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Sustainability

02

Philip Morris International — ESG KPI protocol 2022

Contents
02

Our approach to reporting04

Key definitions

06

Basis for preparation and reporting
PMI’s Sustainability Index

08

Product Sustainability

10

Operational Sustainability

22This document at a glance
In 2021, PMI published its inaugural Sustainability KPIProtocol (the Protocol), which explained PMI’s approachto reporting and described the newly introduced PMI
Sustainability Index (the Index). The first and second editionsof the Protocol described how the 19 key performanceindicators (KPIs) that comprise the 2022–24 Sustainability
Index were selected and weighted, and how the Index
is used to measure and report on progress towards
achieving our 2025 Roadmap on an annual basis.
This document is the third edition of the Protocol and reflects
the most up-to-date information regarding our approachto reporting. In 2023, a new Sustainability Index 2023–25
was introduced. It has 16 KPIs; most are the same as in
the 2022–24 Sustainability Index, guided by PMI’s 2021
sustainability materiality assessment and 2025 Roadmap.
The basis for preparation section incorporates the mostrecent description of the definition, scope, calculation
methodology, and related data management for each KPI
that belongs to the Indexes 2022–24 and 2023–25 (further
commonly referred as the Index). This Protocol is applicablefor the FY 2023 reporting period and should be regarded asa framework and reference guide to help ensure consistency
and completeness in our reporting. Further, it should beread in conjunction with PMI’s Integrated Report 2023,
which provides a description of PMI’s 2023 performance.

This Protocol will be reviewed periodically to reflect relevant
developments, such as changes in business priorities,
revised methods of measuring or capturing data, stakeholder
feedback, and developments related to mandatory andvoluntary reporting frameworks and standards.
©2024 Philip Morris International, Inc. All rights reserved

Our Approach

Key Definitions

03

Preparation & Reporting

Overview

Overview

For further information on the structure of
the Indexes, please refer to PMI.com.

Overview

This Protocol establishes a bespoke framework
to measure progress on our most material
sustainability topics. It clearly defines KPIs
that make the connection between ourcompany’s purpose, strategic direction, financial
performance, and environmental and social
considerations. By publishing this Protocol,
we aim to provide transparency on how wedefine key metrics we use to measure how ourcompany is progressing toward achieving its
purpose and creating value for its shareholders,
as well as other stakeholders.
The introduction of PMI’s first Sustainability KPI Protocol
in 2021 permitted the development of a bespoke
Sustainability Index (the Index) to measure progress
toward our 2025 goals.
The Protocol ensures the Index comprises measurable,comparable, and verifiable KPIs, which allows
shareholders and other stakeholders to assess andtrack progress in a consistent manner over time.
Moreover, this objective, quantifiable, and robust
data-driven approach to measuring sustainability
performance allows us to link it to our company’s
long-term executive compensation scheme as of the2022–2024 performance share units (PSUs) performancecycle, and going forward. In addition, the Protocol
offers the necessary basis to expand the scope of ourexternal verification, helping build preparedness for
anticipated regulatory requirements, including theneed for external verification, increasing shareholders’and other stakeholders’ confidence in our reporting.

This document reflects the latest information regarding
the definition, scope, calculation methodology, andrelated data management for each of the KPIs thatcomprise the Index. Within this context, we continue torefine our approach and systems to manage nonfinancial
data and enhance their robustness and reliability. This
enables us to ensure the nonfinancial data we disclose
are reliable, comparable, and meaningful, allowing
shareholders and other stakeholders to assess andtrack progress in a consistent manner over time.

In the coming years, we seek to make this standards
available online, independent from our Index or
annual Sustainability KPI Protocol and review
regularly. Further, we plan to expand to cover alarger set of our priority metrics, notably those thatare bespoke to PMI and are linked to PMI’s mostmaterial sustainability topics, but not covered byexternal reporting requirements or rating agencies.

We recognize that, unlike financial accounting
standards, currently there are no globally recognizedpractices for measuring and evaluating nonfinancial
performance. On the other hand, we see anincreased number of geographies where nonfinancial
reporting becomes standardized and mandatory.

Jennifer Motles
Chief Sustainability Officer“As sustainability matures and gains importance inside and outside ourcompany, the question of how to measure sustainability performance issomething that remains top of mind. There is a need for greater transparency,
more robust methodologies, and better clarity on definitions and assumptions.
We have long expressed our support for more rigor in sustainabilityrelated reporting and certainly welcome recent developments leading
to more consistency in standards under strong governance frameworks.
Our intention in developing the concept of a Sustainability KPI Protocol
was to contribute toward the measurement of sustainability performance,noting that metrics are often unique to each company’s strategy andmateriality. PMI’s sustainability KPI Protocol and Sustainability Index act
as a tool to engage employees at all levels of the organization, support
program owners by ensuring key sustainability initiatives are prioritized,
and act as a vessel through which we continue to build capabilities
within our finance, IT, and risk functions regarding the management ofsustainability performance. Externally, it allows us to communicate withrigor, accuracy, and credibility our annual progress, using a robust, datadriven approach to managing our most material sustainability-related risks.”

04

Overview

Our Approach

Key Definitions

05

Preparation & Reporting

Our approach to reporting
Reporting process

Reporting period

Data integrity

PMI measures and reports sustainability performance
primarily through its annual Integrated Report, available on
PMI.com, and on an ad hoc basis in other external
communications.

The reporting period for our Integrated Report is aligned
to our financial calendar and extends from January 1
to December 31 of any given year, unless otherwise
stated in the selected KPIs’ details and indicated withappropriate footnote in PMI’s Integrated Report.

To ensure that the data we report are measured
consistently, from year-to-year, with a clearly defined
scope and calculation methodology, the KPIs described in
the Protocol are supported by detailed internal standards.

Consistent with our sustainability materiality assessment
conducted in 2021 and refreshed in 2023, our reporting
includes data points related to all our most material
sustainability topics, including but not limited to the
KPIs described in further detail in this document. To
prepare our annual Integrated Report, data is collected
through a central repository and approved by dataowners through a system workflow prior to publication.

Scope
Data and information reported in our annual
Integrated Report cover all PMI subsidiaries
globally unless explicitly stated otherwise.
Newly acquired subsidiaries, partially or fully
owned by PMI, are included in our reporting assoon as the appropriate processes and systems
are implemented to enable consistent datacollation and group-level consolidation.
Additionally, operations or products related tojoint ventures, partnerships, or license agreements
are excluded from the scope of all performancemeasures, unless otherwise indicated.
Following the deconsolidation of PMI’s Canadiansubsidiary, Rothmans, Benson & Hedges Inc.
(RBH), effective March 22, 2019, PMI reports thevolume of brands sold by RBH for which other
PMI subsidiaries are the trademark owner. These
include HEETS, Next, Philip Morris, and Rooftop.
Reginaldo Dobrowolski
Vice President and Controller

Restatement of nonfinancial data
To ensure consistency, comparability, and accuracy in
our year-on-year reporting, we may restate previously
reported data to reflect KPI definition, methodology, or
scope changes, if the impact is material. Restatements
are considered material if they improve quality of data
and facilitate performance comparison, account forchanges in the company’s footprint, or if a material
variance in prior years’ reported data is identified. Prior
to restating historical data, both the business ownerand sustainability controlling group are accountable forassessing the materiality of the change and approving
the restatement. Whenever we restate historical
data, we provide an appropriate footnote explaining
the change in PMI’s annual Integrated Report.

Uncertainty and estimates
We make every effort to capture all relevant data
globally, often working with our partners along ourvalue chain to collect reliable primary data. However,it may not always be feasible or practical to do so,
particularly for data connected with activities that areoutside our direct or indirect control. This Protocol
therefore contains descriptions where such occasions
require us to make estimates and assumptions.

“Our nonfinancial disclosures have been evolving from initiallybeing voluntary to become driven by mandatory regulatory
requirements and external stakeholder expectations. To address
this, we have begun collaborating with our Sustainability
function to develop a robust internal control framework for
nonfinancial reporting, leveraging our well-established existing
internal controls practices and standards. The partnership
between our Internal Controls and Sustainability functions aims
to embrace a notion of “assurance-by-design” to establish fromits onset trustworthy and transparent nonfinancial disclosures.”

In 2023, we continued working with our Internal Controls
function to review these standards and strengthen our
KPI definitions, data management processes, and controls.
Each of these standards is assigned an owner, who is asubject-matter expert from the relevant business function
and is responsible for ensuring the standards are reviewed
and updated periodically to reflect any significant changes.
The recently established Nonfinancial Disclosures
Assurance team has conducted independent audit reviews
and delivered strategic guidance on preparing for externalverification through holistic “Auditability Principles”
to support our commitment to transparency andaccountability. The “Basis for Preparation and Reporting”
section of this Protocol summarizes these internal
standards and is intended to provide external stakeholders
with transparency as to our reporting methodology.
This document shall be reviewed periodically toreflect any material updates to internal standards.
We will build on this foundation in the coming years,
further embedding the management of nonfinancial risks
and data across our business functions. This will allow us
to expand the number of our sustainability metrics being
externally assured and further integrate sustainability
considerations into business decisions and processes.

Marie-Pauline Lauret
Chief Risk Assurance Officer

Independent Verification
At PMI, we recognize the important role thatexternal reviews of our data disclosures play in ourreporting process. Such reviews not only increase
the credibility of our reporting but support us
in continuous improvement of our internal data
management processes. In line with regulatory
developments, we will expand the coverage ofexternal verification on our nonfinancial metrics,
focusing on our most material sustainability topics.
For the 2023 reporting year, a selection of our
financial and nonfinancial Business Transformation
Metrics (read more here), indicators related toenvironmental health and safety (EHS) of ouroperations, and our greenhouse gas (GHG) emissions
data were externally assured (see Scope 1 and 2, andScope 3 assurance reports on PMI.com and here). The
primary reason we have started with the assurance of
these metrics is that they either pertain to our mostmaterial topics or we have significant historical data
which has enabled us to develop robust reporting
systems. Moreover, the Business Transformation
Metrics have been consistently reported externallyin our Integrated Report and investor materials
and used in our Business Transformation-linked
Financing Framework published in 2021.

“Where our specific sustainability-related risk management
practices were initially deployed on a voluntary basis,recent developments in response to emerging regulatory
requirements demanded further collaboration among
our sustainability and risk teams. In 2023, we continued
seeking ways to leverage our enterprise risk management
practices to embed environmental and social matters,
and we set up a specialized team to support anddeliver assurance on nonfinancial disclosures.”06

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

07

Preparation & Reporting

Key definitions
Adult – A person who is of legal age to purchase tobaccoor nicotine- containing products or, where no such age
is defined in applicable law, is at least 18 years old.
Aerosol – Gaseous suspension of fine solid
particles and/or liquid droplets.
Agricultural Labor Practices (ALP) code – PMI’s
code which defines the labor practices, principles, andstandards PMI expects from all tobacco farms with which
PMI or PMI third-party leaf suppliers have contracted
to grow tobacco. Further details can be found here.
Combustible tobacco products – The term
PMI uses to refer to cigarettes and othertobacco products that are combusted.
Combustion – The process of burning a substancein oxygen, producing heat and often light.
Contracted employee – We define a contracted
employee as an employee who is under the directsupervision of PMI employees but employed
by a temporary employment agency.
Contractor – We define a contractor as a person
employed by 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 who is often involved in project-specific or
outsourcing arrangements.
E-vapor product – Electrical product that generates anaerosol by heating a nicotine or non-nicotine containing
liquid, such as electronic cigarettes (or “e-cigarettes”).
Good Agricultural Practices (GAP) – A set of internallydeveloped principles and measurable standards that serve
as a guideline for all those who grow and supply tobacco
to PMI, organized under four pillars: Governance, Crop,
Environment, and People. The Agricultural Labor Practices(ALP) code forms the people pillar of the GAP code.
Further details can be found here.
Heated tobacco units or HTUs – The term we use torefer to heated tobacco consumables, which include thecompany’s BLENDS, DELIA, HEETS, HEETS Creations,HEETS Dimensions (defined collectively as HEETS), SENTIA,TEREA and TEREA CRAFTED, and TEREA Dimensions, aswell as the KT&G-licensed brands, Fiit and Miix (outside ofSouth Korea). HTUs also include zero-tobacco heat-notburn consumables (LEVIA).

