Corporate Social Responsibility
JT Group Report 2013

Table of contents
Introduction...............................................................................5

Consumer Issues........................................................................32

Executive Messages......................................................................6
Putting human rights first………………………………………………………………11
Partnering to help end child labor………………………………………………………12
Putting the progam into action…………………………………………………………13

Being transparent about our products………………………………………………...33
Consumer complaints handling service……………………………………………….34
Disclosing ingredients information voluntarily…….…………………………………..35
Ensuring only adults gain access to tobacco products………………………………35
Providing professional assistance within the pharmaceutical sector……………….36
Prioritizing safety control in the beverage and processed food business…………..37

Labor Practices..........................................................................14

Community Involvement & Development.....................................38

Focusing on health, safety and employee satisfaction……………………………….15
Listening to employees helps create a better workplace…………………………….16
Demonstrating the principle of ‘continuous improvement’………………………….17
Bringing ideas to life…………………………………………………………………….18
Health and well-being of our employees……………………………………………...19

Helping local people with compassionate aid programs…………………………….39
Bringing sustenance to a city in need of help…………………………………………40
Restoring forests in Japan………………………………………………………………41
Picking up on the issue of litter in Japan………………………………………………41
Volunteering help in Spain………………………………………………………………42
Caring for the community……………………………………………………………….43

Human Rights..........................................................................10

The Environment......................................................................20
Working towards sustainability…………………………………………………………21
Meeting the challenges of environmental management…………………………….22
Reducing greenhouse gas emissions………………………………………………….23
Combating resource depletion through forestation and conservation……………..24
Protecting water sources……………………………………………………………….25
Reducing, Reusing and Recycling……………………………………………………..26
Innovating to limit waste………………………………………………………………..27

Fair Operating Practices.............................................................28
Operating responsibly across the global value chain………………………………...29
Creating the highest standards of behavior…………………………………………...30
Taking a zero tolerance approach to corruption………………………………………31
Combating illicit trade with a digital solution………………………………………….31

Organizational Governance.......................................................44
Supporting businesses with transparent and sound governance…………………..45
Ensuring effective decision-making and accountability……………………………...46
Enhancing organizational governance………………………………………………...47

Group Profile Facts and Figures..................................................48
ISO 26000...............................................................................50

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Introduction
The JT Group, centered around Japan
Tobacco Inc. (JT), is a global organization
operating in Japan and over 120 countries
worldwide. It is active in the three broad
sectors of tobacco, pharmaceutical andfoods. JT manufactures and markets tobacco
products in Japan, and Japan Tobacco
International (JTI), headquartered in Geneva,
Switzerland, operates the global tobacco

business. The pharmaceutical businessconducts research and development,
manufactures and markets prescription
drugs. The foods businesses consist of
beverages and processed foods. Boththe pharmaceutical and food businesses
are based in Japan. A belief in ’doing theright thing’ is central to the JT Group’s
corporate principles and how it conducts

its businesses. This belief underpins theexamples of Corporate Social Responsibility(CSR) activities presented in this Report.
Additionally, in 2012 the Group adopted theISO 26000 guidelines on Social Responsibility
as a new framework to help structure its
CSR reporting. ISO 26000 encompasses
manufacturing processes, consumer services,supply chain management, environmental

management, business operations andsocial contributions, all of which are relevantto the JT Group. Undoubtedly, there will
always remain much more to be done, and
the Group is committed to strengthening
the societies and communities in which its
businesses operate.

JT Group - CSR Report 2013 | 5

6 | JT Group - CSR Report 2013

In today’s world, we face many and varied challenges that impact
on the sustainability of society at large. These include climatechange, resource depletion, poverty and the abuse of humanrights.
The JT Group is an organization whose value chain is spreadaround the world. It is right then that we are expected to help
address the societal challenges which arise from the impact ofour business operations on communities.
With the “4S” Model, our management principle, we aim
to balance the interests of four classes of stakeholders consumers, shareholders, employees and society – fulfilling

our responsibilities towards them. This Model requires us tocontribute to the sustainable growth of societies, by conducting
socially responsible business operations.
Accordingly, we are committed to enhancing our value chain
management to reduce environmental impacts, preserve natural
resources, address the abuse of human rights, and contribute tocommunities.
Operational in over 120 countries and with an employee baseencompassing more than 100 nationalities, we ensure that our
diverse global workforce observes the principles of CSR to makea real difference in the development of sustainable society.

Mitsuomi Koizumi
President and Chief Executive Officer
Japan Tobacco Inc.

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8 | JT Group - CSR Report 2013

The JT Group operates in many countries, across different
business sectors, touching myriad aspects of global society.
As such we take our responsibilities to help address pressing
environmental and social concerns very seriously.

The JT Group strives to live up to stakeholders’ expectations
through continuous improvement, evolving our CSR credentials
through programs and activities in line with a coherent global
strategy.

Under the “4S” Model, our management principle, we havelong been committed to addressing environmental issues,
community development, and incorporating Corporate Social
Responsibility (CSR) in our Group’s business operations. We
look to incorporate the perspectives of the stakeholder groups
with whom we are in dialogue, so that in undertaking CSR
initiatives we maximize our contribution to the communities
where we operate.

This report provides an insight into the direction we are taking.

Hideki Miyazaki
Executive Deputy President,
CSR, Finance and Communications
Japan Tobacco Inc.

JT Group - CSR Report 2013 | 9

ISO 26000: Human Rights

ObservinghumanrightsThe JT Group counts diversity
as one of its great strengths, andactively promotes respect, fairness
and opportunity for all in its work
environments.

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Putting human rights first
The JT Group reinforces the importance ofhuman rights, in all areas of its businessactivities and workplaces. Policies are
employed to ensure that no employee issubjected to discrimination or exploitation,and is treated fairly and appropriately at all
times.
The Group procures a wide variety of raw
materials through a complex supply chainthat spans the world. Accordingly, all
suppliers are expected to observe the sanctityof human rights in their business operations.
These standards are set out clearly in the JT
Group’s Responsible Procurement Policy andall business partners are held to the same
stringent standards.
The contracted growers that supply tobacco
to the JT Group are expected to comply
with our Agricultural Labor Practices, which
define standards and give guidance on labor
practices, addressing such issues as childlabor.

