IDENTITY

BUSINESS andSTRATEGIESMATERIALITY andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Tobacco business”President & CEO
JT International S.A.

Combustibles
Cigarettes, FCT (fine cut tobacco), pipe, cigars and cigarillos
are part of the combustibles category. While cigarettes
contain pre-rolled tobacco, fine cut tobacco products allow
adult consumers to roll or make their own cigarettes. The
global combustibles industry volume totaled around 5.1
trillion stick equivalent units in 2022, representing a valueof approximately 103 trillion Japanese yen. The largest
markets are China—which accounts for over 45% of global
volume—followed by Indonesia, the U.S., Russia, Turkey,
Japan and Vietnam. While the global combustibles industry
volume is declining, the industry value continues to increase
driven by a positive price/mix variance.

RRP
Heated tobacco, E-Vapor and oral products are part of the RRP
category. As they deliver nicotine without combustion, they
have the potential to reduce risks associated with smoking.
HTP (heated tobacco products) include HTS (heated tobacco sticks), which generate an aerosol containing nicotine
by heating a tobacco stick, and Infused (infused tobacco
capsules), a hybrid system which creates a tobacco-enrichedvapor using indirect heating.
E-Vapor products heat a nicotine-containing liquid insteadof tobacco leaves and come in different formats: open tanks,

056

Japan Tobacco Inc. Integrated Report 2022

Our Purpose—Creating fulfilling moments. Creating abetter future—defines why we exist as a business and how
we contribute to the broader JT Group Purpose. It is also astatement to wider society of our intent and the North Star
guiding our tobacco business strategy.

We believe that the RRP adoption trend will continue,as these products have potentially less risk for the adultconsumer.

closed pods and disposables. Oral products are usuallyin the form of small pouches to be inserted in the mouth
between the lip and the gum. If they contain tobacco they
are referred as snus, if they don’t as nicotine pouches.
The global RRP industry had an estimated value ofapproximately 9 trillion Japanese yen in 2022. The largest
markets are Japan for HTP, the U.S. for E-Vapor products andScandinavia for oral products. Unlike combustibles, the mostsuccessful Reduced-Risk Product varies from one market toanother depending on consumer preferences. The overall
RRP category, though smaller than combustibles, has been
growing steadily over the last years, and we expect thisgrowth to continue, notably in HTS.

To create fulfilling moments and a better future, we havearticulated a clear strategy for the tobacco business, prioritizing management resources towards HTS, the main RRP
growth driver, and combustibles, the largest, most profitable
category across the tobacco industry.
The combination of the JT Group’s tobacco businesses intoa single business segment is supporting this prioritizationof resources, globalizing the Group’s knowledge and expertise, driving increased agility, and accelerating strategic
decision-making.

We expect the global combustibles industry value to continue growing in the foreseeable future, while the global RRP
industry is expected to grow both in terms of volume and value. Among RRP segments, we expect HTS to be the biggest
growth driver, followed by E-Vapor and nicotine pouches. The
growth rate will ultimately depend on innovation, consumer
acceptance, regulation and taxation of RRP products.

RRP: Prioritize investments in HTS

We expect HTS will offer the strongest growth profile among
existing product segments in RRP. In this context, the Groupis prioritizing investments towards HTS and accelerating
efforts to increase share of this segment.
To more than double our RRP core revenue by 2025,* wewill invest over 300 billion Japanese yen between 2023
and 2025 including commercial expenses, R&D and capital
expenditures. Another investment area will address R&D
efforts towards NGP (next-generation products), as we
think the RRP category will continue to expand beyond thecurrent product lineups.
* Compared to 2022

Creating fulfilling moments.
Creating a better future.

PurposeCreating fulfilling moments

Our view of the futureOver the last years, the main international tobacco players
expanded their portfolio in both combustibles and RRP tooffer more choice to consumers. The JT Group’s tobacco
business is ranked third in the world (excluding China) byvolume and has a product offering across all combustibles
and RRP segments.

This strategy, moreover, confirms the tobacco business as
the core business of the JT Group and strengthens its role as
the main source of profit growth for the medium and longterms.

