INTEG R ATED REPORT 2021

we werewe are transforming for good
we will bePhilip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Russian invasion of Ukraine
On February 25th, PMI announced the temporary
suspension of its operations in Ukraine, including at
its factory in Kharkiv. While activities in the east of
Ukraine remain the most heavily impacted, the company
has seen some resumption of retail activities where
safety allows, as it seeks to provide product availability
and service to adult consumers, using existing finishedgoods inventories on hand. The company is also working
on future supply from other production centers,
although this may involve higher costs. PMI is applying
increased security and safety measures for personnel.

We have watched with horror the unfolding
armed conflict and Russia’s invasion of Ukraine.
We condemn the violence in the strongest
possible terms and join those calling for an
immediate cease fire and restoration of peace.
Since the outset, PMI’s priority in Ukraine has been tolook after the safety and security of its more than 1,300
employees and their families in the country. Concretely,
PMI has taken action to achieve three critical missions:
1. Helping to evacuate more than 1,000 people from
Ukraine and relocate more than 2,700 internallydisplaced from conflict zones to locations in
the country away from the heaviest fighting

In 2021, Ukraine accounted for around 2 percent of
PMI’s total cigarette and heated tobacco unit shipment
volume and under 2 percent of PMI’s total net revenues.
As of March 31, 2022, PMI’s Ukrainian operations
have approximately USD 400 million in total assets.

2. Providing critical aid to employees who cannot
leave or who decide to remain in Ukraine
3. Providing those who have left seeking refuge outsideof Ukraine, in neighboring countries, with logistical,
medical, financial, and other practical support

Further, PMI announced that its Board of Directors andsenior executives are working on options to exit theRussian market in an orderly manner, in the context of anincreasingly complex and rapidly changing regulatory andoperating environment.

The aspirations, goals, and forward-looking plans
contained in this report may be impacted by
the February 2022 Russian invasion of Ukraine
and its potential effects on our business overthe mid to long term, which remain uncertain.

PMI employs more than 3,200 people in Russia and willcontinue to support its employees there, including
paying their salaries, while continuing to fulfill its legal
obligations. The company will continue to makedecisions with their safety and security as a priority.

As part of our broader plan to evaluate ourpublished sustainability aspirations to ensure theyremain ambitious, reasonable, and achievable inthe context of a dynamic and evolving smokefree industry, we will also assess and reflect the
impact of the invasion. Considering the volatility
and rapidly changing environment, we continue tomonitor the situation closely. We will communicate
any related changes within the next year.

In 2021, Russia made up almost 10 percent of total
shipment volumes and around 6 percent of PMI net
revenues. As of March 31, 2022, PMI’s Russian
operations have approximately USD 1.4 billion in
total assets.

Aspirational targets and goals do not constitutefinancial projections, and achievement of
future results is subject to risks, uncertainties,
and inaccurate assumptions, as outlined
in our forward-looking and cautionary
statements on page 252 of this report.

On March 24th, PMI announced the concrete steps it
had taken to suspend planned investments and scale
down its manufacturing operations in Russia, following
its related announcement on March 9th. This included:

PMI continues to pay the salaries of all its Ukrainian
employees, in addition to providing substantial
in-kind support to them and their families.

• The discontinuation of a number of cigarette products
offered in the market (representing approximately
one-quarter of the company’s domestic cigarette
SKUs, including Marlboro and Parliament SKUs) and the
reduction of its manufacturing activities accordingly

In addition, we have already contributed around
USD 10 million in funds and donated essential
items across the country, directly to humanitarianorganizations and through our own employee-led
initiative, “Projects With a Heart.” These donations
include: providing medicines, food, clothes, and a variety
of other items to both our colleagues as well as thebroader population; the purchase of 25 ambulances; andthe set-up of a mobile hospital. Based on our current
visibility, we estimate an additional USD 25 million will be
incurred for additional support to employees this year.

• The suspension of its marketing
activities in the country• The cancellation of all product launches plannedfor 2022 in the market, including the launchof its flagship heated tobacco product IQOSILUMA, originally planned for March 2022
• The cancellation of its plans to manufacture
TEREA heated tobacco units for IQOS ILUMA
in Russia (with an eventual annualized capacityof more than 20 billion units) and the related
ongoing investment of $150 million“Our responsibility is to all our stakeholders, which include
shareholders, governments and the public they represent, ouremployees—all our employees, and our consumers. Every decision
we make must find the optimum balance between the interests ofthese audiences. We do not act in a vacuum. We have a
responsibility to our people in Ukraine and our actions show thelengths to which we are going to help them. In Russia, we built ourbusiness over a period of nearly 30 years, serving millions of loyal
adult consumers. We have a responsibility to our more than 3,200
employees and their families. There are no simple solutions. We
have announced we are working on options to exit the Russian
market in an orderly manner and that is what we intend to do.”Jacek Olczak Chief Executive Officer

23Philip Morris International – Integrated Report 2021

Overview

Contents
6

PMI’s Statement of Purpose

7

Letter from our Chief Executive Officer

12

Letter from our Chief Financial Officer

14

I M PAC T

Overview

Operational impact

Fundamentals

Reporting and performance

About PMI

Purposefully phase out cigarettes

60

Maximize the benefits of smoke-free products

64

Our company

18

Global trends

20

Seek net positive impact in wellness
and healthcare

90

Industry trends

22

Reduce post-consumer waste

98

Stakeholder engagement

28

Strategy32– Our business transformation 

32– PMI’s Business Transformation Metrics 

34

O P E R AT I O N A L– Anchoring sustainability at the core of our strategy 38– Setting ambitions and targetsProduct impact

PRODUCT

2021 highlights

Transforming for goodStrategy

I M PAC T

44

Our 2025 Roadmap

46

PMI Sustainability Index

47

Creating value

48

Letter from our Chief Sustainability Officer

50

Foster an empowered and inclusive workplace120

Corporate governance and management

52

Risk management

56

Improve the quality of life of peoplein our supply chain

144

Tackle climate change

162

Preserve nature

178

196

Sustain product reliability

198

Nicotine science

201

Uphold business ethics and integrity

205

Respect human rights

208Manage our supply chain sustainably

213

Safeguard privacy and protect data

221

Apply fair fiscal practices222

Prevent illicit trade

224

This includes the building of world-class scientificassessment capabilities, notably in the areas of preclinical systems toxicology, clinical and behavioral
research, as well as post-market studies. The U.S.
Food and Drug Administration (FDA) has authorized
the marketing of versions of PMI’s IQOS Platform 1
devices and consumables as Modified Risk Tobacco
Products (MRTPs), finding that exposure modification
orders for these products are appropriate to promote
the public health. With a strong foundation andsignificant expertise in life sciences, in February
2021, PMI announced its ambition to expand
into wellness and healthcare areas and deliver
innovative products and solutions that aim toaddress unmet patient and consumer needs.

The company’s current product portfolio primarily
consists of cigarettes and smoke-free products,
including heat-not-burn, vapor, and oral nicotine
products, which are sold in markets outside the U.S.
Since 2008, PMI has invested more than
USD 9 billion to develop, scientifically substantiate,and commercialize innovative smoke-free products for
adults who would otherwise continue to smoke, withthe goal of completely ending the sale of cigarettes.

a

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

This report at a glance

Fundamentals
Conduct R&D responsibly and transparently

Philip Morris International (PMI) is a leadinginternational tobacco company working
to deliver a smoke-free future and evolving
its portfolio for the long-term to include
products outside of the tobacco andnicotine sector.

Reporting and performance4

About this report

228

Performance in ESG ratings, rankings, and indices229

Performance metrics

232

Independent assurance report

245

Glossary of terms and acronyms

248

Forward-looking and cautionary statements

252

Notes

253

We are pleased to present our 2021 Integrated Report,
which describes how we are delivering on our purpose
and provides detailed information about our strategic
vision, performance, governance, and value creation.
The content is shaped by a formal sustainability
materiality assessment conducted during 2021. Unlessotherwise indicated, the data contained herein cover ouroperations worldwide for the full calendar year 2021, orreflect the status as of December 31, 2021. Where notspecified, data come from PMI financials, nonfinancials,
or estimates. Unless explicitly stated, the data andinformation in this report do not incorporate wellness
and healthcare acquisitions made by PMI during 2021 of
Fertin Pharma A/S, Vectura Group plc., and OtiTopic, Inc.

This third annual integrated report is accompanied bya set of publications available for download on PMI.com:

In 2021, the world—and our company—continued tonavigate the far-reaching impacts of the COVID-19
pandemic. Throughout the year, our priority remained
to protect the health, safety, and well-being of ouremployees and address the needs of our stakeholders
while relentlessly working toward our purpose ofachieving a smoke-free future. In this report, we
describe how COVID-19 has shaped the environment
in which we operate and impacted our work acrossvarious sustainability topics and how we have
responded and adapted to these new circumstances.

Country-level case studies shedding light on our workon priority sustainability areas

Reporting indices
Separate indices mapping content of this report againstinternationally recognized standards and frameworks

Performance data
Our consolidated sustainability performance data
all in one place

ESG Highlights
Highlights of our strategy and performance in 2021

Case studies

ESG KPI Protocol
Details on calculation methods, definitions, and scopeof key sustainability performance indicatorsa5

Read more about this reportPhilip Morris International – Integrated Report 2021

Overview

2021 highlights

PMI’s Statement of Purpose

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

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

21.7 m29.1%

Marketing andsales practices

Total adult users of PMI’s smoke-free
products, of whom 15.3 million haveswitched and stopped smoking

Of adjusted net revenues derived
from smoke-free products, whichwere available for sale in 71 markets
worldwide by year-end1

New Marketing Codes deployedglobally for both combusted andsmoke-free (non-combusted) products,
published in 2022 on PMI.com

ENVIRONMENTSOCIAL(2020: 18.3 m; 13.0 m)(2020: 23.8%; 64)

Wellnessand healthcare

USD 9.2 bn

91%

Cumulative investments behindsmoke-free products since 2008²(2020: 8.1 bn)

Of total shipment volume covered byyouth access prevention programs
in indirect retail channels3(2020: 94%)

The 2021 acquisitions of Fertin Pharma,
OtiTopic, and Vectura have provided
a foundation for progress toward ourambition to generate at least USD 1 billion
in annual net revenues from products
in wellness and healthcare by 2025

86%

46

Smoke-freeconsumables

Recycling rate of IQOS devices
returned to our centralized recycling
hubs (weighted-average percentage
of each device that is recycled)4Countries where our affiliates
deployed cigarette butt antilittering campaigns focusing on
driving behavioral change

Programs deployed to take back smokefree consumables after use by consumers
in various markets, including Canada,
Finland, Guatemala, and Switzerland(2020: 84%)

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

SOCIAL

39.7%
Of management positions held
by women, on track to achieve our2022 target of 40 percent5

ENVIRONMENT(2020: 37.7%)

Agricultural Labor
Practices5

Publication of a dedicated reportcelebrating the 10-year anniversary of
PMI’s Agricultural Labor Practices (ALP)
program in its tobacco supply chain

Human rights impact assessments
conducted since 2018 in highestrisk countries and action plans
being implemented(2020: 4)

Low-Carbon
Transition Plan

100%

Triple A

Publication of strategy to decarbonize
our direct operations by 2025
and our entire value chain by 2040

Of tobacco purchased at norisk of deforestation of primaryand protected forests

Score from CDP for the second
consecutive year, recognizing our efforts
to combat climate change, protect
forests, and promote water security(2020: 100%)
1
2
3
4
5

Number of markets where PMI smoke-free products were available for sale: 2021 figure excludes Belarus and the U.S.
Investments reflect research, product and commercial development, production capacity, scientific substantiation, and studies on adult smoker understanding.
Total shipment volume includes cigarettes, heated tobacco units, other tobacco products, e-cigarettes, and snus. In 2021, we evolved our minimum requirements for
effective youth access prevention (YAP) programs in indirect retail channels.
Including recycling (78%) and incineration with energy recovery (8%).
Calculation methodology updated in 2021 to expand data scope to employees on long-term leave (over 30 calendar days). 2020 data restated accordingly.

6

While Philip Morris International Inc. (“PMI” or the“Company”) is widely known as a cigarette company,
in 2016 it announced its new purpose: to deliver
a smoke-free future by focusing its resourceson developing, scientifically substantiating, andresponsibly commercializing smoke-free productsthat are less harmful than smoking, with the aimof completely replacing cigarettes as soon as
possible. These innovative alternative products do
not burn tobacco or create smoke, and therefore
emit significantly lower levels of carcinogens
and other toxic substances than cigarettes.

Nicotine, while addictive and not risk-free, is not the
primary cause of smoking-related disease. The primarycause is the harmful chemicals emitted while burning
tobacco and contained in the smoke. Eliminating
combustion from nicotine-containing products is theway to significantly reduce their toxicity. Thanks torapid advances in science and technology, and a strong
PMI commitment, these products are now a reality.
In 2016, with the full support of the Board of Directors,
the Company announced its new purpose of deliveringa smoke-free future. Since then, the Company has fullyaligned its employees with this purpose and swiftly
shifted its organizational focus and resources to smokefree alternatives. The Company is essentially disrupting
its traditional business from the inside out and is leading
the industry in this unprecedented transformation.

Building on the Board’s Letter to Shareholders andthe first Statement of Purpose in PMI’s 2017 and2020 Proxy Statements respectively, we reaffirm
PMI’s purpose and acknowledge that, as theCompany continues to transform its business andorganization, its core effort to provide smoke-freealternatives that appeal to today’s adult smokers—
and to work hard to convince them to switch—will
not be enough. The Company needs to continue
earning the trust and active cooperation of ahost of stakeholders, from supply chain partners
to regulators and public health authorities.

PMI’s smoke-free product portfolio currently includes
heat-not-burn products, nicotine-containing vapor
products, and oral nicotine products, all without
combustion. Their development and manufacturingfollow high standards of quality and consistency.
The Company is committed to scientifically
substantiating the harm reduction potential of its
smoke-free alternatives compared to cigarette smoking,including through rigorous preclinical and clinicalassessments and sophisticated systems toxicology.
Our scientific findings are publicly available and peerreviewed, and we have submitted many of our findings
to regulatory authorities, including the U.S. Food andDrug Administration. The totality of the scientificevidence makes the Company confident that switchingcompletely to smoke-free products is likely to present
less risk of harm than continuing to smoke. Postmarket surveillance is necessary to continue building
this confidence and, over time, quantify the reduction
in morbidity and mortality through epidemiology.

A smoke-free future is attainable, and the benefits
it can bring to the people who would otherwise
continue to smoke, and hence to global publichealth, are enormous. However, the Company
cannot succeed alone. Together with governments
and civil society, we can maximize this opportunity
through a consensus that smoke-free alternatives,
when subject to proper government oversight andregulation, are part of a sound tobacco policy.
Smoking causes serious disease, and the best way
to avoid the harms of smoking is never to start or,for those who smoke, to quit. For decades, tobacco
control has focused on strict fiscal, marketing, andother measures to deter initiation and to encourage
cessation. These must be continued. Nevertheless,while smoking prevalence rates continue to slowly
decline, the World Health Organization projects
that the estimated number of 1.1 billion people who
smoke tobacco products today will remain largely
unchanged by 2025, reflecting population growth.1
1

To be clear, these smoke-free alternatives are notrisk-free and should not be used by youth or adults
who would not otherwise continue to smoke or use
other nicotine products. The Company must market
its smoke-free alternatives responsibly to minimize any
unintended use while maximizing the switching of adultsmokers who would otherwise continue smoking.

WHO Global Report on Trends in Prevalence of Tobacco Smoking 2015.

7

Philip Morris International – Integrated Report 2021

Overview

PMI’s key stakeholder constituencies, which are
fundamental to both the achieving of its purpose
and to the pace of its progress, will be affectedin different ways by PMI’s transformation. The
Company will seek to engage and collaborate with
relevant stakeholders to speed the transformation
while mitigating negative consequences.

While cigarette sales today remain the largest partof PMI’s business in most countries, this is changing
rapidly. The Company is actively accelerating
the decline of cigarette smoking beyond what
traditional tobacco control measures can achievealone. To make its progress both measurable
and verifiable, the Company developed a set of
bespoke key performance indicators called BusinessTransformation Metrics. This set of metrics andrelated goals, which PMI reports on periodically,
allow stakeholders to assess both the pace andthe scale of its transformation and showcase how
it is allocating resources away from its traditional
cigarette business, aiming to base success on afuture where it no longer makes or sells cigarettes.

Consumers
Adult smokers and adult nicotine users are at thecore of PMI’s business transformation. The publichealth benefit of smoke-free products depends not
only on their potential to reduce the risk of smokingrelated disease compared to continued smoking
but also on if they are actually used as alternatives
to cigarettes by as many adult smokers as possible.
For smokers to switch to them, these alternatives
must be accessible. Increasing accessibility means
improving consumer awareness, acceptability,
as well as the availability and affordability of oursmoke-free products. Acceptability means deliveringexperiences that satisfy the needs of adult smokers
while significantly reducing the exposure to theharmful and potentially harmful constituents ofcigarette smoke. It is vital that we engage with adultsmokers to raise awareness of smoke-free products
and their benefits compared with cigarettes.

Although the Company’s transformation journey
started with a vision centered on the critical missionof phasing out cigarettes, this is not its sole orultimate end goal. Researching and developing
noncombustible alternatives that are scientifically
substantiated to be less harmful than cigarettes was
the first step. Broadening access for adult smokers
while simultaneously and deliberately working tophase out cigarette smoking completed the equationof its smoke-free purpose. In the process, theCompany has expanded its social, human, intellectual,and manufactured capital in ways that allow it to
go a step further, moving from a value proposition
centered on doing less harm toward one where it
can seek to have a net positive impact on society.

While PMI will continue to responsibly sell cigarettes
as long as there is a significant legitimate demand,
it will leverage its leading position to accelerateswitching to better alternatives, continuing to focus its
commercial efforts toward raising awareness of, andinforming adult smokers in appropriate ways about,scientifically substantiated smoke-free products andthe benefits of switching versus continued smoking.
The Company carefully monitors the results of its
marketing to minimize any unintended use of its
smoke-free products by nonsmokers, especially youth.

PMI is now actively working to expand its purposeand evolve into a broader lifestyle, consumer
wellness and healthcare company, extending its value
proposition and innovative capability to commercialize
products that go beyond tobacco and nicotine.
This is built on two key growth areas: (1) wellness
products, where the Company is developing andlooking to commercialize scientifically substantiatedconsumer health products and solutions with the aim
to improve people’s lives (2) healthcare products, where
it has already committed resources to its development
pipeline of over-the-counter and prescription products.

In addition, PMI’s new businesses will leverage
its know-how and capabilities in areas such as
inhalation and aerosolization to create better
products to target unmet medical and consumer
needs and deliver a better experience andenhanced products for consumers and patients.

This is part of a larger transformation that puts
science, technology, and sustainability at the heart of
PMI’s future by building on the Company’s expertiseand investment in aerosol chemistry and physics,
device technology, clinical research, and best-inclass preclinical safety and inhalation models.

8

Strategy

Product impact

Operational impact

Employees

Fundamentals

Reporting and performance

The Company is urging this important stakeholder
group to seize the immense opportunity thatsmoke-free products present for advancing publichealth within the current generation of smokers.
PMI asks the public health community to scrutinize
its smoke-free products, to provide feedback for
improvement, and to be open to considering that
PMI’s purpose aligns with the societal goal to change
the health trajectories of the people who smoke.

PMI’s ability to accomplish its purpose depends on
the skills, dedication, and relentless efforts of its
employees. The Company’s focus on a smoke-free
future and long-term opportunities in wellness andhealthcare has enhanced its ability to attract the
new talent needed to support its transformation.
The Company compensates its employees fairly andprovides important benefits. It supports them withenriching job experiences, training, and education
to help them develop new skills and maximize theiremployability in a rapidly changing world. The
Company treats employees with respect, dignity,
care, and fairness. It fosters diversity, inclusion,equal opportunity, and equal salary policies toensure PMI’s workforce reflects modern society.

Supply chain
People working in the Company’s supply chain aroundthe world, including tobacco farmers, rely on PMI fora substantial portion of their income. PMI deals fairly
and ethically with its suppliers and is dedicated toacting as a good partner to other companies, large andsmall, that help us meet PMI’s mission. PMI recognizes
that smoke-free products differ from cigarettes andentail change for some of its supply chain partners,
and PMI is ready to help them in this transition.

Regulators
Regulators can decisively accelerate the industry’s
transformation toward, and the speed at which
adult smokers switch to, smoke-free products byimplementing risk-proportionate regulations andtaxation for all nicotine-containing products and byproviding smokers with accurate information. PMI iscommitted to engaging transparently with regulators,
sharing its scientific research and post-market data.
The Company is ready to support an industry-wide
gradual phaseout of cigarettes as soon as a majorityof smokers in a country have switched to scientifically
substantiated smoke-free products. PMI believes
that with the right regulatory encouragement
and support from civil society, cigarette sales canend within 10 to 15 years in many countries.

Civil society
Continued engagement and partnerships with civilsociety remain essential to the Company’s success.
PMI respects the many communities and theenvironment around the world where it operates. PMI
works hard to protect society and the environment
through sustainable practices across its businesses,
and to both address and prevent future socialand environmental challenges, including reducing
post-consumer waste (focusing on eco-design andcircularity), tackling climate change, preserving
nature, improving the quality of life of people inour supply chain, and fostering an empowered
and inclusive workplace. The scope, metrics, andprogress on these areas are outlined in PMI’s annual
Integrated Report, published on PMI’s website.

Public health community
The public health community is, unfortunately,polarized on the issue of smoke-free products.
Without question, their work to discourage
youth and nonsmokers from starting to use any
tobacco or nicotine product and to encourage
cessation should continue. At the same time,
when better alternatives to cigarettes exist, thediscussion should not be whether they should
be made available to the more than one billion
people who smoke today, but how fast and within
what regulatory framework to maximize theiradoption while minimizing unintended use.

9

Philip Morris International – Integrated Report 2021

Overview

Shareholders

It is management’s responsibility to ensurethat the Company’s purpose is achieved
through the appropriate structures,
systems, processes, and people.

The Company is confident in the core businessgrowth prospects of smoke-free products and thesignificant additional long-term opportunity frominnovating in wellness and healthcare. It is leading
the new, highly promising category of smoke-free
products and leveraging its unique capabilities tocapture further areas of growth. PMI is dedicatedto ensuring its shareholders continue to receive
strong and sustainable financial returns over time.
It is aware of the growing tendency among someinvestors toward exclusion and negative screening
but does not believe it is an effective driver of changethat can have a positive impact, especially withregard to driving behavioral change in convincing
people who smoke to quit or improve their lives. On
the contrary, by investing in PMI and holding theCompany accountable to its purpose and targets,investors can combine positive societal impact
with long-term financial returns. The Company
welcomes suggestions, pressure, and support throughengagement with both current and potential investors.

The Board oversees management’s efforts toenhance shareholder value responsibly andsustainably over the long-term in ways thatare consistent with the Company’s purpose.
Transparency and engagement between the Boardand management are paramount, and we are all
working toward PMI’s successful transformation.
To better align with shareholder and otherstakeholder interests in achieving its purpose,the introduction of the Sustainability Index
has allowed the Compensation and Leadership
Development Committee of the Board to enhance
the company’s compensation practices, explicitly
linking it to ESG performance and further ensuring
a strong link between executive compensation
and both short- and long-term performance.
In conclusion, PMI remains committed toaccelerating the end of smoking and laying thefoundations for a strong business in areas ofwellness and healthcare as we strive to develop
commercially successful products that have a net
positive impact on society. This means not onlytransforming the Company to deliver on its purpose
but also inspiring the industry to follow its lead.

The Company understands the need to continue
to build legitimacy and trust by being honest,
respectful, fair, and transparent and by aligning
actions with words across all areas of its business.
To assess the impact of PMI’s current and future
value chains on society and the environment, theCompany regularly conducts sustainability materiality
analyses and measures and reports its performancethrough financial, environmental, and social metrics
that are key to a sustainable corporate strategy.

Strategy

Product impact

Operational impact

In early 2022, PMI’s Board of Directors issued
another letter reaffirming our purpose ofdelivering a smoke-free future and announcing
the expansion of our business for the longterm toward areas outside of tobacco andnicotine. This letter, our Statement of Purpose, isreplicated on the previous pages of this report.

PMI’s 2017 Proxy Statement contained a letterto shareholders from the Board of Directors
announcing for the first time our company’s
smoke-free vision. Building on this groundwork,
our Board of Directors issued on March 26, 2020,
in our company’s 2020 Proxy Statement, a letterthat corresponds to PMI’s Statement of Purpose.

Message from PMI’s Executive Chairman
The changes introduced to our Statement of
Purpose were made to ensure it remains a current
and fair representation of our company’s strategy.
Importantly, updating the company’s Statement of
Purpose maintains consistency and coherence withour company’s strategy and related reporting.
Changes to our strategy and vision prompted therevision of our Statement of Purpose, expanding
it to no longer have as its last horizon to achievea smoke-free future, but also to encompass our
strategic efforts to venture toward becoming
a wellness and healthcare company. Notably,
we aspire to achieve at least USD 1 billion in
net revenues from such sources by 2025.

PMI’s Board of Directors
Lisa Hook

Frederik Paulsen

André Calantzopoulos

Jun Makihara

Robert B. Polet

Michel Combes

Kalpana Morparia

Dessislava Temperley

Juan José Daboub

Lucio A. Noto

Shlomo Yanai

Werner Geissler

Jacek Olczak

10Reporting and performance

About PMI’s Statement of Purpose

This is a clear, strong, and proper way to articulate
our company’s purpose. It consists of a simple
declaration that clearly harmonizes commercial
success with social accountability and responsibility.
It transparently specifies those stakeholders mostcritical to long-term value creation and sustainability.

Bonin BoughFundamentals

André Calantzopoulos
Executive Chairman

11

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Letter from our Chief Executive Officer

Sustainability is the core of ourcompany’s transformation
Just like 2020, in 2021, amid the lingering
headwinds of the COVID-19 pandemic and supply
chain disruptions, our clear priority remained toprotect the health, safety, and well-being of ouremployees. We took measures to prevent the
spread of infection, sustain our operations, andsupport not only our employees and their families
but also the communities in which we operate.
Early in 2022, we watched with shock the war in
Ukraine unfold before us. Our immediate priority
was, and continues to be, the safety and securityof our employees and their families. We condemn
the violence in the strongest possible terms,
stand in solidarity with those who are suffering,and join the many voices calling for an immediate
end to the war and the restoration of peace.
Our ability to respond and adapt to change
and sudden disruptions will be proven overtime, and I am confident that the resilience ofour people and strength of our purpose willallow our organization to live and prosper.
During 2021, and despite the challenging
environment, we continued to deliver a strong
financial and nonfinancial performance, and I
am enormously proud of our achievements.
In a pivotal year for societal action on climate change,
we accelerated our targets for carbon neutrality in
our operations and net zero emissions across ourvalue chain, and detailed our strategies and roadmap
in our Low-Carbon Transition Plan. We continued
to progress against our zero deforestation and water
stewardship ambitions and took meaningful steps
toward developing a holistic biodiversity strategy.

“Our ability to respondand adapt to change andsudden disruptions will be
proven over time, and I am
confident that the resilienceof our people and strengthof our purpose will allow
our organization to live
and prosper.”Our environmental sustainability leadership wasrecognized with a Triple A score by the CDP for thesecond consecutive year. Committed to maintaining
best-in-class performance, we must not forget theenvironmental impact of our products and will continue
to embed eco-design and circularity principles in theirdevelopment and their end-of-life management.

12

an initial milestone for a business with potential
to grow much further over the longer term.

We also celebrated the tenth anniversary of ourAgricultural Labor Practices program, aimed at
improving labor practices and livelihoods in our tobacco
supply chain. We remain vigilant in our approachto tackling systemic issues and are encouraged by
the progress made so far in reducing child labor
incidence and improving income levels across ourcontracted tobacco farms. In 2021, we continued
to conduct human rights impact assessments,
completing one in our tobacco supply chain in Turkey
and commencing our sixth assessment in Malaysia.

Last year, we acquired Vectura, Fertin Pharma, andOtiTopic—three leading and innovative companies
with which we are excited to join forces to achieve a
common purpose: building world-class expertise in
the research, development, and commercialization ofsolutions that have a net positive impact on society.
Although this Integrated Report does not account for
the impact of these acquisitions, 2022 will be a year
when we further their integration so that the progress
they achieve can be captured in our reporting efforts.

Promoting diversity, equity, equality, and inclusion isparamount for our company and a priority for me.
Although we made continued progress over the past
few years, much work remains to be done, and I am
proud to be one of the commissioners of the newly
formed Business Commission to Tackle Inequality,
spearheaded by the World Business Council for
Sustainable Development. We shall continue ourwork to promote human capital development,
ensure a living income for all our contracted
farmers, and explore ways to ensure workers in our
direct supply chain earn at least a living wage.

Transforming our business means venturing into
a number of uncharted territories, each bringing
unique challenges. I say this with pride in what wehave already achieved, yet with a deep recognitionof the immense work ahead. We will always havecritics, and we remain committed to engaging withthem honestly and transparently, pointing out theactions we are taking to address their concerns andwelcoming feedback on how we can do better.
Our actions—grounded in data, science, andfacts—speak louder than words. That said, oursocietal interactions, especially when it comes toour company’s transformation, bring an emotional
component that can carry a heavy weight.
Consequently, we will work to promote constructive
dialogue and address our stakeholders’ legitimate
concerns appropriately. We cannot make cigarettes
obsolete in the absence of collaboration and coalition.

Seven years ago, we set out to create a new future for
PMI—a future in which cigarettes would be obsolete,replaced by less harmful, science-based alternatives. In
2021, we kept our relentless focus on that ambition,
dedicating 99 percent of our research and development
and 73 percent of our commercial expenditure tosmoke-free products. Moreover, smoke-free products
represented over 29 percent of our adjusted net
revenues and, by year-end, we estimate that morethan 15 million adults in total had switched to IQOS
and stopped smoking. The strong position of oursmoke-free business has allowed us to accelerate ourtimeline; early in 2021, we announced our ambition
that by 2025 our smoke-free products would be soldin 100 markets and at least 50 percent of our net
revenues would derive from smoke-free products.

Without dismissing our past, I hope our 2021
Integrated Report provides a clear window into
our present, as well as a more detailed view of the
future we envision. I hope, too, that this report will
spark dialogue and that our stakeholders will accept
the invitation to judge us not for the company
we were but for the company we are today andare working hard to become, as well as by thetangible progress we have made. It is throughconstructive engagement that we will accelerate
the pace of meaningful and impactful change.

PMI is committed to serving as an agent of change
and advocate of positive values. We understand thatour business must become a provider of effective
alternatives. To achieve this, we are positioning
ourselves at the forefront of consumer-centricity,
technology, science, and innovation. With an eye tothe long term, we are expanding our business into
areas beyond tobacco and nicotine such as wellness
and healthcare. Our ambition is that by 2025, atleast USD 1 billion of our net revenues will derivefrom these adjacent avenues of growth, marking

Jacek Olczak
Chief Executive Officer

13

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Letter from our Chief Financial Officer

Accelerating the pace of change:
committed to making cigarettes obsolete
Accelerating the pace of change at PMI requires
continued dialogue with multiple stakeholders,
including governments and investors, tounlock financing capacity, increase innovationand technology development, encourage
public support, and incentivize an industry
shift away from combustible products.
Despite being well on our way to delivering a smokefree future, we still have some distance to travel, as
our combustibles business still represents the majorityof our revenues. Although this is shifting rapidly—in2021 almost 30 percent of our annual adjusted net
revenues derived from smoke-free products, withthe aim to derive at least 50 percent by 2025—theoperating cash flows generated by cigarettes serve
an essential role, supporting ongoing investments in
the growth of smoke-free products and in building
new capabilities in wellness and healthcare.
Staying competitive in the cigarette category during
this interim period provides the infrastructureneeded to support our smoke-free growth, allowing
us to create a future where cigarettes no longer
exist. Notably, where permitted, it provides theprimary way we engage and connect with adultsmokers and trade partners to raise awarenessof smoke-free products and explain why they
are a better option than continued smoking.

“We are convinced that
impactful and systemicchange can be best
achieved by transformingfrom the inside out,
engaging constructively
with different parts ofsociety, and ultimately
replacing cigarettes withsmoke-free products.”

Even though selling off our cigarette business would
make our company achieve its smoke-free ambition
faster, it would not resolve the cigarette problem—it
would just become somebody else’s problem to solve.
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 steadyapproach to one day completely leaving them behind.
While contradictory on the surface, this is a necessary
trade-off that is vital to expanding our leadership in
smoke-free products and driving a successful industry
transition. We are convinced that impactful andsystemic change can be best achieved by transformingfrom the inside out, engaging constructively
with different parts of society, and ultimately
replacing cigarettes with smoke-free products.

14

The relationship between the sources of tension will
disappear over time, as our legitimate ambition tomaintain market share in the declining combustible
product category does not mean we aim tocontinue selling cigarettes in the long term. Our
purpose is clear: Our smoke-free business is our
focus area of growth, as these are the products
needed to enable our transformation, and, mostimportantly, to help make cigarettes obsolete.
We intend to continue expanding our leadership,
portfolio, volumes, and markets for our smokefree portfolio to ensure we broaden adult smokers’
access to these products, maximize the benefits
and minimize unintended consequences—with theintention of being present in 100 markets by 2025.

“Our purpose is clear: Our
smoke-free business is our
focus area of growth, as these
are the products needed toenable our transformation,
and, most importantly, makecigarettes obsolete.”
The subsequent announcement of our company
entering into an agreement for its first business
transformation-linked financing instrument—a new
revolving credit facility for an aggregate amountof USD 2.5 billion—was testament to the successof our integrated approach. I was pleased with thebroad engagement and support of investors, lenders,and bankers. This approach is critical to helping us
continue to drive change within our company. Further,
I believe this kind of engagement can encourage
industry transformation by demonstrating thebenefits of our company’s unique value proposition.

Strategy, Finance, and Sustainability—the three teams
I lead—play a critical role within today’s PMI andhave the capacity to establish a roadmap for successthat not only responds to short-term needs but also
accounts for medium- and long-term impacts. To
achieve our ambitions, it has been of paramountimportance for our entire organization to recognizethat sustainability and financial performance are
mutually reinforcing and part of the same strategy.
That is why integrated reporting is a top priority: It
allows all our employees, including management, as
well as the company’s Board, our shareholders, andother stakeholders to understand how our financial
and nonfinancial performance are interrelated.

Industry disruption only looks easy in hindsight.
At present, we are in mid-stride: with one footin our past, operating in a fiercely competitive
legacy cigarette business, and one foot in ourbold future, building an entirely novel andimproved category of products. We recognize
the magnitude of the challenge and remaincommitted to continuing to lead, tracking progress,
and reporting on it transparently to ensure
cigarettes become obsolete as soon as possible.

A great example of the synergies from integrating
sustainability into strategy, and making ESG issues
a core part of our business priorities, was the
publication of our first business transformationlinked financing framework in 2021, which integrates
the company’s smoke-free transformation into
its financing strategy. Linking our most material
sustainability priorities to part of our financing
strategy strengthens our commitment andunderscores to all our stakeholders the seriousnessof our ambitions. I believe this not only reinforces
our promise to reinvent our company but also
invites investors and lenders to engage with andsupport our relentless work to accelerate theend of smoking, continue to grow our smokefree business, and use our strong capabilities
to develop products in wellness and healthcarethat can have a net positive impact on society.

Emmanuel Babeau
Chief Financial Officer

15

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

OVERVIE W

16

Our company 

18

Global trends

20

Industry trends

22

Stakeholder engagement

28

17

Reporting and performance

Philip Morris International – Integrated Report 2021

Overview

Our company

Total 2021 adjusted net revenue by PMI region

PMI is a global company
selling products in around
180 markets and employing
approximately 68,500 people
worldwide.1

Strategy

Product impact

Operational impact

Since 2016, we have set a new course for the company—staking
our future on replacing cigarettes with scientifically substantiated,less harmful alternatives. To date, we are the only company
within the traditional international tobacco industry to havecommitted to phasing out cigarettes, encouraging adult smokers
who would otherwise continue to smoke to switch completely tobetter alternatives. In addition to expanding our leading positionin the smoke-free category, we now also seek to broaden ourvalue proposition to develop products in wellness and healthcarewith the aim of having a net positive impact on society.

Our product portfolio

Fundamentals

Reporting and performance

European Union

39%

Eastern Europe

11%

Middle East & Africa

11%South & Southeast Asia

14%

East Asia & Australia

19%

Americas (incl. the U.S.)

6%

Operations Center:
Lausanne, Switzerland
European
Union

South &Southeast Asia
EasternEuropeSmoke-free products
Our smoke-free product portfolio is composed oftwo main product categories. Our leading smoke-free
product is a heated tobacco product commercialized
under the IQOS brand, available for sale in 68 markets
as of year-end 2021. IQOS uses sophisticatedelectronics to heat tobacco in a controlled manner torelease flavors and nicotine without combustion. Our
e-vapor product, commercialized under the IQOS VEEV
brand, generates an aerosol by heating an e-liquid
formulation. IQOS VEEV was available for purchase inseven markets as of year-end 2021. We also now havea small presence in nicotine pouches, commercialized
under the Shiro brand. This product contains no tobaccoand is used by being placed beneath the upper lip.

Smoke-free29%

PMI’s adjusted
net revenues in
2021

Headquarters:
New York, U.S.1

1

In the fourth quarter of 2021, we announced that we will be
relocating our PMI corporate headquarters from New York,New York, to Stamford, Connecticut. This move is expected
to be completed by the third quarter of 2022.

Middle East & Africa

East Asia& Australia

Americas(incl. the U.S.)

Proportion of 2021 adjusted net revenues from smoke-free products in each PMI region

Combustible products
To accelerate our transition away from cigarettes
and encourage the industry to follow this path, it isnecessary to maintain our competitive position in thecigarette market during this transition phase (readour Chief Financial Officer’s letter to learn more).
Our cigarette brands are sold in around 180 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, andlow-price brands, 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.).

Combustible

71%

1

59%

33%

37%

4%
European
Union

EasternEuropeMiddle East
& Africa

Incorporating 2021 acquisitions of Fertin Pharma, Vectura Group, and OtiTopic, PMI employed approximately 69,600 people worldwide at year-end 2021.

18

3%

<1%

19

South & Southeast Asia

East Asia& Australia

Americas(incl. the U.S.)

Philip Morris International – Integrated Report 2021

Overview

We operate on a global scale in a fast-paced world. Our long-term
success requires that we monitor, anticipate, and respond to thechallenges and opportunities shaping our reality today and in the future.

Global trends

Drivers

Strategy

Product impact

Operational impact

Fundamentals

Global trends intersect with our strategies and initiatives and inform how we interact with the external environment.
Several trends discussed here existed before COVID-19 but have been amplified and accelerated by the pandemic,
causing disruptions to supply chains and business operations and making them even more relevant.
Capitals impacted

Stakeholder expectations

How we are responding• Portfolio shifts driven by consumer centricity (transition to asmoke-free future, innovation in wellness and healthcare)

Healthy lifestyles• Demographic shifts• Consumers: Healthier productsSociety is more attuned to mental well-being and physical health, leading to a pushfor more conscious choices, active lifestyles, support, and better nutrition. Businesses
are expected to expand and shift their portfolios to incorporate new services andproduct offerings that contribute to better health, paying attention to the uniqueneeds of younger generations and older workers. To attract, retain, and optimize
top-level talent, employers must prioritize mental and physical well-being in theworkplace, particularly as remote and hybrid work becomes more prevalent.

• Consumer preferences• Public health policy and regulation• Employees and supply chain: Occupational health and safety; Mental healthand well-being; Work-life balance

Climate and nature urgency
Climate change, biodiversity loss, deforestation, water insecurity, and other ecological crises
threaten more than supply chains and physical infrastructure; they endanger progress andbusiness growth by exacerbating systems-level disruptions that affect our stakeholders. Policy,
regulation, civil society, and market forces continue to spur a transition to low-carbon solutions,investments in renewable energy, and actions to safeguard ecosystems. These also focus onembedding eco-design and circular considerations at the early stages of product development.

Inequality• Shareholders: Product offerings in line with consumer expectations toprotect and expand market share• Civil society and consumer activism• Consumers: Environmentally friendly and circular products• Investor focus and the expansionof impact investing• Employees and supply chain: Job security and business continuity amid theclimate crisis• Environmental policy andregulatory developments• Civil society: Greenhouse gas (GHG) emission reductions; Protection andpreservation of natural ecosystems; Resource efficiency• Impending institutional consensus
on nature-related measurement
and reporting frameworks• Policymakers and regulators: Science-based approach to target setting andrelated disclosures; Environmental welfare; Environmental regulation
enforcement• Investor focus and expansion of
impact investing• Human rights and other societal
policy and regulatory
developments• Impending institutional consensus
on social-related measurement andreporting frameworks• Mistrust of institutions

Social cohesion and a shared reality founded on facts grounded in science and data are
increasingly challenged in an ever more digital world. The rising tides of distorted truth,
misinformation, and polarization also impacts businesses, which cannot succeed in failed
societies and must work with all stakeholders to foster innovation, develop solutions, anddrive impact. Companies are expected to demonstrate irreproachable behavior and radicaltransparency, providing trustworthy information on their impacts along their value chain.

• Diminishing confidence in science• Political turmoil• Expectation of increasedtransparency• Social media platforms• Consumers: Inclusive and equal access to solutions, products, and services;
Socially responsible products• Employees and supply chain: Inclusive and equal access to opportunities;
Workplace free from discrimination and harassment; Equal pay and living wage
• Civil society: Climate justice; Access to jobs
• Policymakers and regulators: Social welfare, including access to meaningfuljobs and protection of human rights• Shareholders: Organizations free from human rights controversies thatappropriately manage governance concerns around inequalities in theworkplace• Civil society and supply chain: Traceability; Alignment of priorities withpublic benefit; Transparency• Policymakers and regulators: Standards and norms for quality androbustness of data and related requirements for increased transparency• Shareholders: Consistent, reliable, and comparable ESG data and useful
information• Impact of automation on
employment• Employees and supply chain: Adapting workforce skills and capabilities; Job
security; Protection of employee data

• Growing availability of data andinformation• Civil society and supply chain: Increased supply chain connectivity,transparency, and efficiency through emerging technologies• Cybersecurity and data privacy
concerns• Policymakers and regulators: Data protection and prevention of
cybersecurity threats; Policymaking on technology and innovation

20

Social• Expanding the scope of human rights impact assessment• Promoting living incomes and wages throughout the value
chain• Collaborating across the value chain and broader business
community to address inequalities in our supply chain• Providing a workplace where employees have equal pay for
equal work, equal access to opportunities and are free fromdiscrimination and harassment• Reporting against most relevant and widely used sustainability
standards to promote transparency

New technologies, including in robotics, artificial intelligence, and virtual reality, areemerging rapidly. Companies are implementing automation and digital solutions that
increase transparency, maximize efficiencies, and create opportunities for robust R&D
activity and product innovation. Boosted by a rapid flow of data and information, thepace of change is unprecedented, with wide-reaching implications across industries.
Within this context, concerns and risks around data privacy and cybersecurity are on
the rise, and many actors are working to enhance data and infrastructure protection.

Natural• Supporting and partnering with experts, science-based
initiatives, and advocacy organizations• Employees and supply chain: Strong company culture; Clear businesspurpose• Consumers: Consumer data protection; R&D for new solutions and better
products

Intellectual• Investing in—and developing—scalable solutions that produce
co-benefits for climate and nature• Revised and expanded Statement of Purpose• Shift to online commercialization
channels

Manufactured• Transparent, strategic, and science-based target setting anddisclosure of progress• Consumers: Transparency on the impact of products and operations on
health, society, and the environment; Scientifically substantiated claims

Technological progress

Human• Integrated risk assessments and robust GHG emissions
accounting to define new—and validate existing—strategies• Shareholders: Future-proof business model; Useful environmental
disclosures; Low-carbon solutions; Investments in renewable energy

Erosion of trust

Capitals:• Workplace health and well-being programs and initiatives• Civil society: Public health• Policymakers and regulators: Public health; Quality of life; Social welfare• Civil society and consumer activism

Globalization, rapid economic growth and widespread improvements in livelihoods inrecent decades have failed to close—and have even exacerbated—the deep divides within
and across countries. Worsening inequalities have in turn triggered civil society to become
more aware of—and more vocal about—social injustices. Ongoing scrutiny and policy
developments on issues pertaining to social inequality and human rights have highlighted
the role business can play by ramping up diversity, equity, equality, and inclusion efforts.

Reporting and performance• Shareholders: Companies leverage technological advancements to drive
product innovation, commercialization, and operational efficiency
Financial

21• Explicitly linked financing instruments to ESG performance• Developed an ESG KPI Protocol with a path to provide fullassurance on nonfinancial data
• Introduced model to link ESG performance transparently andobjectively to executive compensation• Investing in new technologies and acquisitions to accelerate
our company’s transformation, expand smoke-free productofferings, and drive progress on sustainability priority areas• Data-based decision-making and investment in targeted
operational improvements• Strengthening cybersecurity and data privacy policies andpractices• Employee lifelong learning and upskilling offers

Philip Morris International – Integrated Report 2021

Overview

Industry trends
Market trends

Projected number of smokers in 2025

Overview of the global nicotine business

The World Health Organization (WHO) projects
a decline in smoking prevalence (age 15+), from
21.5 percent in 2010 to an estimated 17.1 percent
in 2025.2 At the same time, the global adult
population is growing by around 70 million people
per year. The net effect of this population growthand declining smoking prevalence is a forecast ofjust under 1.1 billion smokers in 2025—essentiallythe same as in 2010. Even if the faster reduction
in smoking prevalence that WHO member
states are targeting is achieved (i.e., a 30 percent
reduction in the prevalence of tobacco use
by 2025 versus 20101), we estimate there will
still be around 930 million smokers in 2025.

Products within the global tobacco and nicotine
business market fall into three main categories:
combustible products, smoke-free products, andtherapeutic cigarette replacement alternatives (often
known as nicotine replacement therapies or NRTs).
• Combustible 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,hybrid products (combining features of heated
tobacco and e-vapor products), and oral
tobacco and nicotine products such as snus andnicotine pouches. By eliminating combustion,these products present, or have the potential
to present, less risk of harm to adults who
switch to them versus continued smoking.

In recent years, the development, commercialization,and subsequent adoption of various smokefree products have led to rapid growth of thecategory. Overall, we estimate this segment grewby 3 points since 2018 to reach over 7 percentof the international nicotine retail value (which
excludes China and the U.S.) in 2021.
R&D on smoke-free products that do not involve
combustion, including pouches, e-cigarettes, andheated tobacco, extends back more than two
decades. These efforts were driven by a combinationof increased awareness of the harms of smoking,evolving technologies, discoveries of different ways
to deliver nicotine, and a better understanding of
behaviors connected to smoking. The reduced risk
potential of these products, coupled with theiravailability and increased acceptability, is leading
smokers to switch away from combustible tobacco
products and never come back to smoking. The
potential of smoke-free products to contributeto reducing population harm and, eventually,
benefit public health, has led to the introduction ofprogressive public health strategies based on theconcept of tobacco harm reduction. These strategies
successfully complement traditional efforts, which
encourage cessation and discourage initiation,in accelerating smoking prevalence decline.

Prevalence of tobacco smoking worldwide
Combustible products currently represent the largest
share of the global nicotine market, with cigarettes
remaining the dominant tobacco product used by
nicotine consumers worldwide. The prevalence ofsmoking is decreasing steadily around the globe,
supported by public health policies and strategies
focused on discouraging initiation and encouraging
cessation. Despite this, an estimated 1.1 billion
people worldwide still smoke cigarettes, and due
to population growth, that number is projected toremain relatively stable for the foreseeable future.1

3

Product impact

Operational impact

Fundamentals

Reporting and performance

The oral tobacco product category volume, including
products containing tobacco leaf (e.g., chewing
tobacco, snuff) and modern products such as nicotine
pouches, grew to reach almost 29 percent CAGR
over the past three years in the international market,
boosted by the significant growth of oral nicotine
pouches. Nicotine pouches have emerged as credible
smoke-free products in recent years, most notably inmarkets with a history of oral tobacco consumption,such as the U.S. and Scandinavia. While the category
remains small outside these markets, it is growing.

Heated tobacco products have been commercialized
for many years but did not gain commercial traction
until the introduction and world-wide expansion of
IQOS. Following this technological breakthrough,other companies also began to commercialize heated
tobacco products. The heat-not-burn segment
volume grew in the international market (which
excludes China and the U.S.) at a compound annual
growth rate (CAGR) of over 29 percent between 2018and 2021, driven both by increased adoption in thefirst launch markets as well as geographical expansion.
This category is the largest smoke-free category
by both retail value and volume in the international
market (which excludes China and the U.S.).

Within the nicotine industry, the strong growthof smoke-free products over the past three
years, including heat-not-burn and e-vapor,
is replacing combustible products.

The e-cigarette was invented in 2003 in China,
and—after more than a decade of relatively
limited success—the broader e-vapor category
has recorded significant growth, particularly in the
U.S., Canada, and certain European markets.

Emergence of smoke-free alternatives³• Therapeutic cigarette replacement alternatives,
which include nicotine gum and patches, aim to help
smokers quit smoking. They deliver nicotine andrequire pharma approval process to be followed;
further, in some countries, their use is subject
to prescriptions from medical professionals.

12Strategy

WHO Global Report on Trends in Prevalence of Tobacco Smoking 2015.
WHO Global Report on Trends in Prevalence of Tobacco Use
2000-2025, third edition (December 2019).
Estimates based on PMI financials and third-party sources (includingEuromonitor International).

22

Industry volume split 2018–2021
Of which

Of which

are heated tobacco
products

are heated tobacco
products

2%

2018

4%

2021

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

23

2018

2021

Combustible products

96%

93%

Smoke-free products

4%7%

Philip Morris International – Integrated Report 2021

Overview

Competition

Oral tobacco and oral nicotine products are mainly
produced by the major tobacco manufacturers
and traditional oral tobacco manufacturers. Key
players are building internal capabilities in theoral tobacco and nicotine segment or acquiring
smaller existing players in this category.

As in other consumer goods sectors, manufacturers
in the tobacco industry compete primarily on productquality, brand recognition, brand loyalty, taste andsensory experience, R&D, packaging, customer
service, marketing, advertising, and retail price.

Despite advances in science and technology, thebusiness strategy of all international cigarettemanufacturers—with the exception of PMI—
is focused on continuing to grow cigarettesales, while expanding their portfolios to offer(in addition) smoke-free alternatives.

Smoke-free products
There is increasing competition in relation tosmoke-free products, with tobacco manufacturers
shifting their resources toward the development,
acquisition, and commercialization of such products,
particularly heated tobacco products, e-vapor
products, and nicotine pouches. Beyond this,some manufacturers are entering into strategic
collaborations to explore growth opportunities in
products that do not contain tobacco or nicotine.

Combustible cigarettes
The global combustible cigarette sector includes
four large international manufacturers—British
American Tobacco (BAT), Japan Tobacco (JT), Imperial
Brands (IMB), and PMI—along with two major
manufacturers focused primarily on their respective
domestic markets: The China National Tobacco
Corporation (CNTC) 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).

To date, competition in the heated tobacco category
is primarily among manufacturers of combustible
tobacco products. With regard to e-vapor, the“open” products category (products which feature achamber that can be refilled with e-liquid) is heavily
fragmented and relatively commoditized among small
or local manufacturers. In contrast, global tobacco
manufacturers are increasingly present in the “closed”
products category (with disposable products orreloadable systems with prefilled cartridges), whichis evolving rapidly with a number of startups.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Our perspective at PMI
By 2025, we expect that less than 50 percent
of our adjusted net revenues will derivefrom cigarette sales. In 2021, PMI smokefree products represented 29.1 percent
of our annual adjusted net revenues and12.8 percent of our total shipment volume.

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
and offer more choice to consumers. Our goal
is to lead an industry-wide transformation
whereby cigarettes are phased out completely.

Growing interest in the smoke-free productcategory from other companies could be
an opportunity and lead to the accelerationof the global smoke-free agenda.

Our strategy is centered on researching anddeveloping better products, promoting broad
access to them, and working to ensure theseproducts replace cigarettes and make smoking
obsolete. To achieve this, we are actively
shifting and reallocating resources, setting
ambitious goals connected to this strategy,
and transparently reporting on our progress.

As recent investments demonstrate, our long-termplan extends beyond smoke-free into products
outside the tobacco and nicotine space. Our 2021
acquisitions of Fertin Pharma, OtiTopic, and Vectura
will allow us to better leverage PMI’s capabilities,
accelerate the pace of our transformation, andcement the foundation of our future in wellness
and healthcare—all with the ultimate goal of
having a net positive impact on society.

PMI total international share (in %)Heated tobacco units
Cigarettes

Our global market share 2021, including
cigarettes and heated tobacco units

BAT

~11%

IMB

~3%

JT

~8%

PMI

13.8%

CNTC

~46%

Altria Group, Inc.

~2%

Other

~16%

Total:
28.3

Total:
27.6

Total:
27.3

3.0

3.5

26.1

24.6

23.7

2019

2020

2021

2.2

PMI

13.8%
Note: Global market includes China and the U.S.
Source: PMI financials or estimates.

24

Source: PMI financials or estimates. International market excludes China and the U.S.

25

Philip Morris International – Integrated Report 2021

Overview

Regulation and taxation

For decades, public health strategies to reduce
tobacco-related morbidity and mortality focused
primarily on preventing smoking initiation andencouraging cessation. With the introduction ofsmoke-free products and the recognition of theirpotential to accelerate the decline of smoking
prevalence and contribute to public health, theneed for an updated approach to tobacco regulation
has become urgent. While there is currently no
global consensus on how best to regulate ortax smoke-free products, a growing number ofauthorities recognize that the risk profile of theseproducts differs from cigarettes and so should
be regulated differently in order to promote theiradoption as a better alternative for those smokers
who would otherwise continue to smoke.

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 use.
Additional restrictions and mandates apply to
packaging design and health warnings, ingredientsand flavors, marketing and advertising, andpromotions 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 andnonsmokers’ exposure to tobacco smoke.

Our perspective at PMI
Government regulation of all nicotinecontaining products is essential.
PMI supports a comprehensive approachthat discourages initiation and promotes
cessation, supplemented by commonsense
regulation that encourages adults who smoke
and would not otherwise quit to switch
completely to smoke-free alternatives thathave been scientifically substantiated to bea better choice than continued smoking.

Strategy

Product impact

Operational impact

Illicit trade prevention

For PMI, eliminating the illicit tobacco
trade has been a long-standing priority.
We focus our efforts on securing our
supply chain and protecting our products.

The illicit tobacco trade provides a cheap andunregulated supply of tobacco products. It
undermines efforts to reduce smoking prevalence,damages legitimate businesses, stimulatesorganized crime, increases corruption, andreduces government tax revenue. It is estimatedthat illicit trade accounts for as much as 10 to 12
percent of global cigarette consumption and thatgovernments worldwide are losing USD 40 to 50
billion in tax revenues each year as a result.1

Read more about our approachand progress in 2021 here.

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 licensing, enforcement in free trade zones,
and the implementation of tracking and tracing
technologies. The protocol came into force in
September 2018, and parties to it have started
implementing its measures via national legislation.
U.S. Department of State, The Global Illicit Trade in
Tobacco: A Threat to National Security, 2015

We advocate for a comprehensive and riskproportionate regulatory framework thatrecognizes that not all tobacco- and nicotinecontaining 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. Such an approach
would significantly accelerate the phasing out of
combustible products and promote public health.

26

Reporting and performance

Our perspective at PMI

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

1

Fundamentals

27

Philip Morris International – Integrated Report 2021

Stakeholder
engagement

Overview

Stakeholder groups

Consumers
Adult smokers and nicotine
consumers

PMI regards stakeholder engagement
as fundamental to the creation ofshared and sustainable value.

Employees

While PMI’s transformation is unwavering, we
recognize that we cannot complete the journeyalone. The kind of systemic change PMI is driving
can only be achieved through a collaborative
multistakeholder approach, a fact 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 andcoherence—on ensuring our words match ouractions. Remaining open to dialogue with our
stakeholders allows us to understand their
expectations and respond accordingly. Continuous
engagement also allows us to build a sharedunderstanding of contingency issues, proactively
respond to concerns, identify potential areas ofcompromise, stay abreast of global trends andmarket expectations, and find solutions that aregood for our stakeholders and business. We arecommitted to driving transparent and responsible
change, and continuously work to earn thetrust and confidence of our stakeholders.

Employees, management, work
councils, trade unions

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Why we engage

How we engage

Key topics discussed

Adults who smoke and otherwise would not quit are at the heart of ourbusiness transformation. We aim to persuade as many of them as possible
to replace cigarettes with scientifically substantiated better alternatives.
We do this by taking a consumer-centric approach to developing andcommercializing better alternatives that meet their preferences andneeds. We also raise awareness among these adult smokers of smokefree products, how they work, and their benefits compared withcigarettes so as many as possible will switch to them.

• Digital interfaces• Product innovation• Surveys and questionnaires• Access to smoke-free products• Hotlines and call centers• Consumer events• Benefits of smoke-free products comparedwith continued smoking• Stores and e-commerce• Quality and services

Our employees are drivers of change and the ambassadors of our
purpose. Their engagement and dedication are essential to making PMI’svision and strategic goals a reality. We continuously communicate withand listen to our employees and strive to provide them with opportunities
for growth and development within an inclusive workplace.

• Regular surveys• Company strategy and performance• Group-wide intranet and internal platforms• Diversity, equality, equity, and inclusion• Performance and development reviews• Health and safety• Internal events and conferences• Mental health and well-being• Training programs• Talent attraction, development, and retention• Recognition schemes• Ongoing dialogue• Employee resource groups

Supply chain andbusiness partners
Farmers and farmworkers, farmers’
associations, contractors, suppliers,
wholesalers, business partners, third
party-operated manufacturers

Finance community
PMI shareholders, equity and
fixed income investors, lending
institutions, insurance companies,
financial analysts, rating agencies

Many of the people working in our supply chain rely on PMI for a
substantial portion of their income. PMI aims to treat its suppliers
fairly and ethically and is dedicated to acting as a good partner toother companies, large and small, that help us achieve our ambitions.
Collaborating with others across our supply chain helps us to addresssocial and environmental challenges and make progress against our
strategic goals.

• Compliance, audits, and risk assessments• Supply and delivery challenges• Strategic partnerships• Opportunities for growth and innovation• Supplier forums and events• Environmental and social impact of supply chain• Meetings, workshops, and training sessions• Responsible commercialization practices

Engaging with the finance community is key to promoting acomprehensive understanding of PMI’s unique value proposition, strategy,
and performance. Furthermore, investment decisions increasingly
integrate environmental, social, and governance (ESG) criteria, and weare confident in the business opportunity our transformation brings.

• Annual shareholder meeting• Business transformation strategy• Events and conferences• Financial and ESG performance• Earnings calls, Investor Day, and ESG webcasts• Market and industry dynamics• Presentations, reports and publications• Capital allocation• Roadshows• Governance and remuneration• ESG ratings and rankings• Sustainability priorities• On-site visits• Digital retailer interface• Financing instruments• Perception studies

Our periodic sustainability materiality
assessments provide us with valuable insights
and allow us to gauge the relevance ofdifferent topics for key stakeholder groups.

Regulators
Policymakers, intergovernmentalorganizations, regulatory bodies,
standard setters, government
authorities (including legislators),
customs organizations

Our stakeholder engagement incorporates
both structured and ad hoc interactions. Above
all, it is guided by transparency, integrity, andrespect and governed by our Guidebook
for Success and its accompanying policies(“Principles and Practices”), summarized in thisoverview of our engagement principles.

Public health community
Scientific community, academia,
researchers, public health agencies

Constructive dialogue is essential to moving
society forward. To achieve the collective
action required to solve the world’s mostpressing challenges, we must include all voices,bringing together people with differing opinions,
scrutinizing facts, and finding common groundupon which to build. Read more here on thevalue of embracing dialogue to disarm hate.

Civil society
Academia, local communities, civil society
organizations, NGOs, multistakeholder
organizations and initiatives, media

28

Dialogue with national and local governments and regulators allows us tounderstand their priorities and concerns and share our views, objectives,and scientific findings. We engage with governments, regulators, andlegislators in developing proposed legislation and regulations that may
impact a smoke-free future. The right regulation would accelerate the endof smoking, foster innovation, and minimize unintended consequences.

• Ongoing dialogue

Engaging with the public health community is of utmost importance.
By conducting our R&D with scientific rigor, sharing our findings, andasking the community to scrutinize our products and the growing bodyof scientific evidence surrounding them, we aim to engage constructively
on this topic and collectively seize the immense opportunity smokefree products present for advancing public health within the current
generation of adult smokers.

• Conferences, forums, and events• Product innovation• Reports and publications• Product health impacts• Articles and studies• Scientific research

From best practices and information exchanges to close partnerships,
engaging with civil society actors helps inform our strategy, define ourpriorities, and advance sustainable solutions to common challenges.

• Partnerships• Sustainability priorities and performance• Communication campaigns• Business transformation• Social contributions• Product innovation• Forums and events• Product health impact and access to smoke-free
products• Public consultations• Regulatory compliance• Reports and publications• Fiscal and regulatory frameworks• Trade associations• Sustainability priorities and performance• Training and presentations• Dedicated scientific website (PMIscience.com)• Online platforms for data transparency andreproducibility in science• Applications and submissions• Open dialogue

29

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

S T R AT E G Y
32Transforming for good– Our business transformation

32– PMI’s Business Transformation Metrics

34– Anchoring sustainability at the core of our strategy

38– Setting ambitions and targets

44

Our 2025 Roadmap

46

PMI Sustainability Index

47

Creating value

48

Letter from our Chief Sustainability Officer

50

Corporate governance and management

52

Risk management

56

30

31

Fundamentals

Reporting and performance

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Transforming for good
Our business transformation

We are striving to become a company
that has a net positive impact on society.

Transforming our company is not only about
substituting one product with a new one. It also
requires transforming our entire value chain, as
well as the way we engage with society. Thisrequires a holistic review and overhaul of ourentire business model and value proposition,
which brings with it new opportunities as well as
challenges throughout all aspects of our business.

This ambition starts with researching, developing,and commercializing less harmful alternatives tocigarettes for those adults who otherwise would
continue to smoke, ultimately allowing us to phaseout cigarettes and become a fully smoke-freebusiness. As a next step, we are expanding ourofferings to include products that fill critical unmet
needs within the wellness and healthcare space.

Sustainability stands at the core of PMI’stransformation and helps address some of thechallenges resulting from the transition, while spurringinnovation and better positioning the company forsuccess over the long haul. The complexity of ourstrategy comes from simultaneously managing theimpacts of two value chains—the one we are aiming tomove away from (our cigarette portfolio) and the one
we are moving towards (our smoke-free portfolio)—
while also managing the impacts of the transition itself.

To achieve our purpose, a radical transformationof our business is required. Our strategy is to
responsibly transition from a cigarette company
into a world-leading smoke-free business while
simultaneously exploring adjacent avenues ofgrowth in wellness and healthcare. Our North Star
is to create a net positive impact that benefits ourcompany, shareholders, consumers, and society.

While a transformation of this magnitude and complexity is not achieved overnight,
we are committed to making it happen as fast as possible.

Producttransformation
Innovating for
better productsInternaltransformation
A new organizationand value chain

The most visible part of our transformation is that related to our product lines.
Over the past decade and a half, we have harnessed scientific and technologicaladvances to develop alternatives to cigarettes that are scientifically
substantiated to be a better choice for adult smokers than continued smoking.
Now, while continuing to improve and expand our portfolio, we are working toraise awareness about the benefits of these products in relation to continued
smoking, which contributes to increasing access by adult smokers. In 2016,
our company established its purpose: to phase out cigarettes by replacing
them with less harmful alternatives as quickly as possible to achieve a smokefree future. With strong progress toward becoming a majority smoke-freecompany by 2025 in terms of net revenues, we are beginning to explore
adjacent avenues of growth that will take our business into wellness andhealthcare, with an eye to fulfilling unmet consumer and patient needs.

Since announcing our transformation, we have undergone a meaningful
reorganization, and helped our employees build the skills and capabilities
needed to contribute fully to our business transition, while also investing in
recruiting new talent and acquiring the capabilities needed to drive a successfultransformation. Read our case study on expanding our value creation modelhere.
We have also incorporated new ways of working to become an increasingly
digitalized, project-based organization, focused on consumer centricity, agility,and data-driven decision-making.

Product transformation portfolio
Supportingtransformation

Beyond our own operations, every step of our value chain is being transformed
to serve our company purpose. We recognize the challenges these changes
pose and are actively helping all those impacted by our transformation (in our
direct and indirect operations) to best manage the transition.

Externaltransformation

Growthpriorities

Changing the way weengage with stakeholders

Emerging
opportunities

32

The way we engage with external stakeholders is critical to achieving our
purpose. Our ability to successfully transform depends not solely on us—
working together with different parts of society, we can create a paradigm
shift where cigarettes become obsolete.
Continuous engagement also allows us to build a shared understanding ofcontingency issues, proactively respond to concerns, identify potential areasof compromise, and find solutions that are good for our stakeholders, as well
as for our business and long-term success. Read more about our stakeholder
engagement efforts here.

33

Philip Morris International – Integrated Report 2021

Overview

PMI’s Business Transformation
Metrics

R&D
Sourcing &Operations

To make our progress both measurable and verifiable,
we developed our Business Transformation
Metrics, a set of bespoke key performanceindicators (KPIs) composed of both financial andnonfinancial metrics. They showcase how we areallocating resources away from our traditional
cigarette business as we advance toward a futurein which we no longer make or sell cigarettes.

Aspirational goals linked to our BusinessTransformation Metrics give us a clear
roadmap and offer our stakeholders visibility
into the future we are working toward.

34

2020

2021

Adjusted R&D expenditure (in millions USD)¹*
Adjusted R&D expenditure ratio (smoke-free/total)¹*
Number of R&D positions (FTEs)²
Patents granted in IP5 jurisdictions relating tosmoke-free products (cumulative, since 2015)³
Number of studies completed by PMI on smokefree products (cumulative, since 2015)
Toxicological assessment
Clinical assessment
Perception and behavior (premarket and post-market)

423
70%
n/a

465
98%
942

495
99%
934

566
99%
981

n/a

740

1,300

1,770

n/a
n/a
n/a

109
19
13 (9 + 4)

146
22
30 (15 + 15)

203
24
44 (25 + 19)

Supply chain direct spend expenditure ratio (smoke-free/total)⁴
Cumulative investment behind smoke-free
products (since 2008, in billions USD)⁵
Number of factories producing smoke-free
products out of total number of factories⁶*

n/a

35%

33%

35%

2.4

7.2

8.1

9.2

2 out of 48

8 out of 38

8 out of 39

8 out of 38

n/a
n/a
3%

(6%)
26%
10%

(5%)
38%
14%

3%
42%
18%

7

52

64

71

100

33%
n/a

35%
199

41%
259

43%
274

>50%

n/a
8%
1
881

679
71%
60
732

748
76%
76
654

812
73%
95
650

>250
<550

n/a
0.1%

(17.0%)
7.6%(25.8%)
10.4%(26.3%)
12.8%~(40%)
>30%

0.2

13.5

18.3

21.7

0.1

9.6

13.0

15.3

>40

0.2%

18.7%

23.8%

29.1%

>50%

0

31

38

47

0

4

6

10

n/a

n/a

n/a

0.1

Year-on-year change in number of
SKUs—combustible products⁷
Year-on-year change in number of SKUs—smoke-free products⁷
SKUs ratio (smoke-free/total)
Number of markets where smoke-free
products are available for sale⁸*
Proportion of markets where smoke-free products areavailable for sale that are low- and middle-income markets⁹*
Number of IQOS stores¹⁰
Number of retailers that sell PMI smoke-free
product consumables (in thousands)
Commercial (marketing) expenditure ratio (smoke-free/total)*
Smoke-free product shipment volume (billion units)*
Combustible product shipment volume (billion units)*
Change in combustible product shipment
volume (billion units) vs. 2015 baseline¹¹*
Smoke-free product shipment ratio (smoke-free/total)¹¹*

Adjusted net revenues ratio (smoke-free/total)¹³*
Number of markets where adjusted net revenues from smokefree products exceed 10% of adjusted total net revenues¹³*
Number of markets where adjusted net revenues from smokefree products exceed 50% of adjusted total net revenues¹³*
Annual net revenue from wellness andhealthcare products (in billions USD)*

In 2022, we plan to evaluate our published targets
to ensure they remain ambitious, reasonable, andachievable, in the context of a dynamic and evolving
smoke-free industry. In particular, we will accountfor the learnings that we have gathered since settingsome of these aspirations in the early stages of oursmoke-free journey. We will also assess and reflect
the impact of recent external factors—including
the COVID-19 pandemic and Russia’s invasion of
Ukraine, where applicable. We intend to communicate
any related changes within the next year.

Notes:

Reporting and performance

2019

Total number of users of PMI smokefree products (in millions)¹²*
Estimated number of users who have switched to PMI
smoke-free products and stopped smoking (in millions)¹²*

Looking ahead

Fundamentals

2015
Baseline

Consumers

Commercialization

By 2025, we aim to become a predominantly smokefree company, generating more than 50 percent
of our total net revenues from non-combustible
products. Within the same time horizon, we aspireto grow our annual smoke-free shipment volume
to over 250 billion units, while simultaneously
decreasing our combustible product shipment volume
to below 550 billion units. This means we aspire
for smoke-free products to represent more than
30 percent of our total shipment volume by 2025,
and for our combustible product shipment volume
to decrease by around 40 percent by 2025 versus
a 2015 baseline. We also aim for our smoke-free
products to be available for sale in 100 markets by
2025, with more than 50 percent of these being
low- and middle-income markets, and for at least 40
million adults to switch to them and stop smoking.
Finally, we introduced in 2021 a new aspiration to
generate at least USD 1 billion in annual net revenues
from wellness and healthcare products by 2025.