Child labor is a complex issue within tobacco
farming. The JT Group makes it clear to thegrowers who supply our tobacco that childlabor is not acceptable. A fundamental partof this approach is to improve the livelihoodsof farmers, their families and communities.
For this reason, the JT Group works withinternational organizations to meet the targetof getting children back into schools andkeeping them there.

People’s rights to express
themselves and workwithout prejudice are
central tenets of the JT
Group’s culture andworking practices.

Human Rights | JT Group - CSR Report 2013 | 11

Partnering to help end child labor
The ARISE program
In February 2012, JTI began a program called
ARISE (Achieving Reduction of Child Labor
in Support of Education). The purpose is tohelp eliminate child labor in the communities
where it purchases tobacco leaf. This
program is currently active in Malawi, Zambia
and Brazil.

The JT Group’s commitment to the future of tobacco growers
starts with making sure that children go to school. ‘No Child
Labor’ contracts are reinforced with programs to build schools,
investment in infrastructure to improve community livelihoods
and through a tailored child labor elimination program, ARISE.
By promoting education the JT Group builds an understanding
within the communities where it operates, helping to give children
a good education and widening their paths to a better future.

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In developing countries the challengesof child labor are significant, and the JT
Group recognizes that it cannot addressthese without collaborative efforts. That
is why the ARISE program partners with
the International Labor Organization (ILO)
and Winrock International. These twoorganizations possess specialized knowledge
in eliminating or reducing child labor, using
experienced teams to develop and monitor
activities taking into account local conditions.
Children who have been removed fromwork as child laborers face considerable
barriers to education because they areoften far behind, having missed out on thefundamentals. ARISE addresses these byproviding educational materials and afterschool tutoring that serve as an enhancement
to formal schooling. The program alsooffers mentoring and access to technicaland vocational training for older children
through Model Farm Schools and vocational
skills courses. Such training ensures thatchildren gain the knowledge and skills
needed to achieve food security and a decent
livelihood within the rural economy. Family
Support Scholarships provide not only
educational materials for children, but also
entrepreneurship training and conditional
capital investments for their mothers or
guardians. This encourages them to remove
their children from child labor situations andkeep them in school.
Through the ARISE program, together with
its partners, JTI helps create child labor
alternatives. At the same time, it raises
awareness on this issue in the most affected
communities and increases educational
opportunities for local children.

Putting the program into action

A typical school in the Kaoma district of Zambia, where ARISE was launched this year.

Lucia Kaluzu is a 17 year-old from the village of Kumayani in Lilongwe
District in Malawi. At the age of 16 she dropped out of the sixth grade
because her parents and others told her she was too old for school.
Although Lucia’s parents were too poor to keep her in school, her fatechanged when the ARISE program came to her village.
ARISE established Child Labor Monitoring Committees in each village,
to identify children involved in child labor or at risk of entering into
this situation. Lucia was identified as needing support and direction,
and was selected to take part in the program’s Model Farm School,a six-month vocational agricultural training program. She was also
encouraged to re-enroll in school and now attends sixth grade again.
Additionally, she received ARISE materials, including a book bag,uniform, exercise books, pens, soap and other necessities. She spends
three afternoons each week at a Model Farm School and attends theafter-school program two afternoons per week, receiving mentoringand enjoying sports activities.

Making a better future possible
According to Lucia, ARISE changed her life and her perceptions andunderstanding on many issues. She learned that a young woman has aright to an education and that she can learn other skills and become afarmer herself.
In the Model Farm School, Lucia learned to grow crops using modern,safe techniques designed to produce more on a small plot of land.
She wants to finish her education and take up vegetable production
on a larger scale as her main business: “I feel I have to choose a
different path. I see these women struggling everyday to support theirfamilies; their small businesses just cover their immediate needs, butthey cannot save money or invest for their children. I want to takeadvantage of the Model Farm School to get the right farming skills sothat together with my friends we can one day open up a big farm as acooperative.”“I realized that I wasa victim of child labor.
ARISE taught me and myfriends that child labor is
any work that keeps young
people out of school. I
went home and talked to
my parents and, with thesupport of the program’s
mentors, members of theChild Labor Monitoring
Committee as well as myschool teacher and ourvillage chief, I found myself
back in school.”
Lucia Kaluzu

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ISO 26000: Labor Practices

Respecting
employeerelations

The JT Group recognizes
that good labor relations
foster collaboration, and puts
employees at the center of its
efforts to succeed and grow.

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Focusing on health, safety and employee satisfaction
The health, safety and well-being of its workforce are ofparamount importance to the JT Group. It has established policies
and standards beyond its statutory requirements, which safeguard
the interests of all employees.
Recognizing the importance of dialogue with staff helps to create
an understanding of how the JT Group can be a better employer.
To this end, employee surveys are conducted and the result is a
two-way communication between the Group and its employees,
who cooperate to create rewarding business environments.

The JT Group believes that its
core asset is the talent it employs.
Respecting and acting on the needsof employees is therefore essential.

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Listening to employees helps create a better workplace
Employing a culturally
diverse workforce
The JT Group employs individuals
encompassing more than 100 nationalities.
It believes that employing a workforce ofsuch cultural diversity creates a strong
source of competitiveness and is a driving
force for sustainable growth. Great efforts
are made to harness this power of diversity,
motivating and encouraging employees toexpress their individual perspectives.
As an equal opportunities employer personal
growth is nurtured, regardless of anindividual’s race, nationality, creed, religion,
gender or physical ability. The principle ofcombating discrimination in the workplace iscentral to the Codes of Conduct and humanresources policies.
Developing the skills of its employees helps
advance the objectives and growth of the
JT Group. It therefore supports employees’
efforts to advance by offering a wide rangeof personal training programs, which helps
them determine and capitalize upon theirbest abilities.

