PMI’S STATEMENT OF PURPOSE

PMI’S
STATEMENT
OF PURPOSE
PMI believes that with the right regulatory
encouragement and support from civil society,cigarette sales can end within 10 to 15 years
in many countries.

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PMI’S STATEMENT OF PURPOSE

EXCERPT FROM 2020 PROXY STATEMENT
While Philip Morris International Inc. (PMI)
is widely known as a cigarette company, in2016 it announced its new purpose: to deliver
a smoke-free future by focusing its resourceson developing, scientifically substantiating andresponsibly commercializing smoke-free productsthat are less harmful than smoking, with the aimof completely replacing cigarettes as soon as
possible. These innovative alternative products
do not burn tobacco, do not create cigarettesmoke and therefore generate significantly lower
levels of carcinogens and other toxic substances
compared to cigarettes.

Building on the Board’s Letter to Shareholders
in PMI’s 2017 Proxy Statement, we would like toreaffirm PMI’s purpose and acknowledge that, as
the Company continues to transform its businessand organization, its core effort to provide smokefree alternatives that are satisfying to today’sadult smokers—and to work hard to convince
them to switch—will not be enough. The Company
needs to continue earning the trust and active
cooperation of a host of stakeholders, from its
supply chain partners to regulators and publichealth authorities.
A smoke-free future is attainable, and the benefits
it can bring to the people who would otherwise
continue to smoke, and hence to global publichealth, are enormous. However, the Company
cannot succeed alone. Together with governments
and civil society we can maximize this opportunity
through a consensus that smoke-free alternatives,
when subject to proper government oversight andregulation, are part of sound tobacco policy.

“A smoke-free future is attainable,
and the benefits it can bring to thepeople who would otherwise continue
to smoke, and hence to global publichealth, are enormous.

“PMI’S STATEMENT
OF PURPOSE

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PMI’S STATEMENT OF PURPOSE#01
PROVIDINGBETTER
ALTERNATIVESTO CONTINUEDSMOKING

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PMI’S STATEMENT OF PURPOSE

Smoking causes serious disease, and the best way
to avoid the harms of smoking is never to start, orto quit. For decades, tobacco control has focusedon strict fiscal, marketing and other measures todeter initiation and to encourage cessation. These
must be continued. Nevertheless, while smoking
prevalence rates continue to slowly decline,
the World Health Organization projects thatthe estimated number of 1.1 billion people whosmoke tobacco products today will remain largely
unchanged by 2025, reflecting population growth.
Nicotine, while addictive and not risk free, is not
the primary cause of smoking related disease. The
primary cause is the harmful chemicals released
or generated by the burning of tobacco andcontained in the smoke. Eliminating combustion
from nicotine-containing products is the way tosignificantly reduce their toxicity. Thanks to rapid
advances in science and technology, and strong
PMI commitment, these products are now a reality.
Currently, PMI’s smoke-free portfolio comprises
platforms that heat tobacco, vaporize nicotinecontaining liquids or essentially contain
only nicotine, all without combustion. Theirdevelopment and manufacturing follow highstandards of quality and consistency. The scientificevaluation to substantiate their harm reduction
potential compared to cigarette smoking is basedon rigorous pre-clinical and clinical assessments
and sophisticated systems toxicology. The results
are publicly available, are peer-reviewed andhave been submitted to numerous regulatory
authorities including the U.S. Food and Drug
Administration. The totality of the scientificevidence makes the Company confident thatswitching completely to these products is likely topresent less risk of harm than continuing to smoke.
Post-market surveillance is necessary to continuebuilding this confidence, and, over time, quantify
the reduction in morbidity and mortality throughepidemiology.
To be clear, these smoke-free alternatives are notrisk free and should not be used by youth or nonsmokers. For those who use nicotine in any form
it is best to quit completely. The Company must
market them responsibly, so as to minimize any
unintended use, while maximizing the switchingof adult smokers who would otherwise continue
smoking.

“

Eliminating combustion from
nicotine-containing products is
the way to significantly reduce
their toxicity.