PLACEHOLDER IMAGE

Operational impact

Revenues

By reporting periodically on these KPIs, we enable
external scrutiny and allow our stakeholders to assess
both the pace and scale of our transformation. Overthe years, in response to stakeholder feedback, wehave significantly expanded the number of metrics
to increase transparency and clarity about ourprogress. We review them periodically to ensure
we continue reporting on meaningful indicators.
In 2021, we evolved our reporting efforts tobroaden access to smoke-free products worldwide,
by introducing an indicator on the number oflow- and middle- income markets where smokefree products are available for sale, replacing ourprevious reporting on non-OECD markets.

Product impact

Business Transformation Metrics

Although year-on-year progress is important tomonitor and disclose, sometimes the magnitude of thepace and scale of our progress is lost. Because of that,
we have introduced a baseline approach, whereby
we can highlight to our stakeholders the sizable
cumulative progress that we have made to date. Pretransformation (in 2015), our combustible productvolume totaled 881 billion units, or 99.9 percent of
our shipment volume ratio, and, since then it has
declined by 26 percent. Over the same period, oursmoke-free shipment volume increased from 1 billion
units to more than 95 billion units and represented
12.8 percent of our shipment volume in 2021.

We realize that business transformation is avery company-specific journey, which ESG
reporting standards do not properly capture.

Strategy2025
Aspirations≥1

6	Data reflect the number of factories operated and owned by PMI at the end of the respective
year. Number of factories fully or partially dedicated to smoke-free products includes sevenfactories related to heated tobacco unit production and one factory related to e-vapor
consumables production. 2021 figures exclude one factory dedicated to wellness andhealthcare products owned by Fertin.
7	SKUs stands for stock-keeping units. References to the number of SKUs are based on the latest
available data and categorization of our product portfolio into SKUs, therefore minor
restatements in previous years’ data is reflected. The figures exclude China and the U.S.
8 Data reflect the status by the end of respective year. 2021 data excludes Belarus and the U.S.
9 Excluding PMI Duty Free. Data reflect the status by the end of respective year. 2021 data
excludes Belarus and the U.S. For definition of low- and middle-income markets, see glossary.
10 Includes flagship stores and small, large, and temporary boutiques.
11 These indicators are calculated based on millions of units.
12 These metrics are excluding PMI Duty Free and reflect the estimated number of legal age(minimum 18 years) users of PMI IQOS heat-not-burn product (see glossary). In 2021, weevolved our methodology to estimate the total number of users of PMI smoke-free products, inorder to better reflect the number of users for which PMI HTU represented at least a portion of
their daily tobacco consumption over the past seven days. 2020 data was restated accordingly.
Unavailability of sufficiently granular data did not enable us to restate figures for years prior to2020. We also fine-tuned our methodology to estimate the number of users who have switched
to PMI smoke-free products and stopped smoking, in order to reflect the conversion rate of our
total user base at year-end, and restated 2020 data accordingly.
13 Data reflect the status by the end of respective year. 2021 adjusted net revenues exclude theimpact related to the Saudi Arabia customs assessments. 2021 revenues from wellness andhealthcare (USD 101 million) are included in both smoke-free and total adjusted net revenues.
See glossary.

The 2021 metrics marked with an asterisk (*) are subject to PwC’s Assurance Report(see page 245).

Smoke-free products include heated tobacco units, e-cigarettes, snus, and nicotine pouches. Total
products include smoke-free products, cigarettes, and other combustible products.
In 2022, we plan to evaluate our published targets to ensure they remain ambitious, reasonable, andachievable in the context of a dynamic and evolving smoke-free industry. See page 34.
1

R&D expenditure in wellness and healthcare is included in both smoke-free and total R&D
expenditures. Adjusted R&D expenditure excludes asset acquisition cost related to OtiTopic,
Inc. in 2021. Total reported R&D expenditure in 2021 including these items amounted to USD
617 million.
2	R&D positions include scientists, engineers, technicians, and support staff. Comparable data foryears prior to 2018 are not available as the scope of R&D positions changed following company
organizational changes.
3	IP5 jurisdictions are Europe (patents granted by the European Patent Office), China, South
Korea, Japan, and the U.S.
4	Direct spend focuses on materials used in the manufacture of our products; it includes tobacco
leaf, direct materials, and electronic devices and accessories.
5	Investments reflect research, product and commercial development, production capacity,
scientific substantiation, and studies on adult smoker understanding. Figure does not includecommercial deployment costs.

35

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Our value chain transformation
SOURCING

We were2015

OPER ATIONS>350,000

Tobacco farmers contracted
by PMI and our suppliers in

28 Countries

2 /48

Factories partially or fully
dedicated to manufacturingsmoke-free products

COMMERCIALIZATION

USD
423 m
Adjusted R&D expenditure70%

Of adjusted R&D expenditure
related to smoke-free products

7

Markets where PMI
smoke-free products
are available for sale

CONSUMERS & REVENUES

0.1%

0.2 m

Of total shipment volume related
to smoke-free products

Users of PMI
smoke-free products

0.2%

Of net revenues fromsmoke-free products

1 bn units smoke-free

product shipment volume

881 bn units combustible
product shipment volume

1

Smoke-free electronic
product commercialized

Reallocating R&D expenditure towards
smoke-free product innovation and scientificcapabilities, while reorienting manufacturing
toward smoke-free products

Transitioning from a mainly agricultural
supply chain to an increasingly diversified
one, including electronics sourcing

We are>250,000

Tobacco farmers contracted
by PMI and our suppliers in

21 Countries

8/38

Factories partially or fully
dedicated to manufacturingsmoke-free products

2021

USD
566 m
Adjusted R&D expenditure99%

Of adjusted R&D expenditure
related to smoke-free products

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

Moving from B2B to a consumer-centricmodel to commercialize smoke-free products

71

Markets where PMI
smoke-free products
are available for sale

12.8%

21.7 mOf total shipment volume related
to smoke-free products

Users of PMI smokefree products, of whom15.3 m are estimatedto have switched andstopped smoking

95 bn units smoke-free

product shipment volume

650 bn units combustible

29.1%

Of adjusted net revenues
from smoke-free products

product shipment volume

10

35%
Of direct supply chain
spend related tosmoke-free products

We will be
2025 aspirations

100

Markets where PMI
smoke-free products
are available for sale

62,000

Smoke-free devices andover 40 taste variants for
PMI heated tobacco units>50%

Markets where PMI
smoke-free products areavailable for sale that are
low-and middle- income<550

Combustible productshipment volume(bn units)>250

Smoke-free productshipment volume(bn units)>30%

Smoke-free productshipment ratio(smoke-free/total)~40%

Reduction in combustible
product shipment
volume v 2015

Electronic smoke-freedevices refreshedor repaired≥USD 1 bn >50%
Net revenues from wellness& healthcare products

Note: In 2022, we plan to evaluate our published targets to ensure they remain ambitious, reasonable, and achievable, in the context of a dynamic and evolving smoke-free industry. We intend to develop
a new 2025 aspiration related to the total number of users of PMI smoke-free products. See page 35 for complete Business Transformation metrics and 2025 aspirations with accompanying footnotes.

36

37

Adjusted net revenues
from smoke-free products>40 m

Estimated number of users who
have switched to PMI smoke-free
products & stopped smoking

Philip Morris International – Integrated Report 2021

Overview

Anchoring sustainability
at the core of our strategy

We dedicated much of 2021 to strengthening
and fine-tuning our approach to sustainability andfurthering its integration across our company. We
describe in this section our recent sustainability
materiality assessment, our revamped ESG
framework, sustainability strategy, and 2025
Roadmap. We also include details about our
new Sustainability Index and accompanying
ESG KPI Protocol. We expect these instruments
to guide our work and add sophistication to
our strategy, performance, and disclosures.

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

Strategy

Product impact

Operational impact

The right focus

2. Gathering stakeholder perspectives
Collecting the perspectives of our stakeholders
through in-depth interviews and a quantitative survey
3. Assessing outward impacts
Evaluating PMI’s impact on society and theplanet at various stages of our value chain
4. Assessing inward impacts
Evaluating the potential impacts of ESG
topics on our company’s performance
5. Identifying our most material ESG topics
Building the materiality matrix, based on
feedback from our stakeholders and the resultsof our impact assessments, and identifying
those areas on which we should focus

2
3

Purpose, Value,& Impact

Technology,
Innovation &GrowthOperational& Resource
Efficiency

Mitigating
Risk &
Compliance

Reporting and performance

1. Identifying ESG topics
Identifying all potentially relevant ESG topics
and compiling them in a long list of 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, weare able to keep pace with external and internal
developments and ensure our strategy addresses
those areas in which we can have the mostsignificant impact. Our 2021 sustainability materiality
assessment, conducted in the second half of theyear, helped identify those ESG topics that weshould focus on. In line with the principle of double
materiality, it consisted of a five-pronged approachthat included evaluating both outward and inward
impacts and considering stakeholder expectations.

1

Fundamentals

5

4
Valuing impacts
We leveraged insights gathered during our firstpilot of the VBA methodology conducted in 2020
to feed into our recent sustainability materiality
assessment and inform the evaluation of ourcompany’s impacts on society and the planet(“outward impacts”). At the end of 2021, westarted piloting the second version of the VBA
methodology with a set of seven environmental,social, and economic topics covering companies’
operations and upstream supply chains.

In support of the creation of a global impact
measurement and valuation standard monetizing
and disclosing impacts of corporate activities,
PMI joined other companies in 2019 to co-foundthe Value Balancing Alliance (VBA), a nonprofit
organization. Impact valuation can help companies
identify, understand, improve, and demonstrate thebenefits and costs of their activities to society andthe environment, translated into monetary terms.
Traditional reporting

Impact measurement and valuation

$
Input

OutputOutcome

ImpactValue of impact

What resources
have been used
for businessactivities?

What activities
have been
undertaken?

What changed
as a resultof the businessactivities?

How does theoutcome affectsociety?

How do people
value the change
in well-being due
to the impact?

Note: Visual adapted from Value Balancing Alliance, Methodology Impact Statement General Paper, Version 0.1 (February 2021).

38

39

Philip Morris International – Integrated Report 2021

Overview

To appropriately reflect the results of our recent
sustainability materiality analysis, we redesigned our
ESG framework to better showcase the ESG topics
we should focus on and prioritize our resources. 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 thoserelated to our business operations (how we produce),which are part of the “Operational Impact” pillar.
We subsequently classified each issue, based on its
environmental, social, or governance-related nature.

In the below visual, those topics that require oururgent attention and prioritization are highlighted
in the most brightly colored boxes. These priority
topics include all topics related to the ProductImpact pillar: materials and product eco-design;
post-consumer waste; product health impact;
sales, marketing, and consumer communications;innovation in wellness and healthcare; responsible
R&D; product reliability; and nicotine science. Ourpriority topics pertaining to our Operational
Impact pillar include climate; water; biodiversity;
diversity and inclusion; socioeconomic well-beingof tobacco-farming communities; human capitaldevelopment; business integrity; respect forhuman rights; and sustainable supply chain
management.

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

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

40

Product impact

Operational impact

Our sustainability strategy

Priority topics

We provide details on the methodology andresults of our assessment, as well as on our
updated ESG framework, in our Sustainability
Materiality Assessment Report 2021.

Strategy

Fundamentals

Reporting and performance

The biggest and most pressing negative
externality our strategy aims to address is thehealth impacts of cigarette smoking. This is themost important contribution we can make topublic health and is the cornerstone of PMI’s
purpose and business strategy. Addressing thiscritical issue requires a three-part approach:Our approach to sustainability focuses ondeveloping strategies that can successfully address
the environmental, social, and governance topics
identified as a priority by our sustainability materiality
assessment. Accordingly, our strategy crystallizes
the notion of these two distinct forms of social andenvironmental impacts—those generated by our
products (what we produce) and those generated
by our business operations (how we produce).

1. Develop better alternatives to smoking
Research, develop, and commercialize scientifically
substantiated nicotine-containing productsthat are less harmful than cigarettes

This approach allows us to appropriately highlight
that, consistent with our sustainability materiality
analysis results, addressing the social impacts
generated by our products is the core of our strategy.
These are the areas on which we must focus ourresources, to innovate and develop solutions that cancontribute to solving some of society’s most pressing
challenges. This also represents an opportunity for
growth and our strongest competitive advantage.

2. Accelerate smoking decline
Provide broad access to adult smokers, who otherwise
would not quit smoking, to ensure these products
accelerate the decline of smoking prevalence
3. Make cigarettes obsolete
Purposefully work to ensure these products ultimately
replace cigarettes, driving their obsolescence41

Philip Morris International – Integrated Report 2021

Overview

In parallel, we must responsibly manage the impactsof our company’s operations throughout the value
chain. From a social standpoint, this includes ensuring
fair treatment and empowerment of our employees
and improving the lives of people across our supply
chain. On the environmental front, this means tacklingclimate change and preserving natural ecosystems.

Despite its critical importance, achieving asmoke-free future is not our final horizon. We are
simultaneously exploring adjacent opportunities
for growth in wellness and healthcare, leveraging
the capabilities we have accrued and developed
while transforming our business. It is throughthese avenues of growth that we will achieve ourultimate goal: becoming a business that has a net
positive impact on society and the environment.

As a result, our approach to sustainability addresses
our ESG priorities through eight impact-driven
strategies. Four of these strategies focus on theimpacts derived from our products and the remaining
four strategies focus on the impacts derived fromour business operations. Last, but not least, ourstrategy highlights the importance of governancerelated topics, which cannot be overstated. Our
company’s policies, rules, and procedures define
our ability to implement sound strategies thatsuccessfully address environmental and social issues.

Our comprehensive strategy also recognizes theneed to address other ESG issues related to our
products and business operations. As we accelerate
our transition from cigarettes to smoke-free products,
we must also minimize any adverse effects of our
products on the planet. Our efforts in this area
include striving to design our products in a way that
optimizes the use of materials and improves circularity,
as well as appropriately managing their end-of-life
to minimize negative environmental impacts.

Strategy

Product impact

Operational impact

Reporting and performance

Connectivity and trade-offs between ESG topics
Sustainability challenges do not exist in a
vacuum. They are often linked, and theirinterdependencies—including the direction of
causality and magnitude—must be considered
as we craft appropriate strategies and develop
programs to address our company’s impacts.

While this consequence is fully intended, it also
necessarily translates into a gradual decreasein demand for tobacco leaf, which will have an
undeniable impact on our contracted farmers.
We seek to minimize the negative effects
by improving the socioeconomic wellbeing and resilience of tobacco-farming
communities (read more here).

We seek solutions that are mutually reinforcing.
For instance, our approach to carbon
compensation—supported by our portfolio ofclimate investments (read more here)—favors
nature-based solutions in our supply chain thatremove carbon by restoring and enhancing plants
and the ecosystem while also providing benefits inthe areas of biodiversity, water, and social impact.

Given the multifaceted and complex natureof sustainable development, trade-offs
are inherent to decision-making. In somecircumstances, we are compelled to makesacrifices in one sustainability area to obtainbenefits in another, at least for a period.

In other instances, addressing a particular topic may
limit how we tackle another. For example, the coreof our smoke-free strategy is to raise awarenessof smoke-free products among adult smokers andbroaden access to them. In doing so, however, it
is critical that we limit our initiatives to minimize
the risk that our messages will reach unintended
audiences—namely, nonsmokers and youth.

In designing our strategies and programs, it isvital that we accurately analyze, comprehend,
and account for situations of forced compromise,guided by our sustainability materiality assessment.
Incorporating three lenses (stakeholder
perspectives, outward impacts, and inward
impacts), our sustainability materiality assessment
serves as a compass with which to calibrate
and prioritize competing ESG issues. Whenappropriately addressed, some trade-offs can be asource of innovation, as such compromises press us
to come up with novel ways to address the tensions
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 make progress.

Necessary trade-offs such as this often occur
in the course of our business transformation.
For instance, the manufacturing processes ofsmoke-free consumables are more resourceintensive than for cigarettes—a circumstancethat runs counter to our energy and water
conservation efforts in our direct operations.
We are tackling this challenge and improving
operational efficiency to mitigate and reverse this
impact (read more here). As another example, thegrowth of our smoke-free business will result in asimultaneous decline of our cigarette business.

42

Fundamentals

43

Philip Morris International – Integrated Report 2021

Overview

Setting ambitions and targets

The result is a revamped 2025 Roadmap. Whilemost goals are not new, they are formulated moreclearly. Our roadmap now consists of 11 criticalobjectives connected to our eight strategies. This
revamped guide offers straightforward direction
to our stakeholders by clearly outlining the socialand environmental impacts we aim to achieve withboth our products and our business operations.

Progress requires clearly articulated targets
and accountability for meeting them.
Measuring and reporting on progress is a backwardlooking exercise. To evaluate the effectiveness of
our approach to sustainability and give clarity toboth internal and external stakeholders, setting
clear targets is paramount. It allows us to define ourdirection, align on definitions and measurements ofsuccess, and hold ourselves accountable for progress.

To link each goal to specific outcomes and impacts,
we developed a set of KPIs that precisely articulate
how to measure progress and define success. These
19 KPIs constitute our Sustainability Index. Covering
the full spectrum of our sustainability priorities, theindex will allow PMI and our stakeholders to track thecompany’s progress toward its goals year-over-year.

When we introduced our 2025 Roadmap in our
first Integrated Report (2019), we did not yet haveclarity on precisely how we would achieve theseambitions. Our recent materiality assessment
and revamped ESG framework, together withthe lessons learned from years of program
implementation, prompted us in 2021 to cast a
critical eye on our current aspirations and targets.

In parallel, to increase the robustness of ournonfinancial performance data and disclosures,
we developed a consolidated set of nonfinancial
standards: PMI’s ESG KPI Protocol. The Protocol
includes the definition, methodology, andscope of each of our main ESG KPIs to ensure
measurable, verifiable, consistent, and accurate
reporting on progress. We will make theProtocol publicly available over the summer.

As a result, we reassessed and redefined ourroadmap. The intention was twofold: First, we wanted
to ensure our roadmap was comprehensive, coherent,
and consistent with our new strategy (based on oursustainability materiality results and ESG framework);
and second, we wanted to evolve our approach totarget-setting and ensure our goals are connected to
impact, not merely to strategic inputs. In some cases,
this has led us to restate our goals to ensure that they
are meaningful and viable, while remaining ambitious.

2 pillarsof impact

H OW W E
S T RU C T U R E D
OURS T R AT EG Y

3 typesof issue8
strategies

11
goals

19 metrics tomeasure progress

E
PRODUCT

OPER ATIONAL

S

2025
Roadmap

Sustainability
Index SI
19 KPIs

Strategy

Product impact

Operational impact

Our 2025 Roadmap

Reporting and performance

To form the Sustainability Index,
we sought KPIs that were:

Our roadmap outlines our key goals
and informs the route of our company’s
long-term plan.

• Well defined, allowing for accurate, reliable, andconsistent measurement of progress over time
• Meaningful, enabling stakeholders toassess our company’s progress towards
its priority sustainability topics

PMI’s revised 2025 Roadmap comprises
11 headline goals, running to the end of2025, connected to our eight strategies.

This required us to revise certain KPIs included
in our former sustainability disclosures. Further,
applying these criteria led us to introduce new,more relevant indicators for inclusion in the index.

We believe business can and must help to achieve
the Sustainable Development Goals (SDGs) adopted
by the United Nations’ member states in 2015.
Accordingly, we explicitly link each of our eightpriority areas of action to the SDG(s) to which italigns. We identified the SDGs on which we believe
we can have a real and lasting impact (read more
about our SDG mapping in our 2021 Sustainability
Materiality Report). Our SDG Index maps the actions
and ambitions described throughout this report withthe relevant SDGs and their respective targets.

We have defined annual targets and performance
ranges from 2022 to 2025 for each KPI in our
Sustainability Index. On an annual basis, using thesepredefined target ranges, we will assess and award ascore to each KPI. Thereafter, using a weight assigned
to each KPI, the total Sustainability Index score will
be calculated on a scale from 0 to 150 percent, witha target between 90 and 110 percent every year.

PMI Sustainability Index

The weighting applied to each KPI is informed by the
results of our sustainability materiality assessment.
Specifically, we attributed the highest weight to thesocial impacts of our products, where we believe
our company can have the greatest impact.

Progress on our roadmap is measured witha set of key performance indicators thatcollectively form our Sustainability Index.
During 2021, we developed PMI’s Sustainability Index
to measure and communicate progress against ouraspirations in a rigorous and quantitative manner,using a set of clearly defined and verifiable metrics.
To better align with shareholder and other stakeholderinterests, the introduction of this index has allowed
the Compensation and Leadership Development
Committee of PMI’s Board of Directors to enhance
the company’s compensation practices, explicitly
linking them to sustainability and further ensuring
a strong link between executive compensationand ESG performance (read more here).

Looking ahead
During 2022, we intend to develop a new 2025
aspiration related to the total number of users of PMI
smoke-free products. Given the dynamic and evolving
smoke-free industry, coupled with the potential
impact of the Russian invasion of Ukraine (discussed
on page 3 of this report) and its potential effects on
our business over the mid to long term, which remain
uncertain, we are working to refine this ambition
and intend to communicate it within the next year.
To better reflect our priorities, as defined by ourmateriality analysis, we also intend to introduce
two new KPIs to the index, incorporating theincreasing relevance of water and biodiversity.

PMI’s Sustainability Index comprises 19 KPIs
that are directly linked to our 11 roadmap goals.
As with our roadmap, we have split the 19 KPIs
according to two drivers: “Product Sustainability”(11 KPIs) and “Operational Sustainability” (8 KPIs).

G

44

Fundamentals

45

Philip Morris International – Integrated Report 2021

Overview

Our 2025 Roadmap

PMI Sustainability Index
Priority ESG topics
and primary SDGs

Purposefully
phase out
cigarettes

1

Maximize thebenefits ofsmoke-free
products

2

3

I M PAC T

PRODUCT

Goals

Seek net
positive impact
in wellness andhealthcare

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

Reduce postconsumer waste

45

Intentionally work toward phasing out cigarettes
Product health impact
by ensuring that smoke-free products represent atleast 30% of our shipment volumes and more thanhalf of our net revenues by 2025 while continuing
to reduce our combustible shipment volume
Develop and commercialize science-basedsmoke-free alternatives, making them available
in 100 markets (of which at least half in lowand middle-income markets) and continuing toincrease the total number of users

Product health impact;
Sales, marketing,and consumer communications

 eploy robust youth access prevention programsD
in indirect retail channels and ensure that salesof our products abide by our Marketing Codes
Leverage scientific and development capabilities
to generate at least USD 1 billion in annual net
revenues from products in wellness andhealthcare

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

Innovation in wellness andhealthcare

Materials and product eco-design;
Post-consumer waste

6 ollow eco-design and circularity principles for allFsmoke-free electronic devices

Foster anempoweredand inclusive
workplace7

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

Diversity and inclusion;
Human capital development

Improve thequality of lifeof people in our
supply chain8

 radicate systemic child labor in our tobaccoEsupply chain

Socioeconomic well-being of
tobacco-farming communities

Tackle climatechange91011Promote biodiversity, address critical water
challenges, ensure no conversion of natural
ecosystems, and halt deforestation in both ourtobacco and pulp and paper supply chains

Fundamentals

Reporting and performance2021
performance2025
aspirations

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

12.8%

>30%

2

Smoke-free product adjusted net
revenue ratio (smoke-free/total)

29.1%

>50%

3

Number of markets where PMI smokefree products are available for sale

71

100

Proportion of markets where PMI smokefree products are available for sale thatare low- and middle-income markets

43%

4

>50%

5

Total number of users of PMI’s smokefree products (in millions)1

21.7

6

Proportion of shipment volume covered bymarkets with youth access prevention programsin place in indirect retail channels.

91%

>90%

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

0.1

≥1

7

8

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

n/a

≥80%

Proportion of shipment volume covered bymarkets with end-of-life take-back programsin place for smoke-free consumables

9 pilots

9

≥80%

n/a

100%

62

1,000

On track

Progress further than anticipated46

Contribution
to total
index score

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

15%

Product Sustainability

100%
31.1%

35%

n/a

70%

5

10

Prevalence of child labor among contracted
farmers supplying tobacco to PMI

1.8%

0%

16

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

67%

100%

17

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

357

0

18

Absolute carbon emissions reduction in scope 3 versus
2019 baseline (in line with science-based target)

17%

25%

Proportion of tobacco purchased at no riskof deforestation of managed natural forest
and no conversion of natural ecosystems

37%

12

Proportion of women in senior roles

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 addressed

15

67%

50%

50%

100%

100%

Operational Sustainability

33%
100%

SUSTAINABILITY INDEXProgress with challenges

KPI
weight85%

Proportion of PMI smoke-free devices
10with eco-design certification

ClimateBiodiversity; Water

Operational impact

1

19

Preserve
natureProduct impact

Key performance indicators

11

 nsure all contracted tobacco farmers make aEliving income, and partner with our direct suppliers
to promote a living wage for their workers
Achieve carbon neutrality in our operations andaccelerate our decarbonization toward net zeroacross our value chain

Progress
in 2021

Strategy

1 During 2022, we intend to develop a new 2025 aspiration related to the total number of users of PMI smoke-free products. See page 45.

47

Philip Morris International – Integrated Report 2021

Overview

Creating value

We harness our purpose and strategy to create value for our stakeholders through the deliberate
allocation of our human, intellectual, natural, manufactured, social, and financial capital.
Key activities

Resources and relationships

Our mission

Human

Strategy

Product impact

Operational impact

Human

Natural• Reached a total of 21.7 million users of PMI smoke-free
products, of whom an estimated 15.3 million havestopped smoking and switched• Reduced total value chain CO2e emissions (scope 1+2+3) by
18% and emissions from direct operations (scope 1+2) by
33% versus 2019 baseline• Reduced prevalence of child labor among contracted
farmers supplying tobacco to PMI from 3.5% in 2020 to1.8% in 2021, of which 99% of identified cases havebeen resolved• Maintained 100% of tobacco purchased at no risk of
deforestation of primary and protected forests

Seek net positive impact as we
accelerate the end of smoking andevolve into a broader lifestyle, consumer
wellness, and healthcare company.

Intellectual

What we doInnovation is the backbone of our business transformation. We invested
USD 566 million in adjusted R&D expenditures in 2021, of which 99 percent
was dedicated to smoke-free products. Innovation also guides improvements
in our processes, from sourcing to manufacturing, logistics, and sales.

Transition away from a cigarette company intoa world-leading smoke-free business while
simultaneously exploring adjacent avenues of growth.

• Fostered a living income amongst contracted farmers
supplying tobacco to PMI (achieving 67%, up from 48%
in 2020) and a minimum wage for tobacco farmworkers(achieving 95%, up from 65% in 2020)

How we do it• Completed five in-depth human rights impact
assessments since 2018, and ongoing monitoring andimplementation of action plans

In 2021, we sourced 291,361 tons of packed tobacco, a material vital to our
products. Beyond tobacco, we use several other raw materials and natural
resources such as timber-based products, metals, water, and energy to produce
our products. We seek to use these efficiently and to source them sustainably.

Manufactured
Our assets—such as our two main R&D centers, 38 factories, morethan 22,000 vehicles, 36 consumer call centers, and 274 IQOS
stores—allow us to develop, manufacture, deliver, and commercialize
our products to meet the demands of our consumers.

SocialBuilding trust with our stakeholders is essential. We develop and sustain
relationships with a network of more than 22,000 suppliers, 253,813
contracted tobacco farmers, around 130 million adult consumers of ourcigarette brands, and over 21 million users of our smoke-free products. Our
relationships also extend to the retailers of our products, the communities
in which we operate, government officials and regulators, nongovernmentalorganizations, and the multistakeholder initiatives in which we participate.

Financial
Our business activities require financial capital, which we strive toallocate efficiently to optimize value and drive sustainable growth. The
capital is provided by our equity and debt holders, as well as by the cash
flow generated by our operations. Our company’s market capitalization
as of December 31, 2021, was approximately USD 148 billion, andPMI’s debt was USD 27.8 billion. At that time, PMI’s long-term credit
was rated A by Standard & Poor’s and Fitch and A2 by Moody’s.

While PMI’s presence in different markets
takes diverse forms, the key activities
and drivers on which PMI operates
around the world include:• Ownership and licensing oftrademarks and intellectual property:Intellectual property allows PMI todifferentiate its offerings from thecompetition, and is key to communicatingproduct information to the consumer,
including meeting consumer needs,
such as the quality, taste, image,and value of the product.
• Product manufacturing:
The manufacturing of PMI products
involves different stages, from the sourcingof tobacco leaf and other materials, aswell as smoke-free electronic devices,to the production process for cigarettes
and smoke-free consumables.
• Commercialization(marketing and distribution):Once products are manufactured
under the relevant trademarks, they arecommercialized in different geographies
through various activities, including
distribution, marketing, merchandising,trade, and consumer engagement.

• Optimized 437,915 cubic meters of water in our tobacco
supply chain• Achieved virtually zero waste to landfill from ourmanufacturing sites globally

Manufactured• Expanded smoke-free product portfolio, commercializing 10
different smoke-free heat-not-burn and e-vapor devices andover 900 smoke-free consumable stock-keeping units tomeet the needs and preferences of various consumers• Maintained high proportion of our shipment volume(91%) covered by youth access prevention programs inindirect retail channels• Extended presence, with 71 markets where PMI smoke-free
products are available for purchase, among which 43% arein low- and middle-income markets• Introduced an aspiration to expand PMI’s lifelong learning
program across the organization, initially deployed in our
Operations function

Social• Purchased 98% of tobacco through direct contracts by PMI
and our tobacco suppliers, enabling implementation andmonitoring of PMI’s Good Agricultural Practices• Improved representation of women in management
positions to 39.7% (up from 37.7% in 2020), and set abaseline to measure inclusion among PMI employees• Increased the proportion of critical supplier spend sourced
sustainably to 83% in 2021

Intellectual• Expanded employee resource groups, in partnership withexternal subject matter experts, for employees to connect
based on shared characteristics or life experiences• Launched major new innovation in heat-not-burn, IQOSILUMA, with product advancements addressing consumer
pain points (read more about the 30 years of innovation
behind our leading heated tobacco product here)

Financial• Reached 1,770 patents granted in PI5 jurisdictions
relating to smoke-free products• Derived 29.1 percent of our annual adjusted net revenues
from smoke-free products, out of total adjusted net
revenues of USD 31.7 billion• Published 452 scientific publications since 2008 to share
our methods and findings• Reported USD 2.7 billion in corporate income taxes• Completed 203 toxicological assessment studies, 24
clinical assessment studies, and 44 perception andbehavior studies on smoke-free products since 2015

C A S E S TU DY

Impact of PMI’s expansion inwellness and healthcare on
different forms of capital• USD 76.8 billion in total excise tax paid by consumers on
PMI products• USD 5.00 annualized dividend based on a quarterly dividendof USD 1.25/share, declared September 15, 2021; 14th
consecutive year with a dividend increase since becoming apublic company in 2008

Although PMI’s transformation journey started with a vision centered on thecritical mission of phasing out cigarettes, this is not its sole and ultimate end
goal. PMI is now actively working to expand its purpose and evolve into a
broader lifestyle, consumer wellness and healthcare company, extending its
value proposition and innovative capability to commercialize products that go
beyond tobacco and nicotine. Read the dedicated case study on PMI.com.

Note: Presentation of information in this visual is informed by the Integrated Reporting Framework of the Value Reporting Foundation.

48

Reporting and performance

Value created

Our success depends on the dedication, talent, and consumer-centricfocus of our employees. As of year-end 2021, we directly employed
68,547 people worldwide. 133 nationalities were represented within
our workforce, and 42.2 percent of our employees were women.

Natural

Fundamentals

49

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Letter from our Chief Sustainability Officer:
Measuring what matters
We dedicated much of 2021 tostrengthening our governance and better
integrating sustainability into our corporate
strategy. Our new sustainability materiality
assessment helped us identify, prioritize,calibrate, and define the ESG topics to focus
on. The results allowed us to revamp our
ESG framework, categorize topics according
to their environmental, social, or governancenature, and introduce two pillars: ourproducts and our business operations.

As sustainability matures and gains importanceinside and outside our company, the question of
how to measure ESG performance is something
many continue to grapple with. We have longexpressed our support for more rigor in sustainabilityrelated reporting and disclosures—and not just forcompanies, but also for ESG ratings and related
products. There is a need for greater transparency,
more robust methodologies, and better clarity on
definitions and assumptions. We certainly welcome
recent developments leading to more consistency instandards under strong governance frameworks.

Besides having a framework that clearly organizes
ESG issues, we introduced a new format thathelps us convey our approach to sustainability.
More concretely, this new format showcases how
these ESG topics are organized and become inputs
to a strategy that aims to be impact-driven.

Accordingly, 2021 was a year when we also focusedon developing a clear and accepted process forestablishing concrete definitions, documentation,and controls for sustainability with the aim ofstandardizing how we measure ESG performance.
Taken together, these standards make up our ESG
KPI Protocol, which brings structure to the processof defining success, concrete measurements ofprogress, and clear governance and accountability
structures, and will be published later in 2022.

Addressing the impacts of our products remains
at the core of our strategy. We, of course, start byfocusing on their health impacts. Beyond that, wehave established a clear distinction between theenvironmental and social impacts that derive fromour products (what we produce) and the impacts
that derive from our business operations (how we
produce). In addition, we have made corporate
governance an all-encompassing componentof our strategy, recognizing its importance inembedding sustainability into corporate strategy.

“PMI employees are the heart,soul, and primary driver ofchange within our company.
They are the ones building aculture that embraces
sustainability and a community
conscious of its impacts.”

Framing these different impacts and their origins
in this way crystallizes both our inputs and desired
outcomes, bringing clarity to our organization interms of how best to allocate resources and integratesustainability into our ways of working. We hope
it will also help external stakeholders understandour approach to sustainability from an impact
perspective. This approach is composed of eight
impact-driven strategies and intrinsically connected
to our 2025 Roadmap, which communicates ourambitious vision through a set of 11 headline goals.

We believe that relying on a bespoke index, as
opposed to relative external indices, will allow PMI
to align its resource allocation and efforts moreconsistently and strategically with its most material
ESG topics. PMI’s Sustainability Index consists of
19 KPIs, which measure progress toward the 11
goals in our 2025 Roadmap. We aim to continuously
improve our performance and drive material andmeasurable progress—all communicated throughopen and clear reporting and disclosure.
Having an overarching global sustainability
strategy is as important as ensuring it is cascaded
down to our markets—PMI employees are
the heart, soul, and primary driver of change
within our company. They are the ones building
a culture that embraces sustainability anda community conscious of its impacts.
Together we ensure that success is achieved while
respecting environmental and social boundaries. We
recognize the essential need to continue building
legitimacy and trust with our stakeholders, who are
fundamental to our company’s purpose and canaccelerate the pace at which we achieve it. Our 2021
Integrated Report aims to address their demands
for more transparent, comparable, and reliable
information on our ESG risks and performance.

Reporting is, by nature, a backward-looking exercise.
That said, we understand that the value of embedding
sustainability into corporate strategy lies in thinking
long term and being able to disclose forward-looking
ambitions, transition plans, and progress. Coupling
comparable, meaningful, and reliable data with clear
goals, long-term plans, and forecasted impacts iscentral to stakeholders’ and investors’ ability toincorporate ESG into their decision-making.

2021 was a year full of achievements, but challenges
remain, including in areas related to ESG. As wecontinue to transform, learn, and discover better ways
to develop solutions that have meaningful impact, wehope our transparency and willingness to engage will
spark dialogue with those who can help accelerate
the pace of change. I invite you to reach out andshare your feedback, to question, to challenge,
and above all, to engage with us as we remain
focused on making our company better, focusedon sustainability, and committed to our purpose.

Another topic of debate relates to the optimum
way to maximize the alignment of incentives withsustainability-related results to meet the evolving
expectations of investors and other stakeholders.
We are proud to have answered this demand
by introducing a Sustainability Index that lets us
integrate ESG performance into long-term executive
compensation in an easily understandable, strategic,
coherent, comprehensive, and credible manner.

Jennifer Motles
Chief Sustainability Officer

50

51

Philip Morris International – Integrated Report 2021

Overview

Corporate governance and management

Strategy

Product impact

Operational impact

PMI’s governance structure underlies our daily
activities to ensure that we conduct ourselves
and our business in compliance with thehighest ethical standards and with integrity.

Executive compensation

2022–2024 Performance Share
Units (PSU) performance cycle
Long-term equity awards are intended tomotivate our executives to produce resultsthat enhance sustainable shareholder value andstrengthen the Company over the long term.

Our compensation and benefits programsupports our business, financial, andstrategic objectives, and aims to:

We use Performance Share Units(PSUs) as the three-year incentive in our
executive compensation program.

Our Board of Directors• Support our ability to attract, develop, and retain
world-class leaders in a controversial industry

As set out in PMI’s Proxy Statement 2022, for the2022–2024 PSUs granted in February 2022, theCompensation Committee established performance
metrics at what it believes are appropriately ambitious
levels that reflect the Board-approved three-year plan.

The primary responsibility of the Board of
Directors is to support the long-term successof our company. The Board is responsible forestablishing broad corporate policies, setting
strategic direction, and overseeing PMI’s Company
Management—the individuals responsible for
PMI’s day-to-day operations, as defined below.

• Align the interests of executives and shareholders• Reward performance against preestablished objectives• Product Sustainability, defined as an aggregationof key performance indicators pertaining to socialand environmental impacts generated by thecompany’s products; measuring progress on its
efforts to maximize the benefits of smoke-free
products, purposefully phase out cigarettes, seek
net positive impact in wellness and healthcare,and reduce post-consumer waste; and• Operational Sustainability, defined as an aggregationof key performance indicators pertaining to social andenvironmental impacts generated by the company’sbusiness activities; measuring progress on its efforts
to tackle climate change, preserve nature, improve
the quality of life of people in its supply chain, andfoster an empowered and inclusive workplace.

• Promote internal fairness and a disciplined
assessment of performance• Align executive incentives with ourrisk management objectives

In line with the Company’s sustainability materiality
assessment and their relative priority level in thecontext of the company’s corporate strategy, ProductSustainability is weighted at 20 percent and Operational
Sustainability is weighted at 10 percent, together
amounting to 30 percent of the total PSU award.

These objectives provide the framework for thevarious components of compensation and benefits,
which together form an aggregate package intended
to be appropriately competitive. Our executive
compensation program reflects our commitment to
put sustainability at the core of our corporate strategy.

PMI’s annual Proxy Statement contains detailed
information on our Board and committee
structure, the independence and diversityof its members, and the responsibilities andmeeting frequency of each committee.

The three components of total direct compensationfor our executive officers are base salary, annual
performance-based incentive compensation
awards, and long-term variable equity awards.

Our Company Management

We continue to incorporate key measurespertaining to our transformation into both ourannual and three-year management incentives.

PMI’s Company Management (also referred to as
our “Senior Management Team”) encompasses ourChief Executive Officer, his direct reports leading ourdifferent business functions and regions, the Vice
President Treasury & Corporate Finance, the Vice
President & Controller, and the Deputy Chief Financial
Officer & Head of Finance Transformation. Our
Company Management, which totals 24 employees
including four women as of March 11, 2022, includes
the twelve employees who are executive officers
under Section 16 of the Securities Exchange Act of1934. A biography of each member of our Company
Management team can be found on PMI.com.

In 2021, annual incentive awards were assessed on six
growth measures, including a 20 percent weight forour heat-not-burn shipment volume and a 15 percent
weight on strategic priorities and enablers. Thoseare heavily focused on our transformation to smokefree products, and include the drive for material andmeasurable progress in priority sustainability corridors,
alongside transparent and clear sustainability
reporting and disclosure. For more information,please refer to PMI’s Proxy Statement 2022.

52

Reporting and performance

The Board retained the previously used metrics ofTotal Shareholder Return (TSR), weighted 40 percent,and currency neutral adjusted compound annual
diluted earnings per share (EPS) growth, weighted
30 percent. It introduced as the final metric
the Company’s Sustainability Index, weighted
30 percent, which consists of two drivers:• Support long-term business growth, superior
financial results, sustainability efforts, societalalignment, and integrity of conduct

The Board has established various standing
committees to assist with the performance of its
responsibilities. It adopted corporate governanceguidelines, which—along with the company’s charter,
bylaws, charters of Board committees, code of ethics,
code of business conduct and ethics for directors,
and related-person transactions policy—provide
the framework for the governance of the company.
All these documents are available on PMI.com.

Fundamentals

Linking ESG performance to Executive compensation
In February 2022, PMI’s Board of Directors decided to better reflect PMI’s commitment tosustainability, 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%
10%

20%

GR APHIC TO BEEPS30%DISCUSSEDTSR 40%P R O D U C T S U S TA I N A B I L I T Y
O P E R AT I O N A L S U S TA I N A B I L I T Y

53Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fully 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 of theCompany Management who heads the Sustainability,
Finance, and Strategy functions—three essential
components working 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.

Integrating sustainability into our company relies on a formal structurewith clear accountabilities at different levels of the organization.
Board of Directors
Nominating and Corporate GovernanceCommittee (NCGC)

While the Nominating and Corporate GovernanceCommittee (NCGC) oversees the company’s ESG andsustainability strategies and performance and advises theBoard on sustainability matters, several other committees
are tasked with oversight responsibility for different
sustainability topics. For instance, the Audit Committee
oversees, among other matters, the risk management ofclimate change, manufacturing and supply chain disruption,and the privacy and cybersecurity risk assessment, while
the Compensation and Leadership Development Committee
is responsible for executive compensation matters andwill track and assess the company’s performance on the
PMI Sustainability Index. The NCGC and full Board of
Directors are each updated at least once per year by
the Chief Sustainability Officer (CSO) on sustainabilityrelated matters, including progress in priority areas andan overview of key initiatives. In 2021, PMI’s Board of
Directors reviewed the results of PMI’s sustainability
materiality assessment and refreshed sustainability
strategy, the establishment of PMI’s Sustainability
Index, and updated PMI’s Statement of Purpose.

Reporting and performance

Operational management
and program delivery

Sustainability governance and management

Board of Directors

Fundamentals

Other Committees of the Board

Company Management

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.

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

Program-specific working groups meet periodicallyto cross-functionally coordinate the strategy, targets,and performance of specific sustainability programs.
Further, at the market level, dedicated sustainability
coordinators help ensure that sustainability priorities
are cascaded and programs are localized.

Operational management
and program delivery

Our approach to sustainability programs
Sustainability Group• Senior representatives from global functions• Meets every monthCompany Management

Our approach to designing and managing material
sustainability topics is harmonized and relies oncommon foundational elements:

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

Anchoring our sustainability priorities with executive
responsibilities and accountabilities helps embed ourstrategy into our daily operations. Members of ourCompany Management are responsible for driving
progress and delivering on our sustainability targets
within their respective functions. As described above,
the Compensation and Leadership Development
Committee has tied a significant portion of our Company
Management’s compensation to the Sustainability Index.

• Deep understanding of the topic, context,
materiality, external expectations, andinterdependencies with other issues
Sustainability TeamWorking groups• Cross-functional representatives• Meet periodicallyComposed of members of the Company Management,
PMI’s Sustainability Committee meets at least fourtimes per year. In 2021, meetings of the Sustainability
Committee focused on reviewing the results of thesustainability materiality assessment and establishmentof refreshed strategy, the development of PMI’s
Sustainability Index and ESG KPI Protocol, PMI’s
performance in ESG ratings and rankings, and received
updates on various sustainability initiatives.

• Governance structures and policies to formally
guide our actions and ambitions• Defines corporate sustainability
materiality and strategy, coordinates
program implementation by working
closely with all business functions
and with markets, and manages
reporting on performance• Performance indicators to measure progressand evaluate our efforts, attached to targets todrive improvement and provide clarity on ourdesired outcomes• Coordinate development and deploymentof specific cross-functional programs

Global functions and markets

All PMI employees

54• Concrete activities to achieve progressagainst targets• Transparent reporting on progress, which
encourages dialogue by allowing stakeholders to
scrutinize our actions

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

The sustainability landscape is dynamic. We
continuously update and strengthen our programs
as knowledge improves, progress is made, or the
relative importance of specific topics changes.

Play a critical role in delivering progress on sustainability.

55

Philip Morris International – Integrated Report 2021

Overview

Risk management

Product impact

Operational impact

As part of its risk management practices, the company
has established a Corporate Risk Governance Committee(CRGC) made up of senior executive officers, including
the Chief Financial Officer, Senior Vice President &General Counsel, Chief Digital & Information Officer,
Vice President & PMI Controller, Global Head of Risk
& Controls, Chief Information Security Officer, Vice
President and Chief Ethics & Compliance Officer, andVice President, Corporate Audit. In addition, the Chief
Executive Officer and Vice President & Corporate
Secretary are informed of the risk management
observations and insights shared with the CRGC.

Risk governance
We identify and prioritize key risk areas basedon four dimensions: the impact of a risk on
PMI were it to occur, its likelihood, its velocity,and its interconnectivity with other risks.

The CRGC and the Audit Committee of the Board of
Directors receive updates related to the company’srisk management and internal controls practices atleast once per quarter.

PMI assigns ownership of each prioritized key risk
area to a member of our Company Management,with oversight from the Board of Directors ora particular Board committee. With supportand insights provided by the risk management
and Corporate Audit functions, our Company
Management reports regularly on these risks tothe appropriate Board committees and to theentire Board of Directors throughout the year.

Risk management
Risk management is facilitated through periodicalignment of “first line” business, “second line” risk
management, and “third line” Corporate Audit functions.
Beyond the primary business functions, our risk
management framework involves Risk & Controls,
Ethics & Compliance, Information Security, Data
Privacy, and Corporate Audit. As the overarching risk
management function, Risk & Controls defines,
develops, maintains, and executes risk management
policies and methodologies, including the Enterprise
Risk Management framework.

First line

Corporate Risk
Governance Committee

Business functions

Externalrisks

Strategicrisks

Second line

Inherent
processrisks

Project
deployment
risks

Corporate Audit
functions

56

Reporting and performance

Among other risk monitoring activities (e.g., reviews,
advisories, assessments), our technical procedures
and internal controls over financial reporting comply
with the Sarbanes-Oxley (SOX) Act. Risk & Controls
and our external auditors provide independent
opinions on the design and operating effectiveness.

Corporate Audit, an independent function,
provides senior management and the Audit
Committee with objective assurance and advisory
services designed to assess the adequacyand effectiveness of the company’s internal
control systems and use of resources.

Our business, risk management, and Corporate
Audit functions execute assurance gathering
activities beyond the SOX scope, addressing inherent
process risks by leveraging the defined library of
Global Standard Processes, Risks, and Controls.

Taking a holistic approach, these functions
collaborate to continuously identify, assess, andrespond to evolving or emerging strategic, external,
inherent process, and project deployment risks.

Following our risk response to the outbreak andspread of COVID-19 in 2020 and 2021, we havestructurally embedded certain risk management
activities (for instance, the mobilization of local
risk functions in the rapid testing and validationof centrally issued guidance in response to risk)
in our overall approach to risk management.

Risk assessment
At the request of the CRGC, the Risk & Controls
function defines the company’s approach to risk
management and coordinates a periodic enterpriserisk assessment, which brings together the business,risk management, and Corporate Audit functions.

Finally, we disclose the company’s risk factors
in our 10-K and 10-Q submissions to the U.S.
Securities and Exchange Commission. Ourlatest submissions are available on PMI.com.

ESG-related risks and opportunities are consideredwithin our enterprise 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 enterprise risk assessment.
In complement to our periodic enterprise risk
assessments 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, periodic climate risk and opportunities
assessments, product life cycle assessments, anddeforestation and water risk assessments.

As ESG objectives havebecome a cornerstone of
our corporate strategy, we
will continue to strengthen
the integration of ESGrelated risks into our risk
management and internal
control practices.

Audit
Committee

Marie-Pauline Lauret
Global Head of Risk & Controls

Board ofDirectors

Third line

Fundamentals

Risk monitoring and compliance

In 2021, a Quality Compliance function was formed
to apply the existing risk management frameworkin the areas of research practices, product quality
and stewardship, and regulatory compliance.

We designed our risk management and internal
control practices to address all significant
and/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.
ESG-related risks and opportunities are consideredwithin our enterprise risk management practices.

Risk management
functions

Strategy

57

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Fundamentals

Operational impact

PRODUCTI M PAC T

58

Purposefully phase out cigarettes

60

Maximize the benefits of smoke-free products

64

Seek net positive impact in wellness and healthcare

90

Reduce post-consumer waste

98

59

Reporting and performance

Philip Morris International – Integrated Report 2021

Overview

PRO D U C T I M PAC T

Purposefully phaseout cigarettes

Strategy

Product impact

Operational impact

Reporting and performance

Pre-transformation (in 2015), our combustible product volume totaled 881 billion units, or
99.9 percent of our shipment volume ratio, and, since then, in only seven years, it has declined bymore than 26 percent. Over the same period, our smoke-free shipment increased to 95 billion units,
representing 12.8 percent of our shipment volume in 2021.

Our goal

Intentionally work toward phasing out cigarettes by ensuring thatsmoke-free products represent at least 30 percent of our shipment
volumes and more than half of our net revenues by 2025 while
continuing to reduce our combustible shipment volume.

A future where PMI’s success is nolonger based on cigarettes

For many decades, public health strategies to reduce
tobacco-related morbidity and mortality focused
primarily on preventing smoking initiation andencouraging smokers to quit. Novel, scientifically
substantiated smoke-free products now provide
regulators the opportunity to supplement andsignificantly strengthen the existing public healthapproach by encouraging adult smokers who do
not quit to switch to scientifically substantiatedbetter alternatives to continued smoking.

Our priority is to address the health impacts
associated with smoking by offering smoke-free,science-based alternatives that have been proven to
be a far better choice than cigarettes for those adults
who would otherwise continue to smoke. However,
we do not believe it is enough to simply offer morechoice to consumers. Rather, we are seeking to help
adult smokers switch to the better alternatives now
available and put cigarettes behind them. And we are
seeking to work with policymakers to ensure theseproducts replace cigarettes as quickly as possible.
Our commitment is unwavering. We have set theambition to generate at least 50 percent of ouradjusted net revenues from smoke-free products by2025—just 10 years after our first full IQOS launches.

“We can make an important contribution
to accelerating the end of smoking.
To achieve this objective, we arededicating the vast majority of ourresources to commercializing oursmoke-free products. Everyone
within our organization—regardlessof business function—plays a crucialrole in delivering on this purpose.
We recognize that PMI alone
cannot achieve a smoke-free future.
Such systemic change requires acollaborative multistakeholder
approach. In particular, we actively
advocate for others in the industry tofollow our lead by transforming theirbusinesses, phasing out cigarettes, andreporting transparently on progress.”

To accelerate our transformation, we arededicating the vast majority of our resources tothe commercialization of our smoke-free products
and we have streamlined our cigarette portfolio
to offer fewer brands and variants. Specifically,smoke-free products represented 73 percent ofour commercial expenditure in 2021 (2020: 76
percent). Moreover, our combustibles productshipment volume decreased by 26.3 percent
versus 2015. Our Business Transformation Metrics
provide a more comprehensive overview of ourprogress and our efforts to shift resources to bestdeliver on our company’s purpose (see here).

Jacek Olczak, Chief Executive Officer

60

Fundamentals

61

Purposefully phase out cigarettes

Philip Morris International – Integrated Report 2021

Overview

Appropriate regulation and taxation
to drive cigarette obsolescence

To progress on our smoke-free journey, it is however
essential that we maintain our competitive positionin the cigarette market during the transition period.
It allows us to focus our commercial efforts towardraising awareness of—and informing adult smokers
about—smoke-free products and the benefits ofswitching versus continued smoking. It also generates
the financial resources needed to continue investingin scientific research, and product development,
and to the manufacture and commercialization ofsmoke-free products. In this regard, the extensive
commercial and distribution infrastructure in place forour traditional tobacco business provides an effective
platform for launching smoke-free products at scale.

Regulation of all nicotine-containing products(including both combustible and smoke-free)
is essential. We advocate for a comprehensive
and risk-proportionate regulatory frameworkthat acknowledges that not all tobacco andnicotine products are the same. Regulationand taxation should subject the most harmful
products—those that combust tobacco—to themost restrictive measures and should encourage
those adults who would otherwise continue tosmoke to switch to less harmful alternatives.
Several factors outside our control—government
action, in particular—influence how quickly we
can see an end to cigarettes. To speed up theprocess, regulators and public health authorities
can ensure that adult smokers have access toaccurate information about smoke-free products.
They can introduce product standards to ensurethat only scientifically substantiated smoke-free
products are commercialized. And, through riskproportionate regulation and taxation, they canprovide the right incentives to encourage adults
who smoke to switch from cigarettes to less harmful,scientifically substantiated alternatives and incentivize
manufacturers to direct their investments and R&D
toward these better products. The acceptabilityof smoke-free products for adult smokers must
always be balanced against the objective ofminimizing use by unintended audiences such as
never smokers, former smokers, and youth.

While seeking to remain competitive in the cigarettesegment for as long as needed, we carefully consider
the commercial activities required to do so. We baseour decisions on consumer insights, compliancewith regulatory requirements, and adherence to ourMarketing Codes. We are guided by our convictionthat people who do not smoke should not start, those
who do smoke should quit, and those adults who
won’t quit tobacco and nicotine altogether shouldswitch to less harmful alternatives to cigarettes.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Policy and regulation can accelerate or hinder
progress toward a smoke-free future. Our ability
to maximize access is subject to (the right kindof) regulatory frameworks enabling systems
change and allowing these new products to
replace cigarettes as rapidly as possible (seeour Stakeholder engagement section).
Currently, some countries do not permit thesale of smoke-free products. We neverthelesscontinue to engage with stakeholders in thesemarkets to advocate for regulatory frameworks
that support tobacco harm reduction. We do notbelieve that banning smoke-free products is arational policy, especially considering that thesecountries permit the sale of the most harmful
forms of tobacco and nicotine consumption:
cigarettes and other combustible tobacco
products. Banning smoke-free alternatives runs
counter to the aim of ending cigarette use.

Supply and demand measures that can accelerate change
Such a roadmap may consist ofelements addressing:

PMI is committed to delivering a smoke-free
future. Once smoke-free products represent a
viable segment of the nicotine marketplace withthe potential to move most adult smokers awayfrom combustible tobacco use, governments
can implement additional industry-widemeasures to phase out cigarettes altogether.

• Increased investment in prevention, quitting
campaigns, and cessation services, with aparticular focus on vulnerable populations• Measures to address adult smokers’ confusion
about the role of combustion and nicotine in
the development of smoking-related disease

We believe that a clear roadmap agreed
by political, regulatory, and public healthstakeholders, supported by both civil society
and businesses, offers the best prospect for
further accelerating the end of smoking.

• Regulatory and fiscal differentiation between
combustible products and non-combusted
forms of tobacco and nicotine, coupled withrobust safeguards against unintended use• Post-market monitoring and surveillance
to assess public health outcomes andthe impact of policy interventions• Phase-out policies to help permanently
end smoked tobacco sales• Post-phase-out support for adultsmokers who still continue smoking• Robust anti-illicit trade policies

62

63

Philip Morris International – Integrated Report 2021

Overview

PRO D U C T I M PAC T

Maximize the benefits ofsmoke-free products
At PMI, we want to accelerate the end of smoking. To that end, we aretransforming our operations and value chain to develop and commercialize
science-based better alternatives to smoking.

CONTENTS

Strategy

Product impact

The business case

Cigarette smoking is the most dangerous formof nicotine consumption. People who do notsmoke should not start. Those who do smoke
should quit. And those adult smokers who would
otherwise continue to smoke should switch to thebetter alternatives to cigarettes now available.

The future of nicotine is undisputedly in smoke-free
products, which are experiencing rapid growth. Throughour early and sustained investment in R&D and consequentleadership in technology and innovation, we have built
a powerful position and competitive advantage.
By focusing our commercial expenditure on
encouraging adult smokers who otherwise would notquit, to switch fully to better alternatives, we aim toreach as many adult smokers as possible in as manymarkets as possible; this includes the around 130
million PMI cigarette smokers, as well as the hundredsof millions of adult smokers who buy competitor brands.
The business case is clear: Our smoke-free productconsumables drive higher net revenues per unit thancigarettes, with accretive product contribution perunit already helping to generate attractive returns on
our significant upfront and ongoing investments indeveloping the category. We are also gaining share of
the total tobacco market, thereby increasing ourcurrent and future revenue base. We are committed
to marketing and selling our products responsibly.
Concerns that our products, marketing, or sales could
discourage smoking cessation, encourage initiation of
nicotine use, or hold particular appeal to minors would
undermine our credibility, harm our reputation, andpotentially trigger adverse regulation, hampering ourability to achieve a smoke-free future as fast as possible.

Our priority is to address the health impacts
associated with smoking by offering scientifically
substantiated options that have been demonstrated
to be a far better choice than continued
smoking. We then chose to go beyond that bygiving these products the purpose of replacing
cigarettes, helping achieve the end of smoking.
Our purpose is to make our legacy product, cigarettes,
obsolete. The public health benefit of smoke-free
products depends not only on their potential toreduce the risk of smoking-related disease comparedwith continued smoking but also on adult smokers
using these products instead of cigarettes.
This is critical to achieve the expected public healthbenefit. For that, broadening access is key, and we arecommitted to improving consumer awareness, while
also making smoke-free products more acceptable,
available, and affordable to adults who smoke.

O U R A S P I R AT I O N S

69 Developing science-basedalternatives to cigarettesmoking

Maintain>90%

72 Broadening access to smokefree products

2023

100%

83 Marketing and selling our
products responsibly
89 Looking ahead

2025

SI

SI

Sustainability Indexof shipment volume covered by markets with youth
access prevention programs in indirect retail channelsof PMI smoke-free electronic devices introduced to the market
as of 2023 equipped with age-verification technology~40%

reduction in our combustible
product shipment volume
versus 2015 baseline

>30%

SI

>50%

SI

smoke-free product shipment
ratio (smoke-free/total)of markets globally where
PMI smoke-free products areavailable for sale that are lowand middle-income markets<550 bn>250 bn>50%

100

combustible productshipment volume
SI

net revenues (smoke-free/total)>40 m

adult smokers globally who switch
to PMI smoke-free products

Note: In 2022, we plan to evaluate our published targets to ensure they remain ambitious, reasonable,
and achievable in the context of a dynamic and evolving smoke-free industry. See page 34.

64

Reporting and performance

The right thing to do

66 Our management approach
Progress in 2021

Fundamentals

Operational impact

65

smoke-free productshipment volume
SI

Number of markets globally
where PMI smoke-free
products are available for saleMaximize the benefits of smoke-free products

Philip Morris International – Integrated Report 2021

Overview

Our management approach

Develop science-based, less harmful
alternatives to cigarette smoking

Addressing the impact of our combustible
products on consumers’ health is at the coreof our strategy and company purpose.

In complement, a team led by our Chief Product
Officer continuously develops and enhances PMI’s
smoke-free products, drawing on consumer feedback
and technological innovations. Our Operations
function—led by our Senior Vice President, Operations—works to ensure our manufacturing capabilities meetthe demand for smoke-free products.

We deploy a four-pronged approach:
1. Develop science-based, less harmful alternatives
to cigarette smoking
2. Broaden access to smoke-free products for
those adults who would otherwise continue tosmoke, ensuring this helps accelerate smoking
prevalence decline
3. Purposefully phase out cigarettes (read more here)
4. Market all our products responsibly

The smoke-free and combustibles category presidents
oversee the deployment of our marketing and sales
activities and adherence to our Marketing Codes.
The Codes are subject to a robust governanceprocess established in 2021. The newly formed
Marketing Review Council guides the implementationof these Codes across the organization.

In 2021, we established a category management
structure to accelerate delivery of a smoke-free
future. Under this structure, strategic responsibility
for our smoke-free and combustibles businesses,
respectively, rest with two members of ourCompany Management: our President, SmokeFree Products Category & Chief Consumer
Officer and our President, Combustibles
Category & Global Combustibles Marketing.

To make our progress measurable and verifiable,
we developed a set of bespoke key performanceindicators (KPIs), which we call our BusinessTransformation Metrics. These metrics, which wereport on periodically, allow our stakeholders toassess both the pace and scale of our transformation.
Over the years, based on stakeholder feedback, wehave expanded the number of metrics to increasetransparency and clarity about our progress.

Our President, Smoke-Free Products Category& Chief Consumer Officer oversees smokefree products, driving their growth trajectory,
fostering consumer-centricity, and leveraging
the strengths of our markets and regions.

Our Business Transformation Metrics also
showcase how we are allocating resources awayfrom our traditional cigarette business, aiming
to base our success on a future in which we nolonger make or sell cigarettes. Read more here.

Strategy

Product impact

Operational impact

Science-based,
less harmful alternatives
to cigarette smoking

Individual risk
reduction

Consumer switching

Responsible
marketing

We implemented a rigorous scientific assessment
program that aims to align with the U.S. Food andDrug Administration’s (FDA’ s) 2012 draft guidance on
modified risk tobacco products (learn more about how
we conduct our R&D here and on PMIscience.com).
Our program, in line with epidemiological andtoxicological principles, aims to compare the healthoutcomes of switching to smoke-free products versus
continued smoking. In addition to aerosol chemistry
and nonclinical and clinical studies, our assessment
program incorporates consumer behavior studies.
These allow us to monitor and evaluate the use of oursmoke-free products by intended audiences and notby youth, former smokers who have quit nicotine andtobacco altogether, or those who have never smoked.
In addition, following market launch, we continuously
monitor the safety profile of our smoke-free products
to ensure that any new or different health risks associatedwith their use can be identified in a timely fashion,
should they occur, and are managed appropriately. We
have put a rigorous global safety surveillance process
in place to monitor and respond to potential safety
signals. Based on the data collected, we provide
annual safety update reports, which include notifications
received directly from consumers, and we share themwith several regulators, including the FDA.

66

Broaden access to smoke-free products
to help accelerate smoking prevalence decline
PMI is developing and scientifically assessing productsthat present, are likely to present, or have thepotential to present less risk of harm than continued
smoking. Now, to achieve a smoke-free future fasterand put cigarettes behind us, we need to ensure that
adult smokers have access to these better products.
By access, we mean that:• Adult smokers are aware of the benefits ofswitching to smoke-free products compared with
continued use of combustible tobacco products.
• The products are accepted by adult smokers
as a viable alternative to cigarettes.
• The products are conveniently available
for sale to adult smokers.
• Smoke-free products are affordable to adult smokers.
In this context, a regulatory framework allowing the
products to be sold and adult smokers to know thatthese products exist and are available is essential.

AccessMaximized
benefits of smoke-free
products

Population harm
reduction

Reaching theintended audience

Reporting and performance

Developing and expanding our human, intellectual, andsocial capital is key to our transformation. Our two
main R&D centers, located in Switzerland and Singapore,
employ hundreds of scientists, engineers, and otherexperts working to develop, improve, and assess
smoke-free products. This work is headed by our
President Vectura Fertin Pharma and Chief Life Sciences
Officer, Chief Product Officer, and President, SmokeFree Products Category & Chief Consumer Officer,
who are members of PMI’s Company Management.

Through more than a decade of substantial
investment in R&D, we have developed products thatprovide the satisfying experience of consuming
nicotine without burning tobacco.

Access tosmoke-free products
and cigarette phase-out

Fundamentals

Awareness

Acceptability

Availability

REGULATORY FR AMEWORK

67

Affordability

Maximize the benefits of smoke-free products

Philip Morris International – Integrated Report 2021

Overview

Market all our products responsibly

Our commercialization activities acrossthe world are guided both by applicablelaws and by a set of core principles:

Even as we work to make them obsolete, cigarettes
continue to represent the majority of our net
revenues—and are likely to do so until 2025
(see our 2025 Roadmap). Accordingly, when we
establish policies and practices that guide theresponsible commercialization of our products,
these include the totality of products being sold by
PMI—both smoke-free and combustible products.

• PMI products are only for adults who smoke or
use other nicotine-containing consumer
products.
• We warn consumers about the health effects ofour products.

Implementing appropriate supply and demandmeasures can help maximize the public healthbenefits smoke-free products bring at a populationlevel. Raising awareness while minimizing the riskof unintended consequences is vital. This includes
ensuring these products are marketed and soldresponsibly to adult consumers of nicotine-containing
products. Fundamental to achieving this objective
is conducting marketing and sales activities thatprovide clear and meaningful information about our
products, including the risks associated with their use.

• We communicate about our products to enableadult consumers to make informed choices.
• We market our products truthfully andtransparently, with claims that are accurate andnot misleading.
• We design, develop, and commercialize our
products in ways that are consistent with oursmoke-free purpose.

Strategy

Product impact

Operational impact

Progress in 2021

Reporting and performance

The results of our studies are publicly available, publishedin peer-reviewed scientific publications, and havebeen submitted to numerous regulatory authorities,
including the U.S. Food and Drug Administration (FDA).
In July 2020, the FDA authorized the marketingof the 2.4 version of PMI’s IQOS tobacco heating
system as a modified risk tobacco product(MRTP) with reduced exposure information.

Developing science-basedalternatives to cigarette smoking
Scientific research and product innovation canadvance tobacco harm reduction and benefit
adult smokers, thereby positively impacting
public health. To this end, we will continue toinvest in science and in the development andacquisition of products and technologies.

This followed the agency’s April 2019 authorization of
the marketing of the IQOS tobacco heating system as“appropriate for the protection of public health” pursuant
to the premarket tobacco product application (PMTA)
pathway. On March 11, 2022, the FDA authorized themarketing of PMI’s IQOS 3 tobacco heating system
as an MRTP with reduced exposure information.1

PMI’s scientific assessmentof smoke-free products

For our e-vapor products, we have performed
preclinical assessment and are executing clinicaland perception and behavior studies.

We dedicate almost all of our adjusted R&D
expenditure (99 percent in 2021) to smoke-free
products, including wellness and healthcare products.
These expenditures include costs related to clinicalstudies, the development of machinery, prototypes,
and product acceptability testing, and innovationin materials and design to create better and moresustainable products. The remaining 1 percent isassociated with our combustible tobacco products,
largely allocated to meeting regulatory compliancerequirements and sustainability considerations,
including the development and introduction of
more sustainable filter materials (read more here).

The totality of the scientific evidence makes us confident
that switching completely from cigarettes to smoke-free
products is likely to present less risk of harm than continuing
to smoke. Post-market studies are necessary to continuebuilding this confidence and, over time, quantify the
reduction in morbidity and mortality through epidemiology.
During the assessment of smoke-free products, several
lines of evidence come into play and complement one
another: Evidence from controlled scientific experiments
answers precise, predefined questions, while evidencecollected from the real world helps researchers
understand the uptake, use, and health effects of a
product in real-life settings. To date, real-world evidence
indicates that introducing heated tobacco products canhave a beneficial impact on a population as a whole. The
launch of heated tobacco products in Japan coincides
not only with a reduction in cigarette sales but alsowith a decrease in hospitalization rates due to chronic
obstructive pulmonary disease exacerbation andischemic heart disease.2 We will continue to gather andevaluate real-world data; in particular, epidemiological
data from long-term follow-up studies that include
information on other variables that might impact therisk of developing smoking-related diseases as well as
lifestyle and other environmental factors (e.g., diet,pollution). The cumulative evidence on our smoke-free
products to date, including both experimental and reallife data, points firmly in the direction of harm reduction.

Since 2008, PMI has invested over
USD 9 billion in research, product development,
production capacity, scientific substantiation,and studies on adult smoker understanding.
Our smoke-free product portfolio includes heat-notburn and e-vapor products, as well as oral nicotine
products. They are developed and manufactured
according to high standards of quality and consistency.
As of year-end 2021, our R&D work and its
associated innovations have resulted in 1,770 patents
granted for smoke-free technologies by the fivelargest intellectual property offices in the world (IP5).
Our most thoroughly assessed smoke-free
product is the IQOS tobacco heating system(see the next page). We apply rigorous science
to substantiate its harm reduction potential
compared with cigarette smoking, including systems
toxicology, preclinical and clinical assessments,
and perception and behavior assessments.

68

Fundamentals

1
2

69

Source: https://www.fda.gov/tobacco-products/advertising-and-promotion/philip-morris-products-sa-modified-risk-tobacco-product-mrtp-applications.
Note: The FDA does not endorse or approve tobacco products.
Observational time-trend analysis looking at temporal associations and notdesigned to assess cause and effect. Specific factors associated with changing
hospitalization rates over time have not been fully analyzed. Subject toinherent limitations of ecological analysis.

Maximize the benefits of smoke-free products

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Overview of IQOS scientific substantiation
P L AT FO R M
D E V E LO P M E N T
A smoke-free product’s risk
reduction potential relieson the quality of the initial
product design and on strict
manufacturing controls toensure that the productdelivers a consistent aerosol.

TOX I CO LO G I C A L
ASSESSMENT
Toxicological assessments areused to determine whether the
reduced formation of HPHCs
leads to reduced toxicity andreduced risk of smoking-relateddiseases in laboratory models.

CLINICALASSESSMENT
Clinical assessments help
determine the extent to which
adult smokers would findthe product an acceptable
alternative to cigarettes. They
assess whether a reductionin the formation of HPHCs
measured in the laboratory
leads to a reduction in HPHC
exposure when an adult smoker
switches to the product andinvestigate whether switchingfrom cigarettes to a smoke-free
product has a beneficial effecton a smoker’s health profile byreducing the risk of smokingrelated diseases comparedwith continued smoking.

• No combustion in our IQOS tobacco heating system: The primary cause of smokingrelated disease is the long-term exposure to the high levels of harmful chemicals
generated by burning tobacco. By avoiding combustion, we can significantly reduce or
eliminate the formation of harmful and potentially harmful constituents (HPHCs).
• Reduction in emissions of harmful and potentially harmful constituents: We compared thechemical composition of the aerosol produced by IQOS with the smoke from a reference cigarette
designed for scientific research purposes and found that the levels of HPHCs in the aerosol are
reduced on average by 90 to 95 percent compared with those found in the reference cigarette’s
smoke. In addition, extensive chemical characterization of the IQOS aerosol showed that there areapproximately 10 times fewer constituents in IQOS aerosol than in the reference cigarette smoke.
• No negative impact on overall indoor air quality: We also conducted chemistry and quality
studies, which demonstrated that the use of IQOS does not negatively impact indoor air quality.

