Environmental,
Social & Governance
Key Performance
Indicators Protocol

ESG KPI Protocol
JUNE 2022

Philip Morris International – ESG KPI Protocol

Overview

Contents

Overview

Overview

3

Our approach to reporting4

Key Definitions

6

PMI Sustainability Index

8

17

Operational Sustainability

29

However, unlike financial accounting standards,
and despite evolving practices, currently there
are few industry norms or globally recognizedpractices for measuring and evaluating non-financial
performance. Consequently, standard-setters andregulators are working towards the creation ofclearer guidelines and requirements for the disclosureand assurance of non-financial information.

The basis for preparation and reporting sectionof this document includes key definitions, scope,
calculation methodology, and related data
management for each of these 19 KPIs.

PMI’s Sustainability Index is comprised of 19 key
performance indicators (KPIs) which have been selectedusing specific criteria to ensure they can provide a relevant,quantifiable, consistent, and reliable measure of how PMI
is progressing towards its 2025 roadmap goals. These
KPIs are representative of the company’s most material
environmental, social, and governance (ESG) issues.

The aspirations, goals, and forward-looking plans containedin this document may be impacted by the February 2022
Russian invasion of Ukraine and its potential effects on
our business over the mid- to long-term, which remain
uncertain. As part of our broader plan to evaluate ourpublished sustainability aspirations to ensure they remain
ambitious, reasonable, and achievable in the context
of a dynamic and evolving smoke-free industry, we
will also assess and reflect the impact of the invasion.

02

Sustainability Index

It is key to the integrity of PMI’s reporting thatthe information and data that we publicly disclose
accurately reflect our company’s performance,
following clear calculation methods.

This document at a glanceThis document explains our overall approach to reporting,followed by a description of PMI’s bespoke Sustainability
Index, which was introduced in 2022. Thereafter, thelink between the Index and our sustainability materiality
assessment (read more here), ESG framework and2025 Roadmap goals (read more here) is described.
This document concludes with a detailed basis for
preparation and reporting of PMI’s Sustainability Index.

Key Definitions

Non-financial information is increasingly being
used by external stakeholders to assess andcompare a company’s performance, including
by the financial community to inform theiranalyses and investment decisions.

Basis for Preparation and Reporting
PMI’s Sustainability Index
Product Sustainability

Reporting

The ESG KPI Protocol (Protocol) should be regarded
as a framework and reference guide to help ensure
consistency and completeness in our reporting andshould be read in conjunction with PMI’s annual
integrated report. This Protocol is applicable forthe 2021 reporting period and should be read in
conjunction with PMI Integrated Report 2021.
PMI will review this Protocol periodically to reflect relevant
developments, such as changes in business priorities,
revised methods of measuring or capturing data, stakeholder
feedback, and developments related to mandatory
and voluntary reporting frameworks and standards.

Considering the volatility and rapidly changing environment,
we continue to monitor the situation closely. We willcommunicate any related changes within the next year.
Aspirational targets and goals do not constitutefinancial projections, and achievement of future
results is subject to risks, uncertainties, and inaccurate
assumptions, as outlined in our forward-looking andcautionary statements on page 42 of this document.

In that regard, our intention in developing this Protocol
is to establish a framework, which is specific to ourcompany and clearly defines KPIs that can provide ourorganization with a method for making the connection
between our company’s purpose, strategic direction,
financial performance, and environmental and social
considerations. Through the publication of this Protocol,
we aim to provide further transparency on the key
metrics we use to measure how our company isprogressing towards achieving its purpose and creating
value for our shareholders as well as other stakeholders.

Basis for Preparation and Reporting

PMI financial information complies with financial
accounting standards and follows rigorous data
management processes. This provides internal andexternal stakeholders with consistent, comparable, andreliable data to enable their analysis and decisions. We
are pursuing the same degree of rigor in internal risk,
control, and measurement systems for non-financial
metrics as we do for financial information. By striving
for a similar level of robustness between financial andnon-financial data management, a protocol guiding PMI’s
non-financial reporting presents multiple opportunities.
Firstly, for external stakeholders this Protocol helps us
ensure the non-financial data we disclose are reliable,comparable, and meaningful, allowing shareholders
and other stakeholders to assess and track progressin a consistent manner over time. Consequently, thisProtocol offers the necessary basis to expand the scopeof our external assurance, helping us to anticipate
regulatory requirements and increasing shareholders’and other stakeholders’ confidence in our reporting.
Internally, this Protocol provides clear guidelines
on non-financial data management whichsets the basis to support integrated decisionmaking within our company, accounting forboth financial and non-financial information.
Finally, the Protocol has also permitted the introductionof a bespoke Sustainability Index (the Index), creating
an explicit link between ESG performance and ourcompany’s long-term executive compensation scheme.

“As sustainability matures and gains importance inside and outside ourcompany, the question of how to measure ESG performance is something
many continue to grapple with. We have long expressed our support
for more rigor in sustainability related reporting and disclosures—andnot just for companies, but also for ESG ratings and related products.
There is a need for greater transparency, more robust methodologies,
and better clarity on definitions and assumptions. We certainly welcome
recent developments leading to more consistency in standards understrong governance frameworks. Accordingly, 2021 was a year when we
also focused on developing a clear and accepted process for establishingconcrete definitions, documentation, and controls for sustainability
with the aim of standardizing how we measure ESG performance.”
Jennifer Motles Chief Sustainability Officer

03

Overview

Philip Morris International – ESG KPI Protocol

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

Our approach to reporting
Reporting process

Reporting period

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

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

Consistent with our 2021 materiality assessment,
our reporting includes data points related to all
our material topics, including but not limited to
the 19 KPIs described in further detail in thisdocument. To prepare our annual Integrated
Report, data is collected through a central
repository and approved by data-owners througha system workflow prior to publication.

Restatement of non-financial data
We undertake continued, year-on-year improvements
in our sustainability reporting processes and controls.
Where it improves quality of data and facilitates
performance comparison, accounts for changes
in the company’s footprint, or on the basis that avariance in prior years is identified, we may restatethat data in PMI’s annual Integrated Report with
an appropriate footnote explaining the change.

Scope
Data and information reported in our annual
Integrated Report aim to cover all PMI subsidiaries
globally unless explicitly stated otherwise.

Uncertainty and estimates

Newly acquired subsidiaries, partially or fully
owned by PMI, are included in our reporting assoon as the appropriate processes and systems are
implemented to enable consistent data collationand group-level consolidation. Of note, entities
acquired by PMI as part of our wellness andhealthcare strategy during calendar year 2021
(Fertin Pharma A/S, Vectura Group plc., andOtiTopic Inc.) have not been considered in thescope of our 2021 Integrated Report nor in the KPIs
included in this document, unless explicitly statedotherwise. Additionally, operations, or products
related to joint ventures, partnerships, or license
agreements, are excluded from the scope of all
performance measures, unless otherwise indicated.

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

Data integrity andindependent assurance

For the 2021 reporting year, a selection of our
financial and non-financial Business Transformation
Metrics, indicators related to environmental
health and safety (EHS) of our operations, andour greenhouse gas (GHG) emissions data were
externally assured (see 2021 assurance reports on
PMI.com). The primary reason we have started withthese metrics is that they either pertain to our mostmaterial topics or we have significant historical data
which has enabled us to develop robust reporting
systems. Moreover, the business transformation
metrics have been consistently reported externallyin our Integrated Report and investor materials andused in our Business Transformation-linked Financing
Framework. In the coming years, we will work to
expand the assurance of our reporting, prioritizing
the KPIs described within this document, while
keeping abreast of the regulatory developments.

This Protocol, and the standards contained
therein, ensure that all KPIs included in the
Index are both measurable and verifiable.
To ensure that the data we report are measured
consistently, from year to year, with a clearly defined
scope and calculation methodology, the KPIs
described in the Protocol are supported by detailed
internal standards which have been reviewed by our
Risk and Controls team. Each of these standards
is assigned an owner, who is a subject-matter
expert from the relevant business function and is
responsible for ensuring the standards are reviewed
and updated periodically to reflect any significant
changes. The “Basis for Preparation” section of thisProtocol summarizes these internal standards andis intended to provide external stakeholders withtransparency as to our reporting methodology.
This document shall be reviewed periodically toreflect any material updates to internal standards.
In several instances, our reported metrics are externallyverified prior to publication. The basis for preparation
section of this Protocol, as well as our annual integrated
report, clearly indicate those metrics which areexternally assured. The external assurance statements
are published alongside our Integrated Report.

Assurance of non-financial metrics“KPMG finds transparent ESG reporting
critical to show how companies
understand and address their impacts.
Ensuring robust definitions and data
management practices for non-financial
data is essential to managing these impacts
and providing the appropriate level oftransparency for external stakeholders
to assess companies’ actions.”

At PMI, we recognize the important role thatexternal reviews of our data disclosures playin our reporting process. Such reviews, notonly increase the credibility of our reporting
but support us in continuous improvement of
our internal data management processes.

Following the deconsolidation of PMI’s Canadiansubsidiary, Rothmans, Benson & Hedges Inc.
(RBH), effective March 22, 2019, PMI reports thevolume of brands sold by RBH for which other
PMI subsidiaries are the trademark owner. These
include HEETS, Next, Philip Morris, and Rooftop.

We are committed to expanding the coverage ofexternal assurance on our non-financial metrics.
In 2021, we worked with KPMG to develop thisProtocol, and the underlying internal standards onwhich it is based. We will build on this foundationin the coming years as we work towards expanding
assurance coverage of our ESG metrics.

04

Marco Frikkee ESG reporting advisor of KPMG

05

Overview

Philip Morris International – ESG KPI Protocol

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

Key Definitions
Adult – A person who is of legal age to purchase
tobacco products or, where no such age is definedin applicable law, is at least 18 years’ old.

Good Agricultural Practices (GAP) – A set of internallydeveloped principles and measurable standards tobe met by all those who grow and supply tobacco
to PMI, organized under four pillars: Governance,
Crop, Environment, and People. The Agricultural
Labor Practices (ALP) code forms the people pillar of
the GAP code. Further details can be found here.

Aerosol – Gaseous suspension of finesolid particles and/or liquid droplets.
Agricultural Labor Practices (ALP) code –PMI’s code which defines the labor practices,principles, and standards PMI expects from all
tobacco farms with which PMI or PMI thirdparty leaf suppliers have contract to growtobacco. Further details can be found here.

Heated tobacco units or HTUs – The term we use
to refer to heated tobacco consumables, which for
PMI include the company’s HEETS, HEETS Creations,HEETS Dimensions, HEETS Marlboro and HEETSFROM MARLBORO (defined collectively as HEETS),
Marlboro Dimensions, Marlboro HeatSticks, Parliament
HeatSticks and TEREA, as well as the KT&G-licensed
brands, Fiit and Miix (outside of South Korea).

Combusted or combustible tobacco product –A manufactured consumable product that
combusts tobacco and/or generates smoke inhaleddirectly by the user when it is used as intended.
Combusted tobacco products include, for example,
cigarettes, cigarillos, cigars, “roll your own”, “makeyour-own cigarettes”, and pipe tobacco.

Integrated Production System (IPS) – PMI sources
tobacco directly through our leaf operations or throughthird-party leaf suppliers who contract farmers
directly. IPS refers to a set of processes and ways ofworking between third-party leaf suppliers/PMI leaf
operations and contracted farmers, from the start ofcrop planning until tobacco is processed and packed.
Importantly, IPS requires third-party leaf suppliers
to have a commercial contract with farmers; tier 2
farmers (not directly contracted) or tobacco purchasedon the auction floor is outside the scope of IPS. IPS
also provides technical support, provision of crop
inputs and financial services to contracted farmers.