Integrated Production System (IPS) – PMI sources
tobacco directly through our leaf operations or throughthird-party leaf suppliers who contract farmers directly.
IPS refers to a set of processes and ways of working
between third-party leaf suppliers/PMI leaf operations
and contracted farmers, from the start of crop planning
until tobacco is processed and packed. Importantly, IPS
requires third-party leaf suppliers to have a commercial
contract with farmers; tier 2 farmers (not directly
contracted) or tobacco purchased on the auction floor is
outside the scope of IPS. IPS also provides technicalsupport, provision of crop inputs and financial services tocontracted farmers.
Markets – The taxonomy used in our reporting is alignedwith PMI’s financial reporting systems. For the purposesof reporting shipments and financial results, multiple small
countries may be grouped into one market (e.g., market
France includes countries France and Monaco, and market
Switzerland includes countries Switzerland andLiechtenstein), or one country may be split into multiple
markets (e.g., country Spain is reflected as markets: Spain
Mainland, Canary Islands, and Ceuta & Melilla).
Other tobacco products (OTP) – Primarily include
roll-your-own and make-your-own cigarettes, pipe
tobacco, cigars, and cigarillos, and does not include
smoke-free products.
Performance share units (PSUs) – A type of long-term
variable equity award which are intended to motivate our
executives to align incentives that enhance sustainable
shareholder value and strengthen the Company over thelong term. For further details see our proxy statement.
PMI – Refers to Philip Morris International Inc. and its
subsidiaries. Trademarks and service marks that are theregistered property of, or licensed by, the subsidiaries of
PMI, are italicized.
PMI heat-not-burn products (also referred to as PMI
heated tobacco products) – Include licensed KT&G
heat-not-burn products.
PMI leaf operations – Refer to our PMI affiliates with avertically integrated tobacco leaf supply chain that
contract tobacco farmers directly.

Reduced-risk products or RRPs – The term PMI uses
to refer to products that present, are likely to present, or
have the potential to present less risk of harm to smokers
who switch to these products versus continuing smoking.
PMI has a range of RRPs in various stages of development,scientific assessment, and commercialization. PMI’s
RRPs are smoke-free products that contain and/or
generate far lower quantities of harmful and potentiallyharmful constituents than found in cigarette smoke.
Responsible Sourcing Principles (RSPs) – A set ofsustainability principles which PMI expects all its
suppliers to implement diligently. These principles arealigned with globally recognized standards, such as
the UN Guiding Principles on Business and Human
Rights, the Ten Principles of the UN Global Compact,
and the relevant International Labor Organization (ILO)
Conventions. Further details can be found here.
Smoke – A visible suspension of solid particles, liquid
droplets, and gases in air, emitted when a material burns.
Smoke-free product consumables – The term PMI uses
to refer to heated tobacco units used with heat-not-burnproducts, e-vapor disposables, cartridges containing
e-liquids that are used for e-vapor products, and oral
nicotine products including snus and nicotine pouches.
Smoke-free product devices – The term PMI
uses to refer to its electronic smoke-free devices(heat-not-burn (HNB) and e-vapor), to be usedwith smoke-free product consumables.
Smoke-free products or SFPs – The term PMI
primarily uses to refer to all of its products that are
not combustible tobacco products, such as heat-notburn, e-vapor, and oral nicotine. In addition, SFPs
include wellness and healthcare products as well as
consumer accessories such as lighters and matches.

Sustainable Tobacco Supply Chain (STSC) framework– This approach, introduced in 2022, focuses on thefull life cycle of tobacco production and targets actions
toward the tobacco we purchase and use in our products.
It introduces the concept of eligible farm base, apreselection of farmers from PMI’s suppliers’ farm base,who may supply tobacco to PMI, as defined below.
1. Total farm base of contracted farmers: All contracted
tobacco farmers who are by default subject to our ALP
program and thus farm-by-farm monitoring. Only asubset of these contracted farmers end up supplying
tobacco used in PMI’s packed products, with theremainder providing tobacco to other companies.
2. Eligible farm base of contracted farmers: The eligible
farm base is composed of that subset of tobacco
farmers who have been preselected by suppliers basedon their compliance with PMI’s ALP Code requirements.
This preselection takes into consideration farmers’ past
year performance related to addressing child labor orforced labor issues, minimum wage payment, decent
accommodation for workers, and access to personal
protective equipment (except for newly contracted
farmers for which such information is not available).
3. Contracted farmers supplying tobacco to PMI: This
corresponds to the portion of the eligible farm basewhose tobacco is, ultimately, included in PMI’s products.
Wellness and healthcare products – Primarily consistof products associated with inhaled therapeutics andoral and intra-oral delivery systems that are includedin the operating results of PMI’s new Wellness and
Healthcare business, Vectura Fertin Pharma.
For further terms and acronyms used in ourreporting, please see the glossary on pages 208
to 212 of PMI’s 2023 Integrated Report.

08

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

09

Preparation & Reporting

Basis for preparation and reportingof PMI’s Sustainability Index (2023)
This basis for preparation and reporting provides
external stakeholders with a summarizedversion of PMI’s internal standards for each
KPI included in PMI’s Sustainability Index.

This document has been structured in alignment with
the PMI Sustainability Index; the KPIs are organizedby performance measure (i.e., Product Sustainability
and Operational Sustainability) and linked to theircorresponding strategies.

Purposefully phase out cigarettes

P R O D U C T I M PAC T

These internal standards have been developed to ensurealignment on how we define success, measure progress,and ensure accountability and governance. Accordingly,
the content below includes relevant definitions, KPI
descriptions, scopes, calculation methodologies, data
estimates and assumptions, data collection processes,
data management and governance, and data verification
details for each KPI.

Maximize the benefits ofsmoke-free products

Seek net positive impact in wellness
and healthcare

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

Foster an empowered andinclusive workplace

Improve the quality of life ofpeople in our supply chain

Tackle climate change

Operational Sustainability performance◊ Indicates metric has been subject to external verification in 2023.

2022–24

Yes

Adjusted net revenues ratio (smoke-free/total)◊

2022–24/2023–25

Yes

Number of markets where smoke-free products are available for sale◊

2022–24/2023–25

Yes

Proportion of markets where smoke-free products are available for sale thatare low- and middle-income markets◊

2022–24/2023–25

Yes

2022–24

Yes

2022–24/2023–25

No

2022–24

n/a

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

2022–24/2023–25

n/a

Proportion of shipment volume covered by markets with end-of-lifetake-back programs in place for smoke-free consumables

2022–24/2023–25

No

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

2022–24/2023–25

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

2022–24/2023–25

n/a

Proportion of women in senior roles

2022–24/2023–25

No

Proportion of PMI employees who have access to structured lifelong
learning offers

2022–24/2023–25

No

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

2022–24/2023–25

No

Prevalence of child labor among contracted farmers supplying tobacco to PMI

2022–24/2023–25

No

Proportion of contracted farmers supplying tobacco to PMI who makea living income

2022–24/2023–25

No

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

2022–24/2023–25

Yes

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

2022–24

Yes

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

2023–25

Yes

2022–24/2023–25

No

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

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

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

Product Sustainability performance

Preserve nature* This reflects if Swedish Match performance is included in the KPI calculation:
Yes – included; No – not included; n/a – not applicable when the KPI is not pertinent toSwedish Match (e.g., Swedish Match does not have smoke-free devices).

Swedish Matchinclusion in 2023
performance*

Proportion of shipment volume covered by markets with youth accessprevention programs in place in indirect retail channels

Reduce post-consumer waste

This section provides an overview of the Sustainability
Index 2022–24 and 2023–25 structures, including
the assignment of each of the KPIs describedin this document to respective indexes.
PMI is gradually working on including newly
acquired subsidiaries in reporting as soon as theappropriate processes and systems are implemented
to enable consistent data collation and group-level
consolidation. The respective Sustainability Index
aspirations gradually incorporate Swedish Match– reflecting our process readiness of integrating
the data of that recently acquired subsidiary.

Sustainability Index/PSU
Cycle

Sustainability Index

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

10

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

11

Preparation & Reporting

Purposefully
phase out cigarettes

Product Sustainability
Purposefully phase out cigarettes❷ Adjusted net revenue ratio (smoke-free/total)

Scope

KPI description

Scope

PMI is committed to developing better alternatives
to cigarettes and accelerating smoking prevalence
decline by providing broad access to sciencebased smoke-free products for adult smokers who
wouldn’t otherwise quit smoking, while purposefully
working to phase out cigarettes. A key measure
to track progress in that regard is the proportionof our total shipment volume represented bysmoke-free consumables shipment volume.

Included All shipment volumes of consumables(smoke-free and combustible tobacco products) that canbe expressed in cigarette equivalent units, and arerecorded within the reporting period, to all PMI markets.

PMI is transforming its business, aiming to phaseout cigarettes and shifting toward becoming asmoke-free product company while also expanding
into a broader lifestyle, consumer wellness, andhealthcare company. The proportion of revenue
we derive from smoke-free products is a key
indicator of the Company’s transformation.

Included Net revenues includes all those recognized within
the reporting period by PMI as disclosed in our Annual
Report on Form 10-K and Year-End Earnings Release.

Combustible tobacco product shipment volume Shipment
volume of PMI combustible tobacco products.
Total shipment volume Includes PMI’s combustible
tobacco product shipment volume and smoke-free productshipment volume.

Smoke-free product shipment ratio (smoke-free/total)
is calculated as:=(

Smoke-free productshipment volume(billion stick equivalent)
Total
shipment volume(billion stick equivalent))

Definitions

X 100%

Estimates and assumptions PMI shipment volume isreported based on the cigarette equivalent unit of eachproduct. We convert OTPs and smoke-free productconsumables into cigarettes equivalent by predefined
conversion rates.

Shipment volumes data are recorded in PMI’s financial
systems on a monthly basis.
Data Verification The smoke-free product shipment ratio(smoke-free/total), as published in PMI’s 2023 Integrated
Report, has been assured by PwC (limited assurance).

Net revenues related to smoke-free products Represent
operating revenues from the sale of non-combustible tobacco
products, including shipping and handling charges billed tocustomers, net of sales and promotion incentives, and excise
taxes, if applicable. These net revenue amounts consist of thesale of all of our products that are not combustible tobacco
products, such as heat-not-burn, e-vapor, and oral nicotine, also
including wellness and healthcare products, as well as consumer
accessories such as lighters and matches.
Net revenues related to combustible tobacco products The
operating revenues generated from the sale of these products,
including shipping and handling charges billed to customers, netof sales and promotion incentives, and excise taxes. These net
revenue amounts consist of the sale of our cigarettes and othertobacco products that are combusted. Other tobacco products
primarily include roll-your-own and make-your-own cigarettes,
pipe tobacco, cigars and cigarillos and do not include smoke-free
products.

(

Total adjusted net
revenue (billion USD))

X 100%

Data management
For further details on our reporting of revenues, pleaserefer to our 10-K filings and Investor Relations materials.
See Investor Relations website
Data Verification The adjusted net revenue ratio (smokefree/total), as published in PMI’s 2023 Integrated Report,
has been assured by PwC (limited assurance).
See the independent practitioner’s limited assurance
report on pages 203 to 205 of PMI’s Integrated
Report 2023

Preserve nature

Total adjusted net revenue Refers to the combined total of
net revenues related to smoke-free products and net revenues
related to combustible tobacco products.

=

Adjusted net revenues
related to smoke-free
products (billion USD)

Tackle climate change

See the independent practitioner’s limited
assurance report on pages 203 to 205 of
PMI’s Integrated Report 2023

Adjusted net revenue Management reviews net revenues onan adjusted basis, which excludes special items that may distort
underlying business trends.

Adjusted smoke-free net revenue ratio is calculated as:

Improve the qualityof life of people in our
supply chain

Data management

Net revenues The term refers to PMI’s operating revenues fromthe sale of our products, including shipping and handling charges
billed to customers, net of sales and promotion incentives, andexcise taxes if applicable.

