Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Welcome to your CDP Forests Questionnaire 2020
F0. Introduction
F0.1(F0.1) Give a general description of and introduction to your organization.
Philip Morris International Inc. (PMI) is a leading international tobacco company. PMI has its
executive headquarters in New York, US, has its primary listing on the New York Stock
Exchange (NYSE: PM), and has its Operations Center in Lausanne, Switzerland.
PMI manufactures and sells cigarettes, smoke-free products and associated electronic devices
and accessories, and other nicotine-containing products in markets outside of the U.S. We
have a wide range of cigarette brands, including the world’s best-selling international cigarette
Marlboro. Our smoke-free product portfolio includes heat-not-burn and nicotine-containing
vapor products. In 2019, PMI net revenues amounted to USD 29.8 billion excluding excise
taxes on products worth USD 50.2 billion, on a like-for-like basis; 18.7% of PMI’s net revenues
in 2019 related to the sale of smoke-free products. PMI’s 2019 total shipment volume forcigarette and heated tobacco units was 766.4 billion (706.7 billion cigarettes and 59.7 billion
heated tobacco units).
We are building our future on smoke-free products that are a much better consumer choicethan continuing to smoke cigarettes. Our vision is that these products ultimately replacecigarettes to the benefit of adult smokers, society, our company and our shareholders. This
ambition is at the very core of our corporate strategy and sits atop our sustainability priorities.
For PMI, sustainability means creating long term value while minimizing the negative
externalities associated with our products, operations and value chain. We are committed toaddress the impact on the communities and the environment across our value chain. We havea global footprint: as of December 31, 2019, PMI had a workforce of around 73,500 people
worldwide and operated 38 production facilities globally. In 2019, our tobacco was sourced
from over 335,000 contracted farmers across 24 countries, and our products were sold in over
180 markets.
To help us prioritize our focus and resources in areas where we can have the greatest impact,
we refreshed our sustainability materiality analysis in 2019. Climate protection, littering
prevention and product eco-design and circularity are tier 1 environmental topics that areprioritized in our sustainability strategy.
Engagement beyond our own operations is key, as this is where the most significant
sustainability impacts occur, especially when it comes to climate change and carbon emissions.
Our business has a significant, global supply chain organized by five main categories:
1. Agricultural products: ranging from tobacco growers to producers of other agricultural
products, such as clove, menthol and guar gum.
2. Direct materials used to produce cigarettes and other tobacco products, such as acetate tow(for cigarette filters) and paper (both cigarette paper and for packaging materials).
3.Machines for our cigarette and heated tobacco products factories, a highly specialized
industry.
4. Electronic devices for heated tobacco and vapor products.
1

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

5. Goods and services that are not specific to the tobacco business, but essential for any
business, such as office equipment etc.
As a responsible business, we want to understand and continuously address potential
sustainability issues in our global supply chain. We are working with business partners toproactively identify, manage, and reduce risks, and create shared value.
The description above is a summary and is qualified in its entirety by reference to the full text of
PMI’s Annual Report on Form 10-K for the year ended 2019 filed with the U.S. Securities andExchange Commission, and the full text of PMI’s Integrated Report 2019
Remarks for this disclosure:- In this submission, “PMI,” “we,” “us” and “our” refer to Philip Morris International Inc. and its
subsidiaries;- In this submission, we reference information reported in the 2020 Proxy Statement dated
March 26th, 2020; 10-K filed February 7th, 2020 with the SEC; and PMI’s Integrated Report2019;- Trademarks and service marks in this submission are the registered property of, or licensed
by, the subsidiaries of Philip Morris International Inc;
-Expectations, aspirational targets and goals set forth in this submission do not constitutefinancial projections;- Smoke-Free Products or Reduced-Risk Products (RRPs) - the terms PMI uses to refer toproducts that present, are likely to present, or have the potential to present less risk of harm tosmokers who switch to these products versus continued smoking. PMI has a range of RRPs invarious stages of development, scientific assessment and commercialization;- Materiality: In this submission and in related communications, the terms “materiality,”“material” and similar terms, when used in the context of economic, environmental, and social
topics, are defined in the referenced sustainability standards, and are not meant to correspondto the concept of materiality under the U.S. securities laws and/or disclosures required by the
US Securities and Exchange Commission.

F0.2(F0.2) State the start and end date of the year for which you are reporting data.
Reporting year

Start Date

End Date

January 1, 2019

December 31, 2019

F0.3
(F0.3) Select the currency used for all financial information disclosed throughout yourresponse.
USD

F0.4(F0.4) Select the forest risk commodity(ies) that you are, or are not, disclosing on. For
each forest risk commodity selected, identify the stages of the supply chain which
best represents your organization’s area of operation.

2

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Commodity
disclosure

Stage of thevalue chain

Explanation if not disclosing

Timber
Disclosing
products

Manufacturing

Palm oil

Manufacturing

PMI sources roughly 8,000 metric tons of vegetal
glycerin derived from the production of biodiesel
using palm oil as feedstock. The palm oil needed to
produce this amount of vegetal glycerin is less than
0.01% of global palm oil production. According to
PMI’s deforestation risk assessment if PMI’s market
share of the commodity is lower than 2% and thecommodity is sourced on a small scale where theoverall impact on deforestation is low then thecommodity does not represent a material risk of
deforestation. Results from PMI’s deforestation risk
assessment within the value chain indicated that
palm oil does not represent a material risk of
deforestation for PMI due to the very low amount ofpalm oil that goes into PMI products. Palm oil basedor containing glycerin represents less than 1.5% of
the total Direct Material weight [tons] sourced by PMI
based on agricultural raw material. Finally, palm oilbased glycerine is widely sourced from fully or partly
RSPO certified suppliers, lowering again the risk of
deforestation.

Manufacturing

PMI sources around 750 metric tons of vegetal
glycerin derived from the production of biodiesel
using soy as feedstock. The soy needed to produce
this amount of vegetal glycerin is less than 0.0002%of global soy production. According to PMI’s
deforestation risk assessment if PMI’s market shareof the commodity is lower than 2% and thecommodity is sourced on a small scale where theoverall impact on deforestation is low then thecommodity does not represent a material risk of
deforestation. Results from PMI’s deforestation risk
assessment within the value chain indicated that soy
does not represent a material risk of deforestation
for PMI due to the very low amount of soy that goes

Not disclosing

CattleThis commodity is
products not produced,
sourced or usedby ourorganization
Soy

Not disclosing

3

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

into PMI products: Soy oil based or containing
glycerin represents close to 0% of the total Direct
Material weight [tons] sourced by PMI based on
agricultural raw material.
Other RubberThis commodity is
not produced,
sourced or usedby ourorganization

Other Cocoa

Not disclosing

Other Coffee

This commodity is
not produced,
sourced or usedby ourorganization

Manufacturing

PMI sources roughly 320 tons of cocoa products forflavour production. This amount compared with theglobal production of cocoa stands at about 0.007%,a very low volume. According to PMI’s deforestation
risk assessment if PMI’s market share of thecommodity is lower than 2% and the commodity issourced on a small scale where the overall impact
on deforestation is low then the commodity does not
represent a material risk of deforestation. Cocoa
powder represents close to 0% of the total Direct
Material weight [tons] sourced by PMI based on
agricultural raw material and above 85% of thecocoa volume is sourced from companies holding
cocoa sustainability certifications.

F0.5(F0.5) Are there any parts of your direct operations or supply chain that are notincluded in your disclosure?
No

F1. Current stateF1.1(F1.1) How does your organization produce, use or sell your disclosed
commodity(ies)?
Timber products
Activity4

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Using as input into manufacturing process for power generation
Using as input into product manufacturing
Distributing/packaging

Form of commodity
Paper
Boards, plywood, engineered woodPrimary packaging
Secondary packaging
Tertiary packaging
Cellulose-based textile fiber
Wood-based bioenergy
Other, please specify
Fine paper

SourceSmallholders
Multiple contracted producers
Contracted suppliers (manufacturers)

Country/Area of origin
Argentina
Australia
Austria
BelarusBelgium
Bosnia & Herzegovina
BrazilBulgaria
CanadaChile
China
Croatia
Czechia
Denmark
Estonia
FinlandFranceGermany
Hungary
Indonesia
IrelandItaly
LatviaLithuania
Luxembourg
Malawi5

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Malaysia
Mozambique
Netherlands
New Zealand
NorwayPakistan
Philippines
PolandPortugal
Romania
Russian Federation
SerbiaSlovakia
Slovenia
Spain
SwedenSwitzerland
ThailandUkraineUnited Kingdom of Great Britain and Northern Ireland
United States of America
Uruguay% of procurement spend
6-10%

Comment
The percentage is calculated based on the total supply chain spend which includes
direct and indirect materials and services, technical procurement, RRP devices, R&D
and Leaf Procurement. The countries of origin listed are the countries from where thewood-based materials are sourced from, either as wood fuels or as paper and pulpbased products for packaging materials. Both board and paper used for packaging
together account for 3% of the total supply chain spend described above. Fine papers
are specialty papers that are used exclusively for tobacco products and account foraround 3% of the total supply chain spend described above. Acetate tow used in ourfilters, made out of acetate cellulose, and accounts for around 3% of the total supply
chain spend described above. The spend with firewood and biomass from wood fiberused in the tobacco curing process for the flue cured tobacco purchased in 2019 isestimated at less than 1% of the total supply chain spend described above, summing up
to around 10%. The disclosure is organized using the same categories (i.e. board andpaper, fine papers, acetate tow and firewood and biomass from wood fiber) used by PMI
to manage the supply chain of timber products. The same categories were used in the
deforestation risk assessment of PMI’s value chain, which has been the basis for setting
priorities for further managing deforestation risks. Therefore, PMI has decided to use thesame categories in its disclosure. This share is based on the total supply chain spend as
described above.

6

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F1.2
(F1.2) Indicate the percentage of your organization’s revenue that was dependent on
your disclosed forest risk commodity(ies) in the reporting year.

Timberproducts% of revenue
dependent oncommodity

Comment

100%

100% of PMI heated tobacco units, cigarettes and other nicotinecontaining products require timber derivative products.
Additionally, PMI uses board and paper for packaging of the
majority of PMI’s products.

F1.5(F1.5) Does your organization collect production and/or consumption data for yourdisclosed commodity(ies)?
Data availability/Disclosure
Timber products

Consumption data available, disclosing

F1.5a(F1.5a) Disclose your production and/or consumption data.

Forest risk commodity
Timber products

Data type
Consumption data

Volume977,812

MetricMetric tons

Data coverage
Full commodity production/consumption

Please explain

7

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F1.5b
(F1.5b) For your disclosed commodity(ies), indicate the percentage of the
production/consumption volume sourced by national and/or sub-national jurisdictionof origin.

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Bahia% of total production/consumption volume
7.61

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Bahia refers to biomass from wood fiber.
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data [information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered). The volume sourced fromone specific supplier, which did not provide quantitative origin data, was assigned asoriginated solely from Bahia. Considering this supplier sources from Florida (US) andBahia (BR) (publicly available information), the assumption reflects the worst-casescenario as Brazil is considered a forest risk country.

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Espirito Santo
8

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,2020% of total production/consumption volume
0.2

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Mato Grosso do Sul% of total production/consumption volume
0.26

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Minas Gerais% of total production/consumption volume
0.55

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They are
9Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

based on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Sao Paulo% of total production/consumption volume
0.42

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Santa Catarina% of total production/consumption volume
5.94

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Santa Catarina refers to firewood.

10

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Rio Grande do Sul% of total production/consumption volume
10.48

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Rio Grande do Sul refers to firewood.

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Parana% of total production/consumption volume
4.73

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information and the source offirewood. PMI’s monitoring framework has been verified by a third party since 2018. The
curing fuel originated from Parana refers to firewood.
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

11

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Forest risk commodity
Timber products

Country/Area of origin
Argentina

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Buenos Aires% of total production/consumption volume
0.05

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
Argentina

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Salta% of total production/consumption volume
0.43

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Salta refers to firewood. PMI developed
deforestation risk maps for countries where farmers use firewood for tobacco curing andwhere medium to high deforestation risks were identified in the initial high-level global
deforestation assessment. A deforestation risk map was developed for Argentina. As an
input for the development of the deforestation risk map, PMI requires tobacco leaf
suppliers to provide the exact location of their contracted farmers to create the map.

12

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Additionally, PMI has also identified the distance that tobacco farmers travel to source
firewood through the development of local forest risk maps with the support of an
external consultant. Therefore, PMI can identify the municipality where the wood fuel issourced from.

Forest risk commodity
Timber products

Country/Area of origin
Argentina

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Jujuy% of total production/consumption volume
0.08

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Jujuy refers to firewood. PMI developed
deforestation risk maps for countries where farmers use firewood for tobacco curing andwhere medium to high deforestation risks were identified in the initial high-level global
deforestation assessment. A deforestation risk map was developed for Argentina. As an
input for the development of the deforestation risk map, PMI requires tobacco leaf
suppliers to provide the exact location of their contracted farmers to create the map.
Additionally, PMI has also identified the distance that tobacco farmers travel to source
firewood. Therefore, PMI can identify the municipality where the wood fuel is sourced
from.

Forest risk commodity
Timber products

Country/Area of origin
Colombia

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Capitanejo% of total production/consumption volume

13

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

0.03

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Capitanejo refers to firewood.

Forest risk commodity
Timber products

Country/Area of origin
Mozambique

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Zambezia% of total production/consumption volume
5.6

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Zambezia refers to firewood. PMI developed
deforestation risk maps for countries where farmers use firewood for tobacco curing andwhere medium to high deforestation risks were identified in the initial high-level global
deforestation assessment. A deforestation risk map was developed for Mozambique. As
an input for the development of the deforestation risk map, PMI requires tobacco leaf
suppliers to provide the exact location of their contracted farmers to create the map.
Additionally, PMI has also identified the distance that tobacco farmers travel to source
firewood. Therefore, PMI can identify the municipality where the wood fuel is sourced
from.

Forest risk commodity
Timber products

Country/Area of origin
Indonesia

14Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Riau% of total production/consumption volume
0.04

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
ThailandState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Kanchanaburi% of total production/consumption volume
0.2

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered).

Forest risk commodity
Timber products

Country/Area of origin
Indonesia

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Lombok% of total production/consumption volume
3.46
15

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Lombok refers to firewood and biomass from woodfiber. PMI developed deforestation risk maps for countries where farmers use firewood
for tobacco curing and where medium to high deforestation risks where identified in theinitial high-level global deforestation assessment. A deforestation risk map wasdeveloped for Indonesia in 2016 and reviewed with additional information in 2018. As an
input for the development of the forest risk map, PMI requires tobacco leaf suppliers toprovide the exact location of their contracted farmers. Additionally, PMI has also
identified the distance that tobacco farmers travel to source firewood. Therefore, PMI
can identify the municipality where the wood fuel is sourced from.

Forest risk commodity
Timber products

Country/Area of origin
Philippines

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Ilocos Norte% of total production/consumption volume
0.83

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. The curing fuel originated from Ilocos Norte refers to firewood.

Forest risk commodity
Timber products

Country/Area of origin
Philippines

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
16

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Ilocos Sur% of total production/consumption volume
1.95

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information the source offirewood. PMI’s monitoring framework has been verified by a third party since 2018. The
curing fuel originated from Ilocos Sur refers to firewood.

Forest risk commodity
Timber products

Country/Area of origin
Philippines

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Claveria% of total production/consumption volume
0.16

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding and thesource of curing fuel. PMI’s monitoring framework has been verified by a third party
since 2018. The curing fuel originated from Tabuk refers to biomass from wood fiber.

Forest risk commodity
Timber products

Country/Area of origin
MexicoState or equivalent jurisdiction
Specify state/equivalent jurisdiction
Nayarit% of total production/consumption volume
0.32

17

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Please explain
In 2019 PMI continued to implement a harmonized and verifiable monitoring framework
to allow monitoring of progress towards PMI’s goals on sustainable leaf curing fuel. As
part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of curing fuel. PMI’s monitoring framework has been verified by a third party
since 2018. The curing fuel originated from Nayarit refers to biomass from wood fiber.

Forest risk commodity
Timber products

Country/Area of origin
Malaysia

State or equivalent jurisdiction
Specify state/equivalent jurisdiction
Sabah% of total production/consumption volume
0.11

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered). In the case of one specificsupplier the qualitative information provided specified origins in Malaysia (Sabah) andIndonesia without details of the volume split by origin. Considering both countries aredefined as forest risk countries, an equal split of the volume between these origins was
assumed.

Forest risk commodity
Timber products

Country/Area of origin
Australia

State or equivalent jurisdiction
Don't know

% of total production/consumption volume
0.08

Please explain

18

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered). In this case, supplier did notprovide the expected level of details, stating origin at country level only and mentioninga regional information too vague to be considered.

Forest risk commodity
Timber products

Country/Area of origin
BrazilState or equivalent jurisdiction
Don't know

% of total production/consumption volume
1.32

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
quantitative data (in percentage of total volume delivered). In this case, supplier did notprovide the expected level of details, stating origin at country level only and mentioning
several states or jurisdiction of origin with no split of respective volumes.

Forest risk commodity
Timber products

Country/Area of origin
Indonesia

State or equivalent jurisdiction
Don't know

% of total production/consumption volume
1.5

Please explain
Direct Materials’ traceability data are tracked on a yearly basis for paper and pulp-based
products (acetate tow, board and paper used for packaging and fine papers). They arebased on previous year actuals deliveries. We request suppliers to provide qualitative
data (information requested down to Forest Management Units location) as well as
19

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

quantitative data (in percentage of total volume delivered). In this case, supplier did notprovide the expected level of details, stating origin at country level only and mentioning
several states or jurisdiction of origin with no split of respective volumes.