Combustible products – The term PMI uses
to refer to cigarettes and OTP, combined.
Combustion – The process of burning a substancein oxygen, producing heat and often light.
Contracted employees – We define a contracted
employee as an employee who is under the directsupervision of PMI employees but employed
by a temporary employment agency.
Contracted farmers – Tobacco farmers
supplying to PMI and contracted either directly
by PMI (through the company’s leaf operations)or through third-party leaf suppliers.

Markets – The taxonomy used in our reporting isaligned with PMI’s financial reporting systems. For
the purposes of reporting shipments and financial
results, multiple small countries may be grouped into
one market (e.g., market France includes countries
France and Monaco, and market Switzerland
includes countries Switzerland and Liechtenstein),or one country may be split into multiple markets(e.g., country Spain is reflected as markets: Spain
Mainland, Canary Islands, and Ceuta & Melilla).

Contractor – We define a contractor as a person
employed by or working on behalf of a thirdparty company contracted by PMI, who remains
under the direct supervision of his or her employer
rather than PMI and who is often involved inproject-specific or outsourcing arrangements.
E-vapor product – Electrical product thatgenerates an aerosol by heating a nicotine
or non-nicotine containing liquid, such as
electronic cigarettes (or “e-cigarettes”).

06

Other Tobacco Products (OTP) – Primarilyroll-your-own and make-your-own cigarettes,
pipe tobacco, cigars, and cigarillos, and does
not include smoke-free products.
Performance share units (PSUs) – Long-term
variable equity awards which are intended tomotivate our executives to align incentives thatenhance sustainable shareholder value andstrengthen the Company over the long term.
For further details see our proxy statement.
PMI – Refers to Philip Morris International Inc.
and its subsidiaries. Trademarks and service marksthat are the registered property of, or licensed
by, the subsidiaries of PMI, are italicized.
PMI leaf operations – Refer to our PMI affiliateswith a vertically integrated tobacco leaf supply
chain that contract tobacco farmers directly.

Smoke-free products, reduced risk products (RRPs),or noncombusted alternatives (NCAs) –The terms we use to refer to products that present, arelikely to present, or have the potential to present lessrisk of harm to smokers who switch to these products
versus continuing smoking. PMI has a range of smokefree products in various stages of development,scientific assessment and commercialization. PMI’s
smoke-free products contain and/or generate far
lower quantities of harmful and potentially harmful
constituents than found in cigarette smoke.

For further terms and acronyms used inour reporting, please see pages 248 to
251 of PMI’s 2021 Integrated Report

Responsible Sourcing Principles (RSPs) – A set of
Sustainability principles which PMI expects all its
suppliers to implement diligently. These principles arealigned with globally recognized standards, such as
the UN Guiding Principles on Business and Human
Rights, the Ten Principles of the UN Global Compact,
and the relevant International Labor Organization(ILO) Conventions. Further details can be found here.
Smoke – A visible suspension of solid particles,
liquid droplets, and gases in air, emitted whena material burns.
Smoke-free product consumables – The term
PMI uses to refer to heated tobacco units usedwith heat-not-burn products, cartridges containing
e-liquids that are used for e-vapor products andother non-combusted nicotine containing products.
Smoke-free product devices – The term PMI
uses to refer to its electronic smoke-free devices(heat-not-burn (HNB) and e-vapor), to be usedwith smoke-free product consumables.

07

Overview

Philip Morris International – ESG KPI Protocol

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and ReportingPMI Sustainability Index
Sustainability materiality
assessment

Everything we do stems from our company’s
purpose which is seeking to create a net
positive impact that benefits our company,
shareholders, consumers, and society.

Our sustainability work only has meaning and impact if
it focuses on addressing the issues that matter most.

We can only achieve this by embedding sustainability
in everything we do, thereby addressing theimpacts of our products and business activities onsociety and the environment, and maximizing theopportunities to create value for our stakeholders.

During the second half of 2021, we worked with an
external partner to conduct a new sustainability
materiality assessment. The exercise allowed us to better
understand and account for the impacts we have onsociety and the environment; the risks and opportunities
that ESG issues represent to our business, as well as theview of our stakeholders related to those ESG issues andwhere they expect the Company to focus on (read our2021 Sustainability Materiality Report).

IMPAC T
IMPAC TO P E R AT I O N A L

PRODUCTTo ensure we remain focused on those areas where
we can have the greatest impact, our strategy andrelated goals are informed by a rigorous sustainability
materiality assessment. Having established our 11 priority
goals, which collectively form our 2025 Roadmap, we
recognized that a critical lever to drive progress was to
identify a set of clear KPIs. We have structured these
KPIs (in total 19) into a bespoke Index (“the Index”) thatwill allow us to measure progress towards our goals ina rigorous and quantitative manner, on an annual basis.
The Index shall provide internal and external stakeholders
with transparency on how we are addressing our
impacts and ultimately delivering on our company’s
purpose in a responsible and strategic manner.

The results of this assessment allowed us to identify ourpriority ESG topics and clearly recognize that someof these relate to our products (or what we produce)and some relate to our business activities (or how we
operate). Accordingly, we redesigned our ESG framework
to appropriately showcase those ESG topics where weshould prioritize our resources and focus on going
forward.

E

S

G

ENVIRONMENTAL

SOCIAL

GOVERNANCE

Materials andproduct eco-design–
Post-consumer
waste

Product healthimpact–Sales, marketing,and consumer
communications–
Innovation inwellness and healthcare

Responsible R&D–
Product reliability–
Nicotine science

Climate–
Water–
Biodiversity

Diversity and inclusion–
Socioeconomic
well-being of tobaccofarming communities–
Human capitaldevelopment

Business integrity–
Respect forhuman rights–
Sustainable supply
chain management

Operational discharge–
Animal welfare

Labor standards–
Health and safety at work–
Employee well-being–
Philanthropy

Stakeholder engagement–
Data privacy–
Fair fiscal practices

08

Our sustainability strategy
For PMI, sustainability is more than just a means
to minimize negative externalities and mitigate
risks while maximizing operational efficiency andresource optimization. We see it as a fundamental
opportunity for innovation, growth, and purposeled, impact-driven, long-term value creation.
Our strategy crystallizes the notion of two distinct
forms of social and environmental impacts—thosegenerated by our products (what we produce) andthose generated by our business operations (howwe produce). At the core of our approach are four
key strategies linked to the social and environmental
impact of the products we sell: purposefully phaseout cigarettes, maximize the benefits of smoke-free
products, seek net positive impact in wellness andhealthcare, and reduce post-consumer waste.

These are further supported by four key strategies
to address the environmental and social impact ofour business activities: foster an empowered andinclusive workplace, improve the quality of life ofpeople in our supply chain, tackle climate change,and preserve nature. Underscoring our strategy
are the fundamental principles and practices, fromrespect for human rights through to responsible
R&D, which are critical to how we operate.

09

Overview

Philip Morris International – ESG KPI Protocol

PMI’s 2025 Roadmap

Our recent materiality assessment and revamped
ESG framework, together with our new approachto sustainability and eight strategies, allowed us
to reassess and redefine our 2025 Roadmap. Our
revamped Roadmap is now composed of a setof 11 clear goals, linked to these eight strategies,
outlining our key targets, and informing the
trajectory of our company’s long-term plan.

When we introduced our 2025 Roadmap
in our first Integrated Report (2019), we
did not yet have clarity on precisely how
we would achieve these ambitions.

Our 2025 Roadmap

Maximize thebenefits ofsmoke-free
products
I M PAC T

PRODUCT

Purposefully phaseout cigarettes

Seek net
positive impact
in wellness
and healthcare
Reducepost-consumer
waste

I M PAC TO P E R AT I O N A L

Foster anempoweredand inclusive
workplace
Improve the qualityof life of people inour supply chain

Goals
1

Intentionally work toward phasing out cigarettes by ensuring that smoke-free
products represent at least 30% of our shipment volumes and more than halfof our net revenues by 2025 while continuing to reduce our combustible
shipment volume2

Develop and commercialize science-based smoke-free alternatives, making
them available in 100 markets (of which at least half in low- and middleincome markets) and continuing to increase the total number of users

3Deploy robust youth access prevention programs in indirect retail channels
and ensure that sales of our products abide by our Marketing Codes

4

Leverage scientific and development capabilities to generate at least USD
1 billion in annual net revenues from products in wellness and healthcare

5Reduce post-consumer waste and prevent littering by implementing
comprehensive programs covering all our consumables

6

Follow eco-design and circularity principles for all smoke-freeelectronic devices

7

 urture a more diverse culture that promotes equity and inclusion byN
providing access to lifelong learning to all our employees and improving genderand local representation in management globally8

Eradicate systemic child labor in our tobacco supply chain

9

 nsure all contracted tobacco farmers make a living income, and partner withE
our direct suppliers to promote a living wage for their workers

Tackle climatechange10 Achieve carbon neutrality in our operations and accelerate our

Preserve nature

11 Promote biodiversity, address critical water challenges, ensure no conversion

decarbonization toward net zero across our value chainof natural ecosystems, and halt deforestation in both our tobacco and pulp
and paper supply chains

10

Reporting

Sustainability Index

Key Definitions

PMI Sustainability Index
To define success concretely and measure progressappropriately toward achieving our 2025 Roadmap,
we developed a set of 19 clearly defined KPIs linked
to the eight strategies and 11 goals of the Roadmap.
Together, these KPIs constitute our Sustainability Index.
The Index is an instrument that enables our Company
to report progress on an annual basis. In alignment
with our strategy, it distinguishes the impacts ofour products and the impacts of our business
operations. Accordingly, the 19 KPIs are aggregatedwithin the Index into two performance measures:

Basis for Preparation and Reporting

Each year, we will assess our performance using a scorefor both performance measures, and the combined
Index which shall range from 0–150 percent.
The following section describes in further detail
how the 19 KPIs were selected and their respective
weight within the Index determined. Thereafter, adescription of the annual targets and pre-defined
performance ranges which shall be used to calculate theperformance measure and Index scores is provided.

• Product Sustainability
Consolidates the 11 indicators linked to
our four product impact-related strategies
and six 2025 Roadmap goals.
• Operational Sustainability
Consolidates the eight indicators linked
to our four operational impact-related strategies
and five 2025 Roadmap goals.

Link to long-term executive compensation
The Index has been incorporated into our executive compensation, namely the
2022–2024 performance share units (PSUs) performance cycle.
Reflecting the weight of the Index, the Product Sustainability constitutes 20 percent, and the Operational
Sustainability constitutes 10 percent, which together amount to 30 percent of the total PSU award. In line withthe governance for our executive compensation, the targets and performance ranges for each of the 19 KPIs,
notably for the period ending December 2024, were therefore approved by our Board of Directors in Q1 2022.
For the remaining 70 percent of the total PSU award, the Board retained the previously used metrics ofTotal Shareholder Return (TSR), weighted 40 percent, and currency neutral adjusted compound annual diluted
earnings per share (EPS) growth, weighted 30 percent. For more information on our 2022 proxy statement.
Sustainability Index
30%
10%

20%

GR APHIC TO BEEPS30%DISCUSSEDTSR 40%P R O D U C T S U S TA I N A B I L I T Y
O P E R AT I O N A L S U S TA I N A B I L I T Y

11Philip Morris International – ESG KPI Protocol

Overview

PMI Sustainability Index

Index considerations

Key performance indicators

Purposefully
phase
out cigarettes
Maximize thebenefits ofsmoke-free
products

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

12.8%

>30%

2

Smoke-free product adjusted net
revenue ratio (smoke-free/total)

29.1%

>50%

3

Number of markets where PMI smokefree products are available for sale

71

100

4

Proportion of markets where PMI smoke-free products areavailable for sale that are low- and middle-income markets

43%

>50%

Total number of users of PMI’s smokefree products (in millions)1

21.7

Proportion of shipment volume covered bymarkets with youth access prevention programsin place in indirect retail channels

91%

>90%

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

0.1

≥1

8

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

n/a

≥80%

9

Proportion of shipment volume covered bymarkets with end-of-life take-back programsin place for smoke-free consumables

9 pilots

≥80%

n/a

100%

62

1,000

6

Reducepost-consumer
waste

2025
aspirations

1

5

Seek net
positive impact
in wellness
and healthcare

2021
performance

7

Proportion of PMI smoke-free devices
10with eco-design certification
11

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

Improve thequalityof life ofpeople in our
supply chain

TackleclimatechangePreserve
nature

35%

n/a

70%

5

10

Prevalence of child labor among contracted
farmers supplying tobacco to PMI

1.8%

0%

16

Proportion of contracted farmers supplying
tobacco to PMI who make a living income

67%

100%

17

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

357

0

18

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

17%

25%

19

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

37%

100%

13

Proportion of PMI employees who have accessto structured lifelong learning offers*

14

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

15

Index weighting

When defining the KPIs that would be includedin the Index, we used the following criteria:

The Index is composed of 19 KPIs which are connected
to our eight sustainability strategies. These strategies
are aggregated into two performance measures:• Verifiability: The KPI is verifiable and supported
by a detailed internal standard documenting thescope, calculation methods, and assumptions
we make (aligned to our financial standards).