• Reduced toxicity: We conducted toxicological studies for IQOS, both in vitro and invivo, to determine whether the reduced formation of HPHCs in the aerosol leads
to reduced toxicity. Results from the in vitro studies show that the IQOS aerosol issignificantly less cytotoxic and genotoxic than the smoke from cigarettes. The in vivo
studies found that, compared with cigarette smoke, the reduced exposure to toxicants
results in significantly reduced lung inflammation and respiratory toxicity.
• Reduced risk of cardiovascular disease, chronic obstructive pulmonary disease (COPD),
and lung cancer in laboratory models: We conducted several systems toxicology studies toassess the disease-relevant biological mechanisms affected by exposure to toxicants, using
human-derived in vitro cell cultures and organotypic tissue cultures. These showed that,compared with the reference cigarette smoke, the IQOS aerosol has a significantly reduced
impact on key mechanisms involved in the development of respiratory and cardiovasculardiseases. We also completed an in vivo study to assess the potential of the IQOS aerosol toreduce the risk of lung inflammation, emphysema, and lung cancer compared with cigarettesmoke. The results of this study show that, in contrast to cigarette smoke, the aerosolof IQOS does not increase the incidence and number of lung tumors. It also confirmed asignificantly reduced effect of IQOS aerosol on lung inflammation and emphysema.

PERCEPTIONA N D B E H AV I O R
Perception and behavior
studies help us evaluate risk
perceptions and patterns ofuse of smoke-free products
among various adult consumer
groups. For smoke-free products
to have an overall positive
impact on public health, it isimportant that adult smokers
use them, that those intending
to quit tobacco and nicotine
altogether are not dissuadedby these products, and that
nonsmokers do not use them.

LO N G -T E R M
ASSESSMENT
We continue to assess our
smoke-free products after they
are on the market. Long-term
assessment will confirm whether
these products reduce the riskof smoking-related disease.

• Post-market monitoring and use patterns: We constantly monitor reports to identify safetyconcerns and health-related adverse events potentially associated with the use of our smokefree products. Further, we conduct post-market studies to understand how IQOS is used andby whom, helping us measure the extent to which adult smokers switch to the product. By
conducting repeated studies in 53 countries among adult IQOS users, involving in total about
70,000 participants, we have been able to measure IQOS use patterns among adult users
over time. Overall, the data from these studies confirm that IQOS is reaching the intended
audience of adult smokers (with a significant proportion of individuals who purchase theproduct switching fully to it and stopping smoking) and is of very limited interest to adults
who have never used nicotine products or who had already stopped using tobacco. Finally,
our post-market studies confirm that consumers understand that IQOS presents less risk thancigarettes but is not risk-free and presents more risk than tobacco and nicotine cessation.

• Long-term effects of product use: Long-term epidemiological data are needed to accurately
quantify the overall disease risk reduction effect associated with switching from cigarettesmoking to the use of smoke-free products, as well as to evaluate the excess disease risk
associated with the use of these products compared with not using tobacco and nicotine.
Generating reliable epidemiological evidence requires that smoke-free products be available on
the market for many years. Further, the products must be used for a sufficiently long period bya sufficient portion of adult smokers who have switched to them. This renders epidemiologicalstudies impracticable in a premarket setting or in the early phase of market introduction.
• Real-world evidence: We initiated time-trend studies in 2020 to complement our other research.
These studies use existing data to estimate the prevalence and incidence of disease. They explore
factors associated with health outcomes at the population level. Independent evidence alreadylinks the launch of IQOS to an accelerated decline in cigarette sales in Japan, the first country inwhich IQOS was launched nationwide, in 2015. We assessed time series of Japanese hospital dataand health insurance claims for two smoking-related diseases (chronic obstructive pulmonary
disease and ischemic heart disease) to detect a potential impact of the introduction of IQOS at
the population level. We obtained hospitalization rates for selected smoking-related endpoints:
COPD, COPD exacerbations, and ischemic heart disease. This data came from two databases:
Medical Data Vision and Japan Medical Data Center. We compared rates of hospitalization forthese endpoints before and after the introduction of heated tobacco products (HTPs) in Japan.
We found that observed hospitalization rates dropped below predicted rates shortly after
launch. Those decreases so far are modest but measurable. There are many limitations to thistype of research, and these results by themselves do not indicate a causal relationship. We are
therefore assessing the possibility of running the same type of assessment in other countries
where HTP uptake is sufficient and real-world datasets are available. In addition, independentstudies that measure disease risk using epidemiology are starting to emerge (see the example
from South Korea using data from the National Health Insurance Service on the next page).

• Nicotine uptake: When a smoker is switching to IQOS, the nicotine uptake andurge-to-smoke scores are comparable to continued smoking. This suggests thatswitchers can find IQOS acceptable and satisfying as an alternative to smoking.
• Reduced exposure to harmful chemicals: Our clinical studies on IQOS completed to date have
involved thousands of participants and up to 12 months of exposure. They have found thatsmokers who switched completely to IQOS during the studies were exposed to significantly lower
levels of harmful chemicals compared with those who continued to smoke. Further, they showedthat the levels of 15 biomarkers of exposure in participants switching completely to IQOS werecomparable to the levels of those who quit tobacco and nicotine for the duration of the study.
• Positive impact on smokers’ health: In a six-month clinical study of healthy volunteers, wemeasured eight health indicators that are known to change favorably following smoking
cessation. We observed that after participants had switched from smoking to IQOS forsix months, each of these indicators improved in the direction expected upon smoking
cessation, five of them with statistical significance. We completed a six-month extension
study to understand what the same markers look like 12 months after switching.

a70• Good product understanding and low intent to use among nonsmokers: The results of ourpremarket studies show that the adult consumer groups tested have a very good understandingthat IQOS presents less risk of harm than cigarettes but is not risk-free and that it is riskier
than nicotine cessation. Additionally, when assessed in the context of specific communicationmaterials, more than 90 percent of participants in consumer studies understood that IQOS is
not intended for nonsmokers, and more than 80 percent comprehended that quitting the use of
tobacco and nicotine altogether is the best way to reduce the risk of tobacco-related diseases.

Visit PMIscience.com to read our scientific results to date with our smoke-free products

71Maximize the benefits of smoke-free products

Philip Morris International – Integrated Report 2021

Overview

Broadening access to
smoke-free products

Growing external scientific consensus
We welcome and encourage independent
research on our products, methods, and results.
Over the past several years, a growing numberof organizations and institutions have initiatedstudies of our smoke-free products or the
methods and results surrounding them.

The public health benefit of smoke-free products
depends not only on their potential to reduce theindividual risk of smoking-related disease but also on
their actual use by adult smokers as alternatives tocigarettes and other combusted tobacco products. For
smokers to switch to them, these alternatives must
be known and accessible. To the extent permitted,
we deploy relentless efforts to improve and increase
consumer awareness, acceptability, availability,
and affordability of our smoke-free products.

Several government agencies have alreadyreviewed the available evidence or conducted
research of their own (see overview on PMI.com).
In addition to studies on aerosol chemistry andtoxicology, the first independent clinical andpost-market studies have begun to emerge.

Acting on these four access drivers will best position
us to achieve two critical ambitions by 2025: forour smoke-free products to be available for sale in
100 markets and for at least 40 million adults tohave switched to them and stopped smoking. We
want our smoke-free products to serve every adultsmoker who does not quit smoking, and we plan
for at least half of those markets to be in low- andmiddle-income markets, bolstered by new innovative
solutions for consumers with lower purchasing power.

One example of encouraging real-world evidence
supporting the harm reduction potential ofsmoke-free products comes from South Korea.
By using data from their National Health Insurance
Service researchers were able to showcase that,compared with continued smoking, switching
to smoke-free products was associated with 23
percent lower risk of developing cardiovasculardisease among both recent switchers and longterm switching.1 Long-term quitters, or those who
had quit all products for more than five years,
were associated with 37 percent lower risk.

As of the end of 2021, 21.7 million adults wereusing our smoke-free products, of whom weestimate that 15.3 million had switched to theseproducts and stopped smoking, and PMI smoke-free
products were available for sale in 71 markets.

The list of independent studies (close to 280 in total)
published around PMI’s smoke-free products or our
methods and results as of March 16, 2022 is available
on PMIscience.com. In general, these studies confirm
PMI’s results. However, some approach the data
differently (e.g., using fresh air as the comparator
instead of cigarette smoke), have methodologicaldifferences (e.g., enrolled populations, studies that do
not follow OECD guidelines), or overstate conclusions.

1

Source: Choi S, et al. Combined Associations of Changes in Noncombustible
Nicotine or Tobacco Product (NNTP) and Combustible Cigarette (CC) Use
Habits With Subsequent Short-Term Cardiovascular Disease Risk Among South
Korean Men. A Nationwide Cohort Study. Circulation. 2021. Observation
period 2018-Dec 2019 Source: Data available on https://doi.org/10.1161/
CIRCULATIONAHA.121.054967
Note: The study has several limitations, including that the follow-up is too short
to make any conclusive remarks based solely on this study.

C A S E S TU DY

Association between the introduction of heated
tobacco products and declines in cigarette smoking

Strategy

Product impact

Operational impact

INCREASING AWARENESS

We apply strict principles regarding with whom, how,
and where we communicate about the existence andrisks and benefits of our smoke-free products. These
principles are crystallized in our Marketing Codes.

The campaign’s core message is simple:“If you don’t smoke, don’t
start. If you smoke, quit.
If you don’t quit, change.”
Currently, the campaign encompasses
two distinct strands:• Unsmoke Your World (UYW): Calls for positivechange by reinforcing that quitting tobacco andnicotine altogether is the best choice and informing
the adult general public that better, smokefree alternatives exist for those adult smokers
who would otherwise continue smoking. It also
encourages the public to get involved and calls forregulation that would allow adult smokers access
to—and information about—better alternatives.

The lack of information about—and awarenessof—smoke-free products presents a big hurdle
to achieving tobacco harm reduction. It is also
potentially the easiest to overcome: Public healthpolicymakers, regulatory bodies, the scientificcommunity, and civil society have a big impact on
smokers’ decisions. It is therefore imperative thatthese entities do their part in informing adult smokers
who otherwise would not quit about the risks andbenefits of switching to smoke-free products.

• Unsmoke Your Mind (UYM): Speaks to theregulatory and scientific community and otherstakeholders with an interest in tobacco harm
reduction policy. UYM challenges misconceptions
around the smoke-free category and calls for an
open and transparent conversation to support
risk-proportionate regulation that differentiates
smoke-free products from cigarettes. It
also urges policymakers to put science andevidence at the center of decision-making.

As of the end of 2021, we estimate that only
25 percent of adult smokers in the markets
in which PMI commercializes IQOS were
aware of the product’s features and benefits
compared with cigarette smoking.1

Minimizing tobacco-related harm at the population level depends not only on the degree ofrisk reduction of the smoke-free products, but also on their adoption by adults who would
otherwise continue to smoke. This case study looks at the impact of the introduction of heated
tobacco products on cigarette sales and smoking prevalence in two countries with the highest
market share of heated tobacco products in the world, namely Japan and Lithuania.

aRead more in our case study here.

72

1

Reporting and performance

Informing the world about thesmoke-free category
Unlike combusted tobacco products, smoke-freealternatives are a new product category and arestill relatively unfamiliar to most people. In 2019,
we launched “Unsmoke”—a global corporate
campaign deployed across various online andoffline communications channels to address
widespread misconceptions about the smokefree category and the concepts that underpin it(e.g., combustion, the role of nicotine, and thepotential of these products for public health).

We want those adults who would otherwise continue
to smoke to understand the risks and benefits ofour 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.

We seek to provide accurate and non-misleading
information so that those adults who would otherwise
continue to smoke are motivated to switch. Our
premarket and post-market studies guide ourconsumer-facing activities and communication,
including the internal assessment of productclaims and consumer messages. A cross-functionalteam of scientists, market researchers, lawyers,
communication experts, and marketers review
product claims and consumer messages about our
product features and benefits, ensuring that allstatements are accurate, clear, and non-misleading.

Fundamentals

In 2021, we improved our market research methodology by expanding beyond
specific geographic focus areas (e.g., key cities) to full national coverage of oursurveys, making a year-on-year comparison impossible. Applying the previous
methodology and considering the same 54 markets covered in 2020, however,the proportion has increased from 36 percent in 2020 to 40 percent in 2021.

73

Maximize the benefits of smoke-free products

Philip Morris International – Integrated Report 2021

Overview

Communicating and engaging withadult consumers
Although smoke-free products have beencommercialized in many countries and for many years,
a considerable proportion of adult smokers are still
unaware that they exist and thus continue to smoke
cigarettes. Further, the lack of understanding of thecategory and the potential benefits of switching
to smoke-free products (compared to continued
smoking) leaves many smokers unmotivated toswitch. There also continues to be a profoundlack of understanding that, when it comes tocigarette smoking, it is combustion, rather thannicotine, that is the primary cause of harm anddisease (read more here about nicotine science).

User experience and utilizationof smoke-free devices
As smoke-free products may not be as
intuitive as cigarette smoking, we need to
inform consumers of their proper use.
We do so while applying strict rules on
how we communicate and engage with
our adult consumers (read more here).
Further, to help adult smokers transition tosmoke-free products, we are shifting to a moreconsumer-centric model. Establishing directroutes to consumers—including our stores ande-commerce channels—allows us to explain
the products, their features, and their risks andbenefits compared with continued smoking.

To raise awareness, resolve biases, and clear up
misconceptions, we engage with adult smokers
to ensure they understand the facts underlying
scientifically substantiated smoke-free products
and why they can be a better choice thancontinuing to smoke. We also make sure smokers
are aware that these better alternatives are notrisk-free and in most cases contain nicotine, whichis addictive. This comprehensive approach has
been shown to improve consumer awarenessand understanding of our products and thescience and data behind them year-on-year.

Leveraging the power of our brands
to drive positive behavior change
We engage with adult smokers in a variety of ways,
including, where permitted, by leveraging ourcigarette packaging. JustScan (formerly ScanPack) isa mobile digital platform that allows adult smokers
to access online content by scanning a QR code orusing a weblink (typically featured on the cigarettepack insert). For communication on combustible
products, the platform uses third party-tested
facial age-estimation technology to limit targetedcommunication to adult smokers. In markets where
smoke-free products are available, we leverage
JustScan to drive awareness and support conversion
to these products by providing adult smokers
with access to content related to our smoke-free
products. For example, in November and December
2021, our affiliate in Japan deployed JustScan
to increase awareness of IQOS ILUMA, reachingclose to 150,000 adult smokers. Globally in 2021,
we used JustScan to successfully engage withclose to two million adult smokers in 50 markets(2020: 850,000 adult smokers in 30 markets).

Strategy

Product impact

Operational impact

Reporting and performance

Reaching the right audience
Our marketing efforts are governed by ourMarketing Codes, which include provisions designed
to ensure all our activities are directed only toadult current smokers and nicotine users and are
not particularly appealing to minors (read morehere). Our commercial activities must strike theright balance between encouraging adult smokers
to switch to smoke-free products and minimizing
the risk of unintended consequences such as
youth access, initiation, and use by nonsmokers.

These are necessary to confirm the results of ourpremarket perception and behavior assessment
studies and to measure the extent to which adultsmokers switch to our smoke-free products. They
also help us monitor whether never and former
smokers use them. A cumulative total of morethan 19,000 legal age adults in three markets(Germany, Italy, and Japan) have participated inour cross-sectional population-based studies. The
data from these post-market studies confirm that
IQOS is reaching the intended audience (adultconsumers of nicotine products) and is of very
limited interest to adults who had never smokedor had already quit using tobacco and nicotine.
More specifically, the results show that morethan 99 percent of IQOS users in Germany, Italy,
and Japan were already using tobacco or nicotine
products at the time they began to use IQOS.

The results of our perception and behavior
assessment studies conducted to date as part ofthe scientific assessment of our IQOS product showthat the adult consumer groups surveyed have avery good understanding that IQOS presents lessrisk than cigarettes but is not risk-free and is riskier
than tobacco and nicotine cessation. Additionally,
when assessed in the context of specificcommunication materials, more than 90 percent
of participants in consumer studies understoodthat IQOS is not intended for nonsmokers, andmore than 80 percent comprehended thatquitting the use of all tobacco is the best way
to reduce the risk of tobacco-related disease.

In the U.S., our FDA MRTP exposure modification
orders require that we submit a post-market
surveillance and studies plan, which had to beapproved by the agency. As part of that plan,
an affiliate of Altria, who commercialized IQOS
in the U.S., conducted a secondary analysis of
their existing Underage Tobacco Use Survey
data and found very low (less than 1 percent)past-30-days IQOS use among U.S. youth.1

Further, we conducted 12 studies of our heat-notburn (IQOS) and e-vapor (IQOS VEEV) products in
six markets in 2020–21, including interviews withmore than 23,000 adults who were not consumersof tobacco or nicotine products. The results of
those studies show very low intention to use oursmoke-free products among adult former users
of tobacco or nicotine products (0.6 percent) andadults who had never used tobacco or nicotine
products (0.3 percent). 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 intent
to use our smoke-free products (0.3 percent).

Overall, data from our studies, as well as
independent studies,2 confirm that IQOS isreaching the intended audience—adults whoalready smoke or consume tobacco or nicotine
products—and is of very limited interest to youth
and to adults who have never before used nicotine
products or had already stopped using them.

12

We also conduct post-market studies to understandhow our smoke-free products are used and bywhom once available for purchase in a market.

74

Fundamentals

75

Source: Estimates – July to November, 2021: https://sciences.altria.com/–/
media/Project/Altria/Sciences/library/Underage-Tobacco-Use-Survey/
UTUS-Estimates-2021Q3Q4.pdf
East KA, Reid JL, Rynard VL, Hammond D. Trends and Patterns of Tobaccoand Nicotine Product Use Among Youth in Canada, England, and the UnitedStates from 2017 to 2019. J Adolesc Health. 2021 Sep;69(3):447-456. doi:
10.1016/j.jadohealth.2021.02.011.
Kuwabara Y, Kinjo A, Fujii M, et al. Heat-not-burn tobacco, electronic
cigarettes, and combustible cigarette use among Japanese adolescents: anationwide population survey 2017. BMC Public Health. 2020; 20:741.
Orth B & Merkel C. Smoking among teenagers and young adults inGermany: Findings from the Alcohol Survey 2018 and trends (in German).
Federal Center for Health Education (BzgA). 2019.
Delgrande Jordan M, Schneider E, Eichenberger Y, et al. La consommationde substances psychoactives des 11 à 15 ans en Suisse—Situation en 2018et évolutions depuis 1986. Rapport de recherche N°100, Addiction Suisse.
2019Maximize the benefits of smoke-free products

Philip Morris International – Integrated Report 2021

Overview

STRIVING FOR HIGHPRODUCT ACCEPTABILITY

During the switching journey, most users undergo
an adaptation process during which dual use(concurrent use of cigarettes or another nicotine
product) may occur. Only by switching completely
and abandoning cigarettes can consumers realize
the full health benefits of smoke-free products.
Our goal is to support consumers in making thistransition as quickly as possible. Consumers who
switch from cigarettes may also use different smokefree products according to personal preferences
and use occasions. Offering a broad range ofacceptable smoke-free alternatives is thus critical.

Adult smokers will only switch completely to smokefree alternatives if they prefer these products overcigarettes. Several factors play a role in driving
consumer acceptance of smoke-free products:
user experience (e.g., sensorial experience, productconvenience, availability of product variants),
their potential to present less risk of harm thancontinued smoking, and their nicotine profile.
We consider the full conversion rate a criticalindicator of whether our smoke-free products meet
consumer expectations. This rate is the percentageof adults who switch to our smoke-free products andstop smoking cigarettes versus total adult users. In
2021, the global average full conversion rate for our
main smoke-free product, IQOS, was 72 percent.

Expanding our smoke-free portfolio
We understand that consumer tastes andpreferences vary, and so a broader portfolio islikely needed to phase out cigarettes entirely.
We therefore continue to invest in improving
our current products, developing new ones, andacquiring products and technologies that meet ourscientific standards and can help us achieve our
purpose. Read about the 30 years of innovation
behind our leading heated tobacco product here.

Heat-not-burn products

IQOS ILUMAPRIME

IQOS ILUMA
ONE

IQOS
ILUMA

E-vapor products

Nicotine pouches

IQOS VEEVSHIROStrategy

Product impact

Operational impact

IQOS 2.4
PLUS

IQOS 3IQOS 3
MULTI

IiI
SOLID

IiI
HYBRID76

Reporting and performance

The role of flavors in smokefree product acceptability
Smokers often find the difference in taste between
smoke-free products and their preferred cigarettebrand to be an obstacle to adoption or full conversion.
In this context, flavors play an important role inhelping adults who don’t quit tobacco and nicotine
use altogether to move away from cigarettes andaccelerate their full conversion to better products.

In 2021, we were commercializing 10 different
heated tobacco and e-vapor devices and morethan 900 smoke-free consumable stock-keeping
units. Moreover, we also now have a small presencein nicotine pouches, with 23 stock-keeping units
commercialized under the Shiro brand, which wereavailable for sale in 15 markets as of year-end 2021.
Our success in smoke-free products is driven
by continuous innovation. In 2021, welaunched IQOS ILUMA—the next generationof IQOS devices, which use internal induction
heating—and TEREA heated tobacco unit (HTU)
consumables in Japan and Switzerland.

To cater to a variety of tastes and maximize
the probability of adult smokers consideringswitching instead of continuing to smoke, we
make our smoke-free consumables available ina wide range of taste variants (more than 40
for our IQOS HTUs as of year-end 2021).

We expect this innovative and intuitive device tosupport easier switching and higher conversion
rates. IQOS ILUMA has received an overwhelmingly
positive consumer response thus far, with strong
demand reflected in initial 2021 device sales
notably in excess of past IQOS launches.

We have a central governance process in place for
new flavored heated tobacco products, e-vapor
products, and combustible products to assess therisk of unintended use prior to commercialization.
The assessment framework takes into account,among other things, the flavor dimension of the
product, how the product will be labeled andmarketed, and the regulatory and commercial
environment. Read more about our approach here.

A new heating technology
with IQOS ILUMA
In 2021, PMI started commercializing a heated
tobacco product with a method of heating
the tobacco that is different from the previous
generation of products in its portfolio.
IQOS ILUMA uses the innovative bladeless
SMARTCORE INDUCTION SYSTEMTM. The
induction activates the heating element inside
the specially designed tobacco stick. The
tobacco is heated with improved draw andtaste consistency from stick to stick, without
the need for consumers to clean the device.
IQOS ILUMA allows for two consecutive
uses without recharging the holder.
Read more about our heated tobacco
technologies here.

IQOS 3
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Overview

The role of nicotine in smoke-free
product acceptability
Nicotine plays an important role in helping adults
who would otherwise continue to smoke to transition
from cigarettes to better alternatives. By having anicotine profile that resembles that of a cigarette,
smoke-free products aim to offer a satisfying
experience to adult smokers who are trying to switch
to them. Read more about the role of nicotine here.

As of year-end 2021, we had 36 consumer callcenters, where adult users can contact us if they
have questions about the product or its use,
as well as thousands of own or indirect retailtouchpoints worldwide. These retail outlets offer
personalized support to adult consumers, ranging
from explaining how the product should be usedand how to clean it to offering more details about
heated tobacco technology and its benefits. They
also give adult smokers and nicotine users theoption of trying the product before purchase.
In addition, there are premium resellers—selectstores that adult smokers regularly visit to purchase
tobacco products—in which we provide, to theextent permitted by law, information about oursmoke-free products and an opportunity to havea session with trained staff to learn about the
products, their benefits, and how to use them.

Supporting adult smokers in theirconversion to smoke-free products
Purchasing and trying a smoke-free product isonly one step along the conversion journey ofadult smokers who seek to switch to a less harmful
alternative to cigarettes. It is essential that wehave the right infrastructure in place to support
adult smokers along every step of this journey.
We are continuously strengthening theecosystem through which we support
consumers in making this better choice.

Digital capabilities also help us serve adultconsumers more efficiently, and we haveintensified our focus in this direction over the past
several years. For instance, in countries where
this is permitted, adult smokers who express aninterest in our smoke-free products are offeredan online session with a remote IQOS coach.

Strategy

Product impact

Operational impact

EXPANDING PRODUCT AVAILABILITY

Reporting and performance

Making our smoke-free products
available on the marketplace
In addition to external factors, internal
constraints affect the rate at which we canroll out smoke-free products globally.

Whether we can make our smoke-free products
available to adult smokers depends on several
factors, including some beyond our control,that dictate our ability to scale and legallycommercialize our products in certain territories.

Building internal capacity
PMI is present in around 180 markets, but thesize and capacity of our local organizations
vary. Not every market has the resources
and capability to launch smoke-free products
immediately. We evaluate the commercial viabilityof launching smoke-free products in each market
to prioritize internal resources adequately.

Advocating for risk-proportionate regulation
Combustible tobacco and smoke-free productmarketing and advertising are subject to extensive
restrictions worldwide, including outright bans insome countries. This regulatory environment makes
it difficult—or almost impossible in some countries—
to make adults who smoke aware of available
alternatives to cigarettes and inform them of how
and why they should use such alternatives instead.

The ability to manufacture our smoke-free products
at scale requires significant investment in our
production capacity. In particular, the manufacturingof smoke-free product consumables requires that
we build new factories or convert existing cigarette
factories and increase our capital expenditure—for
example, to purchase new machinery. In 2021, eightof our 38 factories were dedicated, either partially or
fully, to the manufacture of our smoke-free products.

Encouragingly, we have witnessed growing
government support in recent years for sciencebacked smoke-free products. An increasing numberof governments now complement traditional tobacco
control measures (i.e., those intended to discourage
initiation and encourage cessation) with a harm
reduction approach (i.e., providing adults who would
otherwise continue to smoke with information
about—and access to—scientifically substantiatedsmoke-free alternatives). Visit PMI.com for an
overview of significant regulatory developments.

Since the start of the COVID-19 pandemic, many
companies across a wide range of industries
have been impacted by a global shortage ofsemiconductors, which are used in a broad varietyof consumer products, including our smoke-freeelectronic devices. Persistent shortages of—andgrowing demand for—this critical component haveaffected the availability and assortment of oursmoke-free devices in certain markets, impacting
our ability to operate at full commercial capacity.
During the year, we monitored this situation closely
and took steps to limit the impact on our customers
and trade partners and on consumer availability.
While the growth in IQOS users slowed in the third
quarter of 2021, we undertook extensive mitigating
actions and saw increased sequential IQOS user
growth in the fourth quarter despite continued
device supply constraints. We have adjusted ourdevice assortments, restrained commercial programs,
and are managing our inventories in an effort toensure, first, that current consumers are able tocontinue on their journey away from cigarettes
and do not revert to smoking, and second, that
adult smokers can access our most advanced andinnovative alternatives to continued smoking.

We regard stakeholder engagement as fundamental
to the creation of shared and sustainable value (readmore here). For PMI, responsible advocacy is aboutengaging with individuals and organizations in a
way that respects the law, adheres to professional
standards and ethical principles, and is consistent
with the company’s vision and internal policies. Thismeans acting in a fair, honest, and respectful manner
when advocating our positions concerning issues
on which we have a legitimate interest or concern.
Open and transparent dialogue with national and local
governments and regulators allows us to understandtheir priorities and concerns and share our views,
objectives, and scientific findings. We engage withgovernments, regulators, and legislators to support
the development of legislation and regulations thatwill enable adult smokers to access smoke-freealternatives while minimizing access and use byunintended users, including minors and nonsmokers.

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Expanding our footprint in 2021

Enhancing in-market availability

As of year-end 2021, our smoke-free products
were available for sale in 71 markets, either
in key cities or nationwide (2020: 64).1 We
aspire to expand our footprint to make themavailable in at least 100 markets by 2025.

Expanding the geographic availability of our smokefree products to ensure they are conveniently
accessible to adult consumers requires that weleverage a variety of retail channels, including:• Direct retail channels such as brandretail locations (e.g., IQOS stores) ande-commerce websites (where permitted)

During the year, we launched our heat-not-burn
IQOS product in six additional markets (Aruba, Egypt,
Kyrgyzstan, Morocco, Tunisia, and Uzbekistan),bringing to 68 the total number of markets in which
the product was commercialized as of the end of
2021. We also rolled out the commercialization of oure-vapor product in five new markets (Canada, Croatia,
Finland, Italy, and Ukraine). By the end of the year,
IQOS VEEV was available in a total of seven markets.

• Indirect retail channels such as
tobacconists, convenience stores, gas
stations, consumer electronics stores orvape stores, and online channels
As of the end of 2021, there were more than 1,700
exclusive brand direct retail touchpoints (including 274
permanent PMI-owned IQOS boutiques and storesworldwide).² We also ran e-commerce sites for IQOS
in 55 markets, allowing consumers to purchase theproduct online and have it delivered to their homes.

The adverse determination by the U.S. International
Trade Commission (ITC), which prohibits the importof IQOS devices and HTU consumables into the U.S.,
was clearly an unwelcome development, albeit one
that is currently immaterial to PMI. While this decision
will cause near-term disruption, we have contingency
plans underway and hope to be able to resume U.S.
supply as soon as possible. We continue to see alarge opportunity for IQOS in the U.S. over time.

Regarding the indirect retail environment, we classify
the general trade and key accounts universe into
three groups according to the product portfolio
handled and the services provided to consumers:• Consumables sellers provide consumers witha convenient option for everyday purchasesof smoke-free consumables (e.g., theheated tobacco units for IQOS) and increaseawareness of smoke-free products in generaland our product portfolio in particular

Based on our current geographic footprint, weestimate that around 180 million adult smokers (i.e.,
71 percent of the total number of adult smokers in
the markets where we have launched) have physicalaccess to purchase our smoke-free devices andconsumables (2020: 150 million adult smokers, or
64 percent of the total number of adult smokers in themarkets where we had launched at year-end 2020).

Strategy

Product impact

Operational impact

ADDRESSING PRODUCTAFFORDABILITY
We will only achieve a smoke-free future if all thoseadult smokers who do not quit tobacco and nicotine
altogether can afford to switch to better alternatives.
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,
bolstered by new innovative products for consumers
with lower purchasing power. As of the end of2021, our smoke-free products were available in
30 low- and middle-income markets (2020: 26).

To address the potential cost barrier for
adult smokers who would like to switch,
we deploy various solutions, such as:

While it is vital to increase the availability of ourscience-based smoke-free alternatives acrosscountries, we must also ensure our products areaffordable to all adult smokers within each market sothat they consider switching instead of continuing
to smoke. This means accounting for the purchasing
power of adult smokers and deploying inclusive
solutions to meet the needs of different segments ofthe population and geographies. Accordingly, we mustaccount for the economics of innovative smoke-free
products, which can be significantly different fromthose of a centuries-old product such as cigarettes.

• Initial lending of the device or payment over time
• Enhanced battery and firmware performanceand increased longevity of devices, which lowers
the average annual cost for the user while also
improving the ecological footprint of our devices• A broadened portfolio offering different pricepoints. For instance, in 2021, we continued tocommercialize the licensed lil SOLID device, for use
with Fiit consumables, at a price below the lowestpriced IQOS device in select markets. Also, we may
lower the price of existing device versions following
the launch of new versions. The retail price of thesedevices ranges from around USD 16 to USD 153,
depending on model and country, with the global
average price for the lowest-priced heat-not-burndevice (including IQOS and lil) being USD 24.

• Device sellers allow consumers to purchasesmoke-free devices conveniently and toaccess services such as device replacement• Remarketing of used products collected fromconsumers and refreshed or repaired according
to stringent standards (read more here).

As of the end of 2021, there were around 3,600
IQOS partners and more than 800,000 points
of sale at which IQOS HTUs were sold.

3

2021 figure excludes Belarus and the U.S.
Exclusive brand direct retail touchpoints are stand-alone touchpoints dedicated to PMI’s portfolio of
smoke-free products, representing the most experiential physical retail formats, and delivering the highest
level of experience with the broadest range of products and services to legal age consumers.
IQOS partners (indirect retail brand experience touchpoints) consist of a dedicated IQOS space within anotherretailer’s premises where brand experiences and services are delivered to adult consumers by the retailer staff.
In this format both devices and consumables are generally commercialized.

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Reporting and performance

Devices
Unlike cigarettes, some of our smoke-freeconsumables require the use of devices. Adult
smokers who want to switch to our heat-notburn or e-vapor products, for instance, mustfirst buy a specific electronic device. These highquality devices rely on innovative technologies
and require significant production costs to ensure
they function consistently within the precise
specifications of our scientific evidence package.

• IQOS partners offer consumers a wide rangeof services, including product trial³

1
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Overview

Consumables
Our portfolio includes nicotine-containing
consumables to be used with our electronic devices.
These include the HTUs used with our heat-notburn products and the liquid nicotine used with
our e-vapor products. We also produce nicotinecontaining consumables (e.g., nicotine pouches)that do not require the use of an electronic device.
The recommended price of these consumables(whether as a complement to a device or as standalone product) plays an important role in determining
affordability and consequently expanding access.

These costs include, for example, our customer carecall centers and follow-up to ensure users do not fallback into smoking during their conversion journeys.
Beyond production and commercialization costs,
a key factor driving tobacco and nicotine productretail prices is the excise tax. Excise taxes oncigarettes are generally higher than those on
smoke-free products. Within the smoke-freecategory, electronic cigarettes tend to be taxed
at a lower rate than heated tobacco products.
Differential taxation is an appropriate fiscal policy
given the fundamentally different risk profiles ofcombustible tobacco products versus smoke-freealternatives. Applied appropriately, this approach
can incentivize adult smokers to switch awayfrom cigarettes and other combustible tobacco
products and encourage manufacturers tochannel their investments and R&D away fromcigarettes and toward smoke-free alternatives.

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.
Currently, the production costs of the heated tobacco
units used with IQOS devices are, on average,
somewhat higher than those of cigarettes. HTUs
undergo a proprietary manufacturing process that isvastly different from the manufacture of cigarettes,
and they require an increased level of quality
assurance in factories. The manufacture of HTUs
also incurs other costs that do not apply to cigarettes,
such as the costs of scientifically substantiating
the reduced-risk profile of these products, andongoing post-market studies. Importantly, theyentail much higher commercialization costs
compared with cigarettes due to the need toproperly introduce consumers to these new
products and explain their functionalities.

The combined effect of manufacturer costs
and tax differences is such that the price to theconsumer of IQOS HTUs is typically below thatof premium cigarettes—or can even be at the low
end of cigarette pricing. As of the end of 2021, we
estimate that our HTUs are on average priced thesame as or lower than an adult smoker’s current
cigarette brand for 58 percent of smokers in thegeographies where we commercialize IQOS.
To address potential affordability barriers, we arealso expanding consumers’ choice of HTUs byoffering brands at multiple price points in manymarkets. As of year-end 2021, we offered a pricepoint below our main HTU brand in 21 markets.

Strategy

Product impact

Operational impact

Marketing and selling our
products responsibly

Reporting and performance

Governance of the Marketing Codes
The Codes are intended to guide the design,
marketing, and sale of our products. They include thecore principles, practices, and governance processes
we follow in developing, designing, marketing, andselling our products and in engaging with adultconsumers of our products. Sometimes our Codes
impose more stringent provisions than required underlocal laws; in such cases, we follow our Codes. If the
opposite occurs and local laws set a stricter standard
than our Codes, we, of course, follow the law.

Consumer-centric product design, development,
marketing, sales, communications, and engagement
drive our commercial success and propel our smokefree mission. In this context, responsible sales andmarketing practices are critical priorities for PMI. We
aim to design our marketing communications andmaterials to appeal to adult smokers and adult usersof nicotine products, and we follow strict principles tominimize the risk of unintended consequences, suchas youth access to our products. This is an ongoing
effort and we strive to improve continuously.

The Codes are subject to a robust governanceprocess established in 2021 under the responsibilityof the newly formed Marketing Review Council,
composed of members of our Company Management.
The council’s role includes guiding implementationof the Codes across the organization.

Rolling out our updated Marketing Codes
Consistent with our category-based organization,
our marketing and sales principles and practices
are codified in two separate Marketing Codes: onefor combusted tobacco products (an enhanced
version of the previous Marketing Code that
had been in place for years) and one for smokefree (or “noncombusted”) alternatives.

Deployment Review Group
Each of our affiliates has a local cross-functional team(a Deployment Review Group or DRG) in place thatprovides a robust process for reviewing and approving
new products, packaging, consumer-facing programs,
campaigns, and initiatives before they are deployed.

We rolled out these Codes internally early in
2021, building on our previous Marketing Codecentered on combusted tobacco products and theGood Conversion Practices we had established
to govern the marketing and sale of our smokefree products. During the year, we worked toembed the norms of these Codes within ourorganization and trained employees and relevant
third parties. We closely guided our markets
during the roll-out period and encouraged them toprovide feedback and seek clarification as needed.
We have now published our two Codes on our
website and welcome stakeholder feedback on
our responsible commercialization practices.

We expect every market to fully implement theCodes and are implementing a self-assessment
process to confirm they do. Findings and actions
resulting from these self-assessments will beshared with regional and functional senior
management before being reported to our
President, Smoke-Free Products Category & Chief
Consumer Officer and our President, Combustibles
Category & Global Combustibles Marketing.

Our Marketing Codes are accompanied by aset of internal guidelines that provide moredetailed information on implementation. These
guidelines cover, among other things, how todevelop appropriate consumer messaging, set
up effective youth access prevention programs,
communicate digitally with consumers, and conduct
market research for smoke-free products.

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Monitoring and remediation
Three functions (Ethics & Compliance, Risk &Controls, and Corporate Audit) support andmonitor compliance with the Marketing Codes andtheir implementation guidelines through training,communications, controls, investigations, and audits.

Employee and third-party training
Our responsible commercialization efforts rely on
the adherence and dedication of our employees
and the third parties with whom we work. All PMI
employees involved in PMI’s commercialization
activities must be trained on the Codes andfollow them. Third parties involved in PMI’scommercialization activities must also be trained on
the relevant parts of the Codes and follow them.

Our Ethics & Compliance function investigates
potential incidents of noncompliance with laws and
PMI’s Marketing Codes. In 2021, there were 13
violations of our Marketing Codes by PMI employees(2020: 29). As a consequence of these violations,
we took disciplinary actions, of which 15 percent
consisted of employment termination, 8 percent
in suspension, 15 percent in written warning, and62 percent in verbal warning or counselling.

We deployed new training in 2021 in parallel withthe release of our Marketing Codes and theiraccompanying implementation guidelines to ensure
employees and third parties understand our principles
and practices and embed them in their work.
In addition to global compliance e-learning, ouraffiliates rolled out instructor-led classroom andonline training sessions for employees and third
parties involved in the commercialization of PMI
products to ensure wide reach and proper awarenessand comprehension of the Codes’ expectations.
In 2021, more than 70,000 people participatedin at least one Marketing Codes-related training
session (including on youth access prevention
requirements). Of this total, around 23,000 were
PMI employees and around 47,000 were third-party
workers, including agencies, promotional staff, callcenter agents, and shop assistants, among others.

Further, the risk of marketing and selling toyouth is covered in our annual enterprise risk
assessment and in our risk-based audit program.
Reviews by our Corporate Audit department in
2021 found that only a few affiliates experienced
issues related to responsible marketing compliance,
and these issues were mainly procedural.
During the year, Corporate Audit conducted 19 audits
covering 24 markets. Processes and controls werereviewed in each of these markets, and members of
the Corporate Audit team visited a limited numberof points of sale (COVID-19 restrictions did not
permit field visits to some) to assess the steps taken
to implement our Marketing Codes. No significant
issues related to youth access were identified in
the locations visited, except for one case where theagreed implementation steps were not executed asplanned, mainly due to COVID-19-related restrictions.
The affiliate implemented all four identified
management action plans by October 2021 in linewith the requirements of the Marketing Codes.

To ensure continuous reinforcement and proper
implementation of the Codes’ requirements,
we plan to train all relevant employees andthird parties on the Marketing Codes at least
every two years. Further, we expect to conduct
annual training on youth access prevention
requirements among all affiliates’ salespersons
engaged in brand retail or in our contact centers.

Strategy

Product impact

Operational impact

Reporting and performance

Insider insights: Mystery shopping program
By the end of 2021, the MSP had been
implemented across our IQOS stores, contact
centers, and e-commerce sites (depending on theretail and support channels available) in 60 markets
where our smoke-free products are commercialized.
Where COVID-19 conditions allowed it, mystery
shoppers performed around 2,500 visits in 2021 toover 640 IQOS stores, visiting on different days andat different times of the day. In over 96 percent of
those cases, they reported that their age had been
properly checked prior to starting the conversation
about the product—unless their appearance
made clear that the mystery shopper was above
the minimum legal age (or at least 18 years old inmarkets without a minimum legal age). Although the
pandemic constrained our abilities to monitor on the
ground, the program was still implemented online.

In addition to other controls we have in place,our bespoke mystery shopping program (MSP)
helps us monitor and measure adherence to ourrequirements on youth access prevention as
set out in our Marketing Codes across different
touchpoints. MSP leverages trained “mystery
shoppers” commissioned by an independent third
party. The shoppers are at least 19 years old, and allof them are smokers. They are tasked with acting
interested in PMI smoke-free products and withgoing through various service interactions, suchas making a purchase at an IQOS store, placing an
online product order, or interacting with an IQOS
coach. While doing so, they assess and record not
only their consumer experience and the qualityof service delivered, but also whether appropriate
control measures were exercised to determine andverify (a) their age and (b) whether they are smokers
or users of nicotine products. We receive detailed
and regular reports on the mystery shoppers’
feedback, allowing us to identify cases in which
adherence to our requirements is not being met.

The MSP is an additional and valued due diligence
tool that helps ensure we reach our desiredaudience—adult smokers and users of nicotine
products—while minimizing the risk of unintended
consequences such as access to and use of
our smoke-free products by youth. It provides
a powerful way to ensure our age verification
requirements are implemented properly on
the ground across selected consumer-facing
channels. And it is not only about measurement:
The wealth of data collected from the programis turned into targeted actions to continuously
guard against youth accessing our products.

We piloted this program in seven markets
in 2017, focusing on PMI’s IQOS boutiques.
In the ensuing years, we significantly
increased the scale of our efforts.

In markets selling smoke-free products, we also
conduct a mystery shopping program. As partof this program, we determine whether therequirements on youth access prevention set out
in our Marketing Codes are being implemented
across our e-commerce websites, brand retail sites,
and contact centers. Read more on the next page.

>70,000

PMI employees and third-party workers
participated in at least one Marketing
Codes-related training session in 2021

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Consumer communications and labelingSocial media
We do not use social media for marketing, advertising,or any other promotional communications
related to our combustible products, whether
branded or not. The same rule applies to ourcontracted parties, including event organizers,
third-party agencies, and brand ambassadors.

Along with applicable laws, we apply
strict rules governing how we present
our products to adult consumers.
Labeling
We warn consumers about the health effects of our
products. All advertising and consumer packaging
for combusted tobacco products and smoke-freealternatives must contain clear and visible healthwarnings, even in markets where not requiredby law. Our smoke-free consumables packaging
indicates clearly that the product is for adults, is not
risk-free, and contains nicotine, which is addictive.

Unlike with combustible tobacco products, we
maintain consumer-facing branded social media
accounts for our smoke-free products in certain
markets. We do so only in countries where reliable
audience data show that the audience of the relevantsocial media platform is at least 75 percent adult.
In addition, we use all available native age gates.
In 2019, it was brought to our attention that some social
media posts, while in line with applicable laws, did notcomply with our internal “digital influencer” guidelines.
Consequently, our Senior Management Team decided
to suspend the use of social media influencers for the
purposes of online marketing. Since then, our company
has worked hard on strengthening and building morerobust systems and processes, including by exploring
the use of previously unavailable age-control technology,
to ensure our online engagement is reaching the rightkind of audience. Further, and to limit the reach of ourmarketing communications, we do not encourage adultconsumers to share commercial content related to oursmoke-free products on their personal social media
accounts. In 2022, we will continue to evaluate thebest way to continue responsibly increasing awareness,while preventing unintended consequences.

No product placement
With regard to both our combusted and smokefree products, we do not pay for product or brandplacement in entertainment programs, films, radio,
video games, or any other program intended foror disseminated to the general public. Moreover,
our advertising, marketing, and sales materials
must be placed where they are likely to reach adultsmokers and not in places or channels frequented
primarily by minors (i.e., they can only be placedin media channels whose audience is reasonably
estimated to be at least 75 percent above legal age).

Preventing youth access anduse of our products
As a leading manufacturer of tobacco andnicotine products, we have a critical role to playin guarding against youth access to our products.
Accordingly, we have developed an enhanced suiteof measures designed to ensure a holistic approachto guard against youth access to our products.
We deploy measures to ensure consumers are
age-verified across all access channels when being
provided with access to our products, including
both PMI owned and operated boutiques ande-commerce platforms, and third-party retailers
and online marketplaces. While the level of control
we have over these channels varies, it is criticallyimportant that we make every effort to guard against
youth access to our products regardless of venue.

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Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Our YAP tools include templates for contract clauses
requiring that retailers ensure strict compliance withminimum age laws or, in the absence of such laws,that they refuse sales of nicotine-containing products
to anyone below 18 years old. The tools also include
educational modules and knowledge checks for both
combusted and smoke-free products, made available
via the digital communication platform we use with
our retail partners across more than 85 markets.
Other tools we provide include point-of-sale signage,
communication templates, and talking points toguide in-person conversations with trade partners.

In addition, we strongly support regulation that
ensures that only adults can buy tobacco andnicotine-containing products, as well as the strict
enforcement of minimum age laws and penalties for
those who sell or provide these products to minors.
The global youth access prevention requirements
in our Marketing Codes apply to all our commercial
activities, even when not required by local laws.
These stringent standards reduce the likelihood thatour products and related consumer communications
will be of particular appeal to youth. These
requirements shape the content of our creative
materials, ensuring, for instance, that they do notcontain images of models who are, or appear to be,under age 25 or images of youth-oriented celebrities.

By the end of the year, markets representing
91 percent of our total shipment volume were
implementing these YAP programs in our indirect
retail channels.

We have also implemented a central governanceprocess under which new flavored heated tobacco
products, e-vapor products, and combusted products
are evaluated. Under this framework, flavored
product propositions are assessed premarket tominimize the risk that their introduction in themarketplace generates unintended consequences.
While flavors are essential to encourage adultsmokers to switch, and their use should be preserved,
certain flavors could be particularly appealing tounintended audiences and should not be used.
In all circumstances, every tobacco and nicotine
product should be regulated, including the way they
are marketed, to ensure they do not particularly
appeal to unintended audiences, including youth.

Age verification in our owned channels (B2C)
In owned channels (such as our IQOS stores ande-commerce sites), our Marketing Codes, youth
access prevention (YAP) guidelines, and training
materials and tools require that consumers’ age
is verified before they can access our products—
ensuring they are of legal age (or at least 18 years
old in markets without a minimum legal age).

What is a youth accessprevention program?
A youth access prevention (YAP) program is acombination of guidelines and tools to help ouraffiliates work more effectively with their trade
partners to guard against sales of our combusted
and smoke-free products to underage purchasers.

Engaging with our trade partners (B2B)
We do not own or control the vast majority of retail
outlets in which people buy our products: Around
99 percent of our sales occur outside our owned
channels. To ensure retailers operate according toour standards, we set robust requirements for ourtrade partners. We work with them to ensure they
understand why they should not sell tobacco or
nicotine products to youth. To ensure compliance,
we monitor the implementation of youth accessprevention (YAP) programs in our indirect retailchannels and are committed to maintaining highcoverage of our shipment volumes (minimum 90 percent).
In 2021, we evolved our minimum requirements for aneffective YAP program in our indirect retail channels,
which have been integrated into our Marketing Codes.

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Key learnings from New Zealand highlighted that
it is critical to ensure a simple and easy to use
mechanism for consumers to be age verified, as wellas 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.

We monitor compliance with our Marketing
Codes and guidelines through mystery shopper
programs. An independent third party uses mystery
shoppers to assess the consumer experiencedelivery, the quality of service offered, andcompliance to our requirements (read more here).
IQOS stores
At our physical brand retail outlets, any
consumer who wishes to purchase our products
is age-verified by a trained salesperson. The
verification must be conducted in person and,if there is any doubt that the person is an adult,
by checking an official identity document.

We deployed a second pilot with VEEV in two cities
on the island of Corsica, in France in 2021. Thesepilots confirmed our learnings from New Zealand andthe need to further optimize these novel technologies,
processes, consumer journey, and user experience.

E-commerce
We implement age verification prior to selling our
products online. This requires, for example, that we
can leverage databases from reliable and credible
sources (such as government organizations, telephone
network operators, or banks) or scan an uploaded
copy of a person’s identity document. Where thenecessary technology is not yet available, or wherea person cannot be age verified using either of thesemethods, alternative age-verification processes areapplied—including face-to-face age verification ondelivery by couriers or at collection pick-up points.

During 2022, we plan to launch additional pilots which
will include testing of different user experiences,a suite of online age-verification mechanisms, andvarious methods to perform device activation.
Fundamental to the viability of these efforts will be toensure that the underlying infrastructure is scalable.
Secure and user-friendly age-verification technology
is a novel advance in the smoke-free product category
and requires strong partnerships with information
technology service providers, as well as with theowners of various software applications. Our teams
continue to engage with the leading hardware
and software players in these industries, to ensurethat the most robust and best-in-class technology
is available for PMI’s smoke-free products.

Enhanced electronic age-verification technology
Beyond our existing youth access prevention
programs, we continue to develop technology
to minimize unintended use and prevent youth
from initiating or using our smoke-free devices.
An example of this is our proprietary ageverification technology embedded in our VEEV
products. To test its efficacy, we began a pilot in
2020, testing this technology in New Zealand,
which continued during the first half of 2021.

Based on the New Zealand and Corsica pilot
learnings, its benefits and challenges, during2022 we will continue to develop and test arange of age-verification technologies, with afocus on online age-verification. We will utilize
these current and future learnings to guide ourambitions and assess our targets, remaining
steadfast in our commitment to prevent accessto these products by unintended audiences.

This specific form of age-verification technology
required the consumer to prove their age withreliable online data, in order to be able to unlock, andthereby activate the device prior to first use. If thedevice was not linked to an age-verified consumer
profile, the device would then remain blocked andunusable. On the contrary, once unlocked, thedevice would be activated and the adult consumer
would have the ability to lock and unlock it—at
their convenience—to prevent unintended use.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

More than a decade ago, PMI set itself the goal
to re-focus its business and develop productsthat can reduce the risk of smoking-relateddiseases compared with cigarette smoking whilein parallel phasing out cigarettes. Science andtechnology are at the core and key enablers forthis ambition. So far, we could demonstrate that
our heated tobacco and e-cigarette products
significantly reduce the formation and exposure toharmful chemicals as well as the risk of smokingrelated diseases in animal models. But this is only
the starting point. Moving forward, and buildingon the past decade of experience, capability
build up and scientific work, we have started
to execute a significant program of biomarker,
clinical outcome and real-world evidence studies
to demonstrate the individual clinical and publichealth benefit of our smoke-free products.

We have a robust infrastructure for monitoring
compliance with our Marketing Codes, andwe are committed to implementing our youth
access prevention efforts globally and ensuring
adequate monitoring of their enforcement.
We will also continue to deploy YAP tools in
our indirect retail channels. Currently, these
programs cover more than 90 percent of
our shipment volume, and we will continue
to engage with various stakeholders on this
topic, including retailers and governments,
to find more effective solutions.
Werner Barth, President, Combustibles
Category & Global Combustibles Marketing

Jorge Insuasty, President, Vectura Fertin
Pharma and Chief Life Sciences Officer

A clear consideration to improving access of adultsmokers to smoke-free products is affordability,
particularly in low- and middle-income markets.
We plan to introduce a new heat-not-burndevice to expand the access for consumers in
the medium and below segments in emerging
markets towards the end of 2022. This will be asimple, convenient, and affordable proposition
that can cater to local taste preferences withoutcompromising on harm reduction. We believe
this product can also help address the lower
price segment in developed countries.

We achieved remarkable progress in 2021
and have ambitious plans for 2022, including
expanding and improving our product portfoliowith a broader range of taste, price, andtechnology choices. We will continue to makeour heat-not-burn and e-vapor products available
in additional markets. Building on its success inJapan and Switzerland in 2021, we look forward
to launching the latest generation of our heatnot-burn product, IQOS ILUMA, across additional
markets over the coming years. Moreover, withthe acquisition of AG Snus and its Shiro nicotine
pouch and Kapten snus brands in May 2021
we have grown PMI’s capabilities and expect
additional product and market launches in 2022.

We will continue to design and deploy a suiteof effective tools to ensure that our smoke-free
products reach only the intended audience: adults
who smoke or use other nicotine products.
Stefano Volpetti, President, Smoke-Free Products
Category & Chief Consumer Officer

8889Philip Morris International – Integrated Report 2021

Overview

PRO D U C T I M PAC T

Seek net positive impact inwellness and healthcare
We are striving to become a company that has a net positive impact on society.
Therefore, we are expanding our offerings to include products that will addresscritical unmet consumer and patient needs within the health and wellness space,moving from a value proposition centered on doing less harm toward one
where we contribute to society in positive ways.

CONTENTS

93 Research and development:
new initiatives and initial focus
94 Strategic acquisitions

Strategy

Product impact

Operational impact

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 theprocess, we have expanded our social, human,
intellectual, and manufactured capital in ways thatallow us to go a step further and develop productsthat seek to be better than “less harmful.” The aim
now is to use this capital to develop significant
growth opportunities in wellness and healthcare.

Work is collectively overseen and delivered by Life
Sciences, together with other teams such as Strategy,
Finance, and Sustainability. Following PMI’s 2021
acquisition of leading innovative companies Vectura,
Fertin, and OtiTopic, we are joining forces withthese organizations’ experts in consumer health andpharmaceutical to accelerate progress and propel ourcapabilities in wellness and healthcare. Read in thiscase study how we see our company’s value creation
model evolving as the newly acquired companies
strengthen PMI’s human and intellectual capital.
Although we are at the beginning of this journey,
the aspiration to generate at least USD 1 billion in
annual net revenues from wellness and healthcare
products by 2025 showcases both our strong
commitment to furthering the transformationof our company and our deep belief in theopportunity these adjacent avenues of growth
can bring in the long term, leveraging our ability tomonetize the skills and assets we have accrued anddeveloped in the process of our transformation.

PMI’s innovation in wellness and healthcare ispart of 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,
seek partnerships with entrepreneurs andcompanies that have the proper experience andcredibility in relevant fields, and keep a strong
focus on specific benefit and disease areas.

96 Venture funding
97 Looking ahead

Our aspiration

To demonstrate the seriousness of ourendeavor and the strategic relevance of thisaim, we introduced a new topic, “Innovation
in wellness and healthcare,” to our 2021
sustainability materiality assessment process,following the introduction of this new
aspiration, which complements our BusinessTransformation Metrics and 2025 Roadmap.

SI

At least USD 1 billion in net revenues
generated from wellness and healthcare
products by 2025

SI

90

Reporting and performance

Building on our company’s investment andexpertise in aerosol chemistry and physics, device
technology, clinical research, and best-in-classpreclinical safety and inhalation models, we aredeveloping innovative and differentiated products
for unmet patient and consumer needs.

We are now able to expand our purpose (read ourStatement of Purpose). The critical next step in
PMI’s transformation is leveraging our expertiseand capabilities to expand into products beyond
tobacco and nicotine as part of a natural evolution
into a broader wellness and healthcare business.
Our strategy is built on two key growth areas: (1)wellness products, where we are developing andlooking to commercialize scientifically substantiatedconsumer health products and solutions with theaim to improve people’s lives; and (2) healthcare
products, where we have already committed
resources to a development pipeline of overthe-counter (OTC) and prescription products.

≥USD 1 bn

Fundamentals

91

Sustainability Index

Seek net positive impact in wellness and healthcare

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

For example, in the inhaled therapeutics space, there
are significant unmet patient needs for fast andeffective treatments in cardiovascular (e.g., myocardial
infarction), neurology (e.g., migraine and chronicpain), and allergies that can be served via innovative
solutions. One of those solutions could be inhalable
acetylsalicylic acid (commonly known as aspirin) forthe prevention and treatment of myocardial infarction.
We also see promising opportunities for chronic pain
management treatment with medical cannabis.

Another area of interest is smoking cessation
products, known as nicotine replacement
therapies. We see an opportunity to provide
more effective solutions via consumer, OTC,
and prescription pathways over time.

Research and development:
New initiatives and initial focus

2021 was a pivotal year during which we
kicked off our wellness and healthcare
strategy across three fronts:
1.

Continuing to invest in research and development

For consumer and OTC wellness products, areas
such as sleep, energy, focus, and calm haveshown to be of high interest and are areas ofhigh unmet need. For example, we are evaluatingpromising applications for cannabidiol (CBD) insome of these areas, notably through oral delivery,
as safe CBD dosage levels are being definedby regulators, informed by clinical studies.

2.

Expanding our business via strategic acquisitions

3.

Financing innovation with our
venture capital fundDuring 2021, 99 percent of our adjusted R&D
expenditure was allocated to our smoke-free businessand to innovation and pipeline development in thewellness and healthcare business. More concretely,
92 percent funded PMI’s internal scientific researchand development related to tobacco harm reduction,
while 7 percent was invested in innovation andpipeline development and expanding R&D capabilities
to serve the wellness and healthcare business.

Fundamentals

Reporting and performance

Building upon these scientific capabilities, ourR&D investments seek to support our company’s
scientific and business strategy for the new wellness
and healthcare business, focusing on inhaled
drug delivery, botanicals, and consumer health.
We dedicated our May 2021 Scientific Update
to examining the capabilities our research on
smoke-free products has given us and discussing
how we can apply those capabilities to develop
new research initiatives and products.

Over the past decade, we have developed theability to combine scientific excellence withcommercial rigor to continue elevating our business
transformation. Our expertise in inhalation scienceand scientific assessment in that space can beeffectively repurposed to help address pressing
needs in the wellness and healthcare sector.

Over the years, many researchers in the field of harm reduction have asked us why
we are not using our knowledge in aerosolization and inhalable devices beyond thetobacco harm reduction space. This was the right question to ask, and building upon
the research expertise and knowledge we’ve gained from developing and assessing
smoke-free products, we are in a really good position to work on, for example, inhaled
therapeutics. This method of delivering medicines is not as well developed or as widelyused as taking oral delivery forms such as a pill or a liquid. But delivery through thelung can become important for society because it has advantages over the traditional
medication delivery methods and can address some of today’s unmet medical needs.
Medicines delivered via the respiratory tract allow a much more rapid onset of the
drug effect and potentially reduce side effects due to the lower dose that might beneeded—for example, compared with taking a pill. It’s similar for botanicals: We know
how to work with plant substrates, and we know how to aerosolize and assess botanicalproducts. In short, we are leveraging the areas where we have strong research andtechnology expertise to strengthen our business while making a difference for society.”
Patrick Picavet Vice President New Business & Chief of Staff

92

93

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Philip Morris International – Integrated Report 2021

Overview

Strategic acquisitions

Within the context of our new wellness andhealthcare business, Vectura is well-positioned toaddress this market growth while becoming the
backbone of the inhaled therapeutics arm. PMI has
made a clear commitment to advance Vectura’s
existing strategy, expand it geographically, andextend the company into the development ofproprietary inhaled therapeutic products, alongside its
existing CDMO business. This will benefit Vectura’s
differentiated technologies and development
expertise for the delivery of complex inhaled
therapeutics and will enable us to bring our initial
pipeline of inhaled therapeutic products to market.

This speed is unprecedented and can have significant
implications for reducing the risk of morbidity
and mortality. Cardiologists agreed that the rapid
drug exposure and PD effects would be beneficial,
especially during the time before the patient arrives
at the hospital. In the U.S. alone, someone has aheart attack every 40 seconds. With its inhalable
version of ASA, OtiTopic has developed an asset
that promises to have a much faster onset of effectcompared with oral ASA. PMI looks forward tocompleting the planned ASPRIHALE® registration
program and bringing this important treatment tomarket to address a significant unmet medical needin a clinical condition where every second counts.

To complement our in-house science and innovation
capabilities, we made solid progress during 2021
on our “Innovation in wellness and healthcare”
strategy with the acquisitions of three innovative andforward-looking companies that we are excited to join
forces with and that will form the backbone of our
purpose and new wellness and healthcare business.
In August, we announced the acquisition of
inhaled drug specialist OtiTopic, a U.S. respiratory
drug development company with a late-stage
inhalable acetylsalicylic acid (ASA) candidate forthe prevention and treatment of acute myocardial
infarction. ASPRIHALE® is a patented, dry
powder inhalation ASA, delivered through aunique self-administered aerosol. It is designed forpatients at risk of heart attacks. In clinical trials,
ASPRIHALE® catalyzed peak plasma concentrationand pharmacodynamic (PD) effect in two minutes
due to its inhalation approach, compared withthe 28 minutes coated chewable aspirin took.

In September, we announced the closing of theacquisition of Fertin Pharma, a leading developer
and manufacturer of innovative pharmaceuticaland well-being products based on oral and intraoral
delivery systems. With Fertin Pharma’s substantial
know-how and oral delivery platforms, we plan todevelop scientifically substantiated consumer healthproducts, including over-the-counter solutions andsupplements for better living in areas such as sleep,energy, calm, and focus. By serving as a critical pillarof the new wellness and healthcare business, aspart of PMI’s transformation, Fertin will be uniquely
positioned to continue to innovate and grow—delivering on our vision of enabling people to live
healthier lives. Our shared commitment to scienceand consumer-centric innovation forms a strong basis
for a very successful future together. Fertin will also
continue to grow and serve external customers as
a leading contract development and manufacturing
company (CDMO) in the oral formulation space.
Furthermore, we acquired Vectura, a leading specialist
inhalation CDMO that provides innovative inhaled
drug development solutions to help clients bringinhalable medicines to patients. The market for
inhaled therapeutics is growing rapidly outside thetraditional spaces where inhalable medicines havebeen used over the years, focusing on specialty
disease areas with high unmet medical need andhence with significant potential to expand into new
application areas beyond the current market offering.

94

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Important to note is that we will be focusing on
innovating in the method of delivery of existing
approved and permitted molecules rather thanon traditional new compound research, while
always having the demands of physicians,payers, patients, and consumers in mind.

Repurposing the tobacco plant beyond nicotine
Using a plant-based approach is relatively new but
has advanced rapidly in the past decade. For its
COVID-19 vaccine, Covifenz, Medicago is using avirus-like particle grown in Nicotiana benthamiana, aclose relative of the tobacco plant. This world-first,
plant-derived COVID-19 vaccine was approved byHealth Canada in late February 2022 and will beavailable in the country for adults aged 18 to 64.

In 2021, the Quebec City-based biopharmaceuticalcompany Medicago—in which PMI has aminority shareholding—applied for Canadianapproval for its COVID-19 vaccine candidate.
Medicago is a leader in proprietary plant-based
technology that uses virus-like particles (VLPs) todevelop protein-based vaccines instead of relying
on animal products or live viruses. Virus-likeparticles are used to create plant-based vaccines,
which mimic viruses, enabling the body’s immune
system to recognize them and create an immune
response. But they lack the core genetic materialof a virus, so they are not infectious and cannot
replicate. Medicago’s technology only requires
the genetic sequence of a viral strain, not the live
virus itself. So, the company can mass-produce
a therapy to attack a pandemic infection like
COVID-19 soon after health officials identify it.
By comparison, traditional vaccine developmentin chicken eggs takes six to nine months.

Due to the close alignment of its own R&D andthe potential synergies with this pharma company,
PMI acquired a stake in Medicago in 2013,and currently holds approximately 23 percentof the company’s shares, as part of a wider
push into wellness and healthcare products.

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Philip Morris International – Integrated Report 2021

Overview

Venture funding

Looking ahead

We announced plans in October 2021 to dedicate
a further USD 200 million to minority investmentsin early- and growth-stage companies throughPM Equity Partner (PMEP), our corporate venture
capital arm. This allocation follows a 2016
commitment of USD 150 million, which PMEP has
since fully invested, and is intended to support
PMI’s smoke-free and beyond nicotine ambitions.

PMEP is focusing its investment activities tosupport PMI’s strategy in life science and wellness,
industrial technologies, product technologies,
impact investing, and consumer engagement
technologies. Through early- and growth-stage
investments, PMI will leverage its strengths to
help invested companies translate innovation
into commercial success. Learn more here.

PMEP is focusing its investment activities onfour distinct technology segments, investing
in innovative and agile companies to drive
and accelerate transformation at PMI:
• Life science innovations, such as inhaled
therapeutics and computational researchmethodologies. Portfolio companies, including
Biognosys (next-generation proteomics) andBiofourmis (AI healthcare), reinforce the activerole of PMEP in this space. In addition, PMEP
scouts substantiated self-care wellness companies
in areas such as sleep, energy, calm, and focus.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Our vision for the wellness and healthcare business is to develop best-in-classconsumer health and inhaled prescription products that will improve people’s
lives and address some of today’s significant unmet needs. With the acquisitionof Vectura, Fertin, and OtiTopic, we have brought the technology platforms andtalent on board that—combined with our scientific knowledge in preclinical safety,
clinical, and regulatory—have laid the foundation for PMI to evolve into a broader
wellness and healthcare company. Vectura and OtiTopic will form the backboneof our ambition in the inhaled therapeutics and inhaled consumer health space,
where we have developed an initial pipeline of products that aim to bring revenue
as of 2024. Fertin, with its differentiated, modern oral formulations, will become
the driving force behind our ambitions in the self-care wellness space. In addition,
we have brought on board senior leaders and other talent from the pharmaceuticaland consumer health industry who will help us turn our ambition into reality.
Jorge Insuasty, President, Vectura Fertin and Chief Life Sciences Officer• Industrial technologies such as robotics
and automation, the internet of things, andtechnology-based process optimization.
• Product technologies, particularly those that
relate to inhalation and aerosolization, chemical
formulation, and biometric authentication.

Our scientific and technological leadership has enabled us to reinvent ourcompany in our pursuit of a smoke-free future. We will continue our journey,
aiming to generate at least USD 1 billion in annual net revenues from products
in wellness and healthcare by 2025, by leveraging and integrating recent
acquisitions that give us the capacity to keep developing in areas that have net
positive impact. These acquisitions further highlight that our long-term planis equal parts solid strategy, strong financials, and best-in-class sustainability
performance. Through our venture capital arm, we also plan to invest in andclosely follow up on early- and growth-stage companies focused on life scienceinnovation, industrial technologies, product technologies, and consumer
engagement technologies that can help us propel progress on our purpose.

• Consumer engagement technologies, such as user
identification and age authentication, innovative
customer care, and experience management. For
instance, the portfolio company BOW Groupis actively involved in driving PMI’s consumer
engagement with its products and technologies.

Emmanuel Babeau, Chief Financial Officer

96

97

Philip Morris International – Integrated Report 2021

Overview

PRO D U C T I M PAC T

Reduce post-consumer waste
Beyond our primary focus of replacing cigarettes with less harmful alternatives
for adults who would otherwise continue to smoke—thereby reducing
the negative impacts of our products on the health of our consumers—
we understand the need to address the environmental impact of our productsby embedding principles of circularity and eco-design, implementing
effective post-consumer waste management solutions, addressing litter, andpromoting responsible disposal of products at their end-of-life.

Strategy

Product impact

Fundamentals

Operational impact

Reporting and performance

The right thing to do

The business case

At PMI, we believe we can and should play arole in reducing waste from our products andaddressing the issue of littering by helping
develop and scale up innovative solutions.

Beyond ecological considerations, inadequate
post-consumer waste management and litter
carries societal and financial impacts ranging fromcleanup costs to perceptions of untidiness andreduced safety in areas with high litter prevalence.
Appropriately addressing post-consumer waste
helps us enhance our brand equity and company
reputation and meet consumer expectations.
It also allows us to mitigate implications for ourbottom line, as producers increasingly are asked toparticipate in cleanup costs, for instance. Finally,
it motivates us to innovate in a way that can drivecompetitive advantage by devising more circularvalue chains. These value chains are linked not only
to less waste and less litter but also to better use
of materials and higher operational efficiency—allof which are good for our triple bottom line.

Reducing and appropriately managing post-consumer
waste means we can extract, convert, and use
fewer raw materials from a planet with limited
natural resources. Moreover, committing to thesafe and responsible disposal of this waste is theright thing to do, as we share society’s concerns
regarding the impacts of litter—such as pollution
and harm to wildlife. We recognize our role inworking to preserve natural environments.

O U R A S P I R AT I O N S

SIDevices

Consumables

Packaging

100%

2022

recyclable inner liners by year-end¹

CONTENTS

100 Our management approach
Progress in 2021

2023

70%

2025

≥1 million

effective recycling rateof our IQOS devices²
SI

102 Addressing cigarette butt litteringsmoke-free electronic
devices refreshed or repaired(cumulative since 2021)

105 Managing waste from oursmoke-free consumables

100%

101 Focusing on plastic

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

109 Improving circularity of oursmoke-free devices
114 Reducing and improving packaging

≥80%

SI

≥80%

SI

of shipment volumes coveredby markets with anti-littering
programs in place for
combustible cigarettesof shipment volume coveredby markets with end-of-lifetake-back programs in place
for smoke-free consumables

100%

100%

of packaging made withrecyclable materials

95%

of packaging materials comingfrom renewable sources

15%

of PMI smoke-free productusers have access to collection
and recovery of devices

117 Looking ahead

reduction of packaging materials
weight versus 2018 baseline80%

effective recycling rateof our IQOS devices²

1
2

98

Sustainability Index

For all markets where possible in compliance with local regulatory requirements.
Effective recycling rate is calculated based on the proportion of device sales volume covered by the CIRCLE hubs programmultiplied by the recycling rate of devices at the CIRCLE hubs (weighted average).

99

Reduce post-consumer waste

Philip Morris International – Integrated Report 2021

Overview

Our management approach

Progress in 2021

Our intention is to preserve resources, reduce
waste, and prevent inappropriate disposal, including
littering. We do this by designing our products withthe principles of circularity and waste reduction inmind, accounting for the products’ environmental
impact at the early stages of development, andoffering consumers solutions to play their part anddispose of end-of-life products appropriately.