Forest risk commodity
Timber products

Country/Area of origin
Any other countries/areas

State or equivalent jurisdiction% of total production/consumption volume
50.48

Please explain
The above-mentioned volume refers to the sum of wood fuels for tobacco curing andpaper and pulp-based direct materials sourced in 2019 which did not originate fromforest risk countries as per CDP Guidance (Austria, Belarus, Belgium, Bosnia, Bulgaria,
Canada, Chile, China, Croatia, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malawi, Netherlands,
New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, Serbia, Slovakia,
Slovenia, Spain, Sweden, Switzerland, Ukraine, United Kingdom, Uruguay, U.S.A).
Nonetheless, in 2019 PMI continued to implement a harmonized and verifiable
monitoring framework to allow monitoring of progress towards PMI’s goals on
sustainable leaf curing fuel in the markets from where we source Virginia Flue-Cured.
As part of this monitoring framework, tobacco leaf suppliers are required to report on thelocation of their contracted tobacco farmers and to collect information regarding thesource of firewood. PMI’s monitoring framework has been verified by a third party since
2018. Direct Materials’ traceability data are tracked on a yearly basis for paper and pulpbased products (acetate tow, board and paper used for packaging and fine papers).
They are based on previous year actuals deliveries. We request suppliers to provide
qualitative data (information requested down to Forest Management Units location) as
well as quantitative data (in percentage of total volume delivered). For the countries not
identified as a high-risk country in our risk analysis, suppliers were not requested todisclose at a level of detail beyond country level.

Forest risk commodity
Timber products

Country/Area of origin
Unknown origin

State or equivalent jurisdiction
20

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,2020% of total production/consumption volume
3.17

Please explain
Despite our efforts to engage with our paper and pulp-based direct material suppliers toprovide quantified traceability data, we have faced reluctance to disclose such level of
information from some players of specific paper and pulp-based products industries.
Furthermore, some major partners of ours have explained that such information is
proprietary and refer to trade secrets of their product manufacture. The tree species
they use in the recipe of their products is an element that distinguish acetate tow gradesand qualities from their competitors. Hence by disclosing the countries of origin as wellas the proportional quantities in use, competitors could recover on their competitive,
distinctive advantages.

F1.6(F1.6) Has your organization experienced any detrimental forests-related impacts?
Yes

F1.6a
(F1.6a) Describe the forests-related detrimental impacts experienced by yourorganization, your response, and the total financial impact.

Forest risk commodity
Timber products

Impact driver typePhysicalPrimary impact driver
Forest fires

Primary impact
Supply chain disruption

Description of impact
With climate change causing weather patterns across the globe to change dramatically,
local impacts become increasingly evident. The occurrence of forest fires during 2019were cause for global alarm, affecting also countries from where we source tobacco.
The losses in forest cover, primary but also secondary ones, contribute to land usechange adding to the pressure on the demand for sustainable wood-based materials.
The curing of Virginia Flue-Cured tobacco (FCV) is a process highly dependent on fuels,
for which firewood and biomass are commonly used (58% of the FCV sourced by PMI in
2019 was cured with wood fuels). For example, 100% of the FCV volume sourced in
21Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
20202019 from Brazil was cured with firewood and woodchips coming from sustainably
managed secondary forests. In Brazil alone an estimated 1.4 million hectares of primary
forest were lost during last year, with fires playing a large role in the destruction ofnatural ecosystems. Due to an increase in forest cover loss, the availability ofsustainable wood products from secondary forests is impacted, generating knock on
effects in the supply of sustainable and traceable firewood and wood-based fuels for
tobacco curing in line with PMI’s requirements. The impacts experienced so far have notbeen substantive according to the company’s definition of financial and strategic
substantive impact (threshold of $5 million). However, PMI continues to monitor them as
they could potentially become more substantial.

Primary response
Tighter supplier performance standards

Total financial impact
4,500,000

Description of response
PMI is responding to this issue by involving multiple stakeholders within and beyond thecompany, with its senior management (for example, our SVP Operations) andsustainability teams for the creation of policies, procedures and targets to achieve fulltraceability and sustainability of wood fuels for tobacco curing. Within PMI’s supply
chains, we work with tobacco leaf suppliers through the application of the Monitoring
Framework (MF) for Sustainable Curing Fuels that all tobacco suppliers should comply
with by 2020. The MF verification process is performed by a third-party and the firstcycle will be concluded by 2020. Outcomes to date include the development of PMI’s
forests policy and traceability commitment (which have led to the sourcing of more than
85% sustainable wood fuels for tobacco curing in 2019), development of a deforestation
risk assessment, and country specific programs to tackle deforestation. E.g., in Brazil athorough analysis of the forest management system relevant to the local wood-based
fuel supply was done in 2019 following a multi stakeholder approach. The results of thisassessment were used by local farmers and suppliers to drive actions to ensure therequirements of the MF are met. The indicated financial impact ($4.5 million) refers to
the set annual budget, incl. costs associated to execute our Good Agricultural Practices
Program, initiatives to address deforestation issues in our tobacco supply chain andcosts to implement and verify the MF.

Forest risk commodity
Timber products

Impact driver type
Reputational and markets

Primary impact driver
Uncertainty about product origin and/or legality

Primary impact
22

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Brand damage

Description of impact
Deforestation is a global issue with local impact. PMI sources tobacco from somemarkets subject to risk based on their current or future risk of deforestation, bringing
concerns at reputational level on how to tackle issues. This is the case for PMI’s
sourcing from tropical and subtropical countries such as Brazil and Indonesia, where
deforestation continues to be an issue threatening local populations and natural
ecosystems. Failing to address deforestation and to secure sustainable, deforestationfree raw materials from at risk countries could prevent PMI from achieving its Zero
Deforestation Manifesto (ZDM) targets and damage the brand. In 2019, attention frompublic and international organizations on environmental impacts from tobacco industry
continued to increase. Land use change and associated impacts on ecosystem services
were particularly relevant, e.g. as published in 2019 in an article by the Swedish Royal
Academy of Science. Even though PMI has significantly increased traceability of its
paper and pulp-based materials, there is a share that remains uncertain (3.17%). PMI
will prioritize engagement with these suppliers in the future to ensure their products arein line with PMI’s ZDM requirements. The impacts experienced so far have not been
substantive according to the company’s definition of strategic and financial substantive
impact ($5 million). However, PMI continues to monitor them as they could potentiallybecome more substantial.

Primary response
Greater traceability of forest-risk commodities

Total financial impact
4,500,000

Description of response
PMI is responding to this issue by involving multiple stakeholders within and beyond thecompany. Within the company, PMI has involved its senior management (for example,
our SVP Operations) and sustainability teams for the creation of policies, procedures
and targets to achieve zero deforestation supply chains. As part of this effort, PMI set atarget to source 100% of the wood fuel for tobacco curing as traceable and sustainablewith progress being audited by a third party by 2020. Within PMI’s supply chains, thecompany is working with tobacco leaf suppliers through the application of the Monitoring
Framework (MF) for Sustainable Curing Fuels that all tobacco leaf suppliers should
comply with. Outcomes to date include the development and implementation of PMI’s
forests policy and traceability commitment (which led to sourcing of over 85%
sustainable wood fuels for tobacco curing in 2019), the development of a deforestation
risk assessment, and country specific programs to tackle deforestation. The indicatedfinancial impact ($4.5 million) includes the costs associated with the set annual budget
to execute our Good Agricultural Practices Program and initiatives to also address
deforestation issues in our tobacco supply chain. The annual budget is allocated toinitiatives to catalyze the adoption of improved and innovative practices by the farmers
in our supply chain, such as adoption of bulk tobacco curing barns. It also includes thecosts to implement and verify the MF.

23

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F2. Procedures
F2.1(F2.1) Does your organization undertake a forests-related risk assessment?
Yes, forests-related risks are assessed

F2.1a(F2.1a) Select the options that best describe your procedures for identifying andassessing forests-related risks.
Timber products
Value chain stage
Direct operations
Supply chain

Coverage
Full

Risk assessment procedure
Assessed as part of other company-wide risk assessment system

Frequency of assessment
Annually

How far into the future are risks considered?
> 6 years

Tools and methods used
Internal company methods
External consultants
National specific tools and databases
Other, please specify
Big Chain Tool

Please explain
External consultants were hired to develop PMI’s deforestation risk assessment. The
scope of the assessment included PMI’s entire value chain, focusing on global materials
sourced for manufacturing purposes, that could be linked to agriculture or mining (maindrivers of deforestation). The risk assessment follows a relevance assessment toprioritize materials through two indicators: global deforestation impact of the material,
and PMI’s sourcing origins, weighted by PMI’s market share per material. The analysis
included national specific data on land use cover, deforestation trends, emissions fromdeforestation, availability of certified materials, corruption, and other data for all markets.
To assess the deforestation impact of land use change, PMI used the BigChain Tool
(BCT). The BCT was used to execute a rapid screening of deforestation linked to24Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

commodity production and identify risks on a geographic basis. The BCT assessed
impact of land use change associated with the expansion of tobacco farming for all
countries where PMI sources tobacco. From this prioritization exercise, targeted risk
assessments were implemented for tobacco leaf and priority paper and pulp-based
products. Furthermore, deforestation risk maps were developed for countries where
farmers use firewood for tobacco curing and where medium to high deforestation risks
were identified. Internal company methods were used to assess risks associated withthe use of timber for tobacco curing barn construction. The PMI global forest risk map
was refreshed in 2019, updating indicators for deforestation risks and the volume
allocation per market. The results showed that five countries (AR, BR, ID, MZ, TZ) had
deforestation that could be associated with tobacco farming. Nonetheless, as a result ofa low potential impact and strong mitigation actions already in place, such as theimplementation of PMI’s Monitoring Framework, the overall estimated risk for PMI is low.
These methods were selected as PMI considered that only through a combination of
methods PMI could assess all the risks associated to its different commodities,
processes and locations. These have been effective at identifying all the relevant risks
for PMI’s operations, which has enabled the company to engage key suppliers anddevelop strategies to mitigate risks from those materials that could represent the highest
risks to forests.

F2.1b(F2.1b) Which of the following issues are considered in your organization's forestsrelated risk assessment(s)?
Availability of forest risk commodities
Relevance & inclusion
Relevant, always included

Please explain
This issue is important because the availability of timber is key as fuel for tobacco
curing, and to produce paper and pulp-based products such as fine papers andcellulose acetate tow for the manufacture of heated-tobacco units and cigarettes.
Therefore, assessing the availability of timber is important to ensure PMI’s future ability
to manufacture its main products. Decreased availability of timber would impact theentire value chain. To assess this issue, PMI uses its comprehensive deforestation risk
assessment as the main tool to identify forest-related risks in our supply chain andderive further interventions (including national specific tools and databases, and internalmonitoring tools). As a result, the Monitoring Framework for Sustainable Leaf Curing
Fuel (internal company methods) was developed and its implementation enables
tobacco leaf suppliers to show that their contracted farmers have identified traceable
and sustainable fuel sources year on year. They can do so by providing proof of longterm contracts with compliant fuel vendors or by presenting a dedicated study on thesustainable sourcing of the fuel. The assessment also considers existing mitigation
actions implemented by tobacco leaf suppliers, for example, the establishment andsustainable management of farmer-owned woodlots to ensure the availability of25

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

sustainable wood fuel now and in the future. Results from the assessment are used to
inform PMI’s sustainability and sourcing strategies, and to identify key suppliers who
may require further technical assistance and capacity building. Through a third-party
PMI then assesses the share of tobacco leaf suppliers and farmers that comply with theMonitoring Framework requirements, validating the effectiveness of program andsafeguarding the future availability of sustainably sourced wood fuel.

Quality of forest risk commodities
Relevance & inclusion
Relevant, always included

Please explain
The type of wood and tree species used as fuel for tobacco curing (i.e. tobacco drying
process) can impact the curing efficiency and therefore the amount of fuel needed tocure the Virginia tobacco. Virginia tobacco is flue-cured, which means that the leaves
are placed in curing barns, where heated air is generated to dry the leaves. As tobaccois the main ingredient in the manufacture of PMI’s products, this issue can impact theentire value chain. To assess this issue, PMI uses its comprehensive deforestation risk
assessment as the main tool to identify forest-related risks in our supply chain andderive further interventions (including national specific tools and databases, and internalmonitoring tools). As a result the Monitoring Framework for Sustainable Leaf Curing
Fuel (internal company methods) was developed and its implementation enables
tobacco leaf suppliers to identify the tree species used for firewood, guarantee that their
origin is sustainable and report on their use for tobacco curing. Results from theassessment are used internally to develop initiatives that encourage farmers to use
more efficient types of fuel, for example through the prioritization of wood fuels withhigher calorific properties to reduce fuel consumption and optimize the curing process,with the provision of technical assistance to farmers on how to manage biomass fuels to
optimize their performance.

Impact of activity on the status of ecosystems and habitats
Relevance & inclusion
Relevant, always included

Please explain
This issue is important to PMI because of our supply chain and the nature of thematerials we source, can be linked to deforestation activities and have an impact on
ecosystems and habitats. Failure to comply with ecosystems and habitats conservation
regulations across our supply chain could generate potential negative impacts on PMI’s
brand reputation which could affect PMI’s revenue and PMI’s business. PMI assesses
this issue through a deforestation risk assessment of its entire value chain, involving
external consultants and using national specific databases. Results show the main
deforestation risks arise from the use of firewood and the sourcing of paper and pulpbased products. The risk assessment covered all the paper and pulp-based products
suppliers and countries of origin, as well as all the countries where firewood is used for
tobacco curing. Additionally, PMI developed deforestation risk maps for countries where
26

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

farmers use firewood for tobacco curing and where medium to high deforestation risks
were identified in the initial high-level global deforestation assessment (BigChain Tool).
Forest risk maps for relevant countries were updated in 2019 by also analyzing theimpact of tobacco curing on forests surrounding tobacco farms. Results from thisassessment are used to inform PMI’s sustainability strategy and to develop additional
initiatives to mitigate the identified risks. For example, the Monitoring Framework wasdeveloped as a result of the identification of global deforestation risks associated withtobacco curing. Through the Monitoring Framework concrete measures towards forest
protection, including ecosystem and habitat conservation, are required andimplemented. In 2019 PMI formalized its commitment to sourcing wood-based materials
from traceable, sustainable and legal sources, while protecting the rights and livelihoodsof local communities, through its Zero Deforestation Manifesto (ZDM), and set ambitious
targets to drive the path towards its commitment, further supporting our efforts towards
ecosystems and habitats conservation. The results of the forest risk maps are sharedwith tobacco leaf suppliers to develop forest risk mitigation plans focusing on farmers
who are in proximity to forests at risk of deforestation.

Regulation
Relevance & inclusion
Relevant, always included

Please explain
As a global company, PMI must comply with all regulations in more than the 180
countries where it sells its products. As wood-based materials are key for the
manufacture of PMI products, any change to the regulatory framework of timber and theuse of forest resources might impact PMI’s entire value chain. PMI assesses this issue
as part of the company’s deforestation risk assessment using internal company
methods, external consultants and national databases. PMI complies with all applicablelaws and meets and often exceeds relevant standards, particularly in those countries
where national standards are lower than PMI’s ones. The analysis consideredregulations in countries where PMI sources paper and pulp-based products, focusing on
identifying countries where regulations might not be strong enough to ensure that the
products are being sustainably sourced. Results from the assessment are used to
identify paper and pulp-based products’ suppliers who operate in higher risk countries,
based on the assessment methodology, and implement corrective actions. For tobacco
suppliers, PMI uses the Monitoring Framework for Sustainable Curing Fuels, which
considers compliance with local regulations such as the need for permits, registrations
etc. at the supplier level. Additionally, PMI continuously monitors the legislative
landscape to anticipate any change, to support ensuring that the regulatory
requirements are met, as well as support further development of strategies internallyand in collaborations with our suppliers.

Climate change
Relevance & inclusion
Relevant, always included

27

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Please explain
This issue is important to PMI because it’s a fundamental global issue and has tangible
physical and other impacts on our value chain that requires mitigation and adaptation
measures. More concretely, our products heavily rely on the production of high-quality
agricultural commodities, which can be impacted by climate change. We monitor on a
yearly basis crop loss data related to extreme climate events collected through regularfield reports, which can negatively impact not only tobacco but also wood-basedmaterials we source, causing supply chain disruptions. PMI works directly with its
suppliers and farmers, acknowledging they have a key role to play in climate protection.
For this reason, PMI has set strong commitments towards climate protection: i) throughits Zero Deforestation Manifesto, by preserving the forest capital and striving to generate
net positive impact on forests associated with the tobacco supply chain, ii) through its
commitment to achieve carbon neutrality in our direct operations (scope 1+2) by 2030
and across our value chain (scope 1+2+3) by 2050. As tobacco accounted for around
40% of PMI’s carbon footprint in our 2010 baseline, PMI set goals and developed
strategic initiatives to reduce GHG emissions related to tobacco growing including theemissions generated by the fuels used for the tobacco curing process. To assess thisissue, PMI uses its deforestation risk assessment in combination with other internal
company methods, national databases and external consultants. A GHG emission factor
has been assigned to unsustainable firewood identified through the deforestation risk
assessment. At the corporate level, PMI uses its GHG emission inventory to track
emission reductions and flag potential deviations to ensure swift responses. At the
supplier level, PMI uses the Monitoring Framework for Sustainable Leaf Curing Fuelwhich allows the calculation of emissions from tobacco flue-curing. The results of theseassessments are used to inform PMI’s sustainability and business strategies,
particularly to identify key suppliers or geographies where additional programs, projects
or initiatives are required to continue advancing towards PMI’s carbon emission
reduction goals and climate protection efforts.

