Sustainability
Materiality ReportOverview

Our assessment
process

Understanding
the results

From global tolocal priorities

What’s relevant to PMI
and our stakeholders
Our sustainability work only
has meaning and impact if
it focuses on addressing theissues that matter most.
Engaging our stakeholders in
the process of defining ourpriorities is key to our approachto sustainability. It helps us
prioritize our focus and resourcesin areas where we can have thegreatest impact and, ultimately,
make progress.

At PMI, we are committed to identifying,addressing and reporting on sustainability
issues and opportunities that are relevant
to us and our stakeholders.
The thorough sustainability materiality
analysis we conducted in 2018 helped
us prioritize our work. With thetransformation of our business toward
our smoke-free vision progressing at
rapid pace, our sustainability work unveils
both new challenges and new opportunities.
To keep pace with this evolving context
and make sure our sustainability
priorities are up to date, we decided
to refresh our materiality assessment
at the end of 2019. The time was also
right to further refine the developmentof our 2025 sustainability strategy.
An essential starting point to ensure
a credible and thorough exercise is towork with an independent third party tofacilitate the materiality assessment. For
the past two years, we partnered with BSD
Consulting, an ELEVATE company, to assist
us in carrying out our analysis, providing
independent expertise, and guidance onalignment with reporting frameworks.

Philip Morris International Sustainability Materiality Report

Our assessment process
We followed a four-step approach:

Identifying topics

p. 3

Gathering stakeholders’perspectives

p. 5

Assessing impact

p. 7

Building and validating thesustainability materiality matrix
In this report and in related communications, the terms “materiality,” “material” andsimilar terms, when used in the context of economic, environmental, and social
topics, are defined in the referenced sustainability standards and are not meant
to correspond to the concept of materiality under the U.S. securities laws and/or
disclosures required by the U.S. Securities and Exchange Commission.

p. 9

2

Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

STEP 1

Identifying topics

When researching sustainability
topics that are likely to be
relevant to PMI, we consider
the impacts of our businessacross our value chain.
In 2018, our initial analysis had identified
a list of topics that were potentiallyrelevant for PMI, covering environmental,social and governance aspects.
These were derived from a review of
PMI’s disclosures and externalsources, including analyses of publichealth debates, ESG ratings (e.g., Morgan
Stanley Capital International or Dow
Jones Sustainability Index), media reports,
sustainability standards and frameworks
such as the Global Reporting Initiative(GRI) and the United Nations Sustainable

Development Goals (SDGs), a benchmark of
the sustainability practices of multinational
peers and global sustainability trends.

Operating with excellenceBusiness integrity

Upholding ethics, business integrity and a culture of respect, honesty
and fairness through governance structures, and policies andpractices that require compliance with the law, encouragetransparency and are designed to prevent unethical behavior across
our operations and value chain (including corruption, fraud, bribery
and anti-competitive behavior).

Data privacy
and protection

Programs designed to protect our company’s and stakeholders’data privacy from attacks and improper use.

Fair fiscal
practices

Performing our transactions based on sound tax strategies in linewith societal expectations and acting in good faith in all
interactions with tax authorities and other stakeholders.

Illicit tobacco
trade prevention

Securing our supply chain and collaborating with law enforcement
agencies and other partners to prevent and reduce the illicit tradeof tobacco and nicotine products (consumables and devices).

Respect forhuman rights

Safeguarding the human rights of all people affected by ouractivities. Ensuring compliance with international standards,
and PMI’s policies on topics within the realm of human rights.

Responsible
advocacy

Acting in a fair, honest, accountable and transparent manner
when advocating PMI’s position in stakeholder engagements.

Responsible andtransparent R&D

Ensuring the credibility, integrity and robustness of our scientificresearch through alignment with international standards andtransparency on methodologies and results. Minimizing andreplacing animal testing with alternative methods when possible
and safeguarding animal well-being in the R&D processes when
animal testing cannot be avoided.

Responsible
marketing andsales practices

Commercializing our products responsibly to prevent accessand usage by unintended users, including minors and nonsmokers,
advertising tobacco and nicotine-containing products in a waythat is directed to adult smokers; aiming to provide clear
information on the product health risks through appropriate
labeling and communication.

Sustainablesupply chain
management

Embedding sustainability in our procurement practices, managing
risks and continuously evaluating and supporting suppliers toalign their sustainability efforts to our requirements.