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Between 2008 and 2009, the JT Group piloted
an Employee Engagement Survey (EES)in 12 countries across its CIS+ region. The
aim of the survey was to gather employees’
suggestions on how to improve businesspractices and discover what issues they may
have.

high performance companies. Data from the
EES is now used as a catalyst for hundreds ofinitiatives, mostly at a local level. It illustrates
the fact that, not only is the JT Group
committed to listening to and understanding
its employees, but it also acts upon the
feedback received.

The scope of the EES subsequently extended
in 2010, and in 2012 the first Group-wide
survey took place. The survey covered 72
countries, with 46,729 employees surveyed
in 38 languages. The response rate - 93% - isconsidered by Towers Watson, consultants tothe EES, to be above the participation rate of

Action plans and initiatives that result fromthe EES take many different forms, fromcreating new platforms that enable thebusiness to work smarter to programs thatreward employees` exceptional efforts.

“The EES is a global initiativethat results in local actions.
It makes sense to interpretand act on the information
we receive at the country level
because of local influences anddiffering cultures.”
Heinz von Allmen
JTI Vice President Human Resources

Demonstrating ‘continuous improvement’with Employee Engagement Survey initiatives
Online collaboration: fromthe survey to the server‘Engage’In 2012, JTI launched a global internal networking
platform called ‘Engage’, a tool with functionality
similar to popular social media networks. The
platform evolved from an initial pilot in Ukraine,where employees asked for an online solution thatwould help them share information, generate ideas
and collaborate with colleagues around the globe.
This led to the development of ‘MyJTI’ in Ukraine,
a collaborative online tool allowing employees todialogue across departments, improve decisionmaking and share best practices.
The decision was made in 2012 to expand theconcept to create an internal global networking
platform, and Engage was born. Jonathan Duce,
Corporate Communications Director, tasked
with overseeing the platform’s delivery, explains
the thinking: “One of JTI’s core strengths is its
international diversity. This online employee
platform will help us to leverage that diversity andnurture a culture of openness and innovation.”

Striving for excellence
In the 2010 EES, JTI’s MENEAT region identified an opportunity to reward
employees for their performance. Accordingly, the ‘Striving for ExcellenceAwards Scheme’ was created to recognize and celebrate high-performing
employees across the region. More specifically, the scheme looked to reward
individuals whose contribution to the business goes above and beyond thenormal expectations of their position.
To be eligible for the award, an employee must be nominated by a colleague
and recommended by local management. The program, piloted in 2011, wasextended in 2012 to cover all employees, including those working in factories
across the region. In December 2012, 16 successful candidates were rewarded
with a two-day trip to London. This included a sightseeing tour and dinner withthe regional management team.

Chris Moat, MENEAT & WWDF Regional Human Resources Vice President,
believes that the ‘Striving for Excellence Awards Scheme’ works on many
levels: “As a region, MENEAT is geographically very diverse, and the ‘Striving
for Excellence’ program provides a platform for employees to be recognized not
only at a country level, but also by the region. It really incentivizes employees
to know that their efforts do not go unnoticed, and that exceptional work will
be met with exceptional rewards. The awards are now very much a part of
MENEAT’s efforts to recognize the contribution of its employees.”“It was an honor to be commended for mywork by the Company. I enjoyed visiting
London, and one of the highlights wasvisiting Madame Tussauds waxworks
museum where I saw the wax statueof Atatürk, the founder of the Turkish
Republic.”
Irfan Cinar
Electricity and Energy Associate, JTI Turkey
Striving for Excellence Award winnerLabor Practices | JT Group - CSR Report 2013 | 17

Bringing ideas to life
A number of countries have their own programs for promoting
innovation throughout the JT Group. While specific details
differ, the essential spirit of such initiatives is the same acrossall geographies: individuals put forward ideas that contribute to
the performance of the Group, with the goal of generating betterbusiness results.
One such initiative that evolved from the EES is the ‘Bringing
Ideas to Life’ regional awards program in the CIS+ region.
Employees expressed a desire to contribute more to the successof the Company, requesting a platform to present new ideas.
In 2012, the ‘Bringing Ideas to Life’ awards generated as manyas 1,482 ideas, of which 288 were shortlisted. These were further
evaluated and the best ideas were identified, which led to 11
people being invited to JTI’s headquarters in Geneva in January
2013, to be honored for their efforts. Award winner Evgeniya
Yaroslavtseva, a recruitment specialist in Moscow, proposed that
Evgeniya Yaroslavtseva receiving a “Bringing Ideas to Life” award from Martin
Braddock, JTI Regional President CIS+.

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new employees receive an introductory letter on their first day,making them feel welcome and informed. Other winning ideas
included the creation of a single email address for all humanresources enquiries, and the replacement of paper payroll slips
with electronic slips.
Guergana Andreeva, CIS+ Regional Human Resources Vice
President, points to the benefits that such a program brings to
the Company and its staff: “One of JTI’s values is ‘Enterprising’and this award promotes an enterprising and entrepreneurial
spirit throughout all levels of the organization. Encouraging
employees to be innovative ultimately benefits the business interms of performance, and it also encourages the sharing of bestpractices. Above all, it shows employees how they can reallymake a difference and that their ideas are always taken seriously.”Maintaining the health and well-being of employees
The JT Group has in place initiatives aimed atmaintaining the health of employees, with theemphasis on preventing medical conditions thatarise within the workplace.

Global health and well-being strategy
In 2012, JTI began developing a global health and well-being strategy as part ofits Environmental Health and Safety (EHS) commitments.
Exercise and stretching class with a public health nurse

Prior to the introduction of this strategy, existing programs were run successfully
in local entities, according to their specific needs. Presently, a global approachallows the sharing of best practices and ensures consistent initiatives andactivities across the entire organization.
The strategy will be monitored, so the business can measure its success. Mike
Jackson is JTI’s Occupational Hygiene Director and he explains the program’s
objectives: “Prevention is key to our goals, but rehabilitation support is alsoessential in the event of sickness.”