Impact on water security
Relevance & inclusion
Relevant, always included

Please explain
This issue is important to PMI because it’s a fundamental global issue and has tangible
physical impacts on our value chain that require mitigation and adaptation measures.
More concretely, our products heavily rely on the production of high-quality agriculturalcommodities, which can be impacted by water related issues. We monitor on a yearlybasis crop loss data related to drought collected through regular field reports, flood andprecipitation events, which can negatively impact not only tobacco but also wood-basedmaterials we source, causing supply chain disruptions. About 50% of the tobacco PMI
sources is irrigated, water availability and water quality being consequently essential. To
maintain water quality and availability to the levels needed for tobacco cultivation it isparamount to protect natural areas upstream of the tobacco farms, positively
contributing to the local water cycle. To assess this issue, PMI uses a set of risk
assessments based on internal and external methods, in combination with existing tools
28

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020(including WRI Aqueduct, Life Cycle Assessment, Alliance for Water StewardshipStandard), national databases, and support from external consultants. As a result of thedeforestation risk assessment the upstream natural conservation areas are prioritizedfor protection. Combined with the results of the water risk assessment, prioritizedtargeted interventions are defined to improve water security conditions across our
supply chain. Results from these assessments are used to identify geographies,
facilities and suppliers that are exposed to water risks. This information is the basis for
PMI’s water stewardship, both to develop projects and inform the company’s sourcing
strategy.

Tariffs or price increases
Relevance & inclusion
Relevant, always included

Please explain
This issue is important for PMI because tariff or price increase can have a negative
impact on the profitability of the business or lead to product price increase, which could
alter the demand for our products, and potentially affecting the entire value chain. Thisissue is assessed through the company-wide risk assessment and is part ofprocurement and supplier management. PMI uses internal company methods to identify
any potential changes in tariffs or prices, as part of a broader strategy to gain visibility
within the supply chain. As part of the assessment, PMI monitors total volumes, ordercontrols, anti-diversion plans and tracking and tracing.
We also collaborate and exchange with the supply chain partners during Quarter/Annual
Business Reviews to gain on market intelligence in pulp and timber markets. leveraging
on their on the ground networks.
Assessment results are used to identify priority areas and suppliers that need to beengaged to mitigate risks arising from tariffs or price increases and inform thecompany’s procurement strategies. The tariffs or price increases criteria are notcontemplated as standalone elements, but in combination with the Zero Deforestationcommitments, anticipating, if necessary, an adjustment of the sourcing strategy to either
focus on sourcing certified materials by the FSC and the PEFC or rely on third party
verification by reputable organizations.
To further mitigate risks, PMI manages inventories and stocks for all direct materials tobe able to mitigate this potential impact, additionally, PMI has a diversified strategy
where sourcing is spread across different areas. PMI also aims to develop long term
relationships with suppliers and to have a strong and stable supplier base.

Loss of markets
Relevance & inclusion
Relevant, always included

Please explain
This is an important issue for PMI because a market’s inability to supply due tounavailability of paper and pulp-based raw materials and/or products caused by nonsustainable forestry management practices would affect PMI’s entire value chain and29

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

therefore would have a negative impact on PMI’s profits. This issue is assessed throughthe company-wide risk assessment and it is part of procurement and suppliermanagement.
PMI uses internal company methods to identify any potential loss of markets (regulation
trends follow up, supply chain partners review leveraging on their on the groundnetworks etc.), as part of a broader strategy to secure a sustainable supply chain. As
part of the assessment, PMI monitors total volumes of products, order controls, antidiversion plans and tracking and tracing. PMI uses results from this assessment to
identify the potential loss of markets and inform the company’s procurement strategies.
To further mitigate risks, PMI manages inventories and stocks for all direct materials tobe able to mitigate this potential impact, additionally, PMI has a diversified strategy
where sourcing is spread across different areas. PMI also aims to develop long term
relationships with suppliers and to have a strong and stable supplier base. Finally, PMI
has committed through its Zero Deforestation Manifesto, if necessary, to adjust its
sourcing strategy to either focus on sourcing certified materials by the FSC and thePEFC or rely on third party verification by reputable organizations.

Brand damage related to forest risk commodities
Relevance & inclusion
Relevant, always included

Please explain
This is an important issue for PMI because the risk of brand damage due to PMI
sourcing of materials associated with deforestation may potentially affect sales andhence affect revenue and profits, impacting the entire value chain. This issue isassessed through PMI’s materiality assessment, performed with the support of a third
party and following the Global Reporting Initiative Standards requirements, which
specifically assess the topic of forest conservation, as well as through our deforestation
risk assessment, which focuses on identifying social, reputational, and environmental
risks associated with wood-based fuels and materials in all countries, using internal
company methods, external consultants, and national databases. For the pulp andpaper industries, the risk assessment performed by external consultant is based on
country and supplier profiles. Country profiles are developed based on desk researchand provide an overview of the pulp and paper industry, and its associated risks in eachof the countries. Supplier profiles are designed based on a scorecard with the most
relevant elements that would indicate the extent to which each supplier is managing or
mitigating its deforestation risks. Screening public information serves as a first step toidentify high priority suppliers, and as a preparation stage for further supplierengagement For the tobacco supply chain, the analysis was focused on three drivers: i)land use change from tobacco farming expansion ii) use of biomass as a curing fuel iii)
use of wood for tobacco curing barns. The combination of these three risk drivers
defines the materiality of the deforestation risk for each tobacco sourcing market where
PMI operates.
These methodologies are used to identify potential risks associated with deforestation
within PMI’s direct operations and supply chain. PMI uses results from its deforestation
risk assessment to inform the company’s decision-making processes related to30

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

business, sourcing and sustainability strategies, in order to prevent brand damage.
Examples of concrete actions taken from the risk assessment include the developmentof the Monitoring Framework for Sustainable Curing Fuels, the engagement with
suppliers through our PMI’s Responsible Sourcing Principles (RSP), the PMI’s Zero
Deforestation Manifesto, as well as specific projects with key suppliers.

Corruption
Relevance & inclusion
Relevant, always included

Please explain
This issue is important to PMI because it can affect the operations of PMI in certain
countries where corruption could be an issue. PMI has a robust infrastructure formonitoring compliance with its Principles and Practices, supported by its Guidebook for
Success (Code of Conduct), where strict standards on how to operate to avoid
corruption practices are outlined. PMI assesses this issue through a deforestation risk
assessment of its entire value chain, involving external consultants and national specificdatabases. The assessment focuses on the origin of PMI’s paper and pulp-based
products and uses country specific data by the Transparency International Corruption
Index as one of the variables to identify countries with a high-risk profile. Results fromthis assessment are used to inform PMI’s sourcing strategy and to identify those
suppliers that require additional engagement to guarantee that there is no corruption
associated to their products. It is also supported by our STEP program (Sustainable
Transformation Enable Performance) which aims at supporting the deployment of our
Responsible Sourcing Principles within our Supply Chain and which contain Business
Ethics Management assessment criteria.

Social impacts
Relevance & inclusion
Relevant, always included

Please explain
Continued engagement and partnerships with civil society remain essential to thecompany’s success. PMI is aware that farming communities can be affected byenvironmental issues such as deforestation, which can in turn affect their capacity togrow tobacco and other crops, and therefore their livelihood. For this reason, PMI
supports smallholder farmers and their communities to improve their environmental,social and economic conditions. PMI works hard to protect the environment throughsustainable practices across its businesses and to address both existing social andenvironmental 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.
PMI assesses this issue through its sustainability materiality assessment, performed
with the support of a specialized third party and following the Global Reporting Initiative
Standards requirements, which specifically assess the impact of our identified 26 topics
on sustainable development (outward impacts on the environment and society, inward
31Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

impacts on our business); as well as through a deforestation risk assessment of its
entire value chain, involving external consultants and national specific databases PMI
considers social impacts such as the presence of mechanisms within the forestry sector
to guarantee indigenous populations’ rights and the prevention of other social conflicts,
including illegal logging in countries where paper and pulp-based products are sourced.
This indicator is based on information from the Illegal Logging Portal, the Forest Legality
Initiative, Earthworm and others.
Results from the country assessment are used to prioritize paper and pulp-based
products’ suppliers for further engagement. Results show that the biggest risks
associated with the paper and pulp-based products’ industry are linked to thedestruction of primary forests. Consequently, our first set of targets described in our
Zero Deforestation Manifesto aims at ensuring zero deforestation in Primary and HCV’s
in our board and paper for packaging supply chain by 2022 and in other significant pulpbased products including cellulose acetate tow by 2025. PMI is exploring how to further
engage and collaborate with pulp and paper suppliers sourcing from countries that wereranked as high risk.

Other, please specify
Relevance & inclusion

Please explain

F2.1c(F2.1c) Which of the following stakeholders are considered in your organization’s
forests-related risk assessments?
Customers
Relevance & inclusion
Relevant, always included

Please explain
Customers are relevant and always included in our forest-related risk assessment asthey are increasingly expecting brands to demonstrate their sustainability performanceand manage their environmental impacts, especially related to deforestation and climatechange. Failure to respond to PMI’s customers’ concerns could potentially negatively
impact its business (for example a potential impact on sales). PMI engages withcustomers and civil society through a series of methods including ongoing dialogue,
corporate communications, formal gatherings, attendance and contribution to forums
and events, reports and consultations. Additionally, PMI considers results and trends
arising from consumer surveys regarding sustainability.

Employees

32Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Relevance & inclusion
Relevant, always included

Please explain
Employees are relevant and always included in our forest-related risk assessment asthey are the ones driving the implementation of PMI’s goals and targets, and also
managing supplier relationship. In the development of the deforestation risk assessmentof PMI’s entire value chain, all relevant employees are directly engaged throughout the
deployment of the assessment. Engagement is done through meetings, electronic
communication to receive information from relevant employees, including feedback on
the results of the assessment. Employee groups include members of various teams
such as procurement, environment, health and safety, corporate affairs, agricultural
programs among others. For example, employees of corporate affairs focus on risks
related to reputation and brand damage, whereas employees from the procurement
team focus on ensuring supply of materials and maintaining strong supplier
relationships. PMI uses additional methods to engage employees in forest related
issues including training, ongoing dialogue, consultation, internal communication
channels, surveys and questionnaires, forums, events, reports and publications. An
example of this was the engagement for the sustainability materiality assessment,
where employees’ feedback was gathered. Their feedback in addition to the otherresults of the materiality assessment inform PMI’s 2025 sustainability roadmap,
including the climate protection strategy, for which our forest conservation commitments
act as key enablers for mitigation actions. Local environmental awareness campaigns
combined with tree planting activities are frequently organized at local level with theparticipation of employees and their families.

Investors
Relevance & inclusion
Relevant, always included

Please explain
Investors are included because they are one of the most important stakeholders bysupporting PMI’s to reach its smoke free vision, and they have to be informed of theperformance of the company in all aspects. PMI engages with Investors through various
methods including ongoing dialogue on forests and sustainability issues, corporate
communications and reports such as the Sustainability Report, investor calls and ad-hoc
requests public disclosures such as CDP, ESG ratings such as the SAM Corporate
Sustainability Assessment, attendance and contributions to forums and events. An
example was the engagement in the sustainability materiality assessment, where
investors’ feedback was gathered. Their feedback in addition to the other results of themateriality assessment inform PMI’s 2025 sustainability roadmap, including the climate
protection strategy, for which our forest conservation commitments act as key enablers
for mitigation actions. Another example of PMI’s engagement with investors is its
request for their feedback on the company’s sustainability strategy and performance,
including forest related issues.

33

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Local communities
Relevance & inclusion
Relevant, always included

Please explain
Local communities where we operate are a relevant stakeholder in our value chain andalways included in our forest related risk assessment. Local communities are crucial to
PMI’s business and long-term success as they can play a key role at supporting the
livelihoods of tobacco farmers as well as at protecting the local environment. For thisreason, assessing and ensuring sustainable local business conditions, and involving
local communities and farmers in the sustainable sourcing of firewood for tobacco curing
is paramount for PMI. Local communities can represent different levels of engagementin evaluating deforestation related risk; in our tobacco supply chain we engage with
farmers, firewood vendors and woodlot managers whose actions can have an impact
on the state of sustainability of the area where they operate impacting environment andpeople much beyond their direct relationship with tobacco. They are engaged directly
and through PMI’s tobacco leaf suppliers, through different methodologies including
ongoing dialogue, surveys and questionnaires, training, formal gatherings, forums andevents, memberships and partnerships, consultation processes and others. For
example, in 2019, through the implementation of our Monitoring Framework for
Sustainable Curing Fuels, PMI and its tobacco suppliers directly engaged with local
farmers, firewood vendors and communities in Pakistan and the Philippines to conduct
the fuelwood sustainability studies to ensure the availability and traceability ofsustainable fuelwood in these areas. Additionally, as part of the Monitoring Framework,
all PMI’s tobacco leaf suppliers must have a stakeholder engagement plan that includes
local communities when relevant. Another example is the development of the forest risk
maps for which local farmers and other stakeholders are interviewed. For example, in
2019, the global forest risk maps were updated as well as the forest risk map for thePhilippines, which had originally been developed in 2017.

NGOs
Relevance & inclusion
Relevant, always included

Please explain
NGOs are included because they can often provide support and technical expertise to
manage PMI’s deforestation risks. PMI engages with NGOs in various ways, dependingon the location of the organization as well as their area of expertise. Engagement
methods include ongoing dialogue, consultations and other collaborations on a projectbasis. An example is PMI’s deforestation risk assessment, which uses information
developed by NGOs to assess both paper and pulp-based products’ suppliers andcountries from where PMI sources paper and pulp-based products (for example, reportsof unsustainable practices, transparency rankings among others). Another example is
PMI’s Monitoring Framework for Sustainable Curing Fuels. As part of this framework,
NGOs sometimes work directly with PMI’s tobacco leaf suppliers to help them34

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

implement initiatives to reach the targets on sustainability and traceability. PMI also
engages with NGOs directly through interviews for the development of forest risk maps
and similar products. In 2019 the global forest risk map was updated as well as theforest risk map for the Philippines, which had originally been developed in 2017. These
maps are updated, on average, every two to three years as it is not expected that theconditions change year to year. In 2019 PMI engaged with PEFC in China to develop acountry risk profile. The objective is to understand in detail the forest related risks in the
country and how these might impact PMI’s forest related risks in China. Anotherexample was the engagement in the sustainability materiality assessment, where NGO’s
feedback was gathered. The results of the materiality assessment inform PMI’s 2025
sustainability roadmap, including our climate protection strategy, for which our forest
conservation commitments act as key enablers of mitigation actions.

Other forest risk commodity users/producers at a local level
Relevance & inclusion
Relevant, always included

Please explain
Other stakeholders are included because deforestation impacts at the regional or local
level cannot be effectively addressed by a single company. Deforestation has several
drivers and it is important for PMI to understand and involve other users to address thisproblem, as well as identify the extent to which every stakeholder can contribute. PMI
engages with these stakeholders through a combination of methods, including ongoing
dialogue, training, forums and events and other as necessary. PMI considers otherusers as part of its deforestation risk assessment, particularly those involved in thecompany’s paper and pulp-based products’ supply chain. An example is PMI’s activity in
Pakistan where the company is engaging with firewood vendors who not only supply
tobacco farmers with firewood for tobacco curing but also for other uses.

Regulators
Relevance & inclusion
Relevant, always included

Please explain
Regulators are included because they define the rules under which PMI operates. Thereis a risk that regulations changes affect PMI’s operations and its supply chain.
Regulators were included as stakeholders to be engaged as part of the Monitoring
Framework for Sustainable Leaf Curing Fuels. All PMI’s tobacco leaf suppliers musthave a stakeholder engagement plan where relevant regulators are identified andengaged based on specific topics, and where pertinent information is exchanged. PMI
engages regulators through various methods including ongoing dialogue whereappropriate and as per local regulations, training, formal gatherings, attendance andcontribution to forums and events. An example is the engagement between tobacco leaf
suppliers in the Philippines with the Department of Environment and Natural Resources(DENR) along with the National Tobacco Association through meetings and workshops.
As part of this engagement, supplier and the DENR have been sharing information to35

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

understand the availability of firewood in the regions and to manage the risk of
deforestation by ensuring that farmers have access to legal sources of firewood.
Furthermore, in our non-leaf supply chain, our board and paper suppliers engage on aregular basis with regulators at sub national, national or regional levels, e.g.: EU
Commission, FFIF (Finnish forest industries federation), SFIF (Swedish Forest
Industries Federation), CEPI (Confederation of European Paper Industries and FEFCO(European Corrugated Packaging Association).

Suppliers
Relevance & inclusion
Relevant, always included

Please explain
Tobacco leaf suppliers are included because they are the ones who contract tobacco
farmers and ensure PMI targets and standards are met. If tobacco leaf suppliers are notconsidered, there is a risk that PMI cannot achieve its targets. Suppliers are engaged
through various methods and projects including ongoing dialogue, surveys andquestionnaires, training, corporate communications, consultations, contractual
relationships, and other ad hoc activities. For example, PMI works closely with tobacco
leaf suppliers in the development of supplier-specific forest risk maps. Tobacco leaf
suppliers provide relevant information related to their operations as well as feedback onforest risk map once developed. The final forest risk map is the result of a collaborative
effort. Additionally, PMI is working to strengthen the engagement with suppliers of paper
and pulp-based products, including cellulose acetate tow to validate the findings of thedeforestation risk assessment related to such products, and that serves as a basis tomonitor the compliance and progress towards our Zero Deforestation Manifesto
commitments and guidelines. We engage with our suppliers to communicate our
expectations, increase our understanding of their current practices and collaborate on
targets setting to guarantee Zero Net Deforestation in line with PMI’s Zero Deforestation
Manifesto commitments for the materials they supply. Suppliers are evaluated througha due diligence and self-assessment process that allow us to identify risk exposure andareas where our support is needed. We develop actions plan with relevant suppliers to
track and measure performance improvements. We are monitoring and engaging with
suppliers sourcing from high-risk countries such as Indonesia and Brazil. Anotherexample was the engagement for the sustainability materiality assessment, wherebusiness partners’ feedback was gathered. Their feedback in addition to the otherresults of the materiality assessment inform PMI’s 2025 sustainability roadmap,
including the climate protection strategy, for which our forest conservation commitments
act as key enablers for mitigation actions.

