, of which 71.3
percent were generated by our factories.

As of year-end 2022, with a 39 percent absolute GHG
emission reduction versus 2019, we are well on track tomeet our SBTi-validated target for a 50 percent reduction
by 2030 versus our baseline.

Transportationand distribution

1.8%

Reduction in absolute scope 1+2
GHG emissions versus 2019 baseline

Products’
end-of-life
2030

A SPI R AT ION

CARBON-NEUTRALOPERATIONS BY 2025

50%

2022

39%

2021

33%

2020

26%
0

20

40

60

Reporting and performance80

SI

Net CO₂e scope 1+2 (metric tons)
2025

A SPI R AT ION

297,2362021

356,9112020

409,703
100k

139

0

2022

0

200k

300k

400k

500k

Decarbonizing our factories
In 2022, our factories accounted for 5.3 percent of
our total carbon footprint.
Our strategy to decarbonize our factories focuseson enhancing energy efficiency and switching to
renewables, and is underpinned by the development
and deployment of low-carbon technologies.
Our efforts in 2022 led to an overall reduction of 39
percent in our absolute GHG emissions in our factories
versus the 2019 baseline. During the year, we certified
eight additional sites in Argentina, Brazil, Indonesia,
Pakistan, and Senegal as carbon neutral, bringing the total
to 13 factories certified to date. We remain on track tocertify all our manufacturing sites by the end of 2025.1
We publish certifications for all carbon neutral sites here.

100

PATH TODECARBONIZATION

Proportion of our manufacturing
facilities certiﬁed carbon neutral

2040

2025

NET ZERO GHG EMISSIONSALONG OUR VALUE CHAIN BY 2040

A SPI R AT ION

1

100%

2022

35%

2021

13%

2020

5%
0

Presentation of information aligns with guidance of the Greenhouse Gas Protocol. Figures are rounded.

Fundamentals

20

40

60

80

100

Carbon neutrality certification plans for our factories in Russia and Ukraine were put
on hold due to the geopolitical situation.

Preserve nature

Indirect emissions from thegeneration of purchased or acquired
electricity, steam, heat, or cooling
consumed by PMI

Operational impact

This has also left us on track for our 2025 aspiration to becarbon neutral in our direct operations (scope 1+2) thatfactors into our Sustainability Index.

To achieve our ambition of carbon neutrality in our direct
operations (scope 1+2) by 2025, we combine goodmanagement practices with strategic energy-related
investments. We invest in optimizing energy and process
efficiencies and replacing fossil fuel-based energy withrenewable sources. We compensate for our unavoidable
emissions as a last resort—once we have maximized ouremissions reduction.

Fuel consumption
in our offices,
factories, andwarehouses

2025

Product impact

Tackle climate change

4.7%

GovernanceImprove the quality of lifeof people in our supply chain

1.7%

Tobacco growing

Strategy

Carbon neutrality inour direct operations

Carbon emissions along our value chain in 2022

Business travel
and employee
commuting

Overview

Foster an empowered
and inclusive workplace

TA C K L E C L I M AT E C H A N G E

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Switching to renewable energy

We rely first on promoting efficient energy use acrossour factories. We achieve this through our global“Drive 4 Zero” program, which establishes a common
way of working across our factories, advances a zeroloss mindset, and empowers employees to identify
and implement operational efficiencies related toresource optimization. This includes energy savingsand environmental benefits such as reduced water
consumption and waste generation (read more aboutmaximizing resource efficiency in our operations here).

In parallel, we are continuing our gradual switch torenewable energy sources. Many of our zero-carbon
technologies aim to generate renewable energy, suchas photovoltaic panels, biomass boilers and heat pumps,
and tri-generation processes (combining cooling,heating, and power). In total, 5.0 percent of our energy
use was self-generated in 2022 (2021: 7.0 percent).

In 2022, the program triggered hundreds of creative
initiatives worldwide, including the optimization oftemperature and pressure process center-lines, heatrecovery, condense return, and building automation.

For instance, in 2022, our manufacturing site in
Italy continued the expansion of its photovoltaic
infrastructure, adding an additional 740 m²
of solar panels equivalent to 157 kW.
In addition to self-generated renewableelectricity production, we continue to consider
opportunities to source electricity through powerpurchase agreements (PPAs) in the future.
In 2022, we purchased additional renewableelectricity certificates (RECs) to offset a further
1.378 metric tons compared to 2021.

Deploying zero-carbon technologies
We also funded seven projects in seven different
manufacturing sites, which will enter the
implementation phase in 2023. We plan to install heatpumps and an electric boiler system powered by a new
photovoltaic plant at our site in Italy. We will also begin
implementing electrification projects in the Philippines,
among other affiliates. In Indonesia, we plan to switchfrom natural gas to biomass by replacing the current
gas-fired tri-generation systems with a biomass boiler
and photovoltaic plant for the Sukorejo site (read morehere) and a biomass tri-generation unit for the Karawang
site. Meanwhile, at our Otopeni site in Romania, wewill begin installing an innovative volcanic thermal
storage unit combined with three biomass burners.
In addition, we sourced and certified as biogenic
the liquid CO2 supply chain for our Indonesian andPhilippines subsidiaries. This resulted in a reduction ofaround 6 kilotons of CO2e in our scope 1 emissions.

Product impact

A SPI R AT ION

100%

2022

87%

2021

81%

2020

78%
0

20

40

60

80

Fundamentals

Reporting and performance

Fostering carbon neutrality in our fleet

Proportion of electricity used andpurchased in our factories derived
from renewable sources
2025

Operational impact

100

Reducing GHG emissions in
our offices and other facilities
Our offices and warehouses accounted for 0.4
percent of our total carbon footprint in 2022.
During the year, we continued to refine the level of
granularity of our carbon accounting. For example,
we included carbon emissions from selected retailstores in our footprint for the first time, and we planon expanding their integration in the coming years.
A pain point we identified with market-level carbon
reduction activities was that many offices are leased
and located in multi-tenanted buildings. This severely
limits our ability to intervene, and the market affiliates
need support as these facilities are locally managed.
In response, we are developing a database of potential
initiatives to support our market affiliates in reducing
emissions. As a last step, we will ensure that markets
follow the global plan for compensation for any
offsetting needed to reach carbon neutrality.
Moreover, we piloted our PMI market carbon neutrality
strategy in Mexico in 2022. This resulted in our firstmarket certified as carbon neutral. The strategy will berolled out to additional markets in the coming years.
Overall, we were able to decrease carbon emissions
from our offices and warehouses by 63.7 percent
versus the 2019 baseline, continuing the positive
trend from 2021 and mitigating the effects of thegradual return to the office for many employees after
the ease of restrictions related to COVID-19.
In 2022, as part of our employee Sustainability
Challenge (read more here), we engaged employees
to collect suggestions for market-level carbon
reduction initiatives, gathering over 300 ideas.

Our fleet of nearly 21,700 vehicles accounted for 1.7
percent of our total carbon footprint in 2022. Most (83percent) of our fleet vehicles are working-tool vehicles,
used primarily to visit point-of-sale locations anddistribute our products, with the rest being benefit cars.

141

To reduce carbon emissions in our fleet, we invest in
sustainable powertrains and effective driving to optimize
energy consumption and improve operational efficiency.
Our Global Vehicle Fleet policy, instituted in 2021, frames
our fleet strategy and moves us to a more centralized
operating model to help ensure that every PMI affiliate
contributes to our global carbon neutrality goal. In
2022, we continued to select more environmentallyfriendly powertrains to guide the renewal of our fleet.
By the end of 2022, vehicles with sustainable
powertrains (electric or hybrid) represented 19
percent of our fleet globally (2021: 10 percent). We
remain focused on retiring our most polluting cars
subject to the availability of appropriate infrastructure,legislation, and technological innovation.
We leverage eco-training and telematics where legallypermitted to improve driver behavior and further engage
employees in our sustainability agenda. By the end of2022, 66 percent of company drivers were enrolled in thefirst year of our fleet safety e-learning program, which
incorporates eco-driving modules. We expect all drivers
to enroll by the end of 2023. Moreover, 65 percent of
our working-tool cars are equipped with telematics—atechnology that provides the driver and company
with data on driving behaviors to improve road safetyand decrease carbon emissions (2021: 47 percent).

Preserve nature

We explore opportunities to leverage technology
to achieve significant carbon savings. In 2022, we
continued to develop our Zero Carbon Technology(ZCT) program aimed at fostering the transition to
renewable energy and driving emission reductions
in our manufacturing sites. While every solution
is tailored to the specific energy profile of the site,
our program is based on a general frameworkthat considers self-generated renewable energy,
electrification of heat production systems, and switch
to bio-based fuels where possible. Through the ZCTprogram, we expect to replace 35 percent of our
fossil fuel use by green energy and to increase theshare of in-house produced renewable electricity
by 10 percent by 2025 (versus a 2021 baseline).

GovernanceTackle climate change

In 2022, we remained on track to achieve ourtarget of 100 percent of electricity used andpurchased in our factories derived from renewablesources by 2025, achieving 87 percent.

Strategy

Improve the quality of lifeof people in our supply chain

Promoting energy efficiency

Overview

Foster an empowered
and inclusive workplace

TA C K L E C L I M AT E C H A N G E

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Philip Morris International — Integrated Report 2022

Compensating for unavoidable
emissions in our direct operations
To achieve our carbon neutrality ambition, we
strive to maximize our emissions reductions andwe compensate for the remaining unavoidable
emissions occurring in our direct operations.

Pricing carbon

We revise our shadow price and carbon levy
annually to reflect changes in our risks and emission
profile. In 2022, we also conducted a carbon
pricing benchmark assessment, and evaluatedexternal factors, such as inflation rates anddevelopments in emissions trading schemes.

Product impact

We applied a set of mechanisms and rules—the PCI quality
criteria and due diligence protocol—to efficiently evaluate
which climate solutions are most appropriate to pursue.
We continued investing in nature-based solutions that
focus on protecting nature by (1) avoiding deforestation,(2) improving nature through community projects, and(3) fostering natural ecosystems beyond forests.
To assess whether an investment will meet our quality
criteria and generate a positive impact, we employ
an external due diligence process managed witha proprietary methodology developed with PMI’s
carbon finance adviser, Clarmondial. This methodology
considers GHG mitigation, biodiversity conservation,and community benefits. Clarmondial also supported
PMI in establishing relationships that can support
the company’s long-term climate, community, andnature-related targets in priority countries.

Operational impact

Fundamentals

Reporting and performance

In 2022, we created a Voluntary Emission Reduction
Purchase Agreement (VERPA) to standardize conditions
that we apply with credit sellers that allows us tobe more decisive on our selections as well as moretransparent and thorough with our due diligence.
In 2022, PMI’s PCI invested around USD 6.6 million inprojects in Bangladesh, Brazil, China, Colombia, Indonesia,
and Malawi, with a focus on nature-based solutions (2021:
USD 4.2 million). Moreover, the PCI focused on securinghigh-quality offsets to support PMI’s decarbonization
journey and provided the required carbon offsets for theeight manufacturing sites and one market that achieved
carbon neutrality certification during the calendar year.

143

Deploying our Portfolio of Climate Investments (PCI)The PCI is a bespoke initiative we introduced in 2021 to
standardize and provide transparency to our approach
to investments in projects generating carbon credits.
To support decarbonization efforts, PMI believes that
limiting the use of market approaches (offsetting) in
the short term by prioritizing direct investment in our
supply chain in the medium and long term (insetting)will result in a climate investment strategy that is costeffective, transparent, consistent, and of high quality.
The PCI is supervised by an advisory committee composedof cross-functional PMI senior leaders (including ourChief Sustainability Officer and Senior Vice President
Operations). The committee revises and validates the
proposals prepared by the project team and approves
the allocation of resources to the proposed climate
solutions through an investment strategy that leverages
the budget generated by PMI’s carbon levy scheme.
We anticipate a decrease in the levy budget as ouremissions profile shrinks. Where additional funding will
be required for specific investments (e.g., unlocking
innovative climate solutions and research anddevelopment (R&D)), the advisory committee thatgoverns the PCI will decide on approval. In 2022, wecompleted three rounds of investments following amandate from the advisory committee, making 2022
the year in which we have invested the most so far incarbon projects. Our increased investment in carbon
projects sought to minimize adverse impacts of thegeopolitical situation in Europe as we remain committed
to achieving our carbon neutrality commitment.

Insetting in our tobacco supply chain to compensate for our direct emissions
We want to promote insetting by implementing naturebased solutions in our tobacco supply chain. This
allows us to compensate for unavoidable emissions
generated by our direct operations while also advancing
the well-being and socioeconomic development of
tobacco-farming communities and creating co-benefits
such as more resilient ecosystems and improved
safe water access for our farming communities.
In 2021, we identified an insetting project opportunity
in our supply chain in Mozambique. In 2022, we kicked
off this project with the objective of increasing accessto potable water to farmers in PMI’s tobacco supply
chain by drilling 20 boreholes and distributing 15,000
highly efficient cook stoves. Those interventions
will result in a decreased pressure on natural foreststhat are typically used as a source of biomass forwater potabilization and cooking purposes, thus
allowing the generation of carbon credits. We
expect the project will benefit between 80,000
and 95,000 people and will deliver significant cobenefits for the farming communities where PMI
operates. In designing activities, we prioritized cobenefits such as the creation of safe drinking water
access points in line with our WASH approachand the contextual protection of natural foreststhat are providing ecosystem services to the ruralcommunities included in the project feasibility phase.

We assessed a second insetting project in Argentina
and received the green light from the PCI advisorycommittee to progress to implementation phase. The
Argentinian project aligns with our “Perfect ForestTM”
concept, where value is created by implementing
sustainable forestry practices. Project outcomes include
carbon sequestration through the reforestation of
degraded land, ecosystems restoration, and social
benefits to the local community such as securing
access to sustainable wood to tobacco farmers who
depend on it. In 2022, we completed the project
feasibility study and a comprehensive risk assessment
and started preparations for project implementation.
As part of this preparation process, we conducted
a comprehensive impact valuation analysis thatconsidered the natural, human, and social capital
impacted by the project. We also validated standgrowth models that employ forestry-specific expertise.

Preserve nature

Assigning a price—and hence a theoretical cost—tocarbon emissions makes the intangible tangible andfurther incentivizes action to reduce the emissions
that contribute to global warming. PMI has used twocomplementary internal carbon pricing instruments
since 2020: a shadow price and a carbon levy.

GovernanceTackle climate change

Our long-term goal is to prioritize insetting projects in our
supply chain to generate carbon credits and focus ourinvestments on nature-based solutions. As we prepare
the organization for the complexity of these projects
and considering their lead time to generate credits,
PMI’s Portfolio of Climate Investments (PCI) purchasescarbon credits from the voluntary market to meet theneeds of our 2025 carbon neutrality target. Our PCI
investments bring both standardization and a robust
technical approach to compensation. This results in apool of purchased high-quality carbon credits available
for PMI’s compensation activities with attributes onboth environmental and social impact fulfilled.

We also increased our carbon levy from USD 8 to USD 11
per ton of CO2e to help determine investments required tocompensate our emissions through offsetting or insetting
initiatives. The levy is designed to internalize costs andsupport behavioral change by setting a virtual internal tax
on selected business units for their GHG emissions. This
helps us determine a budget for the PCI described below.

Strategy

Improve the quality of lifeof people in our supply chain

In past years, we continued our efforts to certify ourfactories as carbon neutral, focusing primarily on efficiency
gains and a switch to renewable energy. Accordingly, forthe 13 factories and one market which were certified ascarbon neutral in 2022, we have reduced our absoluteemissions by 57 percent versus our 2019 baseline,with the remaining 43 percent being compensated.

During the year, we integrated our shadow carbon
price into the preparation and financial evaluationof business proposals aimed at structurally reducing
our carbon emissions, supporting the approval of
121 carbon emission-reduction projects in 2022,
including four projects under our Zero Carbon
Technology (ZCT) program. The adjustment of ourshadow price from USD 65 to USD 105 per ton ofCO2e in the last quarter of the year supported theapproval of two projects under our ZCT program.

Overview

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Carbon reductionin our value chain

Our planned programs delivered reductions to
expectation and are highlighted throughout this section.
We did, however, face unforeseen challenges in 2022
due to unfavorable business conditions and the executionof business continuity plans. For example, we had to put
plans in place to mitigate the adverse impact of supply
chain disruption and geopolitical shifts resulting fromthe war in Ukraine. Some of these decisions demandedchanges that resulted in unavoidable trade-offs which,while ensuring security of supply and business continuity,
compromised natural capital. These included:

A smaller percentage (5.1 percent) of our carbon footprint
comes from our downstream value chain, including the use
and end-of-life phases of our products (read more here),
and the transportation and distribution of finished goods.

• Change in stock: Purchasing additional materials as
part of business continuity plans to build up our stockof raw materials and semifinished products to ensure
finished products were available in specific markets

SI

Reduction in absolute scope 3
GHG emissions versus 2019 baseline
A SPI R AT ION

50%

2025

A SPI R AT ION

25%

2022

8%

2021

19%

2020

17%
10

20

30

40

50

Our upstream and downstream value chain combines
to form our scope 3 GHG emissions. Our 2022 data
reflect an 8 percent decrease in our overall scope
3 GHG emissions versus our 2019 baseline. While
our emissions have dropped from our baseline year,
they did not fall as much as planned in 2022.

Progress in the coming years will not be easy, nor
free from challenges, but we remain committed toreaching net zero by 2040. We seek to proactively
build on the learnings of 2022 to navigate complexity
and better prepare for uncontrollable events,
such as health pandemics or geopolitical turmoil.
Mindful that these systemic issues are not only
a challenge for the implementation of our own
decarbonization strategy, we will increase ourengagement with supply chain partners, who remain
key in helping us achieve our scope 3 ambitions.
The more we know about the drivers of our emissions,as well as the emissions and profiles of our suppliers,
the more targeted our activities and projects can be toreach our targeted reductions. In 2022, we expanded
our primary data collection from suppliers in multiple
categories, including tobacco and direct materials, making
our data more robust. Our new target on the percentage
of supply spend covered by suppliers with their own
science-based targets was validated by the SBTi in 2022.

Operational impact

Product impact

Our tobacco supply chain

Reduction in absolute GHG emissions in our
tobacco supply chain versus 2019 baseline
2030

A SPI R AT ION

50%

2025

A SPI R AT ION

35%

2022

30%

2021

36%

2020

28%
20

40

60

80

Reporting and performance

Having achieved a 77 percent reduction in GHG
emissions per kilogram of flue-cured tobacco between
2010 and 2020, we established a more ambitious target
to reach 75 percent reduction in carbon emissions
generated by curing one kilogram of flue-cured tobaccoby 2025 (versus our 2019 baseline). To deliver on thisambitious target, we focus on improving curing-barn
efficiency and increasing the use of renewable fuels.

Our tobacco supply chain represented around15.7 percent of our total carbon footprint in 2022.
Main sources of emissions are described below andinclude the use of fertilizers, the process of curing
tobacco, and increasingly mechanized activities.

0

Fundamentals

100

We are relentlessly working toward achieving an absolute
reduction in carbon emissions in our tobacco supply
chain of 35 percent by 2025 and 50 percent by 2030
versus our 2019 baseline. To deliver on these targets,
we seek to decarbonize the tobacco curing process
while implementing additional reduction initiatives
focused on the use of fertilizer and mechanization.
Decarbonizing tobacco curing
We mainly source three types of tobacco: Virginia,
Burley, and Oriental. While Burley and Oriental
tobaccos, once harvested, are air- and sun-cured to
dry out the leaves, Virginia tobacco (which represents
approximately half (51 percent) of our purchased volume)is generally cured using an external heat source—a
process called “flue-curing.” Curing barns can be heatedwith coal, diesel, natural gas, firewood, or biofuelscontaining agricultural or wood-sawing by-products.
The GHG emissions of flue-cured tobacco represented
4.3 percent of our total carbon footprint in 2022.

In 2022, we made good progress in most markets,achieving a 56.9 percent reduction in emissions per
kilogram of tobacco from flue-curing versus 2019.
We continued the audit process of our suppliers
run by an external partner based on our Monitoring,
Verification, and Reporting (MVR) Framework for
Sustainable Curing Fuels. These audits covered allflue-cured origins to verify carbon reduction activities
and data on fuel use per kilogram of tobacco cured.

145

Improving curing barn efficiency
As most farmers own their curing barns, we collaborate
with them and our suppliers to provide guidanceand support to make the barns more thermalefficient. We support improvement projects, which
typically aim to enhance combustion efficiency,
ventilation, heating control, and insulation.
In 2022, the improvement projects we carried out
increased the efficiency of 9,106 barns—adding to a
cumulative total of around 102,806 barns upgraded since
2014—with a focus on Brazil, China, Pakistan, and the U.S.
For example, a pilot study was conducted in our Brazil
flue-cured market to use photovoltaic energy systems incuring barns while reducing overall fuel consumption.
In parallel, through our suppliers we continued to deliver
training to farmers on fuel consumption efficiency,
barn maintenance, and fuel sustainability attributes.

Preserve nature

2030

0

• Change in transport: Shifting to air freight
to counter supply chain disruption effects
in certain factories and markets

GovernanceTackle climate change

In line with PMI’s 2040 net zero ambition, we
aspire to reduce absolute scope 3 GHG emissions
by 25 percent versus our 2019 baseline by 2025
and 50 percent by 2030. Our 2025 aspiration
forms part of our Sustainability Index and impacts
executive compensation (read more here).

• Change in sourcing: Purchasing more tobacco
from geographies with higher carbon footprints

Strategy

Improve the quality of lifeof people in our supply chain

The vast majority (87.6 percent) of ourcarbon footprint lies in our upstream value
chain. Main sources of carbon emissions
include purchased goods and services
and related activities, transportation anddistribution, tobacco growing, and businesstravel and employee commuting.

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Increasing the use of renewable fuels
To reduce GHG emissions, we are gradually phasing out
fossil fuels such as coal and diesel in favor of renewablefuels, including sustainable firewood and biomass. Our
MVR allows us to systematically monitor the sustainabilityof all fuel types used in our tobacco supply chain.

Another driver of progress is our continued focus on
the phase-out of coal via the conversion of curing
infrastructures to enable the switch to renewable fuels.

A SPI R AT ION

0%
6%

2021

3%

2020

11%
0

2

4

6

8

10

12

Accordingly, we are working on providing guidance forselecting fertilizer suppliers, taking into consideration
their manufacturing emissions. We are also exploring
innovative technologies that could curb field emissions
from nitrogen-based fertilizers. In particular, we will
test the impact of improved irrigation techniques on
nitrogen volatilization and evaluate the difference inemissions that small changes in timing of application of
the fertilizer can trigger. Additionally, we seek to optimize
the use of fertilizer. This requires us to better manage
the portion of applied fertilizers that is not taken up by
the crop and therefore causes nitrogen volatilization.
For example, in Argentina we are conducting an ongoingpilot testing the optimization of water and fertilizer
inputs by converting to drip irrigation. Although thistrial is still in progress, it has shown a reduction in
overall fertilizer and water use to date, which reduces
GHG emissions associated with fertilizers and prevents
excess nutrient loss and agricultural runoff.

Product impact

Our broader supply chain
A significant portion of our emissions arise from ourupstream non-tobacco supply chain: this segment
accounted for 71.9 percent of our total value chain
emissions in 2022. Engaging with our broader supply
chain to contribute to suppliers’ transition toward a net
zero economy is therefore at the heart of our approach.
Beyond tobacco, our most carbon-intensive supplies(representing 34 percent of our total carbon footprint in2022) are the direct materials used in the manufacturingof our products, such as pulp and paper, cellulose
acetate tow, and our smoke-free electronic devices.
Another way the direct materials used in our
products can negatively impact our carbon
footprint is through association with commoditydriven deforestation (read more here).
As part of our science-based approach to climate action,
we engage with our critical suppliers to adopt sciencebased targets. Specifically, PMI’s target is for 15 percent
of suppliers by spend (covering purchased goods andservices) to have science-based targets by 2025.

Proportion of suppliers by spend coveringpurchased goods and services with
science-based GHG reduction targets
A SPI R AT ION

2025

15%

2022

35%
0

20

40

60

80

100

Operational impact

Fundamentals

Reporting and performance

During the year, we further increased our visibility
on supply chain spend covered by suppliers that areeither committed to science-based targets or havetargets validated by the Science-Based Target initiativein place. In 2022, this represented 35 percent of our
total supply chain spend. In the years to come, we willcontinue engaging with suppliers and monitoring thisfigure, taking into consideration a fast evolving external
environment and expected changes in supplier mix
in line with our expanding portfolio of products.
In 2022, an internal multistakeholder team continued
the work of developing the strategy for our non-tobacco
supply chain carbon footprint reduction, including an
additional focus on transportation and warehousing
categories. We expanded our engagement with
suppliers to collect primary data and developed a databaseline, identified opportunities for reduction, andexplored environmental initiatives for partnerships.
The aim is to increase primary data to improve
our carbon accounting accuracy, visibility around
opportunities, and traceability of sustainability
initiatives. We also anticipate this strategy will help
drive more targeted engagement with suppliers insupport of our supplier science-based target ambition.
For example, global procurement logistics mappedout the percentage of emissions from transportation
categories that are currently spend-based, anddeveloped a supplier engagement pathway to replace
80 percent of this data with primary data fromsuppliers by 2025. Similar efforts were undertaken
in other segments of our procurement functions.
We worked with suppliers to develop a template tocollect their data and perform quality checks to makesure it can be used in our carbon footprint model.
This work will extend into 2023 as we continue toprogress in our supplier carbon reduction strategy.
In recognition of our actions and strategies to reduce
emissions and climate-related risks in our supply
chain, CDP placed PMI on its Supplier Engagement
Leaderboard in 2022 for the sixth consecutive year.