Calculation methodology

Foster an empowered
and inclusive workplace

Smoke-free product shipment volume Shipment volumeof PMI smoke-free product consumables that can be expressedin cigarette equivalent units, such as heat-not-burn, e-vapor,and oral nicotine.

Calculation methodology

Excluded Special items.

Reduce postconsumer waste

Definitions

Excluded Shipment volumes of smoke-free devices,and wellness and healthcare products.

Seek net positive
impact in healthcare
and wellness

KPI description

Maximize the benefitsof smoke-free products❶ Smoke-free product shipment ratio (smoke-free/total)

12Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

13

Preparation & Reporting

Purposefully
phase out cigarettes

Maximize the benefits of smoke-free products❹ Proportion of markets where PMI smoke-free products areavailable for sale that are low- and middle-income markets

Scope

KPI description

Scope

The indicator refers to the number of markets where
PMI smoke-free products are available for sale toadult consumers, wherein both the PMI smoke-free
product consumables and PMI smoke-free productdevices (for platforms which require both to operate
and be used as intended) are commercialized.

Included All markets that commercialize at least one variantof PMI smoke-free products and all distribution channels
are considered.

To track progress on broadening access to PMI
smoke-free products in different geographieswith varying levels of income, PMI reports on the
proportion of low- and middle-income markets
where PMI smoke-free products are available forsale, out of the total number of markets where
PMI smoke-free products are available for sale.

Included All markets where PMI smoke-free products
are available for sale (see KPI number 3), considering theexclusion below.

Available for sale When PMI products are available forgeneral sale in the market, through direct retail, indirect retail,or e-commerce.

In-market sales Sales to the retail channel, depending on themarket and distribution model.

The count of markets where smoke-free products areavailable for sale, based on the market status at the end ofeach calendar year (December 31). Markets are reported
as per the taxonomy defined in PMI’s financial reporting
system and aligned to our Annual Report on Form 10-K.

Data management
In-market sales as reported in the PMI’s volume reporting
system. The list of markets where PMI smoke-free products
are available for sale is first validated by each region, andthen approved centrally.
Data Verification The number of markets where PMI
smoke-free products are available for sale, as published in
PMI’s 2023 Integrated Report, has been assured by PwC(limited assurance).

Definitions
Low- and middle-income markets Markets comprising countries
classified by the World Bank as low- and middle- income
economies based on Gross National Income per capita; or where
no World Bank classification exists, those with Gross National
Income per capita below the World Bank low- and middleincome country threshold.

Proportion of markets selling PMI smoke-free products
which are low- and middle-income markets is calculated as:=(

Markets where PMI smoke-free
products are available forsale which are low- andmiddle-income markets
Total number of markets where
PMI smoke-free products
are available for sale)

X 100%

Estimates and assumptions In case the Gross National
Income per capita parameter is not available, PMI may
determine alternative parameters as a substitute (e.g., GDPper capita). The classification of each market between
income levels is performed based on the latest available
World Bank report.

Data management
As per above, reporting on the number of markets
where PMI smoke-free products are available for sale.
Country Income Level reports to be extracted fromWorld Bank website.

See the independent practitioner’s limited assurance
report on pages 203 to 205 of PMI’s Integrated
Report 2023

Tackle climate change

Data Verification The proportion of markets where smokefree products are available for sale that are low- and middleincome markets, as published in PMI’s 2023 Integrated
Report, has been assured by PwC (limited assurance).

Improve the qualityof life of people in our
supply chain

See the independent practitioner’s limited assurance
report on pages 203 to 205 of PMI’s Integrated
Report 2023

Read more about broadening access in
PMI’s Integrated Report

Calculation methodology

Foster an empowered
and inclusive workplace

General sale Commercial initiative by which PMI provides PMI
products to adult consumers in exchange for monetary value
or other considerations, including activities such as sale-forpurchase, renting, leasing, lending, and loaning. Adult consumers
must have access to PMI products without any purchase
restrictions imposed by PMI that go beyond local regulations(e.g., club membership, registration, etc.).

Calculation methodology

Excluded PMI Duty-Free market is excluded in the incomelevel classification.

Reduce postconsumer waste

Definitions

Excluded Any market commercializing only combusted
tobacco products and/or wellness and healthcare products.

Seek net positive
impact in healthcare
and wellness

KPI description

Maximize the benefitsof smoke-free products❸ Number of markets where PMI smoke-free products are available for sale

Preserve nature

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Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

Preparation & Reporting

15

Purposefully
phase out cigarettes❻ Proportion of shipment volume covered by markets with youth accessprevention programs in place in indirect retail channels
KPI description

Our priority is to address the health impacts
associated with smoking by offering science-basedsmoke-free alternatives that have been provento be a better choice than cigarettes for thoseadults who would otherwise continue to smoke.
Accordingly, the impact on society of the Company’stransformation, namely shifting our product portfolio
toward smoke-free products, can be measured by
the number of adult smokers or nicotine users who
have become users of our smoke-free products.

Included HNB products, including licensed KT&G HNB
products and HTUs.

The global youth access prevention (YAP) requirements
included in our Marketing Codes apply to all ourcommercial activities, even when not required by local
laws, with the aim to reduce the likelihood that our
products and related consumer communications reachor be particularly appealing to youth. A fundamental
requirement is that a consumer’s age must be verified
before they can purchase our products, ensuring
they are of legal age to purchase or at least 18 years
old (in markets without a minimum legal age). The
methods used to age-verify adult consumers vary bychannel. In our indirect retail channels, which accountfor the vast majority of retail outlets that sell our
products, PMI aims to deploy robust YAP programs.

Definitions

Calculation methodology
The user metrics reflect PMI estimates, which are based on
consumer claims and sample-based statistical assessmentswith 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.

Data management
The estimations of users are performed monthly at amarket level and are approved by the finance management
team of each market, and then additionally validated
and approved by regional teams. The global estimationsof total PMI smoke-free product users are the sum of theindividual markets’ estimations, which are validated andconsolidated centrally.

See the independent practitioner’s limited assurance
report on pages 203 to 205 of PMI’s Integrated
Report 2023

Definitions
Digital trade engagement tool PMI’s global platform or any
other digital tool used to communicate and engage with trade
partners.
Field force automation systems Systems that support fieldforce daily operations.
Point of sale (POS) And indirect retail point of sale where PMI
products are sold to end consumers.

Selling universe Estimated number of indirect retail POS
within a market in which PMI products are sold.
Total shipment volume Includes cigarettes, OTPs, and smokefree product consumables. It is defined as the combined total of
combustible tobacco products shipment volume and smoke-free
product consumables shipment volume.
White Space Market (WSM) is a market where PMI products
are sold without PMI having direct operations (local affiliate).
Depending on the commercial influence PMI may have on the
distributor/third party, WSM is divided into two clusters:• WSM Cluster 2 – markets where PMI has
minimal or no influence on implementationof commercial activities such as YAP.

Preserve nature• WSM Cluster 1 – markets where PMI has
influence through distributors or third parties todeploy commercial activities such as YAP.

Tackle climate change

Point of sale materials (POSM) Such as stickers and othermaterials, which are placed at the point of purchase and visible
to adult consumers.

Registered POS Includes all POS captured in the digitaltrade engagement tool.

Improve the qualityof life of people in our
supply chain

Data Verification The total number of users of PMI
smoke-free products, as published in PMI’s 2023 Integrated
Report, has been assured by PwC (limited assurance).

To be considered as having a YAP program in place,a market must deploy the three mandatory pillarsof the YAP program as outlined in the below on
page 16. The required number of indirect point ofsale (POS) to be covered by each pillar, referred
to as “reachable coverage,” varies for the different
activities (e.g., some require a physical visit to the
POS, while other activities can be deployed digitally).

Foster an empowered
and inclusive workplace

Total smoke-free product users The estimated number of legalage (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.

Excluded E-vapor products, nicotine pouches, or any
other smoke-free products are currently not considered in
our users calculation.

By targeting indirect retail channels, the impact ofthese programs can reach a wider scope than those
covered by the requirements of our Marketing Codes,
which apply where we engage retailers directly.
The activities required by our YAP programs arecomparable with those provided in our Marketing
Codes. These programs support our affiliates to workwith the indirect retail universe to guard against
the sale of our products to underage purchasers.

Reduce postconsumer waste

Scope

Seek net positive
impact in healthcare
and wellness

KPI description

Maximize the benefitsof smoke-free products❺ Total number of users of PMI smoke-free products

16

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

17

Preparation & Reporting

Pillars of PMI’s YAP program in indirect retail channels
PillarReachable coverage

Trade communication

Letter from PMI affiliate to
POS owner or operator

All third-party retailers for which PMI
has either a physical or email address

Trade education

Online or physical training sessions
to POS/retailers’ staff

All POS covered by field force orregistered in digital trade engagement tool

Point of sale materials placement

Temporary printed materials,
such as stickers, placed at the POS

All POS that are in scope of PMIor third-party sales force coverage

Excluded PMI Duty-Free market, although this channel
continues to be in scope of PMI’s marketing codes; the U.S.,
where PMI is currently working on the implementation of its
standard measures; WSM Cluster 2.

Proportion of shipment volume covered by markets withyouth access prevention programs in place in indirect retailchannels is calculated as(

Total PMI full-year shipment
volume (billion stick equiv.))

X 100%

Pillar 2: PMI’s Central Commercial function maintains a Global
Digital Trade Engagement platform for all registered POS andmarkets maintain the platform in terms of educational content.
Pillar 3: The lists of POS in scope of PMI or third-party
sales force coverage are maintained in local sales force
automation systems.
For each market, the YAP plans are approved, implemented,
and evaluated on an annual basis. Specifically, by May 1
of each calendar year, the YAP plans for each market areapproved by the Company’s regional and global teams. In thefirst quarter of the following year, each market is evaluatedby the regional teams’ function to determine if the actual
deployment of the YAP program in the preceding year met
the minimum requirements. The regions consolidate results ofeach market to determine the total PMI shipment volume tomarkets that have YAP programs in place and the central teamconsolidates global results.

Net revenues from wellness and healthcare Represent
operating revenues generated from the sale of products
primarily associated with inhaled therapeutics, and oral
and intra-oral delivery systems that are included in theoperating results of PMI’s new Wellness and Healthcare
business, Vectura Fertin Pharma.

Calculation methodology
Absolute annual net revenue from wellness andhealthcare segment.

Data management
For further details on our reporting of revenues, pleaserefer to our 10-K filings and Investor Relations materials.
See Investor Relations website
Data Verification The annual net revenue from wellness
and healthcare as published in PMI’s 2023 Integrated
Report, has been assured by PwC limited assurance.
See the independent practitioner’s limited assurance
report on pages 203 to 205 of PMI’s Integrated
Report 2023

Preserve nature

Estimates and assumptions For each of the three pillars,
markets are required to quantify the number of reachable
POS. The reachable POS defined by the markets represents
a portion of the total selling universe, which, due to various
geographic, distribution model, and logistic reasons, differs
market by market.

Pillar 1: PMI affiliates have local databases in which thephysical or email addresses of the POS in their markets
are maintained.

Definitions

Excluded n/a

Tackle climate change=

Full-year shipment
volume (billion stick equiv.)
of combusted and smoke-free
products for markets whichhave a YAP program “in place”

Data on shipment volumes, by market, are extracted from
PMI’s financial reporting systems.

Included Net revenues from wellness and healthcare
includes all those recognized within the reporting period by
PMI as disclosed in our Annual Report on Form 10-K and
Year-End Earnings Release.

Improve the qualityof life of people in our
supply chain

Calculation methodology

Data management

PMI aims to completely replace cigarettes assoon as possible with smoke-free products thatare scientifically substantiated to be less harmful
than smoking and to evolve in the longer run
into a broader lifestyle, consumer wellness, andhealthcare company. Accordingly, with a strong
foundation and significant expertise in life sciences,in February 2021 we announced our ambition to
expand into wellness and healthcare areas anddeliver innovative products and solutions that aim
to address unmet consumer and patient needs.