67%

Where possible, we have aligned our metrics withexternal reporting standards and guidelines (e.g., GHG
protocol). However, in several cases where external
standards are not sufficiently detailed we have crafted
our own metrics and developed the respective internal
standards ensuring they are relevant to the Company
and reflect PMI’s unique value proposition. To ensuretransparency a description of each KPI included in
the Index, including key definitions, scope, calculation
methodology, and data management, can be foundin the subsequent section of this document (Basis for
Preparation and Reporting of PMI’s Sustainability Index).

1. Product Sustainability
Consolidates the four strategies linked to our
product-related impacts (purposefully phase out
cigarettes, maximize the benefits of smoke-free
products, seek net positive impact in wellness andhealthcare, and reduce post-consumer waste).
2. Operational Sustainability
Consolidates the four strategies linked to our business
operations-related impacts (foster an empowered andinclusive workplace, improve the quality of life of peoplein our supply chain, tackle climate change and preserve
nature).
Consistent with our sustainability materiality analysis
results, addressing the impacts generated by our
products stands at the core of our strategy. The
Sustainability Index reflects this by attributing twothirds of the total Index weight to Product Sustainability
and one-third to Operational Sustainability.
Given the bespoke nature of the Index, external guidelines
on how to weight each of the strategies within our two
performance measures are not available. Therefore,
to ensure credibility and consistency, we relied ona quantitative and qualitative interpretation of our2021 sustainability materiality assessment results.

Looking ahead

50%

50%

33%

Sustainability Index
100%

During 2022, we intend to develop a new 2025
aspiration related to the total number of users of
PMI smoke-free products. Given the dynamic andevolving smoke-free industry, coupled with thepotential impact of the Russian invasion of Ukraine
and its potential effects on our business over themid- to long-term, which remain uncertain, we
are working to refine this ambition and intend tocommunicate it within the next year. To betterreflect our priorities, as defined by our sustainability
materiality analysis, we also intend to introduce
two new KPIs to the index, incorporating theincreasing relevance of water and biodiversity.

33%

SUSTAINABILIT Y

OPER ATIONALSUSTAINABILIT Y

1 For further details on our aspirations related to total number of users of PMI’s smoke-free products please see our 2021 Integrated Report* Indicator was introduced in 2021, we will begin reporting progress on this new indicator in 2022

12

67%

PRODUCT100%

SUSTAINABILITY INDEX

Basis for Preparation and Reporting

KPI selection• Comparability: The KPI allows for comparable
measure of performance over time, relying
on consistent year-on-year methodology.

100%

Operational Sustainability

Sustainability Index• Measurability: The KPI is quantifiable, withclear data sources and sufficient scope tomeasure accurately our performance.

15%

31.1%

Proportion of women in senior roles

Key Definitions• Relevance: The KPI is relevant, allowing ameaningful measurement of progress towardachieving our 2025 goals, which pertain to
our most material sustainability topics.

100%
12

Contribution
to total
index score85%

Product Sustainability
Foster anempoweredand inclusive
workplace

KPI
weightReporting13

Overview

Philip Morris International – ESG KPI Protocol

The respective weight of each strategy is driven
by the results of the materiality assessment;
strategies to address topics that were identified as
most material are attributed a higher weight thanthose topics identified as emerging. For example,aligned to its prominence in our sustainability
materiality assessment, the strategy “tackle
climate change” is overweighted compared to
the “preserve nature strategy” which addresses
the emerging topics of biodiversity and water.

Accordingly, within the Product Sustainability
performance measure, we overweight the threestrategies that aim to address the social impact ofthe product (i.e., purposefully phase out cigarettes,
maximize the benefits of smoke-free products, andseek net positive impact in wellness and healthcare).
Collectively, these strategies represent 85 percentof the Product Sustainability performance measure.
The remaining 15 percent is attributed to the strategy
which addresses the environmental impact of our
products (i.e., reduce post-consumer waste).

Each strategy is connected to one or more individual
KPI(s). For simplicity, the KPIs are equally weighted
within their respective strategy. To ensure each KPI
contributes meaningfully to the Index, we have set
a minimum threshold weight to any individual KPI.

In contrast to the impacts generated by our
products, the social and environmental impactsof our operations are more balanced. Therefore,
within the Operational Sustainability performancemeasure, the two social-related strategies (i.e., foster
an empowered and inclusive workplace (20 percent)and improve the quality of life of people in our supply
chain (30 percent)) together represent half of theweight, and the two environmental-related strategies(i.e., tackle climate change (40 percent) and preserve
nature (10 percent)) account for the other half.

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

Annual targets and performance ranges
In our Integrated Report, we disclose our 2025 aspirations. Internally, our 2025 Roadmap is supportedby the annual targets and performance ranges for each KPI. Specifically, starting in 2022, for each KPI
we have defined annual targets and four performance ranges quantifying the performance versus theannual target as either “missed”, “partially met”, “met”, or “exceeded” for the respective year.

Calculation of the Index score

On an annual basis we will publish the scoresfor the total Index as well as the ProductSustainability and Operational Sustainability
performance measures in our company’s
integrated report, indicating the individual
performance of the 19 KPIs. The scores fortwo performance measures will be used in thecalculation of the 2022-2024 performance
share units (PSU) performance cycle.

Step 1

Step 2

Target missed (<50%)
Target partially met (50–89%)

Weight of strategies within Product Sustainability and Operational Sustainability performance measures
KPI weight

SUSTAINABILIT Y

PRODUCT

Purposefully phase out cigarettes

Maximize the benefits of smoke-free product

15%

SUSTAINABILIT YO P E R AT I O N A L

Foster an empowered and inclusive workplace

50%

Tackle climate change

50%

Performance ranges

Governance

Given the significant variation in the nature of the
KPIs included in the Index and in the maturity of theunderlying strategy and programs, a strategic approach
was taken to determine a wide or narrow performance
range per KPI based on PMI’s (i) ability to control, (ii)maturity on the topic, and (iii) forecasting accuracy.

On an annual basis, we calculate the total Index score.
The annual targets and performance ranges havebeen provided by the relevant business functionsand validated by the Company’s Chief Financial
Officer, VP & Controller, Chief Sustainability Officer,
and VP Strategic Planning & Business Intelligence.

At the close of each reporting year, for each KPI wewill assess the Company’s actual performance against
the respective performance ranges. This assessment
forms the basis of our calculation of the Index score,described in further detail in the following section.

In addition to bringing further transparency to ourstakeholders about the progress we are making
toward achieving our goals, the Index helps uscascade sustainability priorities throughout alllevels of the Company, serving as inputs into bothbusiness function and individual objectives. This
enables us to integrate ESG considerations into
strategy, creating deep organizational alignment.

Preserve nature

14

The total Index score is calculated
considering a two-thirds weight for
Product Sustainability and one-third
weight for Operational Sustainability.

85%

KPI weight

Improve the quality of life of people inour supply chain

Step 3Once all KPIs are scored, they are
aggregated into two scores: one for ProductSustainability, and one for Operational
Sustainability. These two scores, ranging from0 to 3, are calculated as the weighted averageof their respective constituent KPI scores.
Finally, the numeric scores are normalized
to range between 0 and 150 percent.

Target exceeded (>110%)

Seek net positive impact in wellness and healthcare

Reduce post-consumer waste

Target met (90–110%)

To compute the total Index score, at theclose of each year, the 19 KPIs are assessedagainst predetermined annual targets andperformance ranges. In our Integrated
report, we disclose our 2025 aspirations.

15Overview

Basis for preparation andreporting of PMI’s Sustainability Index
methodology, data estimates and assumptions, datacollection process, data management and governance,and data assurance details. This document has been
structured in alignment with the Sustainability Index; the19 KPIs are organized by performance measure (i.e.,
Product Sustainability and Operational Sustainability) andlinked to their corresponding strategies. More concretely,
information below pertains to the indicators numberedfrom 1 to 19 below:

This basis for preparation provides external
stakeholders with a summarized version of
PMI’s internal standards for each of the KPIs
included in PMI’s Sustainability Index.

OPER ATIONAL SUSTAINABILIT Y

Purposefully phase out cigarettes

Foster an empowered and inclusive workplace① Smoke-free product shipment ratio (smoke-free/total)*⑫ Proportion of women in senior roles② Adjusted smoke-free net revenue
ratio (smoke-free/total)*⑬ Proportion of employees with access to
structured lifelong learning offers

Maximize the benefits of smoke-free products

Improve the quality of life of people in our supply chain③ Number of markets where PMI smokefree products are available for sale*⑭ Cumulative number of human rights
impact assessments conducted since
2018, with findings addressed⑤ Total number of users of PMI smoke-free products*

Preserve
natureTackle climatechangePRODUCT SUSTAINABILIT Y

Foster an empowered
and inclusive
workplace

These internal standards have been developed toensure alignment on how we define success, measureprogress, and ensure accountability and governance.
Accordingly, the content below includes relevant
definitions, KPI description, scope, calculation

Improve the quality oflife of people in our
supply chain

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free
products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol④ Proportion of markets where PMI smokefree products are available for sale thatare low- and middle-income markets*⑮ Prevalence of child labor among contracted
farms supplying tobacco to PMI⑯ Proportion of contracted farmers supplying
tobacco to PMI who make a living income⑥ Proportion of shipment volume coveredby markets with youth access prevention
programs in place in indirect retail channels.

Reporting

Key Definitions

Basis for Preparation and Reporting

Sustainability Index

P R O D U C T S U S TA I N A B I L I T Y
Purposefully phase out cigarettes❶ Smoke-free product shipment ratio (smoke-free/total)
KPI description

Scope

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

Included All shipment volumes of consumables (smokefree and combustibles) that are recorded within thereporting period, to all PMI markets.

Definitions

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

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

Smoke-free shipment volume Shipment volumeof PMI smoke-free product consumables.

Total shipment volume – Includes PMI’s cigarettes, OTPs,
and smoke-free product consumables. Is defined as the
combined total of combustible products shipment volume
and smoke-free product consumables shipment volume.