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Preserve nature

2022

Nitrogen-based fertilizers are essential in commercial
agriculture to assist farmers in achieving appropriate
yields. Continuous decrease of fertilizer application ischallenging, so we are addressing fertilizer emissions
from different angles, including the preference involume allocation to markets using fertilizers more
efficiently, the increase in input-output efficiency, andthe gradual decrease in our overall tobacco demand.

GovernanceTackle climate change

In 2022, emissions related to the use offertilizers in tobacco production contributed to
9.0 percent of our total carbon footprint.

Proportion of Virginia tobaccopurchased cured with coal
2023

Reducing GHG emissions from fertilizers

Strategy

Improve the quality of lifeof people in our supply chain

In 2022, 74 percent of our purchased flue-cured tobacco
was cured with renewables (2021: 75 percent). We will
maintain a focus on driving the reduction of the use offossil fuels and ensuring that the firewood and otherwood-based materials used to cure the tobacco wepurchase do not contribute to the deforestation of primary
forests. Our MVR enables us to monitor this. In 2022,
100 percent of the tobacco we purchased was cured withno risk of gross deforestation of primary or protected
forests for the third consecutive year. Read more about
our forestry management ambitions and progress here.

In 2022, 6 percent of the flue-cured tobacco we purchased
was cured with coal, up from 3 percent in 2021. All of thistobacco originated from three provinces in China, where
we continued to support a multistakeholder initiative, led
by the China National Tobacco Corporation, to convert
curing barns from coal to biomass and create a fuel pellets
supply chain produced from agricultural waste. In turn, acertain percentage of our tobacco consumption from
China is tied to biomass curing. However, in 2022, toensure security of supply in response to market dynamics
and sourcing disruptions due to geopolitical circumstances,
we purchased additional tobacco from China beyond theinitial planned volume allocation. These purchases
exceeded our cap on biomass-cured tobacco, leading us topurchase more coal-cured tobacco than planned for theyear. As a result, 80 percent of the tobacco we purchasedfrom China was cured with biomass, down from 85 percent
in 2021. Nonetheless, our ambition to eliminate coal fromour curing fuel portfolio by the end of 2023 remains.

Overview

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Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

We anticipate that uncontrollable disruptions that impacted our decarbonization
journey during 2022 will continue to impact our performance in the short term. Thatsaid, as our company transforms and welcomes the Swedish Match organization, we
will also work to integrate their carbon footprint and, as applicable, adjust our lowcarbon transition plan to account for these changes.

Hafed Belhadj
Chief Procurement Officer

Luca Nanni
Vice President,
Global Supply Chain

In 2023, we will work to mitigate any potential spillover effects on scope 3 emissions frombusiness continuity efforts introduced in 2022. This will require low-carbon strategies for
freight transportation, materials purchasing, strengthened emission data collection fromour primary distribution partners, and an efficient management of stock at all nodes of the
supply chain. Moving forward, we will seek to optimize our emissions in the secondary
distribution network, optimize energy and water consumption across our warehousing
footprint, and keep looking for alternative transportation modes, route-to-market andreverse logistics flow. Furthermore, in collaboration with our carriers and logistic service
providers, we will explore green fuels and electric fleets. We aim to continue furthering
the integration of sustainability considerations in our work while appropriately managing
supply, financial, and quality considerations.

Preserve nature

Mimi Kurniawan
Vice President, Operations
Sustainability

In 2023, we plan to begin deploying zero-carbon technologies in our factories andconsider analyzing additional potential solutions in facilities across the world. We
anticipate these technologies will help drive progress toward our aspiration of having
100 percent of renewable electricity sourced in our factories globally and increasing
self-generation of our electricity needs. In addition, we will continue to invest in
sustainable powertrains and deploy eco-driving training to our drivers to further decrease
emissions in our fleet. These initiatives will enable us to build on the success of ourinternal carbon neutrality certification pilot in Mexico by rolling out the process to abroader range of markets. We look forward to utilizing our Voluntary Emission Reduction
Purchase Agreement (VERPA) to guide future investments in projects from our Portfolioof Climate Investments. As in the past, we will seek to limit the use of market-based
approaches to emissions compensation activities (offsetting) in the short term andprioritize direct investment in our supply chain in the medium and long term (insetting).

Tackle climate change

We will continue to research and develop innovative solutions, explore newtechnologies, invest with impact to foster more and better innovation, and inspire all
our people and our business partners to join us in this journey. Our learnings will betheirs to build upon, to drive a successful low-carbon transition, together.

Noting the importance of our suppliers in helping us achieve our scope 3 targets,
we will continue to engage with our suppliers and partners, share learnings and bestpractices, and encourage them to set their own science-based targets in line with our
SBTi-validated target. To achieve this, we aim to significantly increase the coverageof primary data collection from our suppliers to bring further transparency androbustness to our carbon accounting and set a base for monitoring reduction progressand effectiveness of projects with suppliers. Within our tobacco supply chain, we willcontinue our efforts to further improve curing efficiency and drive other agricultural
practices to reduce carbon emissions of the flue-cured tobacco we source, in line withour 2025 aspiration. We also plan to begin the implementation of our insetting projectin Argentina and look for further insetting project opportunities elsewhere that cangenerate co-benefits between climate, nature, and society.

Improve the quality of lifeof people in our supply chain

Scott Coutts
Senior Vice President, 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 andindirect operations—in line with the path set by the Paris Agreement. We understandthat it is essential, for the planet and for our business, that we manage, mitigate, andadapt to climate change.

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Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Our long-term ambition is to contribute toward a positive
impact on nature by 2050. To deliver on this ambition, we
seek to tackle pressures on nature in a holistic manner,building on interlinks between programs and activities.

Our business activities rely on healthy ecosystems.
The degradation and loss of natural capital can cause
disruptions and increase production costs. The
raw materials used in our products rely on fertile
soil, stable climate conditions, and access to water.
As a business with an agricultural supply chain, it isparamount that we take needed steps to protect
and preserve the ecosystems where we operate.
Even small changes to the balance of the naturalenvironment can damage crop productivity, increase
production costs linked to remediation and adaptation
measures, and negatively impact farmers’ livelihoods.

We collectively depend on soil, land, forests, andwater, which provide ecosystem services criticalto human existence. Moreover, a healthy natural
ecosystem plays a vital role in tackling climate change,
with land and oceans absorbing and storing carbon
from the atmosphere. Yet species richness andnatural resources are being lost at an alarming rate.
Global scientific studies indicate that biodiversity
is deteriorating worldwide at rates unprecedented
in human history, with one million plant and animal
species facing extinction, thousands of species
already extinct, and several million hectares of naturalforest lost each year despite international efforts
to counter the trend. The unsustainable use ofnatural resources can lead to the loss of fundamental
ecosystem services we depend on, including soil
fertility, clean air and water, protection from natural
disasters, and recreational and cultural inspiration,
and a subsequent loss of economic value. Often, it is
the world’s most impoverished communities that are
most vulnerable to the negative impacts of changes
in climate, biodiversity, and ecosystem functions.

Protecting biodiversity

152

Halting deforestation

154

Managing water responsibly

158

Reducing waste

162

We deploy initiatives tied to various aspects ofnatural capital, with a particular focus on thehighest-risk segments of our value chain. We
have targets and measurements in place to help
us evaluate the effectiveness of our actions.
More specifically, we aim to achieve no net loss on
ecosystems connected to PMI’s value chain by 2033.
In conjunction, we have ambitions in place to halt
deforestation focused on achieving zero net deforestationof managed natural forests and no conversion of natural
ecosystems in both our tobacco supply chain (by 2025)
and our paper and pulp-based products supply chain (by2030). Furthermore, we have set a new ambition in 2022
to guide our work to steward water: by 2050, we aim tocontribute toward a positive impact on water resources.
This long-term ambition is accompanied by intermediarytargets centered on our manufacturing facilities (where
we aim to certify all our priority factories to the Alliancefor Water Stewardship (AWS) standard) and our tobacco
supply chain (where we aim to optimize irrigation andrestore water volumes, thereby helping address sharedwater challenges). Finally, our efforts also focus on
operational waste reduction and adequate management tocreate efficiencies and allow for better use of resources.

Management
Our efforts to protect natural capital are overseen
by our Senior Vice President, Operations, a memberof our Company Management. Under his leadership,
our Operations team is responsible for developing
and implementing strategies to achieve our ambitions
related to biodiversity, forests, water, and waste.

PMI’s policies and standards
Environmental Commitment
Responsible Sourcing Principles
Good Agricultural Practices
Zero Deforestation Manifesto
Water Stewardship Policy

Preserve nature

OUTWARD IMPACT: The right thing to do

Tackle climate change

INWARD IMPACT: The business caseProtecting nature is a collective responsibility
requiring both global ambitions and local interventions
tailored to diverse contexts. We collaborate with andparticipate in several platforms and organizations,such as the World Business Council for Sustainable
Development (WBCSD), the Taskforce on Naturerelated Financial Disclosures (TNFD), CSR Europe,
Swiss Business for Nature (SB4N), and AWS.

Improve the quality of lifeof people in our supply chain

Natural capital is a wealth we all share and depend on. It is essential that we protect,sustainably manage, and nurture it.

We routinely conduct global and local risk assessments toevaluate our impacts on biodiversity, forests, and water,
and we prioritize and adjust our actions accordingly.

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Foster an empowered
and inclusive workplace

We are committed to the responsible and sustainable
management of natural resources. We understandthat biodiversity protection, forestry management,water stewardship, and waste reduction are deeplyintertwined. Moreover, healthy ecosystems play
an important role in combating climate change by
capturing and storing carbon from the atmosphere,
and can act as a buffer against climate change.

Preserve nature

In this section

StrategyManagement approachO P E R AT I O N A L I M PA C T

Promoting the efficient use of natural resources andtaking steps to protect, preserve, and improve them
help manage risks and prepare us to meet regulatory
frameworks that may emerge in response to increased
awareness of our limited planetary boundaries,
ecosystem degradation, and biodiversity loss. Further,
we understand that we all have a responsibility tohalt the destruction of natural habitats, including
avoiding and compensating for losses, and failure
to play our part in helping address this global issue
could lead to reputational damage for our company.

Overview

Philip Morris International — Integrated Report 2022

Progress in 2022
Highlights

CDP has acknowledged this year again our efforts
to preserve nature, awarding us an A rating for ourwork advancing water security and forest protection.
We are well on track to achieve a deforestationfree supply chain. During the year, an external
partner audited our primary paper and pulpbased suppliers, confirming that all of those in
low-risk countries were fully compliant with
our Zero Deforestation Manifesto (ZDM).

Understanding our footprint andmain pressures on biodiversity

We strive to reduce the negative
impacts of our operations and sourcing
activities on habitats and ecosystems
while looking for ways to contribute to
the diversity of plant and animal life.

We dedicated most of 2022 to continuing to gain visibility
into—and understanding of—our impacts on biodiversity.
We started to account for biodiversity impacts related
to our business in 2019 by testing the Mean Species
Abundance (MSA) metric on selected business areas
and we participated in 2020 in CSR Europe’s evaluationof the maturity of biodiversity practices. In 2022, we
conducted an in-depth assessment of our biodiversity
footprint, completing two analyses covering the most
relevant segments of our value chain, which include
our tobacco supply chain, our paper and pulp-basedmaterials supply chain, and our direct operations:

We understand the role companies can play in tacklingbiodiversity loss, and seek to align our efforts with
global initiatives. We participate in international forums
such as CSR Europe’s Biodiversity & Industry Platform,
WBCSD’s working groups on nature and forests, andBusiness for Nature, and we leverage the work of
the Science Based Targets Network (SBTN). We also
participate in the member forum of the TNFD.
We welcome the adoption of the Kunming-Montreal
Global Biodiversity Framework (GBF) to halt biodiversity
loss convened at the 15th Conference of the Parties(COP15) to the Convention of Biological Diversity(CBD). We are working toward aligning with its
four goals and support related international efforts
and measurements deployed to achieve them.

Unlike climate action, biodiversity activities
need to generate positive outcomes at the local
level, which requires traceability of all relevantmaterials we source. Traceability for somematerials will be a challenge due to low maturityof some sectors and the relatively small influence
PMI might have in certain supply chains.

We understand that building a meaningful and global
approach to biodiversity requires the conscious crosspollination of various strategies and interventions.
To respond appropriately to the biodiversity crisis
we face, we must account for the synergies andinterdependencies of environmental impacts along
our value chain and put biodiversity protection at thenexus of our climate, forest, and water strategies.
In 2022, we applied the SBTN approach to define,within biodiversity as an overarching topic, themateriality level of the different themes it encompasses.
We applied the mitigation hierarchy lens andleveraged available data and expert guidance todevelop an initial assessment of our impacts.

• A land-based assessment of the biodiversity extent,
condition, and significance (BECS), resulting in
PMI’s total land occupancy footprint of close to3,500 MSA.km².1 The exercise identified ecosystemuse and use change in the supply chain as thegreatest driver of potential biodiversity loss
• A resource use-based assessment based on the
Global Biodiversity Score (GBS), resulting in a
determination of PMI’s total footprint of 405 MSA.km².
This assessment identified pollution and water use
as the main pressures on natural resources
Those assessments highlighted that the very large
majority (over 99 percent) of our impacts on biodiversity
arise from our supply chain (with our tobacco supply
chain accounting for approximately 60 percent, andour paper and pulp-based supply chain accounting foralmost 40 percent). Our direct operations, including ourmanufacturing sites, accounted for less than 1 percent.

Setting our ambition on nature
We published a dedicated report at theend of 2022 describing our ambition tocontribute toward a net positive impact
on nature, and announcing
related new aspirations
that will guide our work
to protect biodiversity
and steward water in thedecades to come.
Read the brochure
here.

Operational impact

Fundamentals

Reporting and performance

Prioritizing areas of action on biodiversity
This work allowed us to identify the following
priority areas of action along our value chain:• In our tobacco supply chain, our focus should be on
the tobacco cultivation process, including the curing
stage for flue-cured tobacco, when wood-based
fuels are used. Risks are related to degradation of
the natural environment linked to loss of ecosystem
areas, chemical pollution, and invasive species.
• In our non-tobacco supply chain, emphasis needs
to be put on the deforestation risks linked to thesourcing of paper and pulp-based materials.
• In our direct operations, attention should be paid
to the proximity of our sites to protected and key
biodiversity areas, and on the implementation of goodenvironmental practices at our manufacturing sites.
• Downstream in our value chain, we should concentrateon preventing the littering of our product consumables.
Setting our ambition on biodiversity
The work carried out in 2022 allowed us to developintermediate and long-term aspirations that will guideour efforts to protect biodiversity in the years to come.
We aim to protect ecosystems across our value chain
and achieve no net biodiversity loss by 2033. Further,
we will continue the implementation of initiatives anddeploy new actions addressing the relevant pressureson nature we identified, in order to contributetoward a positive impact on nature by 2050.
To achieve these ambitions, we are—and willcontinue working on—avoiding and reducing
impacts to biodiversity in the following areas:• Sustainable management of working lands
with a focus on regenerative practices• Restoration of affected biodiversity inecosystems connected to our value chain• Transformative actions beyond our industry
through the application of landscape approaches

TOWARDS A NET POSITIVE
IMPACT ON NATURE
PMI’S AMBITION ON
BIODIVERSITY AND WATERDECEMBER 2022

Aspirations set in 2022 to guide our long term workon biodiversity protection and on water stewardship©2022 Philip Morris International, Inc. All rights reserved

153

1

The Mean Species Abundance (MSA) metric uses coefficients of biodiversity loss
to account for impacts and dependencies with intensity of associated pressures.
For example, one MSA.km² represents an area of complete biodiversity loss.
This metric is used to prioritize areas of action.

Preserve nature

The growing representation of smoke-free products
in our production mix comes with impacts onnatural capital, notably due to a more energyand water-intensive manufacturing process,which we continuously seek to mitigate.

Product impact

Protecting biodiversity

Designing a holistic biodiversity strategy
Nature-based strategies leverage on interlinks
between intervention areas (e.g., water, forest, soil,
biodiversity, and communities) but rarely investigate
trade-offs. We need to strengthen awarenessand analysis capabilities to better understandand consider the potential negative externalities
related to our interventions (e.g., an afforestation
project on water-stressed areas or large-scale
projects impacting indigenous communities).

GovernanceTackle climate change

Challenges

Strategy

Improve the quality of lifeof people in our supply chain

During the year, we developed a comprehensive
approach toward contributing to a net positive
impact on nature and established long-term
ambitions on biodiversity and water (readmore in our dedicated publication here).

Overview

Foster an empowered
and inclusive workplace

P R E S E R V E N AT U R E

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Philip Morris International — Integrated Report 2022

Halting deforestation

Integrated pest management programin our tobacco supply chain
Our Good Agricultural Practices (GAP) and integrated
pest management (IPM) program aim to protect boththe environment and farmers’ health and safety.
In 2022, we confirmed that residues attributable
to the use of highly hazardous pesticide were notdetected in any of the tobacco we purchased.

Maintain A SPI R AT ION

100%

2022

100%

2021

100%

2020

97%
20

40

60

80

100

With our programs, we seek to achieve crop
productivity, which can in turn free up land forother purposes (such as food crops, other incomegenerating activities and, potentially, biodiversity
conservation habitats) through cultivation practices
promoting healthy crops and safeguarding
biodiversity on farms and in surrounding areas.

In line with our GAP principles, genetically modified(GM) tobacco is not acceptable to PMI, and wehave solid programs in place to avoid its inadvertent
introduction into the products we commercialize.
We require that each lot of tobacco seeds used to
produce crops destined for PMI be systematicallysampled and tested to ensure that no GM tobacco
is grown for our company. Specialized laboratories
analyze the seeds sent by all our tobacco suppliers
and provide the results directly to both PMI andthe suppliers. Additionally, once the tobacco isgrown and prior to purchase, we have each lot of
tobacco tested—by the same specialized labs—toensure it has not been genetically modified. If
any GM tobacco is detected, the lot is rejected
and does not enter PMI’s supply chain.

In 2022, CDP acknowledged our efforts in thisarea, awarding us an A rating in Forests for the third
consecutive year for our work advancing forest protection.

Protecting forests in our tobacco
supply chain
We are working with our tobacco suppliers and farmers
to foster and implement our net zero deforestation
requirements, including by establishing traceability tothe point of harvest and documenting our sustainable
forestry practices.
In 2022, with the annual external audit carried out
in our tobacco supply chain, we confirmed that, forthe third consecutive year, 100 percent of our fluecured tobacco was purchased at zero risk of grossdeforestation. Further, the audit confirmed that 55
percent of our purchased tobacco was not posing arisk of deforestation of managed natural forest nor
conversion of natural ecosystems (2021: 37 percent).

Operational impact

Product impact

Maintain A SPI R AT ION

100%

2022

100%

2021

100%

2020

100%
20

40

60

80

100

SI

Proportion of tobacco purchased at no risk of
net deforestation of managed natural forests
and no conversion of natural ecosystems
2025

A SPI R AT ION

100%

2022

55%

2021

37%
0

20

40

60

Reporting and performance

Globally, we monitor deforestation risks on around 57
million hectares of land (a surface roughly equivalent
to the size of France), which allows us to focus ouron-site activities and audits on those areas where
potential risks of deforestation are detected.

Proportion of tobacco purchased
at no risk of gross deforestationof primary and protected forests

0

Fundamentals

80

100

This progress was mainly driven by enhanced traceability
and visibility into potential risks supported by our
geospatial analysis, continued efforts to promote theswitch to sustainable fuels to cure the flue-cured
tobacco we source, and continued support for the
expansion of live barns for tobacco curing in Malawi
and Mozambique. Additionally, contributing to ournet zero and forest positive aspirations, we continued
our reforestation and afforestation efforts.
Assessing deforestation risks in
our tobacco supply chain
We are using geospatial analysis covering all tobacco types
and all suppliers from which we source across over 40
TGAs in 20 countries. Beyond the monitoring of actual
tobacco cultivation areas, our spatial assessments allow
us to account for the potential impact of indirect land usechange by applying a buffer around each farming area.

Our 2022 annual risk assessment showed a continued
need to prioritize the use of sustainable firewood tocure Virginia tobacco and switch to sustainable sourcesof timber to build barns for the air-curing of Burleytobacco in Malawi and Mozambique. In particular, we
focused on completing the geospatial mapping andcharacterization of forest districts from where thefirewood used for curing originates in Pakistan and on
increasing the number of biomass barns in China.
Land use change
We estimate that approximately 233,000 hectares ofland are used to grow the tobacco we source. Landuse increased by 5 percent versus the previous year
(2021: 221,000 hectares). The 2022 surface forest
areas producing wood fuel for tobacco curing represent,
by our best estimate, around 39,000 hectares. This isa decrease of 5 percent compared with the previous
year (2021: 41,167 hectares) driven by a different
curing fuel mix in certain markets compared withthe previous period and increased efficiency of thecuring process, thereby reducing fuel consumption.
Risks associated with land use change resulting
from tobacco farming are not considered significant
because tobacco is a relatively stable crop in terms of
expansion with a low turnover of farmers that growit. To assess risks related to the management of the
TGAs we source from, we carry out an ecosystem
conversion assessment annually to look at land use
developments in a global dataset of 38 land use
classes. This allows us to have a more detailed andeffective interpretation of vegetation cover types toact on nature resource management accordingly.
The use of more productive tobacco seed varieties andthe implementation of practices in line with PMI’s GAP
principles and standards help maximize yield per hectare,improve farmer income, and thus reduce pressure to
expand crops into surrounding natural ecosystems. In lightof these trends and the expected medium-term global
contraction of the amount of land needed to fulfill our
tobacco crop requirements, our analysis shows no direct
deforestation risk associated with our tobacco sourcing.

155

Preserve nature

Genetically modified tobacco

Our forestry management efforts are governed by
our Zero Deforestation Manifesto (ZDM), designed tomove us toward becoming forest positive. We monitor
compliance with the ZDM by considering not only
farm boundaries but looking at natural forest coverchanges in areas of interest we call tobacco-growing
areas (TGAs). These areas include a surface buffer toconsider potential indirect impacts on natural ecosystems
beyond farm-level activities. We monitor TGAs byintegrating geospatial analysis with wood-based material
traceability data collected on the ground. As needed,
we develop forest risk mitigation plans to ensure that
our tobacco sourcing is not the cause of deforestation.

GovernanceTackle climate change

0

These supply chains represent the vast majority of
PMI’s total land use and provide the materials mostoften linked to the risk of deforestation and theconversion of natural ecosystems, as highlighted
in our annual global forest risk assessments.

Strategy

Improve the quality of lifeof people in our supply chain

Proportion of tobacco purchased without
detection of residues attributable to theuse of highly hazardous pesticides

We are committed to achieving a deforestationfree supply chain for our tobacco and paper
and pulp-based materials.

Overview

Foster an empowered
and inclusive workplace

P R E S E R V E N AT U R E

154Philip Morris International — Integrated Report 2022

Promoting the switch to sustainable
fuels to cure Virginia tobacco

Data gathered through our MVR are verified by a third
party. In 2022, all our suppliers of flue-cured tobacco
were audited, either via desktop or on-site audits.

2022

74%

2021

75%

2020

67%
0

25

50

75

Enhancing natural capital throughreforestation and afforestation
As part of our efforts to halt deforestation and enhancenatural habitats, we require that our suppliers andfarmers be self-sufficient in sustainably supplying woodfor curing and barn construction, and, by 2025, weaim for them to grow more trees than they cut. Treegrowing requires careful management and is limited
to marginal lands where the carbon stock and existingbiodiversity assets, including soil, can be enhanced.
Since 2019, we have restored 199 hectares offorest to compensate for the detected risk ofpotential unsustainable sourcing of firewood used
for curing tobacco leaf (2021: 165 hectares), thereby
contributing to our net zero deforestation aspiration.
We are on track to bring to zero net deforestation
all the markets where risk was detected in the past
years through our external assurance process.
Additionally, aligned with the criteria of our forest positive
program, we are currently developing interventions
to increase the hectares of forest restoration andimprovements that go beyond zero net commitments
to be reported against our 2025 forest positive target.
Since 2019, in line with our forest positive ambition,
we have supported the establishment of 190 additional
hectares of forest within our tobacco supply chain.

Product impact

Protecting forests in our paper
and pulp-based supply chain
In our paper and pulp-based materials supply
chain, we continued to strengthen our visibilityof potential deforestation risks, leveraging theexperience and tools, and replicating the assurance
systems applied, in our tobacco supply chain.
During 2022, we continued to gather feedstock origin
locations from the suppliers of direct materials used in
our products and packaging. Combining this information
with satellite monitoring and applying relevant criteria of
the National Risk Assessment of the Forest StewardshipCouncil (FSC) allowed us to better understand the level ofrisk our suppliers are facing. More specifically, it enabled
us to categorize them between low, medium, and high risk.
For 2022, we focused on those suppliers that source
feedstock material for PMI from low-risk origin countries.
We applied a thorough process that includes collectionof relevant documentation through a dedicated web
platform and reviewed publicly available data such as
FSC chain of custody certificates. All of our low-risk
suppliers achieved full compliance against the verification
framework of our ZDM. We also began including
selected high-risk feedstock origin suppliers to improve
our understanding of current conditions and lead time
to address corrective action plans. In 2022, all of ourprimary paper and pulp-based suppliers sourcing fromIndonesia and Brazil underwent an on-site external audit.
We intend to replicate these efforts with our suppliersof secondary paper and pulp-based products. In 2022,
we organized webinars with these suppliers to raiseawareness, secure their commitment toward our net zerodeforestation ambitions, and gather their agreement
to undergo a compliance assessment in 2023.
As a result of our increased visibility and the strong
collaboration with our suppliers, we can start reportingon two new indicators as of this year, helping us set
the baseline and allowing us to track progress moving
forward toward our 2025 and 2030 aspirations.