Focusing on plastic

Our strategies and related initiatives are guided
by a set of policies and principles, including
our Environmental Commitment, Anti-Littering
Policy, and Sustainable Design Framework,
complemented by specific internal guidelines.
In 2021, to accelerate the delivery of a smoke-free
future, PMI established a new category management
structure for its smoke-free and combustible
cigarettes businesses. Our President, Smoke-Free
Products Category & Chief Consumer Officer and
our President, Combustibles Category & Global
Combustibles Marketing are responsible for driving
our agenda on post-consumer waste management
for their respective categories. Additional efforts
are steered cross-functionally. With regard to oursmoke-free products, we set up a dedicated crossfunctional governance board in 2021 which oversees
strategies and progress related to our device life
extension and consumables end-of-life programs.

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:• Cigarettes: We aim to reduce cigarette butt
littering by encouraging behavior change
through impactful awareness-raising campaigns
and by empowering consumers to dispose ofcigarette butts appropriately. We also intend
to tackle the issue at the source, continuously
working to replace the plastic in filters with
better, more sustainable alternatives.
• Smoke-free consumables: As we grow oursmoke-free business, we seek to ensure thatthe consumables used with our electronic
devices are disposed of responsibly at their
end-of-life and that users have access to takeback and recycling schemes that have anenvironmental benefit, are economically viable,
and are valued by consumers. Further, we strive
to design new generations of consumables with
waste reduction and recyclability in mind.

Strategy

Product impact

Operational impact• Packaging: We strive to minimize packaging
materials and improve their circularity by increasing
their recyclability and promoting the use ofmaterials made from renewable resources.

Globally in 2021, we purchased around 136,000 tons of plastic. The largest share was bioplastics usedin the filters of cigarettes and heated tobacco units.

PMI’s 2021 plastic footprint
Cigarette filters

55.8%

Heated tobacco unit filters

25.6%

Packaging

17.8%

Cigarette ﬁlters

55.8%

Heated tobacco
unit ﬁlters

25.6%

Electronic devices

0.8%

Note: Plastic footprint is calculated excluding KT&G

17.8%
Packagingcommercialized by
PMI, e-vapor products, and nicotine

pouches. In 2021, we adjusted our methodology to calculate

Electronic
devices
0.8%
our plastic
footprint
and incorporated additional primarydata.

For this initiative, we teamed with Litterati, theleading anti-littering organization, who collected
litter data in more than 50 cities in 40 countries
and photographed litter items in various urban
environments. Data analyst CARTO then extrapolated
the georeferenced data collected locally to provide
us with global figures. A deeper analysis of the litter
prevalence data revealed insights useful in improving
our anti-littering campaigns. For example, our study
uncovered that cigarette butt litter is more prevalent
in commercial, business, and commuting zones andlower in residential areas. Food, drink, and leisureestablishments, bus and train stops, and areas
illuminated at night all showed higher litter prevalence.
Customizing awareness campaigns to users in theseareas, therefore, can be more effective. Working
in collaboration with these partners allowed us togenerate detailed litter prevalence maps for cities andcountries worldwide that will inform future campaigns.

In addition, following a 2020 pilot in Portugal, we
fine-tuned our model to broaden its application andmeasure the prevalence of plastic litter resulting
from our cigarettes and heated tobacco units foundon the ground.

100

Reporting and performance

As a global manufacturer, we source plastic materials and plastic-containing items for products suchas our consumables (e.g., our heated tobacco units and cigarettes), devices, and packaging.

One of our main end goals is to tackle the plastic
pollution caused by the littering of our products.
During 2021, as announced in our 2019 Integrated
Report, we focused on better understanding ourglobal plastic litter footprint. To measure this, we
combined data for our company’s overall plastics
footprint with data collected from consumer behavior
in different countries and for different products.
More concretely, for relevant plastic-containing
products that we market (including consumables
and packaging), we assessed littering rates throughconsumer surveys in our main markets. We thencalculated the resulting amount of plastic being
littered by product based on full year sales data
multiplied by plastic content and by littering rate.

• Smoke-free electronic devices: To reduce thedepletion of finite resources, we aim to integratesustainability into our product design, drive
circularity by improving recyclability, and increase
opportunities to refresh and repair used devices.

Fundamentals

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Philip Morris International – Integrated Report 2021

Overview

Addressing cigarette butt littering

The combination of these two exercises—calculating
our global plastic litter footprint and the prevalence ofplastic litter resulting from our consumables—proved
to be a valuable learning experience, which honed
our understanding of both the complexity of theissue and the need for concrete metrics to measureprogress and guide our actions moving forward,
in a way that can prove useful and impactful.

Around one million tons of cigarette filters
are produced annually across the tobacco
industry.1 Although most are disposed ofproperly post-consumption, too many arecasually littered into the environment.

Our approach

While our original intent was to leverage thismethodology annually to monitor progress towards
decreasing the amount of plastic littered, the exercise
revealed limitations to this approach. Limitations
include the lack of reliable and standardized consumer
behavior studies as well as the exacerbated relianceon assumptions and extrapolations which made themethodology unreliable, very expensive, and not very
impactful. We also realize there is a need to establish
tailored and context-based targets, accompanied
by detailed strategies and initiatives that can bestencourage behavior change, prevent littering, andsupport cleanup activities, while defining concreteand clear ways to both define success and be able
to measure progress towards achieving it. Moreover,working toward removing plastic litter highlighted
the opportunity business can have in offering
opportunities for innovation to resolve systemic
issues, like the one that relates to plastic litter.

To tackle cigarette butt littering, weapply a three-pronged approach:
Design for circularity: Invest in R&D towardfilters made of more sustainable, plastic-freealternatives that allow faster biodegrading,resolving the issue of plastic litter altogether.
2. Encourage behavioral change: Inspire change in
consumer habits through impactful anti-litteringawareness programs and initiatives to empower
consumers to dispose of cigarette butts properly.
These initiatives include communications
campaigns and cleanup activities to raiseawareness, partnerships, portable disposal
solutions, and improvement of public equipment
solutions.
3. Reduce litter on the ground through efficient andcost-effective collection schemes. In the EU,
cigarette manufacturers will be required tocontribute to the costs of collecting and cleaning
up cigarette butt litter. The Single-Use Plastics(SUP) Directive requires that producers
participate in industry-wide Extended Producer
Responsibility (EPR) schemes. EPR is anestablished governance scheme for circular waste
management; it is now being used for the firsttime in the EU to address the problem of littering.
We support the concept of an industry wide EPR,
provided such schemes are managed in a costefficient, proportionate, and transparent way that
addresses the objectives of reducing litter andchanging consumer behavior.

1.

There is a pressing need for our R&D to support
ongoing efforts that holistically resolve the issueof plastic pollution, starting from its source. Thismeans finding ways in which we can reduce
the amount of plastic used across our devices,
consumables, and packaging through better design
and the use of more sustainable materials.

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https://www.pmi.com/media-center/news/new-pmi-survey-findsencouraging-signs-in-cigarette-butt-littering-behavior-and-attitudesand-key-areas-to-address

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performanceWith behavioral change being one of the key elementsof our strategy, we understand the need to develop
and implement actions that respond to local realities
and the socioeconomic and cultural specificities of thevarious places where we operate. With this in mind,
we included a new ambition and corresponding KPI
in our revamped 2025 Roadmap and Sustainability
Index: for markets collectively covering more than
80 percent of our combustible product shipment
volumes to deploy meaningful programs tacklingcigarette butt littering by the end of 2025.

Design for circularity
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 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.

Any new filter material or design must satisfy
stringent criteria:

For many years, we have been actively investingin R&D to explore and assess the viability ofalternative cigarette filter materials that have a lower
environmental impact than cellulose acetate (CA),an already renewable and partially biodegradable
material. We evaluate alternative filter materials
via extensive analytical testing, machinability trials,
biodegradation evaluations, and prototype testing
among consumers to understand their acceptability.

• Comparable filtration efficiency andperformance consistent with CA filters• Acceptable taste characteristics andexperience for consumers• Similar or reduced material carbon
footprint compared with CA filters• Substantial improvement in marine,
aquatic, and soil biodegradation comparedwith CA filters or a significant reductionin the plastic content of the filter

What are cigarette filters made of?

• Conduciveness to industrialization at scale

The main constituent of cigarette filters is
cellulose acetate (CA), a bioplastic madefrom wood-based cellulose. Contrary tocommon belief, CA does biodegrade over
several months or years (depending on thesurrounding conditions) and does not accumulate
in the environment over time. In contrast,
conventional plastics made from petrochemicals
take hundreds of years to degrade, often
breaking down to form microplastics.

Over the past years, some tested materials
have met one or more of the above criteria
but we are yet to find an alternative to CA thatsatisfies all five. We will continue to explore
options as new materials and processes become
available, and science and innovation evolves.
In 2022, we plan to continue our exploration
and use consumer research to better understandand validate consumer acceptance of alternative
non-plastic filters in some of our key markets.

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Overview

Encourage behavior change

Our efforts to raise awareness focus both on
specific littering hot spots—such as high-traffic
urban areas, squares, and parks identified aspriorities by local authorities—and on reachingsignificant numbers of consumers to drive societal
change. Insights gathered from our litter prevalence
assessment in 2021 will help further guide ourwork, allowing us to strategically focus on thoseareas with the highest incidence of littering.

While many consumers dispose of their waste
properly, too much waste ends up in the environment.
We seek to help change behaviors to prevent
cigarette butt littering and encourage proper
waste disposal. To that end, we run global andlocal awareness and anti-littering campaigns.
Tackling the issues of cigarette butt littering locally
Smoking habits, environmental awareness, anddisposal practices vary by country, so combating
cigarette butt littering requires tailored approaches.
Accordingly, our affiliates 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 ouraffiliates, with central support and guidance. In
2021, we had active campaigns in 46 countries.

Cleanup campaigns are predominantly designed
to raise public awareness of the littering problem
in the communities in which they occur rather
than resolving the problem of littering or replacing
more cost-efficient public cleaning services. For
instance, in Canada, through a collaboration with
the Great Outdoors Fund in 2021, we supported
20 local organizations with cleanup initiatives
involving more than 600,000 volunteers whocollectively donated over 10 million hours of
their time to gather 1,700 tons of litter.

C A S E S TU DY

Partnering up to tackle thelittering problem throughinnovation in Mexico

Strategy

Product impact

Operational impact

We seek to minimize the environmental impact of
the consumables used in our smoke-free category.
These include the heated tobacco units (HTUs)
used with our heat-not-burn products (including
the HEETS brand used with IQOS 3 DUO andprevious generations, the TEREA sticks used with
the new IQOS ILUMA, and the Fiit sticks used withlil devices), as well as the VEEV pods used with
our e-vapor device. With each product launch,
we will evaluate the need for a consumables
take-back program based on environmental
impact, consumer need, and market feasibility.
Long term, we aim to reduce our post-consumer
waste by design and explore low-carbon,
recyclable, and biodegradable alternatives tothe materials currently used in our smoke-freeconsumables. In the interim, we are focused on
establishing services to help our adult consumers
reduce the end-of-life impact of our products.

We also further developed Our World Is Not
an Ashtray, a web-based corporate platform toeducate, inspire, and engage the public on theissue of littering. Through this campaign, we sharefacts and figures, testimonials, and calls to action.
A few of our affiliates also use this platform as
a basis for local awareness-raising initiatives.

The consumption and post-consumption behaviors
related to our smoke-free products differ drasticallyfrom cigarette consumption. Unlike cigarettes,
HTUs do not need to be stubbed out after use,
and they contain no smelly smoke residues, whichmakes them easier to keep until proper disposal
and therefore less likely to be littered. In 2020,
we ran a survey in Lithuania to complement paststudies in Greece, Italy, and Japan to measure theproportion of HTUs versus cigarette butts found on
the ground. In partnership with third-party experts
at Cortexia, we then compared that figure with themarket share of HTUs versus all tobacco products.
Across the three major cities in Lithuania, thepercentage of used HTUs among tobacco products
littered was between 2.4 and 4.5 times lower thantheir sales market share. This finding suggests thata heated tobacco unit is on average three times
less likely to be littered than a cigarette butt.

In 2021, we also continued the deployment of ourMarlboro limited-edition “Leave No Trace” pack,which communicates anti-littering messages toadult smokers in 11 markets (2020: nine). During
the year, more than 30 million packs were sold atmore than 482,000 points of sale, and we estimate
they reached more than 2.3 million adult smokers.

Read more in our case study here.

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Reporting and performance

Managing waste fromour smoke-free consumables

Raising awareness globally
As in previous years, we had the opportunity
in 2021 to join the annual World Cleanup Day(where COVID-19 conditions allowed it). Our
affiliates’ participation in this global action—theworld’s largest litter cleanup event—is part of ourpublic sensitization efforts and signals our broader
commitment to tackle the issue of cigarette butt
littering. While the pandemic limited many of theevents we had planned, around 3,150 volunteers
across 53 countries (including PMI employees andtheir friends and family members) actively contributed
to picking up around 17 tons of litter. We added
a global challenge element to the activity througha partnership with Litterati, whereby participants
could download a mobile app allowing them to log,
tally, and share how much litter they collected.

We also partner with civil society organizations
on cigarette butt collection projects as part of ourwider awareness-raising efforts and with a view todeveloping viable recycling solutions for cigarettebutts. For example, our affiliate in Mexico developed
a comprehensive communication campaign thatengages adult smokers and other citizens in helping
to solve the problem of waste management. The
initiative has created a nationwide network ofvolunteer ambassadors who bring communities
together to collect cigarette butts, with more than
400 collection points nationwide. The team has also
partnered with Ecofilter, an organization that hasdeveloped an innovative biotechnological treatmentthat regenerates cellulose acetate into cellulose pulp.

aFundamentals

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Overview

Deploying anti-littering andtake-back programs

Our affiliate in Canada launched its smoke-freerecycling program at the end of 2021, partneringwith TerraCycle and inviting consumers to return
their used heated tobacco units, VEEV devices,
and any branded vape pod (including VEEV)at more than 120 convenient locations.

For the launch of VEEV in Finland in 2021, we
took into account the consumer expectation of
convenient recycling solutions for pods. Collection
points have been established in 470 locations aroundthe country. We also provide reusable collection
pouches to consumers for greater convenience.

In Guatemala, we provide cornstarch resealable
bags in which consumers can place their used HTUs
and return them to collection points across thecountry. Meanwhile, in Costa Rica, consumables
have been collected since December 2021 and used
for ongoing research by the Chemical Regency of
the University of Costa Rica. Various alternatives forrecycling are currently under evaluation, including the
production of biochar, a soil improvement solution.

In Switzerland, at the end of 2021, we launched apilot take-back and recycling program for heated
tobacco units. Adult users of our smoke-free
products can now collect HTUs in special bags
and return them to our IQOS branded stores inperson or via mail. We then send the collected
HTUs to our recycling partner, TerraCycle.

To further mitigate the risk of littering, we have set
an ambition as part of our revamped 2025 Roadmap
to implement context-based, impactful anti-littering
programs to collect and manage post-consumer
waste from our smoke-free consumables in markets
representing at least 80 percent of our smoke-free
shipment volume by the end of 2025. We will report
our progress annually against this new KPI. The
programs align with global requirements to ensure
consistency and comparability over time but are
adapted to deployment realities in each market.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

In March 2021, our affiliate in Mexico
launched its take-back program for HTUs,
with special collection bags made available toadult users at IQOS stores. The heated tobacco
units are then processed by our partner
Ecofilter using an innovative biotechnologicaltreatment that regenerates cellulose acetate
into cellulose pulp. Read more in the casestudy available here. By year-end, morethan one in 10 adult users was returning
their used consumables to the stores.

In 2021, we piloted such programs in nine markets—
including those featured on the right—allowing us
to gather valuable insights for a global rollout.
As these pilots unfold, we will continue to monitor
their progress and share learnings globally.
The insights and improvement opportunities
will fuel the rollout of consumables take-backand recycling programs globally by 2025.

“The partnership between Ecofilter
and Philip Morris Mexico is a clear
example of how our commitment
to sustainability and to a smoke-free
future are one and the same. With
collaboration among stakeholders,vision, leadership, and resources, inaddition to science and technology,
a lot can be achieved, and we will
deliver a smoke-free future.”Andrzej Dabrowski, Managing Director, PM Mexico“Consumers have responded
very well to the opportunity to reduce
their footprint and contribute toprotecting the environment. We areconvinced that we must face greatchallenges together in this ambitious
journey for a more sustainable future.”
Susana Vásquez, Director, External Affairs,
PM Central America Markets“We are very excited to pilot thisinnovative program for heated tobacco
units in Switzerland, where sustainability
plays an important role in day-to-day life.
The HEETS and TEREA take-back programis only a first step toward reducing thewaste generated by our products andis an expression of both our care andof our commitment to our consumers.
Sustainability is at the heart of PMI’stransformation, and we look forward
to growing and evolving the program.”
Alina-Virginia Frincu Director, Marketing and Digital,
PM Switzerland

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Overview

Introducing the innovative bladeless SMARTCORE INDUCTION SYSTEM™
—IQOS ILUMA and TEREA sticks
As we continuously work to enhance theenvironmental profile of our products and support
our littering reduction targets, the absolute weightof plastic content in TEREA sticks was reduced byapproximately 45 percent compared with HEETS.
To further support our littering reduction ambition,
the consumables end-of-life program, designed
to promote responsible post-consumer waste
management, is included in the TEREA launch androll-out plans, giving adult consumers a user-friendly
way to collect and return their used consumables
to us for responsible disposal or recycling.

At the heart of the SMARTCORE INDUCTIONSYSTEMTM is a metal heating element, coatedwith stainless steel and placed at the core of the
TEREA tobacco sticks. The heating element has
been specifically designed to heat TEREA tobacco
sticks from within and release the taste of tobacco
consistently throughout the entire experience.
This technology allowed us to remove the heating
blade from the ILUMA device, which simplified theinsertion and extraction experience, improved
the consistency of each stick performance, andeliminated the need to clean the device. The
combination of consistent and satisfying taste
experience with the ease of use and lack of needto clean the device creates a compelling value
proposition to further accelerate conversion of
adult smokers, advancing tobacco harm reduction.

Product impact

Operational impact

Improving circularity of oursmoke-free devices
By integrating sustainability considerations
into our product design—from development
to end-of-use—we can reduce environmental
impacts as well as associated costs.

Our approach
At PMI, we are committed to understanding andmanaging environmental impacts across our entire
value chain, including the life cycles of our products.
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.

Front seal that keeps
the holder clean
after use and ensureseasy insertion andextraction of thetobacco stick

Each product generation we launchincorporates improvements in quality, easeof use, durability, or performance.
Durability by design
In 2021, we started the commercialization of thelatest generation of our heat-not-burn devices, underthe IQOS ILUMA brand. These bladeless devices offera cleaner way to heat tobacco from the core, withoutburning it, to provide a more consistent experience,
no tobacco residue, and no need to clean the device.
This supports our objective to design products with aprolonged life cycle and to mitigate potential returns
due to consumer complaints. Further, it allowed us
to minimize product accessories thus reducing theamount of resources and materials used, as cleaning
sticks and other tools are no longer needed.

• Continue to reduce the carbon footprintof our smoke-free products in linewith our science-based targets• Achieve eco-certification for all PMI
smoke-free electronic devices introducedon the market as of the end of 2025
• Pursue improvements in areas such as
durability, design for repair, and recycling

Protective
paper wrap

Cooling plug, madeof cellulose acetate,that cools down theaerosol temperature

Meeting these goals relies on a systematic approachthat considers sustainability from the start of the
product development process. Our work is guided
by our Sustainable Design Framework, which
accounts for impacts related to materials selection
and sourcing, components production and productmanufacturing, distribution, use, and product end-oflife. The guidelines are embedded into our innovation
stage-gate processes, and we continually reinforce ourrequirements and principles at each design stage gate.

Reducing our product carbon footprint
In general, our smoke-free products have a higher
carbon footprint than combustible cigarettes. Thisis primarily due to the inclusion of an electronic
device, which involves new components andrequires electricity to charge. Additionally, theprocess used to manufacture consumables such as
HTUs is more energy intensive than for cigarettes
due to the production of cast leaf tobacco.
We are working to reduce the carbon footprintof new versions of our smoke-free products
compared with previous ones through improved
manufacturing processes, extending the usable
life of our electronic devices, and decreasing thetotal carbon footprint through smart materials
selection and sustainable design practices.

Note: IQOS ILUMA is designed to be used only with TEREA SMARTCORE STICKS. IQOS ILUMA and TEREA SMARTCORE STICKS must not be
used with previous generations of IQOS, as this may damage the device. As TEREA SMARTCORE STICKS contain a sharp metal part that cancause serious injury if swallowed, they must be kept out of reach of children and pets, and must not be ingested or disassembled.

108

Reporting and performance

Embedding eco-design principles into
our products• Provide access to device collection
and recovery to all IQOS users
Air-flow chamber that
ensures that just the rightamount of aerosol passes
through the stick for asatisfying and easy draw

Fundamentals

To manage the end-of-life of our electronic devices,
our centralized CIRCLE hubs inspect, process, andseparate materials for recycling. We continue togrow the capacity of these hubs, also implementing
repair and refresh capabilities, and to expand theircoverage by onboarding new markets. In certain
instances (e.g., in the case of challenges related tocross-border transportation of electronic waste),we will complement our centralized approachwith local solutions. We expect to leverage thelearnings from our CIRCLE hubs to guide andcentrally govern such local solutions, ensuring
they are aligned with our standards and support
progress toward our global recycling targets.

With respect to our smoke-free productdevices, our 2025 eco-design andcircularity ambitions are as follows:

Innovative metal
heating element,
coated with stainlesssteel and placed inside
the tobacco stick

Tobacco part, made of afinely ground and speciallyprepared tobacco blend

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Overview

Eco-design certification
Product eco-design certification can drive performanceby raising the standards to pursue and provide
comprehensive information to consumers, enablingthem to make more sustainable product choices whenswitching from cigarettes to smoke-free products.
In 2021, we conducted an in-depth assessment ofcertification schemes and established a roadmap tomeet our ambition of having all smoke-free electronic
devices launched as of the end of 2025 eco-design
certified. We also established a dedicated committee
composed of senior leaders from our Product team.

We use life-cycle analysis (LCA) to assess the carbon
footprint of our products, from tobacco sourcing todevice end-of-life impacts. This analysis applies to
IQOS devices, heated tobacco units, and packaging.
In 2020, we finalized the results for our new
heat-not-burn product, IQOS ILUMA, which
we launched in two markets in 2021.
IQOS ILUMA represents a new generation of
products and therefore sets a new baseline forcarbon footprint. It comes with new induction
technology and quality improvements that address
consumer pain points and aims to prolong the
product life cycle, hence reducing its environmental
impact over time despite a slightly higher carbon
footprint than previous device generations thatwere based on blade technology. We strongly
believe that IQOS ILUMA will be a key driver tosupport our smoke-free future objectives.

Smoke-free products—and heated tobacco products,
in particular—are a relatively new product category.
As such, they typically are not covered by existing
eco-design certification standards. Accordingly, we are
implementing a two-pronged approach. Ultimately, we
seek to develop and implement new category standards
as necessary to achieve our certification goal. In the
shorter term, we are working to identify other ways topublicly disclose the sustainability performance of our
products through structured disclosure programs.

We aim to drive continuous improvement in
future product generations. To this end, we havedesigned assessment guidelines to further embedsustainability (including carbon-related) considerationsin the early stages of the development process.
We will start applying those guidelines as part ofour roadmap toward eco-design certification.

A prerequisite to achieving our product eco-design
certification ambition is to continue cascading
our criteria for sustainable design and integrating
eco-design certification requirements into ourmaterials selection and development processes.

Strategy

Product impact

Operational impact

Extending smoke-free product life cycle

Fundamentals

Reporting and performance

Preserve through proper device care
The first pillar of our work is device life
extension through better care.

We strive for our products to last and increasingly aim
to refresh and repair them so they stay in use as longas possible. Achieving this starts with imposing highstandards of quality and reliability (read more here)
and extends to proper care, steps to refresh, repair,and refurbish devices, and recycling. In other words,
we are evolving from a collection-for-recycling model
to a collection-for-recovery one. This means we needto develop criteria to facilitate the product triage
needed to expand our refresh and repair capabilities.

We strive to help users of smoke-free electronic
products look after their devices so they serve
them longer and to encourage them to returnthe devices to us after use so we can givethem new life via a refresh, repair, or recycling.
We seek to minimize consumer pain points
with simple tips pertaining to regular device
cleaning at home or professional cleaning inour boutiques, software updates, and propercharging. These simple actions help reduce
the number of devices ending up as waste.

In this context, we have identified the following
key dimensions to be addressed: (1) collection andtriage of devices, distinguishing between those to
be recycled and those to be refreshed or repaired;(2) refresh and repair capabilities that meet quality
requirements; and (3) re-marketing of products.

Building on this work, we are leveraging processes
and tools in our sales channels (e.g., our stores,
e-commerce websites, and IQOS coaches)to prolong the life of our devices and avoid
e-waste through appropriate device care.

The first two pillars are highly interdependent, as thecriteria 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.

These efforts include avoiding unnecessary
product replacements through proper device
diagnosis and streamlined procedures for returns,
warranties, and loyalty programs. In 2021, we
maintained or expanded several service-based
solutions aimed at extending product lifetimes
through device optimization and maintenance.

Life-cycle assessment: Comparison of some PMI products (kgCO2e/year)
37
33

32

36

36

32

Supply of raw
materials &components

Manufacturing
process

Commercialization

Use

Disposal

24
19

Returned
devices

Preserve

Proper device care

Second life

IQOS 2.4+
Combustible
cigarette

IQOS 3IQOS 3Multi

IQOS 3
VEEV

Heat-not-burnblade technology

E-vaporproduct

IQOS ILUMAPRIME

IQOS ILUMAONEIQOS ILUMAILUMAHeat-not-burn
induction technology

RecycleProduct refreshor repairdevices back into
raw materials

This graphic is an internal assessment based on data compiled from three different LCAs and assumes 20 heated
tobacco units per day. Scope includes materials, manufacturing, and end-of-life, but excludes logistics.

110

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Overview

For instance, we released a global campaign andmade a mobile application available for IQOS users
in 18 markets that provides tips on how to use andclean the devices, as well as basic troubleshooting
instructions. We also installed firmware upgrade
retail solutions in all markets in which our smokefree products are sold to make device maintenancemore convenient and support product life-cycle
extension. Overall, the combination of device
quality improvements and consumer-facing efforts
contributed to reducing our device return rateby around one-third in the past two years.

In 2021, to build a foundation for our device
second-life program, we conducted pilots to test
the IQOS refreshed value proposition in several
markets across Europe and Asia. In five of thesemarkets (Austria, Germany, Japan, Switzerland,and U.K.), we collected and refreshed devices
returned by consumers at the end of the device trial
period (our lending program allows adult smokers
to test the product for a maximum of 30 days).
Product refreshes do not involve replacing internal
components but, rather, swapping in new external
components when damaged, deep cleaning, andrepackaging. We worked with our partners at our
CIRCLE hubs in Hungary and Japan to apply triage
criteria. We determined whether each component
merited recovery or recycling, primarily focusing on
the IQOS chargers and holders. We also considereduser documents, packaging boxes, and charging
cables. We refreshed around 62,000 devices during
this pilot phase and resold them in eight markets(the five pilot countries plus Malaysia, New Zealand,and Portugal), either as a pilot or as part of thestandard product assortment. Overall, the resultsof the pilots, along with consumers’ direct feedback
and research insights, confirmed the validity andpotential of the second-life concept and encouraged
us to continue our journey toward circularity.

Promote device second life: refresh and repair
We strive to establish commercially viable
programs that offer a second life to devices
and cycle them back into the economy.
We are in the early stages of moving from acollection-for-recycling model to a collection-forrecovery model, which will help us attain meaningful
circularity. We took steps in 2021 to prepare andscale up capabilities at 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 since2021). Key prerequisites of a successful secondlife strategy include the ability to collect andsort devices, distinguishing between those to berecycled and those to be recovered, and to repair
devices according to quality and safety standards.

The refreshed products were sold at
lower price points than new ones anddemonstrated high consumer satisfaction.
Also in 2021, we piloted an extended collectionof used devices from consumers in two markets:
the Czech Republic and Slovakia. Our take-backprogram has been designed to accept returns of
any used devices consumers no longer want. We
deployed dedicated collection boxes across our
IQOS retail network, covering 56 shops in the Czech
Republic and 19 in Slovakia. We then sent thereturned electronic devices to the CIRCLE hub in
Hungary for recycling. The initiative has been met
with a very positive reaction from consumers.

“ Considering that we launched
IQOS in the Czech and Slovak
markets back in 2017, naturallysome of our customers possess
devices that have reached the endof their technological life cycle.
We would like to motivate themnot to throw the electronicequipment in mixed waste, butrather to return it to us so that we
can take care of it on their behalf.”

Strategy

Product impact

Operational impact

Enhance circularity: device recycling
For those broken or end-of-service productsthat cannot be given a second life, our reverselogistics program helps to recycle materials backinto the economy. Our CIRCLE program provides
centralized hubs that inspect, process, and separate
materials from our electronic devices for recycling.

Reporting and performance

We remain committed to maintaining a recycling
rate of above 80 percent for our smoke-freedevices in our CIRCLE hubs while gradually
expanding coverage. As new hubs and products
are introduced, we will continue to improve
our recycling capabilities. We aim to increase
our effective recycling rate from 53 percent in
2021 to our target of 80 percent by 2025.1

Our CIRCLE hubs in Hungary and Japan continued
to drive excellence in e-waste management in 2021.
The recycling rate of our products in these two hubs
combined stood at 86 percent for the year
(78 percent recycling and 8 percent incineration
with energy recovery). We also continued expanding
CIRCLE hub coverage, bringing the total to 14 markets
covered by our CIRCLE program at the end of 2021.
This allowed us to achieve 63 percent market volume
coverage globally (up from 48 percent in 2020) andprogress toward our target of 100 percent by 2025.

Accessories
As we progress with device recycling, we are
exploring possibilities to close the loop by reusingmaterials to produce new accessories for our
products. For instance, we have designed acollection of IQOS 3 accessories made out of
IQOS devices recycled in our CIRCLE hubs.
The collection consists of four SKUs and will belaunched in three markets as a pilot. We expect thisinitiative to further encourage consumers to play
an active role in reducing post-consumer waste.

Considering regulatory restrictions related toe-waste transportation, we cannot fully leverage
our recycling standards at the centralized hubs.
Hence, we will further assess potential CIRCLE
capabilities that may be implemented locally yet
governed by central standards. In 2022, we plan
to define a set of consistent criteria to accountfor local solutions under our CIRCLE program.
Nonetheless, our key objective remains to drive
centralization of our efforts, as we believe thisapproach can bring several benefits, including
economies of scale, regional investment, illicit trade
prevention, and quality enhancements (accelerating
design and manufacturing improvements).

1

One of our next priorities will be to expand thecollection of used devices via other consumer
programs and increase their processing fora second life. We plan to further expand theprogram’s geographic coverage and will continue
to increase our refresh and repair capabilities.

Marta Barbara Keszczyk Head of Direct Retail,PM Czech Republic and Slovakia

112

Fundamentals

113

The effective recycling rate is calculated based on the proportion of devices
covered by the CIRCLE program multiplied by the actual recycling rate ofdevices at the CIRCLE hubs in Hungary and Japan (weighted average), to which
we add the theoretical recycling rate of the Russian CIRCLE hub, established inlate 2021, multiplied by the CIRCLE program coverage of the Russian market.

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Overview

Reducing and improving
packaging

To deliver on these commitments, weemploy a twofold strategy:
Reduce packaging: We aim to eliminate
unnecessary packaging, in particular plastic
packaging, and to implement solutions allowing
us to reduce the amount of materials used.
2. Improve circularity: To prevent the depletionof finite resources, we seek to increase therecyclability of our packaging and to reduce theuse of materials made from non-renewablesources, in particular aluminum and nonrecyclable plastics.

1.

Our approach to packaging contributes
significantly to our efforts to preserveand protect the planet’s resources.
We use packaging for all our products,
including cigarettes and smoke-free electronic
devices, consumables, and accessories.

Our approach
We aim to develop solutions that minimize
packaging materials and improve their circularity
without compromising protection and convenience.
We are driving our approach through ambitious
commitments. We aim to achieve:

Fundamental to our efforts is integrating circularity
considerations into the sourcing of renewablematerials, minimizing packaging, and reducing end-oflife implications. In the design stage, for instance, we
prioritize the use of recyclable mono-materials and the
reduction of the void inside the packaging to optimize
transportation, both of which reduce the product’s
carbon footprint. To ensure circularity, the packaging
should be easily recycled by consumers. This requiresthat a recycling infrastructure be available for thematerials selected in markets across the globe.

• 100 percent recyclable inner
liners by the end of 20221• 100 percent of packaging made withrecyclable materials by 2025
• 95 percent of packaging materials madefrom renewable sources by 2025

Product impact

Fundamentals

Operational impact

Reduce packaging

Reporting and performance

Meanwhile, we achieved significant progress in the
packaging used for our smoke-free devices andaccessories. In 2021, we launched a new IQOSILUMA packaging without any plastic shrink film
or plastic window, leading to a 9 ton reductionin plastics used. Packaging materials efficiency
was also improved, with new packaging formats
being 40 percent lighter and 20 percent smaller,
representing 43 tons of fiber-based packaging
reduction while keeping equivalent productprotection. Those improvements have significantly
reduced packaging carbon emissions for IQOS ILUMA.

Our first ambition is to decrease the volume
of materials used in our packaging.
We focus first on board, the primary material usedin our packaging. In 2021, we estimate that over
70 percent of the volume of board and paper wesourced for our packaging came from suppliers with
Chain of Custody (CoC) certified according to theForest Stewardship Council (FSC), Programme for
the Endorsement of Forest Certification (PEFC),
or Sustainable Forest Initiative (SFI) standards.
Working with our major suppliers, we continued
to roll out the replacement of the packaging
board used in our HTU and cigarette packaging
with a 10 percent lighter alternative. By the endof 2021, we completed some of the projects
within our board weight reduction program,enabling us to save an estimated 8,500 tons ofboard without compromising pack quality.

We also worked to facilitate the proper disposalof packaging by consumers. For instance, we havestopped using magnets in our device boxes andare taking steps to replace plastic laminated board
to achieve complete recyclability of our devices
and accessories packaging in the paper stream.
Overall, between 2018 and 2021, wereduced our total packaging materials weightby 8 percent and are on track to meet our
15 percent reduction target by 2025.

Our teams in the Consumer, Product, andProcurement departments work together to promote
the various elements of circular packaging design.

• 15 percent reduction in packaging weightby 2025 (versus 2018 baseline)

1

Strategy

For all markets where such a change is possible according to local regulatory compliance.

Use of materials in our packaging in 2021

Paper and board(Packs and bundles, inner liners,

Paper
andcases)board(385,167 tons)
shipping
Packs and bundles, inner liners, andshipping
Plasticcases

90%
385,167 tons

90%

6%(Overwrap of packs and bundles, pouches,
Plastic
27,793 tons
6%
Overwrap
packsandand labels)
bundles,(27,793 tons)
seal innerofliners
pouches, seal inner liners, and labels

Aluminum

Aluminum1%(Innerliners(including
seal)
and other
2,444 tons
Innerliners(includingseal) andothertobaccopackaging
tobaccoproduct packaging) (2,444 tons)
Other
Other

1%

12,193 tons3% 3%
Inks and composite materials used in(Inkstobaccoand composite
materials used inotherproduct packaging

other tobacco product packaging) (12,193 tons)

114

115

Reduce post-consumer waste

Philip Morris International – Integrated Report 2021

Overview

Improve circularity

In a few markets, we will have to continue using
non-recyclable aluminum inner liners to comply
with local regulatory requirements. To mitigate
the environmental and social impact, we seek
to source certified aluminum from our tier 1
suppliers. In 2021, 89 percent of the aluminum
used in our packaging was Aluminum Stewardship
Initiative (ASI) certified, either under the
Performance Standard or the Chain of Custody.

Acting on our commitment to eliminate non-recyclable
materials and increase renewable material use to
95 percent by 2025, we set up a program to replacealuminum inner liners with paper versions. We also
are consumer-testing alternatives to plastic packaging.
Eliminating aluminum
Our combustible cigarettes and HTUs areencased in an inner liner inside the pack.

Substituting non-recyclable plastic packaging
Currently, the plastic wrap around our packs ofconsumables and secondary cardboard packaging is
recyclable but is not made from renewable sources.

More than 85 percent of the inner liners in our
packaging are recyclable in the paper stream (2020:
74 percent), and we are committed to eliminating theuse of non-recyclable aluminum foil in all markets
in which that is permitted by the end of 2022.

We are exploring the use of renewable alternatives
to plastic. We have received positive feedback fromconsumer panels and plan to pilot a new packaging
solution in one or more selected markets in 2022.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

Leveraging the learnings of the pilot programs welaunched in 2021, we will expand our responsible
post-consumer waste management programs for
smoke-free consumables to the global level. We
will continue to combat littering and work todevelop products that further integrate ecodesign principles, driving significant waste
reduction and addressing the issue at the source.

We will continue to systematically implement
our sustainable design principles throughout
our product development. Research willcontinue to identify technologies and materials
that could enhance the overall sustainability of
our smoke-free product portfolio.
As we continue to refine our products, we
expect iterations at the design stage to leverage
our eco-design principles and further support
our second-life program ambitions. Meanwhile,
we will continue to rollout our CIRCLE program
across the markets in which we commercialize
our smoke-free products, amplifying our reachwhile maintaining high recycling rates.

We will also take steps to commercialize secondlife devices on a larger scale. First, we plan toexpand the collection of used devices and further
test first-level triage processes (e.g., at our IQOS
stores) while improving the recovery process andour repair and refresh capabilities. As thesecapabilities will strengthen over time and new
product generations will be more repairable bydesign, we expect an increasing number ofdevices to be sorted for recovery and second life.

As we move along in our eco-design
certification ambition, we are engaging with
eco-labeling organizations to support productcategory definitions for electronics andtranslate the insights into our productdevelopment process.

Stefano Volpetti, President, Smoke-Free Products
Category & Chief Consumer Officer

Bin Li, Chief Product Officer

In 2022, we will continue deploying andexpanding cigarette butt anti-littering programs
across the countries in which we operate, incoordination with key stakeholders and partners.

Meanwhile, we remain committed toinvesting in R&D to find solutions that can
successfully help us remove plastic fromour combustible products, by exploring andassessing alternative filtering materials thatcan completely replace cellulose acetate.

We will intensify our efforts to research andapply effective solutions to increase awarenessof the littering issue among adult smokers,
and we will continue to use our brands as
carriers of those messages when possible.

Werner Barth, President, Combustibles Category& Global Combustibles Marketing

116

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Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performanceO P E R AT I O N A L
I M PAC T
Foster an empowered and inclusive workplace120

Improve the quality of life of people in our supply chain 144

118

Tackle climate change

162

Preserve nature

178

119

Philip Morris International – Integrated Report 2021

Overview

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

Foster an empowered
and inclusive workplace
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.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

The right thing to do

The business case

Equitable and fair conditions of employment are
crucial for societal harmony and well-being and are
central to a sustainable and prosperous future forall. Effective talent attraction, development, andretention ensure employees can pursue professional
opportunities and contribute meaningfully to society.

Our long-term business success relies on humancapital in the form of the dedication, talent, andpassion of our employees. It is essential for us
to provide a fair and inclusive workplace that
upholds good working conditions and labor rights,
protects the health and safety of employees,
promotes their well-being, and offers opportunities
to grow and improve their employability.

By protecting and promoting equality, diversity, equity,and fair treatment—human rights that are essential
to unlocking social and economic development—weseek to instill in our workers a sense of belonging andmaintain an inclusive workplace culture. Moreover, by
ensuring that all people who work with us enjoy a safeand healthy work environment and by attending totheir physical and mental well-being, we can positively
impact their lives beyond their time spent at work.

Investing in our people and providing meaningfulemployment helps us to recruit and retain
talented individuals, achieve high productivity
and efficient operations in a context of rapidchange, and deliver on our company’s purpose.
Furthermore, we regard diversity as one of ourgreatest assets. We strongly believe that a morediverse and inclusive culture better attracts
talent and improves decision-making, innovation,customer orientation, and employee satisfaction.

O U R A S P I R AT I O N S
CONTENTS
Maintain

122 Our management approach
Progress in 2021

2022

129 Protecting the health and safetyof our employees
132 Fostering diversity, equity,equality, and inclusion

<0.65

≥30

Global40%

100%of employees earning atleast a living wageof management positions
held by women

2023

32%

2025

70%

SI

35%

SI

139 Promoting mental healthand well-being
142 Looking ahead

100%

employee Net Promoter Score

123 Providing fair employment
125 Developing our human capitalSI

EQUAL-SALARY certification<0.3

integrated Total Recordable
Incident Rate (iTRIR) for
PMI employees, contracted
employees, and contractors(per 200,000 hours worked)of PMI employees covered by
new parental leave principles

of senior roles held by womenof PMI employees with access to
structured lifelong learning offersof senior roles held by women120

collision rate in our fleet

Sustainability Index

>70%

≤60%

≥60%

≥20%

perception of psychological wellbeing among our employees

representation of local talent in
the executive management teamsof at least 80% of our markets

121

representation of any one genderin management positions

representation of Asian talent
in senior roles globallyFoster an empowered and inclusive workplace

Philip Morris International – Integrated Report 2021

Overview

Our management approach

Progress in 2021

Our ambition is to be an employer of choice,fostering an inclusive culture wherever we
operate in the world. This means ensuring that
our employees experience fair working conditions,
opportunities to develop skills and boost theiremployability, and a workplace that protects andpromotes their health, safety, and well-being.

Providing fair employment

Dedicated teams within our People & Culture
function—headed by our Senior Vice President,
People & Culture, a member of our Company
Management—lead efforts on labor relations,talent attraction and retention, learning anddevelopment, performance management, andcompensation. Our Chief Diversity Officer oversees
the development and deployment of strategies tofoster diversity, improve inclusion, and promote
well-being in the workplace. Our Senior Vice
President, Operations oversees the company’s
strategy and performance on health and safety
across our manufacturing sites, fleet, and offices.

Our Guidebook for Success and its accompanying
set of internal Principles and Practices guide thework of our teams globally. These commitments
and policies are complemented by various internal
guidelines, standards, and toolkits. These include
our Workplace Integrity policy, which aligns with our
Commitment to Human Rights and relevant standardsof the International Labour Organization (ILO), andour Health, Safety, and Security policy, as well as ourgeneral commitment to promote and protect humanrights in accordance with the United Nations Guiding
Principles on Business and Human Rights (UNGPs).

We develop and deploy specific programs
accompanied by tailored commitments
and targets that allow us to track progress
and adjust our actions as needed.
We use training and communications to help
employees understand the standards and processes
relevant to their roles and how to apply them in their
daily work. We use multiple formats and languages
to optimize our reach across the organization.
Employees can speak up about employmentrelated concerns, ask questions, and recommend
improvements to their supervisors, P&C
teams, our Ethics & Compliance function, or
through our helpline. Read more here.

Workplace integrity principles at PMI
We strive to maintain an environment that is inclusive, safe, andprofessional. We promote diversity, equality, and equity in ourorganization, ensuring that all employment-related decisions are
merit-based. We do not tolerate harassment, discrimination, abuseor misuse of company assets or resources, violence, or the misuse ofalcohol or drugs. We do not engage in or condone child labor, forcedlabor, or other labor abuses. We encourage effective engagementand dialogue with employees and their representatives.

Strategy

Product impact

Operational impact

Reporting and performanceThis dialogue occurs at local, regional (e.g.,
European Works Council), and global (e.g., theIUF – International Union of Food, Agricultural,
Hotel, Restaurant, Catering, Tourism, Tobacco
and Allied Workers’ Associations) levels.

All employees, irrespective of role, location,
type of employment, or length of service, havethe right to work under fair and just conditions.
Treating people with respect and dignity is central
to the fundamental principles that guide ourbusiness conduct and unite us as a company.

Maintaining sound labor relations
Labor rights are an integral part of human rights.
We are determined to uphold high diligence inrecognizing employee rights, fostering stable andcollaborative labor relations practices, and observing
high standards of employment. Constructive
engagement with employee representatives
serves as a bedrock of effective labor relations.

Labor relations in timesof business transformation
In 2021, we continued the organizational
restructuring of our Operations Center
in Switzerland to bolster our company’stransformation. Following 2019 and 2020
developments, four additional central
functions, as well as Duty Free, underwent a
full reorganization—including a consultation
process. Over the past two years, 354 Swissbased employees have been dismissed
due to restructuring while more than 150
employees have been redeployed internally.
Moreover, 282 employees decided to opt
for the voluntary program offered in thecontext of the Swiss reorganization.

We ensure our employees are informed of theirrights by their local People & Culture teams, ourGuidebook for Success, and related principles
and practices—including our Workplace Integrity
policy—and collective labor agreements.
We are committed to respecting the rights of
employees to form or join trade unions and other
employee representative organizations of theirchoice. Collective labor agreements govern manyof our employees’ terms and conditions at workand may include arrangements pertaining toworking hours, occupational health and safety,
holidays, wages, and procedures for dispute
resolution. In 2021, we had 77 collective labor
agreements in 34 countries, covering 61 percent
of our employees (2020: 79, 34, 62 percent).

Organizational restructuring is a delicate
phase in a company’s life, as it affects people,
processes, systems, technologies, businessareas, and functions. When facing restructuringinitiatives in such a challenging, complex, andever-changing environment, putting people firstis our priority. In October 2021, following an
extensive assessment, a decision was made tocease production at one of our cigarette factories
in Russia, PM Kuban factory, as of February 2022.
Regrettably, 244 employees (out of more than
3,200 people employed in our Russian affiliate)
were impacted; we were able to reemploy 98 ofthem at our other Russian production facility in
Izhora and other affiliates. All impacted employees
received financial assistance, support from
employment experts, and training opportunities.

As a global company, we consider it our duty toensure that our entire workforce, regardless of local
or national standards, is treated fairly, respectfully,
and in line with our standards. We operate in multiple
countries with widely varying legal employment
standards. In those countries where the right tofreedom of association is restricted, we strive towork with employees’ consultative committees andother 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.

122

Fundamentals

123Foster an empowered and inclusive workplace

Philip Morris International – Integrated Report 2021

Overview

Providing fair compensation

We plan to conduct a living wage assessment
at least every two years and initiate actions asnecessary to ensure we continue to meet our
global living wage commitment to our employees.

We are committed to upholding andpromoting a fair and just workplace, rewarding
employees based on their performance.

Equal pay for equal work
At PMI, we understand equal pay for equal workas the baseline standard for gender equality, andwe have committed to regularly assess and certifythat our pay practices match our good intentions.

Rewarding employees
Our employee-centered approach to benefits
aims to foster a high-performance culture.
Our employees are individuals with varying
motivations, values, skills, experience, andaspirations—each of which can change over time—
and this shapes our reward offerings. Our suite ofcompensation, recognition, and benefits programs,
platforms, and policies differs by location, taking
into account local regulations, agreements, needs,
and preferences. However, there are some global
elements, such as our Employee Assistance Program,and most programs incorporate bonus plans, life
insurance, long-term sickness plans, retirementrelated arrangements, and paid leave programs.

In 2019, we became the first company to earn global
certification from the nonprofit EQUAL-SALARY
Foundation following an intensive quantitative andqualitative review of our pay and related practices.
This independent certification verifies that PMI pays
men and women equally for equal work everywhere
the company operates. The original certification
was valid until April 2022 and we are proud toconfirm the re-certification, valid until March 2025.
As part of the process, we conducted aquantitative compensation assessment in 2021
that confirmed that men and women are paid
equally for equal work. Moreover, auditors fromPricewaterhouseCoopers validated additional
qualitative aspects regarding equality such as thecommitment of top management to gender equality
and equal pay, the objectivity of our P&C pay
policies and practices, transparent communication,and employee perceptions on these matters.

We regularly review our offerings to ensure
they continue to meet the evolving needs of
our workforce. For instance, PMI’s Smart Work
policy—which we began rolling out in 2021—offers
greater flexibility and hybrid work options.
Upholding a living wage
We are committed to ensuring that all employees
across the geographies in which we operateearn at least a living wage. Paying at or above
living wage benefits employees, families,
communities, and our business. It fosters talentattraction, retention, and productivity while
securing our social license to operate.

Equal pay for equal work is a first step in recognizing
the value of women’s work and their contributions
to society. With this foundation in place, we are now
working to close our broader gender pay gap (theaverage pay for women versus the average pay formen), including by achieving a better gender balanceat senior levels of the company (learn more here).

A living wage, distinct from a minimum wage,
provides an employee with the means to enjoy adecent 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 Business for Social
Responsibility (BSR), a leading sustainability
consultancy, since 2018 to assess living wages
globally. In 2021, we undertook a global survey
and analysis, which confirmed that we continue
to pay at or above the living wage level for our
employees everywhere we do business. This
assessment covered all our employees worldwide.

Strategy

Product impact

Operational impact

Developing our human capital

Anticipating the needs of tomorrow
As PMI evolves and progresses towards its
purpose, understanding and sourcing critical,
strategic, future-fit skills is essential. Strategic
workforce planning enables us to proactively
manage and deploy talent, address potential
risks, and capitalize on opportunities tobetter manage talents in the longer term.

Managing the employee journey
PMI’s vision of a smoke-free future helps toattract and retain talent. The opportunity
to contribute to achieving the company’s
purpose is compelling to many, as is the
chance to make a positive societal impact.

In 2021, we took steps to enhance our shorterterm operational workforce planning. We
piloted an internal online platform that allows
employees to join projects based on theirskills, interests, and availability. We want tohelp employees grow by applying their skills or
learning new ones in contexts different fromtheir day-to-day jobs. The platform was madeavailable to around 1,200 employees in our
Commercial function across 35 markets in 2021.

Recruiting and retaining talent
Our overall employee turnover rate increased
from 9.7 percent in 2020 to 12.0 percent in 2021.¹
After a year marked by the COVID-19 outbreak in
2020, the increase in 2021 reflects our continued
business transformation, as well as broader
shifts in workforce trends and preferences.
In 2021, we hired close to 8,400 employees
worldwide and filled almost one out of five open
positions with internal candidates. Our internal
careers market provides current employees withtransparency and easy access to opportunities.
It helps us to mobilize our diverse talents
across the organization and support the career
growth and satisfaction of our employees.
Achieving a high retention rate starts witheffective onboarding processes for new
employees. In 2021, we continued to improvethese processes and our employee induction
program, which includes training related to thebusiness, how we create value, our products,
and our approach to sustainable development.

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.

We leverage a holistic approach to employee
listening to capture the needs and expectationsof our workforce during different momentsin their career, such as onboarding, a changeof position, or a promotion. This helps
us develop focused interventions.

124

Reporting and performance

For instance, in 2021, we developed a playbook
to guide managers throughout their journey, fromhiring to managing growth and development,
supporting their teams, resolving issues, andrecognizing superior performance. Equipping
supervisors with such knowledge and tools isessential to providing meaningful employee
experiences, fostering engagement, and boosting
PMI’s attractiveness as an employer.

Human capital encompasses, among other things,
employee knowledge, skills, know-how, good health,well-being, training and education. Attracting,retaining, and developing employees is increasingly
important in a time of demographic shifts, disruptionsin the world of work, and business transformation.
We provide employees opportunities to learn,develop, and contribute towards our ambitious
purpose while at the same time adapting toemployees’ evolving needs and expectations.

1

Fundamentals

In 2021, we updated our methodology to expand scope and cover employees
on long-term leave (over 30 calendar days); we have restated historical dataaccordingly.

125Foster an empowered and inclusive workplace

Philip Morris International – Integrated Report 2021

Overview

Following pilots in 2020, we expanded our new
performance management program in 2021 to cover
all managerial positions worldwide (representing
more than 11,000 people), as well as around 2,000
additional employees in non-managerial positions.
This new program is aligned with our quickly evolving
environment and ways of working—particularly
as we increasingly work in project-based, crossfunctional, multidisciplinary, and virtual teams. The
approach is built on three fundamental priorities:
clear objectives for all employees derived fromthe company strategy, continuous feedback frommultiple sources, and the incorporation of the“how” element in line with PMI’s leadership model.
This new approach provides a more holistic pictureof the value and impact each employee brings.

Our training is delivered through our global e-learning
platform, FUSE. By the end of 2021, around75 percent of our workforce had access to and wereactively engaged on the platform. Digital training
programs available on FUSE range from foundational
knowledge of our products, science, and transformation
to effective leadership, well-being management,
and IT and digital capability development.

Employees in non-managerial positions, whowere not covered with the new performance
management approach in 2021, continued toundergo a performance management approachthat leverages the PMI leadership model and setsout a clear methodology for objective setting.

Targeted programs
We also create targeted programs to help employees
acquire and develop the skills that will allow us tomeet our strategic targets. Every PMI employee
owns their development, and we know that not
everyone learns in the same way or at the same pace.
Consequently, our portfolio of learning products is
flexible, incorporating online self-paced resources,
virtual classrooms, and in-person sessions.

Our Global Learning Network, made up of close to 800
employee volunteers representing a broad range ofcountries, functions, and seniority levels, plays a vitalrole in informing the design and delivery of our learning
products. Working closely with these team members
allows us to stay learner-focused in our approach andtruly understand what our employees need and value.

Overall, more than 92 percent of our employees werecovered by formal performance reviews in 2021.1
In addition to the new performance
management program, we improved our talentreview process in 2021 to ensure employees’
careers and development are discussed in a
structured, objective, and fair manner.

Some of the new learning solutions we provided
to our people in 2021 include:• Consumer centricity: PMI’s first global learning game,
Bee Wow, is a custom, data-driven training solution
focused on building consumer-centric behaviors,
knowledge, and skills. Since its global launch in October
2021, more than 1,500 employees have completed
the game, gaining knowledge and confidence in the
training subjects and implementing this learning
into their day-to-day work. The program continues
to achieve results and receive external recognition,
including a silver medal for “Best Use of Gamesor Simulations” at the 2021 Brandon Hall Group
Excellence Awards in Learning. Both employee andmanagerial feedback demonstrate that the training
tool is effective, efficient, and well-received.

Continuous employee learningand development
We seek to provide employees access toopportunities to develop their skills and careers.
Our global approach to learning takes into accountwhat employees need and when they need it.
Our learning culture aims to foster a skilled andconfident workforce by giving people the tools
they need to perform to the best of their abilities
within their current roles and to develop theirpotential to be successful in future roles.

• Leadership development: At PMI, every employee
is considered a leader, and it is vital that we provide
the necessary support to enable everyone togrow, develop, and contribute to the success of thecompany. We have invested in leadership development
offerings over the past several years and have put inplace solutions covering critical areas such as leadingchange, first-level management skills, and resilience.

Digital learning
In 2021, with many office-based employees
continuing to work remotely, whether full- or
part-time, we focused on strengthening ourdigital learning capabilities and offerings.

1

Strategy

Product impact

Operational impact

Reporting and performance

For example, our digital language learning program isavailable to all employees worldwide. As of the endof 2021, 3,561 employees were actively learningor perfecting a new language, and the company
experienced a significant uplift in language proficiency.

We also launched two new global
pathways for key talent groups:• Women empowerment: The first program,developed with our Inclusion & Diversity team, wasfor high-potential female employees. This initiative
recognized that women often operate within
systems built on masculine norms—systems thatare still adapting to be fully inclusive. With a focus
on personal growth and development, the initiative
was designed to provide participants strategies andtactics with which to navigate common barriers,
create a sense of community and belonging, andfocus on what is truly important to them in theirlives and careers. More than 50 senior female
leaders participated in the six-month program, which
incorporated virtual classrooms, one-to-one sessions
with an external coach, and group activities.

Meanwhile, our Operations function continued to
expand its voluntary lifelong learning program. Designed
to improve equity, be inclusive, and enable growth,
the program empowers employees to choose theskills they want to learn to shape their careers in the
direction of their choice. There are no prerequisites for
signing up for a course, and PMI offers bridge courses
so employees at all levels can enter the program
where they fit and progress toward higher levels andcertifications. The online certification programs vary inlength and difficulty, ranging from a few hours up to 18
months, with some counting toward a master’s or otheradvanced degree at a designated partner university.

• Leadership succession: The second program wasdesigned to help us build a succession pipeline for
our Company Management. Participants in thenine-month program first established individual
development plans. Through trainings by external
partners such as INSEAD and Duke Corporate
Education, as well as individual and group coaching,
the program helped participants bolster the criticalbusiness and leadership capabilities they will need
to be ready to step into a senior managementrole when the right position is identified forthem. In addition to the core elements offeredby our external partners, participants were able
to select from a number of elective elements
targeting their areas of expertise and interest.

In 2021, we rolled out access to all employees in
our Operations function (totaling around 21,000
people), as well as to specific additional functions
and geographies. By year-end, the program counted
around 3,000 active learners across 50 countries, whologged an estimated 38,000 training hours during2021 and obtained 1,680 academic certifications.
More broadly, in 2021, we started identifying andmapping potential training and education areas in which
to invest to meet the emerging demands of our company
and the job market. We will fine-tune and expand
this preliminary work in 2022, laying the groundwork
for a more holistic approach to lifelong learning. This
will guide our progress toward our newly introduced
aspiration to provide 70 percent of our employeeswith structured lifelong learning offers by 2025.

Improving equity: providing access toopportunities that boost employability
PMI is changing, and so is the world of work.
New technologies are disrupting the businessenvironment, driving a need for new skills andcapabilities. Continuous upskilling and reskillingis essential to ensure employees thrive and, as aresult, improve the company’s performance. We
seek to empower our employees to take ownershipof their career development by focusing on equity,
granting access, and democratizing training byoffering a range of voluntary learning opportunities.

Listening to our employees
Listening to our employees is an essential part ofour strategy and key to achieve our purpose. We
conduct an extended company-wide employee
survey annually, which we complement withregular pulse checks throughout the year.
The results of our annual survey in 2021—towhich 44,089 employees responded—showed an
overall improvement compared with 2020. Withan employee Net Promoter Score (eNPS) of 35,
we achieved for the second consecutive year ourtarget of maintaining a minimum eNPS of 30, andwe are 10 points above the global benchmark
provided by our external partner Karian and Box.

Based on a total of 55,276 employees maintained in PMI’s central HR system.

126

Fundamentals

127

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Foster an empowered and inclusive workplace

Protecting the healthand safety of our employees

Reporting and performance

Maintaining our safety-first positionin the era of COVID-19
We have long prioritized safety to protect ouremployees, contracted employees, and contractors
in our premises. In response to the continued
COVID-19 pandemic, we maintained, reinforced,
or adjusted various protective measures acrossour sites and activities throughout 2021.

Keeping people safe is a moral andbusiness imperative. We are committed toproviding a safe and healthy workplace that
promotes a culture of empowerment.
We have embedded clear methodologies, procedures,and robust controls in our factories, offices, andfleet aimed at ensuring that our employees andothers on-site stay safe. The health and safetyof employees and contractors is covered by ourmanagement systems, which are based on recognized
guidelines and standards, including ISO 45001,
and assessed and audited internally and externally.
These systems enable us to monitor health andsafety performance across all our manufacturing
facilities, offices, and in our fleet. We routinely
update our standards and train our staff to ensure
teams understand and align with the requirements.
The results underscore that employees feel highly
confident in the success of PMI’s transformation andinspired by the company’s purpose. Compared with
2020, the survey data showed strong improvement
in collaboration between markets and functions,and in line managers asking for feedback.

Fundamentals

As the pandemic evolved throughout the year indifferent geographies, our recovery plan focusedon mitigating and managing risk. We took aconservative and precautionary stance, with clear
criteria to help our business units in different partsof the world identify when to take steps toward a
gradual return to the workplace, as well as when to
reimplement restrictive measures, as warranted.

Manufacturing of the future
To thrive over the long term, we have embarked
on a journey toward “manufacturing of the
future.” Our North Star: an agile, smart factorywith an end-to-end operations ecosystem,
advanced digital technology, upskilled teams, andbest-in-class safety, quality, and sustainability
performances. We have set this vision anddefined steps across all our manufacturing
sites to guide our progress. People capability
development provides the foundation for thisjourney. We want to support our factory workers
in shifting from reactive tasks to proactive
interventions by increasing their skill levels andsupporting them with effective technology.
Along the way, we are deploying extensive
learning opportunities (with both internal andexternal certifications) to help ensure ourpeople are future-fit and highly employable.

Areas on which we need to focus further are
employee reward and recognition, as well as career
opportunities. Moreover, while on a positive
trend, our employee well-being rating—collected
as part of a separate survey—shed light on theneed to promote and protect our employees’
mental health and well-being (read more here).
We examine our engagement scores through arange of filters, including function, location, tenure,age, gender, grade, and working arrangements
during COVID-19. This segmentation helps us
to shape action plans more precisely. When weanalyze results by gender, for instance, we see
the engagement results improved comparedwith the previous year for both women (31 to
32 points) and men (33 to 36 points), but the
gap between the genders has increased.

Although we anticipate that this journeytypically will take six or seven years to achieve,
the pace is specific to each manufacturingsite and guided by the pillars of our Open+
program, our lean methodology aimed ateliminating losses and building the necessary
capabilities to deliver sustainable results.

As with previous surveys, we will use the 2021
results to deliver concrete improvements across thecompany, which we will disclose in our next report.

128

Promoting employee volunteering
PMI has a long-standing commitment to support
the communities where our employees live
and work and where we source tobacco. This
support is provided in the form of monetarycontributions and in-kind donations (see the listof our 2021 social contributions here), as well
as volunteer work by our employees. Beyond
supporting local communities, volunteering canmotivate and enrich the lives of our employees,
help them develop new skills, and enhance theirperception of PMI as a great place to work.

This is in addition to the existing customary
practice of giving employees paid leave forparticipating in initiatives organized by thecompany during traditional work hours.
In 2021, amid the COVID-19 pandemic, wepiloted the guidelines without broadly promoting
them, and only a limited number of employees
took part in the program. In 2022, we plan tosignificantly increase awareness of the programamong employees to empower them andassimilate volunteer work as a regular practice.

At the end of 2020, we established global
guidelines to further encourage those who
would like to contribute their time, energy, andefforts to improving life in their communities.
Every PMI employee is eligible to take twodays per year of paid leave for volunteering
activities. Moreover, the company commits
to match—with up to five additional paid
leave days—any additional volunteer work
employees choose to do on their own time.

Our efforts to promote volunteer work arecomplemented by our employee-driven
philanthropy “Projects with a Heart.” It isa global grassroots movement establishedand run by employees and endorsed by
PMI. The internal platform connects wouldbe volunteers with people in need.

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Overview

Health and safety performance in 2021

Manufacturing

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 7,000
contracted employees on average per month in 2021),
and contractors when on PMI premises. Contractors
are workers who are employed by or work on behalfof a third-party company contracted by PMI but who
remain under the direct supervision of their employer.
Typically, such workers are involved in specific projects(e.g., machine installation or construction), facility
management (e.g., building maintenance), logistics(e.g., transportation or administration), or services(e.g., canteens or medical centers on PMI premises).

Health and safety in our factories is coordinatedcentrally by our Global Manufacturing team. At
site level, each facility has a dedicated team that
ensures standards are met on the ground.
External certification helps us continuously
improve and drive efficiency. In 2021, all our
factories producing the equivalent of morethan three billion cigarettes annually achieved
certification to ISO 45001. The global multisite
certification process included third-party audits ofa sample of our sites, which determined that bestpractices are embedded across all our factories.
We conduct risk assessments to identify hazards andimplement necessary controls. Our corporate targets
on incidents help us evaluate the effectiveness ofour safety policies and programs. In 2021, in our
manufacturing facilities, our LTIR for employees andcontracted employees was 0.05 (2020: 0.07), andour total recordable incident rate (TRIR) was 0.10
(2020: 0.13). Including contractors in the scope,
our TRIR was also 0.10, down from 0.14 in 2020.
No employee, contracted employee, or contractor
fatality occurred in our factories in 2021.

In 2021, across our factories, offices, warehouses,and fleet, our integrated total recordable incidents
rate (iTRIR) was 0.09 (2020: 0.12), which breaks
down into 0.09 (2020: 0.11) for employees andcontracted employees and 0.10 (2020: 0.16) for
contractors. We are proud of the progress madeto date and remain committed to maintaining an
iTRIR below 0.30 in a sustainable manner.
During the year, our lost time incident rate (LTIR) for
employees, contracted employees, and contractors
was 0.05 (2020: 0.08). More specifically, it was
0.06 (2020: 0.07) for employees and contracted
employees and 0.05 (2020: 0.12) for contractors.
We do not set targets on lost time incidents as wewish to handle every incident with the same level ofimportance, quality of analysis, and mitigating action
regardless of whether the incidents result in lost time.

All incidents in our manufacturing operations are
subject to in-depth root cause analysis, and weapply the same thorough approach to all incidents
involving contractors in our manufacturing facilities.

Top direct causes of injury in 2021

11%
7%

Fleet
crash

Cut by a
sharp object

Slip, trip or
fall on thesame level

Product impact

Operational impact

We use behavioral observation systems (BOS) in
our factories to instill a culture in which everyone
involves themselves in openness, care, observation,and behavior reinforcement. We advance this culture
through communication with employees and safety
alerts or notice boards. Every person’s contribution
counts—a fact we recognize through awards andother means of acknowledgment. Through BOS, we
are further embedding safety into the organization’s
DNA in a planned, structured, and standardized way.

Injury throughmanual handlingor lifting

130

6%

Caught/trapped in,underor between

5%

5%

Hit by amoving, flying
or falling
objectExposed toor in contact
with harmful
substance

Fundamentals

Reporting and performance

In 2021, we reviewed our global requirements forfleet safety and issued a global policy governing
the management of our fleet vehicles, alongwith operational guidelines. The goal of our
fleet safety management program is to achieve
zero preventable accidents and to protect
employees and other road users, the company’s
assets and reputation, and the environment.
The challenges we face in delivering safe working
conditions relate to road conditions, law enforcement,
and driving culture. Distracted driving (e.g., using amobile phone or eating while driving) is the leading
cause of vehicle collisions (research shows thatpeople who drive while using their phones are far
more likely to be involved in a crash, and this risk
multiplies for people who text while driving).

Embedding a safety culture
We conduct annual assessments and employee
surveys to evaluate our sites’ safety culture level
and identify opportunities for improvement.
Every year, we invite all employees in our manufacturing
sites to participate in a survey and provide feedback
on a wide range of cultural and behavioral issues
related to the workplace environment and health andsafety. The results serve as a direct effectivenesscheck of measures put in place as a result of ourregular culture assessments. These assessments are
performed at our manufacturing sites each year by agroup of factory representatives from all levels of
their local organizations.

To improve driving behavior, we leverage awarenessraising and connected fleet technologies. By theend of 2021, 47 percent of our working-tool cars
were equipped with telematics, which provide
the driver and the company with data on driving
behaviors and proactively helps improve roadsafety, reduce fatalities and injuries, and decreasecarbon emissions (read more here). We aim to haveall our working-tool vehicles equipped with tools
and new ways of working in the medium term.

Our ambition in our factories is to create aninterdependent sustainability culture in which
responsibility for health and safety and theworkplace environment is owned by highly skilledindividuals and autonomous teams and in whichsustainability is demonstrated and perceived as acore company value. The combined survey andassessment results provide our factories a detailed
overview of their progress toward that goal.
Fleet
We seek to protect our employees by providing safe
vehicles and driver safety awareness programs toachieve zero preventable fleet safety accidents. Our
target is to reduce high-severity collisions, with an
ongoing goal of eliminating fatal accidents completely.

22%

12%

Strategy

A dedicated team—led by our Director, Security andMarket Safety in coordination with local fleet safetycommittees—manages security and market safety.
This team develops and deploys programs and training
courses, fosters engagement at the country level, anduses monitoring systems and performance indicators
to evaluate progress. PMI’s fleet safety management
system is based on recognized standards such as ISO
14001 and ISO 39001 and covers risk assessment,
driver training, vehicle safety, and driver behavior.
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Overview

Fostering diversity, equity,equality, and inclusion

While restrictions due to the COVID-19 pandemic
prevented us from conducting standard training
sessions “behind the wheel” in 2021, we launcheda global fleet safety e-learning program tailored toeach driver’s core competency score and driving style.
By year-end, 30 percent of company drivers hadcommenced the program, which includes eco-driving
modules, and we intend to reach a participation rateof over 85 percent in 2022. We expect all drivers at
PMI to undergo the training within a three-year cycle.

People are central to PMI’s value creation model.
While always valuable, varied perspectives,
experiences, and problem-solving skills areespecially critical in times of change. We regard
our employees’ diversity as one of our greatest
assets. We therefore seek to cultivate an inclusive
environment where diversity can thrive and all
employees feel respected, supported, and engaged.
This is the only way diversity can be sustained andour employees can be able to perform at their best,
contributing fully to our company’s purpose.

Together, our standards, programs, and technology
are leading to significant improvements in road safety.
Between 2019 and 2021, road-related collisions
resulting in employee injuries or significant vehicle
damage decreased by 50 percent. In 2021, globally,
the number of collisions per million kilometers driven
amounted to 0.44 (2020: 0.53). We remain committed
to maintaining a collision rate below 0.55. Our TRIR
in our fleet also shows a positive trend, having
decreased globally from 0.09 in 2020 to 0.08 in 2021.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

We also focus our efforts on specific business
functions. For example, we initiated a program to
identify the causes of low female representation
at different levels of the sales organizationand tailor initiatives to address them.

Advancing gender equality and improving equity tofoster inclusion requires us to better understand andtackle structural barriers pertaining to these issues.
In 2021, we piloted Catalyst’s MARC initiative (Men
Advocating Real Change) in two functions, and wewill make this learning experience available globallyin 2022. We are committed to inspiring men to
become aware of unconscious bias, understand maleprivilege, and leverage their power and position to
advocate for tangible change that can advance equity
and equality. As part of this process, we have begun
communicating about the importance of allyship in theworkplace through our internal social media channels,
with the aim of sparking a global conversation.

Our Chief Diversity Officer puts special attention
on hearing the voices of frontline female employees
worldwide to understand whether PMI’s strategy
reaches all women in the organization.

Enhancing diversity
At PMI, we aim to celebrate all types of diversity,
both demographic (e.g., race, ethnicity, sexual
orientation, gender identity, age group, as well as
visible or invisible disability) and experiential (howpeople think, work, communicate, and live).