The RRP category has yet to mature with each product segment being in different stages of development as consumer
acceptance varies from one market to another.

Our strategy

Tobacco industry overview
The industry can be divided in two product categories:
combustible products and RRP (Reduced-Risk Products).

Our Purpose

Creating a better future
Combustibles

Business

Eddy Pirard

Tobacco strategy

RRP

Maximize top-line and ROInnn

Sustainability“

 e started 2023 with a strong businessW
momentum and the introduction of our
new Purpose. Creating fulfilling moments.
Creating a better future. This will be ourNorth Star while continuing to deliver
sustainable profit growth.

Notes: 1. The word consumers used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with thelegislation in each country
2. This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine containing products or encouragesmoking or using nicotine containing products

Sustained share gains
Capitalize on pricing opportunities
Disciplined approach to investments

Prioritize investments in HTSnnn

Ploom X geographic expansion
Enhanced capabilities
Exploratory initiatives beyond HTS

Sustainability prioritiesnnnReduce health impact through RRP
Product stewardship, circularity and waste
Farming practices and livelihoodsnnClimate change
Human capital management

Japan Tobacco Inc. Integrated Report 2022

057

MATERIALITY andSUSTAINABILITYIDENTITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Tobacco businessIn 2021, the JT Group launched its latest heated tobacco
device—Ploom X—in Japan, followed by the U.K. in 2022
and Italy, Lithuania and Portugal so far in 2023. Since thelaunch, Ploom’s share of the HTS segment has more thandoubled in Japan, renewing our confidence in our ability
to offer superior-quality products in this growing segment.
The Group is planning to roll out Ploom X and its dedicatedconsumables in 28 markets by 2024, with the ambition toreach a mid-teens share of the HTS segment in key markets
by 2028*1.

operating models for efficiencies and better effectiveness.

This effort will be complemented by focused investments
in other product segments, as one single solution doesn’ttranslate into sustainable success in RRP. These additional
segments, notably Infused, E-Vapor and Oral, will be considered exploratory opportunities. The JT Group aims to gaina better understanding of the dynamics in each of thesesegments and collect relevant consumer insights aheadof future growth. Considering the entire RRP category, ourambition is to reach breakeven by 2028*2.

We also consider corporate initiatives like the simplificationof internal structures, the migration of legacy IT systems to
global solutions and the empowerment of Global Business
Service centers to better support markets. The aim is tocontinuously improve margins, while maintaining quality,
and to enhance cash flow generation by optimizing working
capital and capital expenditures.

*1 Share of segment in key HTS markets, including Japan and Italy*2 Breakeven at brand contribution level representing gross profit less commercial expenditure and before allocation of overheads

Combustibles: Maximize top-line and ROI
We recognize the combustibles industry volume will continue to decline. However, combustibles users will remain thelargest cohort of consumers within the industry for at least
another decade.
The JT Group intends to continue satisfying the needs ofthese consumers, by exceeding their expectations. To doso, resources will be allocated in priority towards our GFB(Global Flagship Brands), with the intent of maximizing
returns and supporting the investments in RRP. Initiatives
to support this strategy include GFB equity building andstrategic market roles.
Consistently investing in the strengthening of the equity of
Winston, Camel, MEVIUS and LD is key to sustaining the JT
Group’s market share gains in the combustibles category
and leveraging pricing opportunities. In addition, we assigned each market to a strategic role (Earnings / Earnings &Share / Share) to enhance focus and guide decision-making.

Strengthening competitivenessAs part of the Group’s continuous improvement efforts, weconstantly review our global supply chain and our market

058

Japan Tobacco Inc. Integrated Report 2022

Within the global supply chain, we explore opportunities torationalize our manufacturing footprint and our leaf-sourcing channels, as well as logistical routes, closer collaboration
with suppliers, and SKUs portfolio simplification.
In market-operating models, we optimize notably routeto-market and route-to-consumers in order to ensure we
can respond quickly and with agility to changing adultconsumer expectations.