Operational impact

Fundamentals

Reporting and performance

Proportion of paper and pulp-based materials
purchased at no risk of gross deforestationof primary and protected forests
A SPI R AT ION

2025

100%

2022

157

64%
0

20

40

60

80

100

2025
Aspiration

100%

Proportion of paper and pulp-basedmaterials purchased at no risk of
net deforestation of managed
natural forest and no conversionof natural ecosystems

Preserve nature

In 2022, 74 percent of the flue-cured tobacco wepurchased was cured using renewable and traceable
fuels (2021: 75 percent). Of this, 31 percent was fromadoption of biomass and 43 percent was due to useof self-sufficient sustainably sourced firewood (i.e., theamount of wood harvested per year ensures the resource
will be available in future years in a sustainable manner).
Further, between 2019 and 2022, globally, the averageamount of wood used for curing tobacco decreased
from 3.99 kilograms to 3.83 kilograms per kilogram offlue-cured tobacco (a reduction of 4.0 percent) due tochanges in sourced volumes (more volumes from lower
emissions origins) and improvements in the efficiency ofthe curing barns used by the farmers that we source from.

>70%

GovernanceTackle climate change

During the year, in addition to the regular audit process,a pilot was initiated with the aim of making our MVR
Framework available to a larger farmer base in a landscapeapproach. This pilot was carried out in collaboration
with the World Sustainability Organization (WSO)
with the objective of developing a Friend of the Earth
Standard for Sustainable Curing Fuel for tobacco. Basedon the results, feedback from stakeholders using thestandard, and strategic considerations, we will evaluate
full deployment in the coming years. This will enable us
to further spread sustainable management practices
for the fuel used in tobacco curing beyond our growers
in a holistic approach within tobacco sourcing areas.

Maintain A SPI R AT ION

Strategy

Improve the quality of lifeof people in our supply chain

The curing process for Virginia tobacco takes placein barns heated by a variety of fuel sources, including
firewood and woody biomass (such as pellets or woodchips). To mitigate the risk of firewood collection
contributing to deforestation, we focus on increasing
the efficiency of curing barns (thereby minimizing
the use of fuel) and on deploying our Monitoring,
Verification, and Reporting (MVR) Framework for
Sustainable Curing Fuels requiring the traceability offirewood to ensure that it originates from sustainablesources. Moreover, we encourage the use of agriculturederived fuels where they do not compete with foodproduction or negatively affect food security.

Proportion of ﬂue-cured tobacco purchasedthat is cured with renewable fuel sources(self-suﬃcient ﬁrewood or biomass)

Overview

Foster an empowered
and inclusive workplace

P R E S E R V E N AT U R E

156

Philip Morris International — Integrated Report 2022

Managing water responsibly

We routinely assess water-related risks
to prioritize our activities.

Water is a renewable yet finite resource sharedby all. Water stewardship means reducing water
use through efficiency measures, promoting
water recycling, protecting watersheds,
preventing water pollution, enhancing recharge,
and promoting sustainable water management
in collaboration with relevant stakeholders.

In our tobacco supply chain, we conduct an annual
global water risk assessment using tools such as theWorld Resources Institute’s Aqueduct Water Risk
mapping. Our 2022 global assessment continued toreveal that most (77 percent) of our TGAs show a“medium to high,” “high,” or “extremely high” level of
exposure to physical risk, representing approximately
79 percent of our 2022 purchased tobacco volumes.

Understanding our water footprint
and related risks
According to internal studies, our agricultural supply
chain, our other direct materials supply chain, and ourmanufacturing represent 53 percent, 41 percent, and6 percent of our blue water footprint, respectively.
As a result, we focus on collecting primary dataon water withdrawals related to irrigated tobacco
farms in our TGAs. In 2022, they accounted fora withdrawal of approximately 108 million cubic
meters. While we are working on consolidating adata collection process to estimate withdrawals forother direct materials, the figure for manufacturing(3.1 million cubic meters in 2022) confirms therelatively small influence on our overall water use.

We have conducted a total of 39 LWRAs since
2018, covering 81 percent of our TGAs, including
multiple watersheds within some of these areas.

A SPI R AT ION

100%

2022

81%

2021

66%

2020

57%
0

20

40

60

80

In our direct operations, factory water withdrawals
and consumption, exposure to water risks, and producttype-specific attributes are assessed on a regular basis toallow better interactions with watershed stakeholders.
This allows us to identify and prioritize actions where
we can make a difference and create shared value.
Our 2022 assessment showed that approximately 64
percent of water withdrawal in our factories originatedfrom water-stressed areas. We used this and further
information to expand the action plan for our water
stewardship strategy, which includes tailored actionsat our manufacturing plants and looks at managing
risk while generating contribution at watershed
level beyond the boundaries of our factories.
We also aim to extend the application of risk
assessment tools to the sourcing of nontobacco materials with an intent of expanding
our risk map over additional watersheds.

Water stewardship in our
tobacco supply chain
The quantity, quality, and timing of water availability
all impact the growth of tobacco plants.
Water use

Proportion of tobacco-growing areas
covered by local water risk assessments(cumulative since 2018)
2025

Product impact

100

For about 64 percent of the farmland in our tobacco
supply chain, the growing season is synced to the rainseason, enabling crops to be rain-fed during the open
field stage. Where we use irrigation, we are mindfulof the risk of baseline water stress when conducting
local water risk assessments. In addition, every year wecollect data on irrigation water used to grow tobacco,and in 2022 we used approximately 263 cubic meters
per ton of tobacco produced—about 22 percent lessthan in 2021 (2021: 339 cubic meters per ton of tobacco
produced). Volume changes in the sourcing strategy andclimatic trends play a role in our improved performance.
The application of better water management practices,
including the distribution of specific technical guidanceon how to monitor and report water volumes in
irrigation among all our suppliers, also played a role.
Since we started measuring (collecting primary data fromour suppliers and farmers through yearly surveys), thetotal water requirement related to our purchased tobacco
volume has gradually decreased in absolute terms.

Operational impact

Fundamentals

Reporting and performance

Climate change is expected to affect rainfall patterns
and has already had a visible impact at the regional
and local levels. This could be one of the main causes
for the year-on-year fluctuation on water use werecord among our farmers. We continue to closely
monitor water withdrawal figures in our TGAs and wecompare them with water risk figures from our analysis
to better inform our tobacco sourcing strategy in aneffort to mitigate risk and optimize resource use.

159

Water optimization
We have a target in place to optimize at least 10 million
cubic meters of water (cumulative since 2019) in our TGAs
by 2030 through dedicated projects that address sharedwater challenges in the watersheds where we operate.
In pursuing this aspiration, we aim to mitigate
water-related risks and help address shared water
challenges. We follow the World Resources Institute’s
volumetric benefit accounting methodology
to measure the progress we are making.
We implement various projects addressing shared water
challenges, with a strong emphasis on communitybased projects. This includes initiatives in Brazil where,
since 2018, we have supported farmer communities
to fence and protect areas around streams against
biological contamination from cattle and agrochemical runoff to address water quality issues.
We also expanded this program by issuing the first
Brazilian Green Rural Product Note (known locally as“Green CPR”) in the tobacco sector. Our local affiliate,
PM Brazil, provides payment to our contracted tobacco
farmers when they are able to demonstrate adoption ofsustainable practices to preserve forests or strengthen
ecosystem resilience against water cycle fluctuations.
We also expanded our irrigation pond project in India to
include check dams, a percolation tank, and desiltation
tanks, used to increase water supplies for both farms
and community members as well as recharge thegroundwater table in the project areas. In Pakistan, we
trialed laser leveler technology when farmers prepare
the land for transplanting the crop, to reduce runoff
and ultimately reduce the water withdrawals required
for tobacco irrigation. Each of our projects addresses
shared water challenges but also has additional benefits
ranging from farmer livelihoods and crop quality,
to biodiversity protection and enhancements.

Preserve nature

Working with the technical experts at Bluerisk andValuing Impact, as well as internal subject matter experts
across our business functions, we developed during2022 a new long-term aspiration to contribute to a
positive impact on water resources by 2050. We alsoestablished new interim targets for our water stewardshipstrategy, centered on our tobacco supply chain anddirect operations which we expect to expand to our
non-tobacco supply chain in the years to come. Read
more about the setup of our long-term ambition onwater in the dedicated brochure available on PMI.com.

GovernanceTackle climate change

In 2022, CDP acknowledged our efforts in this area,
awarding us an A rating for the fourth consecutive
year for our work in water stewardship.

Strategy

Improve the quality of lifeof people in our supply chain

Our approach to water stewardship aims to build
resilience in watersheds, covering our tobacco andother raw materials supply chain as well as our own
operations. We understand that meaningful impact
can only be achieved through a deep understandingof water-related risks and informed actions to address
them, engaging with stakeholders for scaling solutions,and leveraging a science-based approach supported
by robust methodologies and implementation tools.

To better understand the water-related risks in our TGAs,
we also conduct periodic local water risk assessments(LWRAs), leveraging primary data sources and interviews
with stakeholders to gauge both external and internal
water risks on the ground. In 2022, we completed
LWRAs in Brazil, Poland, South Africa, Turkey, and the
U.S. These assessments highlighted that competing
demand for limited water supplies remains a frequently
recorded water challenge, together with scarcity ofwater resources. Other challenges identified include
lack of water legislation implementation in South Africa
and increased drought risk in Turkey’s Gediz Basin.

Overview

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and inclusive workplace

P R E S E R V E N AT U R E

158Philip Morris International — Integrated Report 2022

To date, we have implemented water stewardshipinitiatives in Argentina, Brazil, India, Italy,
Mozambique, Pakistan, and Turkey.

Cubic meters of water optimized
in our TGAs (cumulative, since 2019)
A SPI R AT ION

≥10 m

2022

4.94 m2021

0.44 m2020

0.01 m
0

2

4

6

8

10

Note: Indicator is based on the World Resources Institute’s volumetric beneﬁt
accounting methodology and is veriﬁed by an external third party.

Water quality
When misused, crop protection agents (CPAs) andfertilizers can pollute the local environment. While CPAs
protect crops and fertilizers improve crop yield, thesechemicals can infiltrate groundwater or run off into surface
watercourses, impacting aquifers and aquatic ecosystems.
We maintain a global integrated pest management
program to reduce the unnecessary use ofpesticides, promote less hazardous alternatives,and manage both appropriately (read more here).

We seek to promote water circularity in our factories,
increasing water use efficiency and maximizing thebeneficial use of water discharged.
Accelerating water efficiency efforts
The manufacturing of our products resulted in awithdrawal of around 3.09 million cubic meters of waterin 2022 (2021: 3.12 million cubic meters). Between
2018 and 2022, we reduced water consumption at our
manufacturing sites by 21 percent in absolute terms,
mainly through water efficiency initiatives that offset
the unfavorable impact of the significant increase in
the production volumes of heated tobacco units.
The production of smoke-free consumables is fivetimes more water-intensive than the manufacturing ofcigarettes. While the public health benefits of smoke-free
products justify the trade-off of increased water intensity,
we are accelerating efforts to mitigate the increased
water demand through enhanced efficiency. In 2022, we
continued to reduce water intensity, achieving a reductionof 47 percent versus 2018 and a ratio of 2.5 cubic meters
per million cigarettes equivalent (down from 4.7 in 2018).
We continuously work to improve our processes,
focusing on applying a zero loss mindset and investingin a variety of projects that aim to optimize ourconsumption and raise awareness among our employees.

Water ratio in our manufacturing facilities(water withdrawn in cubic meters per million
cigarettes equivalent)
Maintain A SPI R AT ION

≤3.1

2022

2.5

2021

2.6

2020

3.5
0

0.5

1.0

1.5

2.0

2.5

3.0

Note: In 2021, we updated our methodology to account for theconversion factor of heated tobacco units to conventional cigarettesof 5:1 and have restated historical data accordingly.

3.5

Product impact

Water and wastewater quality
At our factories, high-quality fresh water is used in
manufacturing processes (including the preparation offlavors and liquid products, and the production of smokefree consumables) and for sanitation and hygiene.
To reduce water dependency in the long term, we are
implementing technologies and efficiency initiatives torecycle and reuse water at our manufacturing facilities.
These technologies include, for instance, reverse
osmosis and electrolytic scale removal systems.
For example, today at our Italian manufacturing site,
process wastewater is treated in a local wastewater
treatment plant and reused for utilities (e.g., for boilers
and cooling towers) through a reverse osmosis system.
The current overall recycling efficiency ranges from 65 to
70 percent. In 2022, we finished the implementation ofelectrodialysis reversal equipment that aims at recycling
the treated wastewater for process cleaning at an overall
efficiency of 90 percent. We expect this new equipment
will increase water savings by 10,000 cubic meters/year,
while reducing energy and chemicals requirements.
Monitoring wastewater quality is standard procedure at
our manufacturing site, where our certified environmental
management systems help us remain in compliancewith current and future statutory and regulatory
requirements associated with water discharge.

Operational impact

Fundamentals

Reporting and performance

Fostering best practices inwater management
Certifying our manufacturing sites to the Alliance for
Water Stewardship (AWS) standard is a critical componentof our approach to water management. The AWS
standard is a globally applicable framework that enables
organizations to understand their water use and impacts
and work collaboratively and transparently with external
stakeholders in the same catchment area to achievesustainable management within the wider water context.
Our goal is to certify all our priority factories to the AWS
standard by 2025, and we are making good progress.
Since 2018, we have certified a total of 18 of our factories.

Proportion of PMI factories certiﬁed
to AWS standard
2025

A SPI R AT ION

100%

2022

51%

2021

43%

2020

30%
0

20

161

40

60

80

100

Note: Aspiration pertains to priority manufacturing facilities identiﬁed based onsite overall risk in relation to the watershed, water withdrawal, water consumption,
product portfolio, and other strategic considerations.

C A S E S TU DY

A holistic approach
to water stewardshipat our Sukorejo plantin Indonesia
Our Sukorejo plant set out to become the first
factory certified by the AWS in Indonesia. Thanks
to thoughtful collaboration with local stakeholders,
our team successfully implemented initiatives toreduce our environmental impact and protect
biodiversity while also addressing local water-relatedrisks and challenges in the nearby communities.
Read the case study here

Preserve nature

In 2022, we set a new 2033 ambition on water, whereby
we aim to continue optimizing irrigation and restore
volumes to address water risks at the watershed levelby scaling solutions contributing to a positive impact
on water resources. In alignment with our holistic
environmental sustainability approach, we aim for allof our water stewardship projects to have multiple
benefits (i.e., biodiversity, carbon sequestration, waste
management, or improved community well-being).

We have a long-standing approach to driving water
stewardship in our direct operations, especially in our
manufacturing sites.

GovernanceTackle climate change

2030

Water stewardship in our operations

Strategy

Improve the quality of lifeof people in our supply chain

Combined, these efforts contributed to optimizing a
total of 4.9 million cubic meters of water in our TGAs
since 2019, bringing us well on track to achieve ouraspiration to optimize 10 million cubic meters of waterby 2030. This is a significant increase compared with
2021, driven mostly by the widespread implementationof volumetric water benefit generation guidelines andthe progressive capabilities built in cooperation with our
suppliers, increasing the number of farmers involvedin such activities. Volumes are calculated and reported
through a bespoke tool, and their impact on shared water
challenges in the watershed is validated externally.

Further, to minimize their negative impact, we promote
more efficient ways to apply fertilizers, such as throughdrip irrigation systems that distribute them in smaller
quantities and directly to the plants’ root systems.

Overview

Foster an empowered
and inclusive workplace

P R E S E R V E N AT U R E

160

Philip Morris International — Integrated Report 2022

Reducing waste
We follow the waste hierarchy, whereby
we aim first to reduce the waste we
generate, promote its reuse and recycling
whenever possible, incinerate it when it is
the best option available, and, to the extent
possible, avoid any disposal to landfill.

We manage all waste from our production sites
with an objective of reducing it and identifying andapplying the most sustainable waste treatment
options available. We pay special attention to our mostvaluable waste streams, such as tobacco, paper, card,and cellulose acetate tow, and to hazardous waste.

Recover: When recycling is not possible, we seek torecover waste materials and use them to generateenergy. In 2022, 12 percent of the waste generated
was incinerated with energy recovery, and 0.3 percent
was incinerated without energy recovery or disposedof in a landfill (2021: 11 percent, <1 percent).

Scott Coutts
Senior Vice President,
Operations

Proportion of PMI factories with
virtually zero waste to landﬁll

97%

2021

79%

2020

69%
20

Fundamentals

Reporting and performance

PMI’s strategy on biodiversity and water consolidates existing targets and actions to address
the impacts of our business on nature, while also updating our directional ambition for2033 and expressing longer-term goals for 2050. As a global player with a diversified value
chain, we recognize the role we can play in taking actions to halt biodiversity losses andare committed to contribute to a nature-positive future in line with the Post-2020 Global
Biodiversity Framework.
In 2023, we plan to update our company’s Environmental Commitment to reflect latest
developments in our work and our newly established nature-related ambitions. We will
also continue aligning our work with relevant updates on international methodologies,
such as the Science Based Targets for Nature (SBTN) and guidance from the SBTi to
set Forest, Land, and Agriculture (FLAG) science-based targets, and share bestpractices with others by participating in relevant forums and working groups.

100%

2022

0

Operational impact

40

60

80

100

Note: Our calculation of zero waste to landﬁll does not include
canteen and sanitary 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 local regulations.

Fostering responsible waste practices
in our supply chain
We seek to foster a positive impact on waste practices in
our tobacco supply chain where our Good Agricultural
Practices (GAP) require that suppliers have appropriate
waste management plans in place. We also expect our
tobacco suppliers to dispose of empty agrochemical
containers safely and appropriately. In some countries, we
provide additional support to ensure the collection andproper disposal of containers that held pesticides or crop
protection agents, including guidance on triple rinsing andpunching best practices.
In Indonesia, we continued to work with a local NGO to
operate our waste bank initiative and supported theestablishment of a recycling center for various types ofplastic waste in rural communities. With the involvement of
three waste banks and 11 collection points, 26 tons of plastic
waste were collected within the first two months of the
project kick-off. Out of these 26 tons, 20 tons were recycled.
Through this initiative, we involved close to 500 households
in collecting waste and we also fostered awareness byconducting a waste collection, sorting, and recycling
procedure workshop that was attended by representativesof 14 local communities.

Pedro Braga
Vice President,
Global Technical Operations

Mimi Kurniawan
Vice President,
Operations Sustainability

Considering the substantial impact that agriculture has on nature, our tobacco-related
environmental programs are critical to our aspiration to preserving nature. In 2023, we willremain committed to progress against our deforestation-free supply chain ambition, foster
the application of our Good Agricultural Practices governing the production of our tobacco,promote water stewardship and the efficient usage of natural resources, and ultimately
contribute to the SBTN that we will set to guide our roadmap to reducing ourenvironmental impacts.

163

Preserve nature

Reuse and recycle: Beyond optimizing our processes
to cut waste, we strive to responsibly manage thewaste we generate. We first seek to reuse materials
ourselves or make them available to others. For instance,
we have programs in place to enhance the reuse of
cardboard boxes to handle tobacco in our factories. As
another example, compost produced in Argentina and
Italy, deriving from canteen organic waste, is used tofertilize the factory gardens. Another path is recycling,which currently represents most (87 percent) of ourwaste disposal. However, the growing proportion ofsmoke-free consumables in our production mix andthe expansion of our portfolio to new products arelowering our recycling rate. We seek to mitigate thistrend by implementing appropriate technology tohelp us better recover waste from these products.

We apply a “zero waste” philosophy, but we acknowledge
that even the most efficient systems inevitably involve asmall amount of landfill; for instance, waste-to-energy ash
residue, waste legally mandated for landfill, and greywatersludge. Therefore, we had set an ambition for all our
manufacturing sites to achieve a landfill diversion rate of
99 percent or greater. We are proud that, globally in 2022,
only 0.07 percent of our operational waste went to landfill(equivalent to a total of 85 tons of waste). We achieved ourtarget of virtually zero waste to landfill across all our operational
manufacturing sites, except in our site in Ukraine, while
complying with all relevant waste regulations and standards.
We intend to maintain these results moving forward.

A SPI R AT ION

Product impact

Looking ahead

Aiming for virtually zero waste to landfill
in our factories

2022

GovernanceTackle climate change

Avoid and reduce: We aim to reduce the amountof waste generated by converting raw materials
into products as efficiently as possible. In 2022, we
generated a total of 119,192 tons of waste, of which
1 percent was hazardous (2021: 114,043, 1 percent).

Strategy

Improve the quality of lifeof people in our supply chain

Managing the waste generated
in our operations

Overview

Foster an empowered
and inclusive workplace

P R E S E R V E N AT U R E

162With our new nature-related ambition as a compass, we are committed to rigorously look at andaddress the most relevant pressures on nature generated by our operations and value chain,with a focus on ecosystem use and use change. As part of our climate strategy and accounting
for synergies with our nature protection ambition, we will continue to identify and invest innature-based solutions that focus on protecting nature by avoiding deforestation, improving
nature through community projects, and fostering natural ecosystems beyond forests. We areon track to achieving a deforestation-free supply chain and are committed to accelerating ourafforestation and reforestation efforts in the years to come to contribute to our no net loss
ambitions. Moving forward, we intend to extend our water stewardship efforts in our nontobacco supply chain, and notably across our supply of electronics, paper and pulp-basedmaterials, and other agricultural products. We plan to work collaboratively with suppliers and key
stakeholders to drive water circularity and resilience, starting with priority areas in our supply
chain. This entails, as the first step, expanding our water risk assessment process within the
coming years to cover the most relevant categories of materials. We will then fine-tune adetailed roadmap to 2033 by integrating water stewardship milestones, including specifictargets, and fully developing the interlinks with other areas of environmental sustainability suchas biodiversity protection and waste management. Meanwhile, we will continue certifying ourmanufacturing sites to the Alliance for Water Stewardship standard, prioritizing our efforts
based on production volume and type, water consumption, and internal capacity.

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Fundamentals
Conduct R&D responsibly
and transparently

p166

Respect human rights

p176

Sustain product reliability

p168

Manage our supply chain
sustainably

p179

Nicotine science

p170

Safeguard privacy andprotect datap184

Uphold business ethics
and integrity

p173

Apply fair fiscal practices

p185

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance165

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166Philip Morris International — Integrated Report 2022

Conduct R&D responsibly and transparently
World-class scientific research and development
powers PMI’s delivery of a smoke-free future.
At PMI, research and development (R&D) is the catalyst
for our business transformation. The rigor with which
we conduct our research—and the openness withwhich we share our methodologies and findings—builds
confidence in our science among the scientific community,
regulators, and our consumers, protects our company
from reputational risk, and, most importantly, allows us tocommercialize our smoke-free products around the world.
Conducting our R&D responsibly and sharing our R&D
methods and results openly and transparently is ofutmost importance. Transparency, when coupled with
scientific integrity and rigor, brings relief to skepticism
and helps address mistrust, fostering an environment
where collaboration and partnership can blossom.
Evidence and findings from robust scientific assessments
advances the debate on public health and tobacco
harm reduction, to the benefit of adult smokers.
Our R&D work is focused on developing and scientifically
substantiating smoke-free alternatives to cigarettes
for adults who would otherwise continue to smoke.
An important part of our R&D focuses on researching,understanding, and confirming that eliminating
combustion can reduce levels of exposure to harmful
and potentially harmful chemicals compared withsmoking. In conducting R&D, we strive for excellencein our scientific methods or their execution.

Decision-making on R&D strategy and direction ishandled by designated committees at the productassessment, project design, Company Management,
and Board levels. Among other responsibilities, theBoard’s Product Innovation and Regulatory Affairs
Committee monitors the company’s internal scientificresearch, including our efforts to substantiate the healthrisk-reduction potential of our smoke-free products.
We regularly interact with an extensive network of
stakeholders, including long-term study partners,
research partners, production site personnel,
universities, suppliers, consumers, and regulators.
We adhere to high scientific standards, and our researchis aligned with the U.S. Food and Drug Administration’s
draft guidance on Modified Risk Tobacco Products (2012).
In conducting our studies, we also aim to align withavailable international standards, such as applicable ISO
standards, Organisation for Economic Co-operation andDevelopment (OECD) Principles of Good Laboratory
Practice, and Good Epidemiological Practices. Importantly,
all our clinical studies are conducted in accordance with
the Declaration of Helsinki and the principles of Good
Clinical Practice. These standards aim to ensure thequality and integrity of nonclinical and clinical studies.

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Sharing our methods and findings

Animal testing

Scientific research from any corporation may be met
with skepticism. Sharing our science and listening
to feedback are critical to both encourage debatewith experts and the broader public and build trust.
We produce a regular briefing through our Scientific
Update publication (see here), which complements
what we share throughout the year via articles inpeer-reviewed journals, presentations at conferences,and our PMI Science website. Since 2008, we havepublished over 450 papers on smoke-free products
and related science in peer-reviewed publications.

Animal studies allow us to confirm in vivo what
pharmacology and toxicology studies show invitro. We use human-derived cells in vitro, but
the animal studies in vivo enable us to assessscientifically the consistency of our findings.

In 2022, we continued our Open Science conference
series, hosting webinars and in-person events andmaking the recordings available on PMIscience.com.
In addition, our scientists continued to present theirfindings throughout the year at external conferencesand virtual events in the fields of toxicology, aerosol
engineering, and respiratory drug delivery.
By sharing our scientific data and papers, we allow
the research community and broader public togain an in-depth perspective into PMI’s researchmethodologies and findings. We welcome objective
studies by external stakeholders who seek tocontribute to a science-based debate on the criticalsocietal question of tobacco harm reduction.