Foster an empowered
and inclusive workplace

Included All indirect retail channels, whether directly engaged
by PMI (i.e., covered by PMI Marketing Codes) or otherwise.
All markets in which PMI commercializes combustible orsmoke-free products are included in scope, whether PMIdeveloped products or third-party products that PMI sells
through license agreement. Additionally, China, where wehave a strategic cooperation agreement with China National
Tobacco Corporation (CNTC), is included in scope.

On an annual basis markets are evaluated for compliancewith the requirements of PMI’s YAP program. If markets
have met at least 90 percent of the reachable coverage foreach pillar, the shipment volume for the full calendar year,
January 1 through December 31, is considered as being
covered by YAP programs.

Scope

Reduce postconsumer waste

Scope

KPI description

Seek net positive
impact in healthcare
and wellness

Description❼ Annual net revenue from wellness and healthcare products

Maximize the benefitsof smoke-free products❻ Proportion of shipment volume covered by markets with youth accessprevention programs in place in indirect retail channels continued

Purposefully
phase out cigarettes

Seek net positive impact in wellness and healthcare

18Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

19

Preparation & Reporting

Purposefully
phase out cigarettes

Reduce post-consumer waste❾ Proportion of shipment volume covered by markets with
end-of-life take-back programs in place for smoke-free consumables

Scope

KPI description

To address the issue of cigarette butt littering, PMI has
established global guidelines harmonizing the deploymentof anti-littering (AL) programs in the markets where it
operates. These programs are driven and implemented by
our affiliates and focus on driving behavior change throughawareness-raising initiatives. While we have set minimum
criteria for a market to be considered as having a programin place, our guidelines also accommodate differences
between markets, socioeconomic and cultural reality,
consumer norms, and regulatory environment.

Included All markets in which PMI commercializes
combustible cigarettes. Additionally, China, where
we have a strategic cooperation agreement with CNTC,
is included in scope.

As we grow our smoke-free business, we seek to address
the post-consumer waste of our smoke-free productconsumables by deploying take-back and recycling schemes.

Reach

ImpactReach activity Communication activity aiming to makeawareness for the LAS, which are available on/in the productdirectly or in the point of sale or digital trade engagement.
Impact activity Activity aiming to make awareness for the
LAS via events, partnerships, and any other communication
campaigns.

)

Estimates and assumptions Markets are evaluated forcompliance with the requirements of PMI’s AL guidelines,
considering all activities deployed between January 1 andDecember 31 of the respective year. This evaluation is
performed in January of the following calendar year. For
simplicity, when calculating the proportion of shipment
volumes covered by AL programs, the full-year shipment
volumes are considered.

Data management
For each market, the AL plans are reviewed andimplemented, and AL programs are evaluated, documented,
and approved by the regional teams on a rolling 12-month
basis. Each calendar year starts with collection of the activity
plans from the markets, followed by a mid-year healthcheck to review AL program status vs. plans, and year-end
consolidation and reporting period. The program results areconsolidated and checked centrally to report on the global
shipment volume covered by markets with an AL program inplace for the respective year.

First year of program launch• 50 percent of direct retail channels (including
boutiques, shop-in-shops, and embassies)

Second year of program launch
100 percent of direct retail channels, plus one of the following:• Deployment of the program with at least
50 percent of IQOS partners• Mail-in services• Other indirect retail partners (scale dependent on
trade partner footprint for the respective market)
Markets that have a different channel mix limited presenceof brand retail or IQOS partners] may launch the program
via other channels, such as indirect retail or mail-in services.
Additionally, before launching the program, markets
must conduct a due diligence process, including
legal, financial, and commercial review.

Scope
Included All markets in which we commercialize smoke-free
product consumables. Product consumables in scope are
HTUs, e-vapor cartridges, and disposable vaping devices.
Excluded China, the U.S., and PMI Duty-Free market, Snus,
Nicotine Pouches, Snuff, Moist Snuff, Snuff Leaf, Chewing
Tobacco, Chew bags, Chewing Tobacco bits, other smokefree products (Lighters, Matches, Phone cards).

Calculation methodology

(

=

)

Full-year smoke-free productconsumables shipment volume(billion stick equiv.) for markets whichhave a collection program “in place”
Total PMI full-year shipment volumeof smoke-free product consumables(billion stick equivalent)

X 100%

Estimates and assumptions When calculating the
proportion of shipment volumes covered by consumables
take-back program, the full-year shipment volumes are
considered. Additionally, in markets with multiple smoke-free
platforms (e.g., HTUs and e-vapor), but where the end-of-lifetake-back program only covers part of the portfolio, only
the shipment volume of the covered platform/product isconsidered in the numerator of the calculation.

Data management
PMI markets are responsible for data collection regarding
the coverage of direct and indirect points of sale, which isreported to the central team six months after launch of the
program, and thereafter on an annual basis. Regional results
are consolidated centrally for the annual global reporting of
the proportion of shipment volume covered by markets withtake-back programs in place for smoke-free consumables.

Preserve nature

Littering Inadequate behavior by consumers which consists ofcarelessly or inadvertently discarding waste into the environmentand other outdoor places in the public domain instead of disposal
in appropriate waste receptacles such as ashtrays or waste bins.

Total PMI full-year shipment
volume of combustible
cigarettes (billion stick equiv.)

X 100%

Currently, the capacity of third parties to recycle ourconsumables is limited because, for the main structuralcomponents’ materials, such as cellulose acetate, few viable
recycling solutions exist today. Therefore, the materials fromour products that can be recycled from our smoke-freeconsumables depend on the locally available infrastructure
and technical capabilities of contracted waste treatment
operators. While recycling is our preferred recovery solution,
if recycling of materials is not locally available as a viable orfeasible solution, the incineration of smoke-free consumables
with energy recovery remains an option, and in somecases incineration without energy recovery for HTUs.

Tackle climate change

Definitions(=

Full-year shipment volume(billion stick equiv.) of combustible
cigarettes for markets whichhave a program “in place”

Improve the qualityof life of people in our
supply chain

Corporate campaigns and partnerships aimed at making
littering socially unacceptable. They could be deployednationally or focus on key areas clearly identified as priority,
to support behavior change and/or provide concrete
solutions. Examples of Impact activities involving eventsand partnerships raising awareness of the issue include thecorporate online platform “Our world is not an ashtray,”analyses to identify cigarette butt littering hotspots, andlocal or global partnerships or initiatives.

Proportion of PMI shipment volume coveredby AL programs is calculated as:

IQOS partners Retailers with an IQOS dedicated space within
their premises where experiences (e.g., immersive education,
guided trial) and services are delivered to LAS or legal-age users(LAU) by the retailer staff.

Foster an empowered
and inclusive workplace

Communication activities with a meaningful reach,delivering a littering prevention message directly to legalage smokers (LAS) and/or point of sales (POS). Accepted
activities include on-pack messaging, limited pack editions,anti-littering communications which can be accessedby links printed on the pack, digital trade engagement
campaigns, and placement of POS materials.

Calculation methodology

When measuring the progress of our markets in providing
consumers access to our end-of-life take-back programs,
our criteria will evolve as the program matures. In theinitial years, our strategy is to prioritize sales channels inwhich we have direct control, i.e., our brand retail including
boutiques, shop-in-shops, corner shops, and e-commerce, inorder to build awareness about the programs. Then, as we
scale up, we will expand to our IQOS partners with whom
we work closely on consumer engagement activities.

End-of-life take-back programs Services offered to adult usersof PMI smoke-free products, which enable them to return usedor unwanted consumables to PMI’s suppliers for disposal. This
may include recycling, composting, or energy recovery of all orpart of the returned consumable and may occur in the country
in which the product is collected or be exported for treatment
elsewhere, if not available locally.

Reduce postconsumer waste

For a market to be accounted for as having an AL programin place, it must deploy at a minimum one “Reach” activity
and one “Impact” activity per year, defined as follows:

Excluded PMI Duty Free markets and the U.S.

Definitions

Seek net positive
impact in healthcare
and wellness

KPI description

Maximize the benefitsof smoke-free products❽ Proportion of shipment volume covered by markets with
anti-littering programs in place for combustible cigarettes

20

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

21

Preparation & Reporting

Purposefully
phase out cigarettes

KPI description

Definitions

Scope
Included Smoke-free electronic devices sold by PMI,
including devices commercialized through licensing
arrangements, and e-vapor devices. Additionally, expired/
Loss on Good Destroyed Devices that would otherwise berecycled, and which are shipped for repair (where possible)
and subsequent reuse. Refresh Services and/or Repair
Services have been developed as of IQOS 3 DUO (launchedin 2019) and subsequent generations of devices with theblade or IQOS ILUMA Smartcore Induction System™.
Excluded Consumable products (including disposable
e-vapor), device accessories, and serviced devices.

Data management

Definitions

Our aspiration is to have eco-design certifications for
smoke-free devices which are launched as of the fourth
quarter of 2025. Given the long-term nature of thisaspiration, we have developed internal metrics basedon key milestones that will allow us to track our progressin the interim years leading up to 2025.

Refresh services Care and maintenance activities withrespect to smoke-free devices, which may include unpacking,diagnostics, cleaning, battery charging, firmware update,cosmetic parts replacement, and repacking of devices allowing
their reuse without functional repair.

Calculation methodology

Refreshed devices Smoke-free devices resulting from therefresh services that meet the agreed quality requirements toallow for their reuse as pre-owned devices.

Estimates and assumptions Devices might be refreshed or
repaired multiple times over their lifetime. Each time a device
is refreshed or repaired, it is accounted for in the respective
year in which the activity occurs.

Repair services Repair, care, and maintenance activities withrespect to smoke-free devices, which may include unpacking,diagnostics, testing, cleaning, battery charging, and firmware
update, cosmetic part or battery replacement, component
harvesting, and repacking of devices allowing their reuse.
Repaired devices Smoke-free devices resulting from the repair
services that meet the agreed quality requirements to allow for
their reuse as pre-owned devices.

Data management
Source data on the number of devices repaired or refreshed
and received by PMI markets is extracted from our SAP
system monthly. Exceptionally for devices repaired or
refreshed on which service is performed without changeof ownership, the reporting is based on a packing list
containing a unique code of the devices on which service
was performed.

Preserve nature

Serviced devices All smoke-free devices that go through careand maintenance, cleaning, firmware upgrade, and customization
accessories (e.g., rings and door covers) for maintenance orreplacement. Service is provided to adult users on the spot at
IQOS service points or at home. This service is not available atthe hubs.

Cumulative number of devices refreshed or repaired andreceived by PMI markets from the respective hubs since
January 2021 until December 31 of the reporting year.

Tackle climate change• Type 2 – Self-declared environmental claims
Self-declared or externally audited adherence(communicated through a statement, symbol, orgraphic or text) to internally developed standard.

Excluded Disposable devices, device accessories, including
caps, rings, door covers, cases, sleeves, wraps, power
chargers and cables, trays, and electronic smoke-free devices
designed by third-party manufacturers and commercialized
by PMI. Smoke-free product consumables and limitededition devices are also out of scope.

Services provided at the CIRCLE hubs generally include
inspection, dismantling, disposal and recycling, and repair
services, in addition to serving as a consolidation point for
devices returned from various market affiliates.

Improve the qualityof life of people in our
supply chain• Type 1 – Environmental labels and declarations
Are awarded by a third-party accrediting body based on
best-in-class performance among the product category.
A product category is a standardized set of performanceoriented criteria for a defined scope of products, according
to which product sustainability information is assessed,
evaluated, and partly disclosed by an accredited body.
The awarding body may be either a governmentalorganization or a private noncommercial entity.

Included Electronic smoke-free devices designed by PMI,
both HNB devices (holder and charger) and e-vapor devices(holder only).

The number of devices refreshed or repaired
represents the number of devices that areprocessed in CIRCLE hubs and then received
by our markets for reuse. The reuse of devices
includes the commercialization and remarketing of
the products to adult smokers or adult nicotineproduct consumers, replacement under warranty,
or other consumer program offerings (e.g., lending
program). These devices can be either a full
mobility kit (charger, holder, and related accessories)
or single line-up (either charger or holder).

CIRCLE hubs Any of one or more supplier-operated sites under
direction of PMI for the purposes of carrying out services related
to our CIRCLE program.