Other stakeholders, please specify
Relevance & inclusion

Please explain

36

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F3. Risks and opportunities
F3.1(F3.1) Have you identified any inherent forests-related risks with the potential to havea substantive financial or strategic impact on your business?
Risk identified?
Timber products

Yes

F3.1a
(F3.1a) How does your organization define substantive financial or strategic impact on
your business?
PMI evaluates a “substantive impact” (e.g., financial or strategic impact) based on a variety offactors and quantitative indicators including but not limited to the potential impact on financial
performance as well as other strategic factors that may affect PMI’s efforts and/or delivery
towards a smoke-free future and ultimately replace cigarettes with smoke-free products to thebenefit of adults who would otherwise continue to smoke, society, the company and its
shareholders. The impacts reported as substantive strategic or financial impacts are defined as
those identified and prioritized by management in our value chain, through key enterprise risks
based on four risk dimensions: the impact a risk could have on the organization if it occurs, thelikelihood a risk will occur, the velocity with which a risk would affect, the organization if it
occurs, and the interconnectivity of a risk with other risks, that exceed defined thresholds at thecorporate level.
As part of the Company’s annual Integrated Risk Assessment (IRA) process we haveconducted a Climate Change Risk Assessment to evaluate and understand the impact ofclimate change on PMI business and a Deforestation Global Risk Assessment. Whenassessing risks related to Climate Change and Deforestation, we consider long term horizons(2030 and 2040 scenarios), multiple climate related indicators aligned with forest-related
indicators, and impact drivers including but not limited to climate change and deforestation
events that may:
- influence or impact our operations (e.g.: raw material sourcing, factories, finish goods
distribution);- affect a large number of areas where we source tobacco and/or other raw materials,
impacting the continuity of supply for years, and consequently driving related cost up;- trigger a competition in resources demand,- natural disaster, water scarcity, change in weather pattern and extreme weather events
impacting the availability of raw materials.
Between 2018 and 2019 PMI performed a climate change risk and opportunity assessment
following the Taskforce on Climate-Related Financial Disclosures (TCFD) methodology. This
allowed the evaluation of transition risks in addition to the physical ones considering impact
drivers such as cost, asset efficiency and reputation.
As part of our IRA process, we have put in place an extensive risk control program by which toassess the physical risks of climate change. Locations with values exceeding $30 million range

37

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

are surveyed by engineers from our property insurer, who provide recommendations to us on
the magnitude of environmental risks and the cost of management. Recommendations for risk
management are given if the expected reduction in the financial impact of the risk exceeds thecost to comply by a factor of 10 or more. Internally, we focus on recommendations above the$50 million range as management of identified risks can involve substantial internal capital
investment and disruption to operations including our supply chain.
In 2020 and beyond (2020+) risk forecasting terms, we assumed as substantive impacts thosein excess of $5 million or a raw material impact in excess of 1000 metric tonnes of tobacco
leaves. This definition is applicable to PMI’s agricultural supply chain. Over the last couple ofyears, we have been expanding our forest programs by first assessing current and future
forest-related risks more broadly across our value chain. These risks include availability offorest resources, and impact on deforestation.

F3.1b(F3.1b) For your disclosed forest risk commodity(ies), provide details of risks
identified with the potential to have a substantive financial or strategic impact on yourbusiness, and your response to those risks.

Forest risk commodity
Timber productsType of risk
Reputational and markets

Geographical scale
GlobalWhere in your value chain does the risk driver occur?
Supply chain

Primary risk driver
Increased commodity prices

Primary potential impact
Reduction or disruption in production capacity

Company-specific description
Wood-based materials are key materials to produce and market PMI products. For
example, firewood and biomass is used for tobacco curing, while paper and pulp-based
products are used to produce cigarettes and is also used in all packaging. In somegeographies the tobacco purchased by PMI is highly dependent on wood fuel for the
curing process and accounts for a significant portion of the overall curing fuelconsumption. For example, the Virginia flue cured tobacco sourced by PMI in 2019 from
Brazil and Mozambique was cured solely with wood fuel; while both are defined asforest risk countries. Increased ecosystem vulnerability fueled by additional
deforestation could decrease the availability of wood-based materials in the future. This
38

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

can impact PMI’s ability to manufacture cost-competitive products if firewood for tobacco
curing or paper and pulp-based products such as fine papers or cellulose acetate tow
needed for the manufacture of cigarettes become more expensive. Such increase in our
production costs might directly affect our revenue or even our competitiveness if wewould increase the price of our products due to increase in production costs.

Timeframe>6 years

Magnitude of potential impact
Medium-low

Likelihood
More likely than not

Are you able to provide a potential financial impact figure?
Yes, a single figure estimate

Potential financial impact (currency)
60,000,000

Potential financial impact figure - minimum (currency)

Potential financial impact figure - maximum (currency)

Explanation of financial
In 2020+ risk forecasting terms, we assumed as substantive risks those with a potential
impact in excess of $5M or a raw material impact in excess of 1000 metric tonnes oftobacco leaves in our tobacco supply chain. Over the last couple of years, we havebeen expanding our forest programs by first assessing current and future forest-relatedrisks, including the availability of forest resources, and impact on deforestation.
To estimate financial impacts from this risk, PMI used public data sources on typicalcost shares for firewood and similar agricultural products, and estimates potential priceincrements resulting from supply chain disruptions due to increased ecosystemvulnerability. PMI assessed that poor enforcement of regulation could lead to increased
ecosystem vulnerability impacting farmers’ production cost due to an estimated 16%
price increase in the acquisition of sustainable firewood, increasing PMI’s procurement
costs above our metric for substantive financial impact. PMI estimated financial impacts
by using the modelled increments in firewood costs, along with total volumes ofpurchased tobacco and the ratio of volume being cured using fossil fuels as well as
renewable fuel sources on an annual basis. It was then assumed that the PMI
procurement expenditure on tobacco would remain constant in a business as usual
scenario and increase by the same rate as diesel price under climate change scenarios(16%), resulting on a financial impact estimation of $60M.

Primary response to risk
39

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Engagement with suppliers

Description of response
In 2016 PMI developed a Monitoring Framework (MF) for Sustainable Leaf Curing Fuels
that tobacco leaf suppliers should comply with by 2020, with a verification process
starting in 2018. The audits are performed by a third-party and the first cycle will beconcluded by 2020 PMI has continued to enforce the MF and expects all suppliers to becompliant and ensure that 100% of the firewood and biomass used for tobacco curing issustainable and traceable by 2020. The MF is an ongoing process and continues to be
implemented in all countries where PMI sources Flue Cured Virginia tobacco (FCV). The
implementation of the MF and the associated supplier engagement is expected toaddress the risk of increased ecosystem vulnerability by providing an understanding of
the deforestation risk associated with tobacco curing through the development of forest
risks maps. Tobacco leaf suppliers then must develop a forest risk mitigation plan to
manage the identified deforestation risks. PMI considers that the response has beeneffective and that tobacco leaf suppliers who have developed forest risks maps areequipped to develop risk mitigation plans. Since its development, the MF has been an
effective mechanism to identify and prevent any potential risks associated with
disruptions in the supply chain. In 2019 PMI was able to track 85% of the curing fuelincl. firewood and biomass, ensuring that it is sustainably sourced according to its
standards.

Cost of response
4,500,000

Explanation of cost of response
The cost of response is based on the annual budget allocated in 2019 to environmental
projects (incl. implementation of the Monitoring Framework and associated activities toenable farmers to use sustainable fuels for tobacco curing) under the Good Agricultural
Practices program across all regions, accounting for approx. $4.5 million in
expenditures. The set annual budget (i.e. we set a single investment amount into theprogram and it is not possible to provide a breakdown) is allocated to initiatives, such as
to catalyze the adoption of improved and innovative practices by the farmers in our
supply chain. It includes the costs to implement and verify the Monitoring Framework. It
is expected that the same level of associated costs will continue after 2020.

Forest risk commodity
Timber productsType of risk
Regulatory

Geographical scale
GlobalWhere in your value chain does the risk driver occur?
Supply chain
40

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Primary risk driver
Poor enforcement of regulation

Primary potential impact
Increased production costs

Company-specific description
PMI sources a portion of materials from some countries known for their limited
enforcement of regulation. Despite our high ethical standards and rigorous control andcompliance procedures aimed at preventing and detecting unlawful conduct, given thebreadth and scope of our international operations, we may not be able to detect all
potential improper or unlawful conduct by our employees and partners. Additionally, if
protected areas or timber harvest regulations are not enforced and if PMI does not havecertainty that regulation designed to ensure sustainability of materials is enforced, PMI
invests in additional measures to verify that the material is sustainable in thosecountries. For example, PMI sources Virginia flue cured tobacco from Philippines andMalawi, among other countries, and, based on the development of country-specificforest risk maps, we have identified possible deforestation risks in these countries, bothof which rely solely on wood fuel for the curing process. Even though forests areprotected by law, this is not always enforced, therefore, PMI’s procurement costs may
increase due to the additional measures PMI is implementing to ensure all firewood andbiomass used as curing fuel is sustainable (for example, local risk assessment
procedures, additional engagement with local suppliers, development of sustainability
projects).

Timeframe
Current - up to 1 year

Magnitude of potential impact
Medium-low

Likelihood
Very likely

Are you able to provide a potential financial impact figure?
Yes, a single figure estimate

Potential financial impact (currency)
60,000,000

Potential financial impact figure - minimum (currency)

Potential financial impact figure - maximum (currency)

Explanation of financial
In 2020+ risk forecasting terms, we assumed as substantive risks those with a potential
impact in excess of $5M or a raw material impact in excess of 1000 metric tonnes of41

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

tobacco leaves in our tobacco supply chain. Over the last couple of years, we havebeen expanding our forest programs by first assessing current and future forest-relatedrisks, including availability of forest resources, and impact on deforestation.
To estimate financial impacts from this risk PMI used public data sources on typical costshares for firewood and similar agricultural products, and estimates potential priceincrements resulting from supply chain disruptions due to increased ecosystemvulnerability. PMI estimated that poor enforcement of regulation could lead to the risks
of increased ecosystem vulnerability impacting farmers’ production cost due to an
estimated 16% price increase in the acquisition of sustainable firewood, increasing
PMI’s procurement costs above our metric for substantive financial impact. PMI
estimated financial impacts by using modelled increments in firewood costs, along withtotal volumes of purchased tobacco and the ratio of volume cured using fossil fuels aswell as renewable fuel sources on annual basis. It was then assumed that the PMI
procurement expenditure on tobacco would remain constant in a business as usual
scenario and increase by the same rate as diesel price under climate change scenarios(16%), resulting on a financial impact estimation of $60M.

Primary response to risk
Engagement with suppliers

Description of response
In 2016 PMI developed a Monitoring Framework (MF) for Sustainable Leaf Curing Fuels
that tobacco leaf suppliers should comply with by 2020, with a verification process
starting in 2018. The audits are performed by a third-party and the first cycle will beconcluded by 2020. The MF requires tobacco leaf suppliers to ensure that 100% of thefirewood and biomass used for tobacco curing is sustainable and traceable by 2020.
The MF is an ongoing process and it is being implemented in all countries where PMI
sources Flue Cured Virginia tobacco (FCV). PMI actively engages with tobacco
suppliers to support them in the implementation of the MF. Its implementation and theassociated supplier engagement are expected to address the risk of poor enforcementof regulation by requiring tobacco leaf suppliers to ensure that all biomass used as fuelis sustainable. This will then be audited by a third party. PMI considers that the
response has been effective and that tobacco leaf suppliers implementing theMonitoring Framework are addressing this risk. Currently, above 85% of the curing fuelincl. firewood and biomass, is sustainable and traceable, which has decreased the risk
and is expected to prevent future impacts. Additionally, to address poor enforcement ofregulation and other risks, in 2017 PMI published its Responsible Sourcing Principles.
These principles provide process and performance requirements applicable to all
suppliers including environmental, social and governance topics.

Cost of response
4,500,000

Explanation of cost of response
The cost of response is based on the annual budget allocated in 2019 to environmental
projects (incl. implementation of the Monitoring Framework and associated activities toenable farmers to use sustainable fuels for tobacco curing) under the Good Agricultural

42

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Practices program across all regions, accounting for approx. $4.5 million in total
expenditures. The set annual budget (i.e. we set a single investment amount into theprogram and it is not possible to provide a breakdown) is allocated to initiatives tocatalyze the adoption of improved and innovative practices by the farmers in our supply
chain. It includes the costs to implement and verify the Monitoring Framework. It is
expected that the same level of associated costs will continue after 2020.

Forest risk commodity
Timber productsType of risk
Reputational and markets

Geographical scale
GlobalWhere in your value chain does the risk driver occur?
Supply chain

Primary risk driver
Increased cost of certified sustainable material

Primary potential impact
Increased production costs

Company-specific description
There is no mature market for certified wood fuel. This is a challenge for PMI to source
certified sustainable materials. For the case of wood-based curing fuels, for example,
PMI is already requiring tobacco leaf suppliers to ensure the fuel’s sustainability andtraceability through specific on the ground activities, which have increased tobaccoprocurement costs as a result of PMI’s increased engagement with the tobacco leaf
suppliers in various activities.
The fine papers and acetate tow supply chains have worked hard to catch up on theirlag in offering certified sustainable material vs the packaging board and paper supply
chain. Latest estimate shows that close to 50% of our fine paper suppliers, and 95% of
our acetate tow suppliers are now either part of certified chain of custody, and/or
sourcing their wood from 100% certified sources. However, as stated in the Zero
Deforestation Manifesto, PMI contemplates the purchase of certified material as being
part of the solution, in addition to a robust wood fiber traceability, share of third party
verified products, and use of recycled material. So far, the market dynamics on the
supply side do not reflect a competitive offer for certified product to keep our business ina financially viable and sustainable position. In summary, today we source non-certified
products from certified sources

Timeframe
1-3 years

43

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Magnitude of potential impact
Medium-low

Likelihood
About as likely as not

Are you able to provide a potential financial impact figure?
Yes, an estimated range

Potential financial impact (currency)

Potential financial impact figure - minimum (currency)
21,000,000

Potential financial impact figure - maximum (currency)
89,000,000

Explanation of financial
The latest review into our board and paper (B&P) used for packaging, acetate tow (AT),fine papers (FP) and shipping case (SC) supply chains showed that a substantive cost
increase is to be expected should PMI decide to adjust its sourcing strategy and buy
certified products. A range of mark up going from 3% ($21M) to 5% ($29M) of the yearlypurchasing spend is a fair estimate of this cost increase applicable to these 4
commodities (FP, AT,B&P and SC).
Added to the upper range is the potential impact from the tobacco leaf supply chain($60M). To estimate financial impacts from this risk, PMI used public data sources on
typical cost shares for firewood and similar agricultural products, and estimates on
potential price increments resulting from supply chain disruptions due to increased
ecosystem vulnerability. PMI estimated that risks of increased ecosystem vulnerability
could raise farmers’ production cost due to an estimated 16% price increase in theacquisition of sustainable firewood, increasing PMI’s procurement costs above ourmetric for substantive financial impact ($5M). PMI estimated financial impacts throughmodelled increments in firewood costs, along with total volumes of purchased tobaccoand the ratio of volume being cured using fossil fuels and renewable fuel sources
annually. It was assumed that PMI procurement expenditure on tobacco would remain
constant in business as usual scenario and increase by the same rate as diesel priceunder climate change scenarios.

Primary response to risk
Engagement with suppliers

Description of response
In 2016 PMI developed a Monitoring Framework (MF) for Sustainable Leaf Curing Fuels
that tobacco leaf suppliers should comply with and that should be audited by a thirdparty by 2020. The MF requires tobacco leaf suppliers to ensure that 100% of thefirewood and biomass used for tobacco curing is sustainable and traceable by 2020.
The MF is an ongoing process and it is being implemented in all countries where PMI
sources Flue Cured Virginia tobacco (FCV). PMI actively engages with tobacco leaf
44

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

suppliers to support them in the implementation of activities to comply with the MF. With
the implementation of the MF and the associated supplier engagement PMI expects tomitigate the risk of future curing fuel cost increase by ensuring its availability andsustainability through a timely engagement with tobacco leaf suppliers and verification
mechanism to ensure that all biomass used as fuel is sustainable. This will then be
audited by a third party. PMI considers that the response has been effective and that
tobacco leaf suppliers implementing the MF are addressing this risk. Currently, above
85% of the curing fuel incl. firewood and biomass, is sustainable and traceable, which
has decreased the risk and is expected to prevent future impacts. Furthermore, anassurance and monitoring framework is being designed and will be implemented in thenon Leaf supply chains as of 2021.