INTERVALSTo address concerns over the reproducibility of
research results, we created INTERVALS, a platform
specifically for sharing tobacco harm reduction science.
INTERVALS is intended to be a comprehensive
reduced-risk product research repository, housing
data from PMI and a variety of third-party sources.
By promoting the sharing of protocols, tools, and data,
this platform enables independent data reanalysis andcollaboration. It was designed to allow all relevant
stakeholders to share and explore toxicity assessment data
produced in relation to cigarette alternatives. As of theend of 2022, a total of 91 studies, 142 protocols, and 691
datasets had been published on INTERVALS since 2018.

Toxicology standards accept the use of rodents in scientificresearch. Nevertheless, we are working, to the extent
possible, to replace animal testing with other approaches.
We apply the “3R” guidelines: replacement, reduction,and refinement (see our Standards for Animal Testing).
In time, we hope to replace most, if not all, animal
testing with alternative methods. Our Animal Welfare
Committee, composed of veterinary and scientific PMI
professionals with ample experience in animal testing, is
responsible for reviewing protocols and examining themfor compliance with scientific and animal welfare criteria.
Our in vivo facility is accredited by the Association for
Assessment and Accreditation of Laboratory Animal Care
International (AAALAC), which sets the gold standard
for the humane use of animals in scientific research.

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Sustain product reliability
Our ambition to accelerate the end ofcigarette smoking rests on rigorous scientificassessment, highly reliable products,
and strict regulatory compliance.
Cigarette smoking causes serious disease and is
addictive. We take our duty as a manufacturer
seriously to ensure that—for adults who continue tosmoke—any additives used (e.g., flavorings) do notincrease the health risks inherent to cigarette use.
For adult smokers who switch to products that do not
combust tobacco, it is of paramount importance thatthese alternatives are scientifically substantiated topresent less risk of harm than continued smoking, andalso that they are developed, tested, and manufactured
according to applicable regulations and standards toensure consistent product integrity and quality.
Developing and commercializing products thatmeet stringent scientific requirements and technicaldesign criteria are critical to a smoke-free future. By
maintaining and continuously improving the reliabilityof our products while complying with regulations,
we protect our reputation and brand equity.
Our quality management system (QMS) covers all our
products—smoke-free and combustible. Governanceand accountability for consistent product integrity,
quality, and reliability sit at the highest managementlevel under the leadership of the Chief Life Sciences
Officer at PMI and are guided by our QMS, as well
as by other internal and external standards. Work on
product integrity and reliability is mainly carried out
by teams in our product development, procurement,
manufacturing operations, and quality organization
departments. Their collective efforts ensure that we
preserve quality, from raw material to the retail shelf.
Our approach to product reliability starts with ourcontracted farmers and suppliers. We work with themto secure high-quality raw materials and components,
applying robust procurement processes, detailed
auditing, and rigorous quality assurance procedures.

Our factories are designed to manufacture our products
to the highest quality standards, following the ISO
9001 certification principles. This includes, for example,
the careful selection of materials that come into
contact with semifinished and finished products during
manufacturing and the appropriate training of operators.
Our manufacturing quality management systems are
subject to inspection by authorities and certified bodies.
Globally, a team of product quality associates ensuresthat all incoming materials, semifinished components,and finished products across our global footprint meet
our quality assurance and quality control standards.
Additionally, we have over 100 corporate quality
professionals who establish and embed standards
throughout our QMS processes. We supplement thesemeasures with dedicated third-party quality management
programs and by placing a PMI quality assurance
colleague on-site at the locations of each key electronics
manufacturing supplier of our smoke-free devices.
Product reliability also extends to the packaging, storage,
and transport of finished goods to ensure that theyreach the consumer in proper condition. Packaging has
a crucial role to play in this regard and also helps ensure
the traceability and identification of our products so we
can act promptly should issues arise. Each packaging
unit for our devices and consumables is imprinted witha unique serial number that allows us to trace the entire
supply chain journey, from factory to market, enabling
backward traceability should a product quality issue
arise. In the event of a product recall, of which there
were none in 2022, or an identified quality incident,
we can leverage this traceability to investigate theproblem and undertake any necessary containment
actions in an efficient and targeted manner.
Moreover, we focus on the sustainability and longevityof our products by embedding eco-design principles
and end-of-life take-back programs. Learn more here.

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Smoke-free products

Heated tobacco units

Our smoke-free products include, among others, heated
tobacco and e-vapor products1, which comprise bothconsumables and electronic devices subject to strict
design controls.Our process ensures that each productis developed according to predefined and controlled
criteria and demonstrates reduced toxicity comparedwith cigarette smoking. Any alterations to the productare made under a strict change management processthat assesses the impact of the change on the product’s
quality, safety, performance, and regulatory compliance.
In addition, as part of product development, we apply
use-hazard analysis. We assess the risks associated withthe product’s intended use and any foreseeable misuse,
and we implement appropriate mitigation measures.

IQOS heated tobacco units (HTUs) are inserted into thedevice holder by the consumer. Each unit is composedof a tobacco plug (TEREA consumables also contain ametal susceptor), a hollow acetate tube, a polymer-film
filter, a cellulose acetate mouthpiece filter, and filter
papers. The uniquely processed tobacco plug is made ofa reconstituted blend of high-quality tobacco leaves.

Our heated tobacco units and e-liquids are manufactured
using ingredients compliant with applicable regulatory
requirements and with industry and PMI standards. The
tobacco used in our heated tobacco products is tested
for the presence of crop protection agent residues
to ensure it does not exceed permissible levels perindustry guidelines. Nicotine and nicotine salts used in
e-liquids must satisfy U.S. or European pharmacopoeia
specifications. All other ingredients (with the exception offlavoring extracts from tobacco) are either food grade orsatisfy U.S. or European pharmacopoeia specifications.
We do not add any ingredients classified as carcinogens,mutagens, or reproductive toxicants. All consumableingredients—and also nonsubstrate material such as theplastic and other components of cartridges that housethe e-liquid and the paper and other components thathouse the tobacco mixture—are subject to rigorous
toxicological risk assessment. We disclose the ingredientsof our heated tobacco units and e-liquids on our website.

Heat-not-burn devices
The electronic devices for our heat-not-burn product are
manufactured according to internal standards and ISO
9001 principles and are certified according to applicableregulations and standards. The suppliers of the devices’
electronic parts and components, including batteries, mustalso operate under these quality standards. Each finisheddevice is subject to rigorous controls before shipment.
PMI has established a thorough monitoring process toenable early detection of consumer pain points. We use
these insights to improve our products and components.

1 See Glossary.

The manufacturing of HTUs demands high levelsof precision and consistency. We test HTUs forstability, using standard protocols covering a variety
of temperature and humidity ranges. The design
and packaging aim to preserve product quality andsafety in the various conditions to which the productmay be subjected (read more on PMI Science).

E-vapor products
Our non-disposable e-vapor devices use a cartridge, ortank, with nicotine-containing e-liquid. The product’s
reliability depends on the integrity of the tank; if thetank is tampered with, the product could fail. We
recognize a trade-off between product reliability
and recyclability, but prioritize safety, choosing touse closed-tank systems in the development andcommercialization of our e-vapor products. We also
test our packaging to ensure compliance with local
regulations, including the EU Tobacco Products
Directive, and we engage external agencies that test
the integrity and safety of our e-liquid packaging.
Our disposable e-vapor product, commercialized
as VEEBA, requires no charging, no cleaning,
and no refilling (read more here).

Combustible tobacco products
Our combustible tobacco products are also subject tostringent product development controls. We strictly
adhere to product specifications and regulations forcigarettes and apply additional internal requirements
to ensure the highest quality products. Our ingredients
undergo toxicological assessment to ensure their use
does not increase the inherent toxicity of cigarettesmoke. We disclose the ingredients used in ourcigarettes on our website. We keep abreast of changes
in regulation and perform further assessments toensure full compliance with applicable regulations.
Non-tobacco materials used in our products—e.g., cigarette
paper, filters, and packaging materials—also undergo
toxicological assessment. In assessing packaging materials, we
adhere to the main requirements for food contact materials.

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Nicotine science
Tobacco naturally contains nicotine. This meansthat nicotine is present in all tobacco products,
whether combustible (e.g., cigarettes and cigars)
or smoke-free (e.g., oral and heated tobacco).
While e-cigarettes do not contain tobacco, most
do contain nicotine, which typically is extracted
from tobacco and added to the product.
Nicotine is the best-known compound in tobacco.
Because it is so well known and because smoking is themost common source of nicotine uptake, many people
incorrectly confuse smoking and nicotine, attributing theharms of smoking that are derived from the combustion of
tobacco with nicotine. Two recent external independent
surveys have highlighted nicotine misperceptions amongpeople who smoke and healthcare professionals:• According to the Office for Health Improvement andDisparities (formerly Public Health England), four out of
10 former smokers in the U.K. incorrectly believe that
nicotine causes smoking-related cancers.1• A survey conducted in the U.S. showed that 80 percent
of U.S. physicians strongly agree that nicotine on its own
contributes to cancer and 81 percent strongly agree that
nicotine on its own contributes to chronic obstructive
pulmonary disease (COPD). These misperceptions may
dissuade adult smokers from considering alternatives
to cigarettes and other combustible tobacco and delay
progress toward a smoke-free future.2
While nicotine is addictive and not risk-free, it is not
the primary cause of smoking-related diseases, suchas cardiovascular, respiratory diseases, and cancer.
These are primarily associated with chronic exposure
to high levels of toxic substances emitted in thesmoke when tobacco is burned. There are nearly
100 toxicants that have been directly linked to thedevelopment and risk of the aforementioned diseases.

1
2

What is nicotine?
Nicotine occurs naturally in tobacco and, at
significantly lower levels, in some plant varieties
from the Solanaceae family, which includes
tomatoes, potatoes, and eggplant. It is possible
to extract nicotine from tobacco, as is done to
extract the nicotine used in nicotine replacement
therapy (NRT) products and the e-liquids used for
e-cigarettes. It is also possible to produce synthetic
nicotine. While this process is relatively costly,
an increasing number of products (e-liquids andnicotine pouches) are using synthetic nicotine.
The route of nicotine administration (e.g., via lungs,
mouth, or skin) influences the rate and amount of
nicotine uptake into the body. When tobacco smokeor e-cigarette aerosol is inhaled into the lungs, it
is rapidly absorbed into the bloodstream and canreach the brain as quickly as 10 to 20 seconds after
the puff is taken. Peak nicotine levels following
cigarette use occur approximately six to 10 minutes
after the first puff. In comparison, nicotine from oral
products (e.g., snus, nicotine pouches, and nicotinegums) is absorbed into the bloodstream throughoral tissues, and the nicotine concentration in the
blood rises gradually, reaching a plateau in about 30
minutes. The time it takes for the nicotine to reachthe brain is slower compared with the inhalationroute. Nicotine, when absorbed through the skin,reaches a plateau concentration in the blood evenmore slowly than via other routes of administration,
between six and 12 hours. However, the leveltypically is maintained over a longer period.
For adult smokers to switch to smoke-freealternatives, it is important that the experience,
including nicotine uptake, be comparable tocigarettes (read more about acceptability here).
Learn more about nicotine on PMIscience.com.

“Four in 10 smokers incorrectly think nicotine causes cancer.” Press Release, Public Health England, March 14 2018.
Steinberg MB, Bover Manderski MT, Wackowski OA, Singh B, Strasser AA, Delnevo CD. Nicotine Risk Misperception Among
US Physicians. doi: 10.1007/s11606-020-06172-8, September 1 2020.

Overview

Strategy

Governance

Product impact

Nicotine, as with any active compound, binds to receptors(nicotinic acetylcholine receptors) to elicit physiologicalresponses, including increased heart rate and increased
blood pressure. Nicotine also has been shown to havecertain cognitive enhancement effects, including on
attention, working memory, and learning.1 Finally,
nicotine induces physiological adaptations that lead todependence, which are evident upon the emergence of
withdrawal syndromes following a period of abstinence
and can lead to addiction, thereby making quitting difficult.
There are some populations that should not use
nicotine-containing products such as minors,
pregnant women, nursing mothers, and people
with pre-existing conditions, such as heart disease,high blood pressure, diabetes, or epilepsy.
Nicotine plays a crucial role in the successful adoptionof our smoke-free products. Its presence can help
adults who would otherwise continue smoking toswitch to less risky alternatives instead. For adultsmokers to accept novel alternatives to smoking, it isimportant that aspects of the experience—including
nicotine uptake—be comparable to cigarettes. Taking
these criteria into consideration, we have developed aportfolio of smoke-free products that both appeal to adultsmokers and expose users to less harmful or potentiallyharmful constituents (HPHCs) than cigarette smoke.

Operational impact

Fundamentals

Reporting and performance

We believe it is crucial for public health organizations
and regulatory bodies to continue conducting
independent research, raising awareness,and educating the population about nicotine
consumption—separate from smoking. Many publichealth authorities, individuals and organizations,already recognize the important role of nicotine in
helping smokers transition away from cigarettes.
For example, the U.K.’s Royal College of Physicians has
said that nicotine is not “in itself a highly hazardous drug,”
further stating, “It is inherently unlikely that nicotine
inhalation itself contributes significantly to the mortality
or morbidity caused by smoking. The main culprit issmoke and, if nicotine could be delivered effectively andacceptably to smokers without smoke, most if not allof the harm of smoking could probably be avoided.” 2

Nicotine and addiction
Continual use of nicotine may lead to dependence,
which is most evident in the emergence of withdrawal
symptoms experienced during cessation. In addition
to other physiological responses, long-term use of
nicotine can induce changes in the brain’s reward
and stress systems. Physiological dependence,coupled with altered responses from the reward
and stress system, can make quitting difficult.

We are working hard to phase out cigarettes, themost harmful nicotine delivery system. While
the world will undoubtedly be better off without
cigarettes, it is difficult to envision how to achieve
this future without offering adult smokers access toalternative nicotine-containing products that deliver
a comparable sensory experience. To reach this goal,
there needs to be education, understanding, research
and a societal debate around the impact of nicotine
consumption that is grounded in facts and science.

The rapid uptake and delivery of nicotine to thebrain’s reward system via lung delivery is thought
to be a primary reason for the increased addictive
potential of cigarettes and other inhaled tobacco
products compared with other routes of delivery.
When someone smokes a cigarette, the nicotine levels
peak quickly (in about six to 10 minutes), followed bya rapid decrease in nicotine levels as it is metabolized.
Most nicotine replacement therapies do not deliver
nicotine at the same rate or intensity, which decreases
the abuse liability, or addiction potential, but also
is less likely to satisfy smokers and allow them toquit cigarettes completely and permanently.

Independent studies have shown the harm reduction
potential of making smoke-free products available tothose adults who would otherwise continue to smoke(read more here). This means offering nicotine-containing
products that do not combust, thus reducing exposure
to HPHCs but also in ways that are acceptable toadults who would otherwise continue to smoke.

Learn more about nicotine andaddiction on PMIscience.com.

1
2

ref: doi: 10.2174/1570159X15666171103152136
https://www.rcplondon.ac.uk/file/3563/download

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There are different ways to talk about how
much nicotine is in a product, and countries
have different reporting requirements.
The nicotine yield of a tobacco heat-stick refers to theamount of nicotine in the aerosol produced when theheat-stick is heated in the electronic device. In studies,
this aerosol is generated using a machine that follows
a specific method or puffing standard, which dictates
the puff volume, puff time, and intervals between puffs.
This ensures consistency between samples and allows
us to compare aerosol across different products. The
aerosol is collected on a Cambridge glass-fiber filter
pad, and the compounds are extracted and analyzed.
These analyses are conducted using standardized
methodologies1 and allow us to quantitatively
compare the concentrations of compounds, including
nicotine, that are generated by different products.
The European Tobacco Products Directive (2014)
Article 3 sets per-cigarette limits on tar (10 mg),
nicotine (1 mg), and carbon monoxide (10 mg). Theselimits are assessed using the International Organizationfor Standardization (ISO) “smoking regimen.”

Therapeutic delivery of nicotine
The public health and scientific communities continue
to explore ways in which nicotine and other tobacco
alkaloids, when isolated from tobacco, can potentiallybe used as a therapeutic compound.3 For instance,
scientists are studying nicotine as a possible active
ingredient in pharmaceutical applications for treating
certain diseases, which include treatments for patients
suffering from schizophrenia, depression, and anxiety
disorders. Scientists are also studying the effects of
nicotine on debilitating diseases and disorders suchas Tourette’s, Alzheimer’s, Parkinson’s, attention
deficit hyperactivity disorder (ADHD), and others.

3

www.health.harvard.edu/newsletter_article/Nicotine_It_may_have_a_good_side

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Uphold business ethics and integrity

Nicotine levels in our smoke-free productsComparing the level of nicotine in smoke-free
products against that of cigarettes contributes toour understanding of the product’s harm reduction
potential. Nicotine is, after all, one of the reasons people
smoke, alongside other factors such as taste and ritual.

Overview

Developing ISO methods is typically a lengthy processthat allows time for ISO working groups to conduct
research and build consensus. In 2005, the World
Health Organization established the Tobacco Laboratory
Network (TobLabNet) to develop and validate analyticalmethods independent of the tobacco industry.
In our research publications, we use a range of puffing
regimens, including the ISO regimen (one puff every
60 seconds with no modification of filter holes) andthe intense regimen (one puff every 30 seconds withall ventilation holes blocked) to report the emission
levels in the tobacco heating system (THS) aerosol.2
No machine regimen can reflect every individual
variation in nicotine uptake among smokers andheated tobacco product users. This is why it isessential not only to understand how much nicotine
is present in the aerosol of the product but also thelevel of nicotine to which the user is actually exposed.
Therefore, we also conduct clinical studies thatmeasure nicotine delivered to the user. These studies
allow us to get a more complete picture of nicotine.
Learn more about nicotine in our tobacco
heating systems on PMIscience.com.
1
2

Puffing regimes used in these studies include those developed through the ISO
and Health Canada (Health Canada Intense regime) that use a more intense
puffing standard.
Schaller, J-P et al. Evaluation of the Tobacco Heating System 2.2 Part 2: Chemicalcomposition, genotoxicity, cytotoxicity, and physical properties of the aerosol.
Regul Toxicol Pharmacol. 2016.

We believe a greater understanding of the healthimpacts of nicotine separate from smoking is needed
and we plan to contribute to this understanding.

We conduct business ethically andwith integrity. Our core ethical values—
honesty, respect, and fairness—are at
the heart of how we operate at PMI.
We clearly define the ethical and complianceexpectations to which we hold ourselves andthe third parties with whom we work, and weback up these expectations with governance andmanagement systems to ensure we deliver on them.
Our Ethics & Compliance (E&C) program is led by ourVice President, Associate General Counsel, and Chief
Ethics & Compliance Officer, who reports to PMI’s SeniorVice President & General Counsel and, periodically,to the Audit Committee of the Board of Directors.
PMI’s Code of Conduct sets clear standards andexpectations. Its mandatory provisions apply to all
PMI employees, officers, and directors. Key risk areas
addressed in this document include, but are not limited
to, anti-bribery and anti-corruption, anti-competitive
practices, conflicts of interest, information protection
security and data privacy, responsible marketing andsales, scientific integrity, supply chain responsibility, andworkplace integrity, among others. Internal PMI Policies
provide more specific guidance on these and other topics.
In 2022, we began the process of updatingand enhancing our Code of Conduct to align it
more closely with PMI’s business transformation
strategy and industry best practices.
The updated PMI Code of Conduct was reviewed
and approved by the PMI Board of Directors at
the end of 2022. Accordingly, we will roll out acomprehensive employee communication and training
program on the new Code of Conduct in 2023.

Suzanne Rich Folsom
Senior Vice President& General Counsel

Employee communicationand training
At PMI, we use training and communication to help
employees understand the compliance-related
standards and rules that are relevant to their roles
and how to apply them in their daily work.
In 2022, we launched a global Code of Conduct annual
certification process. To date, 98.7 percent of eligible
employees, including 100 percent of senior leaders, havecompleted the annual PMI Code of Conduct certification.1
In 2023, as we launch the updated PMI Code of
Conduct, we will expand this certification requirement
to all PMI employees, including our factory workers.
In addition to the PMI Code of Conduct certification,in 2022, the E&C team launched a series of five e-learning
courses (available in 31 languages) to approximately
40,000 employees across the globe addressing thefollowing key compliance risk areas: anti-corruption,
conflicts of interest, insider trading, privacy, and sexual
harassment. Also, regional and local compliance officers
supplemented these e-learning courses with additional
compliance training offerings, including in-person training
sessions, to address compliance risk topics specific totheir respective region(s) and market(s), as appropriate.
Overall, employees and third parties completed a total of352,796 E&C training courses in 2022 (2021: 261,890).
Also, in 2022, we revamped our E&C intranet to improve
employee usability, and we continued publishing regular
updates on relevant compliance topics for our employees.

1

For the purposes of the 2022 PMI Code of Conduct Annual Certification, “eligible
employees” are those who have office-based computer access and “Senior Leaders”
are defined as employees at a salary grade of 19 and above.

“In the update of our Code of Conduct, we reflected on our corporate
strategic expansion into new products and markets around the globe
and the many potential risks which may arise as we operate incomplex regulatory environments. We focused our efforts uponmaking the Code more impactful, functional and intuitive—making it
our touchstone document which helps guide our employees as theymeet the challenges which arise when conducting day-to-day
business in our dynamic operating environment.”173

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174Philip Morris International — Integrated Report 2022

Evaluating our Ethics& Compliance culture
We evaluate our E&C culture periodically, including,for example, through the use of a global online survey
to understand employee experiences and attitudes
related to ethical business conduct. For the last 15
years, PMI has conducted this type of survey of its
global employee population every two to three years.
In addition, we regularly work with third parties
to assess elements of our E&C program.

Speaking up
At PMI, individuals may ask questions, raise concerns, orreport instances of observed or suspected misconduct bycontacting any of the following:• The individual’s supervisor, department head,or affiliate or function leadership• E&C key contacts (e.g., Regional Director, Cluster Head,E&C Country/Market Head)• PMI Global E&C confidential email address• PMI Compliance Help Line (online or by telephone),which is a third-party operated reporting channel
available 24 hours a day, seven days a week, in all
languages spoken at PMI. Individuals may use theCompliance Help Line anonymously, subject to local laws
and regulations
PMI also has implemented a Global Speaking Up Policy,
the principles of which are reinforced by the PMI
Code of Conduct and all PMI compliance policies.

There is a strong speaking-up culture at PMI,with most employees communicating directlywith the E&C department and disclosing theiridentity when doing so. Specifically, in 2022, only
16 percent of the reports received by E&C were
submitted anonymously (2021: 22 percent).
The E&C team continues to increase its outreach to
employees on PMI’s speaking-up program. As part of
our Inside E&C initiative, for example, the department
shares quarterly statistics with employees globally
about speaking-up reports, compliance violations,and disciplinary actions, as well as anonymized reallife examples of misconduct and advisory guidance
provided in response to employee questions.

Compliance investigations
At PMI, we take all reports received through our speakingup channels seriously and are committed to following
up objectively and in a timely manner. We investigate allreports that raise compliance concerns, and we involveother functions or line management as warranted. We
implement corrective measures to address investigation
findings and calibrate disciplinary actions against pastoutcomes to keep the process fair. When investigatingsuspected E&C violations, trained personnel adhere
to PMI Investigations Standards, which are designed
to ensure an equitable and respectful process. We run
a post-investigation quality assurance program to get
feedback on how well we met these standards. We
also have implemented a Retaliation Check program todetect, remedy, and prevent retaliation against people
who speak up, a process that includes regular follow-ups
with employees who have made a report. Finally, we runchecks to ensure year-end performance assessments
are fair, and we review substantial employment decisions
pertaining to any employee identified as at risk ofretaliation before the decisions are implemented.
We received 990 reports through Ethics & Compliance
Speak Up channels in 2022 (2021: 929). This represents
an increase from the prior two years, reflecting
employees’ return to the office following the COVID-19
disruptions. Around 54 percent of the matters that wereclosed in 2022 did not involve a compliance allegation
and were resolved through E&C advisory services orreferred to line management or appropriate departments,
such as our People & Culture teams, for further action.

Overview

Strategy

Governance

Product impact

In 2022, we investigated and closed 429 reports thatinvolved at least one compliance-related allegation(2021: 508). At least one violation was substantiatedin 52 percent of these cases (2021: 46 percent), with“workplace integrity” accounting for 33 percent of
substantiated violations (2021: 22 percent); “theft
and fraud” accounting for 28 percent of substantiatedviolations (2021: 30 percent); and substantiatedviolations related to speaking up (such as failure to speak
up or obstructing an investigation) accounting for 10
percent (2021: 14 percent). The appropriate parties
implemented corrective measures and disciplinary
sanctions following these investigations. Specifically,in 2022, termination of employment accounted for 48
percent of the disciplinary actions arising from thesecases, while suspension accounted for 3 percent,written warnings for 20 percent, and verbal warnings
or counseling for the remaining 29 percent.

Preventing bribery and corruption
Our standard is clear: we do not bribe anyone,
anywhere, for any reason. We recognize that
our refusal to participate in corrupt activities
may make doing business more difficult in somemarkets, but bribery is unacceptable at PMI.
Our anti-corruption standards regulate our interactions
with government officials and entities, as well as withprivate individuals, both directly and through third
parties. These standards prohibit all forms of bribery
and facilitation of payments. They also describe
acceptable forms of giving and receiving gifts orentertainment, govern political contributions, and set clear
preapproval, reporting, and registration requirements.
We publicly disclose on PMI. com the very
limited political contributions we make, andwe adhere to lobbying regulations.