SWOT analysis of the tobacco business

Strengths (Internal / Positive)




S

SWOT
ANALYSIS

Consumer at the center of all that we doPowerful and inspiring brands
Diverse and motivated workforce
Accelerating RRP investments

Weaknesses (Internal / Negative)

W





Limited RRP presence
New capabilities still in the making

Opportunities (External / Positive)

O





T



Tobacco pricing model still intact enabling us to maximize
value creation from combustibles
Grow exposure in HTS segment
RRP category far from mature

Threats (External / Negative)

Tightening regulatory environment
Changing consumer preferences

Sustainability priorities
In 2022, we conducted a materiality review and engaged
with over 150 key stakeholders and 450 employees to define
our sustainability priorities. These are key enablers of our
new JT Group Purpose, driving a better future for our people
and society.
Within the tobacco business, we identified sustainability
priorities to focus on in the coming years:• Reduce health impact through RRP•R educe our products’ impact on the environment throughproduct stewardship• Improve farming practices and livelihoods• Tackle climate change by reducing Greenhouse Gas (GHG)
emissions•D evelop our employees through human capitalmanagement

Building business foundations
We believe that human resource development is the key
driver of sustainable profit growth in the tobacco business.
With business operations in more than 130 markets, ourglobal employee workforce is very diverse, including over
100 nationalities.

Performance over the last five years
The tobacco business outperformed the industry volume
over the last five years through continued market sharegains driven by our GFB and acquisitions in tobacco markets
that matter.
This performance, together with solid pricing and costdiscipline, enabled the combined tobacco business to consistently grow core revenue and adjusted operating profit atconstant currency.
GFB volume constantly grew over the last five years, reaching more than 360 billion sticks and almost 70% of our total
volume in 2022.

The results of Winston, Camel, MEVIUS and LD were fueledby their strong brand equity, built by decades of sustained
investments, and execution excellence.
Our portfolio architecture helped adult consumers innavigating the offering across different price points andsegments, including cigarettes and FCT—where we are the#1 player.
Despite the ever-changing environment, our pricing power
remained intact over the period, demonstrating once more
the resilience of the combustibles pricing model.

GFB (Global Flagship Brands)

The quality of human resources is the key to business activity and performance, so the JT Group will strengthen humanresource development and enhance its ability to attract,develop, and retain employees on a global basis.

Japan Tobacco Inc. Integrated Report 2022

059

BUSINESS andSTRATEGIESMATERIALITY andSUSTAINABILITYIDENTITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Tobacco business

2022 performance

Total shipment volume (BnU)*

Total industry volume (BnU)*

1

-0.5%

3200

Overview

2

*1

530
2400

79

85

450

73

+4.8%

0

0

2018

2019

2020

2022

2021

2018


Core revenue (JPY BN)*

436

2019

International

-1.00

2020


Japanese domestic+25.6%

-3.0%

1800

-11.0%

600

582

569

516
2,315

1200

209

-3.6%

187

400

168

754
639

2,002

0

1,253

1,251

600

2018


2019

International

Var at const FX

1,251

2020


+5.6%

200

Japanese domestic

+1.9%

+7.9%

0

2022

2021


Consolidated+18.0%
800+13.3%

-0.6%



2

+15.6%
2400

2022

2021

Adjusted operating profit (JPY BN)*2

Consolidated

+4.8%

385

2018


341

2019

International

Var at const FX

341

2020


+3.2%

Japanese domestic

+7.3%

2022

2021


Consolidated+22.8%+8.2%*1 Based on internal estimates excluding China*2 The year on year variances from 2018 to 2020 of core revenue and adjusted operating profit are calculated based on the sum of the Japanese domestic andinternational tobacco businesses. From 2022, we consolidated the tobacco business, and 2021 figures are adjusted as well

Sustainability journey

060

2019

2021

Tobacco businesssustainability targets
issuedTobacco business updates
its Sustainability Materiality
and related priorities