Four pillars to well-being
Four pillars comprise the employee well-being program. These pillars are:‘Reaction’, which defines the response to employees who become ill. The
second pillar, ‘Risk Assessment’ identifies the occupational health risks
our workforce face and how these can best be addressed. The third pillar is‘Control & Management’, once the nature and magnitude of a health issue
is understood, control mechanisms can be put in place. Finally, the fourth pillar
is ‘Well-being’, which includes initiatives in health education, management
and promotion. Not only are occupational factors considered, advice on diet,exercise and stress management are also included.

Promoting healthy
lifestyles in Japan
Mike Jackson, JTI Occupational Hygiene Director

Extending the program beyond staff
In countries where JTI operates and endemic diseases are prevalent, theemployee health and well-being program will cover employees as well as
employees’ family members and their local communities. Jackson provides
an example of how this currently works to good effect: “We currently havea successful Action Against Aids program in South Africa and Tanzania, andwe are looking to adopt this for other regions across sub-Saharan Africa,
particularly where we have agricultural operations. From a business perspective,
occupational health programs make sense, because we rely on local
workforces. So this is not merely philanthropic; the benefits affect our ability tomaintain a healthy supply chain.”

In Japan, JT has instigated various programs thatoffer employees the opportunity to change their
daily habits and routines. Programs include lectures
and advice on nutritionally balanced meals, suchas providing easy-to-make recipes for healthy
meals. On a physical level, exercise and stretchingclasses are available, as well as instruction on how
to maintain posture, through walking with a correct
gait.
JT also provides employees with access tophysicians and nurses who can be consulted
regarding any health concerns.

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ISO 26000: The Environment

Lessening
environmental
impactThe JT Group has establisheda wide range of policies andinitiatives that limit theenvironmental impact of its
commercial activities.

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Working towards sustainability
The JT Group’s
environmental
agenda is to operate
in a sustainable andefficient manner overthe long-term.

The JT Group utilizes agricultural products
worldwide and recognizes that its global
activities have an environmental impact.
From the procurement of raw ingredientsand materials, to the manufacturing anddistribution of products, the aim is to lessen
this impact by promoting sustainability.

Minimizing the environmental impact, and thepromotion of the efficient use of resources,is achieved through focusing activities onlowering greenhouse gas (GHG) emissions
and reducing water consumption and waste
generation. Biodiversity conservation andconsideration of local ecosystems are also
addressed in a number of ways.

The JT Group’s environmental principles
and policies are set out in its Environmental
Charter, which has led to the implementationof numerous programs that reduce
environmental impact across the entire value
chain.

The Environment | JT Group - CSR Report 2013 | 21

Meeting the challenges of environmental management
Environmental Charterand Environmental
Action Plan
The JT Group has established an
Environmental Charter which defines theapproach to preserving the environment.
A series of practical steps have been
designed to limit environmental impact, andare contained in an Environmental Action
Plan (EAP) which outlines the planning,
implementation and management ofenvironmental programs. Activities andgoals in the EAP are tailored to the individual
challenges and circumstances of the Group’s
factories, offices and other sites.

the medium term plan of 2009 – 2012, were
all attained except for the GHG emissions per
million cigarettes. The global recession andan increase in taxes in Japan, contributed toa lower than planned emission reduction per
million cigarettes.

The EAP targets for GHG emissions, water
consumption and waste generation, covering

JT Group EAP1: Reduction Targets and Results
Index

Medium-Term Target (FY2009 - 2012)2

FY2012 Results2

Greenhouse gas (GHG)
emissions3

10% reduction by FY2012

Reduced by 10%

11% reduction in GHG emissions per million cigarettes by FY2012

Reduced emissons per million cigarettes by 6%

Water consumption

12% reduction by FY2012

Reduced by 31%

Waste generation

15% reduction by FY2012

Reduced by 21%

Tobacco product factories

Amongst the JT Group, 55 major entities are monitored for EAP assessment.		
Reference year for the medium-term target and the FY2012 results is FY2007.		
GHG emissions indicated in the table above, cover Scope 1 and Scope 2 set in the GHG Protocol.		

1
2
3

When calculating CO2 emissions in relation to electricity usage, we use conversion factors set in the 2005 GHG Protocol
for domestic operations in Japan, and the 2003 Protocol on a country by country basis for the international operations.

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Reducing greenhouse gas emissions
Observing the GHG Protocol
In order to better understand its environmental impact, and sothat it can measure reductions over the long-term, the JT Grouphas begun calculating the amount of GHG emissions it generates
throughout its entire value chain. Measurements are in line with
Scope 3 set in the GHG Protocol: an international guideline forcalculating emissions.

JTI factory in Trier, Germany

The JT Group aims to reduce GHG emissions throughefficient energy use and a shift to low carbon fuels.
In 2012, the scope of measuring GHG emissions was
expanded across its entire value chain to monitor
the environmental effects of energy use. The Group
continually assesses ways to integrate low-energy
methods and processes into its operations. This includes
measuring, recording and reporting energy efficiency
across functions, from R&D and manufacturing tomarketing and sales. For example, the introduction ofenergy-saving equipment and the operational optimizationof machines are widely observed in production sites.
Additionally, the Group has made significant efforts toincrease transportation efficiencies, utilizing vehicles that

consume less fuel. In some of the factories and offices cogeneration systems are in place and the conversion fromstandard fuels into low-carbon fuels is also encouraged.

Under the GHG Protocol, three scopes have been set to calculate
and report on GHG emissions:• Scope 1: All direct GHG emissions from corporate activities, suchas burning of fossil fuels at factories;• Scope 2: Indirect GHG emissions from consumption ofpurchased electricity, heat or steam;• Scope 3: Other indirect emissions (divided into 15 categories).
This includes the extraction and production of purchasedmaterials and fuels, transport-related activities in vehicles not
owned or controlled by the reporting entity, electricity-related
activities not covered in Scope 2, outsourced activities, waste
disposal and more.