“4PMI’S STATEMENT OF PURPOSEWhile cigarette sales today remain the largest
part of PMI’s business in most countries, this ischanging rapidly. In 2019, the Company’s smokefree products were already commercialized in 52
markets and represented 18.7 percent of PMI’s
global revenue, 71 percent of its commercial
expense and 98 percent of its R&D expenditure. Asof December 31, 2019, of the approximately 150
million people who regularly use the Company’sproducts, approximately 14 million already use

IQOS, of whom approximately 9.7 million havestopped smoking and switched to this product.
The Company is actively accelerating the declineof cigarette smoking beyond what can be achievedby traditional tobacco control measures alone.
Going forward, the Company is committed
to providing less harmful alternatives to thehundreds of millions of adult smokers who would
otherwise continue to smoke, 80 percent of whom
PMI estimates are looking for better alternatives.
The Company will do so through a research
agenda to innovate and substantiate a portfolio
of products that are affordable and acceptable forthese smokers in both developed and developing
countries. While PMI will continue to responsibly
sell cigarettes as long as there is a significant
legitimate demand, it will continue focusing its
commercial efforts toward raising awareness of,and informing adult smokers in appropriate ways
about, smoke-free products and the benefitsof switching versus continued smoking. The
Company carefully monitors the results of its
marketing to best ensure its smoke-free products
are not reaching non-smokers, youth or people
who have already quit nicotine use altogether.

“The Company is actively
accelerating the decline ofcigarette smoking beyond what canbe achieved by traditional tobacco
control measures alone.

“IQOS Platform 1, a heat-not-burn tobacco
product, was commercially launched in late 2015
and was very well received by adult smokers,
with conversion rates exceeding 70 percent. Thisconfirmed that the Company had the products
and the science to fulfill its ambition to completely
replace cigarettes. In 2016, with the full support ofthe Board of Directors, the Company announced
its new purpose of delivering a smoke-free future.
Since then the Company has fully aligned its
employees with this purpose, and swiftly shifted itsorganizational focus and resources to smoke-freealternatives. The Company is essentially disrupting
its traditional business from the inside out andis leading the industry in this unprecedentedtransformation.

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PMI’S STATEMENT OF PURPOSE#02
KEY
STAKEHOLDERS
TO DELIVER ASMOKE-FREE
FUTURE

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PMI’S STATEMENT OF PURPOSE

PMI’s key stakeholder constituencies, which are fundamental to achieving its purpose and to the paceof its progress, will be affected in different ways by PMI’s transformation. The Company will seek toengage and collaborate with relevant stakeholders to speed the transformation while mitigating negativeconsequences.

Employees

Public health community

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

The public health community is, unfortunately,polarized on the issue of smoke-free products.
Without question, their work to discourage
youth and nonsmokers from starting to use any
tobacco or nicotine product and to encourage
cessation should continue. At the same time,
when better alternatives to cigarettes exist, thediscussion should not be whether they should bemade available to the more than one billion men
and women who smoke today, but how fast, andwithin what regulatory framework to maximize
their adoption while minimizing unintended use.
The Company is urging this important stakeholder
group to seize the immense opportunity thatsmoke-free products present for advancing publichealth within the present generation of smokers.
PMI asks the public health community to scrutinize
its smoke-free products, to provide feedback for
improvement and to be open to considering that
PMI’s purpose aligns with the societal goal tochange the health trajectories of the people whosmoke.

Regulators can decisively accelerate the industry’s
transformation toward, and the speed at which
adult smokers switch to, smoke-free products byimplementing risk-proportionate regulations andtaxation for all nicotine-containing products andby providing smokers with accurate information.
PMI is committed to engaging transparently withregulators, sharing its scientific research and postmarket data. The Company will be ready to support
an industry-wide gradual phase-out of cigarettes
as soon as a majority of smokers in a country haveswitched to scientifically substantiated smokefree products. PMI believes that with the right
regulatory encouragement and support from civilsociety, cigarette sales can end within 10 to 15years in many countries.

“The Company will seek to engage
and collaborate with relevant
stakeholders to speed thetransformation while mitigating
negative consequences.