Although we continue to reduce collisions, it is to ourdeep regret that we endured road traffic fatalities in
2021, involving one PMI employee and two membersof the public. The accidents occurred in two countries
in Asia and involved challenging circumstances related
to basic motorbike defensive-driving techniques,
such as traffic anticipation, maintenance of safe
speeds for the road conditions, and proper use of
personal protective equipment such as helmets.
Lessons learned from the investigations include thenecessity for motorbike-specific defensive-driving
training, along with the continued deployment of
our robust fleet safety management program.

Advancing gender equality andempowering women
Increasing female representation
A gender gap is a talent gap. Building a genderbalanced organization, therefore, remains one of
our top priorities. Globally, 42.2 percent of ouremployees were women in 2021, and 39.7 percent
of our managerial roles were held by women.
We are confident that we will achieve our target of
40 percent of management positions held by womenby the end of 2022. Beyond that, our ambition
is to maintain a minimum of 40 percent female
representation globally and have a maximum of
60 percent of any gender identity in management
positions in most of our business functions andregions by 2025. During 2021, all business units set
specific gender aspirational targets and focused theiragendas on gender-balanced external recruiting andinternal promotions. Our managerial new hires’ genderratio for the year was 44.7 percent for women (anincrease of 6 points versus 2020), and the proportionof promotions to management positions that went
to women was 47.6 percent (2020: 45.0 percent).
To optimize our business, we believe it is critical that
we improve the gender balance in decision-making
roles. We are committed to having at least 32 percent
of senior roles held by women by 2023 and 35
percent by 2025. In 2021, women represented 31.1
percent of senior positions (2020: 29.6 percent).
132

Gender breakdown at different managerial levels in 2021
Senior leaders

75%

25%

Men
(2020: 80%)

Women(2020: 20%)

Directors

68%

32%

Men
(2020: 69%)

Women(2020: 31%)

Managers

59%

Women
(2020: 39%)

Non-managerial levels

57%
Men(2020: 58%)

women in senior roles, on trackto achieve our goals of 32%
by 2023 and 35% by 2025

39.7%

management positions held
by women, on track to achieve
our goal of 40% by 2022

41%

Men
(2020: 61%)

31.1%

43%
Women
(2020: 42%)133

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Overview

Closing the gender pay gap
Our global EQUAL-SALARY certification verifies
that PMI pays men and women equally for equal
work (read more here). Alongside equal pay, we arecommitted to fostering fairness in the workplace andclosing our gender pay gap. The gender pay gap refers
to the percentage difference between the average
pay for men and women. PMI’s global EQUALSALARY certification gives us confidence that unequalpay for equal work does not contribute to the gender
pay gap at PMI. Rather, the gap stems from the factthat women are underrepresented in senior leadershiproles. The imbalance also needs to be viewed in
the context of our overall workforce demographics.
In particular, of the 68,547 people we employed asof the end of 2021, over a third were in Indonesia,
where our workforce is predominantly composedof thousands of people, mainly women, who handroll cigarettes at our manufacturing facilities.

Foster an empowered and inclusive workplace

Encouraging career relaunches in Pakistan
In 2021, Philip Morris (Pakistan) Limited(PMPKL) launched MakeYourComeback, aplatform for women who have taken a breakfrom paid work and wish to relaunch theircareers. Through this program, PMPKL amassed
more than 400 applications from women,
10 of whom were hired for various projects
based on their capabilities and experience.
An extensive virtual onboarding program wasput in place, including assigned “buddies” tohelp the new hires understand the culture andfeel integrated into the PMI community.
We are gathering learnings from this experience
to determine whether we will replicate theapproach in other countries.

2019

2020

32.9%

33.9%

35.1%

Proportion of women in the company’s upper-middle pay quartile globally

33.5%

34.4%

35.6%

Proportion of women in the company’s lower-middle pay quartile globally

20.4%

20.9%

22.4%

Proportion of women in the company’s lowest pay quartile globally

79.4%

77.2%

76.2%

Company’s global mean (average) raw gender pay gap

34.6%

33.0%

33.5%

1

Product impact

Operational impact

Fundamentals

Reporting and performance

Focusing on national representation
Another priority for us is to strengthen the diversityof nationalities within our global workforce and,in particular, to grow local talent within executive
management teams. Our employees represented
133 nationalities at year-end 2021, contributing toan international culture that many employees value.

There is no silver-bullet for closing the gender gap.
Success requires an ecosystem of interrelated
actions across the entire employee life cycle: fromrecruitment and training to retention and promotion.
Critical actions include having a commitment togender balance led from the top, crafting personalized
career and development plans for female leaders,celebrating female talent as role models, and providing
female talent with opportunities to build connections
and gain mentoring and sponsorship support
through networking events and leadership forums.

Despite this international makeup, there is a need forour executive teams to better reflect PMI’s geographic
footprint and the diversity of its consumers. In
particular, we have set a new commitment to increase
to at least 20 percent Asian representation in senior
roles by 2025. Asian nationals currently hold around
16 percent of PMI’s senior roles. In contrast, theSouth and Southeast Asia (S&SA) and East Asia
and Australia (EA&A) regions together represented
46 percent of our total workforce in 2021.

Success also requires an environment that
promotes and protects inclusion so that diversity
can thrive. A company culture that celebrates,
welcomes, and appreciates diversity will not only
help increase and accelerate progress towards
closing the gaps, but, more importantly, ensurethat this success is sustained over time.

2021

Proportion of women in the company’s top pay quartile globally

1

Strategy

Top five nationalities
represented in PMI’s workforce

Top five nationalities represented
amongst employees in senior roles

PMI’s workforce
by region

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

134

Indonesian32.2%

American

10.5%

Eastern Europe
EasternEuropePolish

6.2%

Swiss

9.3%

European Union

Filipino

5.9%

German9.0%

Americas (incl. the U.S.)

Russian4.9%

Italian

7.0%

Italian

3.7%

British5.8%

Middleand DufyEast
Free& Africa,and Duty Free

Other

47.1%

Other

58.4%

135

Europe Union

Americas (incl. the U.S)
Middle East & Africa,

South & South East Asia

South & Southeast Asia
East Asia & Australia

East Asia & Australia

10%
10%
29%

29%
11%

11%
5%

5%
40%

40%
6%

6%

Foster an empowered and inclusive workplace

Philip Morris International – Integrated Report 2021

Overview

Building a culture that promotes
and protects inclusion

In this context, in 2021, our S&SA and EA&A regions
launched a tailored program with the objective tobuild and accelerate the development of high potential
Asian talents. A total of 64 employees in management
positions participated in the first year rollout. The
program follows a blended learning approach fromthe Duke Corporate Education faculty, external
experts, and PMI leaders to sharpen the agility andmanagement capabilities of the participants. It offers
course learnings and real business challenges that will
equip them with strategic and organizational skills
that will be instrumental for their readiness to takeon leadership roles in Asia and globally across PMI.

We can put in place programs to increase diversity,
but if we fail to welcome, protect, and empower
diverse people and their voices to thrive, that sought
after diversity will not be sustainable. Inclusion
means ensuring all people feel they belong andare an integral part of our company. If diversity ismarginalized, and not properly integrated, employees
are not only less likely to perform at their highest
level, but also unlikely to be retained. Only a truly
inclusive culture can ensure we benefit fully fromthe value diversity can bring to our organization.

Furthermore, we believe it is necessary to rebalance
local and foreign representation within market
executive teams. While it remains important to offer
employees the opportunity to relocate for theirdevelopment and for talent transfers to accelerate
progress in a market, we are clear that an inclusiveand consumer-centric approach is paramount for our
success in any given country. Accordingly, we have set
a new 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. In 2022, we intend to establish ourbaseline and design and implement a multiyear plan.

Measuring inclusion
We understand that inclusion unlocks the potentialof diversity. However, unlike diversity, inclusion can
be challenging to measure and to track over time.
In 2021, we sought to capture employee sentiment
on inclusion, leveraging our global employee
listening survey. We introduced a set of six newquestions derived from research by Gartner.
The responses identified the following criticaldimensions of inclusion: fair treatment, integrating
differences, decision-making, psychological safety,
trust, belonging, and diversity. We averaged thescores attributed to those six questions to build an“inclusion index.” At 76 percent, the index showed
an overall high perception of inclusion within
PMI. Around half of the participants responded
positively to all questions, and the experience ofinclusion by women versus men did not highlight
any significant discrepancy (inclusion index of
74 percent for women and 78 percent for men).
However, the exercise shed light on notabledifferences regarding individual questions. For
instance, questions linked to “integrating differences”
and “decision-making” scored high, while lower
scores were accorded to questions linked to “fairtreatment” and “psychological safety.” Also, the gap
between women and men widened on questions
related to psychological safety and fair rewards.
The findings also revealed a lower experience ofinclusion among those employees who identify
as belonging to an underrepresented group.

Strategy

Product impact

Operational impact

Following a year when inclusion and diversity efforts
moved center stage amid the global pandemic,
the absence of a single authoritative approachto effectively measuring inclusion in businesshas become even more apparent. To address theissue, on International Women’s Day (March 8,2021), we launched Inclusive Future, a year-longresearch and convening project to advance thediscourse and practices surrounding inclusivity.
In partnership with the International Institute forManagement Development (IMD) in Switzerland,
we are working to devise effective and timely ways
to promote inclusive cultures within organizationsof all types. Inclusive Future will take stock ofbest practices and established thought leadershipand explore how recent events and the current
climate can inform the evolution of more effective
approaches for driving inclusive cultures. We aim
to better understand, develop, and advance thediscourse surrounding inclusion today and into the
future, aiming to explore more sophisticated ways
to measure it going forward. Read more here.

Reporting and performance

Every ERG is open to all at PMI, led by acommittee of volunteers, sponsored by a memberof Company Management, and supported by an
external subject matter expert partnership. In
2021, around 10,000 employees participated in
one or more of our ERG programs and events.
PMI’s employee resource groups:• STRIPES convenes employees aroundgender identity and provides a formalized
structure and global strategy for the local
LGBTQ+ networks present in 29 markets.
In 2021, we partnered with Stonewall andbegan reviewing together some of our internal
policies to ensure they are representativeand inclusive of LGBTQ+ colleagues. We also
partnered with Accenture to start running anintercompany training focused on allyship.
• EMBRACE aims to champion racial, ethnic,
and cultural equality by raising awarenessand understanding of the challenges facedby underrepresented groups. In 2021, wepartnered with the Racial Justice Instituteto advance PMI’s efforts in this area throughtraining, workshops, and engagement
opportunities focused on racial justice,allyship, and advocacy. As of year-end,
we had four local race and ethnicity ERG
chapters in addition to our global ERG.

Encouraging employees to take an active role
We strongly believe that promoting inclusion is acollective responsibility and that education andawareness-raising is an essential first step.
In 2021, we continued to promote our global
employee resource groups (ERG) on women, race,
ethnicity, and LGBTQ+ inclusion, and we launched
a new ERG focused on disability. Our employee-led
groups focus on particular dimensions of diversity
and are intended to provide a platform for building
a sense of belonging and sparking conversations.

• WIN (Women’s Inspiration Network) seeks
to provide a supportive place to inspire andempower women to advance their skills,
expand their network and unlock their fullpotential. In 2021, WIN organized three global
events with external speakers and started
weekly virtual coffee corners, providing a
networking opportunity to women (and men)of PMI. Currently, more than 40 markets
have access to local WIN chapters.

They organize events, provide mentoring
opportunities, and host conversations in which
employees are encouraged to share theirdiverse perspectives and experiences to better
understand and support one another.

• ABLE, launched in 2021, aims to foster a more
inclusive and diverse organization by attracting
candidates and supporting employees withdifferent abilities. Following PMI becoming
a signatory to The Valuable 500 in 2020,
we brought on PurpleSpace as an external
adviser and collaborator for internal events.

This first attempt to measure inclusion helped
us set a baseline of employees’ feelings andto design programs tailor-made for every
function according to their results.

136

Fundamentals

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Overview

Raising awareness and knowledge
In 2021, we broadcast our first global I&D conference.
Our Chief Diversity Officer hosted two sessions,available to all employees, and introduced the global
I&D multiyear strategy. Our Chief Consumer Officer
explained the IQOS inclusive brand principles, andwe announced the introduction of global ERGs.

PMI’s global ERGs ran a year-end event attended
by our CEO. The event provided a platform throughwhich employees could provide feedback and input
into the company’s broad strategic plans and activities
for the year ahead in alignment with the global
inclusion and diversity (I&D) multiyear strategy.
In 2021, PMI also launched an inclusive language
toolkit in collaboration with its global ERGs toprovide guidance on terms and expressions to use
and avoid when engaging in internal discussions.

As part of our ongoing effort to gather diverse
input for our inclusion and diversity strategy andprograms, we created an internal employee group(I&D Soundboard), which meets regularly to give
input and feedback to the I&D team. We also
implemented monthly global I&D Office Hours. Thesesessions 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.
We also continued our efforts to build a cultureof inclusive behaviors through our I&D learning
curriculum. We support teams in addressing
challenges through a set of e-learning experiencesin which employees learn about the origins of bias
and the various ways it shows up in organizations.
Participants receive practical tools and techniques
to combat prejudice and preconceived notions.

Strategy

Product impact

Operational impact

Promoting mental healthand well-being

Fundamentals

Reporting and performance

In 2021, we created a global framework andestablished an integrated and data-driven roadmap
of priority actions to support the holistic wellbeing of employees across the company. Our work
was supported by insights gathered through our
employee listening surveys, benchmarks of best-inclass practices, and the help of external experts.

Maintaining a happy and healthy workplace
is key to employee engagement, productivity,
satisfaction, and retention. We understand thatwhen people feel good, they are likely to contribute
more to their families, their work, and society.

Under our holistic framework, well-being
incorporates physical needs, psychologicalneeds, and self-fulfillment. Our approachis based on the following principles:

Our aspiration is to promote an environment that
supports employee well-being as an enabler ofprofessional and personal fulfillment, sustainable highperformance, and business results. The extraordinary
circumstances of the COVID-19 pandemic further
precipitated focused attention on this area.

1.

People’s energy is a critical enabler of
performance
2. We take accountability as an organization to
support employee well-being
3. We expect employees to take individual
accountability for their well-being as well
4. We see well-being as a development opportunityand encourage people to look after theirwell-being

Building a holistic approach to well-being
While PMI has provided benefits centered on healthand well-being for some time, these were primarily
focused on reactive support or led by local market
teams without a unifying global framework.

• Personal purpose and alignment with PMI’s purpose• Inclusion and sense of belonging• Career growth and skills development• Volunteerism opportunities

Self-fulfillment• Quality of relationships at work: Providing a work
environment that promotes psychological safety,
employee appreciation and recognition, and respect
for personal boundaries and work-life balance• Support: Providing appropriate proactive (e.g.,
education, self-help tools) and reactive (e.g. Employee
Assistance Program, insurance) support to employees

Psychological needs• Comfortable workplace and access to facilities
or tools to encourage physical fitness• Comprehensive benefits offer to support well-being• Policies and norms that encourage healthy
behaviors and recharge energy

Physical needs

All underpinned by ways of working, leadershipbehaviors, and psychological safety

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Philip Morris International – Integrated Report 2021

Overview

Measuring well-being to drive action
We know data and insights are key to introducing
relevant interventions in support of employee
well-being.

We believe it is crucial to raise awareness andencourage conversations around mental healthto equip employees to support themselves andothers and also to remove the stigma around theissue. In May 2021, we organized a Mental HealthConference, which attracted a broad global audienceand received positive feedback from our employees.
Following this event, we organized a Mental HealthWeek in October, inviting PMI employees to share
their stories and hosting talks with internal andexternal experts on topics ranging from how to spot
and prevent burnout to the power of listening andrecognition. Encouragingly, we saw positive dynamics
in how employees feel about PMI’s concern for theirmental health and their awareness of where to go
for help. Surveys of participants conducted in May
and October showed a significant improvement inresponses to the questions “How reassured do you
feel about PMI’s concern for your mental health?”and “How familiar are you with support available
for you at PMI for mental health & well-being?”

As part of our regular employee listening, we
ask employees three times a year to answer thefollowing question: “How would you rate yourpsychological or emotional well-being at present?”
This is measured on a five-point scale from very
bad to very good. In October 2021, 61 percent
of employees responded “good” or “very good.”
While the score increased, we did not achieve
the target we set in 2020 of 63 percent by 2021,
likely because of the unexpected continuation of
the pandemic. The gap of nine percentage points
between men (64 percent) and women (55 percent)is substantial (and represents an increase from thegap of five percentage points recorded in October2020) and requires further investigation. We willcontinue to track progress on this indicator andaim to achieve a 70 percent score by 2025.

We have also convened a Well-being Advisory
Group, a diverse body that includes senior leaders
and well-being advocates from various functions
and regions. This group informed the developmentof the well-being framework and the roadmap ofinitiatives for 2022 and beyond. It will continue toserve as a sounding board to help us recalibrate
our strategy and initiatives as we progress.

To get deeper insights, we piloted a tailored well-being
study across six of our markets (one per region) in
2021. The study methodology incorporated a survey(to which more than 3,600 office-based employees
responded) and analytics aggregating informationon the use of computer-based tools by employees(data were drawn from those employees who agreed
to share such information on a confidential basis).
This two-pronged approach allowed us to analyze
the root causes of well-being, ranging from ourways of working and relationships with managers topresenteeism and employees’ sense of belonging.

From our research and listening to the markets, weknow there is a lot of interest among employees in
improving their knowledge of mental health, how
to look after their own mental health, and how to
support others who might be struggling. To address
this demand, we piloted Unmind, a workplaceplatform that provides a breadth of tools andtraining backed by the latest psychological research.
It is intended to help employees understand more
about and proactively look after and improve theirmental well-being and that of others around them.
The platform was made available in 10 countries
in late 2021. We will review the results of thispilot and, if it is successful, will roll it out further.

Leveraging the insights gathered, we aim todevelop a well-being performance indicator thatwill allow us to measure holistic wellness, monitor
progress, and identify appropriate interventions.

A global focus on mental health
Mental health is critical to employee well-being.
Worryingly, issues of mental health are a growing
problem globally, affecting nearly 10 percent of
the world’s population and causing devastating
impacts for the individuals directly affected andthose close to them.1 There is also a business
impact: Depression alone is estimated to cause
USD 1 trillion in lost productivity every year.2

1
2

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Strategy

Product impact

Operational impact

Strengthening resilience
To build a solid well-being program, we mustalso look at how society and the workplace will
evolve. An aging population—and workforce—
coupled with new ways of working and increased
digitalization mean that people will need to learn
new capabilities and skills and unlearn others (readmore about our lifelong learning program here).

Fundamentals

Reporting and performance

In parallel, we launched an online platform in
2021 that offers resources to support employeeswith the professional and personal challenges
they may experience as a caregiver.
In addition, childcare facilities or contributions
are provided in 28 of our markets. Further,most of our sites offer dedicated spaces
to be used as lactation rooms.

Against this backdrop, we want to foster a mindset
that helps our employees embrace change andstrengthens their resilience to maintain well-being
over the long term. In 2021, we piloted resiliencedeep-dive workshops in South Africa, accompanied
by an online diagnostic tool. We intend to expand
those workshops in select geographies in 2022.

Supporting our employees and their families
Our global Employee Assistance Program,launched in 2020, offers first-line support to ouremployees and their close relatives in the areas of
psychological, financial, and legal counseling. Support
is provided in local languages across 79 countries
under high standards of confidentiality. By theend of 2021, the program covered 96 percent
of our total workforce, with the remainder being
covered by local schemes expected to transition
to the global program in 2022 or 2023.

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

Flexible working arrangements
Even prior to COVID-19 and the shift to remote
work, PMI was promoting more balanced ways ofworking. In 2021, around 95 percent of our markets
already provided PMI employees with flexible
working conditions, including remote work, part-time
employment, unpaid leave, and flexible working time.

Family and caregiver support
Our goal is to promote an inclusive and equitablevision of care through our global parental leave
principles, which provide primary caregivers
a minimum of 18 weeks of fully paid parental
leave and a secondary caregiver a minimumof eight weeks fully paid parental leave.
The rollout of those new global principles began in
January 2021. By the end of the year, more than 52
countries were aligned with the new global principles.
We aim to cover all our markets by the end of 2022.

Saloni Dattani, Hannah Ritchie and Max Roser (2021) – «Mental Health».
Published online at OurWorldInData. org. Retrieved from: ‹https://
ourworldindata. org/mental-health›World Health Organization – Mental health in the workplace, available at:https://www. who. int/teams/mental-health-and-substance-use/promotionprevention/mental-health-in-the-workplace141

Foster an empowered and inclusive workplace

Philip Morris International – Integrated Report 2021

Overview

Looking ahead

Given the circumstances of the past two years, wefound it necessary to revise our remote working
arrangements. Drawing on the experiences andchanged expectations of employees during the
pandemic, we developed a global plan in 2020
that adopted the concept of hybrid work (remoteand office-based). We call it “Smart Work.”
Its philosophy and principles are global, with thegeneral rule being that employees are permitted
to work remotely up to 60 percent of the time,with the remainder of the workweek spent onsite. The program is deployed and adjusted locallyto account for cultural, operational, tax, and legal
implications, which vary at the national level.

The health and safety of our employees
will remain at the top of our agenda,
and we will closely monitor how the
pandemic evolves, adjusting our measures
as needed and seeking ways to best
support our employees. Where conditions
allow, we will continue the deployment
of Smart Work, fostering flexibility inwhere employees work. In parallel, we
will seek to formalize our health andsafety standards for remote work.

In 2021, we continued to deploy Smart Workin markets where COVID-19 was receding andwhere local circumstances allowed it. By year-end,
four markets had implemented it, and our intent
is to launch it in most markets in 2022, subject
to COVID-19 circumstances and restrictions.

Continued development of our humancapital is critical to PMI. In 2022, weplan to revamp our approach to learning
to ensure employees get clarity on
the capabilities and skills that will bothboost their employability and contributeto the success of PMI, and we will
work to ensure they have access totraining and education in these areas.
To that end, we will expand access to
our lifelong learning program while
seeking to strengthen it by developing
tailored approaches to the varied needs
within our workforce and offering moreguidance and support to employees.

Looking ahead, we plan to develop tailoredarrangements for non-office-based employees,
such as our factory and sales workforces.
Anchoring well-being initiatives in local realities
We have dedicated health and well-being committees
in 60 of our markets, and, in the majority of ourmarkets, we have deployed well-being-related
interventions and benefits, ranging from gym
membership offerings to sports competitions, mental
health–related webinars, cooking classes, and otheractivities. Since the pandemic outbreak in 2020,
our primary focus has been on COVID-19 safetymeasures and psychological support, including
encouraging employees to prioritize their well-being.

We will continue to foster sound employee
and labor relations, maintaining an open
dialogue and privileging the proactive
involvement and participation of ouremployees and their representatives
in these times of change.

For instance, our affiliate in Vietnam launched
Vibe, a locally led well-being initiative centered on
helping employees connect via shared interests andencourage one another to look after their wellbeing. Meanwhile, in the U.K., our affiliate launcheda network of well-being ambassadors, composedof employees trained in mental health first aid.
They offer non-judgmental listening and guidance
to colleagues who are experiencing mental healthissues and are not sure where to go for help.

Charles Bendotti, Senior Vice President,
People & Culture

We will continue to build on these initiatives bybroadening the reach of our well-being ambassadors
and training them in mental health first aid, as the
U.K. has done, and engaging employees in relevant
local events led or initiated by their colleagues.
142

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Protecting the physical and psychological safety and well-being of our employees around theworld is a priority for our company. Just as we acted to keep our employees safe during thepast two years of the global COVID-19 pandemic, we are now committed to protecting those
employees affected by the war in Ukraine. This commitment starts by helping our Ukrainiancolleagues and their families move from the areas hardest hit by the fighting and reach safety;
then helping those who can cross the borders to do so, and supporting them outside the countryin every way we can: financially, logistically, and providing for their needs such as healthcare,childcare, food, accommodation and onwards travel. Our commitment extends to providing
critical aid to those who cannot, or who choose not to, leave the country. It also extends toproviding continued salary payments to all Ukrainian colleagues, whether they are in Ukraine ornot, whether they are working or not, and to providing a package of support measures for the
mid to long term including salary payments, more stable accommodation, and additional financial,healthcare, childcare, legal and administrative support. Our commitment and support to Ukrainian
people is the commitment and support of our people, who have come together to collect funds,
organize shipments of critical goods, offer their homes to host displaced families and provide
psychological support to those in need. At the same time, we are also doing everything we canto support our Russian colleagues, who have been affected by this situation as well. We will
not rest and we will not spare any efforts to help our colleagues affected by this horrible war.
Massimo Andolina, Senior Vice President, Operations

Meanwhile, we plan to expand many initiatives
piloted in 2021, such as our Women in
Leadership program, resilience workshops, andour program to increase the representationof women in sales and in senior roles. We
also expect to celebrate the achievement ofour 2022 target for female representation in
managerial positions, and we are committed
to fostering a gender-balanced organization
as we progress toward our 2025 targets.

Building on the learnings gathered throughout
2021, we will continue to strengthen and deploy
our employee well-being framework, with afocus globally on mental health. We will also
continue to address the stigma associated withmental health and pilot initiatives to improveawareness and help employees develop the skills
and confidence to have conversations about it.
And we will continue rolling out our parental
leave global guidelines, aiming to see them
implemented in all markets by the end of 2022.

Our activities in 2022 will also focus on
raising awareness of the importance of
psychological safety and a sense of belonging
at work through events and campaigns.

In 2022, we will set up an Inclusion & Diversity
Advisory Council to foster open and constructive
dialogue that will inform the development andexecution of an integrated I&D strategy andmonitor progress. We expect this council toguide our company in establishing meaningfulstrategies to meet our commitments to enhancing
diversity and promoting inclusion—in particular,
our new ambitions for 2025 related to genderbalance in management and leadership, as wellas an appropriate representation of nationalities
within executive management teams.

We will also continue to expand
our employee resource groups
by supporting our markets inestablishing local chapters.
Silke Muenster, Chief Diversity Officer

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Philip Morris International – Integrated Report 2021

Overview

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

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 that provide the products and services used in
our products or necessary to run our business.

Strategy

Product impact

Operational impact

The business casePromoting and adhering to sustainable businesspractices helps safeguard human rights, improvelabor conditions, protect workers’ health and safety,
tackle social inequalities, and alleviate poverty.

Caring for the quality of life of the people inour supply chain is consistent with our businesspurpose and way of working and is a major
predictor of our long-term success. We prioritize
our agricultural supply chain because it is a criticalcomponent of our business, and we understandits vulnerability to poverty and labor abuses. We
prefer to work with farmers who make a decent
living from growing tobacco, among other crops,
or engage in other income-generating activities
because they are more likely to think long term
and apply good agricultural practices such as
paying farmworkers at least the minimum legal
wage or agricultural benchmark and avoiding childlabor, thus minimizing our risk of human rights
violations, import bans, and reputational damage.

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.

We anticipate that the time, energy, and resources
we have invested in 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. We seek to implement targeted initiatives
that benefit the economies and societies in which
we operate while mitigating reputational andoperational risks in our working relationships.

CONTENTS

Progress in 2021

O U R A S P I R AT I O N S

Maintain

>90%

2022

100%

2025

100%

148 Alleviating poverty in our tobacco
supply chain
151 Enhancing access to water,
sanitation, and hygiene amongtobacco-farming communities
151 Empowering women involved in
tobacco farming
152 Eliminating labor abuses in our
tobacco supply chain: Promoting
PMI’s Agricultural Labor Practices

100%

of farmers and farmworkers
having access to personal
protective equipment for theapplication of crop protection
agents and prevention ofgreen tobacco sickness

Sustainability Index

100%

of tobacco farmworkers
are provided with safe andadequate accommodationof contracted farmers paying their workers at least theminimum legal wage or agricultural benchmark
SIof contracted farmers
supplying tobacco to PMI
make a living income

Zero

SI

child labor in our tobacco
supply chainSIhighest-risk countries covered by external humanrights impact assessments, with findings addressed

2030

144

SI

of contracted tobacco farms
for which labor practices andadherence to our Agricultural
Labor Practices Code aresystematically monitored

10

159 Promoting fair working and living
conditions in our broader supply
chain
160 Looking ahead

Reporting and performance

The right thing to do

As our business transforms, our supply chain
evolves as well. Promoting fair working andliving conditions in our broader supply chain
is therefore increasingly important.

146 Our management approach

Fundamentals

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

145

100%

of critical suppliers from whom
PMI sources sustainably

100%of contracted farmers supplying tobacco
to PMI have basic water accessImprove the quality of life of people in our supply chain

Philip Morris International – Integrated Report 2021

Overview

Our management approach
We emphasize good corporate governance. Sound
standards and practices to manage our supply chain
sustainably (read more here) and safeguard humanrights (read more here) are vital prerequisites toharnessing the connections in our supply chain
to improve the quality of life of those involved.

Our ALP Code, based on International Labour
Organization (ILO) conventions and alignedwith the United Nations Guiding Principles on
Business and Human Rights (UNGPs), sets theprinciples and measurable standards applicable
to all the contracted farmers from whom wesource tobacco. The ALP program is supported byrelated policies, including our Good Agricultural
Practices (GAP), Commitment to Human Rights,
and Responsible Sourcing Principles (RSP).

A principal aim of PMI is to provide a decent livelihood
to all contracted farmers in our tobacco supply
chain. This has been a focus since we introduced ourAgricultural Labor Practices (ALP) program in 2011,
supplemented by the ALP Step Change in 2018.

Our Leaf teams, tobacco suppliers, contracted
farmers, and workers are regularly trained on the
ALP Code. Our integrated production systemenables traceability at the farm level (read morehere). And we have a robust due diligenceframework in place to evaluate the implementationof our ALP Code (read more in the box below).

The mid- and long-term targets that we havecommitted to cover labor standards, income,work hours, health and safety, accommodation,
and access to water, sanitation, and hygiene.

Monitoring the implementation of our ALP program
Our due diligence framework to evaluate the implementation 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.
Internal monitoring: Field technicians collectand update individual farm profile data at thestart of each growing season and visit the farms
throughout the season to evaluate, among otherthings, how well labor practices align with theprinciples of the ALP Code. These technicians raise“prompt actions” to flag and trigger an immediate
response to any serious violation. They also report“nonconformities”—identifying risks before they
have evolved into issues, which helps us proactively
mitigate them. Field technicians work with farmers
to develop remediation plans to address prompt
actions and nonconformities identified, and they
then follow up on and monitor these plans. If thematter is not resolved within the agreed timeline,
it is further escalated and may lead to sanctions,which can include contract termination.

External assessments: Control Union (CU),an independent third-party organization,
evaluates the management system in place for
ALP implementation, reviews prompt action
protocols and procedures to identify, record,
and address issues, and examines the internal
capacity to implement the ALP program. CU
also evaluates labor practices at the farm level,
assessing compliance with the ALP measurable
standards. Its reports are available on PMI.com,
and CU performs focused assessments toevaluate the management systems in place
relating to the Step Change priority areas, inaddition to the broader farm-level assessment.
External verification: Specialized third parties
verify our understanding of progress on the
ground, challenge our monitoring data, evaluate
the effectiveness of our initiatives, and, ultimately,
help us to better assess our impact. We work withlocal expert partners in different geographies.

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Operational impact

We use a risk-based approach to identify, prevent,and mitigate incidents related to human rights
and labor rights in our tobacco supply chain.
For this undertaking, we collaborate with key
stakeholders—such as suppliers, farmers andfarmer associations, civil society organizations,academics, governments, and the private
sector—to more effectively tackle persistentand systemic issues in the agricultural sector.

Fundamentals

Reporting and performance

In each sourcing region, a management teamoversees the implementation of ALP. A steeringcommittee works closely with the dedicatedlocal teams across our affiliates and suppliers.
Beyond tobacco, we will leverage the extensive
learnings from the ALP program and our humanrights impact assessments to proactively adapt tothe specificities and challenges that derive fromour 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 arefocused on building our understanding and identifying
meaningful strategies to deploy in the years to come,grounded in our Commitment to Human Rights andResponsible Sourcing Principles. We are committed
to sourcing sustainably from all our critical suppliers(read more here) and conducting human rights impact
assessments in our 10 highest-risk markets by 2025
(read more here). We will leverage the due diligence
tools and learnings we have in place and seek
meaningful ways to impact the significant numberof workers involved in our global supply chain.

Since 2018, we have deployed a Step Change
approach to our ALP program focused on four priority
areas: eliminating child labor, ensuring payment of atleast a minimum 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 toresolve the root causes of these persistent issues inpriority countries—which we assess periodically—
and is run in collaboration with our long-term
strategic partner on the ALP program, Verité.
Our governance arrangements guide andfacilitate this work. PMI’s Senior Vice Presidentof Operations, a member of our Company
Management, is accountable for our successin this area, while operational responsibilitylies with the head of our Leaf department.

Sharing our experiences
Transparency on both the challenges and successes of our
ALP program is critical because it lets us hear feedback
from stakeholders on how best to tackle systemic issues.
To that end, we publish regular updates, which we makeavailable on PMI.com. Our first quarter ALP Progress
Update in 2021 focused on PPE and accommodation.
In 2021, we commemorated the 10th anniversary of
our ALP program with a dedicated report (available here)
in which we reflected on progress made, celebrated
achievements, and recognized the challenges ahead. As
our company and supply chain continue to transform, we
envision the next 10 years looking dramatically different
from a sustainability and supply chain perspective.

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Philip Morris International – Integrated Report 2021

Overview

Progress in 2021

Alleviating poverty in
our tobacco supply chain
Poverty leads to poor working and living conditions,
including the use of child labor. We are aiming to
improve the livelihoods of the contracted 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, as well as otherissues in our tobacco supply chain, and our aim isfor all the contracted farmers supplying tobacco
to PMI to make a living income by 2025.

During 2021, we maintained relentless efforts to
deploy impactful initiatives across our tobacco supply
chain and monitor adherence to our standards.
We also took steps toward achieving our broader
ambition covering our extended supply chain.

Measuring income levels in our tobacco supply chain to drive meaningful action
In parallel, we assess the income level of ourcontracted farmers in each sourcing market,
including both on-farm and off-farm activities,
net of production cost, and including remittancesor other subsidies. On-farm activities include
income generated from the sale of tobaccoand the production of other crops andlivestock, while off-farm income comes fromrevenue-generating activities outside the farm
such as waged employment. These analyses
rely mostly on our internal farm-by-farmmonitoring but may also incorporate thirdparty studies by local partners such as those
conducted in India and Mexico in 2021.

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 official benchmark studies, reference
values, or internal desktop exercises. In 2020, we
tasked Social Accountability International (SAI) to
conduct official living income benchmark studies
in two sourcing markets—Malawi and Pakistan—inline with the Anker methodology. Regrettably,
COVID-19 restrictions delayed completion of
the fieldwork and reporting. It was therefore
not until late 2021 that we received the final
report for Pakistan and a draft report for Malawi.
In 2021, we also initiated official living income
benchmark studies in four additional countries
with SAI. By year-end, the initial engagement withthe researchers and our regional teams and local
suppliers had commenced in India, Mexico, and
the Philippines. The fourth study, in Brazil, willcommence in 2022. We expect all four studies
to be completed and the final reports received
during 2022. In three other markets (Argentina,
Mozambique, and Turkey), we use reference values
conducted in previous years, which represent
the typical or average living incomes for rural
areas within each country. In the remainder ofour sourcing markets, we calculate the living
income value based on an internal desktop
analysis following the Anker methodology.

When designing comprehensive action plans,
we aim to exceed the living income benchmark
targets that are required to achieve a decent
standard of living. This affords a buffer toaccommodate potential fluctuations in farmer
incomes due to climatic shocks or volatility due
to market dynamics. We periodically review
the living income benchmarks to account forannual inflationary increases and revise farmer
income studies to consider market dynamics
that may impact farmers’ overall income.

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Strategy

Product impact

Operational impact

Assessing income levels in our tobacco
sourcing markets

Fundamentals

Reporting and performance

generated a 10 percent increase in yields and themechanized plowing itself has reduced by 37 percent
the labor hours required for the land preparation of
one hectare in Malawi. Meanwhile in Mozambique,
we initiated a mechanization pilot which we
expect will cover 170 hectares. In Argentina, themechanization program continued in 2021 with theobjective to improve farm productivity, mitigate
potential risks associated with manual tasks, andcontribute to soil conservation. These services
included soil preparation, transplanting, CPA spraying,and harvesting, with the predominant activity
being soil preparation. In the North West region ofArgentina where flue-cured tobacco is grown, themechanization initiatives generated a 30 percent
reduction in the overall labor hours needed for thevarious crop stages. In the North East region, where
our Burley farmers are located, mechanized farmers
were able to reduce by more than 50 percent thelabor requirements for land preparation and haveachieved an 18 percent increase in yields in the lastcrop season compared with nonmechanized farmers.
In India, the focus of the mechanization programis to increase labor efficiency and, in 2021, we
implemented multiple initiatives with varying coverageamong the farmer base. These initiatives included
seeding machines, transplanters, cultivators combinedwith fertilizer applicator, suckercide applicators, andstringing machines. The predominant initiative is
combining cultivators with fertilizer applicators, with69 machines to date covering over 2,200 hectares
and more than 2,800 farmers. In Pakistan, the focusof the mechanization program is to increase labor
efficiency while mitigating potential risks associatedwith manual tasks. The initiatives implemented so far
include mechanical earthing up machines, mechanicaltransplanters, CPA applicators, and stringing
machines. The predominant initiatives are mechanicalearthing up, where we have 109 machines, covering
3,600 hectares and around 2,500 farmers andstringing machines where we have 168 machines,
covering 549 hectares and 262 farmers. The results
obtained showed us that, with the mechanicaltransplanter, farmers were able to gain 41 percent
efficiency compared with manual transplanting, theearthing up tools increased efficiency by 82 percent
versus the manual work, the suckercide applicator
led to a 25 percent efficiency gain, and, finally, thestringing machine resulted in a 27 percent efficiency
gain compared with the manual stick and tying, also
contributing to a reduction of child labor incidents.

Robust analyses and studies to define living income
values and assess current farmer incomes (and thepotential gap between the two) across our sourcing
markets form the backbone of our approach.
The insights captured in these studies allow us totrack the proportion of contracted farmers making aliving income. This proportion increased significantly
in 2021, reaching 67 percent (up from 48 percent in2020), as a result of both important progress achievedin some focus markets like Argentina, Malawi, andMozambique, as well as increased data availability incountries like Brazil, Greece, and Turkey. Further, ouranalysis showed that our contracted farmers in several
markets, including Brazil, Greece, Pakistan, and Turkey,
already make a living income. In other countries, suchas Argentina, a significant proportion of them do so.
Based on the data, our studies confirmed the needto continue focusing our actions on four markets:
Malawi, Mexico, Mozambique, and the Philippines.

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, our overall strategy is universal: Firstly,
we aim to improve tobacco crop productivity andcompetitiveness. Secondly, we seek to support
households in diversifying their sources of income.
Improving productivity
Our first focus is on enhancing tobacco productionand encouraging farm efficiency. We support thefarmers in maximizing efficiencies on their farms—
for example, by hiring only the labor required,making careful use of inputs such as fertilizer, andfinding ways to increase yields per hectare. The
mechanization of certain steps of tobacco cultivation(such as field preparation) can maximize efficiencies
by achieving labor savings and elevating yields.
In 2021, we continued to expand our mechanization
program in Malawi and provide an opportunity
for farmers to improve their productivity intobacco. A total of more than 1,600 smallholder
farmers, covering nearly 2,900 hectares opted
for mechanization services provided by 32 local
entrepreneurs. This mechanization initiative, in
combination with other agricultural practices,
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Improve the quality of life of people in our supply chain

Philip Morris International – Integrated Report 2021

Overview

Supporting households in diversifying
their income sources
We also look at opportunities to implement otherincome-generating activities. Notably, the cultivationof complementary crops beyond tobacco can improve
farm income while enhancing resilience against
climate change and economic uncertainty. In 2021,
we estimate that around two-thirds of our contracted
farmers also grew crops other than tobacco.

Mitigating the impact of the gradualdecrease in our tobacco demand
The growth of our smoke-free businessintentionally results in a simultaneous declineof our cigarette business. This translates intoa gradual decrease in our overall demand for
tobacco leaf. Over the past five years, ourdemand for leaf fell 21 percent, from 370 million
kilograms in 2016 down to approximately 291
million kilograms in 2021. This resulted in a
reduction in the volume of tobacco we purchasein some markets and the elimination of oursourcing activities in others. Such change has
an undeniable impact on contracted farmers,
especially those whose primary source of income
traditionally has derived from tobacco growing.

For instance, during the year, we supported
the establishment of microbusiness programsin Indonesia with 104 women beneficiaries to
produce backyard crops such as herbs, spices,yams, and papaya. Meanwhile, in Argentina andIndia (reaching 236 and 360 farmers, respectively)
we expanded the production of okra, cluster
bean, tomato, cowpea, and maize. Additionally, inPakistan, the initiatives to produce mushrooms andbackyard vegetables were expanded to close to 600
farmers and around 2,400 farmers respectively.

We are aiming to address and, to the extent wecan, minimize the negative effects of this shift.
We do this through a dedicated assessmentof the unique realities and contingencies thatdefine each country or region where we source
tobacco, building an understanding of the local
ecosystem to tailor and implement sustainable
solutions that can help farmers transition tosustainable alternative livelihoods where needed.

Lastly, in Mozambique, we expanded the treadlepump and winter-crop support project to an additional
1,760 farmers, bringing the total beneficiaries todate to over 3,000, with an estimated 600 hectares
under treadle-pump irrigation production.

In some cases, farmers are not heavily reliant
on tobacco production for their livelihoods,
have the means to easily switch to othercrops, or will continue to grow tobacco forother customers. In other geographies, we
provide additional support to help mitigate
the negative impact of our reduced purchases(read, for instance, about our efforts in
Colombia—where we stopped purchasing
tobacco—in our 2020 Integrated Report).

Strategy

Product impact

Operational impact

Enhancing access to water,
sanitation, and hygiene amongtobacco-farming communities

Reporting and performance

Empowering women involved
in tobacco farming
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.

The link between poverty and inadequate accessto water, sanitation, and hygiene (WASH) is wellestablished. We know, too, that enhancing WASH
infrastructure can substantially improve the wellbeing and livelihoods of community members.

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,1 and women involved in tobacco
farming often face structural and cultural barriers
such as gender gaps in earnings, financial inclusion,access to credit, employment segmentation, lackof ownership of land and property, inadequate
opportunities to receive training or technical support,
and difficulty balancing domestic responsibilities.

To ensure all farmers within PMI’s footprint havebasic access to water by 2025 and to sanitationand hygiene by 2030, we developed a framework
guided by the Joint Monitoring Programme for
Water Supply, Sanitation and Hygiene (JMP),
established by the WHO and UNICEF.
In 2021, we collected global WASH data throughfarm-by-farm monitoring and surveys, applying JMP’s
universal indicators. This research has identified
Argentina as an additional priority market for drinking
water access (alongside Malawi and Mozambique),and an implementation plan has been developed
focused on springs protection. We also developed
water quality guidelines, water availability guidelines,
and an animated training video that explains theconcepts and importance of WASH to our farmers.

Since the inception of our ALP program, genderequality and fair treatment have been incorporated
as key principles in all the countries from which wesource tobacco. When we evolved the program toinclude a Step Change approach in 2018, we seized
the opportunity to strengthen our contribution
to gender equality, taking into consideration the
instrumental role women play in improving household
economic conditions and addressing child labor andother social challenges. Consequently, PMI’s ALP
program now deploys across our sourcing markets
several initiatives focused on women empowerment.
These initiatives include, for instance, self-help groups
in India through which women help one another start
microbusinesses, a women-only ALP task force toperform monitoring in Pakistan, and entrepreneurshiptraining and information on healthcare services for
women farmers and their spouses in Argentina.

Joint efforts with our suppliers on providing
drinking water access in Malawi and Mozambiquecontinued in 2021, with the drilling of 114 new
handpump boreholes in Malawi, 55 in Mozambique,and the rehabilitation of 50 boreholes inMalawi and 50 boreholes in Mozambique. Sincemany boreholes are nonfunctioning in Africa,
rehabilitation is an essential part of our strategy.

1More broadly, the initiatives we implement
to help contracted farmers earn a living
income support the elimination of farming
inefficiencies. They also promote practices—suchas mechanization and irrigation technologies—that improve productivity of the tobacco
crop and also help farmers diversify theirproduction 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.

150

Fundamentals

151

Source: Food and Agriculture Organization of the United States.

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Philip Morris International – Integrated Report 2021

Overview

Eliminating labor abuses in our
tobacco supply chain: Promoting
PMI’s Agricultural Labor Practices

Likewise, when the government in the Philippines
implemented restrictions in specific towns andvillages due to a rise in COVID-19 cases, our leaf
suppliers’ technicians conducted remote monitoring
via mobile phones. We are committed to continuallystrengthening our monitoring to improve our visibilityof existing issues, take a more risk-based approach,and more effectively address the issues identified.

Our ALP Code principles are as follows: No child labor,
fair income and work hours, no forced labor or humantrafficking, a safe work environment, fair treatment,
freedom of association, and terms of employment.

Our 2021 ALP monitoring farm-level data covers
20 out of the 21 countries from which we sourced
in 2021—data set for Switzerland was not included.
For the first year, however, 100 percent of the
Swiss farms were monitored by an independentcompany. These farms were visited once during
the season and the purpose of this visit was tovalidate the results obtained from a self-assessment
questionnaire completed by the farmers.

In 2021, 2,530 field technicians contracted byeither PMI or our leaf suppliers systematicallymonitored the implementation of the principles
and measurable standards of ALP on 91 percent of
all 253,813 contracted farms (2020: 93 percent).
The monitoring in 2021 continued to be impacted
by COVID-19 restrictions in certain markets. In
Indonesia, where national restrictions limited theirability to physically visit farmers, field technicians
made contact and conducted remote monitoring
through mobile phones and digital applications.

Total prompt actions recorded by field technicians(2019–2021)

Safe working environment issues
Child labor
Income and working hours

Total:
14,440Total:
14,751

<1%
8%

<1%
11%

19%

16%

Total:
9,918

<1%
13%
11%
73%

73%

76%

2019

2020

2021

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Other ALP principles

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

The overwhelming majority of our relationships with
contracted farmers feature a shared commitment
to continuous improvement in addressing social
issues. If a contracted farmer is noncompliant andfails to address gaps identified, we may end ourbusiness relationship with that farmer. In 2021, 875
contracts were terminated due to ALP violations(2020: 1,794). The decrease compared to 2020 ismainly attributable to Mozambique, where robust
pre-contracting due diligence has been put in place.

This first year of monitoring highlighted nonconformities with our ALP Code that were extensively
discussed with SOTA (cooperative responsible forthe purchase of Swiss tobacco) and SwissTabac(Swiss tobacco farmers association) that contracts
with the farmers. According to Swiss Tobacco
Tax legislation, the Swiss government can oblige
companies making and selling cigarettes in Switzerland
to purchase a certain amount of tobacco cultivatedin the country. In that regard, due to the uniquenessof the contractual relationship our company has
through SOTA with SwissTabac and all of the Swiss
tobacco farmers, our ability to enforce our agriculturallabor practices is more limited, and so is our ability
to influence our ALP Code’s full adoption. This isbecause some of our ALP requirements (which alignwith ILO’s standards and definitions of child labor) are
more stringent than Swiss law. We remain, however,committed to continue promoting our ALP principles
and furthering their implementation in Switzerland.

To further support compliance with our ALP
Code, we consolidated training materials usedon the ground. After identifying training needs
and best practices, we revamped these materials
and, with the guidance of Verité, developed alearning framework applicable to ALP professionals
and field technicians around the world.
This updated and standardized curriculum will
ensure that suppliers and field technicians receive
consistent guidance about their responsibilities,
the principles and standards they are expected
to uphold, and the skills needed to carry out theirwork. The content has been updated to reflect thecurrent state of the ALP program, including newpriorities, and deliver refreshed reference materials,
handouts, training tools, and other resources suchas case studies, practical exercises, and knowledge
tests. The format allows the customization of content
to meet the different training needs of diverse
markets and learners. In 2022, we plan to roll out
the revamped materials through webinars following
a “train the trainer” initiative with suppliers.

In 2021, field technicians reported a total of 9,918
prompt actions across all sourcing markets, of which
76 percent related to safe working environment
issues, 11 percent to child labor incidents, and13 percent to income and working hours. In total,
86 percent of the prompt actions raised were resolved
during the year, with the remaining 14 percent
of prompt actions followed-up yet not resolved,
predominantly due to the timing of the crop stage.
In addition to internal monitoring, Control Union
conducted external assessments in one market
in 2021 (China). The assessment scheduledin Indonesia was postponed to 2022 due to
COVID-19 restrictions. External verification by
local third-party organizations was undertaken
in six markets. Moreover, during the year, we
actively collaborated with a peer company andour common tobacco leaf supplier to conduct atargeted human rights impact assessment in the
tobacco supply chain in Turkey (read more here).
Across the countries from which we source
tobacco, the most recurrent and difficult challenges
relate to work performed by children, insufficientuse of personal protective equipment, andpayment of a minimum legal wage (or formalized
agricultural benchmark) to farmworkers. We havedeveloped and are implementing action plans toaddress these recurrent issues in collaboration
with key stakeholders, including our strategic
partner Verité, local NGOs, and governments.

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Overview

Eliminating child labor

Results over the past two years show a decline in
the prevalence of child labor among our contracted
farms, from 3.5 percent in 2020 to 1.8 percent
in 2021. This decrease is mainly attributed toArgentina, Mexico, Mozambique, and Turkey,
where we observed the positive impact of yearsof implementation of the ALP Program.

We maintain a relentless focus on
preventing incidents of child labor and take
immediate action when they arise.
Our objective is to eradicate child labor cases in
our tobacco supply chain that are repetitive andsystemic by 2025. We acknowledge that isolatedcases—even when systemic occurrences are fully
addressed—might persist due to farmer turnoveror unintentional misbehaviors, and we will remainalert and tackle them promptly when identified.

We are, however, cautious of this positive
trend, as in 2021, the COVID-19 pandemic
continued to impact our initiatives and child labor
remediation actions. Further, we acknowledge thelimitations of our monitoring system, as well as
the complex and persistent nature of child labor.
Nonetheless, our field technicians continued
to conduct farm-by-farm monitoring where
possible and to support farmers in addressing
and remedying child labor risks and incidents.

We use International Labour Organization standards
to measure our progress toward our target of zerochild labor. Our traditional reporting approach centerson preventing children from performing hazardous
tasks. In 2020, we introduced a new methodology toinclude the employment of children under age 15 andchildren under 13 doing any tobacco-related tasks.
This new methodology reinforces our risk-based
due diligence processes as it improves visibility andgranularity on child labor across our sourcing markets.

Strategy

Product impact

Operational impact

During 2021, field technicians monitored 98 percentof contracted farms for child labor-related issues
and recorded a total of 1,175 prompt actions (2020:
99 percent; 2,352 prompt actions). Of those, 1,121
cases involved children performing hazardous tasks(2020: 2,285), 16 related to children under 15 hired(2020: three), and 38 pertained to children under
13 performing light work (2020: 64). In total, these
prompt actions involved 1,609 children, with 93
percent of them being the farmers’ children. The mostcommon tasks field technicians found the children
doing were harvesting or handling green tobacco andstringing. A significant proportion of this reduction
comes from Turkey, which can be mainly attributed
to a change in sourcing footprint versus 2020.

Fundamentals

Reporting and performance

Field technicians further support our efforts toremediate prompt actions and eradicate childlabor by raising awareness and offering training,
promoting school access and attendance,
conducting vocational training, and supporting
initiatives to improve household income levels.
See our ALP 10-year anniversary reportpublished in 2021 for examples of projects
we support on the ground to help eradicate
child labor in our tobacco supply chain.
In many geographies, the findings of external
assessments related to child labor are reasonably
well aligned with our internal monitoring data, whichshow continued improvement in our visibility on
the ground and the accuracy of our internal data.
We remain focused on further strengthening ourcontrols, for example by increasing the numberof unannounced visits and improving the trainingof field technicians on monitoring techniques.

Of all child labor-related prompt actions recorded in
2021, 99 percent were resolved, and the remaining
1 percent had monitored action plans in place.

Total number of child labor prompt actions recorded in 2021, by geography

Calculating child labor prevalence
Based on these enhancements, we calculate childlabor prevalence using the prompt actions and the
newly introduced self-declared nonconformities
reported during the farm-by-farm monitoring,covering all types of child labor, and with respective
weighting factors of 100% (prompt actions)and 50% (self-declared nonconformities).

The calculation of child labor prevalence, introduced
in 2020, is based on the introduction of two
new elements to enhance our methodology:
Self-declared nonconformities: These are risks
identified before they become issues. We
identify nonconformities by reinforcing our
risk-based approach in our farm-by-farmmonitoring to strengthen procedures andtechniques to better identify risks. These are
identified through interviews with or direct
observations from the farmer and workers on a
farm or their direct observations brought to theattention of field technicians. Their reporting
helps us flag risks and proactively mitigate
them.
2. Consolidated reporting: This means reportingchild labor incidences raised as prompt actions
by field technicians by aggregating them pertype (children under 18 doing hazardous tasks,
children under 15 hired, and children under 13
doing any tobacco-related task).

1.

We conduct this exercise for every sourcing
market, and the global prevalence is a weighted
average based on the number of farmers.
Additionally, for priority markets, the methodology
supplements the internal monitoring data withdata collected through third-party verifications.

610

Turkey376

North Macedonia

69

Malawi39

Pakistan

22

Indonesia

13

Other

46

Types of prompt action recorded in 2021 relating to hazardous work performed by children

The objective is to achieve higher accuracy in
our global and per-country child labor prevalenceby integrating learnings from these assessments(including issues raised) into our calculation. This
comprehensive approach acknowledges thelimitations of our internal monitoring system: The
field technicians are only present on the farms fora limited time during the growing season, and theissues we face are complex and often persistent.

154

Mozambique

155

Harvesting or handling green tobacco

59%

Stringing

24%

Carrying heavy loads

4%

Working with sharp tools

4%

Driving a tractor or operating machinery2%

Handling or applying CPA or fertilizer

2%

Other

5%

Improve the quality of life of people in our supply chain

Philip Morris International – Integrated Report 2021

Overview

Implementing an individualized approach to mitigate
the impact of COVID-19 on access to education
This is when the family accompaniment was
created, reaching more than 800 families and 1,600
children during 2020 and 2021. The benefited
families from El Soberbio, San Vicente, and San
Pedro received bi-weekly visits from a liaison
to ensure children were regularly receiving anddoing school homework and making progress
toward the academic year. The approach was
designed to target not only the kids but also theirparents since they play a key role in mitigating andpreventing child labor within the tobacco farm.

Our colleagues in Argentina, who are actively
engaged in our Porvenir program, acted fast
when COVID-19 entered their market. The
aim was to ensure that the most vulnerable
farmer families and their children continued
having access to education by creating anexus between families and rural schools.
Historically, the Porvenir program in Misiones based
its strategy on access to education and alternative
spaces to keep the children away from child laborrisks. Some of the main interventions were afterschool activities, workshops, and leisure events incommunity spaces. COVID-19 restrictions led toschool closures and social meetings prohibition,affecting the program’s normal execution.
Massalin Particulares and Conciencia Association
acknowledged that this situation, if not addressed
properly, could lead to an increase of child labor risk.

The results of the family accompaniment program
were very encouraging, with 80 percent ofchildren at school age who continued schooling,
20 percent of unschooled children who resumed
their studies, and zero child labor cases identified.

Strategy

Product impact

Operational impact

Promoting a safe working environment

Reporting and performance

Types of prompt actions recorded in 2021
relating to safe working environment issues

In line with PMI’s ALP Code, we require farmers
to provide a safe workplace to prevent accidents
and injury and minimize health risks.
In 2021, field technicians recorded a total of
7,514 prompt actions related to unsafe working
environments (2020: 10,816). Around 58 percentof these prompt actions related to handling green
tobacco and applying crop protection agents (CPA)
without the proper PPE, 17 percent related toincorrect storage of CPA containers, and 15 percent
related to working at height without protection. The
key focus areas remain to address the nonusage of
PPE when handling green tobacco and incorrect
storage of CPA containers, whereas a new areaof risk has been identified: working at height. In
all cases, targeted training will be delivered.
During the year, we focused on maintaining accessto appropriate PPE for all our contracted farmers
and farmworkers. In addition to being available,
PPE needs to be appropriately used. Understanding
the hazards related to certain tobacco tasks andencouraging behavior change is key to safeguarding
the health and safety of those involved.
Meanwhile, we also monitored the provision of safe
and adequate accommodation by farmers to workers,
when relevant (in 2021, around 5 percent of ourcontracted farmers provided accommodation toworkers). Further, we rolled out a reinforced set ofglobal minimum accommodation standards (including
relevant WASH requirements) across all sourcing
markets to bring better sophistication and consistency
and further enhance the living and working conditionsof farmworkers. Around 5 percent of prompt actions
raised within the unsafe working environment in 2021
were related to the new accommodation standards
with all of them addressed within the same crop
season, with the exception of three prompt actions.

156

Fundamentals

157

Exposure to GTS due to not wearing proper PPE

40%

Exposure to CPA due to not wearing proper PPE18%

CPA stored in a way that could causea health and safety accident

17%

Working at height without protection

15%

Unsafe or insufficient work accommodation

5%

Other

4%

Philip Morris International – Integrated Report 2021

Overview

Advancing minimum wages for farmworkers

Further, year-on-year change was also driven
by improved data quality and availability,
allowing enhanced measurement.

In a typical crop season, approximately 33 percent ofcontracted farmers supplying PMI or our suppliers
hire workers. Income earned by farmworkers
during a pay period or growing season should beenough to meet their basic needs. Our ALP Coderequires 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.

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. In the past, a challenge
we faced in some countries related to the lackof an applicable legal minimum wage, such as inIndonesia, or formalized agricultural benchmark,such as in Argentina. In 2021, following extensive
stakeholder engagement or introduction of newlegislation, the minimum wage rates have been set
and we are monitoring and reporting against those.

In 2021, we monitored the wages of 91 percent
of our contracted tobacco farmers and found that
95 percent of farmworkers were paid at least theminimum wage (2020: 65 percent). Field techniciansrecorded a total of 1,154 prompt actions related
to farmers paying less than the minimum wage
to their workers (2020: 1,541). The data reflects
significant progress due to an increased focus
on minimum wage payment, along with relevant
controls implemented during pre-contracting due
diligence and the delivery of targeted training.

Our two most challenging geographies regarding
minimum wage payments are Turkey (read morein this case study) and India (see below).

Tackling the challenges linked to minimum wage in India
workers, actual wages paid, and the numberof hours they work, among others. Based onthese data points, a weighted average of the
combined tasks performed during the crop
season per farm is applied to determine if the
farmer is paying the legal minimum wage. Thismethodology is conducted on a representative
sample within the relevant zones with theresults extrapolated to the total farmer base.

The issue of minimum wage payment in agriculture
in India is complex and widespread across thecountry. In Vinukonda, the tobacco growing area
falls across three different zones where each of
the local governments set their legal minimum
wage, which is updated twice per year. Minimum
wage varies by tasks for all crops, resulting in some
activities requiring higher wages than others.
Based on engagement with stakeholders, farmers
follow unofficial benchmarks agreed at the village
level before the crop season starts and may notalign with the government legislation on minimum
wage rates. In addition, these unofficial benchmarks
may vary due to supply and demand for workers
during the key crop stages and payment to women
workers is typically lower compared to men.

In order to proactively address payment gaps,
we have implemented two initiatives. Firstly, we
are rolling out mechanization for labor-intensive
tasks such as transplanting, inter-cultivation,and stitching of harvested leaves, which aims to
improve efficiencies on the farm. Secondly, weare piloting the payment support to workers,
aiming to bridge the gap between the actual
average wage and the legal minimum wage bydirectly providing payment support to eligible
workers at the end of the tobacco season. The
impact of these initiatives will be assessed during
its implementation and continuously monitored
throughout 2022. Depending on the results, wewill explore further expansion of these initiatives.

Given the different wages paid to men andwomen workers and the fluctuating unofficial
benchmarks, PMI together with our local suppliersconsidered it necessary to monitor the paymentof wages throughout the various tobacco stages.
The monitoring is based on key data collected,
including the number of hired men and women

158

Strategy

Product impact

Operational impact

Promoting fair working
and living conditions in our
broader supply chain

Fundamentals

Reporting and performanceWith regard to our non-electronics supply base,we successfully transitioned our supplier due
diligence program to EcoVadis, the leading global
provider of online ESG supplier assessments.
This shift significantly strengthens our approachby allowing us to access a vast number of ESG
scorecards commissioned by EcoVadis users. In
addition to providing fact-based and detailed
supplier evaluations, these assessments let us see
improvement programs undertaken. The assessments
are available on the EcoVadis digital platform,
which allows seamless sharing among all supplierand customer participants, creating an effective
collaboration ecosystem. In 2021, our critical suppliersof direct materials assessed in EcoVadis achieved
an average social score of 56 (out of a maximum
score of 100). This first year of assessment will
provide us the basis for deeper analysis, in order todevelop targeted programs in the coming years.

We aim to leverage our experience in our tobacco
supply chain to promote high labor standards
and advance the socioeconomic well-being ofworkers across our broader supply chain.
Our Responsible Sourcing Principles set out
ambitions and expectations for our suppliers,
including human and labor rights considerations.
We monitor adherence to the RSP and thesustainability performance of our critical suppliers
through tailored due diligence instruments, including
the EcoVadis platform for our direct materials
suppliers and the Validated Assessment Program(VAP) of the Responsible Business Alliance (RBA)
for our electronics suppliers (read more here).
In 2021, we joined RBA, the electronics industry
initiative for sustainable supply chains. During our
first year of membership, we were able to use RBA’sbest-in-class methodologies and tools, including
on-site audit reports shared among members, tosignificantly enhance the evaluation and performanceof our suppliers. The RBA Validated Assessment
Program is a leading standard for on-site complianceverification and effective, shareable audits.

Meanwhile, our broad and in-depth human rights
impact assessments—which we aim to conduct
in our 10 highest-risk markets by 2025—provide
us with granular insights into social challenges
along our value chain. Read more here.

Data gathered through the VAP in 2021 highlighted
a strong performance by our suppliers (our suppliers’
average initial VAP audit score was 160 out of 200,
compared with an RBA average of 127), as well as
scope for continuous improvement. Identified areas
for improvement included working hours, one day off
every seven days, and emergency preparedness—all
issues common to the electronics industry. In addition
to setting up suppliers’ improvement plans, we
introduced RBA online training to electronics suppliers
to enhance their awareness and understandingof best practices and provide new approaches
and tools to drive performance improvement.
To further build our understanding, we worked
with Article One to conduct a human rights riskssaliency mapping focused on our electronics
supply chain (read more here). Article One’s
findings and recommendations further support
the strategic relevance of our RBA membership.

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Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

We are aware that this will require strong
engagement with our suppliers, with our business
partners, with others in the private sector aswell as strong collaboration with specializedorganizations, academics, and governments. Withbetter visibility of the issues we are trying to solve,
with quality data and with robust partnerships,
we will be able to develop a social sustainability
strategy in our value chain that is leading andinnovative, and that supports the very purposeof our company transformation. In summary, we
will work to make sure that our transformation,
strategy, and plans are viable, sustainable,
and create systemic net positive impact.

Over the past ten years we have gained
valuable expertise in tackling social challenges
in our tobacco supply chain and understandthe power of building lasting capabilities andfair remuneration to address many inequalities.
As our company continues to transform, sodoes our supply chain and with this comenew challenges and opportunities.
During 2022, we will craft a strategy that cancomprehensively address this new context,
including the specific challenges of the electronic
supply chain that are still somewhat new to ourindustry. Building on a wealth of experiencethat we have acquired by working over many
years and across multiple geographies on living
income programs, we will seek to expand our
impact more broadly in our supply chain.

Our aspiration is to ensure that farmers and other workers in our supply chain enjoy
a decent standard of living. The challenges we face as we work to establish a concrete
strategy include lack of transparency related to policies, practices, and concrete data on issues related
to living wage. Nevertheless, we are determined to build a robust strategy that can pave the way toaccess meaningful information with which we will be able to craft engagement plans and programs
that are able to respond to the pressing need of expanding our ambitions to impact and improve
the quality of life of people in our supply chain. In 2022, we will also update our Commitment to
Human Rights and upgrade our Responsible Sourcing Principles to integrate new trends, externalrequirements, our latest sustainability materiality assessment, and refreshed corporate priorities.
Diversity and inclusion together with equitable livelihoods will be among the new areas of focus.
Marcel Jacobs, Director, Social Sustainability Operations

Massimo Andolina, Senior Vice President, Operations

In 2022, we plan to strengthen our approach bycovering the full life cycle of tobacco production,
including both the field and processing stages,
and focusing on the tobacco we purchaseand use in our products. We expect thisenhanced approach to generate positive impact
by influencing our partners who operate intobacco growing countries to accelerate actions
and sustainably address ESG challenges. We
will continue monitoring and having visibilityon the wider tobacco farming communities,
collecting the insights needed to continue
supporting farmers through tailored initiatives,
strengthening remediation programs for theissues identified, and ultimately contributing
to the improvement of farmers’ livelihoods.

Our intention is to champion the adoption ofliving income and high labor standards in the
tobacco supply chain and we will continue
developing and implementing sound programs
that can do that. We will also continue to closely
monitor labor practices and address incidents
raised, with a view to eradicating systemic childlabor by 2025. A key focus in 2022 will be tocontinue promoting the payment of at least theminimum legal wage to farmworkers and ensure
basic access to water to contracted farmers.
We will keep seeking ways to strengthen ourmonitoring and remediation systems and plan to
conduct external verification in priority markets.

Pedro Braga, Vice President, Leaf

160

161

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Overview

Strategy

Product impact

Operational impact

The right thing to do

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

Tackle climate change
Climate change is among the greatest threats to society. There is broad scientificconsensus about the urgency of setting more ambitious emission reduction targets
to limit the rise in the global temperature to 1.5 degrees Celsius above preindustrial
levels. These commitments now need to translate into concrete actions that support
and are fully aligned with the Paris Climate Agreement.

164 Our management approach
Progress in 2021

The climate crisis, as acknowledged by theinternational community, threatens all livelihoods,
but especially those who are most vulnerable,
exacerbating inequalities. It impacts human rights,
biodiversity, water access, global health, and foodsecurity and exacerbates environmental changes
such as ecosystem degradation, drought, flooding,and desertification. While science tells us that climatechange is irrefutable and unavoidable, it also tells usthat it is not too late to limit global warming to the 1.5
degrees Celsius threshold that is considered the limit
beyond which climate impacts will be catastrophic.
Achieving this goal will require fundamental
transformations of critical aspects of society—including how we grow food crops, use land, transport
goods, and power our economies. The great challengeof our times is to find a way to effectively align the
public and private sectors to take critical action andput aside existing siloed approaches and objectives.

For a business like ours—with a diversified agricultural
supply chain sensitive to climate changes—abrupt
climate variations can have a profound impact on the
secure supply of our raw materials.
O U R A S P I R AT I O N S

2023

2025

172 Leading carbon reduction in our
tobacco supply chain

2030

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

100%

of our manufacturing facilities
certified carbon neutral

35%

25%

50%

50%

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

2040

162

Sustainability Index

Zeroreduction in absolute GHG
emissions in our tobacco supply
chain versus 2019 baseline

175 Joining forces with our suppliers
to achieve net zero
176 Looking aheadSI

coal used as curing fuel forthe tobacco we source

166 Overview of our carbon footprintin 2021168 Accelerating our efforts toward
carbon neutrality in our operations

Reporting and performance

It may also threaten facilities and operations,transportation, and distribution chains, as wellas access to power networks and water. Beyond
endangering physical infrastructure and supply
chains, the impacts of climate change and its effects
on biodiversity loss and water insecurity—among
others—undermine progress and business growth by
exacerbating systems-level disruptions for customers,
investors, employees, and communities. Against
this backdrop, it is essential for us to strengthen
our mitigation efforts and our resilience to climate
impacts. This includes reducing our greenhouse gas(GHG) emissions, thereby increasing efficiency andenergy savings, which in turn results in fewer inputs
used over outputs and better profitability. It alsomeans taking steps to apply innovative low-carbon
technologies, which require higher investments
upfront but offer meaningful emissions reductions
and payback over the medium to long term. It
is also key for us to voice support for effective
national and global climate policies, which inject
more certainty into short- and long-term planningand investment and position us to better anticipate
regulatory risks and seize economic opportunities.

The business case

CONTENTS

Fundamentals

SI

100%

of electricity used and purchasedin our factories derived
from renewable sources

reduction in absolute
scope 3 GHG emissions
versus 2019 baseline

reduction in absolute scope
3 GHG emissions versus
2019 baseline (SBT)Net zero

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

163

50%

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

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Philip Morris International – Integrated Report 2021

Overview

Our management approach
Our work to reduce absolute emissions is guided
by science-based targets aligned with a scenario
of an increase in global temperatures of no morethan 1.5 degrees Celsius above pre-industrial
levels. Our targets, approved by the Science Based
Targets initiative (SBTi), commit us to reducing
our absolute scope 1+2 GHG emissions by 50
percent by 2030 versus our 2019 baseline, andto reducing our absolute scope 3 GHG emissions
by 50 percent within the same timeframe.
Moreover, our commitment to net zero emissions(scope 1+2+3) by 2040 is undergoing validation
by SBTi at the time of writing this report.

Our climate strategy aims to address pertinentclimate change risks and build resilience while
seizing opportunities presented by a low-carbon
future. To deliver on our climate ambition, werely on robust carbon footprint accounting,analysis of climate change-related risks andopportunities, ambitious mitigation targets, clear
management and governance structures, and key
enablers such as our internal carbon pricing.
We accelerated our decarbonization ambitionsin 2021. We now aim to achieve carbon
neutrality in our operations (scope 1+2) by2025 and net zero emissions across our entire
value chain (scope 1+2+3) by 2040.

Once we have maximized our emissions reductions,
we compensate for the remaining unavoidable
emissions. We prioritize insetting projects in our
supply chain when possible and purchase certified
carbon credits when needed. Our portfolio ofclimate investments brings both standardization andsophistication to our approach to compensation.

To deliver on those ambitious goals, we prioritize
reducing absolute carbon emissions. We do so by
optimizing efficiency and reducing consumption
while minimizing the use of fossil fuels andpromoting the switch to renewable energy (byprocuring green electricity and installing technology
to self-produce or store green energy).