In Japan, energy-saving vending machines have been
installed on various sales sites. Additionally, the switch to
LED lighting in offices is now widespread, as traditional
light bulbs are replaced with LED bulbs as part of theregular office equipment renewal cycle.

The total Scope 3 GHG emissions of the JT Group in FY2012, iscurrently being verified and is expected to comprise the major
portion of the total GHG emissions of the Group’s entire value
chain. This reaffirms the importance of efforts to reduce emissions
across the chain.

As a result of these initiatives, GHG emissions havedecreased by 10% compared with 2007.

The Group is set to reduce its GHG emissions by continuously
monitoring environmental performance across its entire chain of
business operations.

The Environment | JT Group - CSR Report 2013 | 23

Combating resource depletion
through forestation and conservation
One way in which the JT Group limits its
environmental impact is through forest
regeneration and conservation programs.
Replanting trees and preserving areas ofexisting woodlands support biodiversity
within ecosystems and aids farming
communities in particular. Additionally, trees
hold soil in place, thus preventing soil erosion
and reducing the flood vulnerability of local
communities. This also makes sense froma business perspective as the JT Group willcontinue to use wood from forests as aresource in the future.

Investing in a secure future for growers and theircommunities by planting trees today
In many of the countries where the JT Groupsources tobacco, people depend upon wood forbuilding, cooking and the heat needed to curetobacco leaf. Over time, increasing populations
have placed pressure on tree resources, resulting
in large areas of deforestation. While the amount ofwood used in producing tobacco is a small portionof the total used each year, the JT Group is focusedon renewing these natural resources as part ofits broad approach to sustainable agriculture.
Therefore, the Group has reforestation programs

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in Malawi, Zambia and Tanzania, operated inpartnership with Washington State University, withthe aim of restoring deforested areas. Training
farmers to plant a mix of native, exotic andnaturalized species of trees helps ensure that there
is fuel and timber today, and for future generationsof growers and their communities. These carefully
managed wood lots also contribute to a better
habitat for wildlife, while protecting soil and water
resources.

Curbing deforestationin Malawi with
Live Barns
Live Barns is an initiative launched in
Malawi in February 2013, aimed at
avoiding deforestation and contributing
to soil conservation in tobacco growing
communities.
A Live Barn in practice

The Malawi tobacco industry has traditionallyused wood-based barns in the curing andstorage of tobacco green leaf from the field.
The JT Group is in the process of phasing out
this old barn system, because it cannot besustained within the context of Malawi’s highrate of deforestation.
The Live Barns concept eliminates theneed for wood or timber and the cutting oftrees. Conventional barns use poles for theirconstruction and maintenance, while Live
Barns are built in the wood lot using live trees.
Seedlings are planted right where the barn will
stand, and a barn is erected once they are fullygrown.
Seedlings of different kinds of fast-growing
naturalized tree species are used, which cansupport a roof after three or four years ofgrowth. The roof is thatched from natural

grasses and is protected with a watertightcovering to keep out the rain. The Live Barns
project will initially involve approximately 300
farmers, who will grow 65,000 trees in thefirst year before extending the initiative to 15
other districts. Ultimately, over 14,000 barns
will be established and over three million trees
planted.
The Live Barns initiative complements the
JT Group’s forestation program, which isdeveloped in partnership with Washington
State University and Total LandCare, a nonprofit organization (NPO) that aims to improve
the livelihoods of local communities.

Protecting water sources
Water is an essential element
used in manufacturing manyof the JT Group’s products.
Consequently, the Groupis focused on reducing theamount of water it uses, while
increasing water recycling
methods.

TableMark’s Uonuma Mizunosato Factory in Japan

Cooling boiled ‘UDON’ noodles as part of the
production process

Maintaining water quality to reduce pollution
TableMark Co., Ltd., a subsidiary of JT,
operates primarily in the processed foodbusiness in Japan. Its Uonuma Mizunosato
Factory is located in Uonuma, in the Niigata
prefecture. This is an area renowned for anabundance of high-quality water, and wasofficially selected as one of Japan’s 100 Best
Water Areas. The factory produces 21,000
units of frozen ‘UDON’ noodles and 6,000
packs of cooked rice every hour. The qualityof the water used greatly enhances the flavorof the rice and noodle products, which areboiled in this water during the production
process. To avoid water pollution and reduce
impact on the environment, TableMark
established a water quality monitoring
committee together with the city of Uonuma
and the local fishermen’s association before

making the factory operational. The Company
also installed water purification equipment,such that TableMark not only meets local
environment effluent regulations, but applies
its own stricter criteria, which exceeds local
regulations by a factor of ten.

The Environment| JT -- CSR
CSR Report
Report 20132013 || 25
25
JT Group

Reducing, Reusing and Recycling

Tobacco shipping cases

Reusing materials in the
tobacco business
PET bottles in beverage production

The JT Group sets waste
generation targets by adopting
and promoting the 3R
measures: Reduce, Reuse andRecycle.

26 | JT Group - CSR Report 2013 | The Environment

Reducing the use of raw materials
In its beverage business, the JT Groupprocures from its suppliers plastic PET bottles
as beverage containers which are produced
using a reduced amount of raw materials.
These PET bottles are still robust enough not
to be affected by heat deformation or theeffects of impact, while ensuring the qualityof the contents.

The business has adopted different bottle
sizes as part of its efforts to reduce theamount of plastic used. New 280ml and
500ml bottles have been introduced, resulting
in savings on plastic amounting to 530 tons
in FY2012.

In 2007, JTI initiated a shipping case reuse program
across its global supply chain, which reduced thepurchase of new cases by 460,000 in 2011. The
offset to JTI’s cigarette production waste in 2012is estimated at over 12%, with significant costsavings despite the additional logistics required tomatch supply with demand.
In Malawi, JTI reduced the amount of coal usedin its boilers by 23% by burning woody tobacco
stems, which also resulted in the reduction of
CO2 emissions. Additionally, tobacco waste that is
not burned is being put to good use, after testing
demonstrated it can improve soil. JTI continues
to investigate further opportunities for redefining
waste as a usable resource, including a current,
factory-wide assessment of all its waste materials.