⑱ Absolute carbon emissions reductionin scope 3 versus 2019 baseline (inline with science-based target)*

Reduce post-consumer waste

Preserve nature⑧ Proportion of shipment volume coveredby markets with anti-littering programsin place for combustible cigarettes⑲ Proportion of tobacco purchased at no risk of
net deforestation of managed natural forest
and no conversion of natural ecosystems

Shipment volumes data are recorded in PMI’s financial
systems on a monthly basis.
Data assurance The smoke-free product shipment ratio(smoke-free/total), as published on pages 35, 232 and248 to 251 (Glossary) of PMI’s 2021 Integrated Report,
has been assured by PwC (limited assurance).
See the independent practitioner’s limited assurance
report on page 245 of PMI’s Integrated Report 2021

⑨ Proportion of shipment volume covered bymarkets with end of life take-back programsin place for smoke-free consumables⑩ Proportion of PMI smoke-free devices
with an eco-design certification*Indicates metric has been externally assured in 2021. For further details please see thebelow basis for preparation and reporting for the respective KPIs.

⑪ Cumulative number of electronic smoke-freedevices refreshed or repaired since 2021
16)

X 100%

Data management⑰ Net carbon emissions Scope 1+2*

⑦ Annual net revenue from wellness
and healthcare products

Total
shipment volume(billion stick equivalent)

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

Combustible shipment volume Shipment volumeof PMI combustible products.

Tackle climate change

Seek net positive impact in wellness and healthcare(

Smoke-free shipment
volume(billion stick equivalent)17Overview

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Maximize the benefitsof smoke-free products
Seek net positive
impact in healthcare
and wellness
Reduce postconsumer waste
Foster an empowered
and inclusive
workplace
Improve the quality oflife of people in our
supply chain
Tackle climatechangeKey Definitions

Sustainability Index

Basis for Preparation and ReportingP R O D U C T S U S TA I N A B I L I T Y C O N T I N U E D

Maximize the benefit of smoke-free products❷ Adjusted smoke-free net revenue ratio (smoke-free/total)

Preserve
natureReporting❸ Number of markets where PMI smoke-free products are available for saleNon-combustible products The term PMI uses to refer toproducts, excluding cigarettes and OTP. This may include
heated tobacco units, heat-not-burn devices and related
accessories, other nicotine-containing products, primarily
e-vapor products, and products in wellness and healthcare.

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

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

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

Definitions
Net revenues The term refers to PMI’s operating revenues
from the sale of our products, including shipping and handlingcharges billed to customers, net of sales and promotion
incentives, and excise taxes.

Excluded N/A.

Adjusted net revenue Management reviews net revenues onan adjusted basis, which may exclude the impact of currency,
acquisitions, and other items. Currency-neutral and organic
growth rates reflect the way management views underlying
performance. PMI believes that such measures provide
useful insight into underlying business trends and results.
Management reviews these measures because they exclude
changes in currency exchange rates and other factors thatmay distort underlying business trends, thereby improving
the comparability of PMI’s business performance between
reporting periods. Furthermore, PMI uses several of thesemeasures in its management compensation program topromote internal fairness and a disciplined assessment of
performance against company targets. PMI discloses thesemeasures to enable investors to view the business through theeyes of management.

Adjusted smoke-free net revenue ratio is calculated as:

Net revenues related to smoke-free products Represent
operating revenues from the sale of non-combustible
products, including shipping and handling charges billed tocustomers, net of sales and promotion incentives, and excise
taxes.
Net revenues related to combustible products The operating
revenues generated from the sale of these products, including
shipping and handling charges billed to customers, net of sales
and promotion incentives, and excise taxes.

18

Calculation methodology=(

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

X 100%KPI description

Scope

The indicator refers to the number of markets
where PMI smoke-free products are available
for sale to adult consumers, wherein boththe PMI smoke-free product consumables
and PMI smoke-free product devices (forplatforms which require both to operate andbe used as intended) are commercialized.

Included All markets that commercialize at least one
variant of PMI smoke-free products and all distribution
channels are considered.
Excluded Any market commercializing only
combusted tobacco products and/or wellness andhealthcare products.

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

Definitions
Available for sale When PMI products are available forgeneral sale in the market, through direct retail, indirect retail,or e-commerce.
General sale Commercial initiative by which PMI provides
PMI products to adult consumers in exchange for monetary
value or other considerations, including activities such as
sale-for-purchase, renting, leasing, lending, and loaning. Adult
consumers must have access to PMI products without any
purchase restrictions imposed by PMI that go beyond local
regulations (e.g., club membership, registration, etc.)

Data management
In-market sales as reported in the PMI’s volume reporting
system. The list of markets where PMI smoke-free
products are available for sale is first validated by eachregion, and then approved centrally.
Data assurance The number of markets where PMI
smoke-free products are available for sale, as published on
pages 35, 232 and 248 to 251 (Glossary) of PMI’s 2021
Integrated Report, has been assured by PwC (limited
assurance).

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

Data management
For further details on our reporting of revenues, pleaserefer to our 10K filings and Investor Relations materials.

See the independent practitioner’s limited assurance
report on page 245 of PMI’s Integrated Report 2021

See Investor Relations website
Data assurance The adjusted net revenue ratio (smokefree/total) as published on pages 35, 232 and 248
to 251 (Glossary) of PMI’s 2021 Integrated Report,
has been assured by PwC (limited assurance).
See the independent practitioner’s limited assurance
report on page 245 of PMI’s Integrated Report 2021

19

Overview

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and ReportingP R O D U C T S U S TA I N A B I L I T Y C O N T I N U E D❹ Proportion of markets where PMI smoke-free products are available forsale that are low- and middle-income markets❺ Total number of users of PMI smoke-free products

KPI description

Scope

KPI description

Scope

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

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

Our priority is to address the health impacts
associated with smoking by offering smokefree, science-based alternatives that havebeen proven to be a far better choice thancigarettes for those adults who would otherwise
continue to smoke. Accordingly, the impact
on society of the Company’s transformation,
namely shifting our product portfolio towardsmoke-free products, can be measured by the
number of users of our smoke-free products.

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

Excluded PMI Duty-Free market is excluded in theincome level classification.

Calculation methodology

Read more about broadening access in
PMI’s Integrated Report

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

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

=

(

)

Number of low- and middleincome markets where PMI smokefree products are available for sale
Total number of markets where
PMI smoke-free products
are available for saleExcluded E-vapor products or any othersmoke-free products are currently not consideredin our users calculation.

Calculation methodology
The user metrics reflect PMI estimates, which are
based on consumer claims and sample-based statisticalassessments with an average margin of error of +/-5% at
a 95% Confidence Interval in key volume markets. The
accuracy and reliability of IQOS user metrics may vary
based on individual market maturity and availability of
information.

Definitions
Total smoke-free product users The estimated number oflegal age (minimum 18 years) users of PMI heat-not-burnproducts, for which PMI HTUs represented at least a portionof their daily tobacco consumption over the past seven days.

Data management
The estimations of users are performed monthly
at a market level and are approved by the financemanagement team of each market, and then additionallyvalidated and approved by regional teams. The global
estimations of total PMI HNB product users are the sumof the individual markets’ estimations which are validated
and consolidated centrally.

Estimates and assumptions In case the Gross National
Income per capita parameter is not available, PMI may
determine alternative parameters as a substitute(e.g., GDP per capita).
The classification of each market between income
levels is performed at the end of the calendar year
(December 31).

Improve the quality oflife of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Data assurance The total number of users of PMI’s
smoke-free products (in millions), as published on pages 35,
232 and 248 to 251 (Glossary) of PMI’s 2021 Integrated
Report, has been assured by PwC (limited assurance).

Data management

Tackle climatechangeAs per above, reporting on the number of markets where
PMI smoke-free products are available for sale. Country
Income Level reports to be extracted from World Bank
website.

See the independent practitioner’s limited assurance
report on page 245 of PMI’s Integrated Report 2021

Data assurance The proportion of markets where
smoke-free products are available for sale that are lowand middle-income markets, as published on pages 35,
232 and 248 to 251 (Glossary) of PMI’s 2021 Integrated
Report, has been assured by PwC (limited assurance).

Preserve
natureSee the independent practitioner’s limited assurance
report on page 245 of PMI’s Integrated Report 2021

20

21

Overview

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and ReportingP R O D U C T S U S TA I N A B I L I T Y C O N T I N U E D❻ Proportion of shipment volume covered by markets with youth accessprevention programs in place in indirect retail channels
Definitions

KPI description

Digital trade engagement tool PMI’s global platform used toengage with trade partners.

It is critical that we guard against youth access toour products. PMI aims to deploy robust Youth
Access Prevention (YAP) programs in all indirect
retail channels where our products are sold. Bytargeting the full universe of indirect retail channels,
the impact of these programs can reach a wider
scope than those covered by the requirementsof our Marketing Codes which apply where we
engage retailers directly (read more about PMIMarketing Codes here). The activities requiredby our YAP programs in indirect retail are similar
to those provided in our Marketing Codes. These
programs support our affiliates to work with
the indirect retail universe to guard against thesale of our products to underage purchasers.

Field force automation systems Systems that support fieldforce daily operations.
Point of sale (POS) Physical location where PMI products are
sold to end consumers.
Point of sale materials (POSM) Include posters, leaflets,
stickers, and other materials placed at the point of purchaseand visible to adult consumers.
Registered POS Includes all POS captured in the digital tradeengagement tool.
Selling universe Estimated number of indirect retail POS
within a market in which PMI products are sold.
Total shipment volume – Includes cigarettes, OTPs, andsmoke-free product consumables. It is defined as the
combined total of combustible products shipment volume andsmoke-free product consumables shipment volume.

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

Scope

Data management

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

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

Excluded Duty-Free market.

Pillar 3: The lists of POS in scope of PMI or third-party
sales force coverage are maintained in local sales force
automation systems.

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

Full year shipment volume(bio stick equiv.) of
combusted and smokefree products formarkets which have a
YAP program “in place”
Total PMI full-year
shipment volume(billion stick equiv.))

X 100%

Pillar 1: PMI affiliates have local databases in which thephysical or email addresses of the POS in their markets aremaintained.
Pillar 2: PMI’s Central Commercial function maintains a
Global Digital Trade Engagement tool for all registered POS,
by market.

For each market, the YAP plans are approved, implemented,
and evaluated on a rolling 12-month basis. Specifically, atthe end of June each calendar year the YAP plans for eachmarket are approved by the Company’s regional teams,
including any exception to the minimum requirements.
In the first quarter of the following year, each market isevaluated by the regional teams’ function to determine if
the actual deployment of the YAP program in the preceding
year met the minimum requirements. The central teamconsolidates the results of each region to determine thetotal PMI shipment volume to markets that have youth
access programs in place.

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

Pillars of PMI’s YAP program in indirect retail channels
PillarDescription

Reachable coverage

Trade communications

Letter from PMI affiliate to POS owneror operator

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

Trade education

Online or physical training sessions
to POS/retailers’ staff

All POS covered by field force or registeredin digital trade engagement tool

Point of sale materials
placement

Materials such as stickers, banners,
leaflets, etc., placed at the POS

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

Preserve
natureTackle climatechangeImprove the quality oflife of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

22

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

23

Overview

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Maximize the benefitsof smoke-free products
Seek net positive
impact in healthcare
and wellness

Key Definitions

Sustainability Index

Basis for Preparation and ReportingP R O D U C T S U S TA I N A B I L I T Y C O N T I N U E D

Seek net positive impact in wellness and healthcare❼ Annual net revenue from wellness and healthcare products
Definitions

KPI description

Net revenues from wellness and healthcare Refers to net
revenues including but not limited to revenues generated
from the sale of inhaled therapeutics, and oral and intra-oraldelivery systems, including those supported by the 2021
acquisitions of Fertin Pharma A/S, OtiTopic, Inc. and VecturaGroup plc. PMI may continue to introduce and grow new
products that fall under this category.

PMI is transforming into a broader lifestyle,consumer wellness and healthcare company,
extending its value proposition and innovative
capability to commercialize products that go
beyond tobacco and nicotine. Accordingly,
with a strong foundation and significant
expertise in life-sciences, in February 2021
we announced our ambition to expand into
wellness and healthcare areas and deliver
innovative products and solutions that aim
to address unmet patient and consumer
needs. Our aspiration is to reach annual net
revenues of at least USD 1 billion by 2025.