We revised the list of topics in 2019, taking
into account the internal and external
feedback gathered during the 2018
exercise, as well as developments in theabove-mentioned external sources.
As a result, we clustered some topics thatwere deeply connected, such as humanrights and forced labor, and we split others,
such as forest conservation and biodiversity,in order to assess them more granularly.
Two new topics—product reliability andproduct eco-design and circularity—were
also introduced, to reflect stakeholders’evolving expectations and the progress
in PMI’s work. Finally, we refined the topic
names and descriptions, explaining how
PMI understands each topic. In our 2019
Integrated Report, we share PMI's specificaspirational targets in relation to topics
identified as tier 1 topics.

Topics and how PMI understands themInnovating for better products
Access tosmoke-free
products

Ensuring our smoke-free products are accessible to all
adult smokers, by making them available, acceptable
and affordable, and by raising awareness.

Product
addictiveness

Better understanding product addictiveness, separate fromthe risks to health associated with the usage of our products.

Product healthimpacts

Reducing the risks to health associated with theusage of our products.

Product reliability

Ensuring the quality and safety of our products and theingredients used within them, in line with appropriate design
and manufacturing standards.

3

Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

STEP 1

Identifying relevant topics (continued)

Caring for the people we work withProtecting the environment

Community
supportContributing to local communities’ development throughcharitable donations and employee volunteering initiatives.

Biodiversity

Diverse andinclusive working
environment

Fostering an inclusive and diverse working environment,
ensuring fair treatment and non-discrimination.

Managing and reducing the negative impacts on species
and ecosystems of our operations and sourcing activities,
such as land use and soil degradation.

Climateprotection

Fair working
conditions

Conducting effective labor relations through ongoingengagement and social dialogue, promoting freedom of
association and the right to collective bargaining.

Mitigating climate change by reducing greenhouse gas
emissions and energy consumption, and adapting to climatechange by increasing our resilience.

Health, safety, andwell-being at work

Promoting a safe and healthy working environment that protects
the physical and mental well-being of all while at work.

Product
eco-design andcircularity

Developing more environmentally friendly products(devices, consumables, accessories and packaging) byimproving recyclability, efficiency and repairability.

Socioeconomic
well-being of
tobacco farming
communities

Eliminating child labor and providing safe and fair working
conditions on tobacco farms. Promoting living income as a key
strategy to achieving farmers and farmworkers’ well-being.

Forestconservation

Preventing deforestation in our operations and sourcing
activities by using sustainable curing fuels in our tobacco supply
chain, and responsible sourcing of pulp and paper.

Littering
prevention

Promoting anti-littering behavior among consumers throughawareness and cleanup campaigns, and partnerships.

Talent attraction,
retention, andemployability

Providing a workplace that is attractive to prospective
employees and where current employees can grow andpursue fair career development, and responsibly addressing
the future of work: the impacts of automation, digitalization,and business transformation.

Waste
reduction

Reducing the waste generated in our manufacturing
facilities and offices and ensuring its reuse, recycling or
responsible disposal.

Water
stewardship

Reducing water usage, promoting water recycling,protecting water resources through watershed conservation,
promoting sustainable water management in collaboration
with stakeholders. Preserving water quality and promoting
safe access to water, sanitation and hygiene.

4

Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

STEP 2Gathering stakeholders’ perspectives
The second stage of ourassessment involves reachingout to our stakeholders.
We may do so in two ways:
through in-depth qualitativeinterviews and throughonline surveys.

Localcommunities

Civil society

6 6%

e

rs

a ke

823

d e r s ( PM I e

E x te r nal st

Business
communityna

responses

Farmers andfarm workers

ee• 60 countries• All regions

mp l
oy

%
34

er

hol

Scientificcommunity

I nt

ke

ho

ld

Retailers andwholesalerstas)

In 2019, we did not conduct qualitativeinterviews but decided to focus on
broadening the outreach of the stakeholder
online survey. The survey comprised
two parts: the first set of questions
asked participants to prioritize the topics
by importance, while the second set
consisted in open questions allowing
for qualitative inputs.

Employeesls

During our comprehensive analysis in
2018, we used both means. Aiming to go
deep and wide into conversations with our
stakeholders, our consultant interviewed 48
people, half of whom were PMI employees
and half of whom were not. The latter group
included investors, NGOs, business partners
and other groups considered relevant to ourindustry. The in-depth conversations
generated detailed insights into topics
identified as relevant, as well as those seen
as likely to gain importance in the short tomedium term. We complemented thisexercise with quantitative inputs collected
through an online survey, in which 103
stakeholders participated (over 70 percent
of respondents were PMI employees).