Operational impact

Fundamentals

Reporting and performance175F U N D A M E N TA L S

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Respect human rights
Human rights are inherent to the dignityof human life and a prerequisite for society
to prosper. As a global company, we
work to uphold human rights within ourorganization and across our value chain.
At PMI, fostering the promotion and continuous
integration of human rights considerations into
our company’s strategy, policies, and businesspractices is not just the right thing to do; it also helps
anticipate evolving legal requirements and minimizes
our financial exposure and the risk of supply chain
disruptions. Further, safeguarding and promoting
human rights within our value chain creates thebasic environment and conditions in which our
stakeholders, including our employees and workers
across our supply chain, can thrive and create value.

Our approach
Across our value chain, we aim to minimize our adverse
impacts and maximize opportunities to drive positivechange. Establishing a strong foundation and integrating
into our organization mechanisms that promoterespect for human rights are an essential part of ourapproach to business. While this can be challenging
given the breadth of our operations and the scope andcomplexity of the issues involved, we believe humanrights are an absolute and universal requirement—arequirement we are committed to upholding.
We seek to place rights-holders, those individuals andcommunities whose rights could be impacted by ouroperations or business relationships, at the center of
all we do. We work to continuously improve our due
diligence with respect to identifying and addressing
risks and impacts across our value chain and securing
our supply of raw materials responsibly. To succeedin this endeavor, we expect our suppliers to commit
to respecting human rights within their business andwe seek to collaborate with them, either individuallyor through various multistakeholder initiatives.

Our efforts to respect, promote, and protect humanrights underlie many of the activities and programs
described throughout this report. A dedicated crossfunctional team at our central operations coordinates
our approach, which is grounded in the United
Nations Guiding Principles on Business and Human
Rights (UNGPs) and centered on four pillars:• A sound policy framework: Our work is governed by
PMI’s Human Rights Commitment, which iscomplemented by other PMI policy instruments such as
our company’s Code of Conduct, Responsible Sourcing
Principles, Marketing Standards, and Good Agricultural
Practices. Awareness-raising and training help us embed
those instruments and an ethos of respect for humanrights within our corporate culture.
• Rigorous due diligence: We have robust programs andprocesses in place to identify our adverse impacts acrossour value chain; these include our enterprise-wide
assessment, human rights saliency mappings, and humanrights impact assessments (HRIAs), in addition totargeted due diligence programs focused on areas ofpotential risks such as our tobacco and electronics
supply chains. We complement these programs withexternal assessments and verifications.
• Remediation: We implement measures to address
adverse impacts and maximize opportunities to drive
positive change for people across our value chain. We
seek to collaborate with civil society organizations,
governments, and the private sector to design anddeploy impactful solutions. Wherever these adverse
impacts occur, we strive to ensure affected individuals
have access to grievance mechanisms and effective
remedy in line with the UNGPs.
• Transparency: A complex and international value chain
carries the potential for human rights risks that we needto understand, manage, and continuously address.
Reporting transparently on our progress and thechallenges we face through our annual reporting andtargeted communications is a vital component of ourapproach.

Overview

Strategy

Governance

Product impact

In 2023, we plan to publish a stand-alone Human Rights
Report, detailing our strategy to respect and protect
human rights and our progress to date in implementing
our Human Rights Commitment, first published in 2017.
This inaugural report will lay out our recently updated
Human Rights Commitment (issued at the end of 2022),
lessons learned, good practices in our ongoing work acrossour value chain, challenges faced, and future actions.

Reinforcing our Human Rights
Commitment
At the end of 2022, we published our refreshed Human
Rights Commitment, which articulates our pledge torespect human rights in all our operations and business
relationships. The update incorporates findings fromour 2020 human rights saliency mapping (read morein our Integrated Report 2020) and discusses theimpact of our continued business transformation,
as well as the evolving regulatory landscape.
The updated Human Rights Commitment is alreadyincluded in our company-wide Business and Human Rights
e-learning. In 2022, we made this e-learning available inseven additional languages (Bahasa, German, Japanese,
Polish, Portuguese, Russian, and Spanish). This key step
aims, as of 2023, to facilitate its accessibility and increase
the number of colleagues across our global operations
who can learn about human rights and our Commitment.

Operational impact

Fundamentals

Reporting and performance

Assessing human rights impacts
across our markets
To strengthen our due diligence framework, proactively
identify risks, and mitigate potential adverse impacts inour operations and value chain, we have set an ambition
to conduct human rights impact assessments (HRIAs)
by 2025 in the 10 highest-risk countries in which we
operate. Our HRIAs are carried out by independent
expert organizations and follow a formal processaligned with the UNGPs. They result in tailored actionplans, which we implement, monitor, and report on.
In 2022, we completed our sixth and seventh assessments
since 2018 in Brazil and Malaysia, respectively. We
also continued monitoring the implementation ofactions recommended by previous HRIAs in Mexico,
Mozambique, the Philippines, Russia, and Turkey.
In 2021, we developed and introduced a self-assessment
tool, which we piloted to help low- and medium-riskcountry markets identify salient human rights risks
within their organizations, and develop action plansto address them. In 2022, we used the learnings fromthese pilots to begin fine-tuning our methodology andtoolkit. Our aim is to simplify and streamline the process
without sacrificing the essential aspects and nuancesthat contribute to effective assessments. Our refined
approach will include targeted training and new pilots.

C A S E S TU DY

Conducting an end-toend human rights impact
assessment in Malaysia
In the first half of 2022, we completed oursixth country-level HRIA since 2018. The exercise
focused on Malaysia and aimed to identify relevantrisks and opportunities across our local affiliate’svalue chain, including the upstream supplyof electronic devices, our local plant and office,and IQOS retail stores downstream.
Read the case study here

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Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performanceF U N D A M E N TA L SManage our supply chain sustainably
C A S E S TU DY

Assessing humanrights impacts in Brazil
We conducted another human rights impact
assessment in the second half of 2022—
constituting our seventh country-levelassessment since 2018— to identify, prioritize,and help address potential risks andopportunities across our Brazilian affiliate’svalue chain.
Read the case study here

SI

Cumulative number of human rights
impact assessments conductedsince 2018, with ﬁndings addressed
2025• The individual’s PMI supervisor, department head, oraffiliate or function leadership

A SPI R AT ION

10

2022

7

2021

5

2020

4
0

2

4

6

8

Specifically, we offer the following mechanisms forindividuals to ask questions, raise concerns, or reportinstances of observed or suspected misconduct:

10

Grievance mechanisms
Providing access to effective grievance mechanisms in ouroperations and across our supply chain is a core elementof our human rights due diligence approach, aligned with
the UNGPs. At PMI, we maintain clear policies, run regulartraining, and work to ensure that robust processes arein place to encourage individuals to speak up if they areaware of any suspected potential or actual violationsof law, our Code of Conduct, or any of our policies.

• The individual’s PMI Ethics & Compliance key contact• The PMI Ethics & Compliance confidential email address• The PMI Compliance Help Line, which is a third-party
operated reporting channel available 24 hours a day,seven days a week, in all languages spoken at PMI.
Individuals may use the PMI Compliance Help Lineanonymously, subject to local laws and regulations
At PMI, we protect people who speak up in good faithabout a suspected compliance violation or cooperate withan investigation. We have zero tolerance for retaliation.
Moving forward, we plan to continue to review andidentify opportunities for further enhancement of
the implementation of our grievance mechanisms
in our operations and across our supply chain.

Our supply chain accounts for a significant
portion of our potential social andenvironmental risks and impacts. We arecommitted to identifying, managing, andaddressing these risks and impacts responsibly.

Our approach
Our operations rely on securing high-quality, costeffective, and fit-for-use materials and services fromsuppliers, who are expected to adhere to PMI’s
environmental, social, and governance (ESG) requirements.
To enhance our supply chain sustainability and achieve
tangible environmental and social improvements, we
identify and address current and potential risks while
seizing opportunities to create a positive impact in thecommunities in which we and our suppliers operate.
Our approach to sustainable supply chain management
is built on the following core principles:• Proactive engagement with our suppliers is key tofostering open and transparent relationships in which
expertise is shared and built together.
• We take a risk-based approach, deploying tailored tools
and interventions and prioritizing areas in which we canhave the greatest impact.
• We seek to support our suppliers in continuously
improving their sustainability performance and achieving
the highest compliance standards.
• We leverage our reach and understanding of our supply
base to implement impactful programs and accelerate
progress in our priority sustainability corridors, such as
our efforts to tackle climate change, preserve nature,and promote fair working conditions.

Our supply chain sustainability due diligence is guided by
our Responsible Sourcing Principles (RSP), which align with
the UN Guiding Principles on Business and Human Rights(UNGPs), the Ten Principles of the UN Global Compact,
and International Labour Organization (ILO) Conventions.
The RSP detail our ambitions and set process andperformance requirements for our suppliers of materials
and services. We expect all our suppliers—and in particular
our critical suppliers—to meet our RSP requirements
and demonstrate good sustainability performance.
In addition to our RSP, we apply tailored due diligence
instruments and mechanisms within specific segments ofour supply chain. In our tobacco supply chain, our work isgoverned by our Good Agricultural Practices (GAP) and
our Agricultural Labor Practices (ALP) Code, which areoperationalized at farm level by field technicians working
year-round with the farmers contracted by PMI and our
suppliers. In our electronics supply chain, we leverage
the work of the Responsible Business Alliance (RBA).
Adherence to our RSP—and GAP for our tobacco supply
chain—is built into our contractual agreements with
suppliers. We use a suite of tools, including third-party
assessments, on-site audits, and field visits, to monitor andencourage the continuous improvement of our suppliers.
The sustainable sourcing of goods and services
involves broad cross-functional collaboration within
PMI, executed by our Procurement and Global Leafand Product Development teams with the strategic
support of Operations Sustainability, and overseen
by our Senior Vice President, Operations.

Fostering collaboration with
our network of suppliers
We engage and seek to influence a large numberof our suppliers—companies with a diverse setof strategies, priorities, and cultures—to jointly
progress on our sustainability journey. To achieve
our sustainability-related ambitions, we work on
common projects to drive improvements in operations
and beyond. To do so, we use a variety of channels,
including virtual events, webcasts, training sessions,surveys, and an annual supplier awards event.

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Overview of our supply chain
in 2022
With over 30,000 tier 1 suppliers globally, our supply
chain spend amounted to approximately USD 12.6
billion in 2022. Our global supply chain is organized
into two main streams—direct spend (focusedon materials used to manufacture our finishedproducts), and indirect spend (focused on goods
and services necessary to operate our business).
Currently, our global supply chain supports our two
main finished product streams—smoke-free productsthat are increasing in resource allocation, in line with our
growth strategy and combustible cigarettes. Smokefree products accounted for 43 percent of our supply
chain spend in 2022, up from 35 percent in 2021.
The supply chain categories exposed to the highest
sustainability risks identified to date pertain to our directspend and include:• Tobacco production, with the main risks associatedwith working conditions, child labor, climatechange, access to water, and the socioeconomic
well-being of farming communities• Electronics manufacturing, with the main risks relating
to working conditions• Paper and pulp-based materials, with the main risks linked
to deforestation, biodiversity loss, and climate change
Find out how we work to address these specificchallenges in dedicated sections of this report:
Improve the quality of life of people in our supply
chain, Tackle climate change, and Preserve nature.
During the year, our supply of direct materials was underpressure due to high demand for primary commodities,
a global transportation shortage, congestion, and cost
inflation, largely driven by energy prices, as well as
drought in Europe, flooding in Pakistan, and high pressure
on fertilizers and other crop input prices. Despite thesechallenges, our robust contingency plans enabled us tomaintain stable production in our manufacturing centersand continue contributing to our sustainability goals.

Breakdown of our 2022 supply chain spend
DIRECT SPEND

D ir

In

42%

Tobacco leaf

10%

Direct materials
used to produce and package our products(e.g., cellulose acetate tow, paperboard,
nontobacco agricultural products, etc.)

19%

42 %

Electronic devices
and accessories for smoke-free products

12%

ec t spen dAdvanced procurement<1%

INDIRECT SPEND

58%

dir

ect spen58%

dTechnical procurement
to source the manufacturing
equipment used in our factories

5%

R&D expenditure
enabling us to conduct advanced research

2%

Indirect materials and services
necessary to run our business, such as IT,
office equipment, and consulting services

51%

Overview

Strategy

Governance

Product impact

Updating our Responsible
Sourcing Principles
During 2022, we began the review of our Responsible
Sourcing Principles (RSP) and related Implementation
Guidance documents, enhancing the content andaccounting for external trends and anticipatedregulatory developments. We embedded the resultsof our company’s most recent sustainability materiality
assessment and priorities and considered our company’s
progress in evolving and transforming our business model.
We expect to release the updated version of our RSP
in 2023. Concurrently, we will execute a robust roll-out
plan that incorporates internal capability building acrossfunctions and awareness sessions with our suppliers.

Monitoring the sustainability
performance of our critical suppliers
We deploy tailored due diligence instruments acrossour direct materials, electronics, tobacco, and indirectmaterials and services supply chains. This allows us
to increase the visibility of our suppliers’ sustainability
performance and implement risk mitigation plans
with continuous improvement approach.
We have set an aspiration for 100 percent of ourcritical spend to be sourced sustainably by 2025. In
2022, we made continued progress, achieving 93
percent (2021: 83 percent). Critical spend refers tocomponents used in the manufacturing of PMI’s finishedproducts. In addition to the nature of the component,
a supplier’s criticality is also evaluated on the basis ofspend segmentation and supply flexibility, as relevant.
For suppliers of direct materials and electronics, we
use minimum threshold scores in our due diligenceplatforms to determine whether sourcing is sustainable.
All tobacco purchased from contracted farmers under the
integrated production system is considered sustainable.

Direct materials supply chain
We leverage our partnership with EcoVadis—theleading global service provider of online ESG supplierassessments—to monitor and assess the sustainability
performance of our suppliers of direct materials (excluding
tobacco and electronics suppliers, for which we use
tailored due diligence tools, as described in this section).

Operational impact

Fundamentals

Reporting and performance

During 2022, 116 suppliers representing 97 percent of our
total direct material spend were assessed. Of these, 93
percent demonstrated a good sustainability performance,
based on the score provided by the assessment platform,
and only 7 percent were below the minimum thresholdrequired and had to complete a corrective action plan
before reassessment in 2023. The areas for improvement
identified are segmented by theme, indicator, and priority.
High-priority improvement areas are mainly related tothe implementation of policies in ethics and sustainableprocurement across the supplier’s operations. Mediumand low-priority improvement areas highlight gaps inenvironmental and human rights policies and reporting.
We followed up on findings from our 2021 assessments
by launching, as necessary, corrective action plans,reassessments, and audits. The large majority (80 percent)of the suppliers reassessed after completing a deepdive review of their corrective action plans improved
their sustainability performance, and 60 percent ofthem achieved the minimum score required by PMI.

Electronics supply chain
As our company transforms, a key area of focus is our
expanding electronics manufacturing supply base.
Besides being new to PMI, the electronics supply
chain is complex and dynamic, and comes with specificchallenges, including the presence of conflict minerals.

Assessing the sustainability performanceof our indirect spend supply chain
Alongside our activities on prioritized spend
categories, during 2022 we further explored
our indirect spend supply chain. We engaged
through a multistakeholder, sector-specific working
group and started the process of identifying
risks and complexities of the category. In 2023,
we will deepen and refine our strategy, taking
the lessons learned into consideration.
In addition, we continued to assess thesustainability performance of our suppliers
across other procurement categories, including
indirect materials and services. This allowed us
to evaluate suppliers representing approximately
40 percent of our indirect spend in 2022.

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Trading, refining, smeltering,and processing

TIER 2Mining andextraction

Having joined the Responsible Business Alliance (RBA), theworld’s largest industry coalition for sustainable supply
chains, in early 2021, we centered our work in 2022
on expanding the coverage of our suppliers with RBA
available audit mechanisms. We continued to participate
in RBA’s Validated Assessment Program (VAP)—thestandard for on-site compliance verification and effective,
shareable audits. Under the program, independent
external auditors review our electronics suppliers’
sustainability performance against the RBA Code of
Conduct, aligned with our RSP. To further increase
visibility, we also leveraged Customer Managed Audits(CMAs), an additional audit standard recognized by RBA.
In 2022, 67 percent of our spend with critical electronic
suppliers were covered by VAP or CMA audits. The
average RBA score of our suppliers was 173 (out of a
maximum of 200), compared with an RBA average of
160 in 2021. The audit reports revealed that the mostcommon issues relate to working time, emergency
preparedness, environmental management system,
and low engagement of suppliers with their own
suppliers to implement the RBA Code of Conduct.
In parallel, in 2022, we performed an extensive analysis
of PMI’s due diligence framework for our electronics
supply chain as well as industry benchmarks andreview of upcoming human rights legislation.
As a consequence, we will continue leveraging RBA
initiatives and tools and further engage with othermembers to strengthen capability of our procurement
teams and suppliers in 2023. A key focus will be towork with the suppliers to address identified issues.

Conflict minerals
We are committed to operating with integrity andto responsibly source 3TGs (tin, tantalum, tungsten,and gold), which are used in our products. Theseminerals are sometimes mined using forced labor orused to finance armed conflict in certain conflictaffected and high-risk parts of the world.

Strategy

Governance

Product impact

Operational impact

Maintaining full traceability and monitoringin our tobacco supply chain

Overview of our electronics supply chain
TIER 3+

Overview

Component
manufacturing

TIER 1

Electronics manufacturing(EMS)

Our 2022 conflict minerals submission to the U.S.
Securities and Exchange Commission, covering theyear ended December 31, 2021, showed that thesmelters from which our suppliers source 3TGs for
PMI’s Covered Products (as defined in the submission)
either conformed with the Responsible Minerals
Initiative (RMI) audit program (242 smelters) or were
undergoing the assessment process (16 smelters).
Another mineral, cobalt, is also linked to unethical mining
practices. This critical raw material is used in the batteries
that power our smoke-free devices. While the quantities
required for our products are minor compared with theglobal market size, we are deploying a due diligenceprogram based on the RMI approach, along with tools to
identify and address potential human rights risks in our
supply chains. In 2022, seven battery suppliers responded
to a PMI request, and one supplier was unable to provide
information. Subsequent due diligence indicated that, as ofDecember 31, 2022, each of the 19 smelters from which
PMI battery suppliers source cobalt were either on RMI’s
conformant list (17 smelters) or undergoing the assessment
process (two smelters). We continue to engage with
our suppliers to improve visibility in this complex supply
chain and enhance our due diligence framework.

Our Good Agricultural Practices (GAP) define theprinciples and measurable standards to be met by all
those who grow and supply tobacco to PMI. Thesestandards focus on four areas: governance, crop,
environment, and people. The latter is governed by a
dedicated Agricultural Labor Practices (ALP) Code.
GAP principles are mandatory for all suppliers of
tobacco to PMI and are reflected in supply contracts.

Reporting and performance

estimate visit each farm on average at least five times
during the crop season and monitor how well sustainability
requirements are applied and commercial processes areworking. These technicians provide agronomic assistance,
deliver training to farmers, identify and address labor issues,and ensure the implementation of improvement plans.

To a large extent, responsible sourcing stems from strong
relationships on the ground. PMI’s Integrated Production
System (IPS) connects leaf suppliers and farmers beyond
the customary boundaries of a commercial relationshipand enables direct technical support, agronomic advice,financial loans, and various other services. IPS covered
99 percent of our tobacco purchases in 2022. The
excluded amounts originated from Indonesia and Malawi.

In 2022, field technicians allowed us to monitor compliancewith GAP by all farmers supplying tobacco to PMI under IPS.

IPS is vital to providing traceability and visibility in our
supply base; it enables the deployment of our GAP and
ALP monitoring and remediation system down to the farmlevel. At the center of this system are field technicians,
employed by PMI or our third-party suppliers, whom weThird parties, such as specialized NGOs, can also
monitor GAP implementation. This is an approach
we have taken in Brazil since 2020 in collaboration
with Produzindo Certo, a specialist company helping
farmers operate more efficiently and sustainably.
During 2022, almost all (over 99 percent) contracted
farmers agreed to be part of this voluntary program.

Overview of tobacco sourcing under PMI’s integrated production system
These dynamics led to a sizeable decline in the amountof packed tobacco purchased (from approximately
291,000 tons in 2021 to around 281,000 in 2022).
During 2022, we sourced tobacco grown across
20 countries, with most of our volume comingfrom Argentina, Brazil, China, and Indonesia.

As a consequence of our smoke-free transition, theshare of our purchased volume of tobacco directedto the manufacture of combustible cigarettes is
steadily declining while the proportion dedicated tothe production of consumables for heated tobacco
products is increasing. Overall, we are seeing a
gradual decrease in total volumes sourced, as
smoke-free products use at most half the amountof tobacco required for combustible cigarettes.

PMI
GAP

GAP

5 PMI leaf operations

15 third-party leaf suppliers

16% of volume purchased

84% of volume purchased

Tobacco supply chain
We define sustainable tobacco production as theefficient and competitive production of quality tobacco
in conditions that limit as much as possible the impact on
the natural environment and improve the socioeconomic
circumstances of the people and communities involved.

Fundamentals

3,128
GAP

11,711

Contracted farmers supplying
tobacco to PMI
Note: The volume purchased through third-party leaf suppliers
includes spot purchases (i.e., unplanned purchases for which we
do not have access to sustainability data), which represented
approximately 5 percent of our total purchased volume in 2022.

Field technicians supporting andmonitoring GAP and ALP implementation

223,299

Contracted farmers supplying
tobacco to PMI

GAP

211,588

Contracted farmers supplying
tobacco to PMI

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184Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

Safeguard privacy and protect data

Apply fair fiscal practices

In today’s data-driven world, data protection
and cybersecurity are essential. At PMI,
we use an array of expert-supported,
state-of-the-art security solutions to help
prevent, detect, and respond to events.

To achieve the common goal of a safe,
functional, and prosperous society,governments worldwide must havethe financial resources to fund public
goods, services, and infrastructure.

Together with our Code of Conduct, internal policies andguidelines govern our activities and ensure our everyday
work is conducted in a manner consistent with our values.
In particular, PMI’s global policy on data privacy sets astandard for privacy governance and accountability.
PMI’s Global Privacy Program (GPP) sets standards fordata privacy and security across markets and functions.
It governs the collection, processing, and sharing of
personal data by PMI affiliates. Our privacy teamregularly reports to PMI’s Corporate Risk GovernanceCommittee on the businesses’ adherence to the GPP.
We use information systems to help manage businessprocesses and collect and interpret data. We also
use these systems to communicate internally andexternally with employees, suppliers, consumers,
and customers. Specialist third-party service
providers manage some of our information systems,
and we work with internal specialists to protect
systems and data from unauthorized access.
Employees and contractors play a fundamental role inprotecting data. By being aware of potential threats andreacting to them appropriately, our community can help
keep PMI secure. In 2022, we continued to train our
workforce in data protection principles and information
security. We complement our training with regularsimulated phishing campaigns addressed to our entire
workforce to help everyone practice recognizing andreporting phishing attempts and to identify weaknesses
in advance of any real attempts the business might face.

We also maintain a hub of resources on information
security awareness, accessible to all employees andcontractors. In addition to detailing good security
practices to protect user accounts and data from cyberrisk, these resources help our team remain vigilant to
the indirect risks that can arise from activities such as
online shopping or connecting to wireless networks. To
support those employees working remotely, we haveadapted our network and systems and released guidance
to help remote workers secure internet connections
and manage paper documents outside of our offices.
We continue to make investments in administrative,
technical, and physical safeguards, including continuity
planning, to provide resilience on our core processes
and maintain information security protections in linewith industry standards. We evaluate the adequacyof these preventative actions annually. In addition,
PMI has an integrated program to manage cyberrisks, to protect PMI’s data, and to safeguard theprivacy of consumers and customers, including
conducting third-party cyber risk assessments.

• Roles and responsibilities: PMI’s Tax
Compliance Program clearly defines the roles
and responsibilities of each PMI affiliate.

PMI is a good corporate citizen everywhere we operate.
Paying taxes commensurate with our economic
activities is not only our duty but the responsible
thing to do and a key component of our social
contract in every country in which we do business.
In addition to the taxes reported by PMI legal entities,
our importers and distributors in many countries are
responsible for paying import duties and excise taxes
on our products. Though such payments may notappear in PMI’s financial statements, they represent a
portion of the product taxes paid by our consumers
worldwide and so are included in the table below.

• Escalation to, and involvement of, the PMI Tax
department: Per PMI’s policies, our affiliates consult
with the PMI Tax department on all importanttransactions, whether recurring or new, as well as on
business structures and operations involving other
PMI affiliates or unrelated parties. Together, they
determine positions, exposures, and actions regarding
material, non-routine tax or customs matters. Where
there is sufficient uncertainty over the appropriate tax
treatment of a particular transaction or a potentiallysignificant impact, PMI obtains external advice.
• Tax reporting and procedures: PMI has designed its
Tax Standards and Guidelines to ensure effective andpredictable tax compliance and control measures arein place. Under these policies, all tax-filing obligations
must be accurately completed in a timely fashion andin accordance with applicable laws and regulations.
• Documentation and tax records: PMI affiliates
are responsible for the appropriate creation andretention of all relevant local tax records.