Note: revenues from wellness and healthcare are reported asother net revenue in the operating results by segment for theyear ending December 31, 2021.
For any further details regarding reporting results,
you may refer to corresponding years’ press releases
and 10K.

Reduce post-consumer waste❽ Proportion of shipment volume covered by markets
with anti-littering programs in place for combustible cigarettes
KPI description

Scope

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

Included All markets in which PMI commercializes
combustible cigarettes or smoke-free products areincluded in scope, whether PMI-developed products
or third-party products that PMI sells through license
agreement. Additionally, China, where we have a strategiccooperation agreement with CNTC, is included in scope.

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

Proportion of PMI shipment volume covered by
AL programs is calculated as:

Excluded Duty-Free market.

Calculation methodology

(

Reach

=

Communication activities with a high reach in terms ofadult smokers (LAS) and POS. Accepted activities include
on-pack messaging, limited pack editions, anti-litteringcommunications which can be accessed by links printed
on the pack, digital trade engagement campaigns, andplacement of POS materials.

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Reporting

Improve the quality oflife of people in our
supply chain

Campaigns and partnerships deployed nationally or
covering areas clearly identified as having a greater
accumulation of cigarette butts in the environment(hotspots). Examples of Impact activities involving
events and partnerships raising awareness of the issue
include the corporate online platform “Our world is not
an ashtray”, analyses to identify cigarette butt littering
hotspots, and local or global partnerships or initiatives.

Total PMI full-year shipment
volume of combustible
cigarettes (bio stick)“Reach” and “Impact” activities need to be significant
enough to drive behavior change among consumers in the
country. We plan to define further the minimum scale aswell as the criteria and process to evaluate if a market has
achieved a meaningful “Reach” or “Impact” in 2022.

Isolated “Reach” or “Impact” activities with a limited
scope do not count toward adherence to the program.

Tackle climatechangeX 100%

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

ImpactData management

Definitions

As of 2022, for each market, the AL plans shall beapproved, implemented, and evaluated by the regional
teams on a rolling 12-month basis. The regional results areconsolidated centrally to report on the global shipment
volume covered by markets with an AL program in place
for the respective year.

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

Preserve
nature)Full-year shipment volume(bio stick) of combustible
cigarettes for markets whichhave an AL program ‘in place’

During 2022, the new governance model will be designed
and implemented, including accountabilities and theprocess to report market activities, and to assess market
plans and actual deployment versus the program criteria.

2425Overview

Tackle climatechangeImprove the quality oflife of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

PRODUCT SUSTAINABILITY CONTINUED❾ Proportion of shipment volume covered by markets with end-of-lifetake-back programs in place for smoke-free consumables
IQOS partners Retailers with an IQOS dedicated space within
their premises where experiences (e.g., immersive education,
guided trial) and services will be delivered to LAS or legal age
users (LAU) by the retailer staff. In this format both devices andconsumables are generally commercialized. The partner is fully
responsible for business and relative risk.

KPI description
As we grow our smoke-free business, we seek to address
the post-consumer waste of our smoke-free productconsumables by deploying take-back and recycling
schemes. Currently, the capacity of third parties torecycle our consumables is limited because somematerials, namely cellulose acetate tow, are not commonly
recycled. Although our intention is to provide access tocollection services once we have an end-of-life process
and partner identified, in some cases, we may initiate
a collection program prior to having established thisback-end infrastructure. The purpose is to engage withour consumers to generate awareness, change consumer
behaviors by encouraging proper disposal and discouraging
littering, gain learnings to scale-up the program, and to
explore the development of local recycling processes. In
such cases, our intention is that the collected materials areincinerated with energy recovery until another solution,
which is both environmentally beneficial and economically
viable, is identified.

Scope❿ Proportion of PMI smoke-free devices with an eco-design certification
KPI description

Scope

To integrate sustainability considerations into ourdesign process, we endeavor to follow eco-designprinciples. Accordingly, we are seeking an ecodesign certification for all our smoke-free devices.
PMI is currently in the process of defining a set of
relevant external eco-design certification criteria.

Included The eco-design certification target seeks toachieve a leading certification that would apply globallyto electronic smoke-free devices designed by PMI.
Excluded Device accessories, including caps, rings, door
covers, cases, sleeves, wraps, power charges and cables,
trays, and electronic smoke-free devices designed bythird-party manufacturers and commercialized by PMI.

Included All markets in which we commercialize smokefree product consumables.
Excluded China, US, and PMI Duty-Free market.

Calculation methodology
Proportion of PMI shipment volume covered by take-backprograms is calculated as:(

In 2021, we established minimum criteria that markets
must meet to be considered as having a take-back programin place. These criteria are listed below and will evolve,
reaching a broader scale, as the program matures.

=

2022–2023• 100 percent of direct retails channels (including
boutiques, shop-in-shops, and embassies)

Full-year smoke-free
product consumables
shipment volume (bio stickequiv.) for markets with acollection program in place)

X 100%

Total PMI full-year shipment
volume of smoke-free
product consumables(billion stick equivalent)

2024–2025
Estimates and assumptions For simplicity, whencalculating the proportion of shipment volumes coveredby consumables take-back program, the full-year shipment
volumes are considered.

100 percent of direct retail channels, plus one of thefollowing:• Deployment of the program with at least 80 percent
of IQOS partners• Mail-in services (nationwide)

Data management• Other indirect retail partners (scale dependent on trade
partner footprint for the respective market)

Definitions
Preserve
natureReportingEnd of life take-back programs Services offered to adult usersof PMI smoke-free products, which enable them to returnused or unwanted consumables to PMI or our partners for
disposal. This may include recycling, composting, or energy
recovery of all or parts of the returned consumable and may
occur in the country in which the product is collected or beexported for treatment elsewhere.

26

PMI markets are responsible for data collection regarding
the coverage of direct and indirect POS, which is reported
to the central team on a quarterly basis. Regional results
are consolidated centrally for the annual global reportingof the proportion of shipment volume covered bymarkets with take-back programs in place for smoke-freeconsumables.

Data management

Definitions

Our aspiration is to have eco-design certifications for all
smoke-free devices which are launched as of the end of2025. Given the long-term nature of this aspiration, we
have developed internal metrics based on key milestones
that will allow us to track our progress in the interim years
leading up to 2025.

Eco-design certification The ISO 14020 standard defines
three types of product eco-design certifications:• Type 1 – Environmental labelling Label/score awarded
by a third-party accrediting body based on best-in-classperformance among the product category. A productcategory is a standardized set of performance-oriented
criteria for a defined scope of products, according towhich product sustainability information is assessed,
evaluated, and partly disclosed by an accredited body.
The awarding body may be either a governmentalorganization or a private non-commercial entity.
• Type 2 – Self-declared environmental claims Self-declared
or externally audited adherence (communicated throughown-label or text) to internally developed standard.
• Type 3 – Environmental product declaration Standardized
set of rules, requirements, and guidelines for a defined
product category by an accredited body, based on whicha life cycle assessment (LCA) can be conducted. The
accredited body evaluates product performance against
a set of indicators that allows comparability between
products within the same category. This type of eco-design
certification prescribes guidelines for similar products
to disclose product information (without performance
evaluation) mainly focusing on transparency rather thanproviding a ranking/score of product performance.

Prior to deployment of the program, markets present
a program deployment plan to IQOS Sustainability
Governance Board, who review and validate the plan toensure compliance with the minimum criteria.

27

Overview

PRODUCT SUSTAINABILITY CONTINUED

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and ReportingO P E R AT I O N A L S U S TA I N A B I L I T Y
Foster an empowered and inclusive workforce⓫ Cumulative number of smoke-free electronic devices refreshed or
repaired since 2021 (in thousands)
Repaired devices Smoke-free devices resulting from therepair services that meet the agreed quality requirements
to allow for their re-use as pre-owned devices.

KPI description
In markets where we commercialize PMI smokefree products, we aim to collect used devices
and process them to improve their circularity,
minimize e-waste, and maximize resource use.
A key element of this strategy is our device
second life program, which seeks to refreshand repair smoke-free devices for re-use.
The number of devices refreshed or repaired
represents the number of devices that areprocessed in CIRCLE hubs and then shipped tomarkets for re-use. The re-use of devices includes
the commercialization and re-marketing of the
products to adult smokers or adult nicotineproduct consumers, replacement under warranty,
or other consumer program offerings (e.g., lending
program). These devices can be either a full
mobility kit (charger, holder, and related accessories)
or single line up (either charger or holder).

KPI description

Scope

Serviced devices All smoke-free devices that go throughcare and maintenance, cleaning, firmware upgrade. Service
is provided to adult users on the spot at IQOS service points
or at home. This service is not available at the hubs.

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

Included All employees captured in PMI’s HR reporting
tool and other local HR systems.

CIRCLE hubs Any of one or more supplier-operated
sites under direction of PMI for the purposes ofcarrying out services related to our CIRCLE program.
Services provided at the CIRCLE hubs generally include
inspection, dismantling, disposal and recycling, and repair
services, in addition to serving as a consolidation point
for devices returned from various market affiliates.

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

Scope

Definitions

Included Refreshed services or repaired services havebeen developed as of IQOS 3 DUO (launched in 2019) andsubsequent generations of selected electronic smoke-freedevices designed by PMI.

Employee headcount All active as well as inactive employees(i.e., those on parental leave, sabbatical, medical sick leave,
unpaid leave, long-term disability).

Excluded Serviced devices.

Definitions

Calculation methodology

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

Cumulative number of devices refreshed or repaired andshipped by the respective hubs to PMI markets fromJanuary 2021 until December 31 of the reporting year.
Estimates and assumptions Devices might be refreshedor repaired multiple times over their lifetime. Each timea device is refreshed or repaired it is accounted for in therespective year in which the activity occurs.

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

⓬ Proportion of women in senior roles

Data management

Excluded Non-employee population (temporary agency
workers, freelancers, merchandisers, IQOS coaches,
consultancy, and outsourced services), benefit recipients(retirees or withdrawn employees), fixed-term employees
and employees on salary continuation.

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

(

=

)

Overall employee HC number
in salary grade 14+

X 100%

Data management

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

On a monthly basis, employee headcount data aretransferred from PMI’s HR reporting tool to PMI’s data
ocean without any manual intervention or manipulation.
On a quarterly basis, the data are consolidated,aggregated with data provided by local HR system, andanalyzed in an internal dashboard. The data are validated
centrally, prior to external annual reporting in our
integrated report.

Management positions The term we generically use torefer to all positions in a defined salary grade 10 and above,
regardless of their job title or function.
Salary grade (SG) Levels used to group jobs of similar value
according to PMI’s job evaluation methodology, which is basedon Hay methodology. PMI uses 28 levels, starting from grade
1 and ascending to grade 28.

Data on the number of devices repairedor refreshed in Hubs are provided by thethird-party operator monthly to PMI.

28

Women headcount insalary grade 14 +Estimates and assumptions The calculation considers
the total number of employees and the salary grade ata specific point in time; for year-end reporting, this is
December 31 of the respective year.

Women For the purpose of measuring progress on genderequality, PMI considers women to include those employees
who were recognized at birth as female, as well as employees
who self-identify as female.