St a ke h o l d e r g r o u p s

Adult
consumers

Media

Investors andshareholders

Regulators andgovernments
Suppliers

5Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

STEP 2Gathering stakeholders’ perspectives (continued)
First, survey participants were asked fortheir opinion on the priority levels of thedifferent sustainability topics from thelist that had been set following our 2018sustainability materiality assessment.
Overall, respondents largely confirmed
the ranking of sustainability topics while
pointing to some topics that they believed
should be addressed with a higher priority.
This was particularly the case for the topic
of "respect for human rights."
In total, we received over 820 responses
from 12 stakeholder groups across 60
countries. The highest participation ratecame from employees (representing twothirds of the responses), followed byrepresentatives from our suppliers, civilsociety and the business community. The
survey sample, while broad, was not equally
representative of all stakeholder groups,
nor geographies.
To make sure the uneven stakeholder
representation in the survey was not
impacting its outcomes, we analyzed andcompared results from different groups,
attributing them different weights (internalversus external stakeholders, types of
stakeholders, and regional representations).
Overall, responses converged independently
from the stakeholder types or locations, andno major discrepancy was identified.
Accordingly, we decided to allocate anequal weight to both internal and external
stakeholders to generate the ranking ofsustainability topics. This ranking reflects
the level of relevance of each topic
according to our stakeholders and isreflected in the Y axis of our sustainability
materiality matrix.
See the sustainability materiality matrix
on p9 for more information

The survey also allowed us to gain further
insights into our stakeholder’s perspectives
through open questions asking participants
what sustainability issues they considered
as top priority or as gaining momentum.
Responses to both questions largely
converged, highlighting the emerging topics
of product eco-design and circularity,
climate protection and water stewardship.
As we did not conduct stakeholderinterviews in 2019, the open commentsfrom respondents to the survey provided
valuable insights into their concernsand expectations.

Ranking: Relevance of topics to our stakeholders
Product health impacts
Climate protection
Forest conservation
Respect for human rights
Responsible marketing and sales practices
Consumer access to smoke-free products
Socioeconomic well-being of tobacco farming communities
Littering prevention
Product eco-design and circularity
Fair working conditions
Health, safety, and well-being at work

Generally, many participants
mentioned that PMI’s progress
in its sustainability work was
encouraging and rightly targeted.
Responses also highlighted areas
for improvement.

Responsible and transparent R&D
Sustainable supply chain management
Water stewardship
Product addictiveness
Diverse and inclusive working environment
Biodiversity
Waste reduction

For instance, certain employees noted
their willingness to be more involved in
the company’s sustainability efforts. Other
stakeholders stressed the need for PMI tofurther communicate on its sustainability
work and set clear targets and performanceindicators to allow them to track progress,
which we took into consideration whiledeveloping our 2025 sustainability strategy.

Data privacy and protection
Business integrity
Illicit tobacco trade prevention
Talent attraction, retention, and employability
Product reliability
Community support
Fair fiscal practices
Responsible advocacy

6Overview

Our assessment
process

STEP 3

Assessing impact

Understanding
the results

From global tolocal priorities

Impact in our value chain
Pillar 1

Access to smoke-free products
Product addictivenessAs a third step, we conducteda desktop assessment tounderstand which topics havemost impact on sustainable
development, and where in ourvalue chain.
Our consultant analyzed the significanceof each topic’s environmental, socialand economic impacts on society at thedifferent stages of our simplified value
chain: upstream (e.g., tobacco growers,
suppliers), operations and downstream(e.g., consumers, retailers). The likeliness,reversibility and severity of the impact
were considered in this evaluation.
Complementing the expert desktop
assessment from our consultants, subject
matter experts from PMI were also
consulted during the assessment process.
Taking the example of climate protection,
this topic was highlighted as fairly highimpact during the assessment. The
likelihood of carbon emissions resulting
from our activities was deemed significant,particularly upstream in our value chain,
as tobacco growing and curing can becarbon intensive processes. Second,carbon emissions, once they occur,are not reversible in the short tomedium term. And the severity ofcarbon emissions is also serious, as
they contribute to global warming
and affect life on earth and in oceans.