2018

2020

2022

Gap assessment against
TCFD recommendations

3rd party verificationof tobacco businesssustainability targets

GHG emissions reduction
targets validated by SBTi

Japan Tobacco Inc. Integrated Report 2022

0.8

83% of our volume wascovered by Agricultural
Labor Practices program+0.6pp

0.4

1.75

446

428
150

1.2

7.25

300

800

+1.3pp

+8.2%

527

4.50
1600

Share
of top 30 markets
1.6

2022 variance vs. PY
10.00

+0.7%

600

Share of market-0.5%
Total volume+0.2pp0.0Core revenue

AOP

In 2022, the tobacco business fully delivered on its role as the
profit growth engine for the JT Group, overcoming numerous
challenges including the Russia-Ukraine war and the semiconductor supply shortage limiting our HTS expansion plans.
Our share gains bolstered our business with total volume
declining by only 0.5%. This performance was fueled bya limited combustibles volume decline of 0.7%, outperforming the estimated industry decline, combined withdouble-digit RRP volume growth. GFB volume grew by 1.9%,
mainly driven by Winston and Camel, which grew by double
digits in 30+ markets.

Total*2

In combustibles, we grew share 0.6 percentage points acrossour top 30 markets. In cigarettes, we grew our share in the
mid-price segment, where Winston continued to register
gains, and in the value price segment, where Camel kept its
growing momentum. In FCT, we strengthened our leading
position, notably with Winston, Camel, and Sterling in the
U.K. GFB were a key contributor to share gains, growing 1.3
percentage points and registering a new record-high share.

Price/Mix

Coupled with solid pricing, this performance drove ourstrong top-line growth, resulting in a robust adjusted operating profit increase.

135

We began the year with the One Tobacco integration,
unifying our tobacco businesses and building a stronger
and more united organization. The drive and energy of ouremployees around the world was a fantastic success driver.
The One Tobacco integration consolidated our expertise andknowledge globally, established greater collaboration andfaster decision-making and further enhanced our businessfundamentals.

45

2022 results

2030 targets

Water use reduction

23%

15%*5

Packaging recyclability

82%

100%

GFB*3

Our consumer focus, strong execution and excellent
engagement with the retailers and distributors delivered
another year of market share gains in the combustibles
category globally, and in HTS in Japan.

Importantly, RRP was our fastest growing category in termsof volume, albeit from a small base, as we made significant
inroads into the HTS segment in Japan.

In 2022, we also made progress towards our 2030 sustainability targets:

Combustibles*3

Price/Mixvariance (JPY BN)*4
180
+140
+112

90

0

2018-2021 average2022

In 2022 we generated 140 billion Japanese yen in favorable
price/mix variance to core revenues despite the challenging
environment.
This is above our 2018-2021 average and compensated forthe unexpected cost increases due to the macroeconomic
and geopolitical environments.
In terms of pricing, key markets of Japan, the Philippines,
Romania, Russia, Spain, Taiwan, Turkey and the U.K. registered a strong contribution. In terms of mix, the unwindingof COVID-19 trends, notably in the U.K., and ongoing downtrading, partially offset the pricing contribution.

*1 Core revenue and adjusted operating profit (AOP) at constant currency*2 Based on cigarettes + FCT + HTP*3 Based on cigarettes + FCT*4 Contribution to core revenue growth at constant currency. 2018-2021 price/mix assumed equal to the sum of international and domestic price/mix for illustrative
purposes*5 Against 2015 baseline year

Japan Tobacco Inc. Integrated Report 2022

061

BUSINESS andSTRATEGIESMATERIALITY andSUSTAINABILITYIDENTITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Tobacco business

RRP

Key markets

RussiaIn 2022, we moved from five to three clusters: Asia, withJapan, Taiwan and the Philippines as key markets; Western
Europe, with Italy, Spain and the U.K. as key markets; and EMA,
with key markets Romania, Russia and Turkey.

On March 10, 2022 we suspended new investments in Russia,
including the planned launch of Ploom X.

Combustibles SoM

2022 vs. PY

Asia
Japan

-0.9ppTaiwan+0.8ppThe Philippines+0.4pp

In 2022, total tobacco industry volume declined 3.7% following
excise tax-led price increases. Our total volume decreased by
2.6%, and by 1.9% when excluding inventory movements.
GFB volume declined by 0.6%, as the continued Camel performance almost fully offset the volume decline. Total market
share was almost flat at 36.6%, with share gains by Camel.
Core revenue at constant currency increased, driven by arobust price/mix contribution, more than offsetting a negative
volume variance.