Preserve
natureTackle climatechangeImprove the quality oflife of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

29

Overview

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Maximize the benefitsof smoke-free products
Seek net positive
impact in healthcare
and wellness
Reduce postconsumer waste
Foster an empowered
and inclusive workplace
Improve the quality oflife of people in our
supply chain

Sustainability Index

Basis for Preparation and Reporting

Improve the quality of life of peoplein our supply chain

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

KPI description
Maintaining and further developing human capitalis critical to our employees and the success of PMI.
Therefore, we seek to provide PMI employees withaccess to structured learning activities to meet
personal and professional growth aspirations. Our
lifelong learning offers include access to learning
opportunities (e.g., courses, resources, sessions,and communities) provided by PMI that empower
individuals to proactively develop skills relevant for
current and future employability and performance.
We consider an employee to have accessto structured lifelong learning offers if they
have access to both of the following:Scope⓮ Cumulative number of human rights impact assessments conductedsince 2018, with findings addressed
KPI description

Scope

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

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

Calculation methodology
The HRIAs are conducted in alignment with the UNGPs.
After each HRIA, the external expert organization
presents its findings and suggested ways to address
issues identified. The report is shared with our local
leadership team, who develops a time-bound action
plan in collaboration with the relevant corporate
functions. The action plan assigns responsibilities for
implementation and progress measurement at the
local level. While the implementation of these actionplans often takes several years, for the purposes ofreporting against this indicator, once an action plan has
been approved by the local management (including key
milestones and measurements of progress) we consider
the “findings addressed”. On an annual basis, we report
the cumulative number of HRIAs conducted in thehighest risk countries from January 2018, with findings
addressed.

Included All employees captured in PMI’s HR reporting
tool and other local HR systems.

• At least one internal PMI-specific learning catalogue

Excluded Non-employee population (temporary agency
workers, freelancers, merchandisers, IQOS coaches,
consultancy, and outsourced services), benefit recipients(retirees or withdrawn employees), fixed-term employees,
and employees on salary continuation.

• Two externally provided solutions catalogues

Tackle climatechangeKey Definitions

OPER ATIONAL SUSTAINABILITY CONTINUED⓭ Proportion of employees with access to structured lifelong learning offers

Preserve
natureReporting

Driven by our aspiration to reach a significant
number of employees, the structured lifelong
learning program leverages digital solutions.
However, as some employees do not have access to
PMI systems, we have set an aspiration to achieve
full coverage of the population with access to ourlearning systems. Additionally, when digital accessexpands, we would expect the absolute numberof employees with access to lifelong learning
offers to also increase (and with it, the KPI).

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

Definitions(

Number of employeeswith the opportunity
to access structured
lifelong learning offers
Total number of
employee headcount)Definitions
Highest-risk countries Represent the countries assessedas highest risk from a human rights standpoint. They are
determined based on key parameters such as PMI’s footprint(e.g., manufacturing operations, head office, or sourcing
activities) and the country’s human rights risk profile, as
determined by internationally recognized indicators such as
the Heidelberg Conflict Barometer, Freedom House Freedomof the World Index, U.S. Trafficking in Persons Report, andTransparency International.

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

X 100%

Access Employees are considered to have “access” when
they can request and be granted access to learning solutions(e.g., through external licenses or platform access).

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

Employee headcount Defined as all active as well as inactive
employees (i.e., those on parental leave, sabbatical, medical
sick leave, unpaid leave, and long-term disability).

Data management

Data management
The Managing Director of the market in scope is
responsible for the implementation of the action planand determining whether a country assessment can beconsidered as completed, with findings addressed. The
central Operations Sustainability team supports andguides the markets during the implementation of theaction plan, receiving bi-annual status updates from thelocal teams.

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

30

31

Overview

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

OPER ATIONAL SUSTAINABILITY CONTINUED⓯ Prevalence of child labor among contracted farms supplying
tobacco to PMI
Identified child labor cases include prompt actions(observations by field technicians) and non-conformities(self-declarations) on contracted tobacco farms supplying
tobacco to PMI, reported through the internal farm-by-farmmonitoring data recorded by field technicians or contracted
service provider in markets where PMI sources tobacco from.

KPI description
PMI’s goal is to eliminate child labor in our
tobacco supply chain by 2025. Through thefarm-by-farm monitoring of all farms with whom
PMI contracts directly or indirectly (i.e., throughthird-party leaf suppliers), we collect data on
incidences of child labor in our contracted farmer
base, taking immediate action when they arise.

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

Improve the qualityof life of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Included All contracted tobacco farmers covered by PMI’s
Integrated Production System (IPS) and monitored by fieldtechnicians or contracted service providers for adherence to
GAP and ALP.

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

Excluded “Risk” non-conformities are not included in scopeof the calculation.

• Type 1 Situations where a person’s physical ormental integrity is at risk, children, or a vulnerable
group (e.g., pregnant women and/or nursing mothers)
are working and in danger, or workers might not
be free to leave their job on a tobacco farm.

Calculation methodology• Type 2 Situations where a person’s well-being is at risk
and the farmer will need additional time and support toremediate the issue (e.g., lack of accommodation, nonpayment of minimum wage, or lack of written contracts).
Non-conformity Situation that is recorded when a fieldtechnician or contracted service provider does not physicallyobserve a violation of the ALP Code, but, through engagementwith the farmer, farmer’s family, workers, etc., identifies a riskthat a violation is likely to occur or has occurred. There are
two types of non-conformities:
Self-declaration Declaration confirming the occurrence of anissue (equivalent to a prompt action), although not witnessedby field technicians or contracted service providers. (e.g., afarmer declares his 14-year-old child harvests tobacco).
Risk Observation or declaration that represents a risk which,
if not addressed, could evolve into a prompt action.

Tackle climatechangeScope

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

100% of reported
prompt actions+

50% of reported
self-declaration nonconformities
Total number ofmonitored farmers)

X 100%

Notes on the above calculation:• If one farmer has multiple prompt actions or nonconformities raised during the reporting period(multiple incidences of same child, multiple children
in same instance) this is counted only once.
• When an identified child labor case is raised
and resolved (field technician has verified thecorrective action developed in response to theprompt action or non-conformity has been properly
implemented) within the reporting period, thisidentified case is included in the above calculation.

Estimates and assumptions PMI integrated reporting is ona calendar-year basis from January to December, which is
not aligned with the tobacco crop seasons. Therefore, whenreporting the child labor incidence for a calendar year (n), for
the Northern Hemisphere countries this relates to the crop
year from February 1 of year (n) until January 31 year (n+1),
and for the Southern Hemisphere countries this relates tothe crop year from May 1 of year (n-1) until Sept 30 of year(n). This enables PMI to capture data from a full crop season
in the annual reporting, on a rolling “crop season” basis which
avoids duplication in reporting of prompt actions.

Data management
Prevalence of child labor within our contracted farmer baseis monitored through the IPS due diligence framework. At
the farm level, whether contracted by PMI leaf operationsor third-party leaf suppliers, field technicians or contracted
service providers conduct farm-by-farm monitoring which
includes planned and unplanned visits to each farm during
the crop season; the frequency of visits is based on country/
farmer risk profile.
All data regarding prompt actions and the status of followup corrective measures are recorded by the third-party leaf
suppliers or PMI leaf operations monitoring systems. On
a quarterly basis, consolidated data on farm-by-farm level,
provided by third-party leaf suppliers and PMI leaf operations,are reviewed and consolidated regionally. On an annual
basis, prior to external publication, the data are aggregatedand validated centrally, incorporating the results of externalverification where available.

Preserve
nature• For priority markets, an external validation of theprevalence of child labor is conducted. In 2021, theexternal validation results have been included in theoverall KPI calculation with a weight of 50 percent.

32

33

Overview

Improve the qualityof life of people in our
supply chain
Tackle climatechangeKey Definitions

Sustainability Index

Basis for Preparation and Reporting⓰ Proportion of contracted farmers supplying tobacco to PMI whomake a living income
Definitions

KPI description

Living income The net annual income required for ahousehold to afford a decent standard of living for all its
members and applies to, for example, self-employed farmers.
The living income value can be the result of an official
benchmark, a reference value, or an internal desktop exercise.

To foster socioeconomic well-being and addresssocial inequality and labor-related issues in our
tobacco supply chain, we seek to ensure that
all the contracted farmers supplying tobacco
to PMI make a living income by 2025. To
measure progress towards this aim, data on
contracted farmer income are collected by
PMI leaf operations, third-party leaf suppliers,or third-party partners in all countries where
PMI sources tobacco and assessed against
the relevant living income benchmark.

Official benchmark The result of studies conducted in specificregions or areas to estimate the net annual income required
for a household to afford a decent standard of living for all
members of that household. The official benchmark is the one
produced and published on the Global Living Wage Coalition’s
website by the Anker Research Network.
Reference value Represents typical or average living incomesfor rural and urban areas within each country. They are not
location-specific, and so are not representative of a specificregion or city. On the contrary, quality-assured Anker
methodology living income benchmarks are related to a
specific location within a country.
Internal desktop exercise value The value that is calculated
internally by following the Anker methodology, in absence of
an official calculation (official benchmark or reference value).
Farmer income The income of a farmer, including bothon-farm and off-farm income, net of production cost, as well
as remittances, grants, or other subsidies.

Potential
householdincomeLiving Income
BenchmarkCosts of a basic decent standardof living for a household

Other sourcesof incomeFood formodel dietPrimary cash
crop income

Decenthousing

Net off-farmincomeOther essential needs

Unexpected events

Actual income

Net farm
incomeSecondarycrop income

Included All contracted tobacco farmers covered by PMI’s
Integrated Production System (IPS) and monitored by fieldtechnicians or contracted service providers for adherence to
GAP and ALP.
Excluded N/A.

Calculation methodology
Farmer Income PMI’s third-party leaf suppliers and PMI
leaf operations calculate farmer income (considering only
legal sources of income) through either third-party farmer
income studies or internal desktop analyses.
• Farmer income studies are performed by third parties,
specialized in data collection and familiar with the local
context, culture, and language. These studies are basedon a representative sample size selected from thecontracted farmer base to represent the pre-definedsegments (typically based on contracted tobaccoarea). Data collection consists of quantitative data(such as surveys to understand the different income
sources (e.g., complementary crops, off-farm income,or remittances) and qualitative data (such as individual
farmer interviews and focus group discussions).

In both cases, the farmer base is typically segmented based
on tobacco growing area and the results are extrapolated
from the representative sample to the full contracted
farmer base, according to segment.

Net off-farmincomeIncome gap

Scope• Where farmer income studies are not available, PMI
third-party leaf suppliers or PMI leaf operations perform
internal desktop analyses. For internal desktop analysis
tobacco profitability is calculated using data collectedduring field monitoring or estimated by PMI’s third-party
leaf suppliers or PMI leaf operations. Other non-tobacco
income sources are estimated based on prior third-party
farmer income studies or internal sample surveys.

Calculating the living income benchmark

Other income

Preserve
natureReporting

OPER ATIONAL SUSTAINABILITY CONTINUED

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

ActualincomeLiving income value In case official benchmarks orreference values are not (yet) available, an internal desktop
analysis is performed as a starting point applying the Anker
methodology and using secondary data available fromofficial websites (government, universities, or reputableorganizations). The benchmark is updated regularly, notably
for markets with high monthly or yearly inflation.

Consolidated KPI On an annual basis, inputs from eachregion are consolidated globally to calculate the numberof farmers achieving a living income as a proportion of thetotal contracted farmer base within the respective period.
The calculation is based on an analysis of the farmer basewhich is typically segmented at market-level according totobacco farm size.
• If the average farmer income is greater than the living
income benchmark, then all farmers within the segment
are reported as achieving the living income benchmark.
• If the average farmer income is lower than the living
income benchmark, then all farmers within the segment
are reported as not achieving a living income benchmark.
This analysis is repeated for each segment and thefinal percentage of farmers achieving a living income iscalculated.
Proportion of contracted farmers supplying tobacco to PMI
who make a living income is calculated as:=

Total number ofcontracted farmers)

X 100%

Data management
All data regarding farmer income are collected and managed
by PMI third-party leaf suppliers or PMI leaf operations
monitoring systems. On an annual basis, following theconclusion of the tobacco crop season and buying process
in each sourcing market, the final data are provided to PMI.
The reporting on living incomes is based on the 12-month
period preceding the end of the crop season in therespective country.
Each PMI regional leaf team validates the farmer income
data provided by PMI’s third-party leaf suppliers and PMI
leaf operations and then submits the regional results to thecentral team who aggregate and validate the global results
for annual reporting.