“Regulators7

PMI’S STATEMENT OF PURPOSE

People working in the Company’s supply chain
around the world, including tobacco farmers, rely
on PMI for a substantial portion of their income.
PMI deals fairly and ethically with its suppliers,
and is dedicated to acting as a good partner toother companies, large and small, that help meet
PMI’s missions. PMI recognizes that smoke-freeproducts differ from cigarettes and entail change
for some of its supply chain partners, and PMI isready to help them in this transition.

Shareholders
The Company is confident of the business
opportunity that smoke-free products bring. It isleading this new highly promising category and isdedicated to ensuring its shareholders continue
to receive strong and sustainable financial returns
over time, while recognizing the initial uncertainty
that transforming the Company’s business model
may bring. We are aware of the growing investor
movement in select geographies to exclude
tobacco from portfolios, but we do not believethat exclusion will convince people who smoke
to quit or to improve their lives. On the contrary,by investing in PMI—a tobacco company that isaiming to end cigarette sales—and holding theCompany accountable to its purpose and targets,investors can combine positive societal impact
with long-term financial returns. The Company
welcomes suggestions, pressure and support
from engagement with both current and potential
investors.

Civil society
Continued engagement and partnerships withcivil society remain essential to the Company’s
success. PMI respects the many communities
around the world where it operates. PMI works
hard to protect the environment throughsustainable practices across its businesses and toaddress both existing social and environmental
challenges, such as child labor in tobacco growing,
and emerging topics pertaining to its business
transformation, such as helping tobacco farmers
to diversify their crops. The scope, metrics andprogress of these practices are outlined in PMI’sannual Sustainability Report, published on PMI’swebsite.

“PMI works hard to protect
the environment throughsustainable practices acrossits businesses and to address
both existing social andenvironmental challenges.

“Supply chain8

PMI’S STATEMENT OF PURPOSE#03
MEASURINGDELIVERY9

PMI’S STATEMENT OF PURPOSEThe Company understands the need to continue
to build legitimacy and trust by being honest,
respectful, fair and transparent, and by aligning
actions with words across all areas of its business.
To make the Company’s progress in delivering
its smoke-free vision verifiable, it introduced aset of business transformation metrics, which it
publishes every year. As outlined previously, there
has already been significant progress.

the Company’s purpose is achieved throughthe appropriate structures, systems, processes
and people. The Board oversees management’sefforts to enhance shareholder value responsibly
and sustainably over the long term in ways thatare consistent with the Company’s purpose.
Transparency and engagement between theBoard and management are paramount, and therelationship is excellent.

To assess the impact of PMI’s current and future
value chains on society and the environment,
the Company regularly conducts sustainability
materiality analyses and measures its performancethrough financial, environmental and social metrics
that are key to a sustainable corporate strategy.

In conclusion, PMI is fully committed to its
corporate purpose of delivering a smoke-freefuture.

“The Company understands
the need to continue to build
legitimacy and trust by being
honest, respectful, fair andtransparent, and by aligning
actions with words across allareas of its business.

“The Compensation and Leadership Development
Committee of the Board has ensured a stronglink between executive compensation andboth short- and longterm performance towardachieving the Company’s smoke-free ambition.
It is management’s responsibility to ensure that10

PMI’S STATEMENT OF PURPOSE

PMI’S BOARD OF DIRECTORS

André Calantzopoulos

Jennifer Li

Lucio A. NotoLouis C. Camilleri

Jun Makihara

Frederik Paulsen

Werner Geissler

Kalpana Morparia

Robert B. Polet

Lisa A. Hook

A Statement of Purpose is a declaration, issued by a company’s boardof directors, that clearly articulates the company’s purpose and how toharmonize commercial success with social accountability and responsibility.
It specifies within that purpose those stakeholders most critical to long-termvalue creation and sustainability. On March 26, 2020, PMI published its
2020 Proxy Statement, which contained a Letter from the Board of Directorsthat corresponds to PMI’s Statement of Purpose. The groundwork for theStatement of Purpose was laid in the 2017 Proxy Statement in a letter toshareholders from the Board of Directors announcing for the first time ourcompany’s smoke-free vision.

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