Our three-pronged approach to decarbonization

Strategy

Product impact

Operational impact

Our decarbonization efforts cover our entire
value chain, which extends from the supply of
tobacco and other materials to the production,
packaging, commercialization, use, and end-oflife stage of our products. Guided by our GHG
footprint model, we have specific mid-termtargets and strategies in place that account forour most significant impacts on climate.

Fundamentals

Reporting and performance

We periodically conduct a climate change risks andopportunities assessment across our value chain.
The findings inform PMI’s overall risk management
approach and help us to better integrate climaterelated issues into our overall risk mitigation responseand decision-making processes. This work aligns withinternational expectations such as those of the Paris
Agreement to mitigate and adapt to climate impacts,
as well as the recommendations of the Task Forceon Climate-related Financial Disclosures (TCFD).

We use internal carbon pricing to incentivize anddrive reductions in GHG emissions. We implementa shadow price to internalize environmental costs
and factor them into investment decisions. And weuse an internal carbon levy as an incentive to reduce
GHG emissions and a way to generate funding forsolutions to compensate for unavoidable emissions.

Our governance and management systems help
ensure that climate-related risks and opportunities
are considered in relevant decision-making processes(read more about our governance arrangements here).
Our Senior Vice President, Operations, a memberof Company Management, is tasked with addressing
climate change risks across all company activities.
He monitors and reviews progress against objectives,
strategies, and action plans related to climate change
and reports findings to the Nominating and Corporate
Governance Committee and the Audit Committee of
PMI’s Board of Directors. The SVP, Operations also
ensures that risk assessment and management ofissues related to climate change are integrated into
long-term plans, objectives, budgets, and performance
review processes. From an operational standpoint,
our Operations, Combustible Category, Smokefree Category, and Finance functions coordinate
the company’s climate change-related activities.

Several corporate policies guide our approach todecarbonizing our operations and value chain.
The reduction of energy consumption and carbon
emissions is embedded in our Environmental
Commitment, our Guidebook for Success (PMI’s codeof conduct), our Responsible Sourcing Principles,and our Good Agricultural Practices program. Our
Zero Deforestation Manifesto covers our sustainable
forestry management, which contributes to climate
regulation and carbon sequestration. Further, ourSustainable Design Framework guides the integrationof eco-design and circularity principles and efforts
to minimize the carbon footprint of our smokefree products. These policies are complemented
by internal Principles & Practices and operational
standards, such as our Global Fleet policy.

PMI’s Low-Carbon Transition Plan
REDUCE

Reduce consumption
and optimize efficiency

S W I TC H

O FF S E T

Minimize the use offossil fuels and promote
the switch to renewableenergy164

Compensate for the remaining unavoidable
emissions with instruments and activities in linewith international best practices incorporating
environmental and social integrity

Our Low-Carbon Transition Plan (LCTP), publishedin October 2021, provides a transparent anddetailed view of how we plan to achieve our climate
ambitions, how we will measure success, and how
we will report on progress. It describes the various
tools and enablers—including our approach to carbon
pricing, our portfolio of climate investments, and ourgovernance and management arrangements—that will
help us deliver on our climate targets. We believe thattransparency drives action, accountability, and change.
By openly sharing our objectives and methodologies
in our LCTP, we seek to accelerate the achievementof our ambitious net zero and low-carbon targets andcommitments (see an overview of our timeline here).

165

WE ARE

Achieving our
climate goals
PH I LI P M O R R I S I NTE R N ATI O N A L
LOW- C A R B O N TR A N S ITI O N PL A N
O C TO B E R 2 021

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Philip Morris International – Integrated Report 2021

Overview

Progress in 2021

We incentivize relevant employees throughmonetary rewards or other forms of recognition
for the successful implementation of climaterelated initiatives (read more about our executive
compensation here) and seek to raise awarenessamong our entire workforce of climate change
impacts through regular internal communications
and training. Moreover, our selection criteria
take into consideration the transparency ofthe suppliers of direct materials in disclosing
their emissions factors and demonstrating
significant carbon intensity reductions.

Urgent action is needed to tackle climate change.
As a major multinational corporation with many
stakeholders around the world, we are increasing
the pace of our initiatives to mitigate climate
impacts through emissions reduction measuresand bolstering our business’s resilience.

Overview of our carbon
footprint in 2021

The urgent and monumental task of combatingclimate change cannot be accomplished by solo
operators; it requires the input and collaborationof partners across the public and private sectors.
PMI collaborates with, supports, participates in,and is a member of sustainability-related initiatives
and organizations that harness the power ofcollaboration to implement solutions at scale.
Among other collaborations, we participate inthree World Business Council for Sustainable
Development (WBCSD) working groups: Climate
Smart Agriculture (Scaling Positive Agriculture),
Nature Action, and the Forest Solutions Group.

Accurate measurement and transparent reporting of
our carbon footprint help us to shape our strategy,
set targets, and measure progress. We calculate our
GHG footprint annually, following guidance fromthe Greenhouse Gas Protocol and accounting for
all emissions generated across our value chain (readabout how we calculate our GHG emissions here).
While we consider it vital to improve theenvironmental performance of our direct operations(including our factories, offices, and fleet), mostof our carbon footprint is generated in scope
3 of our value chain. Consequently, working
collectively with tobacco growers, suppliers, retailers,NGOs, local communities, and governments is
crucial to attaining our environmental goals.

We are also a signatory to the Business Ambition
for 1. 5°C commitment—having responded toa call-to-action for companies to step up theirambitions for the best chance of tackling the climate
crisis. Moreover, in 2021, we publicly declared our
support for the 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.

Our upstream emissions represented 85.9 percent
of our total GHG footprint in 2021. Sources of theseemissions included curing and fertilization in our
tobacco supply chain, the acquisition and transportof materials used in the manufacture of our products,
the procurement of indirect materials and services
necessary to run our business activities, third-party
disposal and treatment of waste, and businesstravel and employee commuting, among others.

The robustness of our commitments is reflected in
our achievement of an “A” score in each of the past
eight years on CDP’s climate change disclosure—arecognition of PMI’s action to combat climatechange and transparently report on its activities.

Operational impact

Product impact

Strategy

Downstream, emissions generated by the transportand distribution, use, and end-of-life managementof our products represented 5.1 percent of
our total footprint in 2021. Emissions related
to the use and end-of-life management of our
products are slowly but steadily decreasing, mainly
due to improvements in our heated tobacco
units and device design (read more here).

Reporting and performance

Overall, in 2021, our emissions decreased inabsolute terms by 1.7 percent across our value
chain versus 2020, amounting to a total reductionof 84,000 tons of CO2e. More specifically, weachieved an absolute reduction in scope 1 emissionsof 4.3 percent, in scope 2 of 28.9 percent, andin scope 3 of 1.2 percent versus 2020.

Carbon emissions along our value chain in 2021

UPSTREAM VALUE CHAINOUR DIRECT OPERATIONSDOWNSTREAM VALUE CHAINSCOPE 3: 85.9%

SCOPE 1: 7.5%

SCOPE 3: 5.1%

1.3%

2.6%

Business travel
and employee
commuting

Use of our
products

Offices andwarehouses

1.9%

15.8%

Tobacco growing

5.6%

14.4%

Fuel consumption
in our offices,
factories, andwarehouses

Fuel consumption
from our vehicles
and aircraft

1.2%

Transport anddistribution

Transportationand distribution

SCOPE 2: 1.6%

54.5%

Materials and services
purchased, and related
activities

2025

1.6%

1.3%

Indirect emissions from thegeneration of purchased or acquired
electricity, steam, heat, or cooling
consumed by PMICARBON-NEUTRALOPERATIONS BY 2025

2040
NET ZERO GHG EMISSIONSALONG OUR VALUE CHAIN BY 2040

Presentation of information aligns with guidance of the Greenhouse Gas Protocol. Figures are rounded.

166

Fundamentals

167

Products
end-of-life

PATH TODECARBONIZATION

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Philip Morris International – Integrated Report 2021

Overview

Accelerating our efforts
toward carbon neutrality
in our operations

For example, in our factory in Switzerland, thepyrolysis technology installed in 2020 allowed
us to use operational waste instead of fossil
fuels to produce steam and hot water; we are
currently fine-tuning our pyrolysis setup, which is
expected to deliver significant carbon reductionsin the years to come. Meanwhile, in Portugal, we
completed the installation of a solar carport at our
Tabaqueira factory, which we expect will reducecarbon emissions by up to 828 tons per year.

Our sites and fleet are the parts of our value
chain over which we have the greatest control.
To achieve our ambition of carbon neutrality inour direct operations by 2025, we combine goodmanagement practices with strategic energy-related
investments. We invest in optimizing energy andprocess efficiencies and replacing fossil fuel-basedenergy with renewable sources. We compensate
for our absolute carbon emissions as a last resort—once we have maximized our emissions reduction.

Worldwide, 7 percent of the energy used in ourfactories in 2021 was self-generated by innovativetechnologies (2020: 2 percent). To increase this
proportion, we developed an internal tool during 2021
that creates a portfolio of zero-carbon technologies
and assesses them against specific risks and attributes.

Decarbonizing our factories
Reducing carbon emissions in our manufacturing
sites relies first and foremost on promoting efficientenergy use. We achieve this through our Drive 4 Zero
program, which establishes a common way of working
across our factories, advances a zero-loss mindset,
and empowers employees to identify and implement
improvements. In addition to enhancing energy
efficiency, this program offers environmental benefits
such as reduced water consumption and waste. With
regard to energy use, the program triggered morethan 200 projects worldwide in 2021, including, forexample, the optimization of compressed air, steam,and cooling systems, heat-recovery projects, LED
lighting, and electric motor replacement. We also lookat opportunities to leverage technology to deliversignificant carbon savings. For instance, in 2021, we
deployed across all our manufacturing sites a newlearning algorithm that allowed us to upgrade ourventilation and air conditioning system, decreasing
the energy required to release the same humidity andtemperature factory conditions by around 20 percent.

This tool will help us select and implement themost impactful solutions across our manufacturing
sites. We are also considering the establishmentof direct power purchase agreements withlarge-scale solar, wind, hydro, and geothermal
installations and small-scale hydropower schemes.
In 2021, 81 percent of the electricity used in
our factories came from renewable sources (upfrom 78 percent in 2020), and we are on trackto achieve our target of 100 percent by 2025.
Our efforts to enhance efficiency and switch torenewables offset the increased energy required
to produce our smoke-free product consumables
compared with cigarettes (the extra energy required
is mainly due to the additional steam needed in the
manufacturing process). Indeed, our efforts in 2021
led to an overall reduction of around 12 percent
in our absolute GHG emissions in our factories
versus 2020, approximately half of it driven by
our efficiency initiatives and the remaining halfby our switch to renewable energy sources.

In parallel, we are continuing our gradual switch
to renewable energy sources. We implement
technologies to generate renewable energy,
such as photovoltaic panels, biomass boilers
and heat pumps, and tri-generation processes(combining cooling, heat, and power).

Strategy

Product impact

Operational impact

Reporting and performance

Fostering carbon neutrality in our fleet
Our fleet of nearly 22,000 vehicles registeredover 380 million kilometers driven in 2021.
Most (80 percent) of our fleet vehicles areworking tool vehicles, used primarily to visit
point-of-sale locations and distribute our
products, with the rest being benefit cars.
Following the development of our carbon neutrality
strategy for our fleet in 2020 and the strengtheningof our organizational capabilities with the setup of
our fleet center of expertise, we instituted a new
Global Vehicle Fleet policy early in 2021. This policy
frames our fleet strategy and moves us to a more
centralized operating model to help ensure thatevery PMI affiliate contributes to our global goal of
becoming carbon neutral (scope 1+2) by 2025.
To reduce carbon emissions in our fleet, weinvest in sustainable powertrains and effective
driving to optimize energy consumption
while improving operational efficiency.
During 2021, we selected more environmentallyfriendly powertrains such as hybrid and electricvehicles to guide the renewal of our fleet. We
anticipate these new vehicles will emit 40 percent
less carbon emissions than the models they
replaced. Since rolling out our policy, more than
40 percent of approved models are powered bysustainable alternatives; this includes all of the newly
approved models in the major markets of Australia,
Canada, Europe, and New Zealand. We will 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 to improve
driver behavior and further engage employees inour sustainability agenda. By the end of 2021, onethird of company drivers were enrolled in the firstyear of our fleet safety e-learning program, which
incorporates eco-driving modules. We expect all
drivers to enroll by the end of 2023. Of the groupoffered this training, 70 percent participated in thecourse. We anticipate the participation rate will climb
to 85 percent in 2022. Nearly half (47 percent) of ourworking 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 (2020: 35 percent).

By the end of 2021, vehicles with sustainable
powertrains (electric or hybrid) represented
10 percent of our fleet globally (2020: 5 percent).

During the year, we certified three additional sites
in the Czech Republic, Mexico, and Portugal as
carbon neutral, bringing the total to five factories
certified to date. We are well on track to certify
all our manufacturing sites by the end of 2025.

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Fundamentals

169

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Overview

Reducing GHG emissions in our
offices and warehouses
We have offices and warehouses in more than
80 countries worldwide, most of which we leaserather than own. Together, they accounted for
1 percent of our total carbon footprint in 2021.

Operational impact

Setting up our Portfolio of Climate Investments

Assigning a price—and hence a theoretical
cost—to emissions makes the intangible tangible
and further incentivizes action to reduce theemissions that contribute to global warming.

In 2021, we created a Portfolio of Climate Investments(PCI) to standardize and provide transparency on our
approach to investments in offsets and insets. Suchinvestments compensate for unavoidable carbon
emissions related to our direct operations and areessential to achieving our 2025 carbon neutrality goal.

Our shadow carbon price is integrated into the
preparation and financial evaluation of businessproposals that will impact our carbon emissions. Thiswas instrumental in helping justify the approval ofeight carbon emission reduction projects in 2021.
While the shadow price helps prioritize the businesscase for investments in activities aimed at structurally
reducing carbon emissions, our carbon levy helps
determine the investments required to abate ouremissions through offsetting or insetting initiatives.
The levy is designed to internalize costs and support
behavioral change by imposing a virtual internal tax
on selected business units for their GHG emissions.
This helps us determine a budget for a portfolio ofclimate investments dedicated to projects focused onnature-based solutions and community investments
in markets relevant to PMI’s supply chain and to
our global environmental strategy. These projects
aim to generate high-quality carbon insets withco-benefits such as biodiversity protection, water
stewardship, and livelihoods development.

Overall, carbon emissions from our offices andwarehouses decreased by 46 percent versus
the 2019 baseline, continuing the positive trend
from 2020. This is due, in part, to awarenesscampaigns, more accurate internal emissions
reporting, and reduced office use due to
COVID-19 restrictions and precautions.

Product impact

Pricing carbon

PMI reviewed its carbon pricing policy in 2020
and took a pioneering approach by developing twocomplementary internal carbon pricing instruments:a shadow price of USD 65 per ton of CO2e anda carbon levy of USD 8 per ton of CO2e.

During the year, we continued to gain visibility into
energy use at those sites and prepared action plansto optimize energy consumption and promote theswitch to renewable sources. We strengthened
our capabilities to collect accurate environmental
data for all our offices and warehouses, up froma third of them in 2020, extending accurate datacollection to over 400 locations worldwide.
And we continued to define minimum energy
efficiency expectations for office equipment in themarkets where we have initially targeted carbon
neutrality. We plan to extend these expectations
to additional markets by the end of 2022.

Strategy

We revise our shadow price and carbon levy annually
to reflect changes in our risk and emissions profiles.

Fundamentals

Reporting and performance

We also anticipate a decrease in the levy budget as
our emissions profile shrinks. Where additional funding
will be required for specific investments (e.g., unlocking
innovative climate solutions and R&D), the advisorycommittee that governs the PCI will decide on approval.
A set of mechanisms and rules—the PCI quality criteria—
allows PMI to efficiently evaluate which climate solutions
are most appropriate to pursue. Core carbon principles
and additional attributes strongly support the developmentof nature-based solutions in PMI’s supply chain thatgenerate benefits beyond carbon reduction or removal,such as ecosystem conservation and enhancement andpositive impacts on local communities. To assess whether
an investment will meet our quality criteria and generate
a positive impact, we employ an external due diligenceprocess managed with a 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,
and nature-related targets in priority countries.

To ensure management’s endorsement and alignment
with the mid-term strategy of the company, the PCI
is supervised by an advisory committee composed ofcross-functional PMI senior leaders (including our Chief
Sustainability Officer and SVP, Operations, among
others). The committee revises and validates the proposals
prepared by the project team and approves the allocationof resources to the proposed climate solutions
through an investment strategy that leverages thebudget generated by PMI’s carbon levy scheme.
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 iscost-effective, transparent, consistent, and of highquality. We expect a higher annual budget in the firstyears of running the PCI, in line with PMI’s businessemissions profile, to support investments in a longterm climate solution. The financial requirements of
PMI’s PCI are expected to decrease once mediumand long-term scope 1+2 carbon reduction
investments become operational and generate
emissions reductions or removals.

In 2021, PMI’s PCI invested over USD 4 million in projects
in Brazil, Laos, Malawi, Mozambique, and Uganda, witha focus on forest protection, reforestation, and theenhancement of quality of life through activities such as
the provision of clean water access. Moreover, the PCI
focused on securing high-quality offsets to support
PMI’s decarbonization journey, and provided therequired carbon offsets for the five manufacturing
sites that achieved carbon neutrality certification
during the calendar year.

Scaling deployment of carbon removal technologies
will be key for PMI to achieve its 2040 net zero ambition

Carbon removal
Nature-based solutions (NBS)
Leverage our supply chain to
trigger projects (e.g., regenerative
agriculture in tobacco, improved
forest management in pulp
and paper)

170

The application of a set oftechnologies to sequesterand store carbon from theatmosphere intoa physical risk

171

Technology solutions
Produce innovative solutions
for our manufacturing
sites and portfolio of products(e.g., biochar from waste,carbon negative plastic).

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Philip Morris International – Integrated Report 2021

Overview

Leading carbon reductionin our tobacco supply chain

In 2021, an external partner audited our suppliers,
mostly remotely due to COVID-19 restrictions
on travel and partially on-site where conditions
allowed. These audits covered all flue-cured
origins to verify carbon reduction activities anddata on fuel use per kilogram of tobacco cured.

Our tobacco supply chain represented around20 percent of our total carbon footprint in 2021, withemissions generated mainly by the use of fertilizers,
the process of curing tobacco, and mechanization.

Improving curing barn efficiency

In line with PMI’s 2040 net zero ambition andour 2030 science-based target trajectory, we arecommitted to achieving an absolute reduction incarbon 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 continue deploying efforts to decarbonize
the tobacco curing process while implementing
additional reduction initiatives focused on
the use of fertilizer and mechanization.

As most farmers own their curing barns, we
collaborate with them and our suppliers to provide
guidance and support to make the barns more
thermal-efficient. We support improvement
projects, which typically aim to enhance combustion
efficiency, ventilation, heating control, and insulation.
In 2021, the improvement projects we carried out
increased the efficiency of 11,181 barns—adding
to a cumulative total of around 94,000 barns
upgraded since 2014 across 13 countries.

Decarbonizing tobacco curing

In parallel, we continued to deliver training tofarmers through our suppliers on fuel efficiency,
barn maintenance, and fuel sustainability.

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 close to half of our purchased volume
and is sourced across 12 markets) is generally cured
using an external heat source—a process called“flue-curing.” Curing barns can be heated with coal,diesel, natural gas, firewood, or biofuels containing
agricultural or wood-sawing by-products.

Increasing the use of renewable fuels
To reduce GHG emissions, we are gradually phasingout fossil fuels such as coal and diesel in favor ofrenewable fuels, including sustainable firewood andbiomass. Our Monitoring, Verification, and Reporting
Framework for Sustainable Leaf Curing Fuels (MVR)
allows us to systematically monitor the sustainabilityof all fuel types used in our tobacco supply chain.

The GHG emissions of flue-cured tobacco
represented 4 percent of our total carbon footprintin 2021 and close to a quarter of the total GHG
emissions generated in our tobacco supply chain.

In 2021, we exceeded our target of having
70 percent of our purchased flue-cured tobacco
cured with renewables, achieving 75 percent.

Having achieved a 77 percent reduction in GHG
emissions per kilogram of flue-cured tobacco
between 2010 and 2020, we are now committed to afurther 75 percent reduction in emissions generated
by curing one kilogram of flue-cured tobaccoby 2025 (versus our 2019 baseline). To deliveron this ambitious target, we focus on improving
curing-barn efficiency and increasing the use ofrenewable fuels. We made good progress in 2021,
achieving a 64 percent reduction in emissions per
kilogram of tobacco from flue-curing versus 2019.

Progress was driven primarily by our work to ensurethat the firewood and other wood-based materials
used to cure the tobacco we purchase do notcontribute to the deforestation of natural primary
forests. Our MVR enables us to assess the risk of
deforestation represented by different wood fuels,
collect sourcing information on the wood fuels
farmers use to cure tobacco, and cross-check thatthose sources have forest management plans in placehighlighting the traceability of the forest products
and the application of sustainable forestry practices.

172

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

We are working on providing guidance for selecting
fertilizer providers taking into consideration their
manufacturing emissions. We are also exploring
innovative technologies that could curb fieldemissions from nitrogen-based fertilizers. In particular,
we will test the impact of improved irrigation
techniques on nitrogen volatilization and evaluate
the difference in emissions that small changes intiming 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 cropand therefore causes nitrogen volatilization.

In 2021, 100 percent of the tobacco we purchased
was cured with no risk of deforestation of primaryor protected forests. Read more about our forestry
management ambitions and progress here.
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 renewablefuels. In 2021, 3 percent of the flue-cured tobacco wepurchased was cured with coal (down from
11 percent in 2020); all of it originated fromthe Yunnan and Guizhou provinces of China.
In those regions, we continued to support themultistakeholder initiative, led by the China National
Tobacco Corporation, to convert curing barns fromcoal to biomass and create a fuel pellets supply
chain produced from agricultural waste. Local
communities are playing a vital role in the project,having created a network of pelletizing plants
sufficient to provide enough bioenergy to support
both the tobacco supply chain and the needs of local
infrastructure such as public buildings. In 2021, 85
percent of the tobacco we purchased from China
was cured with biomass, up from 49 percent in2020. We remain committed to eliminating coalfrom our curing fuel portfolio by the end of 2023.

Reducing GHG emissions from fertilizers
In 2021, emissions related to the use offertilizers in tobacco production contributed to
8.5 percent of PMI’s total carbon footprint.
Nitrogen-based fertilizers are essential in commercial
agriculture to assist farmers in achieving appropriate
yields. Continuous decrease of fertilizer applicationis challenging, therefore we are addressing fertilizer
emissions from different angles. The drivers thatwill help support emission reductions globally
include the preference in volume allocation tomarkets using fertilizers more efficiently, theincrease in input-output efficiency, and the gradualdecrease in our overall tobacco demand.

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Overview

Insetting in our tobacco supply chain tocompensate our direct emissions

In designing activities, we prioritized co-benefits suchas the creation of safe drinking water access points
in line with our WASH approach and the contextual
protection of natural forests that are providing
ecosystem services to the rural communities
included in the project feasibility phase. We expect
implementation of the project to begin in 2022.

We want to promote insetting by implementing
nature-based solutions in our tobacco supply
chain. This allows us to compensate forunavoidable emissions generated by our direct
operations while also advancing the well-being
and socioeconomic development of tobaccofarming communities and creating co-benefits
such as more resilient ecosystems and improved
safe water access for our farming communities.

A second project is under assessment in Argentina,
where our farmers in the regions of Jujuy and Salta
rely partially on firewood to cure Virginia tobacco.
Leveraging the multi functionality of natural
managed forest and the concept of ecosystem
corridors, we conducted a preliminary assessment
based on the provision of multiple services linked
to forest restoration. To ensure the resiliencyof the forestry landscape in a context where
ecosystem services are not monetized, we havetargeted value generation. We have focused on the
projected production of sustainable firewood in linewith our MVR requirements and the generationof biodiversity and water benefits while testing
an impact assessment model that can provide adollar figure for the improvements achieved at
the ecosystem level. This approach is in line withthe holistic view of the natural managed forest
we aim to pursue in our forest restoration.

In 2021, using the two sets of quality criteria
defined by the PCI for project selection—the eightcore principles and the five PMI-specific additional
attributes—we identified an insetting project forour supply chain in Mozambique. We worked with
our tobacco supplier and a global carbon project
developer with a presence in the country tostrengthen our feasibility study and understand theneeds of rural communities linked to our tobacco
sourcing in more detail. We assessed the improvement
interventions (including the distribution of cook stovesand the drilling of boreholes) in the supply chain
against the potential for carbon insetting generation.

Climate justice in global supply chains
Sustainability issues do not occur in a vacuum (read more here).
Building on our 10-year experience of developing and implementing
programs, especially in our agriculture supply chain, we have witnessed
how climate change exacerbates human rights issues including social
inequalities and disproportionately affects the most vulnerable.
The climate crisis concretely impacts human migration, access towater, global health, agriculture productivity, and food security,
among many other issues affecting our collective livelihood.

Briefing paper

CLIMATE JUSTICEIN GLOBAL
SUPPLY CHAINSA perspective for the private sector
October 2021

Strategy

Product impact

Operational impact

Reporting and performance

Joining forces with our suppliers
to achieve net zeroWith a significant portion of our GHG
emissions arising from our non-tobacco
supply chain, engaging with our suppliers tocontribute to their transition toward a net zeroeconomy is at the heart of our approach.
Beyond tobacco, the materials and services wepurchased in 2021 generated around 54 percent
of our company’s total carbon footprint. Our mostcarbon-intensive supplies (representing 40 percent
of our non-tobacco supply chain emissions in 2021)
are the direct materials used in the manufacturingof our products, such as cellulose acetate tow, pulp
and paper, and our smoke-free electronic devices.
We know it will take time to work with our suppliers
to identify and implement appropriate carbon
emissions reduction initiatives. As a first step, in
the past couple of years, we focused on intensive
engagement with key suppliers of direct materials. This
work allowed us to collect primary carbon data andunderstand our suppliers’ GHG emission reduction
programs and targets. In 2021, we witnessed among
our suppliers a heightened understanding of theirclimate impacts, in particular with regard to their
supply chains’ emissions. We attribute this to theefforts we initiated in 2020 coupled with growing
societal expectations around climate change. Our
engagement efforts have allowed us to develop
a roadmap for carbon reduction to 2025.

Our decision to accelerate our ambition toachieve net zero emissions along our value chain
by 10 years—moving our target from 2050 to
2040—means we must double our efforts toencourage and support our suppliers in reducing
their emissions. With this in mind, we announced
a new target in 2021 for all our critical suppliers
to adopt science-based targets aligned with the
1.5-degree pathway. Since 2019, we have piloted
this engagement with two electronic suppliers inclose collaboration with CDP China, resulting intheir targets being recently approved by the SBTi.

Another way the direct materials used in our
products can negatively impact our carbon footprintis through association with commodity-driven
deforestation. We aim to lead the shift toward
a more environmentally sustainable pulp-basedmaterials sector by following the tenets of ourZero Deforestation Manifesto. Read more about
our commitments and progress in 2021 here.

Overall, in 2021, emissions from our non-tobacco
supply chain decreased by 12 percent versus our2019 baseline. In recognition of our actions andstrategies to reduce emissions and lower climaterelated risks in our supply chain, CDP placed
PMI on its Supplier Engagement Leaderboard
in 2021 for the fifth consecutive year.

In 2021, we tasked Article One, our human rights advisers,with preparing a briefing paper to allow us to better
understand how climate change and human rights impacts
intersect. Understanding those synergies is an essential
step in developing coherent and inclusive strategies.

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Fundamentals

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Tackle climate change

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

We are proud of the level of sophistication and ambition achieved to date by
our climate strategy and by the capabilities of our organization in this field, andaim to remain at the forefront of the climate neutral agenda. Conditions today
are uniquely favorable to accelerate decarbonization actions and projects, toreduce our overall carbon footprint and to increase our supply chain resilience bymanaging climate-related risks proactively and seizing increasing opportunities
in the low-carbon economy. To achieve this, we believe in the power of strong
ambitions, bold strategies, and investments in innovative technologies.
To bolster our efforts and create a sound governance context internally,
we also plan to revise our shadow price and carbon levy in 2022 inorder to better reflect the changes in risk and emission profiles.
We are highly committed to playing our role in the decarbonization of oursociety through actions guided by our science-based targets. We will continue
to research and develop innovative solutions, explore new technologies, 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.

Massimo Andolina, Senior Vice President, Operations

In our tobacco supply chain, we aim tofurther reduce emissions through continuous
improvements in tobacco flue-curing (throughefficiency efforts and further adoption ofrenewable fuels) and additional initiatives related
to fertilizers and mechanization to increase crop
productivity and consequently reduce emissions
intensity. We will monitor the implementationof our insetting projects and explore otheropportunities to deploy high-quality nature-based
solutions in other tobacco-growing geographies.

In 2022, we plan to reassess climate changerelated risks and opportunities in line witha 1.5 degrees Celsius scenario and therecommendations of the Task Force on Climaterelated Financial Disclosures, updating theassessment we conducted in 2018–2019.
We will also intensify our investment in developing
tailored projects as part of the PCI strategy, inline with our expectation to trigger value on the
ground by running carbon projects directly withpartners in our supply chain. Through the PCItechnological removal strategy initiative, we will
explore the carbon tech space by investigating
emerging solutions that could bring innovationand market access to carbon direct removal.
Technological removals will be further expanded
in our tobacco supply chain, where we aim to
finalize the assessment of the potential andfeasibility of biochar-based carbon sequestration
within selected farming communities.

During the year, we will refine our approach tohelping critical suppliers set science-based targets.
To further deploy fleet carbon neutrality
programs, we plan to continue focusing on
eco-driving behaviors through telematics andawareness campaigns and training. In 2022, wewill continue to renew our fleet, accelerating theswitch from internal combustion engines to moreenvironmentally friendly powertrains such as
hybrid and electric vehicles. We will also continue
our efforts to minimize the carbon footprintof our offices and warehouses, and we expect
to certify our first carbon neutral markets.

In our factories, we will continue to implement
energy efficiency initiatives and increase theshare of renewables in our energy mix. We planto certify additional manufacturing sites as carbon
neutral by the end of 2022. Building on results
to date, we will continue to deploy digital andartificial intelligence solutions in our manufacturing
sites to deliver additional carbon savings.

176

In parallel, we will continue drivingcarbon reduction through diligent
eco-design of our products.
Claudia Berardi, Director, Environmental Sustainability,
PMI Operations

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Overview

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

Preserve nature
Natural capital is a wealth we all share and depend on. It is essentialthat we protect, sustainably manage, and nurture it.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

The right thing to do

The business case

We collectively depend on soil, land, forests, and water,which provide resources and services critical to humanexistence. Moreover, a healthy natural ecosystem plays avital role in tackling climate change, with land and oceansabsorbing and storing carbon from the atmosphere.
Yet biological richness and natural resources arebeing lost at an alarming rate. Global scientific studies
indicate that one million plant and animal species faceextinction, thousands of species are already extinct,
and several million hectares of natural forest are losteach year despite international efforts to counter thetrend. The unsustainable use of natural resources canlead to soil loss and erosion, diminished landscape andrecreational value, and a subsequent loss of economic
value. Often, it is the world’s most impoverishedcommunities that are most vulnerable to the negative
impacts of changes in climate, biodiversity, andecosystem function. Protecting forests and regenerating
ecosystems can help prevent the worst impacts ofextreme climate events and improve livelihoods.

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. In
our agricultural supply chain especially, even smallchanges in the balance of ecosystems can lower crop
productivity, increase production costs linked to
remediation and adaptation measures, and negatively
impact farmers’ livelihoods. Promoting the efficientuse of natural resources and taking steps to protect,preserve, and improve them help manage risks andprepare us to meet regulatory frameworks that
may emerge in response to increased awarenessof our limited environmental resources, ecosystemdegradation, and biodiversity loss. Further, weunderstand that we all have a responsibility to halt thedestruction of natural habitats and are committed toplaying our part in helping address this global issue.

O U R A S P I R AT I O N S

CONTENTS

Zero

100%

Zero

>70%

2022

Zero

3.1

2025

Zero

Maintain

180 Our management approach

185 Managing water responsibly
189 Reducing waste
191 Preserving natural ecosystems

gross deforestation of primaryand protected forests associatedwith our tobacco supply chain

virtually zero production waste
to landfills

Progress in 2021
181 Halting deforestationSI

193 Looking ahead

virtually zero waste to landfill

SI

net deforestation of managed
natural forest and no conversionof natural ecosystems in
our tobacco supply chain

100%of our tobacco-growing
areas covered by local
water risk assessments(cumulative since 2018)2030

Sustainability Indexof tobacco purchased without detection of residues
attributable to the use of highly hazardous pesticidesof flue-cured tobacco purchased cured with renewable
fuel sources (self-sufficient firewood or biomass)water ratio in our manufacturing facilities (water withdrawn
in cubic meters per million cigarettes equivalent)

Net positive
impact on forests associatedwith our tobacco supply chain

Zerogross deforestation of primaryand protected forest associatedwith our supply of paper
and pulp-based materials

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

10

At least 10 million cubic meters of water optimized in
our tobacco-growing areas (cumulative since 2019)Zeronet deforestation of managed natural forest
and no conversion of natural ecosystems in thepaper and pulp-based products supply chain

Water and biodiversity: During 2022 we will develop and introduce new KPIs and related aspirations for these two topics.

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Overview

Our management approach

Progress in 2021

We are committed to the responsible and sustainable
management of natural resources. We understandthat forestry management, biodiversity protection,water stewardship, and waste reduction are deeplyintertwined. Moreover, robust ecosystems captureand store carbon from the atmosphere, thus playing a
key role—alongside efforts to reduce GHG emissions
from man-made activities—in combating climatechange. We seek to account for those synergies andconsider our impacts holistically when designing anddeploying our nature-related strategies and programs.

Where we operate, we consider thesurrounding ecosystems with the goalof minimizing our negative impact.

Simultaneously, we are focused on improving water
efficiency and protecting the quality of the water
returned to the environment from our factories.
We are on track to have all our manufacturing sites
certified to the Alliance for Water Stewardship(AWS) standard by 2025. Mindful that a significant
portion of our water footprint comes from ouragricultural supply chain, we have set the ambition
to optimize at least 10 million cubic meters ofwater in our tobacco-growing areas by 2030.
In a world with finite resources, we also aim to reduce
the waste we generate, promote its recycling, andresponsibly dispose of it. Our short-term target is toachieve virtually zero waste to landfill across all our
manufacturing sites by the end of 2022—meaninga landfill diversion rate of 99 percent or greater.

We have set targets and initiatives tied to various
aspects of natural capital, with a particular focus
on the highest-risk segments of our value chain.
With regard to forestry management in our tobacco
supply chain, having achieved zero gross deforestationof primary and protected forests in 2020, we are
now raising the bar and are committed to achieving
zero net deforestation of managed natural forests
and to having a net positive impact on forests
by 2025. In our paper and pulp-based materials
supply chain, we target zero gross deforestation ofprimary and protected forests by 2025 and zeronet deforestation of managed natural forest andno conversion of natural ecosystems by 2030.

Several corporate policies guide our approach,including our Environmental Commitment,
Responsible Sourcing Principles, Good
Agricultural Practices, Zero Deforestation
Manifesto, and Water Stewardship Policy.
We routinely conduct global and local risk
assessments to evaluate our impacts on forests,
biodiversity, and water, and we prioritize
and adjust our actions accordingly.
Our efforts to protect natural capital are overseen
by our Senior Vice President, Operations, a memberof our Company Management. Our Operations
team is responsible for developing and implementing
strategies to achieve our ambitions related toforests, biodiversity, water, and waste. Progress on
the ground is delivered through close collaboration
with our stakeholders, particularly our suppliers.
Protecting nature is a collective responsibility requiring
both global ambitions and interventions tailored to
local contexts. We collaborate with and participate
in several platforms and organizations, such as theWorld Business Council for Sustainable Development(WBCSD), the Taskforce on Nature-related Financial
Disclosures (TNFD), CSR Europe, the International
Union for Conservation of Nature’s SwissBiz4Nature,and the Alliance for Water Stewardship.

180

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Protecting forests in our tobacco supply chain
We are committed to working with our tobacco
suppliers and farmers to foster and implement
sustainable agriculture practices that protect
natural capital and enhance livelihoods. In 2021, an
external audit of renewable curing fuels carried out
in our tobacco flue-cured supply chain confirmedthat none of our suppliers poses a risk to primaryor protected forests—i.e., that 100 percent of ourflue-cured tobacco is purchased at zero risk ofgross deforestation. We are working to align natural
managed forests with our zero net deforestation
requirements, including by establishing traceability
to the point of harvest and documenting oursustainable forestry practices. In 2021, 37 percent
of our purchased tobacco was externally verified
as compliant with the ZDM’s net zero criteria.

In addition to recognizing our leadership inenvironmental transparency and decarbonizing ourvalue chain, CDP has acknowledged our efforts
to preserve nature, awarding us an A rating for
our work advancing water security and forest
protection in 2021. The organization also placed
us on its Supplier Engagement Leaderboard
in 2021 for the fifth consecutive year.

Halting deforestation
When managed appropriately, forests provide
a sustainable source of raw materials—some ofwhich we use in our products and operations—aswell as essential services to local communities.

Assessing deforestation risks in
our tobacco supply chain
Since 2020, we have used geospatial analysis
performed with Global Forest Watch (GFW) todigitally map forests in our tobacco-growing areas.
We have added in-depth assessments with primary
input data from satellite imagery coming from
Sentinel 2 and European Space Agency (ESA) land
cover maps. For the granular analysis of attributes
beyond the scope of GFW, we have partneredwith Remote Sensing Solutions, a Germany-based
specialist organization that uses remote sensing tooffer solutions in land use classifications and land usechanges at a minimum mapping unit of 0.2 hectares.
Our spatial assessments cover all tobacco types
and all suppliers from which we source across over
40 tobacco-growing areas in 21 countries. We use
geographic information system data to pinpoint thefarming areas where the tobacco we purchase isgrown and then apply a 15-kilometer buffer to eachsite to account for the potential impact of indirect
land use change outside the tobacco cultivation areas.
We call this extended zone the tobacco-growing area
(TGA). Globally, we monitor deforestation risk onaround 57 million hectares of land (a surface roughly
equivalent to the size of France). This allows us tofocus our on-site audits and activities on those areas
where potential risks of deforestation are detected.

We are committed to achieving a deforestation-free
supply chain for our tobacco and paper and pulpbased materials. These supply chains represent thevast majority of PMI’s total land use and provide thematerials most often linked to the risk of deforestationand the conversion of natural ecosystems.
In early 2021, we reinforced this commitment by
issuing our revised Zero Deforestation Manifesto(ZDM), further aligning it to the Accountability
Framework Initiative guidelines and definitions.
This will improve transparency and allow us tobenchmark the commitments we have set. The
ZDM governs our forestry management efforts
and is designed to move us toward becoming forest
positive. With it, we reinforced our commitment toprotect and measure our impact on forests linked
to PMI’s supply chain. The manifesto establishes
the importance of covering both natural forests(i.e., primary and protected forest areas) and natural
managed forests (i.e., naturally occurring production
forests) in our framework of action and specifies
criteria for on-the-ground interventions needed
for us to meet our 2025 and 2030 targets.

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Overview

Further, our data revealed the need to account forthe specificities of the wood supply chain in Pakistan,where most tobacco farmers source firewood inwoodlots outside the parameters of our typical
15-kilometer buffer. The forest districts we monitor
in northern Pakistan include dry terrain with sparsevegetation cover, making satellite observation
extremely difficult and prone to error. We invested
in detailed analysis to precisely determine the forest
types within our supply chain (natural protected,
natural managed, planted, non-forest vegetation)
to cross-check our internal monitoring and external
audit results. This revealed that the outcomes ofour 2019–2021 land cover satellite assessment
were largely in sync with the figures reported forthe farmers in our monitoring system, thereby
confirming the compliance of the renewable curing
fuel program we implemented in Pakistan with
our forest protection criteria and requirements.

Our approach so far has been intentionally broad,to ensure sound due diligence. Based on learnings
gathered to date and our growing ability to more
precisely monitor and analyze data, we intend
to localize the specific impact drivers for each
tobacco-growing area on our mapping, restricting
our measurement to the area where those impacts
actually take place. This means we will become moretargeted in our analysis and, consequently, we foreseea decrease in the total area we will monitor for
deforestation and natural habitat loss in future years.
Our 2021 annual risk assessment showed a continued
need to prioritize the use of sustainable firewood
to cure Virginia tobacco and switch to sustainablesources of timber to build barns for the air-curing
of Burley tobacco in Malawi and Mozambique.
Beyond this, our 2021 evaluation highlighted
potential deforestation risks related to crop
diversification in Misiones Province in Argentina,
where our granular assessment detected mosaic
land use change around the farming area.

Example of land use analysis: Monitoring potential deforestation risks in Pakistan

Strategy

Product impact

Operational impact

Land use change

Reporting and performance

In 2021, we fully embedded the updated
requirements and ambitions of our Zero Deforestation
Manifesto in our MVR, and we communicated these
updates to our tobacco leaf suppliers through a set of
tailored guidelines. We use our MVR to systematicallymonitor the sustainability of all fuel types used in our
tobacco supply chain, which includes a requirement
to maintain a full chain of custody for the firewood
used in the curing process. Data gathered throughour MVR are verified by a third party. In 2021,
all suppliers of flue-cured tobacco were audited,either with a desktop or on-site audit, across thecountries where we source this type of tobacco.

We estimate that approximately 221,000 hectaresof land are used to grow the tobacco we source. The
surface forest areas that produce wood for biomass
and curing fuel represent, by our best estimate,more than 41,000 additional hectares. Both land
use figures increased in 2021. This increase is due tochanges in our tobacco volumes linked to our sourcing
strategy and the expansion of forest areas used forcuring fuels, including the increase in biomass use
in China in substitution to coal (read more here).
Risks associated with land use change resulting fromtobacco farming are not considered significant. The
use of more-productive tobacco seed varieties andthe implementation of practices in line with PMI’s
Good Agricultural Practices (GAP) principles andstandards help maximize yield per hectare, improve
farmer income, and thus reduce pressure to expand
crops into surrounding forests. In light of these trends
and the global contraction of the amount of land
needed to fulfill our crop requirements, our analysis
shows no direct deforestation risk associated with ourtobacco sourcing. A 2019 land use change study by
Quantis confirmed this, and our analysis of farming
areas is consistent with the figures on land use change
we calculate annually for our tobacco-growing areas,
including forest and natural ecosystems such as
peatland, wetland, savanna, and native grassland.

Our efforts have delivered significant progress: In
2021, 75 percent of the flue-cured tobacco wepurchased was cured using renewable and traceable
fuels (2020: 67 percent). Further, between 2015 and2021, across our global tobacco supply chain, theaverage amount of wood used for curing decreased
from 5.7 kilograms to 3.9 kilograms per kilogramof cured tobacco, a reduction of 32 percent.
Building live barns for tobacco curingin Malawi and Mozambique
The Burley tobacco we purchase from Malawi andMozambique is air-cured in barns made of timber,which needs to be replaced regularly, placing
forests at risk. To reduce this risk, we promote
the use of “live barns,” which use living trees as
curing poles and remain in place for many years.

Promoting the switch to sustainable
fuels to cure Virginia tobacco
The curing process for Virginia tobacco takes placein barns heated by a variety of fuel sources, including
firewood and woody biomass (pellets, woodchips). To
mitigate the risk of firewood collection contributing
to deforestation, we are increasing the efficiency
of curing barns to minimize the use of fuel. We arealso deploying our Monitoring, Verification, andReporting (MVR) Framework for Sustainable Curing
Fuels across our entire flue-cured supply chain; theframework requires the traceability of firewood toensure it originates from sustainable sources. And
we encourage the use of agriculture-derived fuels
where they do not compete with food production or
negatively affect food security. For these reasons, theagrofuels used are primarily by-products of upstream
food processing, such as olive pits and fruit stones
in Spain and Italy and mulberry prunings in China.

During 2021, we partnered with our suppliers
to plant approximately 6,000 live barns inMozambique and 12,000 in Malawi, reachinga cumulative total of around 94,000 live barns
planted in both countries since 2014. From seedlingto live barn, collaboration with our suppliers,
farmers, and field technicians is fundamental toensuring high rates of tree survival and growth.

Land use analysis of the area identified as the firewood sourcing origin area for PMI’s flue-cured tobacco in Pakistan (source RSS).

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Overview

Protecting forests in our paper andpulp-based materials supply chain

Enhancing natural capital throughreforestation and afforestation
As part of our efforts to halt deforestation andenhance natural habitats, we aim to restore
hundreds of hectares of forest by 2025.

Assessing deforestation risks in our paper
and pulp-based materials supply chain
For our paper and pulp-based products, we designed
a risk assessment in 2021 that embeds the criteriaof the National Risk Assessment (NRA) of the Forest
Stewardship Council (FSC). We selected 17 criteria
relevant to our paper and pulp-based supply chain
and applied them to the list of countries from which
we source. This allowed us to identify the following
origin countries as at high risk of failing to meet our
zero gross deforestation target: Argentina, Bosnia
and Herzegovina, Brazil, Indonesia, Russia, Serbia,
and Thailand. We plan to establish an assurance
system covering all the countries that are part ofour paper and pulp supply chain and will placeparticular focus on the high-risk origins (where wewill deploy on-the-ground audits, as needed).

We require that our suppliers and farmers be
self-sufficient in supplying wood for curing andconstruction. By 2025, we aim for them to growmore trees than they cut. We will also work withthem on forest restoration, biodiversity, andnatural habitats, prioritizing ecologically valuable
and sensitive land such as key biodiversity areas.
Tree growing requires careful management and islimited to marginal lands where the carbon stockand existing biodiversity assets, including soil,
can be enhanced. Since 2019, we have restored
165 hectares of forest to compensate for theunsustainable sourcing of firewood used for curing
tobacco leaf. Additionally, aligned with the criteriaof our forest positive program in our tobacco
leaf supply chain we reported 190 hectares ofadditional forest established since 2019. In ourforest positive methodology, we account forcontributions only if two criteria are fulfilled by themarket that declares additional forest hectares:

We intend to leverage satellite monitoring
moving forward, replicating the operating modelin place in our tobacco supply chain, to analyze
deforestation risk in the areas where our paper
and pulp-based product suppliers operate.
Working with an external party to implement
our zero-deforestation assurance framework,
we will leverage tools such as a complementaryrisk assessment based on forestry news feeds.

1.

Zero gross deforestation conditions
achieved and maintained
2. Zero net deforestation conditions achieved at
end state (closing of the year), and additional
forest hectarage considered only after
compensation for eventual deforestation risk

Operationalizing our Zero Deforestation Manifesto
In our paper and pulp-based materials supply
chain, we concentrated our efforts in 2021 oncommunicating our updated Zero Deforestation
Manifesto to the suppliers of direct materials
used in our products and device packaging.
We engaged intensively with them, providing
detailed implementation guidelines and hosting
workshops and one-to-one training.

Our MVR external auditor must validate theassumptions behind compensation activities
submitted by our suppliers before PMI can consider
the figures in its forest positive accounting.

By year-end, these suppliers had all committed tohelp achieve our 2025 and 2030 targets and agreed
to undergo a compliance assessment in 2022. We
will replicate these efforts among our suppliers of
secondary paper and pulp-based products in 2022;
these include, for instance, suppliers of shipping cases,
marketing materials, and bundle closing and inserts.

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Strategy

Product impact

Operational impact

Managing water responsibly

Fundamentals

Reporting and performance

Since we started measuring it in 2018, the total
water requirement related to our purchased tobacco
volume has gradually decreased in absolute terms;
however, our supply chain is subject to off-trend
years. We experienced such a year in 2021, when theeffects of climate change-driven events caused ourwater consumption to increase. The leading cause of
unforeseen water use is seasonal variability, where
temperature and air moisture conditions vary outside
temporal series standard values, causing soil water
stress conditions that can be mitigated by increasing
irrigation volumes. We expect irrigation needs toincrease in terms of intensity (i.e., water required per ton
of tobacco produced) as we are recording a continuous
increase in risk factors linked to seasonal variability
in the tobacco-growing areas where we operate.

From tobacco cultivation to manufacturing,
our products require water. Our agricultural
supply chain accounts for around half of ourwater footprint. The second-largest share of
our water use (around 40 percent) derives fromother sectors of our supply chain—in particular,
the processes by which the filters, paper, andpackaging materials we source are manufactured.
Our direct operations are not particularly waterintensive, representing around 5 percent of
our water footprint, with fresh water used for
manufacturing, sanitation, and other processes.
Water is a renewable yet finite resource sharedby all. We can help combat water scarcity andadvance global health and food security by
responsibly managing our impacts on water,
especially in water-stressed regions.

Assessing water risks
Evaluating and understanding water risk across ourtobacco supply chain is critical to making informed
decisions and effectively managing water resources.

Water stewardship in our tobacco supply chain

We conduct a global water risk assessment annuallyin our tobacco supply chain using the World
Resources Institute’s Aqueduct risk-mapping tool.
The tool analyzes physical water risks in all thetobacco-growing areas from which we source
and forecasts patterns regarding the watershedscale that is likely to emerge in coming years.

The quantity, quality, and timing of water availability
all impact the growth of tobacco plants. For about
60 percent of the farmland in our supply chain,
the growing season is synced to the rain season,
enabling crops to be rain-fed during the open fieldstage. Where we use irrigation, we are mindful of
the risk of baseline water stress when conducting
local risk assessments. Overall, irrigation accounts foraround half the water used to grow the tobacco wesource, with an average of 339 cubic meters used
for irrigation per ton of tobacco produced in 2021.

Risks such as floods, upstream land use, andbaseline water stress influence water availability
for agriculture and community use and can also
impact our tobacco farmers. Therefore, our global
assessments take into account a wider hydrologic
region than that devoted to tobacco cultivation.

Impact of climate change on water
Climate change is expected to affect rainfall patterns worldwide, placing pressure on water supplies
and potentially restricting water availability for agriculture and certain industry sectors. Given the
global reach of PMI’s value chain, climate change-driven water scarcity could present a substantive
threat to our business objectives in the mid to long term. Consequently, properly managing lands andwater resources is a priority for PMI as we seek to increase the resilience of our production systems
and minimize operational risks. We conduct a global water risk assessment annually in tobacco-growing
regions to identify potential hotspots for physical water risks that require adaptation measures. In thepast two years, we strengthened our water stewardship strategy, developing guidance for applying alandscape approach to water optimization projects, protecting natural resources and recharge areas,
and improving the efficiency of irrigation systems to integrate better farm water management.

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In 2021, we improved our methodology to assesswater risks, taking into account the size of each
tobacco-growing area, instead of single geographic
locations. Accordingly, our 2021 assessment revealed
that most tobacco-growing areas (79 percent) showed
a “medium to high,” “high,” or “extremely high” level ofphysical risk (including 32 percent identified as “high”
or “extremely high”). This assessment accounts foroverall watershed risk, including but not limited todrought, upstream land use, and baseline water stress.

Optimizing water
As defined by the Alliance for Water Stewardship,a shared water challenge is a water-related issue,
concern, or threat shared by the site and one or more
stakeholders within the catchment(s). Drawing on our
experience and the findings of our risk assessments,
we aim to go beyond water management toward water
stewardship to tackle shared watershed challenges,
leveraging a science-based approach to improve waterconditions for beneficiaries across each watershed.

To complement our global exercise, we routinely
conduct local water assessments, which leverage
primary data sources and interviews with stakeholders
to gauge both external and internal water risk on
the ground. The external criteria assessment looks
at the drivers of risk at the watershed level that are
affecting all stakeholders, while the internal criteria
focus on tobacco farming, forecasting risk sensitivity
for farmers in our supply chain. Since 2018, we
have completed 31 local water risk assessments(representing approximately two-thirds of our
total tobacco-growing areas), and we aim to cover
all tobacco-growing areas by the end of 2025. In
2021, we conducted on-the-ground water risk
assessments in Argentina, Brazil, the Philippines,
and Turkey. These assessments helped identify theshared water challenges that are a necessary starting
point for properly designed risk mitigation initiatives.
A frequent challenge recorded in our 2021 local
risk assessments is competing demands for limited
water supplies. For instance, in the Fırat-Dicle Basinin Turkey, we see competition for water resources
between agriculture and manufacturing industries.
Other challenges identified include the awarenessof farmers of water-related issues in the Alto Iguaçu
watershed in Brazil and groundwater decline leading
to dry wells in the Bicol River Basin in the Philippines.

We have set a target of optimizing at least 10 million
cubic meters of water (cumulative since 2019) in our
tobacco-growing areas by 2030 through dedicatedprojects that address shared water challenges in
the watersheds where we operate. To achieve thisgoal, we plan to generate volumetric water benefits
through farm- and landscape-level interventions,leveraging our on-the-ground presence in collaboration
with our suppliers and local stakeholders.
In 2021, we partnered with the experts of Bluerisk
and Valuing Impact to apply the World Resource
Institute’s volumetric water benefit accounting(VWBA) methodology to our tobacco supply chain.
This allowed us to better understand the potential
impacts of water retention interventions, whether
positive (e.g., carbon sequestration due to increased
soil organic matter) or negative (e.g., increased water
withdrawals due to more efficient irrigation systems
that may trigger increased evapotranspiration).
The projects we undertake range from nature-based
solutions to irrigation efficiencies and rainwatercollection. For example, in 2021, we modified our
farmer footprint in Turkey by supporting farmers
in switching their previous crops to tobacco, which
requires substantially less irrigation water. This change
has helped address competing demand for limited
water supplies in the water stressed Aegean Region,
reducing by more than 300,000 cubic meters theamount of water withdrawn from the local watershed.
The results of this project have contributed toour 2030 volumetric water optimization target.

In 2022, we will further assess challenges at
the watershed level, involving community
stakeholders as warranted to mitigate risks.

We also trialed irrigation optimization sensors in
Italy, leveraging drip irrigation, liquid fertilizers, andthe deployment of a decision support system thatuses digital technology to ensure the most efficient
crop input amounts (of both water and fertilizers).
Our goal is to optimize the ratio between crop input
and productivity to minimize the use of resources,
including water, while maximizing crop yield.

31

local water risk assessments completed in
our tobacco supply chain since 2018

186

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Meanwhile in Brazil, many of our farmers havewater springs on or near their farms. To maintainwater quality and prevent contamination and runoff,
we supported them in protecting water points byinstalling fencing to keep away cattle and prevent
contamination. Overall, since 2019, we havealready optimized 437,915 cubic meters of water
across our tobacco supply chain. When designing
projects, we seek to take a holistic approach thataims to both protect natural capital and generatewater benefits for local watersheds. Naturebased solutions are proven to bring significantly
greater benefits than projects focused solely on
reducing water consumption at the farm level.

The assessment accounts for:Water quality
When misused, crop protection agents (CPAs)
and fertilizers can pollute the local environment.
While CPAs protect crops and fertilizers
improve crop yield, these chemicals can infiltrate
groundwater or run off into surface watercourses,
impacting aquifers and aquatic ecosystems.

Accelerating water-efficiency efforts
Manufacturing cigarettes and consumables forour smoke-free products accounts for around
5 percent of our total water footprint andamounted to around 3.12 million cubic metersin 2021 (2020: 3.38 million cubic meters).

• A criticality evaluation, based on indicators andthresholds that define the criteria for a site to beconsidered critical for PMI’s business continuity.
• Water risk scores, based on the results of the WRI
Aqueduct Water Risk Atlas. The relevant water risk
indicators for PMI were identified according to thetype of facility (e.g., factory, warehouse, or office).
Following our 2020 assessment results, we
kept our focus in 2021 on four factories: threesites in Europe shown to have high criticality
and to face risk of drought or water stress andone site in Asia at risk of riverine flooding.

The production of smoke-free consumables initially
was five times more water-intensive than the
manufacturing of combusted cigarettes. While
the public health benefits of smoke-free products
justify the trade-off of increased water intensity,
we are accelerating our efforts to mitigate theincreased water demand in the manufacturing
process through enhanced efficiency. In 2021, wereduced water intensity by 44 percent versus 2018,
achieving a ratio of 2.6 cubic meters per million
cigarettes equivalent, down from 4.7 in 2018.

We maintain a global integrated pest management
program to reduce the unnecessary use of pesticides,
promote less hazardous alternatives, and manage both
appropriately (read more here). Further, to minimize
their negative impact, we promote more efficient ways
to apply fertilizers, such as through drip irrigation
systems that distribute them in smaller quantities anddirectly to the plants’ root systems. The interventionsof field technicians—who help educate farmers—are
key to improving pesticide and fertilizer management.

We continuously work to improve our processes,
invest in novel technologies, and raise awarenessamong our employees. Our Drive 4 Zero program
plays a crucial role in improving performance. In 2021,
we were able to reduce total water consumption
across our manufacturing sites by 8.5 percent
despite the continued and significant increase in
the production volume of heated tobacco units.

Water stewardship in our operations
We have a long-standing approach to driving
water stewardship in our direct operations,
including our manufacturing sites.
Assessing water risks
We conduct periodic risk assessments, mapping ourfactories, offices, and warehouses against the World
Resources Institute’s Aqueduct Water Risk Atlas to
identify those sites subject to physical water risks.

Our efforts are bearing fruit: Between 2018 and
2021, we reduced water consumption at our
manufacturing sites by 28.6 percent in absolute terms.

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Overview

Water and wastewater quality
Water quality plays a vital role in our operations.

Our goal is to certify all our factories to the AWS
standard by 2025, and we are making good
progress. In 2021, our sites in Brazil, the Czech
Republic, Greece, Indonesia, Italy, Mexico, thePhilippines, Poland, Portugal, Romania, Russia,
South Korea, Switzerland, Turkey, and Ukraine
completed the certification process (or, for thosesites that previously had been certified, underwent
the annual surveillance audit), bringing the total
number of our factories certified since 2018 to 16.

At our factories, high-quality fresh water is used in
manufacturing processes—including the preparationof flavors and liquid products and the productionof smoke-free consumables—for sanitation andhygiene, and for landscape watering. To reducewater dependency in the long term, we are
implementing technologies and efficiency initiatives
to recycle and reuse water at our manufacturing
facilities. These technologies include, for instance,
reverse osmosis and electrode ionization.

Our water risk assessments guide our certification
timelines and levels of ambition. For instance,
we achieved Platinum AWS certification for ourfactory in Brazil, which is located in the samecatchment area as our smallholder tobacco farmers
in Rio Pardo and Taquari-Antas. During 2021, welaunched a new project to analyze groundwater
quality because it was found to have a naturallyhigh concentration of fluoride, affecting drinking
water. To reduce the fluoride concentration, we
collaborated with the local university to develop agreen filter based on World Health Organization
literature and test it at farmers’ homes. The project,which is still ongoing, has more than six months ofproven efficacy and was presented at the annual
conference of the Brazilian Chemical Society.

Monitoring wastewater quality is standard procedure
at our manufacturing sites. We conduct sampling
following recognized protocols to measure standard
effluent parameters. Although we conduct somelaboratory analysis internally, most is handled externallyby accredited labs. Our certified environmental
management systems help our sites remain incompliance with current and future statutory andregulatory requirements associated with water discharge.
Fostering best practices in water management
Certifying our manufacturing sites to the
Alliance for Water Stewardship (AWS) standard
is a critical component of our approach to water
management. The AWS standard is a globally
applicable framework that enables organizations
to understand their water use and impacts andwork collaboratively and transparently withothers to achieve sustainable water management
within the wider water catchment context. It goesbeyond manufacturing to help companies engage
with the communities in which they operate.

Between 2019 and 2021, we also invested indeveloping our internal capabilities to accelerate
the rollout of the AWS program across ourfactories, accrediting close to 50 employees
as internal AWS auditors through the AWS
specialist training from the SGS Academy.

C A S E S TU DY

Water stewardshipin the Philippines
In 2021, our manufacturing site in Batangas set out tobecome the first factory certified by the Alliance for Water
Stewardship (AWS) in the Philippines. The certification wasundertaken with the goal to promote sustainable water
stewardship practices in collaboration with local stakeholders.

a188

Read more in our case study here.

Strategy

Product impact

Operational impact

Reducing waste

Fundamentals

Reporting and performance

We do not count the materials reused by others
as waste because this reuse helps reduce theconsumption of natural resources in other industries.

Adequate waste management creates efficiencies
and allows for better use of finite resources. We
follow the waste hierarchy, whereby we aim firstto reduce the waste we generate, promote its
reuse and recycling whenever possible, incinerate
it when this is the best option available, and, tothe extent possible, avoid adding to landfill.

Another path is recycling, which currently represents
most of our waste disposal (87 percent in 2021). This
includes segregating waste into paper, plastics, metals,
and glass and often selling these materials to recycling
companies so they can be turned into new products.
Recover: When recycling is not possible, we
seek to recover waste materials and use themto generate energy. In 2021, 11 percent of thewaste generated was incinerated with energy
recovery, while only 1. 4 percent was incinerated
without energy recovery or disposed in a landfill.

Managing the waste generated
in our operations
We are committed to reducing the waste generated
by our operations and to identifying and applying
the most sustainable waste treatment options
available. We manage all waste from our production
sites, including waste from catering, rest areas,laboratories, and healthcare facilities. We pay special
attention to our most valuable waste streams, suchas tobacco, paper, card, and cellulose acetate tow,
and to hazardous waste, such as oils, lubricants, flavor
residues, paints, solvents, chemicals such as nicotine
from laboratories, and activated carbon filters.

Employee engagement is a critical driver in helping
us to use less and reuse and recycle materials
wherever we can. Our Drive 4 Zero program
empowers employees to identify and implement
improvement opportunities for waste reduction.

Disposal of waste generated in 2021

We apply a comprehensive approach
to waste management:
Avoid and reduce: A core focus of our strategy
is to reduce the amount of waste generated byconverting raw materials into products as efficiently
as possible. In 2021, we generated a total of
114,043 tons of waste, of which 1 percent was
hazardous. This is 17 percent less waste generated
than in 2020 and 29 percent less than in 2019.
We also strive to eliminate or reduce waste at thesource; for instance, by requiring suppliers to use
returnable pallets and containers when delivering
materials to our sites. With improvements to our leanmanufacturing processes and our continuous focus
on loss elimination, we have been able to reduce
the waste generated in production consistently.
Reuse and recycle: In parallel to optimizing ourprocesses to cut waste, we strive to responsibly
manage the waste we do generate. We firstseek to reuse materials ourselves or make themavailable to others, extending their lifetimes
within the circular economy. For instance, we useorganic waste generated by our factory in Italy(e.g., food waste from the canteen) to produce
compost, which we then apply as fertilizer
to the green areas surrounding the site.

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Recycled

87%

Incinerated with energy recovery

11%

Disposed to landfill

1%Incinerated without energy recovery<1%Preserve nature

Philip Morris International – Integrated Report 2021

Overview

Product impact

Operational impact

Preserving natural ecosystems

Total landfilled waste (tons)

Joining forces to protect biodiversity
We believe companies have a critical role toplay in tackling biodiversity loss by promoting
conservation in partnership with both internationalorganizations driving for global ambitions and local
stakeholders who understand their surroundings
and experience effects on the ground.

3,067

326
2019

2020

Aiming for zero waste to landfill in our factories
We apply a “zero waste” philosophy, but we
acknowledge that even the most efficient systems
inevitably involve a small amount of landfill; forinstance, waste-to-energy ash residue, waste
legally mandated for landfill, and greywater sludge.
Therefore, our ambition is for our sites to achievea landfill diversion rate of 99 percent or greater.1

2021

Fostering responsible waste
practices in our supply chain
Beyond our operations, we seek to foster apositive impact on waste practices in our supply
chain, particularly in our tobacco supply chain.
Our Good Agricultural Practices require that
suppliers have waste management plans in place.
In addition to being compliant with relevant laws
and regulations, these plans should incorporate
identification of waste sources, improvement
measures, recycling programs, risk mitigation, andcommunication with farmers regarding waste
classification, storage, recycling, and disposal.

In 2021, we achieved virtually zero productionwaste to landfill globally, with a total of 1,232
tons of production waste disposed to landfill(representing a reduction of 77 percent comparedwith the close to 5,375 tons in 2019).

Further, we 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 orcrop protection agents. In Indonesia, for instance,
we partnered with local stakeholders and Plastic
Collective in 2021 to support the setup of a recycling
center for other types of plastic waste in ruralcommunities. The project relies on a recycling hub
with 20 collection centers to provide a model for
local community plastics recycling. The aim is torecycle over 80 percent of single-use plastics in thecommunities where the project is implemented, andto reduce environmental pollution by supportingthese farming communities with education andeconomic incentives to participate. The initiative
was launched in early November; in its first 30 daysof collection, around 3.7 tons of single-use waste
plastic was collected by community members.

We aim to achieve virtually zero waste to landfill
across each PMI manufacturing site by year-end
2022 while complying with all relevant waste
regulations and standards. By the end of 2021,
83 percent of our factories had achieved virtuallyzero waste to landfill. We now are focused on theremaining sites to achieve our 2022 ambition.
All our manufacturing sites have annual waste targets
supported by specific projects to ensure their delivery.

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.

190

Fundamentals

Reporting and performance

Over the past couple of years, we have focused on
gaining visibility into and an understanding of ourimpacts on biodiversity. Leveraging the applicationof the Mean Species Abundance (MSA) metric in our2019 assessment, CSR Europe’s 2020 evaluationon the maturity of biodiversity practices, and ourown datasets and expertise, we identified thefollowing priority areas along our value chain:

We strive to reduce the negative impacts of ouroperations and sourcing activities on habitats andecosystems while looking for ways to contributeto the diversity of plant and animal life.

4,944

1

Strategy• In our tobacco supply chain, our focus should
be on the tobacco cultivation process, which
carries risks related to degradation of the naturalenvironment linked to loss of ecosystem area,
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.

We participate in international forums such as
CSR Europe’s Biodiversity & Industry Platform,
WBCSD’s working groups on nature and forests,
and Business for Nature, and we leverage thework of the Science Based Targets Network(SBTN). As of 2021, we also participate in themember forum of the TNFD, providing support
and contributing to collective action.

• In our direct operations, attention should be paid
to the proximity of our sites to protected and key
biodiversity areas and the implementation of goodenvironmental practices at manufacturing sites.
• Downstream in our value chain, we
should concentrate on preventing thelittering of our product consumables.

We call on governments to adopt a common andambitious framework during the 15th meetingof the Conference of the Parties (COP15) to theConvention on Biological Diversity (CBD) to set
the stage for worldwide action on biodiversity.

Biodiversity stewardship in our
tobacco supply chain
In 2021, we partnered with the Biodiversity
Consultancy to identify the main dependencies andimpacts related to our tobacco leaf supply chain. Our
aim was to align strategy development with the SBTN
approach to set interim targets that have measurable,
actionable, time-bound objectives that will be revised
once the global goals for nature have been formallyset by the Convention on Biological Diversity COP.

Designing a holistic biodiversity strategy
We understand that building a meaningful global
approach to biodiversity requires the conscious
cross-pollination of various strategies andinterventions. The combined effects of naturedegradation, climate change, water scarcity, andforest loss—among other factors—are creatinga biodiversity crisis. To respond appropriately tothis crisis, 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.

As a first step, we assessed the programs currently
in place to deliver on biodiversity. These include ourGood Agricultural Practices program, integrated
pest management program, Zero Deforestation
Manifesto, renewable curing fuels program, andwater stewardship efforts in addition to locally run
biodiversity projects such as our diagnostic tool forenvironmental protection at farm level in Brazil.
We then focused on deepening ourunderstanding of our tobacco supply chain froma biodiversity standpoint, evaluating its extent
and the types of ecosystem it involves.

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Overview

This work also included a mapping of key
dependencies and potential impacts across landuse, agricultural practices, water consumption,and forest protection. This allowed us to scope
the areas of application of our strategy, which
we expect to cover land occupancy, ecosystem
conversion, water stewardship, climate change,chemical pressure, and invasive species.

It leverages a network of 17 weather stations locatedin the tobacco-growing areas to maximize theprecision and reliability of pest forecasting models.
The tool increased farmers’ awareness of IPM andhelped them optimize their use of agrochemicals.
Further, we have started to proactively promote
the use of biological compounds instead of chemical
CPAs and are exploring the use of beneficial
insects as natural enemies. As an example,
among the various IPM strategies adopted in our
tobacco supply chain in Brazil, drones are used
to release the insect Trichogramma pretiosum
over tobacco fields. Trichogramma are a natural
enemy of tobacco Lepidoptera pests. Over a billionof these insects were released in 2021, helping
to keep crop-damaging pests under control.

Toward the end of the year, we also started
piloting various measurement instruments. In
particular, we applied the Integrated Biodiversity
Assessment Tool (IBAT)—including the Species
Threat Abatement and Recovery (STAR) metric—andcombined it with our spatial footprinting to draw
preliminary insights to guide us in our selection of
meaningful indicators and targets moving forward.

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Looking ahead

We are dedicated to setting very solid foundations for our biodiversity
approach to be best positioned to drive progress in a complex area. We
will further develop our biodiversity strategy, covering all relevant areas of
the company and its integration within our climate, water, forest, and waste
reduction efforts. Noting the relevance that biodiversity and water have in
our overall climate strategy and aims to preserve nature, we look forward
to introducing 2025 targets that reflect our level of ambition. We expect tohave a full set of targets and actionable milestones by the end of 2022.
Massimo Andolina, Senior Vice President, Operations

Across our supply chain, PMI prohibits the use of
CPAs classified by the World Health Organizationas Toxicity class I and permits those in class II
in well-justified cases only. We achieved ourtarget of eliminating the purchase of tobaccothat contains residues indicating the use of highly
hazardous pesticides by crop year 2020 (onwhich we are reporting in this 2021 report).