As announced in 2021, we prioritize the allocation of
resources to HTS, with the other segments viewed as exploratory opportunities.

Priority

Exploratory

Brand

The majority of our key markets grew combustibles sharein 2022, while initiatives were taken in Japan, the U.K. andRomania to limit share losses.

The RRP category is composed of different segments including HTS (heated tobacco sticks), Infused (infused tobacco
capsules), E-Vapor and oral.

R&D

HTS

Infused

E-Vapor

Oral

NGP*

* Ongoing R&D of Next-Generations Products (NGP)

EMA*
Romania-0.3ppRussia+0.1ppTurkey+0.1ppWestern Europe
Italy+0.8pp

Spain+0.7pp

U.K.

-0.6pp

Japan
In 2022, total tobacco industry volume was down year on
year by 1.5%. In combustibles, volume decreased by 7.2%
due to growth of the RRP category, October 2021 excise
tax-led price increases and secular decline.
RRP grew to account for 34% of the total tobacco industry in
2022, driven by changing consumer behavior, new heated
tobacco product launches and marketing initiatives.
Our volume underperformed the industry due to consumers
shifting towards RRP and downtrading in cigarettes.
In cigarettes, we strengthened our portfolio in the value
segment with Camel Craft. In only six months since thelaunch, Camel became the #1 brand in the value segment
and exited 2022 as the #2 combustibles brand. We also
strengthened the #1 position of MEVIUS with the E-Series
expansion in the mid-price segment.

United Kingdom
In 2022, combustibles industry volume contraction was significant due to the unwinding of COVID-19 trends. However,when looking at the average decline over the last three
years, this was broadly in line with historical trends.
While our volume underperformed the industry, we maintained undisputed market leadership through a balanced
approach in managing share and profitability.
In combustibles, we strengthened our offerings in the value
segment to address incremental consumer demand bylaunching two new products: Mayfair Silver in cigarettes andBenson & Hedges Blue in FCT.
In RRP, we launched Ploom X in London at the end of
October 2022 and early consumer feedback is positive.
In 2023, we forecast total tobacco industry volume to decline by high single digits due to the continued recovery of
non-U.K.-duty-paid volume. Going forward, we are confident
to grow earnings through pricing while maintaining ourmarket share leadership.

2022 RRP performance
RRP volume increased 10.3% year on year to 7.9 billion stickequivalent units, as Ploom X provided a step change in our
HTS performance.
Ploom X is our first truly global product and our mostimportant launch in several years. In Japan, our first Ploom
S device was launched in 2019, followed by the second
generation in 2020 and a completely new device—Ploom
X—launched in August 2021. The JT Group has endeavoredon an accelerated journey with major upgrades along theway, both in relation to devices and to consumables.
The innovations of Ploom X, including our proprietary
HEATFLOW system, significantly improved the consumer
experience and translated into significant share gains in
the HTS segment in Japan, growing from 3.2% before therollout, to reach 8.2% in December 2022.

More importantly, retention rates have increased since thelaunch, highlighting the competitiveness of our offering.
This was enhanced by the introduction of new flavored
SKUs, promotions in response to aggressive offers prevailingin the market, best-in-class customer care, as well as the
improvement of Ploom Club.
Ploom Club is part of our e-commerce platform, offering apersonalized experience based on each adult consumer’s
preferences. A point-based system allows consumers to
unlock promotions and participate in initiatives accessible
only to club members. A subscription model is also available
and gaining traction.
We also launched Ploom X in London and created a joint
venture with Altria to commercialize Ploom in the U.S., theworld’s largest RRP market in terms of value. As part of theagreement, we also signed a non-binding memorandum of
understanding to explore commercial opportunities with
Altria for a wide range of RRP globally.

* Eastern Europe, Middle East, Africa & Americas

In RRP, the innovations of Ploom X translated into significant
share gains in the HTS segment, growing from 3.2% before
the rollout to reach 8.2% in December 2022.
In 2023, we forecast total tobacco industry volume to decline by approximately 2%, with the RRP category expected
to expand moderately.