Produce consumed
at homeNote: Visual adapted from the Living Income Community of Practice (source).

34(

Number of contracted
farmers achieving
living income

35Overview

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

OPER ATIONAL SUSTAINABILITY CONTINUED

Tackle climate change

Preserve
natureTackle climatechangeImprove the qualityof life of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products⓱ Net carbon emissions scope 1+2 (metric tons)
Market based Emissions of the specific providers that PMI
has purposefully chosen (i.e., factories that purchase green
electricity).

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

Biogenic emissions The direct CO2e emissions generated by
the combustion of biofuels.

Scope

Definitions
Carbon neutrality Aligned to the working definition of the
Science Based Target initiative (SBTi), individual actors arecarbon neutral when CO2e emissions attributable to an
actor are fully compensated by CO2e reductions or removals
exclusively claimed by the actor, such that the actor’s net
contribution to global CO2e emissions over a given time period(e.g., one year) is zero. Carbon neutrality is an intermediatestep toward net zero, as it happens before the net-zeroemissions state, and it can be reached using carbon credits(offsetting) or with mitigation activities within the value chain(insetting) (source: SBTi, UNFCCC Race to Zero, et al.)
Offsetting The act of compensating or canceling out all, or a
portion of, the GHG emissions released to the atmosphere throughinvestments in activities that reduce or remove an equivalentamount of GHG emissions and that are located outside theboundaries of the organization or a particular product system.
Such investments are often in the form of purchasing a carbon
credit. Offsetting is effectuated by purchasing and retiring anamount of carbon credits equivalent to the volume of GHG
emissions that is being compensated (source: Voluntary Carbon
Market Initiative, 2021).

The baseline year chosen for reporting is 2019. The
reporting period of GHG emissions is aligned with PMI’s
financial reporting, which is calendar year, i.e., January 1
until December 31.
Included Gases included are carbon dioxide, methane,and nitrous oxide. The geographic and physicalboundaries set for scope 1+2 emissions reporting are:• Manufacturing: All emissions from PMI-owned
manufacturing sites (emissions from third-party
manufacturing sites are included in scope 3 emissions)• Fleet and transport: PMI private jet aircraft, employee
working vehicles, employee benefit vehicles• Warehousing: PMI-owned or PMI-operated warehouses• Offices: PMI-owned or PMI-operated office spaces
In line with the GHG Protocol guidelines, biogenic
emissions are reported separately from scope 1+2 GHG
emissions; however, we include them in our scope 1+2
science-based targets.
Excluded The following items are excluded from ourreporting as they have been assessed against materiality
threshold defined as 5 percent of total scope 1+2 emissions:Insetting The term “insetting” is used to refer to a company’sefforts to prevent, reduce, or remove emissions within its
own supply chain, but outside of its operational boundaries.
The SBTi considers such insetting measures to be distinct
from efforts to “compensate”, instead proposing that insetting
measures are directly accounted for in a company’s efforts toabate all its supply chain emissions as it pursues its net-zerotarget. See glossary in PMI’s Low Carbon Transition Plan.
Scope 1 GHG emissions Direct GHG emissions that occur fromsources that are owned or controlled by PMI, for example,
emissions from combustion in owned or controlled boilers,
vehicles, etc.; emissions from chemical production in owned orcontrolled process equipment.
Scope 2 GHG emissions Indirect GHG emissions from thegeneration of purchased or acquired electricity, steam, heat,or cooling consumed by PMI.
Location based Emissions from electricity consumption
calculated based on the national grid of the country where thefacility is located, without taking into consideration an actor’s
specific emissions.

36• IQOS stores• HFCs, PFCs, SF4, or NF3 gases• Energy consumed by electric vehicles
All exclusions are assessed annually.

Calculation methodology
Methodology and conversion factors PMI’s scope 1+2
emissions are calculated in accordance with the GHG
Protocol’s “A Corporate Accounting and ReportingStandard” (2004), Scope 2 emissions are calculatedusing the location-based and market-based reporting
methods in adherence with the GHG Protocol’s “Scope 2
Guidance” (2015) .
To calculate scope 1+2 emissions, fuel consumption
by type is transformed to energy units using standard
conversion factors and calorific values.

Data management

Thereafter, to convert energy units to CO2e emissions,
CO2e emission factors (kg CO2e per GJ) per energy typeand country are used. PMI sources emission factors
from the U.K. government’s GHG Conversion Factors for
Company Reporting (2020) and the International Energy
Agency’s (IEA) Emissions Factors. In line with the GHG
Protocol guidelines, PMI reports both market-based andlocation-based CO2e emissions.

On a monthly basis, the amount of energy consumed in
PMI’s direct operations (scope 1+2), by type of energy
source,3 are reported in PMI’s central environmental
management system. Input data include:• Manufacturing sites: the amount of energy consumed
by type of energy source based on invoiced
amounts or consumption reports from suppliers.

Our methodology takes a conservative approach anduses location-based emission factors unless 100 percentof the electricity purchased is certified green electricity,in which case we assume zero emissions. Where a PMI
affiliate classifies their electricity as green, a green energy
certificate must be submitted to the central sustainability
team for validation and meet the GHG scope 2 emissions
protocol requirements. Such certificates are verified
externally by third parties as part of the annual data
verification process.

• Fleet and private jet: the kilometers travelled,
and respective fuel consumed by the vehicles
in our fleet are recorded in PMI’s central
environmental management system.
• Warehouses and offices: data on the amount ofenergy consumed are collected on a quarterly
basis based on purchased quantities derived fromconsumption reports or invoiced amounts.
Following the raw data input and validation of theconsumption data into PMI’s central environmental
management system, the system automatically calculates
the resulting CO2e emissions for manufacturing sites,
fleet, offices, and warehouses. All data are validated by
PMI accountable subject-matter experts or third-party
representatives. For external reporting purposes (e.g.,
PMI’s Integrated Report and CDP submissions) the
consolidation of CO2e emissions is done by PMI’s Central
Operations Sustainability team.

Verification of offsetting and insetting credits PMI has
put in place offsetting and insetting programs that comply
with rigorous international standards. Selected projects
are certified against the Verified Carbon Standard (VCS)1
and additionally some carry the Climate Community andBiodiversity Standard (CCBS)2.
The principles at the basis of the VCS define generated
credits as real, triggering additional GHG emission
reduction in comparison to business as usual, and projects
are assessed using a technically sound GHG emission
reduction quantification methodology specific to eachproject type. The VCS methodologies further ensure thatprojects delivering credits meet, among others, the criteriaof permanence, avoided leakage, and double counting. It
also requires that the emission reduction units are verified
by an independent and accredited third party with creditsthat can be issued after the emission reduction has takenplace and has been verified through an audit.
The CCBS, on top of VCS, evaluates land management
projects from the early stages of development throughimplementation and fosters the integration of bestpractice and multiple-benefit approaches into project
design and implementation. The CCBS can be appliedalso to projects that reduce GHG emissions fromdeforestation and forest degradation or projects thatremove carbon dioxide by sequestering carbon or otherland management.

Restatement of baseline In line with the maximum
exclusion amount for scope 1+2 as defined by the SBTi,
PMI applies a significance threshold of +/– 5 percent forrestatement of baseline emissions. On such occasions,the baseline year is recalculated, to reflect changes in
the company that would otherwise compromise theconsistency and relevance of the reported GHG emissions
information. All restatements of the baseline are validated
by responsible PMI head of function and verified by thethird-party verifier.
Data assurance The scope 1+2 GHG emissions arereviewed and verified annually by an external third party
according to ISO 14064-3 and verification statement ispublished on PMI.com.
See the external verification statement fromby SGS for scope 1+2 (here)
1 verra.org
2 climate-standards.org
3 Energy sources include fossil fuels (diesel, fuel oil, natural gas, petrol’s, and LPG,
coal), biofuels (biodiesel, bioethanol), district steam, district heat, and electricity(renewable vs. non-renewable, split according to source (solar, wind, biofuel)37

Overview

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

OPER ATIONAL SUSTAINABILITY CONTINUED

Preserve nature⓲ Absolute carbon emissions reduction in scope 3 versus 2019 baseline(in line with science-based target)
Science-based targets SBTi is a partnership between CDP, theUN Global Compact, World Resources Institute (WRI), and theWorld Wide Fund for Nature (WWF). Science-based targets
show companies how much and how quickly they need toreduce their GHG emissions to prevent the worst effects ofclimate change. The SBTi defines and promotes best practicein emissions reductions and net-zero targets in line with climate
science; provides technical assistance and expert resources tocompanies that set science-based targets in line with the latest
climate science; brings together a team of experts to provide
companies with independent assessment and validation oftargets.

KPI description
PMI has set an ambitious target to achieve a 50
percent reduction in upstream and downstream
value chain GHG emissions (scope 3) by 2030.
PMI works with carbon experts to develop a full“value chain” carbon footprint model, to help
measure emission reductions. The value chain
model calculates the carbon emissions for eachrelevant scope 3 category and combines these withthe scope 1+2 results (described above). Efforts
to reduce absolute scope 3 emissions in line withthe 1.5° C pathway are critical to PMI’s broader
ambition to achieve net-zero GHG emissions
across its full value chain (scope 1+2+3) by 2040.

Scope 3 GHG emissions Indirect emissions that are aconsequence of the activities of PMI. All scope 3 categories
have been assessed for inclusion within the model, applying
a materiality threshold defined as 10 percent of total scope 3
emissions and in accordance with the “Corporate Value Chain(scope 3) Accounting and Reporting Standard”.

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

Calculation methodology, scope,and data management
PMI has a full value chain carbon footprint model inplace, aligned with the GHG Protocol internationalguidelines. For details on this methodology, scope, anddata collection process, please refer to PMI’s value chain
Carbon Footprint Executive Summary. The value chain
model is calculated to align with the accepted international
standard for GHG value chain modelling “Corporate
Value” Chain (scope 3) Accounting and Reporting Standard
published by the GHG Protocol.
Data assurance PMI’s scope 3 GHG emissions arereviewed and verified annually by an external third party
according to ISO 14064-3 (2006) and a verification
statement is available on PMI.com.

Tackle climatechangeImprove the qualityof life of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Preserve
natureSee the external verification statement fromby SGS for scope 3 (here)⓳ Proportion of tobacco purchased at no risk of net deforestation of managed
natural forest and no conversion of natural ecosystems
KPI description
PMI issued a Zero Deforestation Manifesto
in 2021, in which the company reinforced
its commitments to measure the impact onforests linked to the PMI’s supply chain. Having
achieved zero gross deforestation of primary andprotected forests in our tobacco supply chain
in 2020, PMI has furthered its commitment bytargeting zero net deforestation of managed
natural forest and no conversion of natural
ecosystems by 2025 for all its tobacco suppliers.
PMI takes a risk-based approach to monitoring
deforestation in the tobacco supply chain. As therisk of deforestation related to the curing of Virginia
flue-cured tobacco is considered material, a detailed
monitoring process has been established to ascertain
the sustainability and traceability of 100 percent of
the wood fuel used to cure tobacco by contracted
farmers. Additionally, on an ongoing basis the risk of
deforestation of all tobacco-growing areas (TGAs)
is monitored using externally available geophysicalinput data to assess the changes in forest
coverage. This combination of detailed monitoringof potentially high-risk activities and ongoing
monitoring of all tobacco growing areas forms thebasis of PMI’s risk-based approach to monitoring
deforestation in our tobacco supply chain.