Innovating to limit waste
Helping a local
farming community
Thai Foods International Co., Ltd. (TFI), a subsidiaryof TableMark, is part of the processed foodbusiness that produces yeast extracts and othernatural seasonings.
Yeast broth, a by-product of the manufacturing
process, is rich in essential organic and inorganic
substances. Identified as an aid to growing
agricultural products, the broth has been supplied
to local farmers as a fertilizer. Following the
installation of a concentration facility, concentrated
yeast broth can now be packaged and delivered toareas outside the immediate locale, so that evenmore farmers can benefit from this nutritious byproduct.
The recycling of yeast broth as an organic fertilizer
contributes to decreasing waste from TFI’s
production processes. It also reduces farmers’
reliance on chemical fertilizers thus reducing theCO2 emissions generated during the production ofchemical fertilizers.

The Recycle Plaza JB disposal facility

Working with thebeverage industry torecycle used beveragecontainers
Proper disposal and recycling of used drink
containers is an ongoing problem within thebeverage industry. The Japan Beverage (JB) groupis part of the JT Group’s beverage business,
responsible for operating beverage vending
machines throughout Japan. The Company
has taken a proactive measure to ensure theappropriate disposal and recycling of containers,

by establishing the JB Environment Network,
comprised of 18 major beverage companies inJapan.
In 2003, the JB Environment Network createdthe Recycle Plaza JB, a core disposal facility forrecycling used beverage containers. The facility
takes care of the intermediate disposal of cans,bottles and PET containers from Tokyo andsurrounding prefectures in Japan.
After separating the used containers, manually
and with the aid of machinery, aluminum and steel
cans are reprocessed by furnaces into high-purity
aluminum and steel pellets. The purity of theserecycled metals allows them to be sold to themetal industry and used as raw materials in the
manufacturing of aluminum and steel products.
Glass bottles are shipped to a glass processor,
and PET bottles are sent to appropriate recycling
companies.
In addition, JB has organized a broader Recycle
Network consisting of over 180 third party waste
disposal institutions and recycling companies
across Japan.
In 2012, the annual throughput at Recycle Plaza
JB was 8,869 tons, with a recycling rate of 87%.
The total amount of throughput since 2003 has
exceeded 71,500 tons.

The Environment | JT Group - CSR Report 2013 | 27

ISO 26000: Fair Operating Practices

Operatingresponsibly
The JT Group fosters
a fair and inclusive
culture, detailing
responsible behaviors
expected of its employees
and partners in Codesof Conduct.

28 | JT Group - CSR Report 2013 | Fair Operating Practices

Operating responsibly across the global value chain
The JT Group works with
its internal and externalbusiness partners andgovernmental authorities
to prevent corruption
and similar unethicalactivities, thereby helping
to contribute to a more
responsible global market
place.

The JT Group connects to a global market
place where ethics, fairness and transparency
in business are increasingly central to the way
companies are expected to operate.
Achieving and maintaining high standardsof ethical business conduct is something the
JT Group takes very seriously. Employees
across all Group entities must be aware ofand adhere to the relevant Code of Conduct
for their business. All commercial partners
must also recognize the values embodied inthese business standards and act accordingly
at all times. Failure to do so results in serious
consequences, including the termination of apartner’s commercial relationship with the JT
Group.

agencies and customs authorities. It also
works closely with retailers and consumers
to prevent the proliferation of illicit tobacco
products. To that end, the JT Group has
participated in global product awarenesscampaigns to inform retailers and consumers
about these issues. It also has a numberof robust compliance programs in place tomonitor its commercial partners.

Another important area that falls within thearea of Fair Operating Practices is the fightagainst illicit trade in the tobacco supply
chain. Here, the JT Group cooperates withgovernment actors such as law enforcement

Fair Operating Practices | JT Group - CSR Report 2013 | 29

Creating the highest standards of behavior
and must consider how they interact locally with
communities, and globally impact society.

30 | JT Group - CSR Report 2013 | Fair Operating Practices

To ensure that customers are fully aware of its
ethics and standards of behavior, JTI has put inplace the ‘Know Your Customer’ (KYC) program.
The Company also partners with Deloitte, who
independently monitors information on operations
provided by our customers.

2008*

2009

106

179

{

The second area concerns business ethics, whichis essentially what society expects from JTI. Today,
businesses are at the heart of societies’ concerns

As well as its own employees, JTI’s Code of
Conduct and Supplier Standards apply to business
partners, and compliance with the appropriate
publication is enshrined within JTI’s business
contracts. It is made clear that JTI only partners
with businesses that fully comply with its Code of
Conduct, making it a fundamental element of any
business relationship.

62

189

{

For JTI, translating this objective into reality
basically falls into two areas: the first is that
the Company is fully compliant with the JTI/
EU Cooperation Agreement signed in 2007. Thisis a far-reaching cooperation agreement thatcovers how JTI does business internally, and withexternal business partners. Additionally, outsideof Europe, the Company has similar agreements
and/or Memoranda of Understanding in effect.
These various commitments help to demonstrate
a fair and transparent approach to commercial
operations.

Employees act as volunteer ‘Contact Persons’ ineach of JTI’s offices and factories, performing
an essential service to the Company: listening
to employees and reporting any misconduct
to Corporate Compliance. The RCM process isentirely confidential, and reporting employees
are guaranteed confidentiality (if desired) andprotection from retaliation. Reports found to be‘in scope’ of the RCM are fully investigated. If
misconduct is subsequently proven, accused
employees can face disciplinary sanctions,
including the termination of their employment
contracts.

54{

The role of Compliance within the JT Group is
to ensure the highest standards of corporate
governance, which can only be achieved withstrong, visible actions.