Total(USD billion)

Corporate income tax

2.2

Total excise taxes on PMI products

73.4

•

Excise taxes on PMI products
reported by PMI affiliates

48.9

•

Excise taxes reported by ourimporters and distributors

24.5

VAT and sales tax

Reporting and performance

Our mandatory practices encompass the following:

Corporate income tax and other taxes can generatenecessary revenues and avoid passing the bill for funding
today’s society to future generations. Excise tax can also
ensure that societal costs are reflected in a product’s
price, thereby encouraging consumers and producersof these products to shift to less harmful options.

2022 taxes

Fundamentals

9.0

PMI has implemented governance arrangements thatset clear accountabilities for the management of tax
compliance risks and tax planning. We maintain acomprehensive, effective, and practical risk management
program that incorporates best practices, a structured
and documented control framework, appropriate
planning, and coordinated decision-making.

PMI supports the work of the Organisation for Economic
Co-operation and Development (OECD) and Group of
Twenty (G20) to prevent tax-base erosion and profit shifting.
Our policies and practices ensure that PMI pays taxes
commensurate with our economic activities and substance ineach country. We do not engage in aggressive tax planning,
abuse tax havens, or have in place any contrived tax
structures. We also do not operate “letter box” companies.
PMI conducts all intercompany transactions on anarm’s-length basis, in accordance with current OECD
principles, and we support greater transparency between
taxpayers and tax authorities. When relevant and feasible,
we have upfront conversations with tax authorities in the
countries where we operate. In certain instances, we
obtain tax rulings to provide a higher level of certainty notjust for PMI, but also for the tax authorities.
Such rulings are not the only means of securing transparency
and certainty, as we also have joined monitoring programswith tax authorities in several countries. These programs
promote ongoing and transparent relations between
taxpayers and tax authorities.

185

186

Philip Morris International — Integrated Report 2022

Overview

Strategy

Governance

Product impact

Operational impact

We maintain

Reporting and performance
About this report

p188

Glossary of terms and acronyms

p205

Performance in ESG ratings,
rankings, and indicesp189

Forward-looking andcautionary statements

p210

Performance metrics

p190

Notesp211

Independent assurance reportp202

War in Ukraine

p211

PLACEHOLDER IMAGES

Fundamentals

Reporting and performance187

REPORTING AND PERFORMANCE

188

Philip Morris International — Integrated Report 2022

About this report
We are pleased to share our 2022 Integrated
Report, published on April 5, 2023. This reportfollows our 2021 Integrated Report (publishedin May 2022) and constitutes our eighthconsecutive annual disclosure incorporating
environmental, social, and governance (ESG)
content. This report describes our company’s
progress in delivering on its purpose.
The report content is informed by a formal sustainability
materiality assessment conducted in 2021, which
incorporates an assessment of our company’s impacts
on society and the planet, an evaluation of the potential
impact of various ESG factors on our enterprise value,
and the perspectives of diverse stakeholder groups (readmore here). We have structured our ESG topics around
two pillars: product impact, and operational impact.
Those topics pertaining to the social impacts of our
products are considered most material. These and othermaterial ESG topics form the basis of our strategy, which
is organized into eight environmental and social priorities
and nine related governance factors. This report provides
information on context, relevance, management approach,targets, performance, and outlook for our strategic
priorities. It is complemented by case studies, market
stories, and additional materials available on PMI.com.

Unless otherwise indicated, the data and informationin this report cover our operations worldwide forthe full calendar year 2022 or reflect the status as ofDecember 31, 2022 in line with our financial reporting
calendar. Unless explicitly stated, the data, information,
and aspirations in this report do not incorporate
PMI’s Vectura Fertin Pharma subsidiary (consolidating
the 2021 acquisitions of wellness and healthcarecompanies Fertin Pharma A/S, Vectura Group plc.,
and OtiTopic, Inc.), nor the late 2022 acquisition of
Swedish Match AB. Where not specified, data comefrom PMI financials, nonfinancials, or estimates.
PricewaterhouseCoopers SA (PwC) has provided limited
independent assurance on select Business Transformation
Metrics, available on page 26. For more details, see theIndependent practitioner’s limited assurance report on
page 202. SGS has provided external verification of ourenvironmental and health and safety data (including
our 2022 greenhouse gas (GHG) emissions data). The
verification statements are available on PMI.com.
This report was completed with oversight from PMI’s
Board of Directors and reviewed by its Executive
Chairman, as well as by all members of our Sustainability
Committee—composed of Company Management
members, including our Chief Executive Officer,
Chief Financial Officer, and Senior Vice President
and General Counsel. Additional information
about our sustainability work, including previous
reports and policies, is available on PMI.com.
We welcome your feedback and suggestions.
Please contact us at sustainability@pmi.com.

Aligning our disclosures with reporting standards and frameworks
This report has been prepared with reference to the
Global Reporting Initiative (GRI) Universal Standards(2021) and relevant topic-specific standards. Our 2022
GRI Index is available on PMI.com. We consider the
principles and standards of the UN Global Compact(UNGC) when compiling our annual integrated reportand map them against GRI indicators in our GRI Index.
We take into account guidance from the IFRSFoundation, including use of its SASB Standards,
Integrated Thinking Principles, and Integrated Reporting
Framework. Our SASB Index is available on PMI.com.
It maps content within this report and other available
disclosures aligned with the Tobacco Standard, as wellas with aspects of the Agricultural Products, Hardware,and Medical Equipment and Supplies standards.

We considered the Sustainable Development Goals(SDGs) during the preparation of this report, which
are mapped to our 2025 Roadmap and in our 2021
Sustainability Materiality Report, to best showcase
how our company goals seek to align with those
SDGs we believe we can contribute toward.
We completed a new and more extensive climatechange risk and opportunity assessment andwill publish our inaugural Task Force on Climaterelated Financial Disclosures (TCFD) Report shortly
after publication of this integrated report.

Overview

Strategy

Governance

Product impact

Operational impact

Reporting and performance

Fundamentals

Performance in ESG ratings, rankings, and indices
At PMI, we understand the value of participating in ESG
ratings: it helps us assess our sustainability performance,
benchmark ourselves against our peers, and, mostimportantly, identify areas for improvement on which
we act when they can meaningfully contribute toimproving our company’s performance in line with oursustainability strategy.
We prioritize our participation in ESG ratings that are
most useful to us and our stakeholders, based on:• The credibility of the methodology and our ability tointerpret and use the results• Its value as a learning opportunity, including a sufficient
feedback loop to allow us to improve over time
• Resources required, which should not undermine ourcompany’s focus on performance improvement• The organization’s openness to dialogue, allowing us tounderstand expectations and results, share knowledge,
correct factual inaccuracies, and provide input on ratingsenhancements
The following table provides an overview of certain ratings
that evaluate PMI’s performance but is not intended torepresent all ratings PMI is featured in.

• Recognition of the rating among the investor
community, as well as participation by our competitors
and peers

2022 score (andyear-on-year trend)

S&P Global Corporate
Sustainability
Assessment

PMI was selected for the third year in a row as a member of the
Dow Jones Sustainability North America Index (score as of March
17, 2023).

84/100

Sustainalytics

PMI maintained its “Medium ESG Risk” classification (score as ofNovember 30, 2022).

24.1

MSCI

PMI maintained a rating of BBB in the MSCI ESG Ratingassessment (score as of December 23, 2022).

BBB

CDP Climate, Forest,
Water Security

PMI was awarded a Triple A score for the third consecutive year
in recognition of its efforts to combat climate change, protect
forests, and promote water security.

AAA

CDP Supplier
Engagement

PMI earned a place on CDP’s Supplier Engagement Leaderboard
for the sixth consecutive year.

Leaderboard

Bloomberg GenderEquality Index

PMI was included for the third year in a row in the 2023
Bloomberg Gender-Equality Index (GEI) for its transparency ingender reporting and advancing women’s equity.

Index
memberS&P ESG Evaluation

PMI scored 62/100, based on its ESG Profile Score (59/100) andPreparedness Opinion (“Adequate +3”). The former is based on
entity-specific scores and sector/region scores (score as ofFebruary 3, 2023; report available here)

62/100TobaccoTransformation Index

PMI ranked second out of 15 tobacco companies assessed,
leading the industry in the “Strategy and Management,” “Capital
Allocation & Expenditure,” and “Marketing Policy & Compliance”
categories (score as of September 2022).

3.69/5ISS ESGPMI achieved industry leadership, maintaining a rating of “C”(score as of August 2, 2022).

C

State Street R-Factor

Outperformer within the tobacco industry; industry averagescore of 56 (score as of February 1, 2023)

65

Key

Improve

Maintain

2023
Member189

Philip Morris International — Integrated Report 2022

Overview

Performance metrics

2015
baseline

2020

2021

2022

0.2

18.3

21.7

24.9

0.1

13.0

15.3

17.8

> 40

7

64

71

73

100

17%

39%

42%

42%

2.4

8.1

9.2

10.7

3 out of 48

9 out of 39

8%

76%

73%

74%

n/a

33%

35%

43%

Developing science-based better
alternatives to cigarette smoking

Broadening access to smoke-free products

Product impact

Operational impact

191

Reporting and performance

Fundamentals

Figures pertain to total IQOS users, for definition see Glossary.
Including Swedish Match. For definition of available for sale, see Glossary.
Excluding PMI Duty Free. World Bank report issued in July 2022 is used on a comparative basis for income-level classification. For definition of low- and middle-income markets,
see Glossary.
4 Investments reflect research, product and commercial development, production capacity, scientific substantiation, and studies on adult smokers.
5 Data reflect the number of factories operated and owned by PMI at the end of the respective year, including Swedish Match and Vectura Fertin Pharma. 2022 factories
include eight facilities producing heated tobacco units, two producing other smoke-free consumables and 14 Swedish Match owned facilities, primarily engaged in the productionof smoke-free products.
6 Direct spend focuses on materials used in the manufacture of our products; it includes tobacco leaf, direct materials, and electronic devices and accessories. Data excludes Swedish
Match, Vectura Fertin Pharma.
7 Adjusted R&D expenditure excludes asset acquisition cost related to OtiTopic, Inc. in 2021. Total reported R&D expenditure in 2021 including these items amounted to USD 617
million.
8 R&D positions include scientists, engineers, technicians, and support staff. Comparable data for years prior to 2018 are not available as the scope of R&D positions changed following
company organizational changes. Data includes Swedish Match, Vectura Fertin Pharma full-time equivalent (FTE).
9 IP5 jurisdictions are Europe (patents granted by the European Patent Office), China, South Korea, Japan, and the U.S.
10 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.
11 Total shipment volume includes cigarettes, other tobacco products, and smoke-free product consumables, See PMI’s ESG KPI Protocol 2022 for further details.

Maximize the benefits of smoke-free products

Adjusted R&D expenditure (in millions USD)⁷*
Adjusted R&D expenditure ratio (smoke-free/total)⁷*
Adjusted R&D as % of net revenue⁷
Number of R&D positions (FTEs)⁸
Patents granted in IP5 jurisdictions relating to smoke-free
products (cumulative, since 2015)⁹
Number of studies completed by PMI on smoke-free
products (cumulative, since 2015
• Toxicological assessment• Clinical assessment
Perception and behavior (premarket and post-market)

423
70%
1.6%
n/a
n/a

495
99%
1.7%
934
1,300

566
99%
1.8%
984
1,770

642
99%
2.0%
1,516
2,500

n/a
n/a
n/a

146
22
30 (15 +15)

Total number of people (PMI employees and third parties)
who participated in at least one Marketing Codes-related
training session¹⁰• Number of PMI employees• Number of third parties
Number of violations of the Marketing Codes resulting insubstantiated cases of misconduct
Percentage of PMI’s total shipment volume covered byyouth access prevention programs in indirect retailchannels¹¹

n/a

n/a

2025
Aspirations
SI

> 50%

Purposefully phase out cigarettesSISI

9 out of 38 24 out of 53

2020

2021

2022

2025
Aspirations

Smoke-free product shipment ratio (smoke-free/total)¹*†

0.6%

10.9%

13.3%

15.1%

> 30%

Smoke-free product shipment volume (billion units)¹*†
Combustible tobacco product shipment volume (billion
units)¹*†
Change in combustible tobacco product shipment volume(billion units) vs. 2015 baseline¹*†
Adjusted net revenues ratio (smoke-free/total)²*†

5
877

80
650

99
645

114
641

>250
<550

n/a

(25.8)%(26.4)%(26.8)%~ (40%)

0.7%

24.2%

29.5%

32.1%

> 50%

0

39

49

52

0

6

10

17

Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under its
combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products. Where applicable, prior years’ KPIs havebeen recalculated to reflect the reclassification on a comparative basis. Impacted metrics are marked with (†).
In 2023, we plan to evaluate our published 2025 aspirations to ensure they remain ambitious, reasonable, and achievable in the context of a dynamic and evolving smoke-free industry, andimpacts of our recent acquisitions.
1

n/a
n/a
29

22,77447,237
13

24,03051,804
14

n/a

94%

91%

91%

SI

Notes: In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the United States market. The Swedish Matchacquisition is a key milestone in PMI’s transformation to becoming a smoke-free company. PMI consolidated statements of earnings for the year ended December 31, 2022, include theresults of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022, as presented in the Form 10-K for the fourth quarter and year ended December
31, 2022.

75,834

n/a
n/a
12

SI

The 2022 metrics marked with an asterisk (*) are subject to PwC’s limited Assurance Report.

203
251
24
26
44 (25 + 19) 58 (38 + 20)
70,0112015
baseline

Number of markets where adjusted net revenues fromsmoke-free products exceed 10% of adjusted total net
revenues*†
Number of markets where adjusted net revenues fromsmoke-free products exceed 50% of adjusted total net
revenues*2maintain>90%

The 2022 metrics marked with an asterisk (*) are subject to PwC’s limited Assurance Report.
Notes: In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the United States market. The Swedish Matchacquisition is a key milestone in PMI’s transformation to becoming a smoke-free company. PMI consolidated statements of earnings for the year ended December 31, 2022, include theresults of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022, as presented in the Form 10-K for the fourth quarter and year ended December
31, 2022.
Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under its
combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products. Where applicable, prior years’ KPIs havebeen recalculated to reflect the reclassification on a comparative basis. Impacted metrics are marked with (†).

These indicators are calculated based on millions of units. For definition of smoke-free products and combustible tobacco products, see Glossary. Smoke-free products shipment
volume includes volume of smoke-free products that can be converted into cigarette equivalent units, such as heat-not-burn, e-vapor, and oral nicotine. Total shipment volume
includes the listed smoke-free products as well as combustible tobacco products: cigarettes and other tobacco products expressed in cigarette equivalent units. Data does not include
Swedish Match and wellness and healthcare products.
For definition of net revenues related to smoke-free products, see Glossary. 2022 figure includes Swedish Match net revenues from November 11, 2022 (acquisition date) toDecember 31, 2022. 2021 figure excludes the impact related to the Saudi Arabia customs assessments.

SI

Seek net positive impact in wellness and healthcare

Annual net revenue from wellness and healthcare products(in billion USD)¹*

2015
baseline

2020

2021

2022

2025
Aspirations

n/a

n/a

0.1

0.3

≥1

The 2022 metrics marked with an asterisk (*) are subject to PwC’s limited Assurance Report.
1

SI Indicators included in PMI Sustainability Index

Governance

1
2
3

PRODUCT IMPACT

Total number of users of PMI smoke-free products(in millions)¹*
Estimated number of users who have switched to PMI
smoke-free products and stopped smoking (in millions)¹*
Number of markets where smoke-free products areavailable for sale²*
Proportion of markets where smoke-free products areavailable for sale that are low- and middle-income markets³*
Cumulative investment behind smoke-free products(since 2008, in billions USD)⁴
Number of factories producing smoke-free products outof total number of factories⁵*†
Commercial (marketing) expenditure ratio (smoke-free/
total)*
Supply chain direct spend expenditure (smoke-free/total)⁶Strategy

In 2023, we plan to evaluate our published aspirations to ensure they remain ambitious, reasonable, and achievable in the context of a dynamic and evolving smoke-free industry, andimpacts of our recent acquisitions.

Marketing and selling our
products responsibly

REPORTING AND PERFORMANCE

190

For definition of net revenues related to wellness and healthcare, see Glossary. 2021 figure includes portion of net revenues reported after acquisition of Vectura Fertin Pharma thattook place in the third quarter of 2021.

SI

Philip Morris International — Integrated Report 2022

Overview

3
4
5
6
7

2022

Goals

n/a

68%

≥80% by2025

SI

Governance

Product impact

Operational impact

Proportion of shipment volume covered by markets with take-backprograms in place for smoke-free consumables²
Proportion of HTU shipment volume covered by markets withtake-back programs in place²
Proportion of e-vapor shipment volume covered by markets withtake-back programs in place²

n/a

n/a

8.5%

≥80% by
2025

SI

n/a

n/a

8.5%

n/a

n/a

50.7%

Proportion of PMI smoke-free devices with eco-design certification³

n/a

n/a

Cumulative number of smoke-free electronic devices refreshed or
repaired since 2021 (in thousands)⁴
Volume of shredded materials coming from dismantled devices in the
CIRCLE hubs (in tons)
Effective recycling rate of IQOS devices⁵

n/a

62

191

178

100% byend of 2025
157
> 1 million(2025)
112

40%

53%

53%

Proportion of IQOS device sales volume covered by the CIRCLE
programRecycling rate of IQOS devices at the CIRCLE hubs (weighted
average)⁶

48%

63%

61%

84%

86%

86%

Proportion of packaging material that is recyclable⁷

93%

94%

94%

Proportion of packaging material that is renewable

89%

90%

90%

Total weight or volume of materials that are used to package
PMI’s primary products in tons (percent renewable/percent nonrenewable)
Reduction of packaging materials used versus 2018 baseline⁷

n/a427,597(89.7%/
10.3%)
9%452,211(90.1%/
9.9%)
1%

5%

n/a

70% by2023, 80%
by 2025
100% by2025
maintain
80%

SI
SI

100% by2025
95% by2025

15% by2025

For further details on the criteria used to determine if a market has a anti-littering program in place, please see PMI’s ESG KPI Protocol 2022.
In 2022 we redefined the minimum criteria which must be met by each market to be considered as having a take-back program in place. Shipment volume includes heated tobacco
units (HTUs), e-vapor cartridges, and e-vapor disposables. For more details please see the PMI’s ESG KPI Protocol 2022.
To meet our 2025 aspiration, we may consider either a type 1 or type 2 and/or type 3 product environmental statement as defined by ISO 14020:2022, as constituting an“eco-certification”. For further details please see PMI’s ESG KPI Protocol 2022.
For the definition of refreshed or repaired devices, please refer to PMI’s ESG KPI Protocol 2022.
Excludes disposable products and non-PMI designed devices. The effective recycling rate is calculated based on the proportion of devices’ sales volume from the markets covered by
the CIRCLE program multiplied by the actual recycling rate of devices at the active CIRCLE hubs (weighted average), which includes actual recycling and energy recovery. Russia
CIRCLE hub was discontinued in 2022 and is therefore excluded from the reported recycling numbers of 2022.
Recycling rate: percentage of the weight of each device that is recycled, weighted-average depending on device type and processing facility (includes 80% recycling, 6% incineration
with energy recovery). 2022 data cover CIRCLE hubs in Hungary and Japan.
Prior years data have been restated to take in account more accurate computation of packaging material usage.

193

Reporting and performance

2020

2021

2022

Number of PMI employees¹
Number of PMI full-time equivalent (FTE) positions
Proportion of employees covered by Collective Labor Agreements
Total number of countries with Collective Labor Agreements

70,84970,56062.1%
3468,547
67,29161.1%
34

71,07070,966
60.7%
35

Employee overall turnover rate
Women employee overall turnover rate
Employee voluntary turnover rate
Proportion of open positions filled in with internal candidates
Number of new hired employees
Spend for learning per FTE (in USD) total
Average hours of training per FTE• men• women
Proportion of PMI employees who have access to structured
lifelong learning offers²
Proportion of employees covered by performance review³
Employee Net Promoter Score⁴

9.7%
9.7%
3.1%
21%
5,835
551
11
n/a
n/a
n/a

12.0%
9.4%
4.7%
18%
8,381
506
17
n/a
n/a
n/a

9.3%
8.2%
4.6%
24%
12,457
498
21
22
19
80%

90%
33

92%
35

90%
56

Lost time incident (LTI) rate per 200,000 hours worked—PMI
employees, contracted employees, and contractors⁵
LTI rate per 200,000 hours worked – PMI employees and contracted
employees
LTI rate per 200,000 hours worked—contractors
Total Recordable Incident Rate (TRIR) per 200,000 hours worked—
PMI employees, contracted employees, and contractors
TRIR per 200,000 hours worked – PMI employees and contracted
employees
TRIR per 200,000 hours worked—contractors
Number of fatalities – PMI employees, contracted employees, andcontractors⁶
Number of fatalities – members of the public
Occupational illness frequency rate (OIFR) per 200,000 hours
worked – PMI and contracted employees
Employee self-assessment psychological well-being measure⁷

0.08

0.05

0.07

0.07

0.06

0.06

0.12
0.12

0.05
0.09

0.09
0.12

0.13

0.10

0.10

0.16
2

0.10
1

0.14
3

5
0.000

2
0.001

9
0.000

57%

61%

74%

0.53

0.44

0.44

35%
100 %

47%
100 %

65%
98%

Collision rate within PMI’s fleet of vehicles per year (collisions per
million km driven)
Proportion of PMI fleet equipped with telematics⁸
Proportion of manufacturing facilities with ISO 45001 certification⁹

SI Indicators included in PMI Sustainability Index

Fundamentals

Foster an empowered and inclusive workplace

Fair working
conditions

2021

n/a

Talent attraction, retention, and employability

2020

Proportion of shipment volumes covered by markets with antilittering program in place¹

Protect the health and safety of our employees

Cigarette butt
littering
Smoke-freeconsumables
Smoke-freedevices12Strategy

OPER ATIONAL IMPACT

Reduce post-consumer waste

Packaging

REPORTING AND PERFORMANCE

192

Goals

>70% by2025
maintain≥30

maintain<0.3

70% by2025
maintain<0.65
maintain
100%

SIPhilip Morris International — Integrated Report 2022

Overview

Foster an empowered and inclusive workplace continued
2021

2022

Gender diversity:
Proportion of female employees
Proportion of management positions held by women¹⁰

41.8%
37.7%

42.2%
39.7%

42.1%
40.7%

Proportion of female employees at different managerial levels:¹⁰,¹¹• Managers• Directors• Senior leaders
Proportion of women in senior roles ¹⁰,¹²

39.3%
31.0%
20.2%
29.6%

41.4%
32.0%
25.3%
31.1%

42.6%
31.1%
26.7%
30.5%

Proportion of new hires in management positions that are women¹⁰

38.7%

44.7%

42.7%

Proportion of new hires at non-managerial levels that are women¹⁰
Proportion of new hires that are women
Proportion of promotions into management positions that are
women¹⁰
Proportion of promotions into senior roles that are women¹⁰
Proportion of women on PMI’s Company Management¹³
Proportion of women on PMI’s Board of Directors¹⁴
Mean gender pay gap¹⁵

38.8%
40.1%
45.0%

40.5%
41.3%
47.6%

38.8%
36.9 %
47.5%

19.2%
16.0%
15.0%
33.1%

35.4%
16.7%
23.1%
33.5%

30.0%
16.0%
25.0%
30.0%

Proportion of women in STEM-related positions¹⁰,¹⁶
Proportion of women in management positions in revenuegenerating functions¹⁰,¹⁷Age, nationality, ethnic diversity
Proportion of employees at different age groups:• Below 30• Between 30 and 50• Above 50
Number of nationalities among PMI’s employees
Proportion of Asian talent in senior roles globally¹⁰,¹⁸

36.6%
33.4%

37.0%
35.7%

36.6%
37.6%

16.0%
73.0%
11.0%
131
n/a

18.7%
69.7%
11.6%
133
16.3%

15.3%
71.7%
13.0%
133
17.1%

n/a

n/a

58%

n/a
n/a
n/a

76
78
74

82
83
79

Proportion of markets with at least 60% local talent in the executive
management teams¹⁰,¹⁹

Inclusion
Inclusion index
Inclusion index – Men
Inclusion index – Women

Strategy

Governance

Product impact

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

Fundamentals

Goals

Reporting and performance2022≥ 40% by2022

32% by2023
35% by2025

SI

Number of employees by employment contract (permanent and temporary), by gender
Women employed on a permanent contract
Women employed on a temporary contract
Men employed on a permanent contract
Men employed on a temporary contract
Number of employees by employment contract (permanent and temporary), by Region
Employees on a permanent contract in European Union region
Employees on a temporary contract in European Union region
Employees on a permanent contract in Middle East & Africa region, including PMI Duty Free
Employees on a temporary contract in Middle East & Africa region, including PMI Duty Free
Employees on a permanent contract in Eastern Europe region
Employees on a temporary contract in Eastern Europe region
Employees on a permanent contract in South & Southeast Asia region
Employees on a temporary contract in South & Southeast Asia region
Employees on a permanent contract in East Asia & Australia region
Employees on a temporary contract in East Asia & Australia region
Employees on a permanent contract in Americas region
Employees on a temporary contract in Americas region
Number of employees by employment type (full-time and part-time), by gender
Women employed on a full-time contract
Women employed on a part-time contract
Men employed on a full-time contract
Men employed on a part-time contract≥ 20% by2025
≥ 60% in atleast 80%of ourmarkets by2025

Note: Select 2022 health and safety metrics are subject to external verification by SGS (see the External Verification Statement here).
12
34Operational impact

PMI’s workforce at year-end 2022
2020

Fostering diversity and inclusion

REPORTING AND PERFORMANCE

194

Incorporating Vectura Fertin Pharma, as well as the 2022 acquisition of Swedish Match, PMI employed approximately 79,800 people worldwide at year-end 2022.
For further details on how we measure progress on this KPI, please see PMI’s ESG KPI Protocol 2022.
2022 data based on a total of 58,190 employees maintained in PMI’s central HR system for a key date of November 1.
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. 2022 findings exclude Russia as we didn’t carry out the survey in Russia during 2022 (2021 and 2020 data excluding Russia
would be 34 and 32, respectively).
For definition of contracted employee and contractor, see Glossary.
PMI employees and contracted employees: zero fatalities in 2022; contractors: three fatalities in 2022.
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.
Scope covers PMI’s working-tool cars (representing 75% of PMI’s total fleet).
Scope covers manufacturing facilities producing more than three billion cigarette equivalents annually. 2022 excludes Russia, due to sanctions applied to the country.
Our diversity and inclusion data cover around 94% of PMI’s total workforce, as they exclude fixed-term employees and those on salary continuation.
For definitions of management positions, managers, directors, senior roles, and senior leaders see Glossary.
For further details on how we measure progress on this KPI, please see PMI’s ESG KPI Protocol 2022.
Data as of March 11, 2023 (25 Company Management members, of whom four were women). See PMI Annual Report 2022 for further details.
Data as of March 23, 2022 (three members of PMI’s Board of Directors, of whom 12 were women). See PMI 2023 Proxy Statement for further details.
The mean gender pay gap is calculated as the percentage difference between the sum of annual base salary, bonus, and stock options.
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 (STEM). Historical data have been re-stated to remove fixed-term employees and those on salary continuation, aligned to other diversity and inclusion
metrics.
Employees holding management roles in revenue-generating functions (i.e., functions responsible for core business objectives or profit and loss).
For the purposes of measuring progress against this indicator, PMI uses the nationality data of employees recorded in our HR systems. The determination of Asian nationalities isbased on the regional groupings as listed by the United Nations and we consider the following regions: Central and Southern Asia, Eastern and South-Eastern Asia.
Considers Managing Directors and their direct reports within PMI markets and clusters that have local nationality registered in PMI HR systems. Excludes countries where employee
national identity is not collected in PMI HR systems.