Cost of response
5,000,000

Explanation of cost of response
The cost of response is based on the annual budget allocated in 2019 to environmental
projects (incl. implementation of the Monitoring Framework and associated activities toenable farmers to use sustainable fuels for tobacco curing) under the Good Agricultural
Practices program across all regions, accounting for approx. $4.5 million in total
expenditures. The set annual budget (i.e. we set a single investment amount into theprogram and it is not possible to provide a breakdown) is allocated to initiatives tocatalyze the adoption of improved and innovative practices by the farmers in our supply
chain. It includes the costs to implement and verify the Monitoring Framework. It is
expected that the same level of associated costs will continue after 2020.
The cost of response for the non-Leaf supply chains is the estimated expenditure ($0.5
million) to design and implement the assurance framework across the supply base, as
well as implementing a monitoring framework supported by innovative technologies todeliver the expected tangible results supporting our zero net deforestation commitments.
Future potential costs to implement other specific initiatives needed to catalyze adoptionof improved and innovative practices in our non leaf supply chains are not yet evaluatedand therefore not included in this figure.
The full cost of response ($5 million) is the sum of these $4.5M for the tobacco supply
chain and $0.5M for non tobacco supply chains.

Forest risk commodity
Timber productsType of risk
PhysicalGeographical scale
GlobalWhere in your value chain does the risk driver occur?
45

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Supply chain

Primary risk driver
Increased severity of extreme weather events

Primary potential impact
Supply chain disruption

Company-specific description
Most of our wood-based materials are sourced from regions (Nordic European
Countries, Russia accounting for more than 50% of our wood/pulp origin) that are going
through changes in weather/precipitation patterns (e.g. more rain, less snow) – that
could impact trees growth, soils degradation and logging/harvesting periods, creating
potential future resource availability limitations. This would inevitably increase the pricesof the pulp-based material we purchase. In addition, in Asia, some of the paper andpulp-based products we purchase originate from concessions that are located inpeatland areas vulnerable to major fire events.

Timeframe
4-6 years

Magnitude of potential impact
MediumLikelihood
More likely than not

Are you able to provide a potential financial impact figure?
Yes, an estimated range

Potential financial impact (currency)

Potential financial impact figure - minimum (currency)
40,000,000

Potential financial impact figure - maximum (currency)
120,000,000

Explanation of financial
For PMI a risk of lack of sustainable and traceable wood-based materials’ availability inthe supply chain due to impacts of extreme weather events or other causes will
inevitably be translated in prices increase for the paper and pulp-based products wepurchase in an estimated range of 5% to 15% of the 2019 total spend with thesematerial categories.

Primary response to risk
Engagement with suppliers

Description of response46Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Our active risk management strategy aims to reduce the likelihood of supply chain
disruptions due to physical climate risks through biodiversity and forest conservation. In
2019 PMI published the Zero Deforestation Manifesto (ZDM) aiming to achieve positiveenvironmental impacts over the long term, including a set of targets to protect forests inour supply chain. As part of the ZDM, PMI is working with suppliers of paper and pulpbased products to move towards traceable and sustainable raw material sourcing.
Achieving PMI's ZDM commitments will not only protect the forests but will also
contribute to the development of ecosystems and communities that are more resilient toimpacts from climate change, such as increased severity of weather events.
To achieve our ZDM commitments PMI actively engages suppliers to communicate oursustainability expectations, increase our understanding of their current practices on
deforestation risk mitigation and their exposure to physical climate risks. PMI considers
its current approach to be effective as no major disruptions in the supply chain havetaken place. PMI will continue to adapt and improve its strategy in the future, aiming tostrengthen monitoring processes and progress towards targets, particularly in high-riskcountries such as Indonesia and Brazil.

Cost of response
500,000

Explanation of cost of response
The cost of response is the estimated internal investment ($0.5 million), which should
cover the design and implementation of the assurance framework across the supply
base, as well as the implementation of a monitoring framework supported by innovativetechnologies to deliver the expected tangible results supporting our zero net
deforestation commitments. Future potential costs to implement other specific initiatives
needed to catalyse adoption of improved and innovative practices in our non-leaf supply
chains are not yet evaluated and therefore not included in this figure.

F3.2(F3.2) Have you identified any forests-related opportunities with the potential to havea substantive financial or strategic impact on your business?
Have you identified opportunities?
Timber products

Yes

F3.2a
(F3.2a) For your selected forest risk commodity(ies), provide details of the identified
opportunities with the potential to have a substantive financial or strategic impact on
your business.

Forest risk commodity
Timber products

47

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Type of opportunity
Resilience

Where in your value chain does the opportunity occur?
Supply chain

Primary forests-related opportunity
Improved supply chain engagement

Company-specific description & strategy to realize opportunity
PMI identified an opportunity to improve the company’s resilience by managing forest
risks related to the sourcing of tobacco by engaging the company’s tobacco suppliers.
The company has developed a strategy to increase resilience through the development
and application of the Monitoring Framework for Sustainable Leaf Curing Fuels. As partof this framework, tobacco suppliers should comply with a series of sustainability criteria
to prevent deforestation and should be audited by a third party by 2020. The
implementation of the Monitoring Framework since 2016 has increased PMI’s
engagement with tobacco suppliers and allowed us to closely collaborate with them,securing our supply of sustainably cured tobacco and increasing the company’s
resilience to price fluctuations. To realize the opportunity, PMI is working closely withtobacco suppliers by supporting them with technical assistance when they facechallenges related to tobacco curing fuels sustainability and traceability associated tothe implementation of the monitoring framework. This might entail several measures
such as holding strategy sessions with the suppliers, financing country-specific risk
assessments and providing technical advice. PMI through its regional offices holds inperson meetings with tobacco leaf suppliers to discuss sustainability matters including
their progress on curing fuel sustainability and traceability. PMI also organizes
conference calls and meetings as needed to provide technical assistance. It is expectedthat as a result of this engagement, suppliers will be able to prove sustainability andtraceability in conformity with the Monitoring framework principles when audited by athird party. For example, in 2019, PMI continued to work closely with tobacco leaf
suppliers in the Philippines and Pakistan to support them in efforts to increase clarity
and shared understanding of current regulations on firewood woodlot surveys among all
tobacco leaf suppliers in the country. In 2019, PMI Leaf Brazil concluded the work on
the study, which demonstrated the sustainability of the wood fuel sources used by thefarmers contracted by PMI’s suppliers, in collaboration with local suppliers guiding themand leading an industry common approach.

Estimated timeframe for realization
Current - up to 1 year

Magnitude of potential impact
Medium-highLikelihood
Virtually certain

Are you able to provide a potential financial impact figure?
48

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Yes, an estimated range

Potential financial impact figure (currency)
Potential financial impact figure – minimum (currency)
30,000,000

Potential financial impact figure – maximum (currency)
60,000,000

Explanation of financial impact figure
The potential financial impact reflects estimated benefits for farmers across our tobacco
supply chain. We do not estimate direct potential financial benefits to PMI but rather
indirect benefits to the company through supply chain improved resilience, including
mitigation of future cost increments in the acquisition of raw materials. Anotherintangible benefit for PMI would be to position itself as a leading company collaboratingwith its suppliers to implement actions that contribute to a more sustainable future.
To estimate financial impacts from this opportunity, PMI used public data sources on
typical cost shares for firewood and similar agricultural products, as well as estimates on
potential price increments resulting from supply chain disruptions due to increased
ecosystem vulnerability. PMI estimated that this opportunity could reduce by 16%
farmers' expected future costs related to acquisition of firewood, leading to theidentification of a substantive opportunity according to our $5M metric.
PMI estimated financial impacts by using the modelled increments in firewood costs,
along with total volumes of purchased tobacco and the ratio of volume being cured
using fossil fuels as well as renewable fuel sources on an annual basis (lower range at
25% and upper range at 50%). It was then assumed that the PMI procurement
expenditure on tobacco would remain constant in a business as usual scenario andincrease by the same rate as diesel price under climate change scenarios.

Forest risk commodity
Timber productsType of opportunity
Resilience

Where in your value chain does the opportunity occur?
Supply chain

Primary forests-related opportunity
Ensuring supply chain resilience

Company-specific description & strategy to realize opportunity
Over 50% of our wood-based direct materials originate from regions experiencingchanges in weather/precipitation patterns, e.g. more rain, less snow, namely Nordic
European Countries and Russia, posing potential future resource availability limitations.

49

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

The resilience of our pulp-based materials supply chain and the associated natural
ecosystems to climate change increases if forests are sustainably managed and will
support to mitigate the risk on resource availability and price fluctuation.
Through PMI’s Responsible Sourcing Principles, we set mandatory requirements to all
our suppliers and aim to achieve measurable, tangible improvements in our supply
chain. With the publication of its Zero Deforestation Manifesto (ZDM), PMI has
increased the focus on its wood-based material supply chain.
To help achieve our zero deforestation commitments, we engage with our suppliers tocommunicate our expectations, increase our understanding of their current practices
and set targets for the materials they supply. We have performed webinars, individualinterviews and onsite visits In 2019 we performed an audit at one of our wood-basedmaterial suppliers located in Asia resulting in 17 proposed corrective actions based on
14 findings (incl. non-conformities and areas for improvement). To evaluate theimplementation of these actions by the supplier PMI will conduct an Environmental andLand Rights Due Diligence Follow Up Audit in 2020.

Estimated timeframe for realization>6 years

Magnitude of potential impact
MediumLikelihood
LikelyAre you able to provide a potential financial impact figure?
No, we do not have this figure

Potential financial impact figure (currency)
Potential financial impact figure – minimum (currency)
Potential financial impact figure – maximum (currency)

Explanation of financial impact figure
As PMI is still analysing options to realize this opportunity no direct financial benefits
have been estimated for the company in relation to the opportunity in the short tomedium, or even long, term. The estimation of financial benefits will be revisited once
PMI has a more comprehensive understanding of the different direct and indirectenvironmental benefits that could arise from this opportunity, as well as a framework to
account and report on them (for example, natural capital). However, the outcome of thisopportunity would enable PMI to build a stronger and more resilient value chain, andthat would be capable of positioning itself as a leading company collaborating with its
suppliers to implement actions that contribute to a more sustainable future. It is
expected that other companies may also benefit from this strategic opportunity once

50

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

suppliers, such as those producing cellulose acetate tow and fine papers, are able toincrease the offer of verified sustainable materials.

F4. GovernanceF4.1(F4.1) Is there board-level oversight of forests-related issues within yourorganization?
Yes

F4.1a
(F4.1a) Identify the position(s) of the individual(s) (do not include any names) on theboard with responsibility for forests-related issues.
Position ofindividual

Please explain

Board-levelcommittee

PMI’s Board of Directors (BoD) and its Committees are responsible to foster thecompany’s long-term success , incl. to set broad corporate policies, strategic direction,and oversee management, who is responsible for daily operations. The BoD and its
Committees are ultimately responsible to oversee the company’s direction andmanagement on sustainability issues incl. forest-related issues such as deforestation,and increased pressure on forest resources, affecting our direct operations and/or our
supply chain, which may impact PMI’s ability to operate. As example of a forestrelated decision made in 2019,the BoD approves the company’s annual budget, which
encompasses the implementation of our sustainability strategy and the Zero
Deforestation Manifesto commitments (incl. supplier specific and other forest-related
projects), and receives updates on the company’s performance and targets vs. budget
thru the year incl. those related to achieving sustainability and climate change targets.

Board-levelcommittee

Since 2018 the Nominating and Corporate Governance Committee (NCGC) of theBoard, composed by 6 BoD members, at the time of the publication of the 2020 proxystatement, oversees PMI’s sustainability strategies and advises the board on
sustainability matters, incl. forest-related issues, aiming to actively reduce potential
negative impacts of our business on the environment and forest resources. As an
example of a climate-related decision-making process in 2019 the NCGC reviewed
the 2018 Sustainability Report which represent the main external communication of
PMI on sustainability performances , including our forest related Zero Deforestation
Manifesto commitments.

Board-levelcommittee

The Audit Committee of the BoD, composed by 6 BoD members, at the time of the
publication of the 2020 proxy statement, oversees the assessment and managementof the company risks and provide recommendations to executive management on
climate change related risks, which may lead to increased pressure on natural
resources, including forest resources, and conflict with other users, affect our direct51

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

operations and/or our supply chain, and thus potentially impacting PMI’s ability tooperate.

F4.1b
(F4.1b) Provide further details on the board’s oversight of forests-related issues.
Frequency that
forests-related
issues are ascheduled
agenda item

Governancemechanisms into
which forestsrelated issues areintegrated

Row Scheduled 1
some meetings

Monitoring
implementation andperformance

Please explain

The Board of Directors (BoD) oversees thecompany’s full range of activities including
establishing corporate policies, setting strategic
direction, and overseeing Management, which is
Overseeing
responsible for the day-to-day operations of theacquisitions andcompany, using the selected governancedivestiture
mechanism. The BoD approves the company’s
Overseeing major
capital expenditures annual budget and receives updates on thecompany’s performance and targets against theProviding employee
budget, including those related to forests.
incentives
The BoD has established various standing
Reviewing andCommittees to assist with the performance of its
guiding annual
responsibilities including a Corporate Risk
budgets
Governance Committee comprising the COO, theReviewing and
CFO, the Vice President and Controller, the Vice
guiding businessPresident Corporate Audit, and the Vice President
plans
and Chief Ethics & Compliance Officer. The BoD
Reviewing andmeets typically 6 times per year with additional
guiding corporate
meetings held as necessary and is regularly
responsibility strategy informed by Management and the Nominating andReviewing andCorporate Governance Committee (NCGC) of theguiding major planscompany’s performance, future plans, R&D prioritiesof actionand significant issues affecting the business
The NCGC oversees, the Company’s sustainability
Reviewing andstrategies and performance and advises the BoD on
guiding risk
management policies sustainability matters. In 2019 the NCGC reviewed
the 2018 sustainability report, including our forest
Reviewing andrelated Zero Deforestation Manifesto commitments
guiding strategy
and recommendations for engagement. The
Reviewing innovation
Committee reflected on potential audiences for the/ R&D priorities
engagement based on the information in the report
Setting performanceand made engagement recommendations to theobjectives
CSO.

52

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F4.2
(F4.2) Provide the highest management-level position(s) or committee(s) withresponsibility for forests-related issues (do not include the names of individuals).
Name of theposition(s)and/orcommittee(s)Responsibility

Other C-Suite
Officer, please
specify

Both assessing and Quarterly
managing forestsrelated risks andopportunities

Senior Vice
President,
Operations

Frequency of Please explain
reporting to
the board on
forestsrelated issues
A member of the Company Management,
the Senior Vice President, Operations(SVP, Operations) is tasked withaddressing climate change risk across all
activities of the company, incl. forestrelated ones. Our SVP, Operations reports
directly to PMI’s Chief Operating Officer(COO) and is delegated with operational
responsibility, including maintaining robust
business resiliency, risk assessment
processes, and strategies to support
business continuity.
Our SVP, Operations examines andmonitors climate change-related issues,incl. deforestation and other forest relatedrisks, ensuring that risk assessment andmanagement are integrated into longrange plans, objectives, budgets, andperformance review processes. He is
responsible for addressing these issues as
mismanagement of these can lead tonatural disasters, water scarcity, change inweather patterns, agricultural instability,
which may impact PMI’s ability to operate.
SVP Operations leads the Operations
Sustainability Function that reports directly
to him and is tasked to drive environmental
strategies and embed them into the core ofour business, due to the strategic
importance of climate-related issues on
our operations. He is informed of progress
towards achieving the objectives inmonthly meetings with the Operations
Management Team (OMT) reporting tohim, and during quarterly functional
reviews of the Operations Sustainability
53

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

function and management team, as
defined per PMI’s internal business
reporting processes.
Chief Operating
Officer (COO)

Both assessing and Quarterly
managing forestsrelated risks andopportunities

Our COO is also a member of PMI’s
Company Management and reports to theCEO; he is updated regularly by the SVP,
Operations on climate change issues, incl.
forest related issues. In 2019, the COO
and SVP, Operations were the highest
management level of climate-related
issues. They were responsible formonitoring and reviewing PMI’s objectives,
strategies, and action plans related toclimate change, incl. deforestation andother forest related issues, with the CEO,and for reporting their findings to theNominating and Corporate GovernanceCommittee and Audit Committee of theBoard of Directors.

Other, please
specify

Other, please
specify

The External Engagement Committee(EEC) – composed of the company’s CEO,COO, and President External Affairs andGeneral Counsel, as well as senior leadersfrom various functions – has the mandate
to develop and deploy strategies andprograms to propel better choices for
consumers. This includes the oversight of
PMI’s sustainability work, incl.
deforestation and other forest related
issues. PMI’s sustainability materiality
analysis was updated in 2019, reprioritizing the most relevant sustainability
topics for PMI, considering both internaland external perspectives.
To help manage these priority topics froma global and sustainability perspective, theEEC decided on Jan 9, 2020, to allocate
ownership of each topic to a member of
PMI’s Company Management. The
nominated Company Management
members are expected to organize fromtime to time “sustainability board” meetings
to review progress and decide on next
steps for their respective priority topic. The
Chief Sustainability Officer will participate

External
Engagement
Committee

Overseeing PMI’ssustainability
work

Quarterly

54Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,2020

and support the respective Company
Management members at thesesustainability board meetings.
Chief
Sustainability
Officer (CSO)

Other, please
specify

Annually

Leading the
integration ofsustainability,
including forest
topics, acrossPMI

The Chief Sustainability Officer (CSO),
reports to the President External Affairs
and General Counsel, a member of theCompany Management. The CSO leads
the integration of sustainability, incl.
deforestation and other forest related
issues across our business, and heads
PMI’s sustainability team. He is a memberof the External Engagement Committee(EEC) and, at least once a year, updates
the Nominating and Corporate
Governance Committee of the Board on
progress.

F4.3(F4.3) Do you provide incentives to C-suite employees or board members for the
management of forests-related issues?
Provide incentives for management of forests-related issues
Row 1

Comment

Yes

F4.3a
(F4.3a) What incentives are provided to C-Suite employees or board members for the
management of forests-related issues (do not include the names of individuals)?

Monetary
rewardRole(s) entitled toincentive?