Foster an empowered
and inclusive workplace

Environmental statement (ISO 14020 3.2.1) Information on
one or more environmental aspects or environmental impacts
of a product, which intends to inform an intended audienceand intends to influence the market of this product. The
ISO 14020:2022 standards defines three types of productenvironmental statements.

Scope

In markets where we commercialize PMI smoke-free
products, we aim to collect used devices and process
them to improve their circularity, minimize e-waste,
and maximize resource use. A key element of thisstrategy is our device second life program, which seeks
to refresh and repair smoke-free devices for reuse.

Expired/Loss on Goods Destroyed Devices Devices that havepassed their expiry date or that are not intended to be sold andtherefore are destined for recycling.

Reduce postconsumer waste

Our interpretation of the term “eco-certification”
is the achievement of an externally recognizedsustainably designed product. To consolidate theachievement of PMI’s 2025 goal, we are considering
either a type 1, type 2 and/or type 3 productenvironmental statement, as defined by ISO
14020:2022, as constituting an “eco-certification.”

KPI description

Seek net positive
impact in healthcare
and wellness

To integrate sustainability principles into ourdesign process, we endeavor to follow eco-designprinciples. Accordingly, we are seeking an ecodesign certification for our smoke-free devices.

• Type 3 – Environmental product declaration
Standardized set of rules, requirements, and guidelines fora defined product category by an accredited body, basedon which a life-cycle assessment (LCA) can be conducted.
The accredited body evaluates product performanceagainst a set of indicators that allows comparability between
products within the same category. This type of eco-design
certification prescribes guidelines for similar products
to disclose product information (without performance
evaluation), mainly focusing on transparency rather thanproviding a ranking/score of product performance.

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

Maximize the benefitsof smoke-free products❿ Proportion of PMI smoke-free devices with an eco-design certification

22

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

23

Preparation & Reporting

Purposefully
phase out cigarettes

Operational Sustainability
Foster an empowered and inclusive workplace⓭ Proportion of employees with access to structured lifelong learning offers
KPI description

A key element to ensuring we nurture a more diverse
culture that promotes both equity and inclusion
is to improve gender diversity in senior roles.

Included All employees captured in PMI’s HR reporting tool.

Maintaining and further developing human capitalis critical to our employees and the success of PMI.
Therefore, we seek to provide PMI employees withaccess to structured learning activities to meet
personal and professional growth aspirations. Our
lifelong learning offers include access to learning
opportunities (e.g., courses, resources, sessions,and communities) provided by PMI that empower
individuals to proactively develop skills relevant for
current and future employability and performance.

Note: We also disclose the proportion ofmanagement positions held by women in ourannual Integrated Report, which is calculatedusing the same methodology describedin this document but considers employee
headcounts in salary grade 10 and above.

Definitions

Women For the purposes of measuring progress on genderequality, PMI considers women to include those employees
who are identified as female based on official documentation(passport, national identity card, etc.).

Management positions The term we generically use to refer toall positions in a defined salary grade 10 and above, regardless of
their job title or function.

(=

Women headcountin salary grade 14+)

Overall employee headcountnumber in salary grade 14+

X 100%

Estimates and assumptions The calculation considers thetotal number of employees and the salary grade at a specificpoint in time; for year-end reporting, this is December 31 of
the respective year.

Data management
On a daily basis, employee headcount data are transferredfrom PMI’s HR reporting tool to PMI’s data ocean (acorporate data warehouse solution). On a quarterly basis,the data are consolidated and analyzed in an internal
dashboard. The data are validated centrally, prior to externalannual reporting in our Integrated Report.

We consider an employee to have accessto structured lifelong learning offers if theemployee has an account that allows access to
the PMI-specific learning catalogue (FUSE) via
an appropriately secure device, either provided
by PMI or not (e.g., phone, tablet, personal
computer). With this access, they can obtainlicense within 48 hours to external platforms uponrequest (e.g., Rosetta Stone, Udemy or EdEx).
Driven by our aspiration to reach a significant
number of employees, the structured lifelong
learning program leverages digital solutions.
However, as some employees do not have access to
PMI systems, we have set an aspiration to achieve
full coverage of the population with access to ourlearning systems. Additionally, when digital accessexpands, we would expect the absolute numberof employees with access to lifelong learning
offers to also increase (and with it, the KPI).

Definitions

Employee headcount All active employees, as well as inactive
employees including employees on parental leave, medical/sickleave, unpaid leave, or long-term disability, and those on
salary continuation.

Included All employees captured in PMI’s HR reporting
tools. Additionally, employees who leave PMI’s employment
from our Operations function will continue to have accessto our external platforms of digitalized learning for a further
12 months following the termination of their full-time
contract.
Excluded Non-employee population (temporary agency
workers, freelancers, merchandisers, IQOS coaches,
consultancy, and outsourced services), benefit recipients(retirees or those who no longer have a working relationshipwith the company). and fixed-term employees classified as
temporary or seasonal employees.

Calculation methodology
Proportion of employees with access to structured lifelong
learning offers is calculated as:

=

(

)

Number of employees who
have access to PMI’s internallearning catalogue and can request
access to external platforms
Total number of employee
headcount

X 100%

Estimates and assumptions The calculation considers theemployee status at December 31 of reporting year.

Data management
Data regarding the employees with access to lifelong
learning offers (on PMI platforms and external learning
platforms) are collected on a quarterly basis andconsolidated centrally on an annual basis prior to reportingin the Integrated Report.

Preserve nature

Access Employees are considered to have “access” when
they can be granted access to learning solutions and have theappropriately secure device or personal computer from whichto access the learning. This does not mean licenses to external
platforms will be purchased for all employees outright. License
usage is monitored to ensure sufficient licenses are available atany given point in time for any employee who requests one.

Scope

Tackle climate change

Salary grade (SG) Levels used to group jobs of similar value
according to PMI’s job evaluation methodology, which is basedon Hay methodology. PMI uses 28 levels, starting from grade 1
and ascending to grade 28.

Proportion of women in senior roles (SG 14+) is
calculated as:

Improve the qualityof life of people in our
supply chain

Senior roles The term we generically use to refer to all positions
in a defined salary grade 14 and above, regardless of their job
title or function.

Calculation methodology

Foster an empowered
and inclusive workplace

Employee headcount All active as well as inactive employees
including employees on parental leave, medical/sick leave, unpaid
leave or long-term disability.

Excluded Non-employee population (temporary agency
workers, freelancers, merchandisers, IQOS coaches,
consultancy, and outsourced services), benefit recipients(retirees or those who no longer have a working relationshipwith the company), fixed-term employees, and employees
on salary continuation.

Lifelong learning While the term lifelong learning is widely usedbeyond PMI, the definition is not standardized. PMI defines
lifelong learning as a form of self-initiated education that is
focused on personal and professional development throughinformal or formal education. Lifelong learning opportunities at
PMI go beyond the skills necessary to perform an employee’s
current job or to further understand PMI processes, systems,
and strategies. Rather, the scope of learning opportunities
covers capabilities essential to an employee’s future
employability and fulfillment.

Reduce postconsumer waste

Scope

Seek net positive
impact in healthcare
and wellness

KPI description

Maximize the benefitsof smoke-free products⓬ Proportion of women in senior roles

24

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

Preparation & Reporting

Purposefully
phase out cigarettes

Improve the quality of life of people in our supply chain⓯ Prevalence of child labor among contracted farms supplying tobacco to PMI
KPI description

PMI’s Human Rights Commitment is the cornerstoneof our human rights strategy and commits PMI
to managing work in accordance with the United
Nations Guiding Principles on Business and Human
Rights (UNGPs). Human rights impact assessments(HRIAs) are an integral part of our due diligenceframework, and allow us to proactively identify
risk, and mitigate potential adverse impacts in ouroperations and value chain. HRIAs are carried out
by independent expert organizations based on aformal process in accordance with the UNGPs.

Included When assessing which countries are of highest
risk, we consider all countries where PMI operates orsources tobacco.

In 2022, we strengthened our approach on
monitoring the quality of life of people in our
supply chain by introducing the Sustainable
Tobacco Supply Chain (STSC) framework. This
new approach focuses on the full life cycle oftobacco production and targets actions toward thetobacco we purchase and use in our products.

Definitions

Calculation methodology
The HRIAs are conducted in alignment with the UNGPs
and its relevant methodology. After each HRIA, the external
expert organization presents its findings and suggess ways
to address issues identified. The report is shared with our
local leadership team, who develops a time-bound action
plan in collaboration with the relevant corporate functions.
The action plan assigns responsibilities for implementationand progress measurement at the local level. While theimplementation of these action plans often takes several
years, for the purposes of reporting against this indicator,
once an action plan has been approved by the local
management (including key milestones and measurements
of progress), we consider the “findings addressed.”

Data management• Type 1 Situations where a person’s physical or mental integrity
is at risk, children, or a vulnerable group (e.g., pregnant women
and/or nursing mothers) are working and in danger, or workers
might not be free to leave their job on a tobacco farm.
• Type 2 Situations where a person’s well-being is at risk
and the farmer will need additional time and support toremediate the issue (e.g., lack of accommodation, nonpayment of minimum wage, or lack of written contracts).
Non-conformity (NC) Situation that is recorded when a fieldtechnician or contracted service provider does not physicallyobserve a violation of the ALP Code, but, through engagementwith the farmer, spouse, or worker (for their own children),identifies a risk that a violation is likely to occur or has occurred.
There are two types of non-conformities:• Self-declaration Declaration confirming the occurrenceof a situation (equivalent to a prompt action), although notwitnessed by field technicians or contracted service provider.
(e.g., a farmer declares his 14-year-old child harvests tobacco).
• Risk Observation or declaration that represents a risk which,
if not addressed, could evolve into a prompt action. (e.g.,
the farmer is not aware of the minimum working age).

Preserve nature

The Managing Director of the market in scope is responsible
for the implementation of the action plan and determining
whether a country assessment can be considered ascompleted, with findings addressed. The central Operations
Sustainability team supports and guides the markets during
the implementation of the action plan, receiving biannual
status updates from the local teams.

Prompt action (PA) Situation that is recorded when, during afarm visit, the field technician or contracted service provider
physically observes either a type 1 or type 2 situation:

Tackle climate change

The list of highest-risk countries for PMI from a humanrights standpoint is determined and reviewed on a
yearly basis in collaboration with independent expert
organizations. If an assessment is carried out in a country
which in subsequent years is removed from the list of
top 10 highest-risk countries, we continue to count thisassessment toward our target, given it was conducted at
a moment in time during which the country was identified
within the top 10 highest risk.

Prevalence of child labor within the total farmbase of contracted farmers is monitored throughthe IPS due diligence framework. If incidencesof child labor are identified, our suppliers
are required to take immediate action.

Identified child labor cases Include prompt actions(observations by field technicians) and non-conformities (selfdeclarations) on contracted tobacco farms supplying tobacco
to PMI, reported through the internal monitoring data recordedby field technicians or contracted service providers in markets
where PMI sources tobacco from.

Improve the qualityof life of people in our
supply chain

To monitor and track the implementation of the actionplans, on a biannual basis, markets that have ongoing actionplans provide a status update to the central sustainability
team. On an annual basis, we report the cumulative numberof HRIAs conducted in the highest-risk countries fromJanuary 2018, with findings addressed.

Accordingly, as of 2022, we measure the prevalenceof child labor among contracted farms supplying
tobacco to PMI, whereas in previous years it was
based on the total farm base of contracted farmers.
However, our objective remains to reduce child laborin our tobacco supply chain, through influencing
the rest of the industry, as well as our partners who
operate in tobacco-growing countries, to accelerateactions to address sustainability challenges.

Child labor Defined by the International Labour Organization(ILO), child labor is work that deprives children of their childhood,their potential, and their dignity, and that is harmful to physicaland mental development. Under PMI’s ALP Code, and in linewith the ILO, the minimum age for admission to work is notless than the age at which compulsory schooling is completed
and, in any case, is not less than 15 years old or the minimum
age accepted by the country’s laws, whichever age limit affords
greater protection. No person under 18 should be involvedin any type of hazardous work. In the case of family farms, achild may only help on the farm provided that the work is nonhazardous, and the child is at least 13 years old or above theminimum age for such work as defined by the country’s laws,
whichever affords greater protection.