SI Indicators included in PMI Sustainability Index

28,4891,437
38,816
2,328
20,008
2,130
2,958
270
6,191
205
27,115
472
3,772
130
7,261
558
29,258668
40,699445

195

Philip Morris International — Integrated Report 2022

Overview

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

197

Goals

95%

maintain>90%

73%

Proportion of contracted farmers supplying tobacco to PMI paying their workers at least theminimum legal wage or agricultural benchmark
Number of ALP prompt actions recorded by field technicians relating to non-payment of minimum
wage to farmworkers

99.9%

Prevalence of child labor among contracted farms supplying tobacco to PMI²

0.1%

Number of ALP prompt actions recorded by field technicians relating to child labor• Hazardous tasks³• Under 13 working⁴• Under 15 hired
Proportion of ALP prompt actions recorded by field technicians relating to child labor that wereresolved

175
155
6
14
95%

Proportion of contracted farmers supplying tobacco to PMI who have access to water⁵75%

Proportion of tobacco farmworkers provided with safe and adequate accommodation⁶

100%

100% by2025
100% by2022

436

Zero by
2025

2019

2020

2021

2022

Total Energy Consumption in PMI factories, offices and fleet (gigajoules)
Proportion of total energy consumed that is from renewable sources
Energy intensity (gigajoules per million cigarettes equivalent)¹
Fuel consumption from non-renewable sources (gigajoules)
Fuel consumption from renewable sources (gigajoules)
Total electricity consumed (MWh)²
Total electricity consumed that is from renewable sources (MWh)9,456,576
27%
11.95
5,819,072
128,967
959,723
623,940

7,909,157
29%
10.83
4,733,193
91,680832,292
621,620

7,721,166
33%
10.37
4,541,721
123,033
865,166
674,903

7,657,899
35%
10.14
4,487,522
95,236
861,434
727,283

Absolute CO2e scope 1 (metric tons)³
Absolute CO2e scope 2 (metric tons)³
Absolute CO2e scope 1+2 (metric tons)³• Absolute reduction versus 2019 baseline

397,210
158,672
555,882n/a

322,633
90,366412,99926%

308,822
64,217373,040
33%

297,60242,482340,084
39%

Carbon offsetting certificates (metric tons)⁴
Net CO2e scope 1+2 (metric tons)³

1,242
554,6403,297
409,703

16,128356,91142,848297,236

702

556

501

450

Absolute CO2e scope 1+2 (metric tons) from manufacturing
Proportion of electricity used and purchased that is fromrenewable sources
Proportion of carbon-neutral factories

394,44772%

305,38178%

267,78381%

242,392
87%

SI

3%

5%

13%

35%

Absolute CO2e scope 1 from fleet (metric tons)• Absolute reduction versus 2019 baseline
CO2e emissions from fleet (kg CO2e per km driven)
Proportion of hybrid or electrical vehicles in our fleet

111,400
n/a
222—%

79,45729%
216
5%78,01830%200
10%79,54329%
191
19%

Absolute CO2e scope 3 (‘000 metric tons)5• Absolute reduction versus 2019 baseline

4,621
n/a

3,854
17%

3,749
19%

4,257
8%

CO2e scope 3 biogenic emissions (‘000 metric tons)

2,598

2,312

2,386

2,331

Absolute CO2e scope 3 (‘000 metric tons) from tobacco supply chain• Absolute reduction versus 2019 baseline

n/a

909
28%

804
36%

888
30%

CO2e intensity reduction in tobacco curing versus 2019 baseline

n/a

44%

64%

Proportion of Virginia tobacco purchased cured with coal

16%

11%

3%

Absolute CO2e scope 1+2+3 (‘000 metric tons)

5,177

4,267

4,122

4,597

• Absolute reduction versus 2019 baseline
CO2e scope 1+2+3 intensity (kg per million cigarettes equivalent)³• Reduction versus 2019 baseline
CDP Climate Change rating

n/a
6,542
n/a
A

18%
5,844
11%
A

20%
5,535
15%
A

11%
6,085
7%
A

CO2e scope 1+2 intensity (kg per million cigarettes equivalent)¹

100% by2025
maintain
100%

Goals

SI

Scope 1 & 2
Manufacturing

Proportion of contracted farmers supplying tobacco to PMI who make a living income¹

Scope 1 & 2
PMI Fleet

6,101
90%
3%
7%
5,107

Total GHG emissions
Scope 1 + 2

2022

Proportion of purchased tobacco volume for which labor practices and adherence to ourAgricultural Labor Practices (ALP) Code are systematically monitored
Total number of prompt actions recorded by field technicians• proportion due to safe working environment• proportion due to hazardous work performed by children• proportion due to income and working hours
Total number of ALP prompt actions resolved

Energy Consumption in
PMI direct operations

Tackle climate change

Note: In 2022, we strengthened our approach to monitoring the quality of life of people in our tobacco supply chain by introducing the Sustainable Tobacco Supply Chain (STSC)
framework (read more in this section). Although it is still a requirement to monitor performance against our ALP Code for all contracted farms, we decided to shift from reporting
sustainability progress on all farmers contracted by PMI’s suppliers or PMI leaf operations to farmers whose tobacco volumes are purchased by PMI and used in our products. Read more
here. Our 2022 farm-level ALP monitoring data cover 19 out of the 20 countries we sourced in 2022 as Switzerland was not included in this dataset.
Excludes China and Switzerland. For further details on how we calculate the proportion of farmers making a living income please see PMI’s ESG KPI Protocol 2022.
For further details on how we calculate the prevalence of child labor in PMI’s tobacco supply chain please see PMI’s ESG KPI Protocol 2022.
Includes children of any age found to be involved in hazardous work.
Includes light work only.
Estimated based on surveys that indicate whether the farmer has an improved drinking water source within 1 km or 30 minutes round trip. Excludes China.
Scope is limited to farmers who provide accommodation to workers (approximately 2 percent of the total farmer base in 2022).

Total
PMI Value Chain

Scope 3
Tobacco Supply Chain

1
2
3
4
5
6

Strategy

Scope 3
Total

Eliminating child labor

Alleviating poverty

Agricultural Labor
Practices (ALP)

Improve the quality of life of people in our supply chain

Enhancing the quality of lives oftobacco-farming communities

REPORTING AND PERFORMANCE

196

50% by2030 (SBT)
Carbonneutrality
by 2025

SI

100% by2025
100% by2025

25% by2025, 50%
by 2030(SBT)

SI

35 % by2025, 50 %by 203057%
75 % by
2025
6%
0% by
2023
Net zeroby 2040

Note: Our inventory of GHG emissions (scope 1, 2, and 3) in 2022 is subject to external verification by SGS (see the External Verification Statement for scope 1+2 here, for scope 3 here, and a list of the individual
metrics verified here).

SI Indicators included in PMI Sustainability Index

1
2
3
4
5

Intensity is measured per million cigarette equivalent sold.
Excludes electricity consumption from fleet.
Emissions from PMI-operated IQOS stores are partially excluded from scope 1+2 emissions, as de minimis. In 2022 a portion of PMI’s retail stores (representing approx. 10% of total retail surface area) havebeen included in the scope 1+2 emissions.
2022 figure includes carbon offsetting certificates purchased in our factories in Czech Republic, Lithuania, Mexico, Portugal, Switzerland, and our 2022 figure includes carbon credit certificates retired in thename of our factories in Argentina, Brazil, Czech Republic, Greece, Indonesia (three sites, differentiated between six reporting entities for certification purposes), Lithuania, Mexico, Pakistan, Portugal,
Senegal and Switzerland—in total 13 manufacturing sites—as well as our Operations Center in Switzerland and the Mexico market.
For further details on scope 3 calculation please refer to the PMI Value Chain Methodology. In 2022, we further improved our carbon footprint model and data accuracy; improvements relate to, forexample, increased coverage of primary data collected from direct materials suppliers and integration of emissions related to fleet purchase. This led to previous years being restated accordingly.

Philip Morris International — Integrated Report 2022

Overview

Preserve nature
2020

2021

2022

Goals

100%

100%

100%

n/a

37%

55%

maintain
100%
100% by
2025

355
165
190
75%

389
199
190
74%

82,51993,700102,806

A

A

A

Proportion of paper, board, and pulp-basedpurchased at no risk of gross deforestation ofprimary and protected forests¹

n/a

n/a

64%

Cubic meters of water optimized in our tobaccogrowing areas (cumulative since 2019) (million m3)²

0.01

0.44

Proportion of tobacco-growing areas which arecovered by Local Water Risk Assessments(cumulative, since 2018)
Quantity of blue water used per ton of tobacco
produced³
Total amount of water used (‘000 m3)
Total amount of water consumed (withdrawn minus
discharged) (‘000 m3)
Total amount of water withdrawn (‘000 m3)
Total amount of freshwater withdrawn (‘000 m3)⁴
Water ratio (water withdrawn in m3 per million unitsof cigarettes sold)⁵
Proportion of PMI factories certified to
AWS standard⁶
CDP Water rating

57%

66%

307

339

263

115,009
1,619

133,674
1,481

107,720
1,547

3,375
2,215
3.5

3,120
2,088
2.6

3,089
2,137
2.5

30%

43%

51%

A

A

A

97%

100%

100%

maintain
100%

100%

100%

100%

maintain100%

SI Indicators included in PMI Sustainability Index

Product impact

Operational impact

PMI tobacco
supply chain

PMI valuechain

PMI tobacco
supply chain

PMI factories

PMI valuechain

PMI tobacco
supply chain

Scope

SI

Waste

n/a
n/a
n/a
67%

Proportion of tobacco purchased without detectionof residues attributable to the use of highly
hazardous pesticides (HHPs), as defined by
FAO and WHO guidelines in 2016
Proportion of tobacco purchased without detectionof residues attributable to the use of WHO TOX1
group of crop protection agents

Governance

Proportion of PMI factories with virtually zero waste
to landfill
Total amount of waste generated (in metric tons)• Recycled

maintain> 70%

100% by
2025

4.94≥10 million
cubic metersby 2030
81%
100% by2025

Environmental
management

Forest
Water

Proportion of tobacco purchased at no risk of grossdeforestation of primary and protected forests¹
Proportion of tobacco purchased at no risk of net
deforestation of managed natural forest and noconversion of natural ecosystems¹
Total hectares of forest grown• Due to restoration of at-risk forest• Contribution to forest positive
Proportion of flue-cured tobacco purchased that is
cured with renewable fuel sources (self-sufficient
firewood and biomass adoption)
Approximate total number of curing barns upgradedsince 2014 (cumulative)
CDP Forest rating

Strategy

Fundamentals

Reporting and performance

Preserve nature continued
Scope

Biodiversity

REPORTING AND PERFORMANCE

198

1
2
3
4
5
6
7
8
9

maintain<3.1
100% by2025• Incinerated with energy recovery• Incinerated without energy recovery• Disposed to landfill⁷
Amount of hazardous waste generated (in metrictons)• Incinerated with energy recovery• Recycled• Incinerated without energy recovery• Disposed to landfill
Proportion of manufacturing facilities certified to
ISO 14001⁸
Number of environmental fines(and approximate amount in USD)⁹

PMI
operations

PMI
factories

2020

2021

2022

Goals

69%

79%

97%

100% by
2022

119,750
85.5%

114,043
87.3%

119,192
86.9%

11.4%
0.3%
2.8%
1,266

11.4%
0.3%
1.1%
1,057

12.0%
0.3%
0.8%
1,698

42.6%
37.6%
12.7%
7.1%

57.3%
20.9%
13.5%
8.2%

67.4%
16.7%
13.4%
2.5%

100%

100%

100%

1
(32,000)

2(48,000)

0

maintain85%<1%

maintain100%

For definitions, please see PMI’s Zero Deforestation Manifesto and PMI’s ESG KPI Protocol 2022.
Indicator is based on the World Resources Institute’s volumetric benefit accounting methodology and is verified by an external third party.
Blue water refers to water used for irrigation, excluding rainfall.
Refers to amount of freshwater withdrawn from municipal sources.				
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.
Aspiration pertains to priority manufacturing facilities identified based on site overall risk in relation to the watershed, water withdrawal, water consumption, product portfolio, andother strategic considerations.
Disposal to landfill includes sanitary waste, canteen waste, and waste mandated by authorities to be disposed of in landfill.
Scope: Manufacturing facilities producing more than three billion cigarette equivalents annually.
Fines above USD 10,000 (or equivalent in converted currency).

199

Philip Morris International — Integrated Report 2022

Overview

FUNDAMENTALS

2020

2021

2022

n/a

71.3%

81.0%

198,170
174,755
23,415762
767
431(198/233)
336

261,890
150,270
111,620929
891
508(272/236)
383

352,796
268,411
66,385990
923
429(206/223)
494

n/a
n/a
n/a
n/a

26%
5%
32%
37%

48%
3%
20%
29%

Note: Training and cases are updated based on new information available, so a slight shift in previous years’ data is reflected.
In 2021 we adjusted our methodology to account for employees as of year end.

Respect for human rights

1

Operational impact

Reporting and performance

Fundamentals

2020

2021

2022

Goals

4

5

7

10
highest-riskcountries
by 2025

2020

2021

2022

Total number of suppliers¹
Total supply chain spend (in billions USD)²
Percentage of spend with critical suppliers from whom PMI sources
sustainably³>28,000
10.1
67%>29,000
11.1
83%>30,000
12.6
93%

Total procurement spend⁴
Number of critical suppliers⁵
Critical suppliers, expressed as a proportion of total procurement spend
Number of critical suppliers assessed in EcoVadis or Responsible
Business Alliance
Number of critical suppliers identified as having significant actual or
potential negative social impacts⁶
Number of critical suppliers identified as having significant actual or
potential negative environmental impacts⁶
Direct Materials
Number of critical suppliers assessed with EcoVadis
Percentage of critical direct spend assessed with EcoVadis
Average total EcoVadis score for critical suppliers of direct materials⁶• Average Environmental score• Average Ethics score• Average Social score• Average Sustainable Procurement score
Electronics
Number of critical suppliers assessed with Responsible Business
Alliance (RBA)⁷
Number of site-level RBA audits completed⁸• Average RBA score achieved by suppliers during site-level audits• Percentage of electronic supply chain spend covered by theseauditsNumber of RBA non-conformances• priority• major• minorClosure rate of corrective actions for priority non-conformances
Number of tier 2 electronic suppliers completing Supplier Level
self-assessment in RBA• Of tier 2 electronics suppliers assessed at supplier level, thenumber of site-level self-assessments completed

8.9
154
35%
n/a

9.8
162
29%
104

11.3
174
30%
144

n/a

15

16

n/a

16

21

n/a
n/a
n/a
n/a
n/a
n/a
n/a

87
90%
56.5
60.5
54.2
55.8
50.8

116
97%
58.1
62.2
54.2
58.0
51.6

n/a

17

27

n/a
n/a
n/a

31
160
69%

42
173
67%

n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
21

3
135
38
67%
22

n/a

43

37

Number of tobacco farmers contracted by PMI and PMI tobacco
suppliers⁹
Number of tobacco farmers from whom PMI purchased tobacco in
2022¹⁰
Proportion of tobacco purchased through direct contracts by PMI
and PMI tobacco suppliers
Number of third-party tobacco suppliers with whom PMI has a directcontractual relationship¹¹
Number of PMI leaf operations that contract tobacco farmers directly
Number of countries where PMI sources tobacco
Number of field technicians providing support to contracted farmers
and monitoring the implementation of PMI’s Agricultural Labor
Practices (ALP)

285,898

253,813

n/a

n/a

n/a

223,299

99%

98%

99%

14

16

15

6
23
n/a

5
21
n/a

5
20
3,128

SI

Our assessments prioritize countries which are assessed as highest risks from a human rights standpoint. They are determined based on key parameters such as PMI’s footprint andthe country’s human rights risk profile, as determined by internationally recognized organizations. For further details please see PMI’s ESG KPI Protocol 2022.

1
2
3

SI Indicators included in PMI Sustainability Index

Product impact

Total

Proportion of current employees who participated in training sessions pertaining to PMI’s
Code of Conduct1
Number of compliance training sessions completed by employees and third parties• Employees• Third parties
Number of reports received through Ethics & Compliance Speak Up channels
Total number of closed reports:• number of closed reports involving at least one compliance allegation(unsubstantiated cases/substantiated cases)• number of closed reports not involving compliance allegations
Disciplinary actions, by type:• contract termination• suspension• written warning• verbal warning or counseling

Cumulative number of human rights impact assessments conducted since
2018, with findings addressed¹

GovernanceNon-tobacco supply chain

Business integrity

1StrategyManaging our supply chain sustainably

Tobacco supply chain

REPORTING AND PERFORMANCE

200

4
5

Suppliers refer to tier 1 suppliers (parent companies).
Total supply chain spend includes procurement spend and tobacco leaf sourcing spend.
Sustainable sourcing is determined based on a minimum threshold score of 45 out of
100 in EcoVadis (direct materials) or 125 out of 200 in RBA with no open priority
issues (electronics). All tobacco purchased by contracted farmers, thereby covered by
PMI’s integrated production system, is considered sustainable.
Procurement spend excludes tobacco leaf sourcing.
Suppliers’ criticality is evaluated considering spend segmentation and nature ofcomponent, as well as supply flexibility (single-source/not easily substitutable) as
relevant. 2022 figure includes tier 1 suppliers of direct materials and electronics, tier 2
directly managed electronic suppliers, and tobacco leaf suppliers.

6

Goals

100% by2025

maintain>90%

EcoVadis score ranges from 0 to 100, with a minimum threshold score of 45
demonstrating satisfactory sustainability performance.
This figure includes 27 out of 29 of our electronic critical suppliers.
This figure includes 42 out of 46 of our electronic critical suppliers sites.
Following the introduction in 2022 of PMI’s sustainable supply chain model, data on
tobacco farmers contracted by PMI tobacco suppliers are not available.
10 Tobacco farmers whose tobacco are included in PMI packed products.
11 Data refer to parent companies.
7
8
9

201

REPORTING AND PERFORMANCE

202

Philip Morris International — Integrated Report 2022

Independent practitioner’s
limited assurance report

The accuracy and completeness of the BusinessTransformation Metrics Reporting 2022 are subject toinherent limitations given their nature and methods fordetermining, calculating and estimating such data. In
addition, some KPIs are derived from different frameworks
to form the Business Transformation Metrics, thus thequantification of some self-defined KPIs is subject toinherent uncertainty because of incomplete scientificdefinition or knowledge used to determine factors related
to such KPIs and the values needed to combine. Our
assurance report will therefore have to be read inconnection with the Business Transformation-Linked
Financing Framework prepared by PMI, its definitions andprocedures in the document “Business Transformation
Framework“ and the footnotes on pages 26, 190 to 191
and glossary (205 to 209) in the Business Transformation
Metrics Reporting 2022.

We have been engaged by Management to performassurance procedures to provide limited assurance on
selected Key Performance Indicators 2022 (the metrics
marked with an asterisk (*)) in the Business Transformation
Metrics Reporting 2022 of Philip Morris International Inc.
and subsidiaries (‘PMI’) for the period ended 31 December
2022.

• Adjusted net revenues ratio (smoke-free/total)

The selected Key Performance Indicators (“KPI”) forming
part of the Business Transformation Metrics of PMI for
the financial year ended December 31, 2022 are includedin the Integrated Report 2022 and comprises thefollowing in our scope:• Number of markets where adjusted net
revenues from smoke-free products exceed
50% of adjusted total net revenuesa.

The Business Transformation Metrics as disclosed on
pages 26 and 190 to 191 of PMI’s Integrated Reportfor the year ended December 31, 2022, respectively.
• Adjusted R&D expenditure (in millions USD)
• Adjusted R&D expenditure ratio (smoke-free/total)• Number of factories producing smoke-free
products out of total number of factories• Number of markets where smoke-free
products are available for sale
• Proportion of markets where smokefree products are available that are
low- and middle-income markets• Commercial (marketing) expenditure
ratio (smoke-free/total)• Smoke-free product shipment volume (billion units)

Product impact• Change in combustible product shipment
volume (billion units) vs 2015 baseline• Estimated number of users who haveswitched to PMI smoke-free products
and stopped smoking (in millions)• Annual net revenue from wellness andhealthcare products (in billion USD)
• Number of markets where adjusted net
revenues from smoke-free products exceed
10% of adjusted total net revenuesb.

Governance

Inherent limitations• Total number of users of PMI smokefree products (in millions)

Lausanne

Strategy• Combustible product shipment volume (billion units)• Smoke-free product shipment
ratio (smoke-free/total)

on selected Key Performance Indicators 2022 in theBusiness Transformation Metrics Reporting 2022 to theBoard of Directors of Philip Morris International Inc.

Overview

The application of the PMI Business Transformation
Framework for the preparation of the specified Key
Performance Indicators in Business Transformation
Metrics Report published on pages 26, 190 to
191 and 205-209 (Glossary), respectively.

We do not comment on, nor conclude on any prospective
information nor did we perform any assurance procedureson the information other than those stated above for thereporting period 2022.
The Business Transformation Metrics Reporting 2022 was
prepared by Management of PMI based on the BusinessTransformation-Linked Financing Framework (or “BusinessTransformation Framework” in short) and made available
under https://www.pmi.com/investor-relations/overview/
business-transformation-linked-financing-framework¹).
Further, PMI defines the calculation of the specified KPIs
in the footnotes on pages 26 and 190 to 191 as well as in
the Glossary (205 to 209) in the Business Transformation
Metrics Reporting 2022 (together the “suitable Criteria”).

Managements’ responsibility
The Management of Philip Morris International Inc. is
responsible for preparing the Business Transformation
Metrics Reporting 2022 in accordance with the suitable
Criteria. This responsibility includes the design,
implementation and maintenance of the internal control
system related to the preparation of the BusinessTransformation Metrics Reporting 2022 that are free frommaterial misstatement, whether due to fraud or error.
Furthermore, the Management is responsible for theselection and application of the chosen Criteria.

Independence and quality management
We are independent of the Philip Morris International Inc.
in accordance with the International Code of Ethics forProfessional Accountants (including International
Independence Standards) issued by the International
Ethics Standards Board for Accountants (IESBA Code).
We have fulfilled our other ethical responsibilities inaccordance with the IESBA Code, which is foundedon fundamental principles of integrity, objectivity,
professional competence and due care, confidentiality
and professional behaviour.

Operational impact

Fundamentals

Reporting and performance

PricewaterhouseCoopers SA applies International
Standard on Quality Management 1, which requires thefirm to design, implement and operate a system of quality
management including policies or procedures regarding
compliance with ethical requirements, professional
standards and applicable legal and regulatory
requirements.

Practitioner’s responsibility
Our responsibility is to perform an assurance limited
engagement and to express a conclusion on the selected
Key Performance Indicators 2022 in the BusinessTransformation Metrics Reporting 2022. We conducted
our engagement in accordance with the International
Standard on Assurance Engagements (ISAE) 3000
(Revised) ‘Assurance engagements other than audits orreviews of historical financial information’. That standard
requires that we plan and perform our procedures toobtain limited assurance whether anything has come toour attention that causes us to believe that the Key
Performance Indicators 2022 (the metrics marked withan asterisk (*)) in the Business Transformation Metrics
Reporting 2022 was not, in all material aspects, preparedin accordance with the suitable Criteria as per
31 December 2022.
Based on risk and materiality considerations, we
performed our procedures to obtain sufficient andappropriate assurance evidence. The procedures selected
depend on the assurance practitioner’s judgement. A
limited assurance engagement under ISAE 3000 (Revised)
is substantially less in scope than a reasonable assurance
engagement in relation to both the risk assessment
procedures, including an understanding of internal control,
and the procedures performed in response to theassessed risks. Consequently, the nature, timing andextent of procedures for gathering sufficient appropriate
evidence are deliberately limited relative to a reasonableassurance engagement and therefore less assurance isobtained with a limited assurance engagement than fora reasonable assurance engagement.