Performanceindicator

Please explain

Corporate
executive teamAchievement ofcommitments
and targets

The BoD considers that environmental, socialand governance (ESG) factors, including
protecting the environment and forest resources
as relevant to the company’s business and longterm success. Progress against the strategic
priorities is included in our overall performance
rating which determines the cash bonuses for the
management group and other eligible
employees.
Executive management covering sustainability,
including EHS topics are specifically appraised
each year for performance against targets,
including those related to forests. The
assessment of EHS results (which includes

Chief Executive
Officer (CEO)Other, please
specify
Sustainability
Managers,
Employees,
Management
Group

55

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

annual performance against our zerodeforestation targets) directly influences theannual performance rating of our SVP
Operations and certain members of ourCompany Management including the COO andbusiness unit managers. This covers the annual
cash incentive compensation elements for thoseroles.
These indicators were selected as they arealigned with the company’s vision and they allow
PMI to objectively quantify the progress of thecompany in the field of sustainable forest
management and sustainability.
PMI uses progress towards its sustainability
targets as the threshold of success, therefore
rewards are provided if progress is either linear
to the overall target, or exceeding a linear trend.
This is measured by a series of indicators
including results from PMI’s progress towards its
Zero Deforestation Manifesto targets.
Nonmonetary
rewardCorporate
executive team
Chief Executive
Officer (CEO)Other, please
specify
All employees

Achievement ofcommitments
and targets

Behavior change related indicator: annually many
affiliates continued to perform voluntary
awareness and promotion campaigns/ programsin order to increase employees’ active
participation in sustainability, including
Environment and Health and Safety (EHS)
programs, covering a range of topics such asenvironmental awareness, energy consumption
reduction, waste reduction, tree planting andcommunity gardens. Awards and recognition forbest practices form a core element of suchcampaigns and are awarded in line with theachievement of sustainability commitments andtargets. Achievement of commitments andtargets was selected as an indicator of successas it allows PMI to objectively quantify the
progress of the company in the field of forestsand sustainability. Our carbon footprint reduction
targets are also part of our sustainability
objectives and commitments. PMI uses progress
towards its sustainability targets as the thresholdof success, therefore rewards are provided if
progress is either linear to the overall target, or
exceeding a linear trend. This is measured by aseries of indicators including results from PMI’s

56

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

monitoring framework, GHG accounting, wateraccounting, as well as other internal metrics suchas the rapid progress towards the acceleration of
our smoke free vision.

F4.4(F4.4) Did your organization include information about its response to forests-relatedrisks in its most recent mainstream financial report?
No, but we plan to do so in the next two years

F4.5(F4.5) Does your organization have a policy that includes forests-related issues?
Yes, we have a documented forests policy that is publicly available

F4.5a(F4.5a) Select the options to describe the scope and content of your policy.
Scope

Content

Please explain

Row Company- Commitment to eliminate Our public forest policy called “Zero Deforestation
1
wide
deforestation
Manifesto” and our Responsible Sourcing Principles
cover the use of wood fuel for curing tobacco, as well
Commitment toremediation, restoration as paper and pulp-based products used for
and/or compensation of manufacturing purposes in all countries where PMI
operates and sources materials from. These materials
past harms
are key to the manufacturing of PMI’s products andCommitment to protect
rights and livelihoods of essential to the company’s business; any disruptions
on the availability or in their quality could directly
local communities
translate in financial impacts for PMI. PMI’s
Commitments beyond
dependency on forests and its associated ecosystemregulatory complianceservices is covered in our policy, which is revised andCommitment to
updated, if necessary, on an annual basis.
transparency
PMI recognizes that its operations can have potential
Commitment toimpacts on forests and natural habitats both through its
stakeholder awarenessdirect operations, and through its supply chain and has
and engagement
established time bound commitments and targets
Commitment to align with beyond regulatory compliance to tackle them, including
the SDGs
commitments to achieve zero net deforestation of HighRecognition of the overall Conservation Value forests, zero net deforestation ofimportance of forests and natural forest, net positive impact and restoration ofother natural ecosystems forests associated with the tobacco supply chain.
These are applicable to all habitats and biomes within
Description of business
PMI’s supply chain, for example, Miombo in Malawi, or
dependency on forests
semi-evergreen dry forests in Indonesia.

57

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

PMI’s Good Agricultural Practices program has been
active since 2002, while our Monitoring Framework for
Sustainable Leaf Curing Fuel has been in place since2016, with third party audits carried out since 2018, and
Description of forest risk has been our main initiative to tackle deforestationcommodities, parts of the risks. PMI collects data on multiple environmental
business, and stages of indicators and monitors the percentage of farmers
being in line with best practices. Results from thesevalue-chain covered byinitiatives are used internally to track PMI progress
the policy
towards its forest commitments, to identify and engage
List of timeboundsuppliers and farmers failing to adopt best practices (ormilestones and targets
being in areas deemed as high risk), and to makeDescription of forestsdecisions regarding projects to be implemented.
related standards for
procurement
An example of this decision making process includes
our work in the Philippines in 2019; through our risk
assessment, we identified a change in tobacco farmer
base sourcing areas, updated the relevant local risks
maps, identified farmers in close proximity to forests
ecosystems, and developed management plans andtraining sessions with 3,200 farmers to be able to trace
their firewood and comply with PMI's policy.
Recognition of potential
business impact onforests and other natural
habitats

F4.5b(F4.5b) Do you have commodity specific sustainability policy(ies)? If yes, select theoptions that best describe their scope and content.
Do you have acommodity
specificsustainability
policy?
TimberYes
products

Scope

Content

Company- Commitment towideeliminate
deforestation
Commitment toremediation,
restoration and/or
compensation of
past harms
Commitment toprotect rights andlivelihoods of local
communities

Please explain

Our public forest policy called “ZeroDeforestation Manifesto” and our
Responsible Sourcing Principles
cover the use of wood fuel for curing
tobacco in our agricultural supply
chains, as well as paper and pulpbased products used for
manufacturing purposes in all
countries where PMI operates andsources materials from. Thesematerials are key to the
manufacturing of PMI’s products andtherefore essential to the company’s

58Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Commitments
beyond regulatorycompliancebusiness; any disruptions on theavailability or in their quality could
directly translate in financial impacts
for PMI. PMI’s dependency on forests
Commitment toand its associated ecosystemtransparency
services is covered in our policy,
Commitment towhich is revised and updated, if
stakeholder
necessary, on an annual basis.
awareness and
PMI recognizes that its operations
engagement
can have potential impacts on forests
Commitment toand natural habitats both through itsalign with the SDGs
direct operations, and through its
Recognition of the
supply chain and has establishedoverall importancetime bound commitments and targets
of forests and otherbeyond regulatory compliance tonatural ecosystems
tackle them, including commitments
Description of
to achieve zero net deforestation ofbusiness
High Conservation Value forests,
dependency on
zero net deforestation of naturalforests
forest, net positive impact andRecognition ofrestoration of forests associated withpotential businessthe tobacco supply chain. These are
impact on forests
applicable to all habitats and biomes
and other natural
within PMI’s supply chain, forecosystems
example, Miombo in Malawi, or semiDescription of forest evergreen dry forests in Indonesia.
risk commodities,
PMI’s Good Agricultural Practices
parts of the
program has been active since 2002,
business, andwhile our Monitoring Framework forstages of valueSustainable Leaf Curing Fuel has
chain covered bybeen in place since 2016 and has
the policy
been our main initiative to tackle
deforestation risks. PMI collects data
List of timeboundon multiple environmental indicators
commitments andand monitors the percentage oftargets
farmers being in line with best
Description ofpractices. Results from these
forests-related
initiatives are used internally to track
standards for
PMI progress towards its forest
procurement
commitments, to identify and engage
suppliers and farmers failing to adopt
best practices (or being in areas
deemed as high risk), and to makedecisions regarding programs or
projects to be implemented.
An example of this decision making
59

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

process includes our work in thePhilippines in 2019; through our risk
assessment, we identified a change
in tobacco farmers sourcing areas,
updated the relevant local risks
maps, identified farmers in close
proximity to forests ecosystems, anddeveloped management plans andtraining sessions with 3,200 farmers
to be able to trace their firewood andcomply with PMI's policy.

F4.6(F4.6) Has your organization made a public commitment to reduce or remove
deforestation and/or forest degradation from its direct operations and/or supply
chain?
Yes

F4.6a(F4.6a) Has your organization endorsed any of the following initiatives as part of its
public commitment to reduce or remove deforestation and/or forest degradation?
Other, please specify
PMI is a member of WBCSD Forest Solutions Group since 2019 in line with our strategy ofprotecting forests and promoting their sustainable management through adoption of shared bestpractices and benchmark with other sectors’ champion companies.

F4.6b(F4.6b) Provide details on your public commitment(s), including the description of
specific criteria, coverage, and actions.

Forest risk commodity
Timber products

Criteria
Zero gross deforestation/ no deforestation
Zero net deforestation
Restoration and compensation to address past deforestation and conversion
Avoidance of negative impacts on threatened and protected species and habitats
No trade of CITES listed species
No land clearance by burning or clearcutting
No conversion of High Conservation Value areas

60

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Secure Free, Prior and Informed Consent (FPIC) of indigenous people and local
communities
Adoption of the UN International Labour Organization principles
No sourcing of illegally produced and/or traded forest risk commodities
No sourcing of forest risk commodities from unknown/controversial sources

Operational coverage
Supply chain% of total production/ consumption covered by commitment
100%

Cutoff date2006

Commitment target date2026-2030

Please explain
To achieve our Zero Deforestation Manifesto (ZDM) forest commitments we have twocore action areas: supplier engagement and third-party verification. As a result of thedeforestation risk assessment of our value chain, we identified priority suppliers to beengaged. In 2018 we developed a plan for third party audits covering: land rights(including FPIC), environmental compliance, environmental management, resource
consumption and waste minimization. Based on a risk assessment in our packaging
board and paper supply chain, we conducted an audit in 2019 at one of our major
supplier with the support of expert third parties in environmental and human rights fields.
A corrective action plan was proposed by the supplier to address the findings, and afollow up audit is planned until the end of 2020. Since 2018 we implement a third-party
audit process to verify the compliance of our suppliers with the Monitoring Framework(MF) for Sustainable Leaf Curing Fuels. As part of this, suppliers must submit
traceability evidence proving that their firewood is legal and that there was no
conversion of natural habitats for its production, with a cut-off date of 2006. Through theimplementation of the MF we expect our zero net deforestation commitments to beachieved. As a result of the MF third party verification we have confirmed that 97% of
the flue cured tobacco we purchased in 2019 did not pose any risk of deforestation to
Old Growth Forest (primary and high conservation value forests). Another example of
our work with farmers to prevent deforestation and contribute to compensate areas
where past deforestation has taken place is the adoption of live barns in Malawi andMozambique, where termites eat the timber traditionally used in curing barns, requiring
farmers to replace them regularly by further cutting trees. To tackle this issue, PMI
developed the concept of the “live barn” – a structure of living trees which support thecuring poles and remain in place for many years. Since 2014, PMI suppliers have grown
more than 80,800 such barns. In 2019 more than 12,000 of the planted barns havegrown to the right dimensions and are being used to cure tobacco. By 2020, our plan isthat all contracted Burley farmers in Malawi and Mozambique will have live barns
planted. This program will help farmers prevent deforestation and restore theenvironment and enhance biodiversity.
61

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F5. Business strategy
F5.1(F5.1) Are forests-related issues integrated into any aspects of your long-term
strategic business plan, and if so how?
Are forestsLong-term Please explain
related issues time
integrated?
horizon(years)Long-termbusiness
objectives

Yes, forestsrelated issues
are integrated

11-15

Forests related issues have been integrated in PMI’s
long-term business objectives since 2016, when PMI
worked with Business for Social Responsibility (BSR) to
identify the areas that are most significant to both ourbusiness sustainability and to our stakeholders andprioritized them, including risks, opportunities andemerging themes that required management action andbusiness planning.
In 2019, we worked with BSD Consulting, an ELEVATE
company, to carry out a comprehensive sustainability
materiality assessment and further strengthen PMI’ssustainability materiality assessment process.
The assessment, which fostered transparency
and credibility, enabled us to further embedsustainability across the company, and specificallyforest-related issues which came out as an important
topic to be incorporated into PMI’s sustainability strategy.
Since 2016, PMI has continued to integrate forests
issues in long-term business objectives, particularly
through the development of metrics and frameworks to
inform our business strategy, as well as theestablishment of targets and goals to ensure asustainable supply of raw materials.
In 2019 PMI continued to use its Monitoring Framework
to verify suppliers’ sustainability attributes and identify
additional sustainability risks. As Brazil was identified asa high-risk region for the company, PMI is now working
with its agronomy team, tobacco suppliers, an external
agency and a local university to further validate thesustainability of firewood sources. Through such casestudies PMI makes sure that the company is on track toensure a sustainable supply of raw materials, which areessential both for the elaboration of the company’s
products and long-term business objectives. The

62

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

indicated time frame was chosen as it is aligned with thecompany’s forests related targets.
Strategy forlong-term
objectives

Yes, forestsrelated issues
are integrated

11-15

Achieving sustainable tobacco production is a strategic
objective for PMI. For this reason, the company has set
goals and developed strategic plans to avoid
deforestation, and reduce greenhouse gas emissions
from the use of timber based fuels for tobacco curing, allof which has been integrated in our long-term strategy
through the following three strategic initiatives:- Reduce fuel consumption rate via curing efficiency
improvement and curing barn optimization programs;- Move from unsustainable timber fuels to sustainablecuring fuel sources;- Encourage fuel switching to less polluting fuels and theuse of biomass as an alternative to unsustainable woodor fossil fuels, where appropriate.
For example, to implement the strategic initiative to
move from unsustainable to sustainable curing fuelsources, PMI has adopted a Global Roadmap forsustainable firewood, which includes the following threeglobal targets: 1. No Old Growth Forest cut 2.
Renewable sources/Self-sufficient firewood 3. Fulltraceability. The global roadmap for sustainable firewood
provides a timeline for the achievement of the three
above targets, the set timeline for its achievement is until
2020. As an example, in 2019, as a result of ourroadmap implementation 51% of flue-cured tobacco wepurchased was cured using renewable and traceable
fuels (vs. 45% in 2018) and verified by a third party. The
time horizon was chosen because PMI wants todemonstrate its efforts and leadership on sustainability,
climate change and forest-related issues in accordancewith its business strategy which considers the transition
to a smoke free world. Additionally, we developed
Science Based Targets to be achieved by 2030 and
2040. In 2019, PMI continued to enforce its monitoring
framework, as well as its risk assessment focusing on
tobacco leaf, and paper and pulp-based products.

Financialplanning

Yes, forestsrelated issues
are integrated

11-15

Sustainable tobacco production is key for PMI and thecompany has set goals and developed strategic plans to
avoid deforestation and reduce greenhouse gas
emissions from tobacco curing. As PMI is working

63Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

towards achieving these goals, human and financial
resources are allocated into long-term financial planningfor forest related issues. For example, PMI developed its
Monitoring Framework for Sustainable Leaf Curing Fuels
that tobacco leaf suppliers should comply with and thatshould be audited by a third party by 2020. The
Monitoring Framework requires tobacco leaf suppliers toensure that 100% of the firewood and biomass used for
tobacco curing is sustainable and traceable. The
Monitoring Framework is an ongoing process and it isbeing implemented in 12 countries where PMI sources
Flue Cured Virginia (FCV) tobacco, including Brazil,
Argentina and Philippines, which represent some of
PMI’s main FCV origins. Since its design, carefulfinancial planning including actions, and resources havebeen allocated to facilitate the achievement of PMI’s
forest-related objectives. For example, PMI’s financial
planning considers that sustainable wood fuel may comeat a higher cost due to the increased efforts intraceability and verification in different geographies.
These potential costs increments are integrated into PMI
financial planning, but also into PMI’s sustainability
programs which aim to address potential risks andopportunities. PMI supported suppliers and farmers
committed to achieve full sustainability driving efficiency
by promoting collective purchase access to sharedsustainable firewood suppliers. This approach was
deployed between 2018 and 2019 in Pakistan, Brazil andPhilippines.

F6. Implementation
F6.1(F6.1) Did you have any timebound and quantifiable targets for increasing sustainableproduction and/or consumption of your disclosed commodity(ies) that were active
during the reporting year?
Yes

F6.1a
(F6.1a) Provide details of your timebound and quantifiable target(s) for increasingsustainable production and/or consumption of the disclosed commodity(ies), andprogress made.

64

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Target reference number
Target 1

Forest risk commodity
Timber productsType of target
Traceability

Description of target
We are committed to promote the sourcing wood-based materials from traceable,
sustainable and legal sources, while protecting the rights and livelihoods of local
communities. We have set a target to achieve 100% of the tobacco purchased without
risk of deforestation of Old Growth Forest (primary and high conservation value forests)
by 2020. With the achievement of this target we expect to ensure zero grossdeforestation of primary forests within our tobacco supply chain and contribute to ourzero net deforestation commitments.