Integrated pest management program
Our Good Agricultural Practices and integrated
pest management (IPM) program aim to protect
both the environment and farmers’ health andsafety. Improving crop productivity creates value
for farmers and for PMI. Using less surface area togrow the same amount of tobacco can free up land
for food crops, other income-generating activities,
and, potentially, biodiversity conservation habitats.
Under our IPM, pests and diseases are controlled
by a set of cultivation practices that include, as alast resort, the correct and safe application of crop
protection agents. These practices promote healthy
crops and safeguard biodiversity on farms and insurrounding areas. We have implemented IPM plans in
our main tobacco-sourcing areas and provide toolkits
that help farming communities identify and implement
appropriate protection practices. In certain areas, wehave developed models that can predict outbreaksof particular pests and diseases, helping farmers
to understand when the use of CPAs is strictly
necessary. As an example, a decision support system
was made available to tobacco farmers and fieldtechnicians in Italy to help prevent and manage pest
and disease outbreaks. The system helps the decision
process by integrating data from forecast models,crop scouting, and remote sensing (satellite images). It
is currently used by more than 100 farmers covering asurface of 3,000 hectares, all mapped and digitalized.

Genetically modified tobacco
In line with our GAP principles, geneticallymodified (GM) tobacco is not acceptable to
PMI. We have solid programs in place to avoid
the inadvertent introduction of GM tobacco
into the products we commercialize.
Specifically, we require that each lot of tobacco
seeds used to produce crops destined for PMI
be systematically sampled and tested to ensure
no GM tobacco is grown for our company.
Specialized laboratories analyze the seeds sentby all our tobacco suppliers and provide theresults directly to both PMI and the suppliers.
Additionally, once the tobacco is grown andprior to purchase, we have each lot of tobaccotested—by the same specialized labs—to ensure
it has not been genetically modified. If any
GM tobacco is detected, the lot is rejected
and does not enter PMI’s supply chain.

192

Our 10 million cubic meter target is a measureof progress that illustrates much more: strong
stakeholder engagement at the watershed level
and a deep understanding of, and commitment
to, acting on shared water challenges with aforward-looking interpretation of water needs.

We will continue delivering on our ambition toachieve a deforestation-free supply chain. In
our tobacco supply chain, we plan to become
forest positive, leveraging initiatives linked tonature-based solutions and providing multiple
benefits to support ecosystem restoration andenhancement. In 2022, in accordance with our
Zero Deforestation Manifesto commitments,
we will expand the scope of our engagementwith our paper and pulp-based materials
suppliers, encompassing all secondary pulpbased product categories and suppliers.

We are focused on achieving our goal of virtuallyzero waste to landfill in our manufacturing
facilities by the end of 2022, having all our
manufacturing sites below 1 percent of waste
to landfill in their operations, and continuing
to reduce our total waste generation.

We plan to certify five additional factories to
the AWS standard in 2022 and to continueenhancing water efficiency and preserving
water quality in our manufacturing sites. In
our tobacco supply chain, we will continue
to deploy our new optimization strategy toidentify the most meaningful interventions,guided by our science-based approach.

Claudia Berardi, Director, Environmental Sustainability,
PMI Operations

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Overview

Strategy

Product impact

Operational impact

Fundamentals

F U N D A M E N TA L S

194

	Conduct R&D responsibly
and transparently

196	Manage our supply
chain sustainably213

	Sustain product reliability

198

221

	Nicotine science201

	Safeguard privacy
and protect data	Uphold business ethics
and integrity

205

	Apply fair fiscal practices

222

	Prevent illicit trade224

	Respect human rights

208

195

Reporting and performanceFundamentals

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Conduct R&D responsibly and transparently
World-class research anddevelopment is powering PMI’sdelivery of a smoke-free future.
Conducting our research and development (R&D)
openly and transparently is of utmost importance.
When coupled with scientific integrity and rigor,
transparency helps address skepticism and mistrustand fosters the sort of collaboration and cooperationneeded to drive positive societal change. Evidence
resulting from robust scientific assessments
advances the debate on public health and tobacco
harm reduction, to the benefit of adult smokers.

Our approach

Sharing our methods and findings

PMI’s Postdoctoral Fellowship Program

Our R&D work is focused on developing andscientifically substantiating smoke-free alternatives tocigarettes for adults who would otherwise continue
to smoke. Eliminating combustion reduces users’levels of exposure to harmful and potentially harmful
chemicals compared to smoking. In conducting R&D,
we strive for excellence in line with international
standards—with zero tolerance for compromise ineither our scientific methods or their execution.

We recognize that scientific research from tobaccocompanies may be met with skepticism. Sharing
our science and listening to feedback are criticalto encouraging debate with experts and thebroader public. We produce a regular briefing
through our Scientific Update publication, which
complements what we share throughout the year
via articles in peer-reviewed journals, presentations
at conferences, and our PMIScience website.
Since 2008, we have published more than 452
papers on smoke-free products in peer-reviewed
publications. In 2021, we continued our OpenScience conference series, hosting webinars andmaking the recordings available on PMIscience.
com. In addition, our scientists continued to present
their findings at conferences and virtual events
throughout the year in the fields of toxicology,
aerosol engineering, and respiratory drug delivery.

Thirteen candidates have taken part in the two-year
Postdoctoral Fellowship Program at PMI Sciencesince its inception in 2017, covering topics ranging
from genome engineering to human behavioral
psychology. The program provides early-career
scientists with a toehold in both academia andindustry. Our R&D center in Switzerland—called
the Cube—houses the fellows, who are provided
with the tools, technical skills, and methodologies
they need to reach their research potential. At
the end of the two-year program in 2019 and
2021, both waves of talented scientists enrolled
in the program had made significant contributions
to PMI’s scientific research and innovation.

Decision-making on R&D strategy and directionis handled by specific committees at the productassessment, project design, and Board levels. Amongother responsibilities, the Board’s Product Innovation
and Regulatory Affairs Committee monitors thecompany’s internal scientific research, including
efforts to substantiate the risk-reduction potentialof our smoke-free products. Our President, Vectura
Fertin Pharma and Chief Life Sciences Officer holds
overall responsibility for our R&D strategy and plans,
while accountability for scientific excellence andtransparency rests with our Chief Scientific Officer.

At PMI, R&D is the catalyst for our business
transformation. The rigor with which we conduct
our R&D—and the openness with which weshare our methodologies and findings—builds
confidence in our science among the scientificcommunity, regulators, and our consumers,
protects our company from reputational risk,
and, most importantly, allows us to commercialize
our smoke-free products around the world.

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, andour research is aligned with the U.S. Foodand Drug Administration’s draft guidance on
modified risk tobacco products (2012).
In conducting our studies, we aim to align withavailable international standards, such as applicable
ISO standards, OECD’s Principles of Good
Laboratory Practice, and Good Epidemiological
Practices. Importantly, all our clinical studies are
conducted in accordance with the Declarationof Helsinki and the principles of Good Clinical
Practice. These standards aim to ensure the quality
and integrity of nonclinical and clinical studies.

196

Animal testing
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 allow us to assessscientifically the consistency of our findings.

By sharing our scientific data and papers, we allow the
research community and broader public to gain an indepth perspective into how PMI conducts R&D and
our research findings. We welcome objective studies
by external stakeholders that seek to contributeto a science-based debate on the importantsocietal question of tobacco harm reduction.

Despite toxicology standards accepting theuse of rodents, we are working to replace
animal testing with non animal-based testing
approaches to the extent possible. We apply
the “3R” guidelines: replacement, reduction, andrefinement (see our Standards for Animal Testing).

INTERVALSTo address concerns over the reproducibilityof research results, we created a platform
called INTERVALS specifically for tobacco harm
reduction science. INTERVALS is meant to be acomprehensive reduced-risk product researchrepository with data from a variety of third-party
sources, in addition to PMI’s research data.

We hope that in time we will be able to replace muchor all animal testing with alternative methods. Our
animal welfare committee, composed of veterinaryand scientific PMI professionals with ample experiencein animal testing, is responsible for reviewing protocols
and examining them for compliance with scientificand animal welfare criteria. Our in vivo facility is
accredited by the Association for Assessment andAccreditation of Laboratory Animal Care (AAALAC)
International, which sets the gold standard in animal
welfare for the use of animals in scientific research.

By promoting the sharing of protocols, tools, and data,
this platform enables independent data reanalysis
and collaboration. It was designed to allow all
relevant stakeholders to share and explore toxicity
assessment data produced in relation to productalternatives to cigarettes. As of the end of 2021, a
total of 87 studies, 132 protocols, and 676 data sets
had been published on INTERVALS since 2018.

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Overview

Sustain product reliability
Our approach

Our ambition to accelerate the end ofcigarette smoking rests on rigorous scientificassessment, highly reliable products,
and strict regulatory compliance.

Our quality management system (QMS) covers all our
products: smoke-free and combustible. Governanceand accountability for consistent product integrity,
quality, and reliability sits at the highest managementlevel at PMI and is guided by our QMS, as wellas internal and external standards. Our 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 we
preserve quality, from raw material to the retail shelf.

Cigarette smoking causes serious health risks
and disease and is addictive. We take ourduty as a manufacturer seriously to ensure
that—for adults who continue to smoke—any
additives used (e.g., flavorings) do not increase
the health risks inherent to cigarette use.
For adult smokers who switch to products that
do not combust tobacco, it is of paramountimportance that these alternatives are scientifically
substantiated to demonstrate that they present
less risk to health than continued smoking, and alsothat they are developed, tested, and manufactured
according to applicable regulations and standards
to ensure consistent product integrity and quality.

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 ofmaterials that come in contact with semifinishedand finished products during manufacturing
and the appropriate training of operators.

Delivering a smoke-free future relies on thedevelopment and commercialization of productsthat meet both stringent scientific requirements andtechnical design criteria. Investments to maintainand continuously improve the reliability of our
products enable us to protect our reputation andbrand equity while complying with regulations.

Our manufacturing quality management systems
are subject to inspection by authorities and certified
bodies. Globally, a team of around 1,800 productquality associates ensures that quality assurance,
control, and improvement covers incoming materials,
semifinished components, and finished products
across our global footprint. Additionally, we havemore than 102 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 each key electronic
manufacturing supplier of our smoke-free devices.

198

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performanceHeat-not-burn devices
The electronic devices for our heat-not-burnproduct are manufactured according to internal
standards and ISO 9001 principles and certified
according to applicable regulations and standards.
The suppliers of the devices’ electronic parts andcomponents, including batteries, must also operate
under these quality standards. Each finished device
is subject to rigorous controls before shipment.

Product reliability also extends to the packaging,storage, and transport of finished goods to ensure
they reach the consumer in proper condition.
Packaging has a crucial role to play in this regard andalso helps ensure the traceability and identificationof our products so we can act promptly should
issues arise. Each packaging unit has a uniqueserial number that allows us to trace the entire
supply chain journey, from factory to market,
enabling backward traceability in the case of
product quality issues. Additionally, each device andconsumables pack has a unique serial number. In
the event of a product recall (of which there werenone in 2021) 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.

In case of consumer complaints regarding
the devices, PMI has established a thoroughmonitoring process enabling early detection of
consumer pain points; these insights are thenused to improve our products and components.
Since the reliability and durability of devices
contribute to sustainability outcomes, we strive tostrike the right balance between extending a product’s
lifetime in use (thus lowering demand on natural
resources) and updating and improving the product’s
effectiveness and competitiveness in the market.

Moreover, we focus on the sustainability and longevityof our products by embedding eco-design principles
and post-use collection schemes. Learn more here.

Smoke-free products

Heated tobacco units
IQOS heated tobacco units (HTUs) are inserted
into the device holder by the consumer. Each
unit is composed of a tobacco plug (alsocontaining a metal susceptor in the case of TEREA
consumables), hollow acetate tube, polymer-film
filter, cellulose acetate mouthpiece filter, and filter
papers. The uniquely processed tobacco plug ismade from a reconstituted blend of high-quality
tobacco leaves. We disclose the ingredients ofour heated tobacco units on our website.

Smoke-free products include heated tobacco ande-vapor products, which comprise consumables andelectronic devices subject to strict design controls.
The process ensures that the product is developed
according to predefined and controlled criteria
and demonstrates reduced toxicity compared withcigarette smoking. Any alterations to the productare made under a strict change management
process that assesses the impact of the changeon the product’s quality, safety, performance,and regulatory compliance. In addition, as part ofproduct development, we apply use-hazard analysis.
We assess the risks related to the intended use
and foreseeable misuse of the product, and we
implement appropriate mitigation measures.

The manufacturing of heated tobacco units
demands high levels of precision and consistency.
For instance, the diameter of the unit, as well as theproperties of the cast leaf, are crucial to productperformance. Heated tobacco units are also tested
for stability, using standard protocols covering
different temperature and humidity ranges. The
design and packaging aim to preserve productquality and safety in the various conditions to which
it may be subjected (read more on PMIScience).

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Combustible products

E-vapor products
Our e-vapor devices use a cartridge containing
an e-liquid. The product’s reliability depends on
the integrity of the tank; if the tank is tampered
with, the product could fail. We recognize a tradeoff between product reliability and recyclability,
but prioritize safety: We use closed tank systems
in the development and commercialization of
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 combustible products are also subject tostringent product development controls. We strictly
adhere to product specifications and regulations forcigarettes and apply further internal requirements
to ensure the highest quality products. We disclose
the ingredients used in our conventional products on
our website. These ingredients undergo toxicologicalassessment to ensure their use does not increase theinherent toxicity of cigarette smoke. We keep abreastof strengthening or pending regulation, and a further
regulatory compliance assessment is performed toensure compliance with applicable regulations.
Besides tobacco ingredients, we use nontobacco
materials such as cigarette paper, filters, andpackaging materials in our products. Thesematerials also undergo toxicological assessment,
and we assess packaging materials following themain requirements for food contact materials.
We warn consumers about the health effectsof our products. All advertising and consumer
packaging for these products must contain clear
and visible health warnings (read more about
our marketing and sales practices here).

Ingredients in our heated tobacco units and e-liquids
Heated tobacco units and e-liquids are manufactured using ingredients compliant with all applicableregulatory 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 notexceed permissible levels per industry guidelines. Nicotine and nicotine salts used in e-liquids mustsatisfy U.S. or European pharmacopoeia specifications. All other ingredients (with the exception offlavoring extracts from tobacco) are either food grade or satisfy U.S. or European pharmacopoeia
specifications. We do not use any ingredients classified as carcinogens, mutagens, or reproductive
toxicants. All consumable ingredients—and also non-substrate material, such as the plastic andother components of cartridges that house the e-liquid and the paper and other componentsthat house the tobacco mixture—are subject to rigorous toxicological risk assessment.

Strategy

Product impact

Operational impact

Nicotine science

Reporting and performance

For that to happen, adults who otherwise would
continue to smoke need access to nicotine productsthat are less harmful alternatives to cigarettes.
Among the leaders of change are public healthorganizations and regulatory bodies, whose opinions
and decisions impact everyone involved. Many
scientific experts and public health organizations
support the role of tobacco harm reduction as acomplement to existing tobacco control measures.
They also recognize the important role of nicotine
in tobacco harm reduction to help smokers
transition away from the use of cigarettes.

Tobacco naturally contains nicotine.
Therefore, so do combustible tobacco
products such as cigarettes and cigars, aswell as smoke-free products such as oral andheated tobacco. While e-cigarettes do notcontain tobacco, most do contain nicotine,
which typically is extracted from tobacco.

The U.K.’s Royal College of Physicians has said:“Nicotine is not [...] in itself a highly hazardous drug [...]
It is inherently unlikely that nicotine inhalation itself
contributes significantly to the mortality or morbidity
caused by smoking. The main culprit is smoke and, if
nicotine could be delivered effectively and acceptably
to smokers without smoke, most if not all of theharm of smoking could probably be avoided.”1

Nicotine is the best-known molecule in tobacco.
Because it is so well known and because smoking is
the most common source of nicotine uptake, people
tend wrongly to attribute all the dangers of smoking
to nicotine. While nicotine is addictive and not riskfree, it is not the primary cause of smoking-relateddiseases. These diseases primarily are associated withchronic exposure to the high level of toxic substances
emitted in the smoke when tobacco is burned. In fact,
nicotine is a key ingredient in nicotine replacement
therapies designed to help smokers quit smoking.

Cigarette
Nicotine

That said, nicotine is addictive, and it can be difficult
to quit tobacco- and nicotine-containing products.
It can also cause an increase in a person’s heart rate
and blood pressure. Minors, pregnant women, nursing
mothers, and people with existing conditions suchas heart disease, high blood pressure, diabetes, or
epilepsy should not use nicotine-containing products.

Made fromtobaccoPresent in tobaccoand other plants
Contains
nicotine andis addictive

Independent studies have shown the harm
reduction potential of making better alternatives
to cigarettes available to those adult smokers
who would otherwise continue to smoke (readmore here). If nicotine could be provided in an
amount, and with rate of delivery, acceptable toadult smokers, it could be effective as a cigarette
substitute, and millions of lives could be saved.

Lit on fire tocreate smoke

In cigarettes, mostsmoke-free
products, and nicotine
replacement therapies
Addictive

Produces tar andharmful chemicals

Causessmoking-relateddiseases

1

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201

Not primarycause of smokingrelated diseases
Certain groupsof people should
not usewww.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobaccoharm-reduction

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Overview

Our approach

In this domain, we are acting on three axes:

Nicotine plays a key 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. In addition
to taste, ritual, and the sensory aspects, nicotine
uptake that is comparable to cigarettes is important
for adult smokers to accept novel alternatives tosmoking. Taking these aspects into consideration, we
have researched and continue to develop a portfolioof smoke-free products that are a better choice for
adult smokers than continuing to smoke cigarettes.

1. We continue to analyze the risks and potential
benefits of nicotine use when not in combination
with combusted tobacco and share our findings toencourage a science-based debate on thisimportant societal question. More information
can be found in our eighth Scientific Update,
which is dedicated to a review of nicotine.
2. We understand the need for, and actively work
toward, commercializing tobacco and othernicotine-containing products responsibly. We aim
to guard against marketing and sales of oursmoke-free products to nonsmokers and minimize
access for underage purchasers. Ourcommercialization practices support this businessvision: To make adult smokers aware that better
alternatives to cigarettes exist and to move those
who otherwise would not quit cigarettes to oursmoke-free products. Doing this responsibly bydirecting our marketing and sales activities
toward adult smokers and providing them withaccurate and relevant information about our
products is fundamental to our long-term success.
Read more about our sales and marketing
practices here.

We are working hard to achieve a future without
cigarettes. As society progresses toward theelimination of cigarettes, the most harmful formof nicotine delivery, there needs to also be
education and a societal debate about nicotinethat is grounded in science. The world will certainly
be a better place without cigarettes, but it isdifficult to envision how to achieve this in a timely
manner without nicotine-containing alternatives
that deliver an acceptable sensory experience.

3. We conduct post-market studies to understandhow our products are used and by whom. Suchstudies verify the results of our premarket
perception and behavior assessments andmonitor whether current adult smokers switch tothe products, as well as whether never or former
smokers use them. By conducting post-market
studies, we are able to evaluate potential changes
in prevalence; assess initiation, relapse, andcomplete-quit rates; and compare the use ofcigarettes and smoke-free products.

Strategy

Product impact

Operational impact

Analyzing the risks and potential
benefits of nicotine use

Reporting and performance

Nicotine and addiction
Nicotine is an addictive chemical compound present
in tobacco and tobacco products. But the addictive
properties of smoking involve a more complex
interaction of factors than nicotine alone. Ritual,
the sensory experience, and social experiences
also play a significant role in addiction. Exposure
to nicotine and the extent of its effects can also
be influenced by individual differences in smoking
behavior, metabolism, body mass, and genetics.

What is nicotine?
Nicotine occurs naturally in tobacco and, at
significantly lower levels, in some other plantvarieties from the Solanaceae family, which includes
tomatoes, potatoes, and eggplant. It is possible toextract nicotine from tobacco, as is done to derive
the nicotine contained in nicotine replacement
therapy (NRT) products and e-liquids for e-cigarettes.
It is also possible to produce synthetic nicotine.
While this process is relatively costly, there are an
increasing number of products (e-liquids and nicotine
pouches) that are now using synthetic nicotine.

Continual use of nicotine may lead to dependence or
physiological adaptations to maintain homeostasis,
which are 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, which may manifest as anxiety,dysphoria, and other negative affect states duringlong-term withdrawal. Physiological dependence,coupled with altered responses from the reward andstress system, can make quitting very difficult.

The route of nicotine administration (e.g., via the lung,mouth, or skin) influences the speed and amountof nicotine uptake into the body. When tobaccosmoke or e-cigarette aerosol is inhaled into the lung,
it is rapidly absorbed into the bloodstream and canreach the brain as quickly as 10–20 seconds after the
puff is taken. Nicotine from oral tobacco products(e.g., snus, nicotine pouches, NRT gum) is absorbed
into the bloodstream through oral tissues, and thenicotine concentration in the blood rises gradually,reaching a plateau in about 30 minutes. The rise inbrain nicotine concentration is slower compared with
the inhalation route. A certain amount of the orally
administered nicotine is swallowed and absorbed,
mostly in the small intestine, before passing to
the liver, where it is metabolized (i.e., transformed
to facilitate excretion of nicotine from the body).
Nicotine, when absorbed through the skin, reaches
a plateau concentration in the blood more slowly
than via other routes of administration. However,the level typically is maintained for a longer period.

The rapid uptake and delivery of nicotine to the brain’s
reward system via lung delivery is thought to be a
primary reason for the addictive potential of cigarettes
and other inhaled tobacco products. When someone
smokes a cigarette, the nicotine levels peak quickly(in about six to 10 minutes), and then the level of
nicotine drops fairly rapidly as it is metabolized. Most
nicotine replacement therapies do not provide thissame pharmacokinetic profile, making them less likely
to be addictive but also less likely to satisfy smokers.
Two critical factors are the dose and rate of nicotinedelivery. NRTs and other cessation products can help
address nicotine withdrawal symptoms. The use of
NRTs is recommended for eight to 12 weeks, although
use for six months or longer may be necessary toachieve optimal quit rates. It makes sense to use
NRTs to support smoking cessation for as long as theindividual feels at risk of relapse. NRTs, however, are
not as satisfying as cigarette smoking. Firstly, they
do not provide the ritual, sensory experience, andsocial components that complete the experience ofconsuming nicotine via smoking. Secondly, the routeand speed of absorption of nicotine is different: Often,
the NRTs that rapidly deliver high doses of nicotine,such as sprays and inhalators, are more satisfying tosmokers than are those that slowly deliver nicotine
at much lower doses, such as gums and patches.

Once nicotine is absorbed into the circulatory
system, it is distributed to all body tissues andorgans, including the brain. There, nicotine binds
to specific receptor molecules, mimicking theactions of a naturally occurring brain chemical,
the neurotransmitter acetylcholine. Nicotine ismetabolized mainly in the liver. Nicotine absorbed
via the lung and oral tissues reaches the brain
directly without first passing through the liver tobe metabolized, whereas nicotine absorbed via thegut passes first through the liver to be metabolized
and is partially excreted before reaching the brain.

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Nicotine in our heat-not-burn product

After reviewing the scientific package on IQOS, theU.S. Food and Drug Administration (FDA) concluded,“[Pharmacokinetic] studies show Marlboro, Smooth
Menthol, and Fresh Menthol Heatsticks have nicotinedelivery, addiction potential, and abuse liability
similar to combusted cigarettes. This is potentiallybeneficial for smokers trying to switch to IQOS asthey are more likely to have satisfactory results
and not resume [combusted cigarette] smoking.”2

For adult smokers who would otherwise continue
to smoke, scientific innovation provides increasingly
better ways to deliver nicotine while preserving theperceived benefits and enjoyment for the consumer.
Nicotine delivery from smoke-free products canresemble that of a cigarette; thus, these devices tend
to be much more satisfying for those switching to aless harmful substitute to cigarette smoking. Our IQOS
heat-not-burn product is a smoke-free alternative
for adult smokers who would otherwise continue
smoking and is not a smoking cessation product.

Therapeutic delivery of nicotine
The public health and scientific communities
continue to explore ways in which nicotine, whenisolated, can be used as a potential therapeutic
compound.3 Scientists are studying nicotine asa possible active ingredient in pharmaceuticalapplications for the treatment of certain diseasestates as it could confer specific health benefits.
These include treatments for patients suffering fromschizophrenia, depression, and anxiety disorders.
Scientists are also studying the effects of nicotine
on debilitating diseases and disorders such as
Tourette’s, Alzheimer’s, Parkinson’s, attention deficit
hyperactivity disorder (ADHD), and others.

Nicotine plays an important role in encouraging
adult smokers to switch from cigarettes to better
alternatives such as IQOS. Therefore, it is importantfor IQOS to have a nicotine delivery profile similar
to that of a cigarette. In two studies conducted inJapan, the peak concentration of nicotine in the
blood occurred about six minutes after starting
IQOS use and reached more than 88 percent of
the level attained with cigarettes. It, therefore, hasan addictive potential similar to cigarettes. But
at the same time, IQOS has the potential to be asatisfying alternative to continued smoking, themost harmful form of nicotine consumption.

We believe a greater societal focus on thehealth impact of nicotine in isolation is needed,
and we plan to play our part in furthering
this understanding through our research.

Strategy

Product impact

Operational impact

Our approach

We conduct business ethically andwith integrity. We clearly define theethical and compliance expectations
we have for ourselves and for thethird parties with whom we work, andwe back up these expectations withgovernance and management systems
to ensure we deliver on them.

We understand that PMI’s reputation comes fromthe sum of our actions. To ensure we conductbusiness ethically and with integrity, we maintainan Ethics & Compliance (E&C) program. The
program is led by our Vice President and Chief
Ethics & Compliance Officer, who reports to PMI’s
General Counsel and also reports periodically to
the Audit Committee of the Board of Directors.

Managing ethics is an integral part of any successful
business operation, and major decisions that affecta company’s bottom line often involve questions of
ethics. We all depend on systems that apply laws fairly
and protect fundamental rights. Without the rule oflaw, it is difficult for companies to operate successfully.
Issues such as corruption, unfair competition, andunsafe workplaces undermine societal well-being.

Our Guidebook for Success (PMI’s code of conduct)
sets clear standards and expectations. Its mandatory
provisions apply to all PMI employees, officers,
and directors. Key risk areas addressed in thisdocument include anti-bribery and anti-corruption,
anti-competitive practices, conflicts of interest,
information protection security and data privacy,
responsible marketing and sales, scientific integrity,
supply chain responsibility, and workplace integrity.
Internal policies—called Principles & Practices—
provide more-specific guidance on these topics.

While following the rules is critical, it is sometimes
not enough. It can be possible to behave unethicallyeven while complying with the law or other rules.
Good ethical judgment helps us guard against
such failures and build lasting business success.

Evaluating our Ethics & Compliance culture
We formally evaluate our E&C culture periodically,using a global online survey to understandemployee experiences and attitudes related
to ethical business conduct. For the last 15
years, PMI has been surveying its global
employee population every two to three years,
including most recently in September 2021.

Heats
tobacco withoutburning
CI G ARE T TE SNICOTINE

According to the 2021 E&C survey results, PMI
is stronger on ethics than at the time of the 2018
survey. The global survey results showed improved
or maintained performance across all categories
of questions. Most notably, we saw very highawareness among respondents of the company’s E&C
program, our Guidebook for Success, our compliancehelpline, and the duty to speak up should concerns
arise. Analyzing the survey results helps us identify
potential improvement opportunities. Current focus
areas include reinforcing the importance of employees
speaking up when they observe potential misconduct,even if they think someone else will report it, andenhancing leadership communication on E&C topics.

Smoke-freeElectronic
deviceBurns
tobaccoHeats liquid
nicotine
Releases smoke
and ashNo
tobaccoE-VAP OR2
3

The FDA does not endorse or approve tobacco products.
www.health.harvard.edu/newsletter_article/Nicotine_It_may_have_a_good_side

204

Reporting and performance

Uphold business ethics and integrity

HE ATEDTOBACCO

Contains real
tobaccoFundamentals

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Overview

In addition to the employee surveys, weperiodically work with third parties to assesselements of our E&C program, which we didin 2021 and plan to do again in 2022.

There is a strong speaking-up culture at
PMI, with most employees communicating
directly with the E&C department anddisclosing their identity when speaking up.

Employee communication and training

Specifically, in 2021, only 22 percent of thereports received by E&C were submitted
anonymously. According to the 2021 E&C results,
the vast majority of employees are aware of PMI’s
anonymous reporting channels and do not fear
retaliation for reporting potential misconduct.
These statistics indicate that employees feel
comfortable speaking up and sharing their names.

We use training and communication to help
employees understand which standards are
relevant to their roles and how to apply them intheir daily work. We reach broadly across theorganization using multiple formats and languages.
In 2021, 71.3 percent of employees received training
related to topics in the Guidebook for Success.1
Employees and third parties completed a total of
261,890 training sessions (2020: 198,170).2 Key
topics addressed included workplace integrity,
speaking up, conflicts of interest, responsible
marketing, privacy, intellectual property, insider
trading, information protection, competition law,and anti-corruption. Training completions for 2021
continue to be recorded in the first quarter of 2022,
so a slight increase in these figures is expected.

In addition, the E&C team continues to increase
its outreach to employees on PMI’s speakingup 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, anddisciplinary actions, as well as anonymized real-life
examples of misconduct and advisory guidance
provided in response to employee questions.
Furthermore, in 2021, E&C launched the#UnmuteYourself campaign to encourage
speaking up across all regions. The initiativewas championed by members of the Company
Management team and resulted in management
teams and employees across PMI regularlyreferring to speaking up during business calls.

Speaking up
At PMI, there are many ways to speak up
about potential misconduct, get help on
an E&C matter, ask a related question, or
recommend an improvement. Mechanisms
include, but are not limited to, the following:
a.
b.
c.

E&C in-person contacts (e.g., Regional Director,
Cluster Head, E&C Country/Market Head)PMI Global E&C email address
PMI Compliance Helpline (online or bytelephone), which is operated by a third
party and available 24 hours a day, sevendays a week, in all languages spoken at PMI(employees may use the helpline anonymously,
subject to local laws and regulations).

2

Product impact

Operational impact

At PMI, we take all reports received through ourspeaking-up channels seriously and are committed tofollowing up objectively and in a timely manner. We
investigate all reports that raise compliance concerns,
and we involve other functions or line management
to help resolve other concerns. Corrective measures
are implemented to address investigation findings,
and disciplinary actions are calibrated against pastactions to keep the process fair. When investigatingsuspected E&C violations, trained personnel adhere
to PMI Investigations Standards, which are designed
to ensure a fair and respectful process. We run a
post-investigation quality assurance program to get
feedback on how well we met these standards. We
also have a Retaliation Check program to detect,
remedy, and prevent retaliation against people who
speak up, which includes regular follow-ups with
employees who have made a report. We also run
checks to ensure year-end performance assessments
are fair, and we review substantial employment
decisions regarding all people identified as at risk ofretaliation before the decisions are implemented.

Reporting and performance

Looking ahead
Ethics and integrity are core components ofour culture at PMI. We are committed to ouremployees, our customers, our shareholders,and our communities to conduct businessin an ethical manner and in compliance withall applicable laws and regulations. In 2022,
as our company progresses further on its
transformation journey, we plan to build on
this solid foundation and will continue to
implement and enhance our global ethics andcompliance program. Among our initiatives
for this year, we will launch a new Codeof Conduct, roll out global training on key
compliance risks, and continue to encourage
our employees to speak up in case of concerns.
Suzanne Rich Folsom, Senior Vice President& General Counsel

We received 929 reports of suspected misconduct
in 2021 (2020: 762). Around 43 percent of thematters that were closed in 2021 did not involvea compliance allegation and were resolved
through E&C advisory services or referred to line
management or appropriate departments, such as
our People & Culture teams, for further action.

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 ourinteractions with government officials and entities,
as well as with private individuals, both directly
and through third parties. These standards prohibit
all forms of bribery and facilitating payments.
They also describe acceptable forms of giving
and receiving gifts or entertainment, govern
political contributions, and set clear pre-approval,reporting, and registration requirements.
We publicly disclose the very limited
political contributions we make on PMI.
com, and we follow lobbying regulations.

As of 2021 the calculation is based on the 55,276 employees
maintained in PMI’s central HR system.
2021 training completion data as of March 17, 2022.

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Compliance investigations

In 2021, we investigated and closed 508 cases thatinvolved potential violations of PMI’s Guidebook
for Success and compliance policies (2020: 431). At
least one violation was substantiated in 46 percentof these cases (2020: 54 percent), with “theft andfraud” accounting for 30 percent of all violations(2020: 22 percent), “workplace integrity” accountingfor 22 percent (2020: 30 percent), and violations
related to speaking up (such as failure to speak up
or obstructing an investigation) accounting for 14
percent (2020: 20 percent). Corrective measuresand disciplinary sanctions were implemented
following these investigations. Specifically, in 2021,
termination of employment accounted for 26
percent of the disciplinary actions issued from thesecases, while suspension accounted for 5 percent,written warning for 32 percent, and verbal warningor counseling for the remaining 27 percent.

PMI also has implemented a Global Speaking
Up Policy, the principles of which are reinforcedin the Guidebook for Success (PMI’s code of
conduct) and in all PMI compliance policies.

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Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Respect human rights
Protecting and promoting the rights ofour stakeholders is paramount. As a global
company, we work on upholding humanrights within our organization and across ourvalue chain. We work to ensure that humanrights are respected and upheld by ourbusiness partners, including our suppliers.
Human rights are inherent to the dignity of humanlife and a prerequisite for society to prosper. The
United Nations Guiding Principles on Business andHuman Rights (UNGPs), as well as academia and civilsociety, recognize that businesses can impact humanrights both positively and adversely and should
account for and manage these impacts. At PMI,
fostering the promotion and continuous integrationof human rights considerations into our strategy,
policies, and business practices is not just the rightthing to do; it also helps anticipate evolving legal
requirements and minimizes our financial exposureand the risk of supply chain disruptions. Further,safeguarding and promoting human rights within
our value chain creates the basic environment andconditions in which our stakeholders, including our
employees and workers across our supply chain,
can thrive and create value. In combination with apositive, inclusive culture and sound management,
this provides the space and opportunity needed forour key business enablers of innovation, collaboration,
continuous improvement, and execution.

Our approachThis umbrella approach is grounded in the UNGPs and centered on four pillars:

Across our value chain, we aim to address ouradverse impacts and maximize opportunities todrive positive change for people. Setting a strong
foundation and integrating mechanisms that promoterespect for human rights into our organization
are essential. While this can be challenging given
the scope and complexity of the issues and thebreadth of our operations, we believe that humanrights are an absolute and universal requirement—arequirement we are committed to upholding.

• A sound policy framework: Our work is governedby PMI’s Commitment to Human Rights, which iscomplemented by other PMI policy instruments
such as our Guidebook for Success, Responsible
Sourcing Principles, Good Agricultural Practices,
Marketing Codes, and internal policies such as our
Workplace Integrity Policy. Together, thesemechanisms guide the implementation of PMI’s
Commitment to Human Rights along our value
chain. Awareness-raising and training help us embed
those instruments and an ethos of respect forhuman rights within our corporate culture.

We seek to continuously improve our policies
and practices with respect to identifying
and addressing risks and impacts to “rightsholders” across our value chain by securing
our supply of raw materials responsibly.
To strengthen our due diligence framework,
proactively identify risks, and mitigate potential
adverse impacts in our operations and value chain, we
have set an ambition to conduct human rights impact
assessments (HRIAs) in the 10 highest-risk countries
in which we operate by 2025. Our HRIAs are carriedout by independent expert organizations and follow aformal process aligned with the UNGPs. They result intailored action plans, which we monitor and report on.

• Remediation: We implement measures aimed ataddressing adverse impacts and maximizing
opportunities to drive positive change for people
across our value chain. We seek to collaborate withcivil society organizations, governments, and theprivate sector on initiatives to design and deploy
strong and impactful solutions.
• Transparency: A complex global value chain brings
potential human rights risks that we need tounderstand, manage, and continuously address.
Transparency on our progress and challenges
through our annual reporting and targetedcommunications is key to our approach.

• Rigorous due diligence: We have robust programs
and processes in place to identify our adverse
impacts across our value chain. These include ourcompany-wide integrated risk assessment, humanrights saliency mappings, and HRIAs. We also deploy
targeted due diligence programs focused on areas ofpotential risk, such as in our tobacco and electronics
supply chains, as well as external assessments andverifications.

Our efforts to safeguard and promote humanrights underlie many of the activities andprograms described throughout this report. A
dedicated cross-functional team at our central
operations coordinates our approach.

Policyframework

Transparency

Focus onrights-holders

Remediation

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Overview

We then assessed our current risk-mitigation
instruments and mechanisms and benchmarked
them against international standards andother industry practices. This allowed us todevelop recommendations to strengthen ourrisk identification and response and further
build our capacity to address salient risks.

Moving forward, we will increase our reach bytranslating the modules into additional languages.
In addition, we hosted tailored training sessions
for the executive teams in our Middle East &Africa Region to raise awareness of human rights
risks there and address them proactively.

Identifying human rights risks in
our electronics supply chain

The exercise demonstrated that our visibility and risk
management was robust at the tier 1 and tier 2 supply
chain levels, as well as for specific minerals—such ascobalt and tin, tantalum, tungsten, and gold (3TGs)—
at the tier 3 level and beyond. It highlighted PMI’s
potential to influence human rights performancethrough direct engagement and capacity-building
activities, as well as through the continued integrationof circularity and social responsibility principles in our
product development processes. This exercise alsoaffirmed that our visibility into the upstream plastics
supply chain and subcontracted services contracted
by our tier 1 and tier 2 suppliers remains limited.
Accordingly, this is an area of opportunity for PMI touse its leverage to advance respect for human rights
further upstream in the electronics supply chain.

Following the refresh of our global humanrights saliency mapping in 2020 (see details inour 2020 Integrated Report), we undertook
an analysis of our electronics supply chain,
which we completed in early 2021.
In collaboration with Article One, who are leading
advisers in the business and human rights arena,
we mapped and prioritized salient human rights
risks for our extended electronics supply chain,
which includes our electronics manufacturingservices and mechanical and electrical components.
This assessment validated some of our existing
assumptions around potential risks and surfaced
new ones that were less apparent to us. These
ranged from working hours and wage-related risks
in the subcontracted services supply chain, to the
responsible sourcing of minerals, metals, and plastics.

Conducting human rights impact
assessments in our highest-risk markets
A critical component of our due diligence frameworkis having independent expert organizations carryout HRIAs in our highest-risk markets in accordancewith the UNGPs. After each assessment, the thirdparty organization presents its findings and suggests
ways to address issues identified. The report isshared with the corresponding market leadershipteam, which develops a time-bound action plan incollaboration with the relevant corporate function,
assigning responsibilities for implementationand progress measurement at the local level.

Strategy

Product impact

The cumulative learnings from each HRIA wehave conducted since 2018—along with themonitoring of their action plan implementation—
help us to become more demanding, professional,
and sophisticated in our approach. We aim toassess our 10 highest-risk markets by 2025.
The completion of a second HRIA planned for 2021,
in Malaysia, had to be postponed to 2022. Because of
the COVID-19 pandemic and related precautions, theexercise is now designed to be conducted virtually.

TargetThis has necessitated pre-assessment trainings andcapacity building to ensure our local colleagues are
sufficiently familiar with the concept and purposeof the assessments. Involving our local teams inthe HRIAs is essential to maximize the value theseassessments bring both to the market and to therest of our organization. Each HRIA informs theway we operate and inspires adjustments to ensure
the protection and promotion of human rights.

10

5
4

The HRIA in Malaysia will incorporate potential
human rights risks resulting from our downstream
supply chain for the first time, including some of our
IQOS retailers. We kicked off the HRIA in September
2021 and plan to communicate findings in our nextreport. Future assessments will be conducted inperson once the public health situation allows it.

2

2019

C A S E S TU DY

Assessing human rights
impacts in the tobacco supply
chain in TurkeyaReporting and performance

Throughout 2021, we continued monitoring
the implementation of actions recommended
by previous HRIAs in Mexico, Mozambique,
Russia, and the Philippines. The local teams
are strengthening their internal policies andpractices as they execute their action plans.

In 2021, we conducted our fifth HRIA since 2018.
Aiming to maintain our leadership in promoting
and protecting human rights, we took a collaborative
approach by engaging in a multistakeholder tobacco
leaf supply chain assessment in Turkey. This uniqueindustry-wide initiative seeks to better addresshuman rights issues on the ground by identifying
synergies between stakeholders.

210

Fundamentals

Operational impact

Read more in our case study

211

2020

2021

2025

Fundamentals

Philip Morris International – Integrated Report 2021

Overview

Empowering our low- and medium-riskcountries to assess human rights impacts

Exploring climate justice—the intersectionof human rights and climate change

To ensure all countries are assessed, not just thoseat highest risk, we piloted a new type of HRIA
process and toolkit in 2021 aimed at enabling our
medium- and low-risk country affiliates to selfidentify salient human rights risks in their markets
and develop action plans to address them.

We recognize that climate change impacts not justthe environment but also people’s economic andsocial well-being. Climate change has exacerbatedhuman rights issues and disproportionately affects
the most vulnerable people around the world. In
2021, we commissioned a briefing paper (available
here), prepared by our human rights advisers Article
One, to explore where and how the issues of climatechange and human rights intersect in the agricultural
supply chain. This is an essential step in developing
coherent and inclusive strategies across our supply
chain to help mitigate the impacts of climate change.

The tool was piloted in our Benelux market(Belgium, the Netherlands, and Luxembourg), witha focus on identifying human rights risks before
they could have a significant adverse impact.
The Benelux team developed a practical action
plan with short-term objectives that allowed
it to meet and exceed evolving standards andstakeholder expectations across all three markets.

Grievance mechanisms
Providing access to effective grievance mechanisms
in our operations and across our supply chain
is a key requirement of the UNGPs and a coreelement of our due diligence approach.

Our affiliate in Mexico also participated in thepilot phase of the human rights self-assessments.
This exercise had a two-fold objective: To accountfor potential risks related to the pandemic and toevaluate the status and progress of the action plan
implementation following the 2018 HRIA (readmore here). The self-assessment in 2021 confirmedthat we had strengthened our practices across allareas identified in 2018. Moreover, engagementwith external and internal stakeholders shed lighton the need to focus on three additional topics:(1) protecting employees’ work–life balance
while working from home; (2) promoting equal
conditions for women and men, consideringthat women are often responsible for childcare;and (3) supporting employees’ mental health.

Internally, we maintain clear policies, run regulartraining, and work to ensure that robust processes
are in place to encourage employees to speak up
if things don’t seem right or can be improved (readmore here). The same applies to our supply chain,
where our Responsible Sourcing Principles (RSP)
specifically ask suppliers to provide their workers
with easily accessible ways to raise concerns,
free from risk of retaliation. In our tobacco supply
chain, our Agricultural Labor Practices (ALP) Codestates: “Workers should have access to a fair,transparent, and anonymous grievance mechanism.”
Such mechanisms are available in some countries
where we source tobacco and concerns canbe raised with field technicians at any time.

We will fine-tune our self-assessment toolkit
with learnings from these pilots prior to rolling itout more broadly in the second half of 2022.

We continue to review and look for opportunities
to strengthen further the grievance mechanismsthat exist in our operations and value chain.

Looking ahead

Strategy

Product impact

Operational impact

Reporting and performance

Manage our supply chain sustainably
Our supply chain accounts for asignificant portion of our potential socialand environmental risks and impacts,
which we are committed to identifying,
managing, and addressing responsibly.

Our approach to sustainable supply chain
management is built on the following core principles:• Proactive engagement is key to fostering open andtransparent relationships with our suppliers in which
expertise is shared and built together.
• We take a risk-based approach, deploying tailored
tools and interventions and prioritizing areas inwhich we can have the greatest impact.

Our operations rely on securing high-quality, costeffective, and fit-for-use materials and services
from suppliers who are expected to adhere to
PMI’s environmental, social, and governance (ESG)
requirements. In addition to strengthening regulatorycompliance and preventing reputational risks,
responsible supply chain management enhances
our resilience and supports our ability to secure
the resources needed to deliver on our company
purpose. At the same time, it acts as a lever to maketangible positive contributions to environmental
and social issues. We seek to actively engage with
our suppliers to minimize our social and ecologicalfootprint, and we strongly believe we can bringpositive value to those with whom we collaborate.

• We seek to support our suppliers in continuously
improving their sustainability performance andachieving the highest standards of compliance.
• We leverage our reach and understanding of our
supply base to implement impactful programs andaccelerate progress in our sustainability corridors,such as our efforts to tackle climate change, protect
nature, and promote fair working conditions.
Our supply chain sustainability strategy is groundedin our Responsible Sourcing Principles (RSP), whichalign with the UN Guiding Principles on Businessand Human Rights (UNGPs), the Ten Principlesof the UN Global Compact, and International
Labour Organization (ILO) Conventions. The RSP,
together with its corresponding Implementation
Guidance, detail our ambitions and set process
and performance standards for our suppliers ofmaterials and services, from the direct materials
used in manufacturing our products to the goods
and services required to run our business.

Our approach
We aim to purchase goods and services fromsuppliers at best value, commensurate with business
requirements, while appropriately managing supply,
financial, legal, quality, and sustainability requirements.
We seek continuously to identify and address current
and potential risks while also seizing opportunities tocreate a positive impact in the communities in which
we and our suppliers operate, thereby increasing
the sustainability performance of our supply chain.
We work with suppliers and contracted tobacco
farmers to achieve a solid economic performance andtangible environmental and social improvements.

We expect all our suppliers—and in particular our
critical suppliers—to demonstrate high sustainability
performance and compliance with the expectationsof our RSP and Good Agricultural Practices(GAP). And we have set a commitment to source
sustainably from all our critical suppliers by 2025.

We remain committed to respecting and promoting human rights across our value chain. In 2022, we plan
to review our Commitment to Human Rights to identify potential opportunities to strengthen it. We will alsotranslate our human rights e-learning into additional languages spoken at PMI to roll it out further across ourorganization. We plan to complete our HRIA in Malaysia, expanding it to assess downstream impacts, and we
expect to conduct an HRIA in one additional market in 2022. In addition, we will fine-tune our human rights
self-assessment tool and plan to deploy it in several markets during the year. We will analyze the recommendations
generated by the human rights saliency mapping of our electronics supply chain and leverage our Responsible
Business Alliance (RBA) membership to address suppliers’ RBA audit findings and other areas of improvement.

212

Fundamentals

Adherence to our RSP—and GAP for our tobacco
supply chain—is built into our contractual agreementswith suppliers. We monitor the activities of our criticalsuppliers through a suite of tools, including thirdparty assessments, on-site audits, and field visits.

213

Fundamentals

Philip Morris International – Integrated Report 2021

Overview

We apply tailored due diligence instruments andmechanisms within specific segments of our supply
chain. In our tobacco supply chain, our work isgoverned by GAP and our Agricultural Labor Practices(ALP) Code, which are operationalized at farm levelby field technicians working year-round with thefarmers contracted by PMI and our suppliers.

The sustainable sourcing of goods and services
involves a broad cross-functional collaboration within
PMI, driven by our Procurement and Leaf teams andoverseen by our Senior Vice President, Operations.

Overview of our supply
chain in 2021

Our Procurement organization leverages the workof the Responsible Business Alliance (RBA)—theparent organization of the Responsible Minerals
Initiative (RMI)—in our non-tobacco supply chain
and of EcoVadis in our direct materials, indirectmaterials and services, technical procurement,
and advanced procurement supply chains.

With over 29,000 tier 1 suppliers across more than
180 markets, our supply chain spend amounted
to approximately USD 11.1 billion in 2021.
Our global supply chain is organized into two mainstreams—direct spend (focused on materials used in
the manufacture of our finished products) and indirectspend (focused on goods and services necessary
to operate our business)—and seven categories:

Our RBA membership and EcoVadis
partnership allow us to operationalize andimplement due diligence in these complex anddynamic segments of our supply chain.

Product impact

Operational impact

ect spenDir 41% d

5dire 9 % end
c t sp

DIRECT SPEND

41%

Tobacco leaf
sourced from approximately 254,000
contracted farmers across 21 countries

11%

Direct materials
used to produce and package our
products (e.g., cellulose acetate tow forcigarette filters, paperboard for packaging,and nontobacco agricultural products
such as menthol and guar gum)

19%

Electronic devices
and accessories for heated tobaccoand vapor products

10%

Advanced procurement
to establish capabilities and supply sources
to support PMI’s innovation pipeline

1%

INDIRECT SPEND

214

4%

R&D expenditure
enabling us to conduct advanced
research (e.g., by acquiring clinical trials
services and laboratory equipment)

2%

Indirect materials and services
necessary to run our business, such as IT,
office equipment, and consulting services

53%

Reporting and performance

Increasing the visibility of our suppliers’ sustainability
performance and implementing risk mitigationand performance improvement measures
are priorities. In recent years, we have taken
critical steps to achieve and deploy tailored due
diligence instruments across our direct materials,
electronics, and tobacco supply chains.

From a sustainability standpoint, the supply
chain categories exposed to the highest risks
pertain to our direct spend and include:

Our efforts have translated into significant progress
toward our 2025 ambition: During 2021, 83 percent
of our critical supplier spend was sourced sustainably.
Sustainable sourcing is determined based on aminimum threshold score of 45 out of 100 in EcoVadis(for suppliers of direct materials) or 125 out of 200 in
RBA (for electronics suppliers); all tobacco purchasedfrom contracted farmers under the integrated
production system is considered to be sustainable.

• Tobacco production across Africa, Asia, andSouth America, with the main risks in the areasof working conditions, child labor, climatechange, access to water, and the socioeconomic
well-being of farming communities

Critical suppliers are those that manufactureor sell components used in the manufacture of
PMI finished products (including direct materials,
electronic devices and accessories, and tobaccoleaf). In addition to the nature of the component,
supplier’s criticality is evaluated considering spend
segmentation, as well as supply flexibility, as relevant.

• Paper and pulp-based materials, withthe main risks linked to deforestation,
biodiversity loss, and climate change.
During the year, the supply of direct materials has
been under pressure due to high demand for primarycommodities, a global transportation shortage,congestion, and cost inflation, mainly driven by energy
prices. Thanks to robust business contingency plans
and the efforts of our Operations team, we have beenable to manage shortages to ensure stable productionin our manufacturing centers. We have also expanded
our supply base to secure additional supplies andmitigate the impact of inflation. Regrettably, theprolonged impact of the global semiconductor
shortage limited our ability to realize the full potentialof IQOS development and growth in 2021.

Direct materials supply chain
To strengthen our approach in 2021 further,
Procurement successfully transitioned ournonelectronics supplier due diligence program to
EcoVadis, the leading global service provider of
online ESG supplier assessments. This partnershipallows PMI to access a vast number of suppliers’
ESG scorecards commissioned by EcoVadis users(leading global companies across industries).
During the year, 87 suppliers representing 90
percent of our total direct material spend (excluding
tobacco and electronics) were assessed. Of them,
82 percent demonstrated a high sustainability
performance and compliance with our RSP, 18
percent were below the compliance level andrequired to complete a corrective action plan
before doing a reassessment in 2022, and only
one supplier will require an on-site audit to be
conducted in 2022. The areas for improvement
mainly related to labor and human rights, followed byenvironment, ethics, and sustainable procurement.

59%

Technical procurement
to source the manufacturing
equipment used in our factories

Fundamentals

Monitoring the sustainability
performance of our criticalsuppliers

Over the years, the management of our supply
chain has proven sufficiently robust, flexible, andefficient to support our operations’ evolving needs
and PMI’s business transformation. Currently, ourglobal supply chain supports our two main finishedproduct streams, with a continued increase in the
proportion of resources allocated to smoke-free
products versus combustible cigarettes (smoke-free
products accounted for 35 percent of our supply
chain spend in 2021, up from 33 percent in 2020).

• Electronics manufacturing, with the mainrisks relating to working conditions

2021 Supply chain spend

In

Strategy215

Fundamentals

Philip Morris International – Integrated Report 2021

Overview

Electronics supply chain

The fact-based and detailed EcoVadis supplierevaluations help drive continuous improvement in theareas highlighted. These assessments are available on
the EcoVadis digital platform, which allows seamlesssharing among all supplier and customer participants,
creating an effective collaboration ecosystem. To
address the identified improvement opportunities,
we plan to launch supplier corrective action plans in
2022. This will be followed by reassessments and onsite audits for suppliers that have more gaps to bridge.

In January 2021, we reached a major milestone:
joining the RBA, the electronics industry initiative
for sustainable supply chains. During our first yearof membership, we were able to leverage RBA’sbest-in-class methodologies and tools, including
members’ audit reports, to enhance significantly
the evaluation and performance of our suppliers.
To increase their knowledge of best industrial
practices and use of RBA tools, we engaged new
suppliers in the RBA online training platform.

In 2021, we also leveraged EcoVadis’ broad reachand existing supplier base to assess the sustainability
performance of strategic noncritical suppliers inother procurement categories of spend, including
indirect materials and services and technicalprocurement. This allowed us to evaluate suppliers
representing 22 percent of our indirect spend.

As our company continues to transformand build new capabilities, we monitor risks
inherent to specific supply chains. A key areaof focus is our relatively new and expanding
electronics manufacturing supply base in
Asia. The electronics supply chain is complex
and dynamic and faces specific challenges,
including the presence of conflict minerals.

It covers tier 1 suppliers and PMI-managed tier 2
suppliers. By recognizing their progress, PMI and
suppliers can motivate other companies within
the supply chain to improve performance.
To enhance our understanding of the challenges
we face, we teamed with Article One to
conduct a human rights risks saliency mapping
focused on our electronics supply chain. Read
more in our human rights section here.

Sustainability performance is an integral partof our balanced supplier program, which
consolidates financial and nonfinancial performance
metrics and is used in regular management
reviews for business decision-making.

TIER 2

Electronics
Manufacturing(“EMS”)

Component
Manufacturing

Product impact

Operational impact

Trading, Refining,
Smeltering, andProcessing

216

Reporting and performance

Subsequent due diligence deploying additional RMI
tools indicated that, as of December 31, 2021, eachof the 15 smelters from which PMI battery suppliers
source cobalt were on either RMI’s conformant
list (11 smelters) or active list (4 smelters).

Tobacco supply chain
PMI defines sustainable tobacco production
as the efficient and competitive production ofquality tobacco in conditions that limit as much as
possible the impact on the natural environment
and improve the socioeconomic condition of thepeople and communities involved in its production.

Conflict minerals
In certain conflict-affected and high-risk partsof the world, four minerals used in consumer
goods—tin, tantalum, tungsten, and gold (3TGs)—
are sometimes mined using forced labor and used
to finance armed conflict. As a result, they havebecome known as “conflict minerals.” Companies
are expected to demonstrate how they respecthuman rights and avoid contributing to conflict intheir mineral-purchasing decisions and practices.

PMI’s Good Agricultural Practices
In our tobacco supply chain, production adheres to
our GAP, which define the principles and measurable
standards to be met by all those who grow andsupply tobacco to PMI. GAP focuses on four areas:
governance, crop, environment, and people. The
latter is governed by a dedicated ALP Code.

Our 2021 conflict minerals submission to the U.S.
Securities and Exchange Commission, covering theyear ended December 31, 2020, showed that thesmelters from which our suppliers source 3TGs for
our Covered Products (as defined in the submission)
were either conformant with the Responsible Minerals
Initiative audit program (244 smelters) or were
undergoing the assessment process (12 smelters).

GAP is mandatory for all suppliers of tobacco to
PMI and is reflected in the supply contracts of PMI
and its affiliates. Whether we source tobacco fromfarmers directly or through third-party suppliers,
our GAP standards and related monitoring andremediation system apply at farm level. The absenceof a clear commitment to act on issues identified,or a persistent lack of action and improvement, canlead to contractual implications for both farmers andsuppliers. PMI also reserves the right to terminate
contracts immediately in cases of severe violations
impacting people, the crop, or the environment.

Another mineral, cobalt, is also linked tounethical mining practices. It is a critical raw
material in the production of the batteries
used in our smoke-free products.

TIER 3+Fundamentals

While the quantities of cobalt required for our
products are minor compared with the total global
market size, since 2019 we have deployed a due
diligence program based on the RMI approach andtools to identify and address potential human rights
risks in the supply chains of our suppliers. In 2021,
all our battery suppliers fulfilled specific reporting
requirements, including furnishing information on
the smelters from which they source cobalt.

We also participated in RBA’s Validated Assessment
Program (VAP)—the standard for on-sitecompliance verification and effective, shareable
audits. Under the program, independent external
auditors reviewed our electronics suppliers’
sustainability performance against our RSP. In all,the RBA digital platform afforded us access to 31
RBA VAP audit reports covering tier 1 and tier 2
suppliers representing 69 percent of our managed
electronics supply chain spend. The initial average
VAP audit score of our suppliers was 160 out of
200 compared with an RBA average of 127.
In 2022, we aim to achieve higher spend
coverage of the RBA audit program to monitor
PMI-managed suppliers and ensure concretecorrective actions are in place where needed.

Overview of our electronics supply chain

TIER 1Strategy

Mining andExtraction

217

Fundamentals

Philip Morris International – Integrated Report 2021

Overview

Overview of our tobacco supply chain in 2021
As a consequence of our smoke-free transition,
the share of our purchased volume of tobacco
directed to the manufacture of combustible
cigarettes is steadily declining while theproportion dedicated to the production of
consumables for heated tobacco products isincreasing. Overall, we are seeing a gradualdecrease in total volumes sourced, as heated
tobacco products use at most half the amountof tobacco required for combustible cigarettes.

or by 16 third-party suppliers. Under our Living
Income program (read more here), we aim to
help farmers improve productivity, which may
include increasing the average surface of tobacco
grown per farm. Coupled with inventories
corrections and the gradual decrease in our
tobacco requirements, these dynamics led toa sizeable decline in the number of farmers
contracted in 2021 compared with 2020.
During the year, we sourced over 291,000
tons of packed tobacco grown across 21
countries, with most of our volume comingfrom Argentina, Brazil, China, and Indonesia.

In 2021, we sourced tobacco from 253,813 farmers.
These farmers were contracted either directly
through our Leaf operations in five countries

Strategy

Product impact

Operational impact

Maintaining full traceability and monitoringin our tobacco supply chain
To a large extent, responsible sourcing stems fromstrong relationships on the ground. PMI’s Integrated
Production System (IPS) connects leaf suppliers
and farmers beyond the customary boundaries
of a commercial relationship and enables directtechnical support, agronomic advice, financial
loans, and various other services. IPS covered 98
percent of our tobacco purchases in 2021. The
excluded purchases took place in Indonesia, where
an increase in tobacco demand prompted additionalpurchases, and in Pakistan, where the gGovernment
mandated the purchase of nonallocated surplus
volume to absorb unpurchased tobacco left inthe market after the buying season was over.

In 2021, field technicians allowed us to monitor
compliance with GAP on all contracted farms.
In a few countries facing stringent pandemicrelated restrictions, farm visits were adapted
and remote support was offered as needed.
The monitoring of GAP implementation can also be
performed by third parties, such as specialized NGOs.
During the year, we expanded our collaboration in
Brazil with Produzindo Certo, a specialist company
helping farmers operate more efficiently andsustainably. After a successful pilot carried out in2020 with the participation of 123 farmers (read morein our 2020 Integrated Report), we extended thescope of the program in 2021 to cover nearly 2,300
farmers. Specialists from Produzindo Certo provided
each farmer a social and environmental diagnosis of
their farm, as well as tailored action plans highlighting
opportunities for growth and development. Those
farmers who commit to adopting the action plan andimplementing its recommendations will be visitedannually by Produzindo Certo technicians, who will
provide assistance and monitor progress over time.
The feedback received so far from the farmers has
been very positive. They recognize that following
the recommendations of this team of specialists will
better prepare them for the future, making their farms
more sustainable, productive, and fully compliant
with market demands and local legislation. In 2022,
the work continues. Philip Morris Brazil has set
an ambitious target to expand the program to theneighboring states of Paraná and Santa Catarina,
covering 100 percent of the affiliate’s farmer base.

Sustainable Tobacco Program

GAP &
RSP

5 PMI leaf
operations

16 third-party
leaf suppliers

22% of volume
purchased

78% of volume
purchased

2,530
GAP

Field technicians support andmonitor GAP implementation

12,400253,813

Farmers
contracted
by PMI

Total tobacco farmers
committed to applying
GAP

218

GAP

241,413
Farmers contracted
via third-party
suppliers

Reporting and performance

IPS is vital in providing traceability and visibility
in our supply base; it enables the deployment of
our GAP and ALP monitoring and remediation
system down to the farm level. At the center ofthis system are field technicians, employed by PMIor our third-party suppliers, who visit each farmon average five to 10 times during the crop season
and monitor how well sustainability requirements
are applied and commercial processes are working.
They provide agronomic assistance, deliver training
to farmers, identify and address labor issues, andensure the implementation of improvement plans.

PMI

GAP &
RSP

Fundamentals

Since 2016, we have participated in the industrywide Sustainable Tobacco Program (STP) as anadditional way to evaluate our tobacco supplierperformance. In 2021, in light of the status andmaturity of our programs and the high ambitions
we have set to advance socioeconomic conditions
in our tobacco supply chain invited us to reflect
on what was needed for us to continue making
progress. This led us to make the decision to
end our participation in the STP as of the endof 2021. This will allow us to better target our
resources and efforts to address the most criticalchallenges we face. We remain dedicated toworking closely with our suppliers—who also workwith other tobacco manufacturers—to implement
meaningful programs. Moreover, we will continue
to work directly with other industry players
when appropriate to address shared challenges,
such as through joint human rights impact
assessments (as we did in Turkey this year, forinstance; read more here) and targeted projects.

219

Fundamentals

Philip Morris International – Integrated Report 2021

Overview

Fostering collaboration
with our network of suppliers

To increase awareness of sustainability in our supply
chain, share learnings, and maximize impact, we hostvirtual events, webcasts, and training sessions withstrategic suppliers globally. These events cover bothgeneral and specific topics, from supplier onboarding
and our due diligence platforms to our carbon
footprint reduction targets, science-based targets,and partnering on our Zero Deforestation Manifesto.

We need to engage and influence a large numberof suppliers—companies with different strategies,
priorities, and cultures—to onboard them on oursustainability journey and jointly commit to anddeliver on our ambitions. Such partnerships are
crucial to sustainability, innovation, and growth,allowing us to accelerate progress. To strengthen andbroaden these partnerships, we seek continuously
to improve our collaborations with these suppliers
and our knowledge of their operations.

In 2021, for the second consecutive year, weorganized a Global Supplier Recognition ceremony,
during which we honored those suppliers
that demonstrated excellent performanceand contributed most to PMI’s goals.

A dedicated section of our corporate website
describes our company, goals, and purpose tocurrent and potential suppliers, reinforcing the
expectations we have regarding our RSP.

For the fifth consecutive year, CDP placed PMI
on the CDP Supplier Engagement Leaderboard
in recognition of our efforts and progress inengaging our suppliers in tackling climate change.

Strategy

Product impact

Operational impact

Suppliers that did not achieve a sufficient
EcoVadis score will be required to run corrective
action plans. If a reassessment shows theseplans did not lead to an improvement of the
supplier score, our global auditing partners willcomplete an on-site audit on our behalf.

In 2022, we plan to review and update our
Responsible Sourcing Principles (RSP) to ensure
they stay relevant for PMI’s evolving businesslandscape and supply chain, align with ourlatest sustainability materiality assessment, andincorporate ESG megatrends such as diversity
and inclusion, biodiversity, and climate change.

Further, we will work with businesses, partners,
and multistakeholder platforms to pave the way
toward greater transparency in key ESG areasand improve performance. Our supply chain
represents a large share of our environmental andsocial impacts, so we must work with suppliers toensure they also improve their performance. In
particular, we will seek to gain better visibility on
workers’ income levels in our supply chain in orderto develop a meaningful ambition to foster living
wages, as well as on the adoption of stringent
science-based targets to tackle climate change.

We also intend to expand our partnerships
with EcoVadis and RBA and will consider
adopting additional tools.
We will continue to use our due diligence tools
to assess the performance of our suppliers
and support them in making progress toward
more sustainable practices. PMI’s preferred
global auditing companies, which have beenvetted to ensure they meet the highest levelof competence and integrity, will conduct
on-site audits of those suppliers of directmaterials who did not demonstrate satisfactorycompliance with our RSP in 2021.

220

Reporting and performance

Safeguard privacy and protect data
In today’s data-driven world, data protection
and cybersecurity are key. At PMI, we use anarray of state-of-the-art security solutions
that are supported by experts to help
prevent, detect, and respond to events.

We also maintain a popular hub of resources on
information security awareness, which is accessible
to all employees and contractors. These resources
not only focus on good security practices to protectuser accounts and data from cyber risk, but also
help our team remain vigilant to the indirect risks
that can arise from activities like online shopping or
connecting to wireless networks. To support ouremployees working remotely, we have adapted our
network and systems and have released guidance tohelp remote workers to secure internet connections
and manage paper documents outside our offices.

Together with our Guidebook for Success, internal
policies and guidelines govern our activities. They
provide our company with clear guidelines on
how to tackle our everyday work in a mannerthat is consistent with our values. In particular,
PMI’s global policy on data privacy sets a standard
for privacy governance and accountability.

PMI has a sophisticated and integrated program to
manage cyber risks, to protect PMI’s data, and tosafeguard the privacy of consumers and customers.

PMI’s Global Privacy Program (GPP) sets
standards for data privacy and security acrossmarkets and functions. It governs the collection,
processing, and sharing of personal data by PMI
affiliates. Our privacy team regularly reports to
PMI’s Corporate Risk Governance Committee
on the business’ adherence to the GPP.

Looking ahead

Fundamentals

We use information systems to help manage
business processes, and collect and interpret data.
We also use these 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 fundamentalrole in protecting data. By being aware of potential
threats and reacting to them appropriately, ourcommunity can help keep PMI secure. In 2021,
we provided our workforce with renewed training
to assist everyone with identifying and reacting
to key cyber threats such as phishing and social
engineering attempts. We complement our training
with regular simulated phishing campaigns addressed
to our entire workforce to help everyone to practicerecognizing and reporting phishing attempts andto identify any weaknesses in advance of any
real attempts that the business might face.

221Fundamentals

Philip Morris International – Integrated Report 2021

Overview

Apply fair fiscal practices

Our mandatory practices encompass:

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.

PMI has implemented governance arrangementsthat set out clear accountabilities for the
management of tax compliance risks andtax planning. We maintain a comprehensive,
effective, and practical risk management programwith shared best practices, a structured anddocumented control framework, appropriate
planning, and coordinated decision-making.

PMI is a good corporate citizen everywhere
we operate. Paying taxes commensuratewith our economic activities is not only our
duty but the responsible thing to do anda key component of our social contract inevery country in which we do business.

Product impact

Operational impact• Escalation to and involvement of the PMI Tax
department: In accordance with PMI’s policies, PMI
affiliates consult with the PMI Tax department on allimportant transactions, whether recurring or new,as well as on business structures or operations withother PMI affiliates or unrelated parties, andtogether determine positions, exposures, or actions
regarding material, non-routine tax, or customs
matters. Where there is sufficient uncertainty over
the tax treatment of a particular transaction or apotentially significant impact, PMI obtains external
advice.
• Tax reporting and procedures: PMI’s Tax Standards
and Guidelines are designed to ensure that effective
and predictable tax compliance and control
measures are in place. Under these policies, all tax
filing obligations must be accurately completed on atimely basis and in accordance with applicable laws
and regulations.

However, such rulings are not the only means of
securing transparency and certainty. For example,
in several countries, we have joined monitoring
programs with tax authorities. These programs
promote ongoing and transparent relations
between taxpayers and tax authorities.

Total(USD billion)

Corporate income tax

2.7

Total excise taxes on PMI products

76.8

•

Excise taxes on PMI products reported by PMI affiliates

50.8

•

Excise taxes reported by our importers and distributors

26.0

VAT and sales tax

9.0

222

Reporting and performance

PMI conducts all intercompany transactions
on an arm’s-length basis, in accordance withcurrent OECD principles, and we support greatertransparency between taxpayers and tax authorities.
When it is relevant and feasible, we have upfront
conversations with tax authorities in the countries
where we operate. In certain instances, we obtaintax rulings to provide a higher level of certainty
not just for PMI, but also for the tax authorities.

• Documentation and tax records: Under PMI’s
policies, PMI affiliates are responsible for theappropriate creation and retention of all relevant
local tax records.

2021 taxes

Fundamentals

PMI very much supports the work of theOrganisation for Economic Co-operation andDevelopment (OECD) and Group of Twenty (G20)
to prevent tax base erosion and profit shifting.
PMI’s policies and practices ensure that we pay
taxes commensurate with our economic activities
and substance in each 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.

• Roles and responsibilities: Clear definitions of roles
and responsibilities are formalized in each PMI
affiliate per PMI’s Tax Compliance Program.
The table below provides an overview of the2021 corporate income tax, excise taxes, VAT, andsales taxes reported by PMI and its affiliates in the
countries where we operate. In addition to thetaxes reported by PMI legal entities, our importers
or distributors in many countries are responsible
for paying import duties and excise taxes on our
products. Though such payments may not appear
in PMI’s financial statements, they represent a
portion of the product taxes paid by our consumers
worldwide and so are also included in the table below.

Corporate income tax and other taxes can generatenecessary revenues and avoid passing the bill for
funding today’s society to future generations. Taxes
can also ensure that societal costs are reflected
in a product’s price—for instance, in the case offossil fuels and combustible tobacco products—
thereby encouraging consumers and producers ofthese products to shift to less harmful options.

Strategy223

Fundamentals

Philip Morris International – Integrated Report 2021

Overview

Prevent illicit trade
Our approach

Eliminating illicit trade is a longstanding priority for PMI.

To combat fakes and prevent the smuggling andcounterfeiting of our products, we focus ourefforts on securing our supply chain and leveraging
technology and innovation to protect our products.
These internal efforts are coupled with strong
cross-sectoral collaboration. Illicit trade is a highprofit, low-risk crime that needs to be tackled bypublic–private coalitions able and willing to drivechange. We support the objectives and principlesof the WHO Framework Convention on Tobacco
Control (FCTC) Protocol to Eliminate Illicit Trade in
Tobacco Products because we believe that effective
regulation is fundamental to achieving progress.