Product health impacts
Product reliability
Pillar 2

Business integrity
Data privacy and protection
Fair fiscal practices
Illicit tobacco trade prevention
Respect for human rights
Responsible advocacy
Responsible and transparent R&D
Responsible marketing and sales practices
Sustainable supply chain management

Pillar 3

Community support
Diverse and inclusive working environment
Fair working conditions
Health, safety, and well-being at work
Socioeconomic well-being of tobacco farming communities
Talent attraction, retention and development

Pillar 4

Biodiversity
Climate protection
Forest conservation
Littering prevention
Product eco-design and circularity
Waste reduction
Water stewardship

Philip Morris International Sustainability Materiality Report

Upstream

PMI operations

Downstream

7

Overview

Our assessment
process

STEP 3

Assessing impact(continued)

As a result of the impact assessment, thetopics PMI should address in priority tocontribute to sustainable development are
product health impacts, sustainable supply
chain management, and socioeconomic
well-being of tobacco farming communities.

Understanding
the results

From global tolocal priorities

Ranking: Significance of PMI's impacts on society

Product health impacts
Sustainable supply chain management
Socioeconomic well-being of tobacco farming communities
Health, safety, and well-being at work
Respect for human rights
Climate protection
Product addictivenessResponsible marketing and sales practices

The impact assessment
generated a topic ranking
in terms of relevance forsustainable development,
which informed the
X-axis of our sustainability
materiality matrix.
See the sustainability materiality matrix
on p9 for more information

Littering prevention
Diverse and inclusive working environment
Access to smoke-free products
Biodiversity
Responsible and transparent R&D
Illicit tobacco trade prevention
Product eco-design and circularity
Fair working conditions
Water stewardshipTalent attraction, retention, and development
Forest conservation
Responsible advocacy
Fair fiscal practices
Waste reduction
Business integrity
Data privacy and protection
Community support
Product reliability

Philip Morris International Sustainability Materiality Report8Overview

Our assessment
process

From global tolocal priorities

Understanding
the results

Philip Morris International Sustainability Materiality Report

STEP 4

Responsible marketingand sales practices

Climate protection
Respect forhuman rights

Access to smoke-free
products

Forest conservation

Product eco-designand circularity

Fair working conditions

Relevance for stakeholders

We mapped the topics with the fourpillars of our sustainability strategy andhighlighted those that stakeholders
mentioned would likely gain momentum
in the future. The final step, done upon
discussion with our consultant, consistedof drawing the threshold for the relative
materiality of sustainability topics.

Product health impacts

Littering
prevention

Health, safety, andwell-being at work

Responsible andtransparent R&D
Water stewardship

Socioeconomic well-being of
tobacco farming communities

Product addictivenessSustainable supply
chain management

Diverse and inclusive
working environment
Waste reduction

Biodiversity

Data privacy
and protection

Business integrity

TIER 1 TOPICS

Illicit tobacco
trade prevention
Product reliability
Community
supportTalent attraction, retention,and development

Key:

Fair ﬁscal practices

Innovating for better products

Responsible advocacy

Operating with excellence
Caring for the people we work withProtecting the environment

LOW

Using all inputs gathered
through the survey and impact
assessment, we generated
a sustainability materiality matrix
in line with the Global Reporting
Initiative’s (GRI) requirements.

HIGH

Building and validating our sustainability materiality matrix

Topics gaining momentum
LOW

Signiﬁcance of PMI’s impacts on society

HIGH

9

Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

STEP 4

Building and validating our sustainability materiality matrix (continued)
Our sustainability matrix, based on
stakeholders perspectives gathered
through the sustainability survey
and the desktop impact assessment,
resulted in a ranking of topics into two
categories: tier 1 and tier 2 topics.

S TR ATEG I C PI LL A R S

Innovating
for better
products

The topic of eco-design and circularity
was classified as tier 1 level, as most
respondents underlined its propensity to
become more important in the future.
The results were presented to our External
Engagement Committee, comprised of ourChief Executive Officer, Chief Operating
Officer, President External Affairs andGeneral Counsel, Senior Vice President
Operations, and senior leaders from ourExternal Affairs department, who validated
the sustainability materiality matrix andthe updated prioritization of topics.