062

Japan Tobacco Inc. Integrated Report 2022

Japan Tobacco Inc. Integrated Report 2022

063

IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Tobacco business

RRP outlook

to significantly scale up our competitiveness in HTS.

Reducing health impact through RRP

RRP sourcing

In the second half of 2023 we will accelerate the Ploom X
expansion plan bringing the number of markets where it ison sale to 14 by year-end.

These investments, that will exceed 300 billion Japanese yenover the 2023-25 planning period, also include exploratory
initiatives in Infused, E-Vapor, oral and NGP to identify scalable and sustainable business opportunities.

While it is still too early to understand the long-term
health effects of RRP, factors, including the elimination of
combustion and the lower level of toxicants found in thevapor, suggest there is potential for them to reduce the risks
associated with smoking.

We have established a dedicated supply chain for our RRP,
building strong supplier partnerships that support businessexpansion and meet the demands of our increasingly
sophisticated portfolio.

This builds on the successful rollout of Ploom X this April
in Italy, the biggest HTS market in Europe, and in Lithuania,
followed by Portugal in May.
Our expansion plan focus will be on established HTS
markets, where we can benefit from existing high levels of
category awareness among adult consumers. This focusedinvestment strategy will allow us to optimize our investments compared to markets where larger resources would
be required to inform and convert adult consumers to HTS.
In 2024, we intend to maintain the expansion pace withlaunches in 14 additional markets. Also, in 2025 we are planning to submit a Premarket Tobacco Product Application(PMTA) and Modified Risk Tobacco Product (MRTP) application in the U.S. through our joint venture with Altria.
This accelerated expansion plan is in line with our global tobacco strategy, which prioritizes HTS among RRP segments,
with the ambition to reach a mid-teens share of the HTS
segment in the key HTS markets in 2028*1.
Ploom X geographic expansion is just one pillar of our RRP
investment strategy. Equal focus is placed on enhancing ourinternal capabilities with strategic investments, product innovation, R&D, science, and consumer acquisition and retention,

064

Japan Tobacco Inc. Integrated Report 2022

In these segments, the aim is to gain better consumer
understanding, experiment with distinctive consumer
propositions and explore potential geo-expansion. For
example, in the second quarter we are launching our improved pod-system in the U.K. and Ireland, under the Logic
brand. In Oral, in May we launched Nordic Spirit as a testin the Philippines and we are planning to launch our new
nicotine pouch formula in the U.K. this year. In addition, we
will roll-out the next-generation of our infused products in
Q3 in Japan.
For NGP in particular, a central team will be in charge ofincubating new consumer-centric ideas, with the optionality
to promote them to exploratory if their business potential isproven.
All in all, we are confident in our ability to turn the RRP
category into the JT Group’s future profit growth engine,
supported by our ambition to reach breakeven in 2028*2.

That’s why we’re committed to ensuring that all our RRP
fulfill this potential. We pride ourselves on an open approachthat embraces scrutiny from consumers, regulators and thescientific community, and we regularly present our findings
at scientific conferences and in peer-reviewed journals.
Our approach is supported by the most up-to-date understanding of the subject and grounded in evidence-based
observations.
As part of our joint venture with Altria, we will combine ourscientific and regulatory expertise to jointly prepare a PMTA
and MRTP for the Ploom version to be launched in the U.S.
The parties currently expect to submit the PMTA and MRTP
by the end of 2025.
4Read more about the science behind RRP at www.jt-science.com.

In addition to our in-house production capabilities, wesource from different global manufacturers. These include
the world’s largest Electronics Manufacturing Service (EMS)
companies, which are renowned for their high quality andtechnology.
We are committed to carrying out social and environmental
due diligence in our RRP materials. We are a supporter
member of the Responsible Business Alliance (RBA) and fully
embrace its vision and mission.
RBA is the world's largest industry coalition dedicated tocorporate social responsibility in global supply chains. RBA
members commit and are held accountable to a common
Code of Conduct and utilize a range of RBA training andassessment tools to support continuous improvement in
the social, environmental and ethical responsibility of their
supply chains.
4Read more about our responsible procurement on JT.com.