Linked commitment
Zero net/gross deforestation

Traceability point
Forest management unit

Third-party certification scheme

Start year
2015

Target year
2020

Quantitative metric

Target (number)

Target (%)
100% of target achieved
97

Please explain

65

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Sustainable tobacco production is key for PMI and the company has set goals anddeveloped strategic plans to reduce greenhouse gas emissions from tobacco curing aswell as to tackle the risk of deforestation. The 3 strategic initiatives are: ▪ Reduce fuelconsumption rate via curing efficiency improvement and curing barn optimization
programs; ▪ Move from unsustainable to sustainable curing fuel sources; ▪ Encourage
fuel switching to less polluting fuels and the use of biomass as an alternative tounsustainable wood fuels or fossil fuels where appropriate. Following the deforestation
risk assessment and identified risks and opportunities PMI has adopted a Global
Roadmap for sustainable firewood, which includes the following three global targets: 1.
No Old Growth Forest cut 2. Renewable sources/Self-sufficient firewood 3. Fulltraceability. The global roadmap for sustainable firewood provides a timeline for theachievement of the three targets above, the set timeline for their achievement is until
2020. PMI has been implementing a harmonized and verifiable Monitoring Framework
for Sustainable Leaf Curing Fuel (referred to as Monitoring Framework) to monitor the
progress towards its global targets. The monitoring framework is composed of four
principles, and Principle 2 “Be Sustainable” focuses on sustainability and traceability of
the fuel source. The purpose is to ensure that all origins switch to fuels of ademonstrated sustainable source such as biomass from waste agricultural residues orwood fuel from sources which are proven to be sustainably managed (in accordancewith the PMI defined criteria of sustainable wood fuel and required traceability). PMI is
supporting and engaging in capacity building activities with tobacco leaf suppliers toensure they are able to comply with the Monitoring Framework by 2020 and beyond.
Through the third-party verification process, we keep an unbiased track of our progressagainst our target of 100% by 2020 is on track and properly being reported.

Target reference number
Target 2

Forest risk commodity
Timber productsType of target
Assess and/or verify compliance

Description of target
We have set a target to reach 100% compliance with PMI’s Monitoring Framework for
Sustainable Leaf Curing Fuel in countries from which we source tobacco and that wereidentified with risk of deforestation of Old Growth Forest through our deforestation risk
assessment. The achievement of this target will ensure zero gross deforestation ofprimary forests within our tobacco supply chain and contribute to our zero net
deforestation commitments.

Linked commitment
Zero net/gross deforestation

66

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Traceability point

Third-party certification scheme

Start year
2017

Target year
2020

Quantitative metric

Target (number)

Target (%)
100% of target achieved
70

Please explain
Sustainable tobacco production is key for PMI and the company has set goals anddeveloped strategic plans to reduce greenhouse gas emissions from tobacco curing aswell as to tackle the risk of deforestation. The 3 strategic initiatives are: ▪ Reduce fuelconsumption rate via curing efficiency improvement and curing barn optimization
programs; ▪ Move from unsustainable to sustainable curing fuel sources; ▪ Encourage
fuel switching to less polluting fuels and the use of biomass as an alternative tounsustainable wood fuels or fossil fuels where appropriate. Following the deforestation
risk assessment and identified risks and opportunities PMI has adopted a Global
Roadmap for sustainable firewood, which includes the following three global targets: 1.
No Old Growth Forest cut 2. Renewable sources/Self-sufficient firewood 3. Fulltraceability. The global roadmap for sustainable firewood provides a timeline for theachievement of the three targets above, the set timeline for their achievement is until
2020. PMI has been implementing a harmonized and verifiable Monitoring Framework
for Sustainable Leaf Curing Fuel (referred to as MF) to monitor the progress towards its
global targets. The MF is composed of four principles, and Principle 2 “Be Sustainable”
focuses on sustainability and traceability of the fuel source and is represented by 5
indicators. The purpose is to ensure that all origins switch to fuels of a demonstrated
sustainable source such as biomass from waste agricultural residues or wood fuel fromsources which are proven to be sustainably managed (in accordance with the PMI
defined criteria of sustainable wood fuel). PMI is supporting and engaging in capacity
building activities with tobacco leaf suppliers to ensure they are able to comply with the
MF by 2020 and beyond. Through the annual third-party verification process, which

67

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

includes on-site visits, we ensure the progress against our target of full compliance by2020 with the MF in the high-risk countries from where we source tobacco is on track
and properly being reported, out of which the compliance on the 5 indicators of Principle
2 are assessed.

Target reference number
Target 3

Forest risk commodity
Timber productsType of target
Engagement with direct suppliers

Description of target
To be defined as sustainable, tobacco production depends, among other criteria, on thesustainable management of forests in the growing areas we source tobacco from. We
have therefore set clear goals and programs to tackle deforestation and prevent forest
degradation in our tobacco supply chain together with our direct suppliers. We engage
with and expect all our direct suppliers to support us in the implementation of our Zero
Deforestation Manifesto and the achievement of the target of 100% of zero net
deforestation of natural forest in our tobacco supply chain by 2025. With theachievement of this target we expect to ensure zero net deforestation of natural forests
within our tobacco supply chain.

Linked commitment
Zero net/gross deforestation

Traceability point

Third-party certification scheme

Start year
2019

Target year
2025

Quantitative metric

Target (number)

Target (%)
68

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

100

% of target achieved
45

Please explain
PMI’s environmental strategy aims to mitigate the risk of negative environmental
impacts through carbon footprint reduction, sustainable waste management, water
stewardship and biodiversity and forest conservation with the aim to generate positive
impact in the long-term. The engagement beyond our own operations is key, as it iswhere the most significant environmental impacts occur, especially when it comes todeforestation. Combating forest loss is critical for PMI as we depend on wood-basedmaterials for our products, and a significant part of our environmental management
efforts is devoted to halting deforestation and allow for forests to provide ecosystemservices that are at the base of sustainable raw material production. The most relevant
source of risk of deforestation from tobacco arises from the Virginia flue-cured (FC)curing process where firewood is used. To address the risk and prevent deforestation inits supply chain, PMI has implemented several programs including Good Agriculture
Practices (GAP), the Monitoring Framework for Sustainable Leaf Curing Fuel (MF) and
the Responsible Sourcing Practices (RSP) that prescribe the environmental protection.
For the tobacco supply chain, we have set a target of zero net deforestation of naturalforest for firewood by 2025. We work with all our direct suppliers to move towards
traceable and sustainable wood fuels together with a thorough verification process by athird-party to assure the protection of forests against deforestation. In 2019 45% of thefirewood used is the curing process of the FC sourced by PMI was traceable to forest
management unit and verified by a third-party through our MF program. In order tofurther support the achievement of the 2025 target of 100% PMI aims to implement a
more stringent forest monitoring tool to complement the implementation of the MF withhigher level of traceability. Our direct suppliers are fundamental for the success of the
program, incl. the successful deployment of the forest monitoring tool, and theachievement of the targets. They have the direct connections to farmers that rely on
firewood for curing and, in most of the cases, the direct access to the forest woodlot
managers that need to provide evidence of the traceability and sustainable
management of the forest, according to the MF requirements, to be validated as an
accepted vendor for firewood.

F6.2(F6.2) Do you have traceability system(s) in place to track and monitor the origin ofyour disclosed commodity(ies)?

Timberproducts

Do you have Description of traceability systemsystem(s) inplace?

Exclusions

Yes

Not
applicable

PMI has a harmonized and verifiable monitoring framework
to monitor progress towards its sustainable leaf curing fuelroadmap's goals. Principle 2 of the monitoring framework

69

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

focuses on sustainability and traceability and has one
specific indicator focusing on tracing and documenting all thewood fuel used for tobacco curing activities to the source.
This information is provided to farmers and curing centers
annually and is used by PMI to identify sources of fuel thatwould not meet PMI's sustainability criteria. PMI requires thefollowing documentation for audits:a. Purchased fuel: receipts of purchased fuels, including thename of the vendor and the amount of fuel purchased. For
biomass, a verification of the source of the fuel is needed,
including a report containing evidence of source. Supplierswith intermediaries need to provide a study from reliable
sources such as universities, international organizations (e.g.
FAO) and research institutes, describing the source of thepurchased fuel.
b. Farmer and community woodlot, commercial plantations
from tobacco leaf suppliers and self-collected biomass:evidence that proves the source and amount of purchased
fuel by specific source. For example, tobacco leaf suppliersin the Philippines using wood pellets to cure tobacco can
submit contracts and receipts from the wood pellets supplier,and the correspondent government permits certifying thetimber plantation.
Third party audits took place in 2019 and will continue in
2020. It is expected that the traceability system will continue
beyond 2020.
For its paper and pulp-based products supply chain, PMI
uses its STEP (Sustainable Transformation Enables
Performance) program as a supplier due diligence andperformance program to assess supplier compliance with our
Responsible Sourcing Principles (RSP). Suppliers arerequested to answer a set of questions related toenvironmental compliance including source of origin
traceability data. We also check whether their organization
have active certifications in place for its paper and pulpbased products, such as FSC and PEFC. PMI also requests
suppliers to provide details on origins at national or
subnational level as well as proportional breakdowns on anannual basis. In 2019, 94% of our paper and pulp-based
products’ volume were traceable at least at national level,
and at sub national level for high-risk countries.

70

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

F6.2a
(F6.2a) Provide details on the level of traceability your organization has for its
disclosed commodity(ies).
Forest risk
commodity

Point to which commodity is
traceable% of total production/consumption volume
traceable

Timber products

Forest management unit

57.3

Timber products

Municipality or equivalent

3.8

Timber productsState or equivalent

23.5

Timber products

Country

12.2

Timber products

Not traceable

3.2

F6.3
(F6.3) Have you adopted any third-party certification scheme(s) for your disclosed
commodity(ies)? Indicate the volume and percentage of your certified production
and/or consumption.

Forest risk commodity
Timber products

Third-party certification scheme
No certified production/consumption for this commodity

Certification coverage% of total production/consumption volume certified

Form of commodity

Volume of production/ consumption certified

MetricPlease explain
PMI is not specifying third-party certification schemes for its disclosed commodities, asthese are sourced in line with the company’s own sustainability sourcing standards
which are specific to tobacco production through its Monitoring Framework for
Sustainable Curing Fuels. Furthermore, PMI’s sourcing of wood-based materials isdefined and ruled by the company’s Zero Deforestation Manifesto and commitments (i.e.
71Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

forest policy) which targets traceability of virgin fibers, share of third party certified orverified products and use of recycled materials to achieve our goals. Certification
standards are continuously evolving and through our participation in forest management
working groups and direct exchange of technical information we have established adialogue to explore different possibilities of collaboration. Through STEP supplier due
diligence program, suppliers are requested to answer a set of questions related toenvironmental compliance, among which, whether they have certified sustainable paper
and pulp-based products sourcing practices in place, source of origin traceability, andactive certifications in place for these products, such as FSC and PEFC.

F6.4(F6.4) For your disclosed commodity(ies), do you have a system to control, monitor,
or verify compliance with no conversion and/or no deforestation commitments?
A system tocontrol, monitor
or verify
compliance
Timberproducts

Comment

No, but we plan to As stated in our Zero Deforestation Manifesto (ZDM) PMI isdevelop one within committed to sourcing wood-based materials from traceable,
the next two years sustainable and legal sources, while protecting the rights andlivelihoods of local communities. Through our extensive supplierengagement programs (e.g. Monitoring Framework in Leaf, andSTEP in Procurement) PMI collects information and verifies thetraceability and sustainability of the wood-based materials it sources.
A monitoring system to specifically ascertain compliance or detect
non-compliance with our no conversion and no deforestationcommitments is currently under investigation and is expected to be
implemented within the next two years. This tool will support theachievement of the targets specified in our ZDM.

F6.6
(F6.6) For your disclosed commodity(ies), indicate if you assess your own complianceand/or the compliance of your suppliers with forest regulations and/or mandatory
standards.
Assess legal compliance with forest regulations
Timber products

Yes, from suppliers

F6.6a(F6.6a) For you disclosed commodity(ies), indicate how you ensure legal compliancewith forest regulations and/or mandatory standards.
Timber products
72Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Procedure to ensure legal compliance
PMI’s Good Agricultural Program (GAP) is a contractual requirement for all our leaf
suppliers and contracted farmers, and mandates that local legal requirements are to bestrictly followed. The program prescribes the compliance with forest regulations for thesustainable wood-based materials in our agricultural supply chain. GAP’s
implementation is supported on the ground by qualified and trained field technicians andis verified yearly through a third party. Furthermore, for the Virginia flue cured tobacco
markets, the Monitoring Framework (MF) for Sustainable Leaf Curing Fuels requires
tobacco leaf suppliers to ensure that 100% of the firewood and biomass used for
tobacco curing is sustainable and traceable, ensuring compliance with local forest
regulations. Since 2018 a third-party audit is in place to ensure and verify the MF
implementation, with the first audit cycle expected to be concluded in 2020.
STEP (Sustainable Transformation Enables Performance) is the supplier due diligenceand performance program to achieve supplier compliance with our Responsible
Sourcing Principles (RSP). STEP is based on the risk management approach thatguides our supply chain due diligence management framework. It serves as the
backbone for sustainably managing our first-tier suppliers; in some cases, second-tiersuppliers are also included. Through STEP supplier due diligence program, suppliers
are requested to answer a set of questions related to environmental complianceincluding if they have in place a procedure to regularly update its register of applicable
environmental legislation and regulations, through which the compliance with forest
regulations and/or mandatory standards are addressed. In addition, high-risk suppliers
undergo a desktop audit. According to the questionnaire results and, as applicable,
desktop audit, the supplier risk profile may be re-evaluated and require further due
diligence. E.g., a medium-risk supplier that did not achieve the minimum acceptable
RSP compliance will be required to undergo a desktop and/or an on-site audit. Following
both types of audits, corrective action plans are defined and implemented. PMI
considers these programs and tools to be sufficient to ensure legal compliance within
operations and supply chain, as these are aligned with all local regulation as well as
PMI's policies, which are often more stringent.

Country/Area of origin
Argentina
Australia
BrazilColombia
Indonesia
Malaysia
MexicoMozambique
Philippines
ThailandLaw and/or mandatory standard(s)General assessment of legal compliance
Australia Illegal Logging Prohibition Act

73

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Forest Law - Argentina
Brazilian Forest CodeOther, please specify
Responsible Sourcing Principles; Good Agricultural Practices; Monitoring
Framework for Sustainable Leaf Curing Fuel

Comment
As stated in our Zero Deforestation Manifesto we are committed to sourcing woodbased materials from traceable, sustainable and legal sources.
Also, a general assessment of legal compliance is performed through our STEP
program that assess suppliers’ due diligence. During this process, we ask our suppliers
to demonstrate by providing physical evidences that they keep and regularly update aregister of environmental legislation, that their environmental strategy and plans in place
meet relevant local environment protection legislation, and that they have a documented
Environmental Management System that has undergone a third party assurance /certification to ISO 14001:2015 or equivalent which requires a monitoring of legal
environmental compliance.

F6.7(F6.7) Are you working with smallholders to support good agricultural practices andreduce deforestation and/or conversion of natural ecosystems?
Are youType of
Smallholder
working withsmallholder engagement
smallholders? engagement approach
approach
Timber Yes, working
products withsmallholders

Supply chain
mapping

SupplierquestionnairesonCapacityenvironmentalbuilding
Financial and and social
indicators
commercial
Developing or
incentives
distributing
supply chain
mapping tool
Supplier audits
Offering on-site
technical
assistance andextension
services
Providingagricultural
inputsNumber of
Please explain
smallholders
engaged
317,000

Through PMI’s Good
Agricultural Program(GAP) all our tobacco
leaf suppliers andcontracted farmers areengaged, with anestimated 317,000
smallholder farmers (outof 335,000) covered by
the program in 2019.
GAP’s implementation is
supported on the groundby qualified and trained
field technicians (FT)and verified yearlythrough a third party.
Through the regular onsite visits by the FT arange of activities isperformed, from the74

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Disseminating
technical
materials
Organizing
capacitybuilding events
Investing inpilot projects
Supporting
smallholders toclarify andsecure land
tenuredissemination oftechnical materials,
provision of agricultural
inputs (e.g. crop
protection agents), todata collection on socialand environmental
indicators. In
collaboration with our
suppliers, capacity
building and training
sessions are organizedand offered tosmallholder farmers toincrease capabilities on
the ground and support
the correct
implementation of GAP
and to prevent andreduce deforestation
and/or conversion ofnatural ecosystems at
the growing areas wesource from. Based on acontinuous improvement
approach pilot projects
with a focus on
innovative solutions andtrial of good agricultural
practices are developedand implemented within
our tobacco supply
chain, incl. those aimed
at smallholder farmers.
In 2019, Philip Morris
Brazil in partnership with
Aliança da Terra, started
a pilot project to trial the
Produzindo Certo
Platform (PCP), with theaim of bringing topartner farmers amaterialization tool for
more sustainableproduction cycle,
supporting their social75

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

environmental
development. The
approach consists ofthree phases: i)environmental diagnosisof the farm; ii)
development of anaction plan and iii)
monitoring andevaluation of achieved
results. The farmers join
the platform by voluntary
engagement and commit
to the implementation of
the action planestablished for the farm.
The program considers
the farm’s forestry
management assessing
legal conformity,
monitoring of areas ofpreservation and native
vegetation, firewood
consumption andfirefighting equipment.
The pilot covered 123
smallholder farmers in
Rio Grande do Sul (BR).
Furthermore, for theVirginia flue cured
tobacco markets, theMonitoring Framework(MF) for Sustainable
Leaf Curing Fuels
requires tobacco leaf
suppliers to provide
capacity building
activities to local
stakeholders, incl.
smallholder farmers.
Since 2018 a third-party
audit is in place to verify
the MF implementation,with the audit cycle

76Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

expected to beconcluded in 2020.

F6.8(F6.8) Are you working with your direct suppliers to support and improve theircapacity to comply with your forests-related policies, commitments, and otherrequirements?
Are you
workingwith direct
suppliers?