Definitions
Zero Deforestation Manifesto 2.0 (ZDM 2.0) Published in
2021, the ZDM 2.0 outlines PMI’s commitments to zero grossand zero net deforestation—covering all our relevant tobacco
Leaf-sourcing areas (tobacco-growing areas) and defines
expectations against zero gross deforestation of primaryand protected forests and zero net deforestation for natural
managed forests in our supply chain.
Zero gross deforestation Aggregate deforestation for a given
natural forest area (e.g., a forest reserve or natural park within
the tobacco or pulp and paper supply chain); without deduction
for reforestation or other compensation activities.
Zero net deforestation The difference in forest area
between two points in time, taking into account both losses
from deforestation and gains from forest regeneration andrestoration. Net deforestation is measured with reference to agiven geographic area (e.g., a district, state, nation, or globe) anda given timeframe.
Cut-off date As defined by the Accountability Framework
Initiatives (AFi, 2020), the cut-off date is “the date after which
deforestation or conversion renders a given area or production
unit non-compliant with no-deforestation or no-conversion
commitments”. The set cut-off date for PMI applies to all current
and future suppliers. Therefore, any new supplier will haveto demonstrate their adherence to PMI’s commitment of nodeforestation as of 31 of December 2018, regardless of theyear in which their engagement with PMI commenced.
Deforestation Loss of natural forest area as a result of: i)conversion to agriculture or other non-forest land use; ii)conversion to a tree plantation; or iii) severe and sustained
degradation (AFi, 2020).
Tobacco-growing areas (TGA) Geographical space that
includes farm area where tobacco cultivation takes place andthe potential area of impact on nature that tobacco-related
activities could generate.
Tree plantation A forest predominantly composed of trees
established through planting and/or deliberate seeding thatlacks key elements of a natural forest native to the area, such as
species composition and structural diversity. Tree plantations
generally have one or a few tree species and tend to include
one or more of the following characteristics:• planted on cleared land;• intensive use of chemical inputs (fertilizers, pesticides);• harvested regularly;• trees are of even ages; and• products from the plantation are managed andprocessed for commercial production

38

39

Overview

Tackle climatechangeImprove the qualityof life of people in our
supply chain

Foster an empowered
and inclusive
workplace

Reduce postconsumer waste

Seek net positive
impact in healthcare
and wellness

Maximize the benefitsof smoke-free products

Purposefully
phase out cigarettes

Philip Morris International – ESG KPI Protocol

Reporting

Key Definitions

Sustainability Index

Basis for Preparation and Reporting

OPER ATIONAL SUSTAINABILITY CONTINUED⓳ Proportion of tobacco purchased at no risk of net deforestation ofmanaged natural forest and no conversion of natural ecosystems continued
Natural ecosystem An ecosystem that substantiallyresembles—in terms of species composition, structure, andecological function—one that is, or would be, found in a given
area in the absence of major human impacts. This includes
human-managed ecosystems where much of the natural
species composition, structure, and ecological function arepresent (AFi, 2020). For the scope of this document, therelevant ecosystems are peatland, wetland, savannah, grassland,and semi-forest formations.
Natural forest Forests that possess many or most of thecharacteristics of a forest native to the given site, including
species composition, structure, and ecological function.
Primary and protected forest Forests that have not been
subject to major human impacts in recent history and possessmany or most of the characteristics of a forest native tothe given site, including species composition, structure, andecological function. More specifically, PMI’s definition ofprimary and protected forest are these located inside PMITGA (see definition on page 39) that are mapped using publicly
available sources.
Wood fuel All types of biofuels derived directly and indirectlyfrom trees and shrubs grown on forest and non-forest lands,
from silvicultural activities, harvesting, and logging, as well as
industrial by-products, timber-based fuels such as firewood,pellets, woodchips, and briquettes.
Sustainable wood fuel Includes wood fuels derived from:• Legal plantations that are sustainably
managed, including on-farm planting• A sustainably managed secondary forest or degraded forest
with no measurable deforestation by spatial analysis tools• Identified invasive exotic species that have notbeen planted and require removal according
to a thorough ecological assessment
Sustainable wood fuel excludes wood fuels derived from:

Scope
Included Any forest type and forest management thatcan be directly or indirectly (e.g., biomass for energy intobacco curing) linked to PMI’s tobacco supply chain.
Natural ecosystems that may not be entirely forested, likepeatland or savannah or unique ecosystems such as the
Cerrado in Brazil or the Miombo forest in Mozambique,are also in scope.All tobacco-growing areas covered by
PMI’s Integrated Production System (IPS) and monitoredby field technicians or contracted service providers foradherence to GAP and ALP.
Excluded Loss of forest area resulting from natural
disturbances that are part of the natural life cycle offorests and characteristic of ecosystem formationand evolution are not considered in scope of ourdeforestation commitments. Artificial plantations.

Calculation methodology
Monitoring and verification framework To ensure
adherence and measure progress towards PMI’s zerodeforestation commitments, PMI provides third-party leaf
suppliers, PMI leaf operations, and contracted farmers
with guidelines to deploy a monitoring and verification
system, including measurement criteria. The monitoring
and verification framework for deforestation in PMI’s
tobacco supply chain can be broken down into three main
activities.
The first activity is defining and mapping forest types in
TGAs. GPS coordinates of the TGAs, collected by thirdparty leaf suppliers and PMI leaf operations, are mapped
against publicly available sources of forest cover to define
the forest types contained within the TGAs. Forest types
include primary and protected forests, managed naturalforests, or natural ecosystems.
Second, the monitoring of deforestation risk is carriedout. This is typically done at two levels:• Unsustainable managed natural forests
where deforestation is measurable by spatial
analysis tools or onsite inspection visits

1. Supply chain inputs: A monitoring framework forsustainable curing fuels is applied to all TGAs in which
Virginia flue-cured tobacco is cultivated due to theassociated material risk for gross and net deforestation.
Accordingly, all suppliers of Virginia flue-cured tobacco
must record and verify the sources of the wood fuelused to cure tobacco. A third-party auditor assesses
conformity with the monitoring framework to ascertain
sustainability and traceability of 100 percent of thefuel used to cure tobacco by contracted farmers.

• Plantations resulting from conversion ofnatural forests after the set cut-off datePreserve
nature• Primary and protected forests

40

Data management

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

Supply chain inputs are managed via third-party leaf
supplier’s data collection processes and reported in PMI’s
proprietary curing fuel data monitoring system twice ayear. For the mapping of forest types contained withineach TGA, PMI recommends third-party leaf suppliers’
and PMI leaf operations use the Hansen global forest
maps available at Global Forest Watch (GFW). This
mapping is maintained in PMI’s Environmental Insights
tool on an annual basis following the update (in Q4) fromGFW.

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

Following the verification process, on an annual basis, theresults of the tobacco supply chain inputs and landscaperisk analysis are consolidated centrally to report the global
figure of the proportion of tobacco purchased at no riskof net deforestation of managed natural forest and noconversion of natural ecosystems in PMI’s tobacco supply
chain.
Data assurance In addition to verification of the supply
chain inputs and any deforestation events as identified
by the landscape analysis, prior to external reporting, theprogram auditor verifies PMI’s assertion of compliance on
the global consolidated tobacco purchased figure at norisk of net deforestation of managed natural forest and noconversion of natural ecosystems.

If zero net deforestation is detected by the monitoring
framework indicating unsustainable volumes of firewood
from managed natural forests, the number of hectares
impacted will be compensated to reach the zero net
balance at the end of 2025. Compensation activities
must follow the guidelines from the mitigation hierarchy(avoid, minimize, restore, transform) and will have to be
proven by a dedicated impact assessment to validate theintervention has contributed to generate or restore anatural ecosystem. Suppliers, TGAs, and markets will berecognized as having achieved zero gross deforestationor zero net deforestation and no conversion of natural
ecosystems when the results of the external audit willshow full compliance to the principles and indicators ofthe monitoring framework.
Calculation methodology Proportion of tobaccopurchased at no risk of net deforestation of managed
natural forest and no conversion of natural ecosystems =Tobacco at risk of deforestation purchased at no evident
risk of net deforestation/Total tobacco purchased at riskof deforestation.
Estimates and assumptions Total tobacco purchased
by PMI is based on a full calendar year (January throughDecember) considering the January through September
actual purchased volumes, combined with the forecasted
volume for the period October through December.

41

Philip Morris International – ESG KPI Protocol

Forward-looking and cautionary statements
This document contains projections of future results
and other forward-looking statements. Achievementof future results is subject to risks, uncertainties andinaccurate assumptions. In the event that risks or
uncertainties materialize, or underlying assumptions
prove inaccurate, actual results could vary materiallyfrom those contained in such forward-looking
statements. Pursuant to the “safe harbor” provisions of
the Private Securities Litigation Reform Act of 1995,
PMI is identifying important factors that, individuallyor in the aggregate, could cause actual results andoutcomes to differ materially from those containedin any forward-looking statements made by PMI.
PMI’s business risks include: excise tax increases anddiscriminatory tax structures; increasing marketing
and regulatory restrictions that could reduce ourcompetitiveness, eliminate our ability to communicate
with adult consumers, or ban certain of our products incertain markets or countries; health concerns relating
to the use of tobacco and other nicotine-containing
products and exposure to environmental tobaccosmoke; litigation related to tobacco use and intellectual
property; intense competition; the effects of global
and individual country economic, regulatory andpolitical developments, natural disasters and conflicts;
the continuing effects of the COVID-19 pandemic;
the impact and consequences of Russia’s invasionof Ukraine; changes in adult smoker behavior; lost
revenues as a result of counterfeiting, contraband andcross-border purchases; governmental investigations;unfavorable currency exchange rates and currency
devaluations, and limitations on the ability to repatriate
funds; adverse changes in applicable corporate tax laws;
adverse changes in the cost, availability, and qualityof tobacco and other agricultural products and raw
materials, as well as components and materials for ourelectronic devices; and the integrity of its information
systems and effectiveness of its data privacy policies.

42

PMI’s future profitability may also be adversely affectedshould it be unsuccessful in its attempts to produce andcommercialize reduced-risk products or if regulation or
taxation do not differentiate between such products
and cigarettes; if it is unable to successfully introduce
new products, promote brand equity, enter newmarkets or improve its margins through increased
prices and productivity gains; if it is unable to expand
its brand portfolio internally or through acquisitions andthe development of strategic business relationships;
or if it is unable to attract and retain the best global
talent, including women or diverse candidates. Future
results are also subject to the lower predictability of
our reduced-risk product category’s performance.

PMI is further subject to other risks detailed from time
to time in its publicly filed documents, including theForm 10-Q for the quarter ended March 31, 2022
and the Form 10-K for the year ended December
31, 2021. PMI cautions that the foregoing list ofimportant factors is not a complete discussion of
all potential risks and uncertainties. PMI does notundertake to update any forward-looking statementthat it may make from time to time, except in thenormal course of its public disclosure obligations.

Notes
In this publication, “PMI”, “we”, “us”, and “our” refer toPhilip Morris International Inc. and its subsidiaries.
In this publication and in related communications, theterm “materiality”, “material”, and similar terms, whenused in the context of economic, environmental,
and social topics, are defined in the referenced
sustainability standards, and are not meant tocorrespond to the concept of materiality under the
U.S. securities laws and/or disclosures required by
the U.S. Securities and Exchange Commission.
This publication contains references and links to
websites operated by third parties. These references
are provided as a convenience to you and as anadditional avenue of access to the information
contained in those sources; they should not be viewed
as an endorsement by us of the content of thesereferences and linked sites or opinions of their authors.
Trademarks and service marks in this publication
are the registered property of, or licensed by, thesubsidiaries of Philip Morris International Inc.,and are italicized or shown in their logo form.

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