Foster an empowered
and inclusive workplace

Highest-risk countries Represent the countries assessed as
highest risk for PMI from a human rights standpoint. They are
determined based on key parameters, such as PMI’s footprint(e.g., manufacturing operations, head office, or sourcing
activities) and the country’s human rights risk profile, as
determined by internationally recognized indicators such as
the Heidelberg Conflict Barometer, Freedom House Freedomof the World Index, U.S. Trafficking in Persons Report, andTransparency International.

Excluded n/a.

Definitions

Reduce postconsumer waste

Scope

Seek net positive
impact in healthcare
and wellness

KPI description

Maximize the benefitsof smoke-free products⓮ Cumulative number of human rights impact assessments
conducted since 2018, with findings addressed

25

26

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

27

Preparation & Reporting

Purposefully
phase out cigarettes⓰ Proportion of contracted farmers supplying
tobacco to PMI who make a living income

Scope

KPI description

Included Contracted farmers supplying tobacco to PMI.

Prevalence of child labor among contracted farms supplying
tobacco to PMI is calculated as:(Contracted farmers supplying
tobacco to PMI)

X 100%

Notes on the above calculation:

Data management
Data regarding prompt actions and non-conformities
are recorded in the third-party leaf supplier's or PMI
leaf operations monitoring systems. On a monthly basis,consolidated data for all contracted farmers supplying tobacco
to PMI is provided by third-party leaf suppliers and PMI
leaf operations, which is then reviewed and consolidated
regionally. For suppliers or sourcing markets where
disaggregated reporting is not feasible, third-party suppliers
submit an annual aggregated report. On an annual basis,prior to external publication, the data are aggregated andvalidated centrally.

Calculating the living income benchmark

Potential
householdincomeLivingIncomeBenchmarkCosts of a basic
decent standard of living
for a household

Other sourcesof incomeNet off-farmincomeIncome gap

Food formodel dietPrimary cash
crop income

Decenthousing
Other income

Net off-farmincomeSecondarycrop income

Actual income
Unexpected events

Note: Visual adapted from the Living Income Community of Practice (source).

Net farm
incomeProduce consumed
at homePreserve nature

Other essential needs

ActualincomeTackle climate change• When an identified child labor case is raised and resolved(field technician has verified the corrective action developed
in response to the prompt action or non-conformity has
been properly implemented) within the reporting period,
this identified case is included in the above calculation.

Living income The net annual income required for a household
to afford a decent standard of living for all its members andapplies to, for example, self-employed farmers. The living income
value can be the result of a full benchmark, a reference value, oran internal desktop exercise.

Improve the qualityof life of people in our
supply chain• If one farmer has multiple prompt actions or nonconformities raised during the reporting period(multiple incidences of same child, multiple children
in same instance), this is counted only once.

Business for Social Responsibility (BSR) Benchmarks provide
living wage benchmarks in higher-income countries from which
we source tobacco. BSR uses the living wage estimates, adjusted
based on the reference family size, to define the relevant living
income benchmarks.

Foster an empowered
and inclusive workplace=

Number of contracted farmers
supplying tobacco to PMI with a PA
reported + Number of contracted
farmers supplying tobacco to PMI
with NC self-declaration reported

To foster socioeconomic well-being and addresssocial inequality and labor-related issues in our
tobacco supply chain, we seek to ensure that
all contracted farmers supplying tobacco to
PMI make a living income by 2025. To measureprogress toward this aim, income data forcontracted farmers supplying tobacco to PMI arecollected by PMI leaf operations, third-party leaf
suppliers, or third-party partners in all countries
where PMI sources tobacco and assessedagainst the relevant living income benchmark.

Reduce postconsumer waste

Calculation methodology

Definitions

Seek net positive
impact in healthcare
and wellness

Excluded Farmers (within PMI’s supplier farm base andeligible farmers) who have not supplied tobacco to PMI andpurchased tobacco volumes for which labor practices andadherence to our ALP Code have not been systematicallymonitored. Additionally, all other suppliers of materials andservices are out of scope for the purposes of reporting theprevalence of child labor in our tobacco supply chain. “Risk”
non-conformities are not included in scope of the calculation.

Estimates and assumptions PMI Integrated reporting is ona calendar-year basis from January to December. Therefore,
we report all PA and NC for the tobacco which is purchased
within the calendar year. These PA and NC are based onmonitoring data which were reported during the tobacco
crop stage and may have physically occurred in the preceding
year(s) (e.g., the tobacco may be purchased in year n, though
due to the timing of the crop cycle or tobacco leaf inventory
movements, the respective crop was actually grown andharvested in the preceding year(s) (n−1 or n−2). All PA andNC, including self-declarations, occurring on contracted farms
supplying to PMI tobacco purchased in that calendar year are
in scope for reporting, regardless of whether the contract has
been renewed for the next crop season.

Maximize the benefitsof smoke-free products⓯ Prevalence of child labor among contracted farms supplying tobacco to PMI
continued

28

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

29

Preparation & Reporting

Purposefully
phase out cigarettes

Full benchmarks are conducted in line with the methodology ofAnker Research Institute, and are specific for low- and middleincome countries. They are developed through analysis ofsecondary data, and adjusted using on-the-ground field visits.

Family size adjusted benchmark. The adjustment to the averagebenchmark based on a specific family size and used in Household
Dependency Modelling. The methodology for this calculation issourced from the Organization for Economic Co-operation andDevelopment (OECD) family equivalency scale.

Housing addback is applied in those cases where farmers own
their own houses and do not incur rental expenses that areincluded in the benchmark values.

• PMI tobacco purchased volume for which monitoringdata on farmer’s income is not available• Supply Chain Type 3 markets/suppliers1• New markets that PMI started sourcing from after 2021
• Volumes coming from crops prior to 2021/2022 (depending
on crop calendar) that fell into calendar years prior to 2022

Calculation methodology
Farmer income PMI’s third-party leaf suppliers and PMI
leaf operations calculate farmer income, both tobaccoand non-tobacco income, considering only legal sourcesof income both in terms of type of activity and minimum age
limitations.
Tobacco income is estimated using data collected during
the field monitoring and supplier or PMI leaf operations
own estimates. Typically, income from tobacco is calculated
considering the contracted hectares, yield, price, andcost of production. Non-tobacco income is estimated througheither third-party farmer income studies or internal desktop
analyses.

1 Those markets/suppliers where there is an intermediary entity between PMI’s
suppliers and the farmers. This intermediary can be in the form of a, but not limited
to, governmental organization, auction provider, or third-party supplier.

In case full benchmarks or reference values are not (yet) available,
an internal desktop analysis is performed as a starting point byapplying the Anker methodology and using secondary data
available from official websites (government, universities, or
reputable organizations). The benchmark is updated annually,
to account for the volatility of the country’s economy,
measured by economic indicators such as inflation.
As the current Anker methodology is not applicable in higherincome countries, for these, PMI uses benchmarks from BSR.

2 The methodology requires updated family size definitions for our farm profile data,
and a resulting detailed and robust set of family size data for each farmer’s family.
Considering this preparatory work, we were only able to implement this secondary
layer of modelling for Indonesia in 2023. As of 2024, household dependency
modelling will be applied for all markets/farmer segments below living income.

This analysis is repeated for each segment and the final
percentage of farmers achieving a living income is calculated.
Proportion of contracted farmers supplying tobacco to PMI
who make a living income is calculated as:

=

(

)

Number of contracted farmers
supplying tobacco to PMI at (orabove) the living income benchmark
Total number of contracted farmers
supplying tobacco to PMI

X 100%

Data management
All data regarding farmer income are collected and managed by
PMI third-party leaf suppliers or PMI leaf operations monitoring
systems. On an annual basis, following the conclusion of thetobacco packing completion in each sourcing market, the final
data for all contracted farmers supplying tobacco to PMI are
uploaded into PMI’s reporting system. The reporting on living
incomes is based on the 12-month period preceding the end of
the tobacco crop season in the respective country.
Each PMI regional leaf team validates the farmer income
data uploaded by PMI’s third-party leaf suppliers and, uponsuccessful review, PMI leaf operations and central teamaggregates and validates the global results for annual reporting.

Preserve nature• Where farmer income studies are not available, PMI thirdparty leaf suppliers or PMI leaf operations perform internal
desktop analyses. For internal desktop analysis, other nontobacco income sources are estimated based on averages
using publicly available data (e.g., government-released
statistics) or internal representative sample surveys.

Living income benchmark At PMI, the Anker methodology
has been identified as the foundational methodology toestablish living income benchmarks in the identified priority
and low- to middle-income countries sourcing markets.
It is the predominant methodology used and is widely
accepted in the living income community. Where a living
income benchmark (official benchmark, reference value, orregional adjustment) is established by the Anker Research
Network, PMI suppliers and PMI leaf operations shall use
the same value for the respective sourcing location.

• If the average farmer income is lower than the living
income benchmark, then all farmers within the segment
are considered as not achieving a living income benchmark.
In these cases we conduct a second layer of household
dependency modelling, where we sub-segment this groupof farmers further based on family size and assess, using
family size specific benchmarks, which sub-segments
are still not meeting the living income value required fortheir specific family size. Those sub-segments that are
still below the specific family size adjusted benchmark areconsidered as not achieving living income, while thosesub-segments that are above their family size adjusted
benchmark are considered achieving the living income.

Tackle climate change• Farmer income studies are performed by third parties,
specialized in data collection and familiar with the local
context, culture, and language. These studies are basedon a representative sample size selected from the eligible
farmer base to represent the pre-defined segments (typically
based on contracted tobacco area). Data collection consistsof quantitative data (such as surveys to understand thedifferent income sources (e.g., complementary crops, offfarm income, or remittances)) and/or qualitative data (suchas individual farmer interviews and focus group discussions).

This second layer of segmenting was introduced in 20232
and is only conducted on those segments of farmers who are
below living income, where further granularity is required todetermine which of the farmers in these segments are truly
below the living income value relevant for their family size.

• If the average farmer income is greater than the living
income benchmark, then all farmers within the segment
are reported as achieving the living income benchmark.

Improve the qualityof life of people in our
supply chain

Farmer income The income of a farmer, including both onfarm and off-farm income, net of production cost, as well as
remittances, grants, other subsidies, or addbacks.

• Farmers (within PMI’s supplier farm base and eligible
farm base) who have not supplied tobacco to PMI

Foster an empowered
and inclusive workplace

Internal desktop exercise value The value that is calculated
internally by following the Anker methodology, in absence of
an official calculation (full benchmark, reference value, regional
adjustment, or BSR Benchmark).

Excluded

Consolidated KPI On an annual basis, inputs from eachregion are consolidated globally to calculate the numberof farmers achieving a living income as a proportion of
the total contracted farmer base supplying to PMI, within
the respective period. The calculation is based on an
analysis of the farmer base which is typically segmented atmarket level according to the contracted tobacco area:

Reduce postconsumer waste

Regional adjustment The regional adjustment methodology
was introduced in 2022 by the Anker Research Institute. It
relies on previous full benchmark assessments conducted in
the country to create regional benchmarks by splitting thecountry into regions that share similar characteristics. If needed,
these benchmarks are complemented with on-the-groundadjustments. The regional adjustments are specific to low- andmiddle-income countries.

Included Contracted farmers supplying tobacco to PMI.

Household Dependency Model During 2022, as our
Living Income Program became more sophisticated andmature, we developed a more granular approach to analyze
farmers’ income, based on extensive research on existing
methodologies. More specifically, we explored ways to further
segment our most vulnerable farmer base in order to accountfor household size (instead of relying on averaged family sizedata). Doing this enables us to compare, in a more granularway, the farmers’ income with the relevant family size adjusted
benchmark and assess whether they achieve the equivalentliving income benchmark for their family size or not, thereby
allowing us to better identify potential income gaps andhelp focus our efforts on the most vulnerable households.

Seek net positive
impact in healthcare
and wellness

Reference values are relevant for low- and middle-income
countries, and can be utilized as an alternative to the fullbenchmark. They are provided by the Anker Research Instituteand represent typical or average living incomes for rural andurban areas within each country. They are not location-specific,
and so are not representative of region or city.