Transforming
for asustainablesmoke-free
futureOperatingwithexcellence

TI ER 1 TO PI C S

Product health impacts
Access to smoke-free
products

Responsible marketingand sales practices
Sustainable supply
chain management
Respect for human rights

Caring forthe people wework withProtecting theenvironment

Socioeconomic
well-being of tobacco
farming communities
Health, safety, andwell-being at work

TI ER 2 TO PI C S

Product addictivenessProduct reliability

Responsible and transparent R&D
Data privacy and protection
Business integrity
Illicit tobacco trade prevention
Responsible advocacy
Fair fiscal practices
Fair working conditions
Community support
Diverse and inclusive working
environment
Talent attraction, retention,and employability

Climate protection

Forest conservation

Littering prevention

Biodiversity

Product eco-designand circularity

Water stewardship
Waste reduction

10

Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

Understanding the assessment results
Distributing topics across two distinct
categories provides useful insights on how
to understand and manage each topic.
• There are 10 tier 1 topics, which reflectissues or opportunities where PMI canhave the greatest impact on society.
As such, they are key to our 2025
sustainability strategy. We are committed
to implementing impactful programsto achieve the ambitious aspirations
we have set for these topics. We will
track our progress, regularly update oursenior management and publicly report
our performance on an annual basis.
• Tier 2 topics include topics that areimportant for PMI’s value creation,
as well as certain compliance-driven
topics. We closely monitor and manage
them and track our progress.
The connection between topics must be
considered. Indeed, sustainability material
topics do not exist independently; they
are linked to one another. For example,
the topic of sustainable supply chain
management can be a catalyst for progresson various other topics, such as climate
protection or fair working conditions.

Another example is access to smoke-free
products, which is closely connected toresponsible marketing and sales practices.
Both should always be considered as we
strive for a sustainable smoke-free future.

Connectivity of sustainability issues
43

Such interdependences between
topics must be considered to define
the necessary approaches to put inplace in order to drive progress.

In 2020, we will focus on implementing theresults of our assessment and new strategy
across our business functions and affiliates.
We plan to conduct a comprehensive
sustainability materiality analysis every
three years and a light update between
those assessments. We aim to strengthen
and adjust our process at each exercise.

Strong5

1

Medium

6

Light

2

Way forward
The purpose of our materiality analysis
is to guide us in the prioritization ofsustainability topics, listen and respondto our stakeholders’ expectations andfocus on areas where we can create mostvalue for all our stakeholders and PMI.
Our sustainability materiality refresher
in 2019 informed the development ofour 2025 strategy and will shape oursustainability work and reporting.

Impact level78
9

Sustainablesupply chain
management

11
14

19
18

Impactdirection

17

10

12
13

16

15

Sustainability issues

1 Access to smoke-free products
2 Product reliability
3	Responsible marketing andsales practices
4 Data privacy and protection
5 Respect for human rights
6 Illicit tobacco trade prevention
7 Responsible advocacy
8 Business integrity
9	Socioeconomic well-being of
tobacco farming communities
10 Fair working conditions

11	Health, safety, and well-being
at work
12	Diverse and inclusive working
environment
13 Community support
14 Climate protection
15 Forest conservation
16 Product eco-design and circularity
17 Biodiversity
18 Water stewardship
19 Waste reduction

11

Overview

Our assessment
process

Understanding
the results

From global tolocal priorities

Philip Morris International Sustainability Materiality Report

From global to local priorities
Assessing local sustainability priorities in our affiliates
PMI products are sold in over 180 countries, and our affiliates are key to bringing our sustainability efforts to life. The whole company is committed
to our global sustainability strategy, and the activities carried out at the affiliate level must be tailored to our local footprint and context to be truly impactful.
In 2019, certain PMI affiliates undertook local sustainability materiality assessments to define the main sustainability issues to focus on.
Highlighted below are some key topics identified in different countries.

MexicoKazakhstan

Singapore

Indonesia• New business opportunities• Community support• Child labor elimination and respectfor human rights• Responsible use of natural resources• Talent development• Illicit trade prevention• Littering prevention• Labor rights• Recycling of heated tobacco units• Youth access and usage prevention• Community support toenvironmental causes• Impact of smoke-free products
on indoor air quality• Youth access and usage prevention• Responsible and transparent R&D• Responsible commercialization• Access to smoke-free products for
current adult smokers• Constructive stakeholder dialogue• Business integrity• Economic performance• Product innovation• Fair working conditions• Respect for human rights• Responsible marketingand sales practices

12

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