Ultimately, how JTI acts and regulates itself
internally is the key to good governance. JTI’s
Reporting Concerns Mechanism (RCM) is just one
example of how, across the Company, employees
are committed to upholding the Code of Conduct.

Evolution in the number ofcases since 2008{

Bruno Duguay, JTI Chief Compliance Officer andAnti-Illicit Trade Vice President

In all of these areas, JTI has created standards,
which necessarily evolve over time, reflecting
a proactive nature and reactive capabilities.
For example, in 2010, the British Government
published the UK Bribery Act, which is arguably
the most stringent legislation on bribery that exists
in the world today. Nevertheless, JTI has requiredcompliance with the fundamental structures of the
UK Bribery Act across the entire Company on a
global scale, setting the bar high.

Reporting Concerns Mechanism(RCM) statistics{

JTI’s Code of Conduct addresses wide-ranging
issues covering around 30 different topics. These
include directives on health and safety, bribery,
child labor, anti-money laundering and the reportingof misconduct within the Company.

Independent verification is invaluable, and JTI’s
Code of Conduct itself is evaluated by Corpedia: aglobal leader in Governance, Risk and Compliance.
Corpedia benchmarks compliance programs byusing a database of over 1,500 Codes of Conduct.
It provides JTI with an opinion on the thoroughness
and effectiveness of its Code of Conduct incomparison to other organizations, providing
the Company with insights from an outsider’s
perspective.

2010

2011

2012

*As the Company has grown organically andthrough acquisitions, so has awareness of the RCM,
accounting for the rise in numbers since 2008.

Corrective actions taken by JTI
following incidences of misconduct• Policies and procedures reviewed• Control mechanisms revised or introduced• Communication and training provided• Employee disciplinary actions

Taking a zero tolerance
approach to corruptionby, in relation to anti-corruption. One specificsection covers Gifts, Hospitality and Entertainment(GHE). While GHE is a common global businesspractice, JTI employs a GHE software applicationthat employees use to record exchanges that fallwithin the GHE category.

Solveig Holy-Ruefenacht, JTI Corporate Compliance
Vice President

As the JT Group does business in over 120
countries, within each market place therelationships with external suppliers, customers
and partner organizations number in the thousandsfor each entity. As a result, the risk of corruption
is an inevitable reality. The Group operates a zerotolerance policy regarding all aspects of corruption
and has extremely strict and thorough guidelines inplace to communicate on this issue.
Solveig Holy-Ruefenacht, JTI Corporate Compliance
Vice President, provides an overview of the global
context in which JTI operates: “There is now inplace a global agenda for governments to address
corruption. We welcome such legislation, because
corruption prohibits sustainability and economic
growth. This new commitment to fight corruption
at state level supports our efforts.”
JTI’s Code of Conduct clearly sets out the measuresthat each employee should be aware of and abide

As Holy-Ruefenacht explains: “As a rule, employees
cannot receive a gift valued at USD 250 or above
without registering it in the GHE online application.
However, in certain countries, it is commercial
practice to offer expensive gifts. In these instances,
our policy is not designed to simply override
cultural norms, but instead it ensures that any suchgift exchanges are made properly, responsibly,
proportionally, and at all times in line with local
legislations. Consequently, when a gift cannot be
returned for cultural reasons, it is registered andmay be donated to charity.”

Combating illicit tradewith a digital solution
The illicit trade in tobacco products is a major
global concern for the JT Group and other
legitimate tobacco companies, as well as togovernmental authorities responsible for regulating
tobacco sales.
Illicit trade falls into three categories: Contraband- the unlawful movement of tobacco products
from one tax jurisdiction to another without thepayment of applicable taxes, or other breaches ofthe law; Counterfeit - the illegal manufacturingof a trademark without the owner’s consent, withapplicable taxes rarely, if ever, paid; and, Illicit
Whites – marketed on price and typically produced
legally, but intended for smuggling into countries
where there is no prior legal market for them.
To help combat illicit trade, JTI became a founding
member of the Digital Coding & Tracking
Association (DCTA). The DCTA’s mission is toencourage authorities to adopt a proven digitalsolution for tax verification, authentication, and‘Track & Trace’. Based in Switzerland, the DCTA
was founded by the four largest international
tobacco companies. It engages with governments
and international organizations to help set global
standards that address the illicit trade in tobacco
products.
Brendan LeMoult, JTI’s Anti-Illicit Trade Vice
President, states: “The DCTA’s global solution
is embodied in a group of technologicaldevelopments, collectively referred to as‘Codentify’. Codentify looks to replace commonlyused paper tax stamps, which are easy to

Carton code verification

counterfeit and have proven to be ineffective infighting illicit trade. Codentify generates a unique,human-readable, 12-digit alpha-numeric codethat is printed directly onto packaging during
the manufacturing process. Codentify has three
key functions which cover digital tax verification,
product authentication, and Track & Trace.”
LeMoult sums up how the DCTA initiative will
strengthen the resolve to fight criminal activity,
in relation to JTI’s products: “JTI takes a multidisciplined approach to fighting illicit trade. The
DCTA is another strong step in this process, and it
will help tobacco companies secure their products,
while ensuring that governments collect therevenue that is currently being lost to illicit trade.”

Fair Operating Practices | JT Group - CSR Report 2013 | 31

ISO 26000: Consumer Issues

Providingconsumer
information
The JT Group provides consumers
with detailed information about
its products, giving them theinformation necessary to makeconsidered purchase decisions.

32 | JT Group - CSR Report 2013 | Consumer Issues

Being transparent about our products
The JT Group develops
relationships with its
consumers, providing
information thatbuilds trust.

Consumers today are faced with great
choice. Making a purchasing decision is acomplex combination of factors, and the way
in which a company communicates regarding
its products is an integral part of enabling
consumers to make fully informed choices.

The JT Group informs and educatesconsumers in a transparent, responsible andproactive manner. This includes disclosing
ingredients on tobacco products, engaging
in dialogue, listening to customers’ needs
and responding openly to complaints andopinions.