Scope

Maximize the benefitsof smoke-free products⓰ Proportion of contracted farmers supplying
tobacco to PMI who make a living income continued

30

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

31

Preparation & Reporting

Purposefully
phase out cigarettes

Tackle climate change

KPI description

Market based Emissions of the specific providers that
PMI has purposefully chosen (i.e., factories that purchasegreen electricity).
Biogenic emissions The direct CO2e emissions generated
by the combustion of biofuels

Carbon neutrality Aligned to the working definition of the
Science Based Target initiative (SBTi), individual actors arecarbon neutral when CO2e emissions attributable to an actor
exclusively claimed by the actor, such that the actor’s net
contribution to global CO2e emissions over a given time period(e.g., one year) is zero. Carbon neutrality is an intermediate step
toward net zero, as it happens before the net-zero emissions
state, and it can be reached using carbon credits (offsetting)or with mitigation activities within the value chain (insetting)(source: SBTi, UNFCCC Race to Zero, et al.).

The baseline year chosen for reporting is 2019. The
reporting period of GHG emissions is aligned with PMI’s
financial reporting, which is calendar year, i.e., January 1
until December 31.

Scope 2 GHG emissions Indirect GHG emissions from thegeneration of purchased or acquired electricity, steam, heat, or
cooling consumed by PMI.

• Warehousing: PMI-owned or PMI-operated warehouses• Offices: PMI-owned or PMI-operated office spaces• Others: other facilities under PMI’s operational control
such as data center
In line with the GHG Protocol guidelines, biogenic emissions
are reported separately from scope 1+2 GHG emissions;however, we include them in our scope 1+2 science-basedtargets.
Excluded The following items are excluded from ourreporting as they have been assessed against materiality
threshold defined as 5 percent of total scope 1+2 emissions:• IQOS stores1• HFCs, PFCs, SF4, or NF3 gases• Energy consumed by electric vehicles• All exclusions are assessed annuallyCalculation methodology
Methodology and conversion factors PMI’s scope 1+2
emissions are calculated in accordance with the GHG
Protocol’s “A Corporate Accounting and Reporting Standard”(2004). Scope 2 emissions are calculated using the locationbased and market-based reporting methods in adherencewith the GHG Protocol’s “Scope 2 Guidance” (2015).

The principles at the basis of the VCS define generated
credits as real, triggering additional GHG emission reduction
in comparison with business as usual, and projects areassessed using a technically sound GHG emission reduction
quantification methodology specific to each project type. The
VCS methodologies further ensure that projects delivering
credits meet, among others, the criteria of permanence,
avoided leakage, and double counting. It also requires that theemission reduction units are verified by an independent andaccredited third party with credits that can be issued after
the emission reduction has taken place and has been verified
through an audit.
The CCBS, on top of VCS, evaluates land management
projects from the early stages of development throughimplementation and fosters the integration of best-practiceand multiple-benefit approaches into project design andimplementation. The CCBS can also be applied to projects
that reduce GHG emissions from deforestation and forest
degradation or projects that remove carbon dioxide bysequestering carbon or other land management.

• Warehouses, offices and others: data on the amountof energy consumed are collected on a quarterly
basis based on purchased quantities derived fromconsumption reports or invoiced amounts
Following the raw data input and validation of theconsumption data into PMI’s central environmental
management system, the system automatically calculates theresulting CO2e emissions for manufacturing sites, fleet, offices,and warehouses. All data are validated by PMI-accountablesubject-matter experts or third-party representatives. For
external reporting purposes (e.g., PMI’s Integrated Report and
CDP submissions), the consolidation of CO2e emissions is doneby PMI’s Central Operations Sustainability team.
Restatement of baseline In line with the maximum exclusion
amount for scope 1+2 as defined by the SBTi, PMI applies
a significance threshold of +/–5 percent for restatement ofbaseline emissions. On such occasions, the baseline year isrecalculated, to reflect changes in the company that would
otherwise compromise the consistency and relevance of thereported GHG emissions information. All restatements of thebaseline are validated by the responsible PMI head of function
and verified by the third-party verifier.
Data Verification The scope 1+2 GHG emissions are reviewed
and verified annually by an external third party according to
ISO 14064-3:2019 and verification statement is published on
PMI.com.
See the external verification statementfrom SGS for scope 1+2 here

1. As of 2022 a minor portion of PMI’s retail stores have been includedin the scope 1+2 emissions
2. verra.org
3. climate-standards.org
4. Energy sources include fossil fuels (diesel, fuel oil, natural gas, petrol, LPG, and coal),biofuels (biodiesel, bioethanol, biomass), district steam, district heating, and electricity(renewable vs. non-renewable, split according to source (solar, wind, biofuel).

Preserve nature

Scope 1 GHG emissions Direct GHG emissions that occur
from sources that are owned or controlled by PMI, for example,
emissions from combustion in owned or controlled boilers,
vehicles, etc.; emissions from chemical production in owned orcontrolled process equipment.

• PMI’s fleet

Verification of offsetting and insetting credits PMI has
put in place offsetting and insetting programs that comply
with rigorous international standards. Selected projects
are certified against the Verified Carbon Standard (VCS)2
and additionally some carry the Climate Community andBiodiversity Standard (CCBS).3• PMI’s fleet: the kilometers travelled, and respective fuelconsumed, by the vehicles in our fleet are recorded in
PMI’s central environmental management system

Tackle climate change

Insetting The term “insetting” is used to refer to a company’sefforts to prevent, reduce, or remove emissions within its own
supply chain, but outside of its operational boundaries. The SBTi
considers such insetting measures to be distinct from efforts
to “compensate,” instead proposing that insetting measures
are directly accounted for in a company’s efforts to abate allits supply chain emissions as it pursues its net-zero target. See
glossary in PMI’s Low Carbon Transition Plan.

• Manufacturing: All emissions from PMI-owned
manufacturing sites (emissions from third-party
manufacturing sites are included in scope 3 emissions)• Manufacturing sites: the amount of energy consumed
by type of energy source based on invoiced
amounts or consumption reports from suppliers

Improve the qualityof life of people in our
supply chain

Offsetting The act of compensating or canceling out all, ora portion of, the GHG emissions released to the atmospherethrough investments in activities that reduce or remove an
equivalent amount of GHG emissions and that are locatedoutside the boundaries of the organization or a particular
product system. Such investments are often in the formof purchasing a carbon credit. Offsetting is effectuated bypurchasing and retiring an amount of carbon credits equivalent
to the volume of GHG emissions that is being compensated(source: Voluntary Carbon Market Initiative, 2021).

Included Gases included are carbon dioxide, methane, andnitrous oxide. The geographic and physical boundaries set
for scope 1+2 emissions reporting are:Our methodology takes a conservative approach and uses
location-based emission factors unless 100 percent of theelectricity purchased is certified green electricity, in whichcase we assume zero emissions. Where a PMI affiliate classifies
their electricity as green, a green energy certificate must be
submitted to the central sustainability team for validation andmeet the GHG scope 2 emissions protocol requirements. Suchcertificates are verified externally by third parties as part of
the annual data verification process.

On a monthly basis, the amount of energy consumed in PMI’s
direct operations (scope 1+2), by type of energy source4 arereported in PMI’s central environmental management system.
Input data include:

Foster an empowered
and inclusive workplace

Scope

Thereafter, to convert energy units to CO2e emissions, CO2eemission factors per energy type and country are used.
PMI sources emission factors from the U.K. government’s
GHG Conversion Factors for Company Reporting and theInternational Energy Agency’s (IEA) Emissions Factors. In linewith the GHG Protocol guidelines, PMI reports both marketbased and location-based CO2e emissions.

Data management

Reduce postconsumer waste

Definitions

To calculate scope 1+2 emissions, fuel consumption by
type, as well as acquired electricity, steam, heat, or cooling
consumed by PMI, is transformed, if needed, to energy units
using standard conversion factors and calorific values.

Seek net positive
impact in healthcare
and wellness

PMI has set ambitious targets to reduce its
scope 1+2 emissions, including a science-basedtarget to reduce absolute emissions in linewith a 1.5°C scenario, and a goal to achievecarbon neutrality (scope 1+2) by 2025.

Location based Emissions from electricity consumption
calculated based on the national grid of the country where thefacility is located, without taking into consideration an actor’s
specific emissions.

Maximize the benefitsof smoke-free products⓱ Net carbon emissions scope 1 + 2 (metric tons)

32

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

33

Preparation & Reporting

Purposefully
phase out cigarettes

KPI description

Definitions
Calculation methodology

Data Verification PMI’s scope 3 GHG emissions arereviewed and verified annually by an external third party
according to ISO 14064-3:2019 and a verification
statement is available on PMI.com.

Calculation methodology
PMI has a full value chain carbon footprint model in place,which includes Scope 3 FLAG emissions. Our carbon
footprint model is aligned with the GHG Protocol“Corporate Value Chain (Scope 3) Standard” (2011) and“Land Sector and Removals Guidance” (2023). For moredetails on PMI’s accounting methodology, scope, anddata collection process, please refer to PMI’s value chain
Carbon Footprint Executive Summary.
Data Verification PMI’s scope 3 FLAG GHG emissions
are reviewed and verified annually by an external third
party according to ISO 14064-3:2019 as part of PMI’s
carbon footprint verification. The verification statement
is available on PMI.com.
See the external verification statement from
SGS for scope 3 FLAG emissions here

Tackle climate change

See the external verification statementfrom SGS for scope 3 here

Scope 3 FLAG GHG emissions Indirect emissions that result
from PMI’s acquisition of raw materials with a biogenic origin,including but not limited to tobacco, pulp and paper materials,
packaging materials, ingredients, and others.

Improve the qualityof life of people in our
supply chain

PMI has a full value chain carbon footprint model in place,aligned with the GHG Protocol international guidelines.
For details on this methodology, scope, and data collection
process, please refer to PMI’s value chain Carbon Footprint
Executive Summary. The value chain model is calculated
to align with the accepted international standard for
GHG value chain modelling “Corporate Value Chain(scope 3) Accounting and Reporting Standard” publishedby the GHG Protocol.

Science-based targets SBTi is a partnership between CDP, theUN Global Compact, World Resources Institute (WRI), and theWorld Wide Fund for Nature (WWF). Science-based targets
provide a clearly defined path to reduce emissions, helping
prevent the worst impacts of climate change and future-proof
business growth. Targets are considered “science-based” if they
are in line with what the latest climate science deems necessary
to meet the goals of the Paris Agreement—limiting global
warming to 1.5°C above pre-industrial levels.

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Net zero The Intergovernmental Panel on Climate Change(IPCC) defines net zero as the point when “anthropogenic
emissions of greenhouse gases to the atmosphere are balancedby anthropogenic removals over a specified period.” Individual
actors such as companies or public entities are considered tohave reached a state of net zero when: an actor reduces its
emissions following science-based pathways, with any remaining
GHG emissions attributable to that actor being fully neutralizedby like-for-like removals (e.g., permanent removals for fossil
carbon emissions) exclusively claimed by that actor, either within
the value chain or through purchase of valid offset credits.

FLAG targets apply to a company’s Forest, Land
and Agriculture related emissions up to the farmgate, including CO2e emissions related with land
use change (e.g., deforestation, forest degradation,
conversion of wetlands, peatland burning), land
management (e.g., N20 and CH4 from entericfermentation, biomass burning, application offertilizers, manure management) and carbon
removals and storage (e.g., carbon sequestrationfrom improved forest management, agroforestry,
afforestation, soil organic carbon, biochar,technological). PMI has set a science-based target toachieve a 33.3 percent reduction in scope 3 FLAGGHG emissions by 2030 versus 2019 baseline.

Definitions

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Scope 3 GHG emissions Indirect emissions that are aconsequence of the activities of PMI. All scope 3 categories
have been assessed for inclusion within the model, applying
a materiality threshold defined as 5 percent of total scope 3
emissions and in accordance with the “Corporate Value Chain(scope 3) Accounting and Reporting Standard.”