*1 S hare of segment in key HTS markets, including Japan and Italy*2 B reakeven at brand contribution level representing gross profit less commercial
expenditure and before allocation of overheads

Japan Tobacco Inc. Integrated Report 2022

065

IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Tobacco business

Reduce our products’ impact on the environment

RRP return/collection scheme

We are committed to continuous improvement in our
approach to product and packaging sustainability.

RRP present new and specific challenges from an environmental perspective, such as electronic waste. Batteries andmetal parts from used devices are recyclable.

Targets: We committed to reducing the environmental impact of our products and packaging through design solutions, facilitating responsible collection and disposal, andconsumer awareness and education. We will reduce our
packaging (including plastic) and ensure that the remaining material is 85% reusable or recyclable by 2025, rising
to 100% by 2030. In total, recycled content will account for
20% of our tobacco business packaging by 2025.

To encourage consumers to safely recycle or dispose our
products, we inform them on how to dispose their old
products in a responsible and sustainable manner. In all
our Ploom markets, consumers have access to responsible
disposal of electronic devices and can drop their old device
in Ploom stores and pop-up stores.
In Japan, we launched a program in 2019 to collect used
Ploom devices, capsules and cartridges via convenient
collection boxes at around 300 shops in Tokyo. In 2020,
this program was extended to include additional tobacco
players and it was launched throughout Japan in 2021. Since
then, around 1,200 collection points have been establishedin all 47 prefectures.

Total sustainability investments in materials and packaging
in 2022 amounted to more than 4 millions U.S. dollars.
In 2022 we also introduced a new sustainability governancemodel with a focus on product stewardship, circularity andwaste, which covers both products and packaging. It aims to
manage the safety and environmental and social impact ofour products and their packaging at all stages of the product life cycle, avoiding waste through product circularity or
reducing it by operating an effective waste management
system.
4Read more about improvements of our packaging and about our approachto circularity, post-consumer waste management and anti-littering on JT.com.

Continuing efforts on materials optimization and improving
design of packaging structures in 2022, we achieved 82%
packaging recyclability and 18% of recycled content in total
packaging materials.

RRP materials and packaging

Sustainability priorities
We strongly believe that sustainability is everybody’s
business, and that we will all play our part in leading thebusiness towards a better future.

At the same time, we will continue to ensure that we upholdthe highest standards of human rights and environmental
due diligence throughout our value chain. We are working
with our grower communities and suppliers to address
Greenhouse Gas (GHG) emissions and make sure that people, from employees to farmers, can thrive.

066

Japan Tobacco Inc. Integrated Report 2022

Conventional and Reduced-Risk Products

HigherOur highest priorities are linked to our product impact andstrengthen our commitment to widely provide consumers
RRP offerings. This year, we also put an additional focus on
product stewardship, circularity and waste—guiding ourdevelopment teams to make environmentally sustainable
design decisions.

Importance to the JTI’s stakeholders

Through this review, we engaged with over 150 key stakeholder groups—financial institutions, civil society organizations, suppliers, consumers. More than 450 employees also
took part in sharing their views and expectations.

These will be achieved by increasing the recycled content
and recyclability of our packaging and reducing the amountof plastic we use.

Consumer health
Climate change
Product stewardship,
circularity and waste
Sustainable farming practices
and farmer livelihoods
Human capitalmanagement

Lower

In 2022, the tobacco business conducted a thorough materiality review that identified the long-term sustainability
priorities.

We are working to reduce the environmental impact of our
products and their packaging. We are striving to use moreenvironmentally friendly materials and addressing the issueof litter with waste prevention measures such as improving
the design, composition and recyclability of our products
and packaging.

Lower

HigherImportance to the JTI’s business success

Japan Tobacco Inc. Integrated Report 2022

067

IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Tobacco business

1. Reducing the amount of material
We leveraged synergies with our combustible products andapproved in 2022 a thinner polypropylene overwrap for
Ploom refills that will be rolled out in our markets as of 2023.
2. Improving packaging recyclability
We are assessing alternatives to replace the aluminum inner
liners of Ploom refills with paper inner liners while maintaining the same level of barrier protection required to maintainproduct quality.