Illicit trade—including possible contraband andcounterfeit smoke-free consumables and electronic
devices—is often associated with organized crime,
corruption, and human rights abuses. It exacerbates
inequality, fuels crime, increasingly serves as a vehicle
to launder money through sophisticated trade-based
schemes, and even funds terrorism. It also diminishes
government revenues, which potentially impedes
sustainable development by lowering spending on
public services and civil infrastructure. Illicit tradeis prevalent in the tobacco sector, with 10 to 12
percent of cigarettes smoked worldwide estimatedto be illicit, causing governments to lose USD 40
to 50 billion in tax revenue each year. Illicit tradealso has serious consequences for the consumers
who purchase these products, particularly due to
low-quality standards, unknown composition, andthe lack of reliability of counterfeit products.

For several years, we have successfully applieda risk-based approach to prevent and fight thediversion of our products. PMI’s Anti-Diversion
Governance Committee, which includes senior
executives from the Finance (central and regions),
Risk & Controls, Law, Ethics & Compliance,
Commercial, and External Affairs functions, has
corporate oversight on diversion risk prevention
for our products. We also have a dedicated global
team of specialists in illicit trade prevention (ITP).

To succeed in our mission of delivering a smokefree future, we must ensure there are no illegal
actors sustaining a black market for cigarettes
and other tobacco products. In a smoke-free
future, there should be no place for illicit trade.

Progress in 2021

You can learn more about our efforts
in this area on our dedicated illicit trade
prevention page on PMI.com.

In 2021, we pursued the enhancement of our setof anti-diversion measures and controls, which are
deployed in 20 markets identified as high risk forillicit trade. We continued expanding the coverage ofour tracking and tracing processes and technologies
reaching 140 countries and several factories, covering
new fulfillment centers and reverse logistics hubs.
We collaborated with partners such as the Munich
Security Conference, the International Institute forStrategic Studies, the OECD Task Force on Countering
Illicit Trade (TF-CIT) and the BIAC Expert Group on
Anti-Illicit Trade, the Italian Institute for International
Political Studies, and Rome MED-Mediterranean
Dialogues, as well as with nonprofit organizations
such as Concordia, to tackle systemic issues.

224

Strategy

Product impact

Fundamentals

Operational impact

Reporting and performance

PMI IMPACT

We also continued to support law enforcement
agencies by inspecting and authenticating seizedproducts, performing illicit products forensic
evaluation and profiling, sharing intelligence on
emerging routes and trends shaping the black
market, and training officials on the innovative
authentication and security features we use toprotect our products. As new technologies emerge,
we make it a priority to understand how we canleverage them to eliminate fakes and the contrabandof our products, further secure our supply chain,and deter illegal actors from deceiving consumers.

We also support and fund external organizations
through our PMI IMPACT global initiative, launchedin 2016. By sponsoring third-party projects aimed
at addressing illegal trade, we are fostering andmobilizing a network of like-minded organizations
and institutions around this global issue.
In 2021, PMI IMPACT launched its third funding
round. The new round, which will close its call forsubmissions in August 2022, is focused on a wide
range of topics, including capacity building, restorative
justice and victim protection, and international
cooperation. We also launched a video series in
2021 explaining the scale and issue of illicit trade,highlighting the role PMI IMPACT plays in thisfight, and raising the profile of selected grantees.

A focus on our smoke-free products
As our portfolio shifts toward smoke-free products,
we are incorporating into our internal productstandards illicit trade prevention requirements toprotect our smoke-free devices and consumables.
These requirements may include both visible
and invisible elements on the device or criticalcomponents and tamper-proof security features.

To date, PMI IMPACT has allocated a combined
USD 48 million for the implementation of
60 projects in 30 countries as part of theinitiative’s first and second funding rounds.

In addition to product standards, we include strict
provisions in our contracts (e.g., anti-diversion andanti-counterfeiting clauses with our distributors andsuppliers) and robustly controlled reverse logistics
processes for our electronics products based on
centralized inspection and recycling. We embed
product authentication checks in critical processes
such as in-market product return and consumer
care processes, as well as at the PMI reverse
logistics hubs (CIRCLE), allowing us to identify
suspected counterfeit devices and remove themfrom the supply chain. As we launch smoke-free
products in additional geographies, our global ITP
experts provide training to relevant markets to raiseawareness of diversion and counterfeiting risks.

Looking ahead
Three pillars need to thrive in 2022: public–
private partnerships to ensure sustainable
solutions, technological innovation as
a disruptor of criminal operations, andenforcement that imposes concrete penalties
against those involved in illicit activities. We
need to work tirelessly to change perceptions
and show the real-life consequences ofillicit trade because we are not just talking
about an intellectual property or a tax
evasion issue: Illicit trade harms consumers,
destabilizes communities, and poses a
broader threat to peace and security.
Alvise Giustiniani, Vice President, Illicit Trade Preventiona

225

You can learn more about ourefforts in 2021 on PMI.com

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

We maintain

REPORTING ANDPERFORMANCE
About this report

228

Glossary of terms and acronyms 248

Performance in ESG ratings,
rankings, and indices229

 orward-looking andFcautionary statements252

Performance metrics

232

Notes

253

Independent assurance report

245

PLACEHOLDER IMAGES
226

227

Reporting and performance

Philip Morris International – Integrated Report 2021

Overview

About this report

Unless otherwise indicated, the data and informationin this report cover our operations worldwide for thefull calendar year 2021 or reflect the status as ofDecember 31, 2021. Unless explicitly stated, the dataand information in this report do not incorporate
acquisitions made by PMI during 2021 of Fertin
Pharma A/S, Vectura Group plc., and OtiTopic, Inc.
Where not specified, data come from PMI financials,
nonfinancials, or estimates.

We are pleased to share our 2021 Integrated
Report, which follows our 2020 Integrated
Report (published in May 2021) and constitutes
our seventh consecutive annual disclosure
incorporating ESG content. This report
describes our company’s progress in delivering
on its purpose.

PricewaterhouseCoopers SA (PwC) has provided
independent assurance on select BusinessTransformation Metrics, available on pages 35 and232-233. For more details, see the Independent
Assurance Report on page 245. SGS has provided
external verification of our environmental and healthand safety data (including our 2021 GHG emissions
data). The verification statements are available on
PMI.com.

The report content is shaped 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 thepotential impact of various ESG factors on ourenterprise value, and the perspectives of diverse
stakeholder groups. We have structured our ESG
topics around two pillars: product impact andoperational impact. Those topics pertaining to thesocial impacts of our products are considered mostmaterial. These and other material ESG topics form
the basis of our strategy, which is organized into eightenvironmental and social priorities and nine related
governance factors. This report provides informationon context, relevance, management approach, targets,
performance, and outlook for our strategic priorities.
It is complemented by case studies and additional
materials 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 ourSustainability 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 in the
Sustainability Resources area of PMI.com.
We welcome your feedback and suggestions.
Please contact us at sustainability@pmi.com.

Aligning our disclosures with reporting standards and frameworksof the Agricultural Products, Hardware, andMedical Equipment and Supplies standards.

This report has been prepared in accordance with
the Global Reporting Initiative (GRI) Standards:
Core Option. Our 2021 GRI Index is available
on PMI.com. We consider the principles andstandards of the UN Global Compact (UNGC) whencompiling our annual integrated report and mapthem against GRI indicators in our GRI Index. Our
SDG Index describes how our work and ambitionsalign with the UN SDGs at the Target level.

Finally, this report addresses some of therecommendations of the Task Force on
Climate-related Financial Disclosures (TCFD).
Our reporting to CDP covers most of theremainder of these recommendations, and weseek greater alignment each reporting year.
While we considered the World Economic Forum(WEF/IBC) Core ESG metrics during preparationof this report, we did not include a separate
index this year to avoid overlap in disclosuresand in anticipation of its consolidation within theInternational Sustainability Standards Board (ISSB)
recently convened by the IFRS Foundation Trustees.

We take into account guidance from the Value
Reporting Foundation (VRF), including use of its
SASB Standards, Integrated Thinking Principles,and Integrated Reporting Framework. Our
SASB Index maps content within this reportand other available disclosures aligned with
the Tobacco Standard, as well as with aspects

228

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Performance in ESG ratings,
rankings, and indices• Its value as a learning opportunity, including asufficient feedback loop to allow us to improve overtime

At PMI, we understand the value of participating in
ESG ratings: It helps us assess our sustainability
performance, benchmark ourselves against our peers,
and, most importantly, identify areas for improvement.

• Resources required, which should not undermine
our company’s focus on performance improvement

We prioritize our participation in ESG ratings that are
most useful to us and our stakeholders, based on:• The organization’s openness to dialogue, allowing us
to understand expectations and results, shareknowledge, correct factual inaccuracies, and provide
input on ratings enhancements.

• The credibility of the methodology and our ability tointerpret and use the results• Recognition of the rating among the investor
community, as well as participation by ourcompetitors and peers

2021 score (and yearon-year trend)

S&P Global
Corporate
Sustainability
Assessment

PMI was selected for the second year in a row as a memberof the Dow Jones Sustainability Index North America andimproved its corporate sustainability assessment score by
9 points versus 2020 (score as of January 21, 2022).

83/100

Sustainalytics

PMI maintained its “Medium ESG Risk” classification,
improving its score to achieve an ESG Risk Rating of 22.9 (aSustainalytics score of zero out of 100 represents the lowest
ESG risk; score as of October 6, 2021).

22.9

MSCI

PMI maintained a rating of BBB in the MSCI ESG Ratingassessment (score as of September 22, 2021).

BBB

CDP Climate,
Forest, Water
Security

PMI was awarded a Triple A score for the second 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 fifth consecutive year.

Bloomberg
Gender-Equality
Index

PMI was included for the second year in a row in the
Bloomberg Gender-Equality Index (GEI) for its transparency
in gender reporting and advancing women’s equity.

Index
memberS&P ESG
Evaluation

PMI scored 60/100, based on its ESG Profile Score (57/100)
and Preparedness Opinion (“Adequate”). The former is basedon entity-specific scores and sector/region scores (score as of
May 13, 2021; report available here).

60/100TobaccoTransformation
Index

PMI ranked second out of 15 tobacco companies assessed,
leading the industry in the “Strategy and Management”
category (2020 ranking—assessment is conducted every two
years)

2.36/5ISS-oekom“C” score, achieving industry leadership (2019 score;assessment is expected to be updated in 2022).

C

State Street
R-Factor

Outperformer within the tobacco industry; industry averagescore of 57 (score as of March 1, 2022).

65

229

Leaderboard

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

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

Business transformation–linked financing framework
In 2021, PMI published its Business Transformation–Linked Financing Framework, which integrates the company’s
smoke-free transformation into its financing strategy. The KPIs selected for the framework directly measure andrespond to the focus of PMI’s sustainability and corporate strategy and the company’s most material sustainability
topic: , which integrates the company’s smoke-free transformation into its financing strategy. The KPIs selected forthe framework directly measure and respond to the focus of PMI’s sustainability and corporate strategy and thecompany’s most material sustainability topic: Addressing the health impact of its products.
PMI’s financing framework is aligned with the five core components of the
Sustainability-Linked Bond Principles published by the International CapitalMarket Association (ICMA) in June 2020.

SwissBiz
4NatureIt also takes into account the Sustainability Linked Loan Principles,
published by the Loan Market Association (LMA) in May 2021.

Revolving credit facility

The framework was validated by S&P Global Ratings, which provided a second-party
opinion (SPO). The SPO recognized the chosen KPIs and related sustainability
performance targets (SPTs) as material, measurable, ambitious, regularly reported,and externally verified—in line with both the ICMA and LMA principles.

a

USD 2.5 billion
Read more here

A business transformation-linked financing instrument was issued
in September 2021.

Other recognitions

Taskforce on Nature-related
Financial Disclosures

WBCSD Reporting Matters

DJSI Yearbook

PMI’s Integrated Report 2020
was included among the top
ten reports globally according
to the 2021 Reporting Matterspublication by the World
Business Council for Sustainable
Development (WBCSD).

PMI was included in S&P Global’s
2022 Sustainability Yearbook,receiving two sustainability
awards: Global Silver Class andIndustry Mover.

Global Top Employer

Equal salary

PMI has been certified by
the Top Employers Instituteas a Global Top Employer
for the fifth year in a row.

PMI is globally EQUAL-SALARY
certified. The certification
verifies that organizations havesustainable policies and practices
to ensure that they pay theirmale and female employees
equally for equal work.

230

231

Philip Morris International – Integrated Report 2021

Overview

Performance metrics

Product impact

Operational impact

Reporting and performance

Fundamentals

Business Transformation Metrics continued

Consumers

PRODUCT IMPACT

2019

2020

2021

Adjusted R&D expenditure (in millions USD)¹*
Adjusted R&D expenditure ratio (smoke-free/
total)¹*
Number of R&D positions (FTEs)²
Patents granted in IP5 jurisdictions relating tosmoke-free products (cumulative, since 2015)³
Number of studies completed by PMI on smokefree products (cumulative, since 2015):•
Toxicological assessment•
Clinical assessment
Perception and behavior (premarket and postmarket)

423
70%

465
98%

495
99%

566
99%

n/a
n/a

942
740

934
1,300

981
1,770

Sourcing & Operations

Supply chain direct spend expenditure ratio(smoke-free/total)⁴
Cumulative investment behind smoke-free
products (since 2008, in billions USD)⁵
Number of factories producing smoke-free
products out of total number of factories⁶*

n/a

35%

33%

35%

2.4

7.2

8.1

9.2

2 out of 48

8 out of 38

8 out of 39

8 out of 38

Year-on-year change in number of SKUs—
combustible products⁷
Year-on-year change in number of SKUs—smokefree products⁷
SKUs ratio (smoke-free/total)
Number of markets where smoke-free products areavailable for sale⁸*
Proportion of markets where smoke-free products
are available that are low- and middle-income
markets⁹*
Number of IQOS stores¹⁰
Number of retailers that sell PMI smoke-free
product consumables (in thousands)
Commercial (marketing) expenditure ratio (smokefree/total)*
Smoke-free product shipment volume (billion units)*
Combustible product shipment volume (billion
units)*
Change in combustible product shipment volume
vs. 2015 baseline¹¹*
Smoke-free product shipment ratio (smoke-free/
total)¹¹*

2025
Aspirations

Revenues

2015
Baseline

Commercialization

Business Transformation Metrics

R&D

Strategy

2015
Baseline

2019

2020

2021

Total number of users of PMI smoke-free products(in millions)¹²*
Estimated number of users who have switched to
PMI smoke-free products and stopped smoking(in millions)¹²*

0.2

13.5

18.3

21.7

0.1

9.6

13.0

15.3

>40

Adjusted net revenues ratio (smoke-free/total)¹³*

0.2%

18.7%

23.8%

29.1%

>50%

0

31

38

47

0

4

6

10

n/a

n/a

n/a

0.1

Number of markets where adjusted net revenues
from smoke-free products exceed 10% of adjusted
total net revenues¹³*
Number of markets where adjusted net revenues
from smoke-free products exceed 50% of adjusted
total net revenues¹³*
Annual net revenue from wellness and healthcare
products (in billion USD)
*

n/a
n/a
n/a

109
19
13 (9 + 4)

146
22
30 (15 + 15)

Notes:

20324
44 (25 + 19)

Smoke-free products include heated tobacco units, e-cigarettes, snus, and nicotine
pouches. Total products include smoke-free products, cigarettes, and othercombustible products

(6%)

(5%)

3%

n/a

26%

38%

42%

1

2

4
5
6

3%
7

10%
52

14%
64

18%
71

100

SI

33%

35%

41%

43%

>50%

SI

n/a
n/a

199
679

259
748

274
812

8%

71%

76%

73%

1
881

60
732

76
654

95
650

>250
<550

n/a

(17.0%)(25.8%)(26.3%)~(40%)

0.1%

7.6%

10.4%

12.8%

>30%

SI

10
11
12

R&D expenditure in wellness and healthcare is included in both smoke-free andtotal R&D expenditures. 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.
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.
IP5 jurisdictions are Europe (patents granted by the European Patent Office),
China, South Korea, Japan, and the U.S.
Direct spend focuses on materials used in the manufacture of our products; it
includes tobacco leaf, direct materials, and electronic devices and accessories.
Investments reflect research, product and commercial development,
production capacity, scientific substantiation, and studies on adult smoker
understanding. Figure does not include commercial deployment costs.
Data reflect the number of factories operated and owned by PMI at the end of
the respective year. Number of factories fully or partially dedicated tosmoke-free products includes seven factories related to heated tobacco unit
production and one factory related to e-vapor consumables production. 2021
figures exclude one factory dedicated to wellness and healthcare products
owned by Fertin.

13

Total number of people (PMI employees and third parties) who
participated in at least one Marketing Codes-related training
session¹
Number of PMI employees••
Number of third parties
Number of violations of the Marketing Codes resulting insubstantiated cases of misconduct
Breakdown by type of disciplinary actions as a result of violationsof the Marketing Codes:•
Termination of employment
Suspension••
Verbal warning or counseling•
Written warning
Proportion of shipment volume covered by markets with youth
access prevention programs in place in indirect retail channels²
2

232

9

SI

SI

≥1

“SKUs” stands for stock-keeping units. References to the number of SKUs are
based on the latest available data and categorization of our product portfolio
into SKUs, therefore a minor restatement in previous years’ data is reflected.
The figures exclude China and the U.S. Note: As part of maintaining share in
combustibles, remaining competitive on product range in line with consumer
preferences best positions us to retain access to adult smokers and increase
our capability to switch them to smoke-free products.
Data reflect status by the end of respective year. 2021 data exclude Belarus
and the U.S.
Excluding PMI Duty Free. Data reflect status by the end of respective year.
2021 data exclude Belarus and the U.S. For definition of low- andmiddle-income markets, see glossary.
Includes flagship stores and small, large, and temporary boutiques.
These indicators are calculated based on millions of units.
These metrics are excluding PMI Duty Free and reflect the estimated numberof legal age (minimum 18 years) users of PMI IQOS heat-not-burn product (seeglossary). In 2021, we evolved our methodology to estimate the total numberof users of PMI smoke-free products, in order to better reflect the number ofusers for which PMI HTU represented at least a portion of their daily tobacco
consumption over the past seven days. 2020 data was restated accordingly.
Unavailability of sufficiently granular data did not enable us to restate figures
for years prior to 2020. We also fine-tuned our methodology to estimate thenumber of users who have switched to PMI smoke-free products and stopped
smoking, in order to reflect the conversion rate of our total user base at
year-end, and restated 2020 data accordingly.
Data reflect the status by the end of the respective year. 2021 adjusted net
revenues exclude the impact related to the Saudi Arabia customs assessments.
2021 revenues from wellness and healthcare (USD 101 million) are included inboth smoke-free and total adjusted net revenues. See glossary.

Responsible marketing and sales practices

1

SI Indicators included in PMI Sustainability Index

8

In 2022, we plan to evaluate our published targets to ensure they remain ambitious,
reasonable, and achievable in the context of a dynamic and evolving smoke-freeindustry. See page 248.

3

n/a

7

The 2021 metrics marked with an asterisk (*) are subject to PwC’s Assurance
Report (see page 245).

2025
Aspirations

2019

2020

2021

n/a

n/a

70,011

n/a
n/a
42

n/a
n/a
29

22,77447,237
13

n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
94%

15%
8%
62%
15%
91%

Goals

>90%
(ongoing)

Indicator introduced in 2021, replacing the indicator “number of compliance training sessions conducted on PMI’s Marketing Code,” following the release of newMarketing Codes.
Total shipment volume includes cigarettes, heated tobacco units, other tobacco products, and e-cigarettes. In 2021, we evolved our minimum requirements for effective
youth access prevention (YAP) programs in indirect retail channels.

233

SI

Philip Morris International – Integrated Report 2021

Overview

Goals

n/a

≥80% by
2025

31
31
54

n/a
47
33

53
46
53

Proportion of PMI smoke-free devices with eco-design
certification²
Cumulative number of smoke-free electronic devices refreshed or
repaired since 2021 (in thousands)³
Volume of shredded materials coming from dismantled devices in
the CIRCLE hubs (in tons)
Effective recycling rate IQOS devices⁴

n/a

n/a

n/a

n/a

n/a

62

150

191

178

29%

40%

53%

Proportion of IQOS device sales volume covered by the CIRCLE
programRecycling rate of IQOS devices at the CIRCLE hubs (weighted
average)⁵
Proportion of shipment volume covered by markets with end oflife take-back programs in place for smoke-free consumables⁶

39%

48%

63%

74%

84%

86%

n/a

n/a

n/a

Proportion of packaging material that is recyclable

94%

94%

95%

Proportion of packaging material that is renewable

89%

89%

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/a

n/a

427,597(89.7% /10.3%)
8%

3
4
5
6
7

1%

5%

100% by2025>1 million
by 2025

70% by2023, 80%
by 2025
100% by
2025
80%(ongoing)≥80 % by2025

SI

Operational impact

Reporting and performance

Fundamentals

SI

Foster an empowered and inclusive workplace
Fair working
conditions

2021

n/a

SI

SI

Talent attraction, retention, and employability

2020

n/a

100% by2025
95% by2025

15% by2025

In 2021 we defined the minimum criteria which must be met by each market to be considered as having an anti-littering program in place. We will begin reporting progress on thisnew indicator in 2022.
Our aspiration is to have eco-design certifications for all smoke-free devices which are launched as of the end of 2025. Given the long-term nature of this aspiration, we havedeveloped internal metrics based on key milestones that will allow us to track our progress in the interim years leading up to our 2025 aspiration.
For the definition of refreshed or repaired devices, see glossary.
In 2021, the effective recycling rate is calculated as the actual recycling rate in Hungary and Japan, multiplied by the IMS coverage of these hubs plus the theoretical recycling ratein the newly established Russian hub, multiplied by the IMS coverage of the Russian market.
Recycling rate: percentage of the weight of each device that is recycled, weighted-average depending on device type and processing facility (includes 78% recycling,
8% incineration with energy recovery). 2021 data cover CIRCLE hubs in Hungary and Japan.
In 2021 we defined the minimum criteria which must be met by each market to be considered as having a take-back program in place. We will begin reporting progress on thisnew indicator in 2022.
Includes portfolio/volume mix and inventory movement. Includes shipping cases.

Employee health and safety

Cigarette butt
littering
Smoke-free devices and consumables
Packaging

2019

Proportion of shipment volumes covered by markets with
anti-littering program in place for combustible cigarettes¹
Number of affiliates participating in World Cleanup Day
Number of affiliates with anti-littering strategy
Number of anti-littering initiatives conducted2

Product impact

OPER ATIONAL IMPACT

Reduce post-consumer waste

1

Strategy

2019

2020

2021

Number of PMI employees
Number of PMI full-time equivalent (FTE) positions
Proportion of employees covered by Collective Labor Agreements
Total number of countries with Collective Labor Agreements

73,542
71,79563.3 %
35

70,84970,56062.1 %
34

68,547
67,291
61.1 %
34

Employee overall turnover rate¹
Women employee overall turnover rate¹
Employee voluntary turnover rate¹
Proportion of open positions filled in with internal candidates
Number of newly hired employees
Spend for learning per FTE (in USD) total
Average hours of training spend per FTE
Proportion of PMI employees who have access to structured
lifelong learning offers²
Proportion of employees covered by performance review¹,³
Employee Net Promoter Score⁴

13.6%
14.4%
5.1%
n/a
9,020
513
15
n/a

9.7%
9.7%
3.1%
21%
5,835
551
11
n/a

12.0%
9.4%
4.7%
18%
8,381
506
17
n/a

79%
16

93%
33

92%
35

0.14

0.08

0.05

0.12

0.07

0.06

0.23
0.22

0.12
0.12

0.05
0.09

0.20
0.17
0.32
1

0.11
0.06
0.16
2

0.09
0.07
0.10
1

10
0.000

5
0.000

2
0.001

0.87

0.53

0.44

n/a
98%

35%
100%

47%
100%

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 andcontracted employees
LTI rate per 200,000 hours worked—contractors
Integrated total recordable incidents rate (iTRIR) per 200,000
hours worked—PMI employees, contracted employees, andcontractors
TRIR per 200,000 hours worked—PMI employees
TRIR per 200,000 hours worked—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
Collision rate within PMI’s fleet of vehicles per year (collisions per
million km driven)
Proportion of PMI fleet equipped with telematics⁷
Proportion of manufacturing facilities with ISO 45001
certification⁸

SI Indicators included in PMI Sustainability Index

234

235

Goals

>70% by
2025≥30(ongoing)<0.3(ongoing)<0.65(ongoing)
100%(ongoing)

SI

Philip Morris International – Integrated Report 2021

Overview

Diversity, inclusion, and well-being

Foster an empowered and inclusive workplace continued

Strategy

Product impact

Operational impact

2019

2020

2021

41.7%
36.6%

41.8 %
37.7%

42.2%
39.7%

Proportion of women employees at different managerial levels:¹,⁹,¹⁰•
Managers•
Directors
Senior leaders•
Proportion of women in senior roles¹,⁹,¹⁰

38.0%
31.4%
17.6%
29.5%

39.3%
31.0%
20.2%
29.6%

41.4%
32.0%
25.3%
31.1%

Proportion of new hires in management positions that are
women¹,⁹,¹⁰
Proportion of new hires at junior levels that are women¹,⁹

40.7%

38.7%

44.7%

41.0%

40.3%

40.7%

Proportion of new hires that are women¹,⁹
Proportion of promotions to management positions that are
women¹,⁹
Proportion of women on PMI’s Company Management¹⁰,¹¹
Proportion of women on PMI’s Board of Directors¹²
Mean gender pay gap¹³
Proportion of employees at different age groups:
Below 25•
Between 25 and 34••
Between 35 and 54
Above 55•
Proportion of women in STEM-related positions¹⁴
Proportion of women in management positions in revenuegenerating functions¹⁵
Number of nationalities among PMI’s employees
Number of markets with access to local LGBTQ+ networks(local chapters of STRIPES employee resource group)
Employee self-assessment psychological well-being measure¹⁶

41.0%
40.7%

40.1%
45.0%

41.3%
47.6%

8.0%
25.0%
34.3%

16.0%
15.0%
33.1%

16.7%
23.1%
33.5%

5.0%
29.0%
62.0%
4.0%
36.7%
32.3%

4.0%
29.0%
62.0%
4.0%
36.0%
33.4%

4.2%
29.0%
62.7%
4.1%
37.4%
35.7%

128
27

131
28

133
29

n/a

57%

61%

Goals

2021

≥40% by2022

35% by2025, 32%
by 2023SI

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 (including U.S.)
Employees on a permanent contract in Americas (including U.S.)
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
Note: All data as of December 31, 2021. Presentation of information and data aligns with guidance of GRI standard 102-8 (2016).

Note: The 2021 indicators in the above table are calculated based on 68,547 PMI employees, which excludes PMI 2021 acquisitions in wellness and healthcare. Incorporating
2021 acquisitions of Fertin Pharma A/S, Vectura Group plc., and OtiTopic Inc. PMI employed approximately 69,600 people worldwide at year-end.
Select 2021 health and safety metrics are subject to external verification by SGS (see the External Verification Statement here).

5
6
7
8
9
10
11
12
13
14
15
16

In 2021 we updated our methodology to expand scope and cover employees on long-term leave (over 30 calendar days); we have restated historical data accordingly.
We will begin reporting progress on this new indicator in 2022.
2021 data based on a total of 55,276 employees maintained in PMI’s central HR system.
We measure the engagement of our workforce using the employee Net Promoter Score (eNPS), following a methodology similar to that which we use to measureconsumer engagement. The score can range from -100 to +100.
For definition of contracted employee and contractor, see glossary.
PMI employees and contracted employees: 1 fatality in 2021; contractors: zero fatalities in 2021.
Scope covers PMI’s working tool cars (representing 75% of PMI’s total fleet).
Scope covers manufacturing facilities producing more than 3 billion cigarette equivalents annually.
Our gender diversity data cover around 95% of PMI’s total workforce.
For definitions of managers, directors, and senior leaders see glossary.
Data as of March 11, 2022 (24 Company Management members, of whom 4 were women). See PMI Annual Report 2021 for further details.
Data as of March 25, 2022 (13 members of PMI’s Board of Directors, of whom 3 were women). See PMI 2022 Proxy Statement for further details.
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.
Employees holding management roles in revenue-generating functions (i.e., functions responsible for core business objectives or profit and loss).
The indicator represents the percentage of employees who responded “good” or “very good” to the question “How would you rate your current psychological oremotional well-being at present?” in our regular employee listening survey. The indicator was updated based on new information available, so a slight shift in previous
years’ data is reflected.

SI Indicators included in PMI Sustainability Index

236

Reporting and performance

PMI’s workforce at year-end 2021

Proportion of women in PMI’s workforce¹
Proportion of management positions held by women¹,⁹,¹⁰

1
2
3
4

Fundamentals

237

27,7591,183
37,8191,786
18,295
1,622
3,009
123
6,423
161
26,866
454
3,948
120
7,037
489
27,822517
38,994211

Philip Morris International – Integrated Report 2021

Overview

Improve the quality of life of people in our supply chain>90%(ongoing)

14,440
73%
19%
8%
<1%
8,137
641

14,751
73%
16%
11%
<1%
10,772
1,794

9,918
76%
11%
13%
<1%
8,540
875

n/a

48%

67%

93%

93%

91%

n/a

65%

95%

1,158

1,541

1,154

n/a

3.5%

1.8%

2,712

2,352

1,175

2,712
n/a
n/a
88%

2,285
64
3
75%

1,121
38
16
99%

Proportion of contracted farmers who have access to water⁶

n/a

n/a

87%

Proportion of farmers and farmworkers having access to personal
protective equipment
Proportion of tobacco farmworkers provided with safe andadequate accommodation⁷

99%

100%

100%

80%

100%

100%

SI

100% by
2022

SI

Water

Zero by2025

100% by
2025
100%(ongoing)
100%(ongoing)

Note: Our 2021 farm-level ALP monitoring data cover 20 out of the 21 countries from which we sourced in 2021; data exclude Switzerland, where we sourced fromapproximately 120 tobacco farmers in 2021. Read more here.
1
2
3
4
5
6
7

Proportion of tobacco purchased at no risk ofgross deforestation 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 thatis cured with renewable fuel sources (selfsufficient firewood and biomass adoption)
Approximate total number of curing barns
upgraded since 2014 (cumulative)
CDP Forest rating

PMI tobacco
supply chain

PMI value
chain

Cubic meters of water optimized in our tobaccogrowing areas (cumulative since 2019)

Biodiversity

Number of ALP prompt actions recorded by field technicians
relating to child labor³•
Hazardous tasks⁴•
Under 13 working⁵•
Under 15 hired
Proportion of ALP prompt actions recorded by field technicians
relating to child labor that were resolved

100% by2025

As we progress with the independent analysis, the percentage of farmers achieving a living income is currently based on a combination of external living income
benchmarks, farmer income studies, and PMI internal data.
Includes all prompt actions raised and self-declared nonconformities reported for all contracted farms monitored for child labor. Read more here.
The number of children estimated to be involved in these prompt actions is 1,609.
Includes children of any age found to be involved in hazardous work.
Includes light work only.
Estimated data based on surveys that indicated that the farmer has an improved source within 1 km. Data exclude China.
Scope is limited to farmers that provide accommodation to workers (approximately 8% of the total farmer base in 2021).

Proportion of tobacco-growing areas which arecovered by local water risk assessments(cumulative, since 2018)
Quantity of blue water used per ton of tobacco
produced²
Total amount of water used (’000 m3)
Total amount of water consumed (withdrawn
minus discharged) (’000 m3)
Total amount of water withdrawn (’000 m3)
Water ratio (water withdrawn in m3 per million
units of cigarettes sold)³
CDP Water rating
Proportion of tobacco purchased without
detection of residues attributable to the use ofhighly hazardous pesticides (HHPs), as defined by
FAO and WHO guidelines in 2016⁴
Proportion of tobacco purchased without
detection of residues attributable to the use of
WHO TOX1 group of crop protection agents⁴

PMI tobacco
supply chain

PMI factories

PMI valuechain

PMI tobacco
supply chain

Total amount of waste generated (in metric tons)
Recycled•

Waste

Well-being

Child labor prevention

Prevalence of child labor in PMI's tobacco supply chain²

Operational impact

Scope

ForestGoals

94%

Agricultural Labor Practices (ALP)

2021

93%

Income levels

2020

92%

Proportion of contracted farmers supplying tobacco to PMI whomake a living income¹
Proportion of contracted farmers in tobacco supply chain coveredby monitoring on wages
Proportion of farmers paying their workers at least the minimum
legal wage or agricultural benchmark
Number of ALP prompt actions recorded by field technicians
relating to non-payment of minimum wage to farmworkers

Product impact•
Incinerated with energy recovery•
Incinerated without energy recovery
Disposed to landfill⁵•
Amount of hazardous waste generated•
Incinerated with energy recovery•
Recycled
Incinerated without energy recovery•
Disposed to landfill•

PMI
operations

SI Indicators included in PMI Sustainability Index

238

Reporting and performance

Fundamentals

Preserve nature
2019

Proportion of contracted tobacco farms for which labor practices
have been systematically monitored (adherence to PMI’s ALP)
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•
Proportion due to other ALP Principles
Total number of ALP prompt actions resolved
Number of terminated contracts due to ALP violations (per crop
season)Strategy

239

2019

2020

2021

Goals

97%

100%

100%

100%
(ongoing)

n/a

n/a

37%

100% by
2025

n/a
n/a
n/a
n/a
n/a
n/a
51%
67%
(36% + 15%) (45% + 22%)80,80082,519

355
165
190
75%
(44% +
31%)
93,700

A-

A

A

A

717

8,968

437,915≥10 million
cubic metersby 2030

36%

57%

66%

330

307

339

138,200
1,883

115,009
1,619

133,674
1,481

4,008
3.9

3,375
3.5

3,120
2.6

A

A

A

97%

100%

n/a

100%
(ongoing)

100%

100%

n/a

100%
(ongoing)

131,104
84.0%

119,750
85.5%

114,043
87.3%

11.6%
<1%
4.1%
1,486
49.0%
33.0%
10.0%
8.0%

11.4%
0.3%
2.8%
1,266
42.6%
37.6%
12.7%
7.1%

11.4%
0.3%
1.1%
1,057
57.3%
20.9%
13.5%
8.2%

>70%
(ongoing)<3.1(ongoing)A

85%(ongoing)<1%

SI

Philip Morris International – Integrated Report 2021

Overview

Preserve nature continued
2020

2021

Goals

98

100

100

100

1
(25,000)

1(32,000)

2(48,000)

Note: Select 2021 waste- and water-related metrics for our manufacturing sites are subject to external verification by SGS (see the External Verification Statement here).
For definitions, please see PMI’s Zero Deforestation Manifesto.
Blue water refers to water used for irrigation, excluding rainfall.
Water intensity is measured in cubic meters per million cigarettes produced equivalent. In 2021, we updated our methodology to account for the conversion factor ofheated tobacco units to conventional cigarettes of 5:1 and have restated historical data accordingly.
The 2021 crop season data were not available at the time of the publication of PMI’s Integrated Report 2021.
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). 2021 figure is a provision for two administrative offenses related to failure to comply
with water resource use permit and availability of financial guarantee in Portugal. In both cases, PMI has submitted its opposition.

GHG emissions – Scope 3

GHG emissions – Scope 1+2

4
5
6
7

Energy consumption in PMI
direct operations

PMI factories

2019

GHG emissions –Scope 1+2+3

Environmental management

Scope

1
2
3

Product impact

Operational impact

Reporting and performance

Fundamentals

Tackle climate change

Manufacturing facilities certified to ISO 14001⁶

Number of environmental fines(and approximate amount in USD)⁷

Strategy

2019

2020

2021

9,456,576

7,909,157

7,721,166

27%

29%

33%

11.95
5,819,072
128,967
959,723
623,940

10.83
4,733,193
91,680832,292
621,62010.37
4,541,721
123,033
865,166
674,903

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%

Carbon offsetting certificates (metric tons)⁴
Net CO2e scope 1+2 (metric tons)³

1,242
554,6403,297
409,703

16,128356,911

Total energy consumption in PMI factories, offices, and fleet(gigajoules)
Proportion of total energy consumed that is from renewablesources
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)

702

556

501

394,44772%

305,38178%

267,783
81%

1

2

5

111,400
n/a
222
n/a

79,45729%
216
5%78,01830%200
10%Absolute CO2e scope 3 (in thousands of metric tons)•
Absolute reduction versus 2019 baseline

4,494
n/a

3,793
16%

3,748
17%

CO2e scope 3 biogenic emissions (in thousands of metric tons)
Scope 3 – Tobacco supply chain
Absolute CO2e scope 3 (in thousands of metric tons) from tobacco
supply chain•
Absolute reduction versus 2019 baseline

2,471

2,185

2,271

1,264

909

804

n/a

28%

36%

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 (in thousands of metric tons)

5,050

4,206

4,122

•
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
6,381
n/a
A

17%
5,760
10%
A

18%
5,534
13%
A

CO2e scope 1+2 intensity (kg per million cigarettes equivalent)¹
Scope 1+2—Manufacturing
Absolute CO2e scope 1+2 (metric tons) from manufacturing
Proportion of electricity used and purchased that is fromrenewable sources
Number of carbon-neutral factories
Scope 1—Fleet
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

Goals

50% by2030 (SBT)
Carbonneutrality
by 2025

100% by2025
All by 2025

25% by2025
50% by2030 (SBT)

50% by2030
75% by2025
Net zeroby 2040

A

Note: Our inventory of GHG emissions (scope 1, 2, and 3) in 2021 is subject to external verification by SGS (see the External Verification Statement for scope 1+2 here andfor scope 3 here).
1
2
3

SI Indicators included in PMI Sustainability Index

4

240

Intensity is measured in CO2e per million shipped cigarette equivalent.
Excludes electricity consumption from fleet.
Emissions from PMI-operated IQOS stores are excluded from scope 1+2
emissions, as de minimis.
2021 figure includes carbon offsetting certificates purchased in ourfactories in Czech Republic, Lithuania, Mexico, Portugal, Switzerland, andour Operations Center in Switzerland.

5

241

SI

For further details on Scope 3 calculation please see PMI Value Chain
Methodology. In 2021, we reviewed our carbon footprint model, taking into
account more primary data from suppliers and updating our methodology,
leading to more accurate figures for our scope 3 emissions. We haverestated our 2019 and 2020 data according to the new model. Other
figures that include scope 3 emissions have also been restated.

SIPhilip Morris International – Integrated Report 2021

Overview

Product impact

Operational impact

Fundamentals

Reporting and performance

Proportion of current employees who participated in training
sessions pertaining to PMI’s Guidebook for Success¹
Total number of compliance training sessions completed by employees
and third parties•
Employees•
Third parties
Total number of reports received involving compliance allegations and otherconcerns
Total number of cases closed•
Involving compliance allegations(unsubstantiated cases/substantiated cases)•
Not involving compliance allegations

2019

2020

2021

n/a

n/a

71.3%

253,763

198,170

261,890

222,533
31,230980

174,755
23,415762

150,270
111,620
929

978
653
(284/369)
325

767
431
(198/233)
336

891
508
(272/236)
383

Note: Training and cases are updated based on new information available, so a slight shift in previous years’ data is reflected.

2021

Total number of suppliers¹
Total supply chain spend (in billions USD)²
Proportion of critical suppliers from whom PMI sources
sustainably³>33,200
11.4
n/a>28,000
10.1
67%>29,000
11.1
83%

Total procurement spend (in billions USD)⁴
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 (RBA)⁶
Number of critical suppliers identified as having significant actualor potential negative social impacts⁷
Number of critical suppliers identified as having significant actualor potential negative environmental impacts⁷
Direct Materials
Number of critical suppliers of direct materials assessed with EcoVadis
Proportion of critical spend on direct materials assessed with
EcoVadis
Average total EcoVadis score for critical suppliers of directmaterials⁸•
Average score: Environment•
Average score: Ethics•
Average score: Social•
Average score: Sustainable procurement
Electronics
Number of critical electronics suppliers assessed with RBA⁹
Number of site level RBA audits completed¹⁰•
Average RBA score achieved by electronics suppliers
during site level audits•
Percentage of electronic supply chain spend covered bythese audits
Number of tier 2 electronic suppliers completing supplier-levelself-assessment in RBA•
Of tier 2 electronics suppliers assessed at supplier level,
the number of site level self-assessments completed

9.9
95
35%

8.9
154
35%

9.8
162
29%

n/a

n/a

104

n/a

n/a

15

n/a

n/a

16

n/a
n/a

n/a
n/a

87
90%

n/a

n/a

56.5

n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a

60.5
54.2
55.8
50.8

n/a
n/a
n/a

n/a
n/a
n/a

17
31
160

n/a

n/a

69%

n/a

n/a

21

n/a

n/a

43

Number of tobacco farmers contracted by PMI and PMI tobacco
suppliers
Proportion of tobacco purchased through direct contracts by PMI
and PMI tobacco suppliers
Number of third-party tobacco suppliers with whom PMI has adirect contractual relationship¹¹
Number of PMI leaf operations that contract tobacco farmers
directly
Number of countries where PMI sources tobacco fromNumber of field technicians providing support to contracted
farmers and monitoring the implementation of PMI’s Good
Agricultural Practices (GAP) and Agricultural Labor Practices (ALP)

335,000

285,898

253,813

96%

99%

98%

13

14

16

8

6

5

24
2,875

23
2,675

21
2,530

Tobacco supply chain

In 2021, we adjusted our methodology to exclude employees who are no longer employed by PMI as of December 31, 2021. As the basis for this year’s calculation isdifferent, it is not comparable to last year’s reported number

2020

Total

Business integrity

2019

Non-tobacco supply chain

Managing our supply chain sustainably

FUNDAMENTALS

1Strategy

1
2
3

4
5

242

6

Suppliers refer to tier 1 suppliers (parent companies).
Total supply chain spend includes procurement spend and tobacco leaf
sourcing spend.
Indicator introduced in 2020. As of 2021, following the transition of ourdue diligence program, sustainable sourcing is determined based on aminimum threshold score of 45 out of 100 in EcoVadis (direct materials) or
125 out of 200 in RBA (electronics). All tobacco purchased by contracted
farmers, thereby covered by PMI’s integrated production system, isconsidered sustainable.
Procurement spend excludes tobacco leaf sourcing.
Suppliers’ criticality is evaluated considering spend segmentation andnature of component, as well as supply flexibility (single-source/not easily
substitutable) as relevant. 2021 figure includes tier 1 suppliers of directmaterials and electronics, tier 2 directly managed electronic suppliers, andtobacco leaf suppliers.

Goals

100% by
2025>90%(ongoing)

In 2021, we transitioned our supply chain due diligence assessments to the
EcoVadis and RBA platforms. This figure represents the number ofcompleted assessments on these platforms to date. In 2022, we will work
to expand the scope of the assessments to additional critical suppliers.
7 Based on a score below 45 on the social or environmental theme of
EcoVadis assessment, or the results of on-site audit from RBA. Comparable
historic data not available due to transition of due diligence platforms in
2021.
8 EcoVadis score ranges from 0 to 100, with a minimum threshold score of 45
demonstrating satisfactory sustainability performance.
9 This figure includes 17 out of 23 of our electronic critical suppliers. In 2022
we will work to expand the scope of the assessments to additional criticalsuppliers.
10 Due to COVID-19 restrictions, in 2021 it was not possible to complete
on-site audits at each of the 42 sites.
11 Data refer to parent companies.

243

Philip Morris International – Integrated Report 2021

Overview

2020

2021

Goals

2

4

5

10
highest-riskcountries
by 2025

Cumulative number of human rights impact assessments
conducted since 2018, with findings addressed¹

1

Our assessment prioritize countries which are assessed as highest risks from a human rights standpoint. They are determined based on key parameters such as PMI’s
footprint and the country’s human rights risk profile, as determined by internationally recognized organizations.

Community support
2019

2020

2021

170
145
25
147
43

702
681
21
600
78

356
317
39
293
54

17.0
14.8
2.2
205
16,700

47.8
46.0
1.8
12,19015,272

32.9
29.2
3.7
2,150
12,673

2019

2020

2021

Goals

100%
100%

100%
100%

100%
100%

100%
100%

2

11

9

6,617

4,981

16,943

23

22

17

n/a

48

48

Total number of social contributions supported by PMI•
Charitable donations•
Community investments
Number of partner organizations supported by PMI’s social contributions
Number of countries where projects supported by PMI’s social contributions
were implemented
Value of cash contributions (in millions USD)•
Charitable donations•
Community investments
Approximate value of in-kind donations (in thousands USD)
Approximate total number of volunteer hours by PMI employees
1

Our Social Contributions Policy and list of 2021 social contributions are available on PMI.com.

Illicit trade prevention
Coverage for tracking and tracing—master case level¹
Tracking and tracing – proportion of packs sold withunique code applied²
Additional Framework Cooperation Agreements signed with law
enforcement agencies/governments in a given year—number ofcountries
Number of law enforcement officers trained on how toauthenticate PMI products³
Number of countries with law enforcement agencies trained on
how to authenticate PMI products
PMI IMPACT grants allocated in USD million⁴

2
3
4

100

Responsible and transparent R&D
2019

2020

2021

365
38
103
354

418
63
122
556

452
87
132
676

Note: As of 2021, we no longer report on indicators related to sbv IMPROVER which was an initiative executed by PMI between 2011 and 2020, with the scope of verifying
methods and concepts in systems biology used at PMI R&D. More information can be found in sbv IMPROVER (intervals.science).

SI

We have been engaged by Management to performassurance procedures to provide limited assurance on
the specified Key Performance Indicators in theBusiness Transformation Metrics Reporting 2021 ofPhilip Morris International Inc. and subsidiaries (’PMI’)
for the period from January 1, 2021 to December 31,
2021.

Reporting and performance• Estimated number of users who have switched
to PMI smoke-free products and stopped
smoking• Adjusted net revenues ratio (smoke-free/total)• Number of markets where adjusted net
revenues from smoke-free products exceed
10% of adjusted total net revenues

The specified Key Performance Indicators (“KPI”)
forming part of the Business Transformation Metricsof PMI for the financial year ended December 31,
2021 are included in the Integrated Report 2021 andcomprises the following in our scope:a.

• Number of markets where adjusted net
revenues from smoke-free products exceed
50% of adjusted total net revenuesb.

The following Business Transformation Metrics as
disclosed on pages 35 and 232 of PMI’s
Integrated Report for the year ended December
31, 2021, respectively.
• Adjusted R&D expenditure (in millions USD)

The application of the PMI BusinessTransformation Framework for the preparation of
the specified Key Performance Indicators in
Business Transformation Metrics Reportpublished on pages 35, 232 and 248 to 251(Glossary).

The Business Transformation Metrics Reporting 2021
was prepared by Management of PMI based on theBusiness Transformation-Linked Financing Framework(or “Business Transformation Framework” in short)and made available under https://www.pmi.com/
investor-relations/overview/business-transformationlinked-financing-framework¹). Further, PMI defines thecalculation of the specified KPIs (together the “suitable
Criteria”) in the footnotes on pages 35 and 232 as wellas in the Glossary (page 248 to 251) in the BusinessTransformation Metrics Reporting.

• Adjusted R&D expenditure ratio (smoke-free/
total)• Proportion of markets where smoke-free
products are available that are low- andmiddle-income markets• Commercial (marketing) expenditure ratio(smoke-free/total)• Smoke-free product shipment volume (billion
units)• Combustible product shipment volume (billion
units)• Change in combustible product shipment
volume vs 2015 baseline• Smoke-free product shipment ratio (smokefree/total)• Total numbers of users of PMI smoke-free
products (in millions)

1

SI Indicators included in PMI Sustainability Index

244

Fundamentals

on Business Transformation Metrics Reporting 2021 to the Board of Directors of Philip Morris International Inc.
Lausanne• Number of markets where smoke-free products
are available for sale

Full coverage equates to 95% tracking and tracing in our supply chain (excluding kretek business). 5% of master cases are not covered; these are destined for countries
that are not identified as a source of potential diversion or where PMI sells to a single customer in the country.
Excludes kretek business. While our internal rules mandate a unique code on every pack (hence 100% mentioned), some exceptions remain, which are managed andreviewed with the impacted markets on an annual basis.
The number of training sessions delivered each year depends on specific needs and requests raised locally by law enforcement agencies.The significant increase in 2021
was driven by larger numbers of participants taking part in online training sessions.
PMI pledged USD 100 million to PMI IMPACT. Goals related to PMI IMPACT are stated for the period 2016–2025.

Cumulative number of scientific publications by PMI since 2008
Cumulative number of studies published on INTERVALS platform since 2018
Cumulative number of protocols published on INTERVALS platform since 2018
Cumulative number of data sets published on INTERVALS platform since 2018

Operational impact• Number of factories producing smoke-free
products out of total number of factories

Note: Data cover PMI combustible tobacco products and smoke-free product consumables and devices.
1

Product impact

Independent practitioner’s limited assurance report

Respect for human rights
2019

Strategy245‘The maintenance and integrity of PMI’s website and its content are theresponsibility of the Management; the work carried out by the assurance
provider does not involve consideration of the maintenance and integrity of the
PMI’s website, accordingly, the assurance providers accept no responsibility for
any changes that may have occurred to the reported Business Transformation
Metrics Reporting 2021 since they were initially presented on the website.

Philip Morris International – Integrated Report 2021

Overview

Strategy

Product impact

Operational impact

Reporting and performance

Fundamentals

Independent practitioner’s limited assurance report continued

Inherent limitations

PricewaterhouseCoopers SA applies International
Standard on Quality Control 1 and accordingly
maintains a comprehensive system of quality control
including documented policies and procedures
regarding compliance with ethical requirements,
professional standards and applicable legal andregulatory requirements.

The accuracy and completeness of the BusinessTransformation Metrics Reporting 2021 are subject toinherent limitations given their nature and methods
for determining, calculating and estimating such data.
In addition, some KPIs are derived from different
frameworks to form the Business Transformation
Metrics, thus the quantification of some selfdefined
KPIs is subject to inherent uncertainty because ofincomplete scientific definition or knowledge used todetermine factors related to such KPIs and the values
needed to combine. Our assurance report will
therefore have to be read in connection with theBusiness Transformation-Linked Financing Framework
prepared by PMI, its definitions and procedures in the
document “Business Transformation Framework“ andthe footnotes on pages 35 and 232 and glossary(page 248 to 251) in the Business Transformation
Metrics Reporting.

Practitioner’s responsibility
Our responsibility is to perform a limited assurance
engagement and to express a conclusion on thespecified Key Performance Indicators in the BusinessTransformation Metrics Reporting 2021. We
conducted our engagement in accordance with theInternational Standard on Assurance Engagements(ISAE) 3000 (Revised) ‘Assurance engagements otherthan audits or reviews of historical financial
information’. Those standards require that we planand perform our procedures to obtain limited
assurance whether anything has come to ourattention that causes us to believe that the BusinessTransformation Metrics Reporting 2021 are not freefrom material misstatement.

Managements’ responsibility
Management is responsible for preparing the BusinessTransformation Metrics Reporting 2021 in accordancewith suitable Criteria. This responsibility includes thedesign, implementation and maintenance of theinternal control system related to the preparation of
the Business Transformation Metrics Reporting 2021
that are free from material misstatement, whether due
to fraud or error.

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 thana reasonable assurance engagement in relation toboth the risk assessment procedures, including an
understanding of internal control, and the procedures
performed in response to the assessed risks.
Consequently, the nature, timing and extent ofprocedures for gathering sufficient appropriate
evidence are deliberately limited relative to areasonable assurance engagement and therefore lessassurance is obtained with a limited assurance
engagement than for a reasonable assurance
engagement.

Independence and quality control
We are independent of PMI in accordance with theInternational Code of Ethics for Professional
Accountants (including International IndependenceStandards) 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.

246

We performed the following procedures, among
others:

We permit the disclosure of our report, in full only andin combination with the suitable Criteria, to enable
Management to demonstrate that they havedischarged their governance responsibilities bycommissioning an independent assurance report overthe specified Key Performance Indicators tables in
Business Transformation Metrics, without assuming or
accepting any responsibility or liability to any third
parties on our part. To the fullest extent permitted bylaw, we do not accept or assume responsibility toanyone other than the Management of Philip MorrisInternational Inc. for our work or this report.

• Interviewing PMI representatives responsible for theinternal reporting and data collection.
• Test samples from PMI operations concerning thecompleteness, accuracy, consistency andclassification.
• Inspecting relevant documentation on a sample
basis, including PMI policies, management reporting
structures and documentation.
• Reviewing and assessing the management reporting
processes for Business Transformation Metrics dataand consolidation and their related controls.

PricewaterhouseCoopers SA

We believe that the evidence we have obtained issufficient and appropriate to provide a basis for ourconclusion.

Chad Mueller

Reto E. Huber

Lausanne, Switzerland
May 12, 2022

Conclusion
Based on the work we performed, nothing has cometo our attention that causes us to believe that the
specified Key Performance Indicators on the pages 35
and 232, respectively, (the metrics with an asterisk (*))
in the Business Transformation Metrics Reporting
2021 of PMI for the period from January 1, 2021 to
December 31, 2021 are not, in all material respects, inaccordance with the Business Transformation
Framework and the footnotes on pages 35 and 232 as
well as in the Glossary (page 248 to 251).

Intended users and purpose of the report
This report is prepared for, and only for, the Board of
Directors of Philip Morris International Inc. and solely
for the purpose of reporting to them on the specified
Key Performance Indicators tables in BusinessTransformation Metrics Reporting 2021 and no otherpurpose. We do not, in giving our conclusion, accept
or assume responsibility (legal or otherwise) or accept
liability for, or in connection with, any other purpose
for which our report including the conclusion may be
used, or to any other person to whom our report isshown or into whose hands it may come, and no otherpersons shall be entitled to rely on our conclusion.

247

Philip Morris International – Integrated Report 2021

Overview

Glossary of terms and acronyms

Strategy

Product impact

Operational impact

HPHCs – The harmful or potentially harmful constituents
which have been identified as likely causes of tobaccorelated diseases by various public health institutions

CPA – Crop protective agent

Aerosol – Gaseous suspension of fine solid particles and/or
liquid droplets

Downstream supply chain – Those stages in the supply
chain in which materials (mostly in the form of finishedproducts) flow away from the organization to thecustomers/consumers.

ALP – Agricultural Labor Practices
AWS – Alliance for Water Stewardship

Directors – The term we use to refer to employees in salary
grade 14 to 16

CA – Cellulose acetate
Caregiver – A person who has responsibility for the care ofa 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 thechild’s guardian, a stepparent, or a child’s parent throughsurrogacy

E&C – Ethics & Compliance
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 anaerosol by heating a nicotine or non-nicotine containing
liquid, such as electronic cigarettes (or “e-cigarettes”)

Primary caregiver – The caregiver who has theprimary responsibility for the care of the new-born or
newly adopted child following the child’s arrival

Employee resource groups, or ERGs – Employee-led
groups that focus on particular dimensions of diversity andare intended to provide a platform for building a sense of
belonging and sparking conversations.

Secondary caregiver – A caregiver who is not the
primary caregiver
Combustible tobacco product, or combusted tobacco
product – A manufactured consumable product that
combusts tobacco and/or generates smoke inhaled directlyby the user when it is used as intended. Combustible
tobacco products include, for example, cigarettes, cigarillos,
cigars, “roll your own,” and pipe tobacco

EPR – Extended Producer Responsibility
ESG – Environmental, social, and governance
FAO – Food and Agriculture Organization of the United
Nations

Combustible products – The term we use to refer tocigarettes and OTP, combined

Net revenues related to combustible products – The
operating revenues generated from the sale of theseproducts, including shipping and handling charges billed tocustomers, net of sales and promotion incentives, andexcise taxes. PMI recognizes revenue when control istransferred to the customer, typically either upon shipment
or delivery of goods

Combustion – The process of burning a substance inoxygen, producing heat and often light

Contracted employee – We define a contracted employee
as an employee who is under the direct supervision of PMI
employees but employed by a temporary employment
agencyContracted farmers – Tobacco farmers supplying to PMI
and contracted either directly by PMI (through thecompany’s leaf operations) or through third-party leaf
suppliers

248

In-market sales, or IMS – Sales to the retail channel,
depending on the market and distribution model

NGOs – Non-governmental organizations

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 andOffset Alliance)

Non-combustible products – The term PMI uses to refer toproducts, excluding cigarettes and OTP. This may include
heated tobacco units, heat-not-burn devices and related
accessories, other nicotine-containing products, primarily
e-vapor products, and products in wellness and healthcare

IPM – Integrated Pest Management

NRTs – Nicotine replacement therapies

IPS – Integrated Production System

OECD – Organisation for Economic Cooperation andDevelopment

IQOS heat-not-burn devices – Precisely controlled heating
devices into which specially designed and proprietary
tobacco units are inserted and heated to generate anaerosol

Offsetting – The act of purchasing a carbon credit
generated outside the corporate’s sphere of influence andretiring the unit on behalf of 1 ton of carbon that has been
emitted by the corporate (source: International Carbon
Reduction and Offset Alliance)

ITP – Illicit trade prevention
KPIs – Key performance indicators
LCA – Life-cycle analysis

Gender pay gap – Calculated as the percentage difference
between the sum of annual base salary, bonus, and stock
options.

Low- and middle-income markets, or LMIMs – Markets
comprised of countries classified by the World Bank as
low- and middle-income economies based on Gross
National Income (GNI) per capita; or where no World Bank
classification exists, those with GNI per capita below theWorld Bank LMIC threshold

GHG – Greenhouse gas

LTIR – Lost Time Incident Rate

GPP – Global Privacy Program

Management positions – The term we generically use torefer to all positions in a defined salary grade (10) andabove, regardless of their job title or function.

Heated tobacco units, or HTUs – The term we use to referto heated tobacco consumables, which for PMI include thecompany’s HEETS, HEETS Creations, HEETS Dimensions,HEETS Marlboro and HEETS FROM MARLBORO (definedcollectively as HEETS), Marlboro Dimensions, Marlboro
HeatSticks, Parliament HeatSticks and TEREA, as well as the
KT&G-licensed brand, Fiit and Miix (outside of South Korea)

Contractor – We define a contractor as a person employed
or working on behalf of a third-party company contracted
by PMI, who remains under the direct supervision of his or
her employer rather than PMI and is often involved inproject-specific or outsourcing arrangements

ILO – International Labour Organization

FDA – U.S. Food and Drug Administration

Heated tobacco product, or HTP – A manufactured
tobacco product that delivers a nicotine-containing vapor(aerosol), without combustion of the tobacco mixture

Net revenues related to smoke-free products – Represent
operating revenues from the sale of non-combustible
products, including shipping and handling charges billed tocustomers, net of sales and promotion incentives, andexcise taxes

Illicit trade – Domestic non-tax paid products

LCTP – Low-Carbon Transition Plan

GAP – Good Agricultural Practices

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”)

Human rights salient issues – Those human rights thatstand out because they are at risk of the most severe
negative impact through the company’s activities orbusiness relationships (source: UN Guiding Principles)

FCTC – WHO Framework Convention on Tobacco Control

Reporting and performance

NCGC – Nominating and Corporate GovernanceCommittee of PMI’s Board of Directors

Human Rights Impact Assessment, or HRIA – Assessments
to identify human rights risks and adverse impacts
3TGs – Tin, tantalum, tungsten, and gold

Fundamentals

Other Tobacco Product, or OTP – Primarily roll-your-own
and make-your-own cigarettes, pipe tobacco, cigars andcigarillos, and does not include smoke-free products
P&C – People and Culture
PCI – Portfolio of Climate Investments
PMI Regions – We manage our business in six geographicalsegments and an Other category: the European Union
region (EU); the Eastern Europe region (EE); the Middle East
& Africa region (ME&A), which includes PMI’s international
Duty Free business; the South & Southeast Asia region(S&SA); the East Asia & Australia region (EA&A); theAmericas (AMCS); and Other, which includes our third
quarter 2021 acquisitions of Fertin Pharma A/S, VecturaGroup plc., and OtiTopic, Inc.

Managers – The term we use to refer to employees insalary grade 10 to 13

PMI heat-not-burn products – Include licensed KT&G
heat-not-burn products

Market share for HTUs – Total sales volume for HTUs as apercentage of the total estimated sales volume forcigarettes and HTUs

QMS – Quality management system

MRTP – Modified Risk Tobacco ProductR&D – Research and development

MVR – Monitoring, Verification, and Reporting Framework
for Sustainable Leaf Curing Fuels

RBA – Responsible Business Alliance249

Philip Morris International – Integrated Report 2021

Overview

Refreshed devices – Smoke-free devices resulting from thecare and maintenance refresh services (which may include
unpacking, diagnostics, cleaning, firmware update, cosmetic
parts replacement, battery charging, and repacking ofdevices) that meet the agreed quality requirements to allow
for their re-use as pre-owned devices

TNFD – Taskforce on Nature-related Financial Disclosures
Tons – “Tons” equates to “metric tons” throughout thisreportTotal IQOS users – The estimated number of legal age(minimum 18 years) users of PMI heat-not-burn products,
for which PMI HTUs represented at least a portion of their
daily tobacco consumption over the past seven days.

Repaired devices – Smoke-free devices resulting from thecare and 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 re-use as
pre-owned devices

The estimated number of adults who have “switched to
IQOS and stopped smoking” reflects:•

RSP – Responsible Sourcing Principles
SBT – Science-based target•

SBTi – Science Based Targets initiative
SDGs – Sustainable Development Goals
Senior leaders – The term we use to refer to employees insenior leadership roles; it includes all employees in salary
grade 17 and above

for markets where there are no heat-not-burnproducts other than PMI heat-not-burn products: daily
individual consumption of PMI HTUs represents thetotality of their daily tobacco consumption in the pastseven days;
for markets where PMI heat-not-burn products areamong other heat-not-burn products: daily individual
consumption of HTUs represents the totality of their
daily tobacco consumption in the past seven days, ofwhich at least 70% is PMI HTUs.

Note: The above IQOS user metrics reflect PMI estimates,
which are based on consumer claims and sample-based
statistical assessments with an average margin of error of+/-5% at a 95% Confidence Interval in key volume markets.
The accuracy and reliability of IQOS user metrics may vary
based on individual market maturity and availability of
information

Senior roles – The term we generically use to refer to all
positions in a defined salary grade (14) and above, regardlessof their job title or function
Smoke – A visible suspension of solid particles, liquid
droplets, and gases in air, emitted when a material burns
Smoke-free products, reduced risk products (RRPs), or
noncombusted alternatives (NCAs) – The terms we use torefer to products that present, are likely to present, or havethe potential to present less risk of harm to smokers who
switch to these products versus continuing smoking. PMI
has a range of smoke-free products in various stages ofdevelopment, scientific assessment and commercialization.
PMI’s smoke-free products contain and/or generate far
lower quantities of harmful and potentially harmful
constituents than found in cigarette smoke.

Total shipment volume – Includes cigarettes, OTPs, andsmoke-free product consumables
TRIR – Total Recordable Incident Rate. The integrated Total
Recordable Incident Rate (or iTRIR) covers PMI employees,
contracted employees, and contractors.
UNGPs – United Nations Guiding Principles on Businessand Human Rights
Upstream supply chain – Those operations in which thematerials flow into the organization (i.e., it mainly refers to
procurement activities and inbound logistics)

Smoke-free product consumables – The term PMI uses torefer to heated tobacco units used with heat-not-burnproducts, and cartridges containing e-liquids that are used
for e-vapor products and oral nicotine products including
snus and nicotine pouches

VAP – Validated Assessment Program of the Responsible
Business Alliance (RBA) is a leading standard for on-sitecompliance verification and effective, shareable audits
WASH – Water access, sanitation, and hygiene

SUP – Single-use plastics

WBCSD – World Business Council for Sustainable
Development

TCFD – Task Force on Climate-related Financial Disclosures
TGA – Tobacco-growing area

WHO – World Health Organization

Tier 1 suppliers – Suppliers that directly supply goods,
materials or services to PMI

ZDM – Zero Deforestation Manifesto

Tier 2 suppliers – Suppliers that provide their products andservices to the Tier 1 suppliers

250

Strategy

Product impact

Operational impact

Key definitions related to our work to
improve tobacco farmer livelihoods:

Fundamentals

Reporting and performance

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 ofliving for all members of that household.

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 standardof living for all its members and applies to, for example,
self-employed farmers. A living wage is applied in thecontext of hired workers (e.g., in factories or on farms)(source: The Global Living Wage Coalition).

Living Income Reference Values represent a living income
for typical families in rural (or urban) areas of low-income
and middle-income countries.3 Reference Values provide a
credible estimate of living wage or income at a country level,
for rural and urban areas. They offer an insightful reference
beyond the currently available indicators for many
countries, which are mostly limited to poverty lines andminimum wages.

A minimum legal wage, as defined in PMI’s ALP Code, is a
wage for all workers (including temporary, piece-rate,seasonal, and migrant) that meets, at a minimum, thenational legal standard or formalized agricultural benchmark
standard. An agricultural benchmark may be formalized
where a minimum legal wage is not available or applicable toa specific context.

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-farmincome.

Child labor, as defined by the ILO, is work that deprives
children of their childhood, their potential, and their dignity,
and that is harmful to physical and mental development.
Under PMI’s ALP Code, the minimum age for admission towork is not less than the age at which compulsory schoolingis 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 thecase of family farms, a child may only help on the farm
provided that the work is non-hazardous, and the child is atleast 13 years old or above the minimum age for such work
as defined by the country’s laws, whichever affords greater
protection.

1
2
3

Hazardous work means work that, by its nature or by virtueof when or where it is carried out, is likely to harm thehealth, safety, or morals of children or others. The following
can, for example, be hazardous, particularly without theproper PPE: applying crop protection agents (CPA); stalkcutting; stringing; carrying heavy loads; working with sharp
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 thesurface 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 inblood 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

251

Schep LJ, Slaughter RJ, Beasley DM (September–October 2009). “Nicotinic
plant poisoning.” Clinical Toxicology.
Adapted from the FAO/WHO (2014) International Code of 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 statisticalanalysis, they have a margin of error for typical rural (or urban) areas of acountry, which is 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.

Philip Morris International – Integrated Report 2021

Overview

Forward-looking and cautionary statements

Notes

effectiveness of its data privacy policies. PMI’s future
profitability may also be adversely affected should it
be unsuccessful in its attempts to produce andcommercialize reduced-risk products or if regulation
or taxation do not differentiate between suchproducts and cigarettes; if it is unable to successfully
introduce new products, promote brand equity, enter
new markets or improve its margins through increased
prices and productivity gains; if it is unable to expand
its brand portfolio internally or through acquisitions
and the development of strategic business
relationships; or if it is unable to attract and retain thebest global talent, including women or diverse
candidates. Future results are also subject to thelower predictability of our reduced-risk productcategory’s performance.

This report and related discussion contain projectionsof future results and other forward-looking
statements. Achievement of future results is subject
to risks, uncertainties and inaccurate assumptions. In
the event that risks or uncertainties materialize, or
underlying assumptions prove inaccurate, actual
results could vary materially from those contained insuch forward-looking statements. Pursuant to the“safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, PMI is identifying
important factors that, individually or in the aggregate,
could cause actual results and outcomes to differ
materially from those contained in any forwardlooking statements made by PMI.
PMI’s business risks include: excise tax increases anddiscriminatory tax structures; increasing marketing
and regulatory restrictions that could reduce ourcompetitiveness, eliminate our ability to communicate
with adult consumers, or ban certain of our products
in certain markets or countries; health concerns
relating to the use of tobacco and other nicotinecontaining products and exposure to environmental
tobacco smoke; litigation related to tobacco use andintellectual property; intense competition; the effects
of global and individual country economic, regulatory
and political developments, natural disasters andconflicts; the continuing effects of the COVID-19
pandemic; the impact and consequences of Russia’s
invasion of Ukraine; changes in adult smoker behavior;
lost revenues as a result of counterfeiting, contraband
and cross-border purchases; governmental
investigations; unfavorable currency exchange rates
and currency devaluations, and limitations on theability to repatriate funds; adverse changes inapplicable corporate tax laws; adverse changes in thecost, availability, and quality of tobacco and otheragricultural products and raw materials, as well ascomponents and materials for our electronic devices;and the integrity of its information systems and

PMI is further subject to other risks detailed from time
to time in its publicly filed documents, including theForm 10-Q for the quarter ended March 31, 2022.
PMI cautions that the foregoing list of importantfactors is not a complete discussion of all potential
risks and uncertainties. PMI does not undertake toupdate any forward-looking statement that it may
make from time to time, except in the normal courseof its public disclosure obligations.

252

Strategy

Product impact

Operational impact

Fundamentals

Reporting and performance

Unless otherwise stated, references to total industry,
total market, PMI shipment volume, and PMI market
share performance reflect cigarettes and heated
tobacco units

In this report, “PMI,” “we,” “us,” and “our” refer to Philip
Morris International Inc. and its subsidiaries.
In this report and in related communications, the term“materiality,” “material,” and similar terms, when usedin the context of economic, environmental, and social
topics, are defined in the referenced sustainability
standards, and are not meant to correspond to theconcept of materiality under the U.S. securities laws
and/or disclosures required by the U.S. Securities andExchange Commission.

References to total international market, defined asworldwide cigarette and heated tobacco unit volume
excluding the U.S., total industry, total market andmarket shares are PMI estimates for tax-paid products
based on the latest available data from a number ofinternal and external sources and may, in defined
instances, exclude the People’s Republic of China and/or PMI’s duty free business.

This report contains references and links to websites
operated by third parties. These references areprovided as a convenience to you and as an additional
avenue of access to the information contained inthose sources; they should not be viewed as anendorsement by us of the content of these references
and linked sites or opinions of their authors.

2020 and 2021 estimates for total industry volume
and market share in certain geographies reflect
limitations on the availability and accuracy of industry
data during pandemic-related restrictions.
Operations Center

Unless otherwise stated, all references to IQOS are to
our IQOS heat-not-burn devices and consumables.

Philip Morris Products S.A.
Avenue de Rhodanie 50
1007 Lausanne
Switzerland

Trademarks and service marks in this report are theregistered property of, or licensed by, the subsidiaries
of Philip Morris International Inc., and are italicized or
shown in their logo form.

253

Headquarters*
Philip Morris International Inc.
120 Park Avenue
New York, NY 10017-5579
USA

Operations Center
Philip Morris ProductsBack
S.A. cover ?
Avenue de Rhodanie 50
1007 Lausanne
Switzerland

www.pmi.com* Note: In the fourth quarter of 2021, we announced
that we will be relocating our PMI corporate
headquarters from New York, New York, toStamford, Connecticut. This move is expected
to be completed by the third quarter of 2022.

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