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We performed the following procedures, among others:

Intended users and purpose of the report• Inquiries and detailed walkthroughs with relevant
stakeholders for the selected indicators 2022 in the2022 Sustainability Report (including the GHG
statement);

This report is prepared for, and only for, the Board of
Directors of Philip Morris International Inc., and solely forthe purpose of reporting to them on the selected Key
Performance Indicators 2022 in Business Transformation
Metrics Reporting 2022 and no other purpose. We donot, in giving our conclusion, accept or assume
responsibility (legal or otherwise) or accept liability for, orin connection with, any other purpose for which ourreport 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.

• Interviewing PMI representatives responsible for theinternal reporting and data collection;• Test samples from PMI operations concerning thecompleteness, accuracy, consistency and classification;• Inspecting relevant documentation on a sample basis,including PMI policies, management reporting structuresand documentation;• Reviewing and assessing the management reporting
processes for Business Transformation Metrics data andconsolidation and their related controls.
We believe that the evidence we have obtained issufficient and appropriate to provide a basis for ourconclusion.

Conclusion
Based on the work we performed, nothing has come toour attention that causes us to believe that the selected
Key Performance Indicators 2022 on the pages 26 and
190 to 191, respectively, (the metrics marked with anasterisk (*)) in the Business Transformation Metrics
Reporting 2022 of Philip Morris International Inc. andsubsidiaries for the period from January 1, 2022 to
December 31, 2022 are not, in all material respects,
prepared in accordance with the Business Transformation
Framework and the footnotes on pages 26, 190 to 191 as
well as in the Glossary (205 to 209).

We permit the disclosure of our report, in full only and incombination with the suitable Criteria, to enable theManagement to demonstrate that have discharged theirgovernance responsibilities by commissioning an
independent assurance report over the selected Key
Performance Indicators 2022 in Business Transformation
Metrics 2022, without assuming or accepting any
responsibility or liability to any third parties on our part. To
the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than theManagement of Philip Morris International Inc. for ourwork or this report.
PricewaterhouseCoopers SA

Overview

Strategy

Governance

Product impact

Reto E. Huber

Lausanne, Switzerland
30 March 2023

1) ‘The maintenance and integrity of Philip MorrisInternational Inc.’s website and its content are theresponsibility of the Management; the work carried out
by the assurance provider does not involve considerationof the maintenance and integrity of the Philip MorrisInternational Inc.’s website, accordingly, the assurance
providers accept no responsibility for any changes that
may have occurred to the reported selected BusinessTransformation Metrics in the Integrated Report 2022
or Business Transformation-Linked Financing Framework
since they were initially presented on the website.

Fundamentals

Reporting and performance

Glossary of terms and acronyms
3TGs – Tin, tantalum, tungsten, and gold
Aerosol – Gaseous suspension of fine solid particles and/or
liquid droplets
ALP – Agricultural Labor Practices
ASI – Aluminum Stewardship Initiative
Available for sale – When PMI products are available for generalsale in the market, through direct retail, indirect retail, or
e-commerce. We consider PMI smoke-free markets are available
for sale when at least one variant of PMI smoke-free products iscommercialized in any of our distribution channels.
AWS – Alliance for Water Stewardship
B2B – Business to business
B2C – Business to consumer
CA – Cellulose acetate
CAGR – Compound annual growth rate
Caregiver – A person who has responsibility for the care of a
new-born child or newly adopted child including the child’s
biological parent, the child’s adoptive parent, a person having
legal parental responsibility for the child such as the child’sguardian, a stepparent, or a child’s parent through surrogacy
Primary caregiver – The caregiver who has the primary
responsibility for the care of the new-born or newly
adopted child following the child’s arrival

Chad Mueller

Operational impact

Secondary caregiver – A caregiver who is not the primary
caregiver
Combustible tobacco product – The term we use to refer tocigarettes and other tobacco products that are combusted
Combustion – The process of burning a substance in oxygen,producing heat and often light
Company Management – The term we use to refer to thesenior management of the company, as presented on our
www.PMI.com site (also referred to as “our leadership team”
or “senior management team”)
Contracted employee – An employee who is under the directsupervision of PMI employees but employed by a temporary
employment agency
Contracted farmers – Tobacco farmers supplying to PMI andcontracted either directly by PMI (through the company’s leaf
operations) or through third-party leaf suppliers

Contractor – A person employed or working on behalf of athird-party company contracted by PMI, who remains under the
direct supervision of his or her employer rather than PMI and isoften involved in project-specific or outsourcing arrangements
COPD – Chronic obstructive pulmonary disease
CPA – Crop protective agent
Downstream supply chain – Those stages in the supply chain inwhich materials (mostly in the form of finished products) flow
away from the organization to the customers/consumers
E-liquids – A liquid solution that is used in/with e-cigarettes.
E-liquids contain different levels of nicotine in a propylene glycol
and/or vegetable glycerin-based solution with various flavors.
E-vapor product – Electrical product that generates an aerosol
by heating a nicotine or non-nicotine containing liquid, such as
electronic cigarettes (or “e-cigarettes”)
EHS – Environmental, Health, and Safety
Employee resource groups, or ERGs – Employee-led groups
that focus on particular dimensions of diversity and are intended
to provide a platform for building a sense of belonging andsparking conversations
EPR – Extended Producer Responsibility
ERM – Enterprise Risk Management
ESG – Environmental, Social, and Governance
FAO – Food and Agriculture Organization of the United Nations
FCTC – WHO Framework Convention on Tobacco Control
FDA – U.S. Food and Drug Administration
FSC – Forest Stewardship Council
GAP – Good Agricultural Practices
Gender pay gap – Calculated as the percentage difference
between the sum of annual base salary, bonus, and stock options
General sale – Commercial initiative by which PMI provides PMI
products to adult consumers in exchange for monetary value orother considerations, including activities such as sale-forpurchase, renting, leasing, lending, and loaning. Adult consumers
must have access to PMI products without any purchase
restrictions imposed by PMI that go beyond local regulations(e.g., club membership, registration, etc.).
GHG – Greenhouse gas
GPP – Global Privacy Program

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Heated tobacco units, or HTUs – The term we use to refer toheated tobacco consumables, which include the company’s
BLENDS, HEETS, HEETS Creations, HEETS Dimensions, HEETS
Marlboro and HEETS FROM MARLBORO (defined collectively as
HEETS), Marlboro Dimensions, Marlboro HeatSticks, Parliament
HeatSticks, SENTIA and TEREA, as well as the KT&G-licensed
brands, Fiit and Miix (outside of South Korea).
HPHCs – The harmful or potentially harmful constituents whichhave been identified as likely causes of tobacco-related diseases
by various public health institutions
Human rights impact assessment, or HRIA – Assessments to
identify human rights risks and adverse impacts
Human rights salient risks – Those human rights that stand out
because they are at risk of the most severe negative impact
through the company’s activities or business relationships(source: UN Guiding Principles)
Illicit trade – Domestic non-tax paid products
ILO – International Labour Organization
In-market sales, or IMS – Sales to the retail channel, dependingon the market and distribution model
Insetting – The act of generating a carbon credit within thecorporate’s sphere of influence and retiring the unit on behalf of
1 ton of carbon that has been emitted by the corporate (source:International Carbon Reduction and Offset Alliance)
IP5 – The five largest intellectual property offices in the world
IPM – Integrated Pest Management
IPS – Integrated Production System
IQOS heat-not-burn devices – Precisely controlled heating
devices into which specially designed and proprietary tobacco
units are inserted and heated to generate an aerosol
KPIs – Key performance indicators
LCA – Life-cycle analysis
Low- and middle-income markets, or LMIMs – Markets
comprised of countries classified by the World Bank as low- andmiddle-income economies based on Gross National Income(GNI) per capita; or where no World Bank classification exists,
those with GNI per capita below the World Bank LMIC threshold
LTIR – Lost Time Incident Rate
Managerial roles – The terms we use to refer to employees indifferent salary grades, regardless of their job title or function:

Market share for HTUs – The in-market sales volume for HTUs
as a percentage of the total estimated industry sales volume forcigarettes and HTUs. For Japan, total estimated industry sales
volume also includes cigarillos.
MRTP – Modified Risk Tobacco Product
MVR – Monitoring, Verification, and Reporting Framework for
Sustainable Leaf Curing Fuels
NCGC – Nominating and Corporate Governance Committee of
PMI’s Board of Directors
Net debt – Defined as total debt, less cash and cash equivalents
Net revenues related to combustible tobacco products – The
operating revenues generated from the sale of these products,
including shipping and handling charges billed to customers, netof sales and promotion incentives, and excise taxes. These net
revenue amounts consist of the sale of our cigarettes and othertobacco products that are combusted. Other tobacco products
primarily include roll-your-own and make-your-own cigarettes,
pipe tobacco, cigars and cigarillos and do not include smoke-free
products.
Net revenues related to smoke-free products – Represent
operating revenues generated from the sale of these products,
including shipping and handling charges billed to customers, netof sales and promotion incentives, and excise taxes, if applicable.
These net revenue amounts consist of the sale of all of our
products that are not combustible tobacco products, such asheat-not-burn, e-vapor, and oral nicotine, also including wellness
and healthcare products, as well as consumer accessories suchas lighters and matches.
Net revenues related to wellness and healthcare products– Represent operating revenues generated from the sale ofproducts primarily associated with inhaled therapeutics, and oral
and intra-oral delivery systems that are included in the operating
results of PMI’s new Wellness and Healthcare business, Vectura
Fertin Pharma.
NGOs – Non-governmental organizations
No Net Loss – The point at which business-related impacts on
biodiversity are balanced by measures from the mitigation
hierarchy, to leave no degradation on natural ecosystems at end
balance
NRTs – Nicotine replacement therapies
OECD – Organisation for Economic Cooperation andDevelopment• Management positions – Employees in salary grade 10 andabove

Offsetting – The act of purchasing a carbon credit generated
outside the corporate’s sphere of influence and retiring the unit
on behalf of 1 ton of carbon that has been emitted by the
corporate (source: International Carbon Reduction and Offset
Alliance)• Senior roles – Employees in salary grade 14 and above

OHS – Occupational health and safety• Senior leaders – Employees in senior leadership roles
including all employees in salary grade 17 and above

Other Tobacco Product– Primarily roll-your-own and makeyour-own cigarettes, pipe tobacco, cigars and cigarillos, and does
not include smoke-free products• Junior roles – Employees in salary grade 9 or below• Managers – Employees in salary grade 10 to 13

Overview

Strategy

Governance

Product impact

PCI – Portfolio of Climate Investments
PMI Segments
As of December 31, 2022, we managed our business in six
geographical segments, a Swedish Match segment and a
Wellness and Healthcare segment:• The European Union Region (“EU”) is headquartered in
Lausanne, Switzerland, and covers all the European Union
countries and also Switzerland, Norway, Iceland and theUnited Kingdom• The Eastern Europe Region (“EE”) is also headquartered in
Lausanne and includes Southeast Europe, Central Asia,
Ukraine, Israel and Russia• The Middle East & Africa Region (“ME&A”) is also
headquartered in Lausanne and covers the African
continent, the MiddleEast, Turkey and our international
duty free business• The South & Southeast Asia Region (“S&SA”) is
headquartered in Hong Kong and includes Indonesia, thePhilippines and other markets in this region• The East Asia & Australia Region (“EA&A”) is also
headquartered in Hong Kong and includes Australia, Japan,
South Korea, the People’s Republic of China ("China") andother markets in this region, as well as Malaysia andSingapore• The Americas Region (“AMCS”) is headquartered in
Stamford, Connecticut and covers the South American
continent, Central America, Mexico, the Caribbean andCanada• Swedish Match, which reflects our fourth quarter 2022
acquisition of the company• Wellness and Healthcare ("W&H"), which includes theoperating results of our new Wellness and Healthcare
business, Vectura Fertin Pharma. In the third quarter of2021, we acquired Fertin Pharma A/S, Vectura Group plc.
(also known as Vectura Group Ltd.) and OtiTopic, Inc. On
March 31, 2022, we launched a new Wellness and
Healthcare business consolidating these entities, Vectura
Fertin Pharma. The operating results of this new business
are reported in the Wellness and Healthcare segment
To further support the growth of our smoke-free business,
reinforce consumer centricity, and increase the speed ofinnovation and deployment, in January 2023, we rearranged ouroperations in four geographical segments, down from thecurrent six and as follows:• Europe Region is headquartered in Lausanne, Switzerland,and covers all the European Union countries, Switzerland,
the United Kingdom, and also Ukraine, Moldova andSoutheast Europe

Operational impact

Fundamentals

Reporting and performance• South and Southeast Asia, Commonwealth of Independent
States, Middle East and Africa Region is headquartered in
Dubai, United Arab Emirates. It covers South and Southeast
Asia, the African continent, the Middle East, Turkey, as well
as Israel, Central Asia, Caucasus and Russia• East Asia, Australia, and PMI Duty Free Region is
headquartered in Hong Kong and includes the consolidationof our international duty free business with East Asia &Australia• Americas Region is headquartered in Stamford, Connecticut
and covers the United States, Canada and Latin America• The operations of Swedish Match and our Wellness and
Healthcare segment remained unchanged
We will report our financial results based on the newgeographical segments as of the first quarter of 2023.
PMI heat-not-burn products (also referred to as PMI heated
tobacco products) – Include licensed KT&G heat-not-burnproducts
PMTA – Premarket Tobacco Application
QMS – Quality management system
R&D – Research and development
RBA – Responsible Business Alliance
Reduced-risk products or RRPs –The term we use to refer toproducts that present, are likely to present, or have the potential
to present less risk of harm to smokers who switch to theseproducts versus continuing smoking. PMI has a range of RRPs invarious stages of development, scientific assessment andcommercialization. PMI’s RRPs are smoke-free products that
contain and/or generate far lower quantities of harmful andpotentially harmful constituents than found in cigarette smoke.
Refreshed devices – Smoke-free devices resulting from the careand maintenance refresh services (which may include unpacking,diagnostics, cleaning, firmware update, cosmetic parts
replacement, battery charging, and repacking of devices) thatmeet the agreed quality requirements to allow for their reuse as
pre-owned devices
Repaired devices – Smoke-free devices resulting from the careand maintenance repair services (which may include unpacking,diagnostics, testing, cleaning, battery charging, firmware update,cosmetic part or battery replacement, component harvesting,and repacking of devices) that meet the agreed quality
requirements to allow for their reuse as pre-owned devices
RMI – Responsible Minerals Initiative
RSP – Responsible Sourcing Principles
SBT – Science-based target
SBTi – Science Based Targets initiative
SDGs – Sustainable Development Goals

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Smoke – A visible suspension of solid particles, liquid droplets,and gases in air, emitted when a material burns
Smoke-free products or SFPs – The term we primarily use torefer to all of its products that are not combustible tobacco
products, such as heat-not-burn, e-vapor, and oral nicotine. In
addition, SFPs include wellness and healthcare products, as wellas consumer accessories such as lighters and matches
Smoke-free product consumables – The term PMI uses to referto heated tobacco units used with heat-not-burn products,
e-vapor disposables, cartridges containing e-liquids that are used
for e-vapor products, and oral nicotine products including snus
and nicotine pouches
TCFD – Task Force on Climate-related Financial Disclosures
TGA – Tobacco-growing area
Tier 1 suppliers – Suppliers that directly supply goods, materials
or services to PMI
Tier 2 suppliers – Suppliers that provide their products andservices to the tier 1 suppliers

TRIR – Total Recordable Incident Rate
UNGPs – United Nations Guiding Principles on Business andHuman Rights
Upstream supply chain – Those operations in which thematerials flow into the organization (i.e., it mainly refers to
procurement activities and inbound logistics)
VAP – Validated Assessment Program of the Responsible
Business Alliance (RBA) is a leading standard for on-sitecompliance verification and effective, shareable audits
Voluntary standards and frameworks• Global Reporting Initiative (GRI)• International Integrated Reporting Council (IIRC)• Sustainability Accounting Standards Board (SASB)• Task Force on Climate-related Financial Disclosures (TCFD)• UN Global Compact (UNGC)• UN Sustainable Development Goals (SDGs)

TNFD – Taskforce on Nature-related Financial Disclosures

WASH – Water access, sanitation, and hygiene

Tons – “Tons” equates to “metric tons” throughout this report

WBCSD – World Business Council for Sustainable Development

Total IQOS users – The estimated number of legal age (minimum
18 years) users of PMI heat-not-burn products, for which PMIHTUs represented at least a portion of their daily tobacco
consumption over the past seven days

Wellness and Healthcare products – The term we use to
primarily refer to products associated with inhaled therapeutics
and oral and intra-oral delivery systems that are included in theoperating results of PMI’s new Wellness and Healthcare
business, Vectura Fertin Pharma

The estimated number of adults who have "switched to IQOS
and stopped smoking" reflects:• In markets where there are no heat-not-burn products
other than PMI heat-not-burn products, daily individual
consumption of PMI HTUs represents the totality of their
daily tobacco consumption in the past seven days
• In markets where PMI heat-not-burn products are among
other heat-not-burn products, daily individual consumptionof HTUs represents the totality of their daily tobacco
consumption in the past seven days, of which at least 70%
is PMI HTUs
Note: The above IQOS user metrics reflect PMI estimates, which
are based on consumer claims and sample-based statisticalassessments with an average margin of error of +/-5% at a 95%
Confidence Interval in key volume markets. The accuracy andreliability of IQOS user metrics may vary based on individual
market maturity and availability of information.
As of December 2020, PMI heat-not-burn products and HTUs
include licensed KT&G heat-not-burn products and HTUs,
respectively.

WHO – World Health Organization
YAP – Youth access prevention
ZDM – Zero Deforestation Manifesto

Overview

Strategy

Governance

Product impact

Key definitions related to our work to improve
tobacco farmer livelihoods

A living income and living wage are both about achieving adecent standard of living. A living income is the net annual
income required for a household to afford a decent standard ofliving for all its members and applies to, for example, selfemployed farmers. A living wage is applied in the context of hired
workers (e.g., in factories or on farms) (source: The Global Living
Wage Coalition).
A minimum legal wage, as defined in PMI’s ALP Code, is a wage
for all workers (including temporary, piece-rate, seasonal, andmigrant) that meets, at a minimum, the national legal standard orformalized agricultural benchmark standard. An agricultural
benchmark may be formalized where a minimum legal wage is
not available or applicable to a specific context.
Child labor, as defined by the ILO, is work that deprives childrenof their childhood, their potential, and their dignity, and that isharmful to physical and mental development. Under PMI’s ALP
Code, the minimum age for admission to work is not less than
the age at which compulsory schooling is completed and, in any
case, is not less than 15 years or the minimum age accepted by
the country’s laws, whichever age limit affords greater
protection. No person below age 18 should be involved in any
type of hazardous work. In the case of family farms, a child may
only help on the farm provided that the work is non-hazardous,
and the child is at least 13 years old or above the minimum age
for such work as defined by the country’s laws, whicheveraffords greater protection.
Hazardous work means work that, by its nature or by virtue ofwhen or where it is carried out, is likely to harm the health,safety, or morals of children or others. The following can, forexample, be hazardous, particularly without the proper personal
protective equipment (PPE): applying crop protection agents(CPA); stalk cutting; stringing; carrying heavy loads; working withsharp tools; working in extreme temperatures; and working after
dark.
Green tobacco sickness, or GTS, is a type of nicotine poisoning
caused by the absorption of nicotine from the surface of wet,fresh, green tobacco leaves through the skin. The characteristic
symptoms of GTS include nausea, vomiting, weakness, dizziness,stomach cramps, difficulty breathing, excessive sweating,headache, and fluctuations in blood pressure and heart rate.
They can last from 12 to 48 hours.1
Personal protective equipment, or PPE, in tobacco farming
refers to any clothes, materials, or devices that provide
protection from exposure to CPA and GTS during specificactivities throughout the crop cycle.2
Living income benchmark studies are studies conducted in
specific regions or areas to estimate the net annual income
required for a household to afford a decent standard of living for
all members of that household.

Operational impact

Fundamentals

Reporting and performance

Living Income Reference Values represent a living income fortypical families in rural (or urban) areas of low income andmiddle-income countries.3 Reference Values provide a credible
estimate of living wage or income at a country level, for rural andurban areas. They offer an insightful reference beyond thecurrently available indicators for many countries, which aremostly limited to poverty lines and minimum wages.
Farmer income studies are conducted, through third-party
service providers, to assess all legal income sources ofcontracted farmers within PMI’s tobacco supply chain, including
tobacco, complementary crops, and off-farm income.
Sustainable Tobacco Supply Chain framework or STSC –PMI’s
new approach focused on the full life cycle of tobacco
production and targets actions toward the tobacco we purchaseand use in our products.
1
2
3

Schep LJ, Slaughter RJ, Beasley DM (September–October2009). “Nicotinic plant poisoning.” Clinical Toxicology.
Adapted from the FAO/WHO (2014) International Codeof Conduct on Pesticide Management.
Reference values are built on data and knowledge gained from 40 complete Anker
methodology benchmark studies. Since they are based on a statistical analysis,
they have a margin of error for typical rural (or urban) areas of a country, whichis generally around +/– 10% using a 95% confidence interval. Sources: Living
Income Reference Values | livingincome (living-income.com) and Anker Living
Wage and Living Income Reference Values | Global Living Wage Coalition.

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Forward-looking and cautionary statements
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 torisks, uncertainties and inaccurate assumptions. In theevent that risks or uncertainties materialize, or underlying
assumptions prove inaccurate, actual results could varymaterially from those contained in such forward-looking
statements. Pursuant to the “safe harbor” provisions of thePrivate Securities Litigation Reform Act of 1995, PMI is
identifying important factors that, individually or in theaggregate, could cause actual results and outcomes todiffer materially from those contained in any forwardlooking statements made by PMI.
PMI’s business risks include: excise tax increases anddiscriminatory tax structures; increasing marketing andregulatory restrictions that could reduce ourcompetitiveness, eliminate our ability to communicate
with adult consumers, or ban certain of our products incertain 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; intensecompetition; 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 andcross-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 andeffectiveness of its data privacy policies.

PMI’s future profitability may also be adversely affectedshould it be unsuccessful in its attempts to produce andcommercialize reduced-risk products or if regulation or
taxation do not differentiate between such products andcigarettes; if it is unable to successfully introduce new
products, promote brand equity, enter new markets or
improve its margins through increased prices andproductivity gains; if it is unable to expand its brandportfolio internally or through acquisitions and thedevelopment of strategic business relationships; if it isunable to attract and retain the best global talent,
including women or diverse candidates; or if it is unable tosuccessfully 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 totime 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 theforegoing list of important factors is not a complete
discussion of all potential risks and uncertainties. PMI does
not undertake to update any forward-looking statementthat it may make from time to time, except in the normal
course of its public disclosure obligations.

Overview

Strategy

Governance

Product impact

Operational impact

Fundamentals

Reporting and performance

Notes

War in Ukraine

In this report, “PMI,” “we,” “us,” and “our” refer to Philip
Morris International Inc. and its subsidiaries.

Since the onset of the war in Ukraine, PMI’s mainpriority has been the safety and security of its morethan 1,300 employees and their families in the country.
The company has helped to evacuate more than 1,000
people from Ukraine and relocate over 2,700 othersfrom conflict zones to locations in the country awayfrom the heaviest fighting; provided critical aid to
employees who cannot leave or who decide to remain in
Ukraine; and provided those who have left the country
with a range of support in neighboring countries. The
company is continuing to pay salaries to all its Ukrainian
employees and is also providing substantial in-kind
support to them and their families. In addition, PMI
has contributed approximately USD 10 million in funds
and donated essential items across the country.

In this report and in related communications, the term“materiality,” “material,” and similar terms, when used in thecontext of economic, environmental, and social topics, aredefined 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 requiredby the U.S. Securities and Exchange Commission.
This report contains references and links to websites
operated by third parties. These references are provided
as a convenience to you and as an additional avenue ofaccess to the information contained in those sources; theyshould not be viewed as an endorsement by us of thecontent of these references and linked sites or opinions of
their authors.
Unless otherwise stated, all references to IQOS are to our
IQOS heat-not-burn devices and consumables.
Trademarks and service marks in this report are theregistered property of, or licensed by, the subsidiaries ofPhilip Morris International Inc., and are italicized or shownin their logo form.
Estimates for total industry volume and market share incertain geographies reflect limitations on the availability
and accuracy of industry data during pandemic-related
restrictions.
Aspirational targets and goals do not constitute financial
projections, and achievement of future results is subject torisks, uncertainties, and inaccurate assumptions, as
outlined in our forward-looking and cautionary statements
on page 210 of this report.
This integrated report should be read in conjunction with
PMI’s ESG KPI Protocol 2022.

On February 25, 2022, in order to preserve the safetyof its employees, PMI announced the temporary
suspension of its commercial and manufacturing
operations in Ukraine, including at its factory, in Kharkiv.
The company subsequently resumed some retail
activities where safety allowed, in order to provide
product availability and service to adult consumers,
and began to supply the market from production
centers outside Ukraine, as well as through a contract
manufacturing arrangement. Production at thecompany’s factory in Kharkiv remains suspended.
On March 24, 2022, PMI announced the concrete
steps it had taken to suspend planned investments andscale down its manufacturing operations in Russia.
PMI is continuously assessing the evolving situation in
Russia, including: recent regulatory constraints in themarket that entail very complex terms and conditions
that must be met for any divestment transaction
to be granted approval by the authorities; andrestrictions resulting from international regulations.

211

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