We continue looking into adding recycled content in our
packaging while securing the quality standards of our
products.
We have developed an internal design guidebook for RRP
devices with circular principles to help our development
teams make environmentally sustainable design decisions.

We continuously investigate innovative solutions to end
the use of plastic overwraps in our devices’ boxes and toincrease the recyclability of our packaging.

The main component of Ploom heated tobacco stick filters
is cellulose acetate. We are committed to looking for better
alternatives and are actively investigating innovative filter
solutions that will meet consumers’ expectations, regulatory
demands and operational constraints while reducing theenvironmental impact.

3. Integrating recycled content
Since 2022, all Ploom refill shipping cases produced in
Poland are made with 100% recycled content.

In parallel, we have conducted Ploom product and packaging life cycle assessments to help us better measure Ploom’s
environmental impacts and identify improvement areas.

Agricultural Labor Practices

Our approach to sourcing

Our Agricultural Labor Practices program (ALP) allows us
and leaf merchants to identify potential labor challenges
on tobacco farms and implement improvements. It also
contributes to the social aspects of grower communities
and supports sustainable agriculture overall.

We source tobacco through two supply models either
directly contracted growers or tobacco leaf merchants, eachsupplying approximately 50% of the total volume.

Targets: We committed to implementing ourAgricultural Labor Practices (ALP) program in all sourcing countries by 2025.

Key progress in 2022
In 2022, we strengthened implementation of our SCDD
process. All our contracted growers have now implemented
our Agricultural Labor Practices. We conducted Supply
Chain Impact Assessments (SCIA) in Brazil and Tanzania withour contracted growers, and in collaboration with othermanufacturers and tobacco leaf merchants in Indonesia.

Improving farming practices and farmer livelihoods
Our leaf sustainability framework, driven by our leaf Supply
Chain Due Diligence (SCDD) process, takes into accountsocial, environmental and economic impacts.

4Read more about our SCDD on JT.com.

Sustainable Tobacco Program (STP)
JTI is one of the seven global manufacturers participating in
the Sustainable Tobacco Program. Two manufacturers joined
the program in 2022. Six focused pilot assessments were
executed in 2022 in six countries. Most of the action plans havebeen submitted by the leaf merchants and progress will bemonitored.

Addressing child labor
In 2022, we developed a new holistic child labor elimination
framework in which ARISE (Achieving Reduction of Child
Labor in Support of Education) plays a key role to preventand remediate child labor risks. We expanded ARISE in 2022
by setting up a new program in Ethiopia. Since 2011 theprogram has withdrawn or prevented 65,317 at-risk children
from child labor and enrolled them in education.

Tackling climate change through Greenhouse Gas emissions
reduction
We are a global company and climate change represents
a real threat to the future of our business, as well as tocommunities all around the world. We are working hard
to reduce our contribution to climate change and help toaddress this global issue.
Our initiatives include improving energy efficiency, increasing the use of renewable energy and prioritizing alternative
fuels and vehicles.

In support of this, by 2030, we will reduce emissions fromour own operations by 47% and emissions associated withleaf and non-tobacco materials by 28%, against a 2019 baseyear. Based on 2022 results, we reduced GHG emissions fromour own operations by 16% and from leaf and non-tobacco
materials by 12%.

Across our value chain, we work with our tobacco growers
to reduce emissions associated with tobacco growing andcuring, we engage with our suppliers to reduce emissions,and we monitor external factors and innovations intechnology.
Targets: We committed to being Carbon Neutral for ourown operations by 2030. We also aim to achieve NetZero Greenhouse Gas (GHG) emissions for our entire
value chain by 2050.

068

Japan Tobacco Inc. Integrated Report 2022

4
Read more about the JT Group’s environmental initiatives on P. 78 and ourprograms and initiatives specifically related to our tobacco business on JT.com.

Japan Tobacco Inc. Integrated Report 2022069