Type of direct
supplier
engagement
approach

Timber Yes, working Capacity
products with directbuilding
suppliers

Directsupplier
engagement
approach% ofPlease explain
suppliers
engagedOffering onsite training
and technicalassistance

51-60%

Organizing
capacitybuilding events

Following the publication of ourZero Deforestation Manifesto(ZDM), we have organized
Webinars and training
sessions with our most
relevant suppliers, covering
topics related to deforestation
risks, in our tobacco supply
chain, as well as in the paper
and pulp-based products
supply chain (Tier 1 areacetate tow, shipping cases
and fine papers). From 117
suppliers a total of 53
participated in the webinar andtraining sessions. These
suppliers account for 58% of
the 2019 tobacco spend and
90% of the 2019 paper andpulp-based products spend. In
2019 6 webinars were carriedout aimed at sharing with our
supplier base the content of
the commitments taken by PMI
towards our long term forest
positive strategy, as well as
our two-pronged approach:First - engaging with suppliersof tobacco, and paper andpulp-based products to movetowards traceable andsustainable raw material
sourcing; second, Third-party

77

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

verification.
A survey was answered by
55% of the webinars’
participants. Among the list of
7 questions, 96% found that
PMI successfully outlined theobjectives of ZDM. 97%
consider that objectives andcommitments set by the ZDM
are realistic and achievable in
the timeframe indicated by
PMI.

F6.9
(F6.9) Are you working beyond your first-tier supplier(s) to manage and mitigate
deforestation risks?
Are you
workingbeyondfirst tier?
TimberYes,
products working
beyondfirst tierType ofengagement
approach withindirectsuppliers

Indirect supplier Please explain
engagement
approach

Supply chain
mapping

Supplierquestionnaires onenvironmental
and social
indicators

Capacitybuilding

On-site meetings
with indirect
suppliers
Supplier audits
Offering on-sitetraining andtechnical
assistance
Disseminating
technical
materials
Participating inworkshops
Investing in pilot
projects

Through PMI’s Good Agricultural
Program (GAP) all our tobacco leaf
suppliers and contracted farmers areengaged, with an estimated 335,000
suppliers (first and second tiers) coveredby the program in 2019. GAP’s
implementation is supported on the
ground by qualified and trained fieldtechnicians (FT) and is verified yearlythrough a third party. Through theregular on-site visits by the FT a rangeof activities is performed, from thedissemination of technical materials,
provision of agricultural inputs (e.g. crop
protection agents), to data collection onsocial and environmental indicators. In
collaboration with our suppliers, capacity
building and training sessions areorganized and offered to smallholder
farmers to increase capabilities on the
ground and support the correct
implementation of GAP and to preventand reduce deforestation and/or

78

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

conversion of natural ecosystems at thegrowing areas we source from. Basedon a continuous improvement approachpilot projects with a focus on innovative
solutions and trial of good agricultural
practices are developed andimplemented within our tobacco supply
chain, including indirect suppliers. In
2019, Philip Morris Brazil in partnershipwith Aliança da Terra, started a pilot
project to trial the Produzindo Certo
Platform (PCP), with the aim of bringing
to partner farmers a materialization tool
for more sustainable production cycle,
supporting their social-environmental
development. The approach consists ofthree phases: i) environmental diagnosisof the farm; ii) development of an action
plan and iii) monitoring and evaluation ofachieved results. The farmers join theplatform by voluntary engagement andcommit to the implementation of theaction plan established for the farm. The
program considers the farm’s forestry
management assessing legal conformity,
monitoring of areas of preservation andnative vegetation, firewood consumption
and firefighting equipment. The pilot
covered 123 smallholder farmers in Rio
Grande do Sul (BR).
Furthermore, for the Virginia flue cured
tobacco markets, the Monitoring
Framework (MF) for Sustainable Leaf
Curing Fuels requires tobacco leaf
suppliers to provide capacity building
activities to local stakeholders, incl.
indirect suppliers. Since 2018 a thirdparty audit is in place to ensure andverify the MF implementation, with theaudit cycle expected to be concluded in
2020.

F6.10
(F6.10) Do you participate in external activities and/or initiatives to promote theimplementation of your forests-related policies and commitments?
79

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Forest risk commodity
Timber products

Do you participate in activities/initiatives?
Yes

Activities
Involved in multi-partnership or stakeholder initiatives

Initiatives
WBCSD Forests Solutions Group

Jurisdictional approaches

Please explain
PMI is a member of WBCSD’s Forest Solutions Group (FSG), a global platform for theforest sector value chain. Building and sharing business solutions to lead sustainable
development in the forest products sector. FSG’s mission is to advance the bioeconomy and a thriving forest sector that sustains healthy productive forests & people's
well-being. FSG members adhere to a set of membership principles and report on key
performance indicators to demonstrate leadership and prove progress on sustainability.
As an FSG member PMI must demonstrate leadership and commitment to sustainable
development through active participations to working sessions and implementing
outcomes of these sessions. To track and show individual and joint progress insustainability, the FSG reports annually on the group’s performance across six coreenvironmental and societal commitments. As a sign of our shared commitment and as acondition of our FSG membership, PMI endorses and adheres to a set of Membership
Principles and Responsibilities. The FSG reports annually on associated Key
Performance Indicators (KPIs) and collect supporting information to measure and show
our joint progress in sustainability in accordance with internationally recognizedreporting practices and standards. PMI’s participation in the FSG enables first-handapplication of the outcomes from discussions and efforts shared by the group, which ischaracterized by thought leaders from companies highly committed to generate positive
impact through sustainable management of forest capital. These outcomes support
PMI’s ever evolving sustainability strategy, that benefits from the collaborative exchange
between member companies (including some of PMI’s suppliers) within the FSG, whilevalidating the progress and results against our forest-related commitments, including our
Zero Deforestation Manifesto.

Forest risk commodity
Timber products

Do you participate in activities/initiatives?
Yes
80Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Activities
Involved in jurisdictional approaches

Initiatives

Jurisdictional approaches
Other, please specify
Monitoring Framework for Sustainable Leaf Curing Fuels

Please explain
PMI, through its commitment to sustainability and traceability of wood fuels used in the
curing of Virginia flue cured tobacco purchased, developed its Monitoring Framework(MF) for Sustainable Leaf Curing Fuels. The MF must be implemented by our suppliersin all flue-cured sourcing markets. Through a set of stringent indicators PMI verifies the
suppliers’ compliance with a third-party audit process. Concretely, Principle 2 of the MF
focuses on sustainability and traceability of the wood fuel and has one specific indicator
focusing on tracing and documenting all the wood fuel used for tobacco curing activities
to the source. This information is provided to farmers and curing centers annually and isused by PMI to identify sources of fuel that would not meet PMI's sustainability criteria.
To meet the MF standards, the sustainability and traceability criteria used must be alsoaligned to the ones implemented by local governmental institutions. This allows local
suppliers to provide valid documentation to support their assertion of compliance,
supporting conformity against the MF, and, therefore, supporting the overall
achievement of PMI’s environmental strategy.
In the past in certain jurisdictions such alignment was not yet fully observed. In thesecases, PMI and its suppliers jointly with national and local administrations defined theinterface to ensure the necessary traceability mechanism is in place and to enable thesustainability criteria for compliance to be reported against the MF. In the Philippines, forexample, our suppliers engaged with the Department of Environment and Natural
Resources (DENR) in the provinces growing flue-cured tobacco for PMI to review theapplicable criteria for traceability and sustainability of wood fuels and align to their
existing Technical Bulletin (TB). As a result, a new TB was issued by the DENR,
publishing the set of criteria in line with the MF applicable to the local jurisdictions. Thispublication enabled local suppliers to ensure the MF requirements are properly
implemented by local farmers and defined a more straightforward process to request
tree plantation and harvesting permits. This jurisdictional approach is expected toincrease social and environmental benefits by ensuring sustainable forest management
according to both approaches (DENR/MF).

Forest risk commodity
Timber products

Do you participate in activities/initiatives?
Yes
81

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

Activities
Engaging with non-governmental organizations

Initiatives

Jurisdictional approaches

Please explain
To achieve the targets of 100% sustainable and traceable firewood, PMI is currently
engaged in industry efforts to collaborate with NGOs and other stakeholders in areas
such as reforestation, availability of sustainable firewood, among others. This approachis currently being implemented in Brazil and Philippines where all PMI tobacco leaf
suppliers come together and plan an industry strategy and collaborate with otherstakeholders to achieve sustainability and traceability of fuel sources. For example, in
Brazil, the implementation of the Monitoring Framework has triggered all three main
tobacco leaf suppliers to form an industry approach to manage sustainability andtraceability of firewood. PMI and tobacco leaf suppliers in Brazil have defined a roadmap
to collectively update the sustainability study every 3 years from 2019 onwards. Taking
an industry approach will help strengthen the efforts to achieve 100% sustainability andtraceability of firewood.

Forest risk commodity
Timber products

Do you participate in activities/initiatives?
Yes

Activities
Involved in industry platforms

Initiatives

Jurisdictional approaches

Please explain
PMI is a member of the Sustainable Tobacco Program (STP), a due diligence platform
for sustainable agricultural supply chains. The initiators and STP Companies are formedby the tobacco industry’s largest companies (outside of monopolies), which includes
PMI. The STP was developed by the STP Companies supported by external technicalconsultants as a collaborative effort with industry participants. Subject matter experts
and STP Companies’ suppliers of tobacco leaf are consulted throughout the process.
The results are reported in the due diligence platform, which is set up to evolve andsupport the sector to continuously improve its impacts towards sustainable supply
82

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

chains.
STP Companies are committed to the sustainable production of tobacco to enable a
consistent supply of tobacco products that meet adult tobacco users’ expectations, aswell as quality and regulatory requirements. The STP Companies define sustainabletobacco production as the efficient production of quality tobacco in conditions that limit
as much as possible the impact on the natural environment and that improve thesocioeconomic conditions of the people and communities involved in its production.
Sustainable tobacco production is the logical outcome of farmers and suppliersconsistently applying the Sustainable Tobacco Programme.
The STP implementation is verified on an annual basis, reporting on suppliers’
compliance against the STP, which supports the achievement of PMI’s sustainability
strategy, including our forest-related commitments.

F6.11(F6.11) Is your organization supporting or implementing project(s) focused on
ecosystem restoration and protection?
Yes

F6.11a
(F6.11a) Provide details on your project(s), including the extent, duration, andmonitoring frequency. Please specify any measured outcome(s).

Project reference
Project 1

Project type
Forest ecosystem restoration

Primary motivation
Voluntary

Description of project
Auera is a voluntary project developed by PMI Brazil (PMB) in partnership with Embrapa(Brazilian Agricultural Research Corporation from Ministry of Agriculture, Livestock, andFood Supply) to manage biodiversity at farm level through practices that bringconservation benefits for the environment and to farmers through ecosystem services.
In the past vacuum in regulatory requirements disincentivized farmers to keep
Permanent Preservation Areas (PPAs) or Legal Reservations on their land, while
encouraging the opening up of new production areas to increase their revenue streams
with little concern about protecting local biodiversity and natural resources.
Additionally, past agricultural management practices resulted in erosion, an influx ofinvasive exotic plant species and degradation of remaining areas of native vegetation,
all of which caused some sort of ecological imbalance.
In response, through its Good Agricultural Practices (GAP) Program, PMI has been
83Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

supporting sustainable tobacco production, with the environmental requirements of the
program focusing on protecting, maintaining and promoting Biodiversity.
The Auera Project is split into 3 phases: pre-diagnostics, full diagnostics andinterventions on farms in southern Brazil.
The pre-diagnostics phase aims at verifying the current level of sustainability in areas
contracted to grow tobacco for the company. This snapshot is used to define KPIs thatwill be monitored and analyzed in the full diagnostics phase, detailing the interventions
required to maintain and improve balance in forest ecosystems.
Interventions will focus on creating tobacco farming areas that are benchmarks insustainability. This will include recovering degraded areas, protecting water sources,
creating ecological corridors, eliminating invasive exotic species from PPAs and improvethe balance of ecosystem services to help maintain local fauna and flora.
KPIs will be defined during the final phase of the project to characterize natural
resources, farm biodiversity management and protection, agricultural forestry systems toreinstate environmental conditions, reinstate and promote biodiverse crops andmaximize their use to drive crop diversification and sustainability.

Start year
2019

Target year2022

Project area to date (Hectares)
15,686

Project area in the target year (Hectares)

Country/Area
BrazilLatitude-29.725173

Longitude-52.464501

Monitoring frequency
Six-monthly or more frequently

Measured outcomes to date
Other, please specify
Pre-diagnosis completed

Please explain
The program is monitored through periodical meetings, videoconferences and callsessions. Interim results are discussed and analyzed by the project’s executive

84

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

committee, which has an equal number of members from Embrapa Clima Temperado,
Philip Morris Brasil and PMI’s regional team. The pre-diagnostics phase resulted in theidentification of further areas for action, among which the monitoring of biodiversity to be
fully implemented at PMB operations; and the training of internal stakeholders and local
farmers on the topics related to biodiversity. Specific interventions to improve thesustainable tobacco production model continue to be assessed and include, among
others, ecosystem restoration, identification of endangered species, and removal ofinvasive species. Some KPIs identified during the pre-diagnostics phase include:• Soil Mesofauna and Macrofauna• Presence of a Permanent Protection Area
• Presence and diversity of honeybees• Endangered species by region• Cultivation and use of bioactive plants• Presence of ecological corridors
The Auera’s training pillar includes in its scope a broad training program for qualification.
The training plan was first implemented in 2019 and will continue through 2022 withspecific sustainability and biodiversity protection courses developed in partnership with
Embrapa. Training courses are conducted with both PMB employees involved in theinitiative and contracted farmers, combining awareness and technical guidelines fordeveloping and implementing interventions on farms participating in the program. So far
85 PMB employees and field technicians (FT) were trained.
The project’s next phase will be the conduction of the full diagnostic, applying the KPIs
identified during the pre-diagnostic phase, focusing on soil, water, fauna, flora, air andwaste. Once the detailed diagnostic phase is concluded, Embrapa will produce a rangeof materials on all the issues mentioned above for distribution to the farming community.
Due to the COVID-19 emergency in Brazil, the project suffered some delays and is has
been extended until 2022 (versus 2021 original end date).

F7. Verification
F7.1(F7.1) Do you verify any forests information reported in your CDP disclosure?
Yes

F7.1a
(F7.1a) Which data points within your CDP disclosure have been verified, and which
standards were used?

Disclosure module
F6. Implementation

Data points verified
85

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

To prove that firewood is renewable and traceable, we use our Monitoring Framework,to verify the sustainability attributes of how our suppliers and their farmers are managing
deforestation risks.

Verification standard
The Framework is an internal standard that aligns with international best practices andstandards, and it is verified by a third party. It requires full chain of custody not only fortier 1 suppliers but also for many tier 2 suppliers.

Please explain
The proportion of tobacco we currently purchase that is cured at no risk of deforestation
stands at approximately 97%. Monitoring and supplier engagement go hand in hand. To
ensure fuel sources are sustainable, we support suppliers and farmers in planting trees
to supply renewable firewood for tobacco curing. Suppliers report twice a year on theirperformance according to our Monitoring Framework, in addition a self-assessment anda third-party verification are performed annually.

F8. Barriers and challenges
F8.1(F8.1) Describe the key barriers or challenges to eliminating deforestation and/or
conversion of other natural ecosystems from your direct operations or from otherparts of your value chain.

Forest risk commodity
Timber products

Coverage
Supply chain

Primary barrier/challenge type
Supply chain complexity

Comment
The use of firewood as fuel for tobacco curing are the areas of our supply chain with
forest-related risks. In some countries, the supply chain for firewood as fuel for tobacco
curing can be very informal, with tier 2, tier 3 or tier 4 suppliers. For example, some
farmers collect firewood themselves, or purchase it from firewood vendors, who may
obtain it from various producers or intermediaries. Given the difficulties to change local
market practices, achieving traceability and ensuring sustainability present challenges.
As we progress with the implementation of our Monitoring Framework and its verification

86Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

by a third-party we expect these challenges to be addressed in the short to medium
term.

Forest risk commodity
Timber products

Coverage
Supply chain

Primary barrier/challenge type
Cost of sustainably produced/certified products

Comment
Traceability exercise down to the expected granularity level is very complex. It requires
extensive resources to compile and compute data in a precise and usable way.
Also, in some cases, wood species, origins and proportional quantities used areconsidered proprietary by suppliers and are not shared.
Market dynamics affecting supply and demand of certified wood is also a barrier. With
only a few percentage points of global forests being covered by third-party certification
schemes due to the high complexity of these schemes’ requirements, the mark up costs
linked to materials made from certified wood remain budget demanding for large
corporate having high demands.

F8.2(F8.2) Describe the main measures that would improve your organization’s ability to
manage its exposure to deforestation and/or conversion of other natural ecosystems.

Forest risk commodity
Timber products

Coverage
Supply chain

Main measure
Investment in monitoring tools and traceability systems

Comment
Even if forest certification is a voluntary process, the costs for small forest holders canbe prohibitive. Expanding collaborative group certificates, according to credible
standards such as FSC, will be essential to expand certification and increase theavailability of certified materials.
In order to improve our traceability and monitoring capabilities, we are planning to invest

87

Philip Morris International CDP Forests Questionnaire 2020 Monday, August 24,
2020

in technological and innovative solutions, also leveraging on the engagement of our
suppliers, to enhance the collection, analysis and validation of the traceability data thatwould serve the purpose of better managing inherent deforestation and/or conversion ofother natural ecosystems risks laying in our supply chain.

F17 Signoff
F-FI(F-FI) Use this field to provide any additional information or context that you feel isrelevant to your organization's response. Please note that this field is optional and is
not scored.

F17.1(F17.1) Provide the following information for the person that has signed off (approved)
your CDP forests response.
Row 1

Job Title

Corresponding job category

Chief Executive Officer (CEO)

Chief Executive Officer (CEO)Submit your response
In which language are you submitting your response?
EnglishPlease confirm how your response should be handled by CDP
I am submitting my response

I am submitting to

Public or Non-Public Submission

Investors

PublicPlease confirm below
I have read and accept the applicable Terms

88