KPI description

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PMI works with carbon experts to develop a full“value chain” carbon footprint model, to help
measure emission reductions. The value chain
model calculates the carbon emissions for eachrelevant scope 3 category and combines these withthe scope 1+2 results (described above). Efforts
to reduce absolute scope 3 emissions in line withthe 1.5°C pathway are critical to PMI’s broader
ambition to achieve net-zero GHG emissions
across its full value chain (scope 1+2+3) by 2040.

Science-based targets SBTi is a partnership between CDP,
the UN Global Compact, World Resources Institute (WRI),
and the World Wide Fund for Nature (WWF). Science-basedtargets provide a clearly defined path to reduce emissions,
helping prevent the worst impacts of climate change and futureproof business growth. Targets are considered “science-based”
if they are in line with what the latest climate science deems
necessary to meet the goals of the Paris Agreement – limiting
global warming to 1.5°C above pre-industrial levels.

⓳ Absolute carbon emissions reduction in scope 3 Forests, Land & Agriculture(FLAG) versus 2019 baseline (in line with science-based target)

Maximize the benefitsof smoke-free products⓲ Absolute carbon emissions reduction in scope 3 versus
2019 baseline (in line with science-based target)

Preserve nature

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Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

35

Preparation & Reporting

Purposefully
phase out cigarettes

Preserve nature

KPI description

Zero gross deforestation Aggregate deforestation for a given
natural forest area (e.g., a forest reserve or natural park within
the tobacco or pulp and paper supply chain); without deduction
for reforestation or other compensation activities.
Zero net deforestation The difference in forest area
between two points in time, taking into account both losses
from deforestation and gains from forest regeneration andrestoration. Net deforestation is measured with reference to agiven geographic area (e.g., a district, state, nation, or globe) anda given timeframe.

Tree plantation A forest predominantly composed of trees
established through planting and/or deliberate seeding thatlacks key elements of a natural forest native to the area, such as
species composition and structural diversity.

• Planted on cleared land
• Intensive use of chemical inputs (fertilizers, pesticides)• Harvested regularly• Trees are of even ages, and• Products from the plantation are managed andprocessed for commercial production• Legal plantations that are sustainably managed, including
on-farm planting• A sustainably managed secondary forest or degraded forest
with no measurable deforestation by spatial analysis tools• Identified invasive exotic species that have not been planted
and require removal according to a thorough ecologicalassessment
Sustainable wood fuel excludes wood fuels derived from:• Unsustainable managed natural forests where deforestation ismeasurable by spatial analysis tools or on-site inspection visits• Plantations resulting from conversion of natural forests
after the set cut-off date

Monitoring and verification framework To ensure
adherence and measure progress toward PMI’s zerodeforestation commitments, PMI provides third-party leaf
suppliers, PMI leaf operations, and contracted farmers withguidelines to deploy a monitoring and verification system(here), including measurement criteria. The monitoring andverification framework for deforestation in PMI’s tobacco
supply chain can be broken down into three main activities.
The first activity is defining and mapping forest types in
TGAs. GPS coordinates of the TGAs, collected by thirdparty leaf suppliers and PMI leaf operations, are mapped
against publicly available sources of forest cover to define
the forest types contained within the TGAs. Forest types
include primary and protected forests, managed naturalforests, or natural ecosystems.
Second, the monitoring of deforestation risk is carried out.
This is typically done at two levels:
1. Supply chain inputs: A monitoring framework forsustainable curing fuels is applied to all TGAs in which
Virginia flue-cured tobacco is cultivated due to theassociated material risk for gross and net deforestation.
Accordingly, all suppliers of Virginia flue-cured tobacco mustrecord and verify the sources of the wood fuel used to curetobacco. A third-party auditor assesses conformity withthe monitoring framework to ascertain sustainability andtraceability of 100 percent of the fuel used to cure tobaccoby contracted farmers.

Preserve nature

Tree plantations generally have one or a few tree species andtend to include one or more of the following characteristics:

Sustainable wood fuel Includes wood fuels derived from:

Calculation methodology

Tackle climate change

Tobacco-growing areas (TGAs) Geographical space that
includes farm area where tobacco cultivation takes place and thepotential area of impact on nature that tobacco-related activities
could generate.

Wood fuel All types of biofuels derived directly and indirectlyfrom trees and shrubs grown on forest and non-forest lands,
from silvicultural activities, harvesting, and logging, as well as
industrial by-products, timber-based fuels such as firewood,pellets, woodchips, and briquettes.

Excluded Loss of forest area resulting from natural
disturbances that are part of the natural life cycle of forestsand characteristic of ecosystem formation and evolution are
not considered in scope of our deforestation commitments.
Artificial plantations.

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Deforestation Loss of natural forest area as a result of:(i) conversion to agriculture or other non-forest land use;(ii) conversion to a tree plantation; or (iii) severe and sustained
degradation (AFi, 2020).

Primary and protected forest Forests that have not been
subject to major human impacts in recent history andpossess many or most of the characteristics of a forest
native to the given site, including species composition,
structure, and ecological function. More specifically,
PMI’s definition of primary and protected forest arethose located inside PMI TGA (see definition on page 34)
that are mapped using publicly available sources.

Included Any forest type and forest management thatcan be directly or indirectly (e.g., biomass for energy intobacco curing) linked to PMI’s tobacco supply chain.
Natural ecosystems that may not be entirely forested, likepeatland or savannah, or unique ecosystems such as the
Cerrado in Brazil or the Miombo forest in Mozambique, arealso in scope. All tobacco-growing areas covered by PMI’s
Integrated Production System (IPS) and monitored by fieldtechnicians or contracted service providers for adherence to
GAP and ALP.

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Cut-off date As defined by the Accountability Framework
Initiatives (AFi, 2020), the cut-off date is “the date after which
deforestation or conversion renders a given area or production
unit non-compliant with no-deforestation or no-conversion
commitments.” The set cut-off date for PMI applies to all
current and future suppliers. Therefore, any new supplier haveto demonstrate their adherence to PMI’s commitment of nodeforestation as of 01 of January 2019, regardless of the year inwhich their engagement with PMI commenced.

Natural forest Forests that possess many or most of thecharacteristics of a forest native to the given site, including
species composition, structure, and ecological function.

Scope

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PMI takes a risk-based approach to monitoring
deforestation in the tobacco supply chain. As
the risk of deforestation related to the curing ofVirginia flue-cured tobacco is considered material,a detailed monitoring process has been establishedto ascertain the sustainability and traceability of
100 percent of the wood fuel used to cure tobaccoby contracted farmers. Additionally, on an ongoingbasis, the risk of deforestation of all tobacco-growing
areas (TGAs) is monitored using externally available
geophysical input data to assess the changes inforest coverage and natural ecosystems inside the
TGAs. This combination of detailed monitoringof potentially high-risk activities and ongoing
monitoring of all tobacco-growing areas forms thebasis of PMI’s risk-based approach to monitoring
deforestation risk in our tobacco supply chain.

Zero Deforestation Manifesto 2.0 (ZDM 2.0) Published in 2021,
the ZDM 2.0 outlines PMI’s commitments to zero gross andzero net deforestation—covering all our relevant tobacco leafsourcing areas (tobacco-growing areas) and defines expectations
against zero gross deforestation of primary and protected
forests and zero net deforestation for natural managed forests inour supply chain.

Natural ecosystem An ecosystem that substantiallyresembles—in terms of species composition, structure,and ecological function—one that is, or would be, foundin a given area in the absence of major human impacts.
This includes human-managed ecosystems where much of
the natural species composition, structure, and ecological
function are present (AFi, 2020). For the scope of thisdocument, the relevant ecosystems are peatland, wetland,savannah, grassland, and semi-forest formations.

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PMI issued an updated Zero Deforestation
Manifesto in 2021, in which the company
reinforced its commitments to measure the impact
on forests linked to PMI’s supply chain. Having
achieved zero gross deforestation of primary andprotected forests in our tobacco supply chain
in 2020, PMI has furthered its commitment bytargeting zero net deforestation of managed
natural forest and no conversion of natural
ecosystems by 2025 for all its tobacco suppliers.

Definitions

Maximize the benefitsof smoke-free products⓴ Proportion of tobacco purchased at no risk of net deforestation of managed
natural forest and no conversion of natural ecosystems

36

Philip Morris International — Sustainability KPI Protocol 2023

Overview

Our Approach

Key Definitions

Preparation & Reporting

37

Purposefully
phase out cigarettes(=

Tobacco at risk of deforestation
purchased at no evident riskof net deforestation
Total tobacco purchased atrisk of deforestation)

X 100%

In cases wherein there will be a tobacco volume purchasedfrom a new market, the percentage of tree cover loss is to bediscounted from the zero net calculation.
Estimates and assumptions Total tobacco purchased by PMI
is based on a full calendar year (January through December)considering the January through September actual purchasedvolumes, combined with the forecasted volume for the period
October through December.

Data management

Preserve nature

Data Verification In addition to verification of the supply
chain inputs and any deforestation events as identified by thelandscape analysis, prior to external reporting, the program
auditor verifies PMI’s assertion of compliance on the global
consolidated tobacco purchased figure at no risk of net
deforestation of managed natural forest and no conversionof natural ecosystems.

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Following the verification process, on an annual basis, theresults of the tobacco supply chain inputs and landscape risk
analysis are consolidated centrally to report the global figureof the proportion of tobacco purchased at no risk of net
deforestation of managed natural forest and no conversionof natural ecosystems in PMI’s tobacco supply chain.

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Supply chain inputs are managed via third-party leaf supplier’s
data collection processes and reported in PMI’s proprietarycuring fuel data monitoring system twice a year. For the
mapping of forest types contained within each TGA, PMI
recommends third-party leaf suppliers and PMI leaf operations
use the Hansen global forest maps available at Global Forest
Watch (GFW). This mapping is maintained in PMI’s Geospatial
analysis tools, with the landscape risk analysis updated on anannual basis following the GFW update in Q4.

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If zero net deforestation is detected by the monitoring
framework indicating unsustainable volumes of firewood
from managed natural forests, the number of hectares
impacted will be compensated to showing that activities toreach the zero net balance are developed at the end of 2025.
Compensation activities must follow the guidelines from themitigation hierarchy (avoid, minimize, restore, transform) andwill have to be proven by a dedicated impact assessment
to validate the intervention has contributed to generate orrestore a natural ecosystem. Regular suppliers, TGAs, andmarkets will be recognized as having achieved zero grossdeforestation or zero net deforestation and no conversionof natural ecosystems when the results of the external audit
will show full compliance with the principles and indicatorsof the monitoring framework. New suppliers, TGAs, andmarkets will be recognized as having achieved zero grossdeforestation when landscape risk analysis is performed,
and when the external audit shows full compliance to thezero gross compliance requirement defined in our monitoring
framework. Zero net deforestation will be recognized
as achieved by new suppliers/markets if traceability andsustainability requirements as described in our monitoring
framework is achieved, and when the external audit shows fullcompliance to the zero net compliance requirement defined in
our monitoring framework.

Proportion of tobacco purchased at no risk of net
deforestation of managed natural forest and noconversion of natural ecosystems.

Reduce postconsumer waste

3. The identified deforestation risk is to be verified. For each
Virginia flue-cured market, the verification is conducted by thethird-party auditor. The outcome is an opinion of complianceagainst the monitoring framework on tobacco-curing fuel.
Additionally, when the annual landscape analysis indicatesan intrinsic risk of a deforestation event in the TGA, suchan event needs to be further confirmed through groundtruthing (i.e., on-site validation) or, when ground-truthing is notapplicable, through verification of the declaration of farmer/
supplier or validation of supporting documents.

Calculation methodology

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2. Landscape analysis is applied to all TGAs, which combines
the GPS data of the TGAs with forest cover maps from Global
Forest Watch or equivalent platforms to assess the change
in forest cover and conversion of natural ecosystems overa defined period. PMI conducts this analysis on an annual
basis and the results provide an indication of the intrinsic risk
toward gross and net deforestation and/or conversion ofnatural ecosystems.

Maximize the benefitsof smoke-free products⓴ Proportion of tobacco purchased at no risk of net deforestation of managed
natural forest and no conversion of natural ecosystems continued

Headquarters
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