The Group’s pharmaceutical businessdevelops, manufactures and markets
prescription drugs that are strictly regulated
and comply with the highest national andinternational standards. Additionally, internal
systems have also been established to ensure
safe, high-quality drugs.

To ensure the integrity of its beverages
and processed foods, the JT Group applies
rigorous quality processes. From the sourcing
of ingredients to the manufacture, packaging
and sale of food products, safety controls
and standards are observed at every stage.
On all products, ingredients are extensively
disclosed and traceability information
provided.

Consumer Issues | JT Group - CSR Report 2013 | 33

Answering the call with an exemplary complainthandling service
Consumer Service Contact
Enhanced levels ofcommunication andaccessibility, and theopening of the new callcenter in June 2010,
have generated anincrease in contacts
over the past coupleof years.

Sylvain Beauchamp
Consumer Response Manager

Marie Poirier
Consumer Response Associate

The JT Group has established consumer/
customer complaint handling policies thatdefine a standard business process andprovide guidelines for addressing productquality-related complaints.
In Canada, JTI-Macdonald created an exemplary process of consumer
communications, which is a Company ‘best practice’ in proactively
managing complaints. From its Montreal factory in Quebec, theConsumer Response Team, headed by Sylvain Beauchamp, serves
JTI consumers in Canada with a fast, friendly and efficient handling34 | JT Group - CSR Report 2013 | Consumer Issues

2009

2010

2011

2012

Complaint

1445

1745

2050

1995

Enquiry

774

1186

1627

1755

Feedback

222

541

1396

1481

Total Contacts

2441

3472

5073

5231

Suzanne Baron-Lafrenière
Consumer Response Associateof complaints. As Beauchamp explains: “We take consumer
complaints very seriously. We offer a quick, ‘hassle-free’ service that
demonstrates our commitment to satisfying our consumers, whether
they have a product issue or any other concern to report.”
JTI-Macdonald offers a 24-hour toll-free phone line, which is presented
on cigarette packages. The emphasis is a 24-hour a day, 7-day a week
personal response, offered in both English and French.
The first action following an initial conversation is for JTI to issue an
Age Verification Form (AVF), which the consumer returns along withthe defective product. A five-step sequence of letters then follows,
sent directly to each consumer, to ensure they are fully satisfied with
JTI’s response to the complaint.

As well as responding efficiently, the team also uses consumer
complaints to help address any production issues, as Beauchamp
explains: “We provide real-time response to our quality control
department in the factory, identifying problems that may be systemic
within the production process.”
The Consumer Response channel in Canada plans further optimizationof services by expanding into online complaints/comments
submissions. An enhanced online consumer response portal will belaunched in the summer of 2013, allowing the team to respond using
every available consumer communication channel.

Disclosing ingredients
information voluntarily

Ensuring only adults gain accessto tobacco products
Despite the fact that minors are legally prohibitedfrom smoking in many countries, underagesmoking remains a societal problem. It is best
addressed collectively with parents, educational
institutions, governments and the tobacco
industry, each playing a particular role. The JT
Group abides by laws and regulations and its
own international standards in relation to youth
smoking prevention. Additionally, it establishedprograms and operational policies that focus on
preventing youths from purchasing tobacco.

Ingredients website

The JT Group voluntarily provides
comprehensive information about the
ingredients in its tobacco products. Thistransparency is in response to consumers’
demands to know what ingredients are usedin the brands they smoke. On its websites,
detailed lists of ingredients can be found,
categorized by tobacco product type, brandand location, with full inventories of key
materials and ingredients, as well as quantity
levels within the product. The websites
include information on cigarette papers,
filtration materials, adhesives, inks andflavorings of cigarettes, Roll-Your-Own (RYO)and Make-Your-Own (MYO) products.

The ‘taspo’ ID card system
Since 2008, cigarette vending machines inJapan have been required to incorporate adultidentification functionality. The ‘taspo’ ID card
system is one such example, an initiative jointly
undertaken by the tobacco industry with JT
taking a major role, and the vending machineassociation. ID cards are issued following thesubmission of official documentation for approval,
which must contain the name, date of birth andcurrent address of the applicant. The aim is toprove that smokers who wish to use vending
machines are at least 20 years old. A photo is also
printed on the ID card to prevent improper use,such as lending the card to other people, notably
minors. As of March 31 2013, almost all of the299,455 tobacco vending machines in Japan were
equipped with the ‘taspo’ ID card reader. To date,over ten million ID cards have been issued.

Japanese cigarette vending
machine with the ‘taspo’ adultidentification function

Consumer Issues | JT Group - CSR Report 2013 | 35

Providing professional assistance within thepharmaceutical sector
The JT Group’s pharmaceutical business endeavors to create worldclass innovative drugs. In doing so, it ensures a high degree ofdiscipline, responsibility and ethical practice from those employees
who are engaged in dealing with the healthcare industry.
Torii Pharmaceutical Co., Ltd., a subsidiary of JT, manufacturesand distributes prescription drugs in Japan. To help the medical
profession prescribe drugs safely, the Company has appointed Medical
Representatives (MRs) to deliver information to health workers
concerning the quality, effectiveness and possible side-effects ofprescription drugs.
In addition, MRs collect information on drug performance, which isanalyzed, evaluated and conveyed back to the medical community.
This enhances the effectiveness of medications through a cycle ofcontinuous information-sharing. MRs help maintain the proper usage
and safety of the drugs that are manufactured and marketed.
Torii Pharmaceutical requires newly-appointed MR employees toundergo a six-month introductory training program, designed toprovide them with the basic medical and pharmacological knowledge,
information on relevant national drug legislation and regulations,
MR ethics, and detailed information pertaining to the Company’s
pharmaceutical products .
Follow-up training sessions are provided on an ongoing basis to further
develop their medical and pharmacological knowledge in accordancewith advancement in medical science and pharmacology, and changes
in relevant national drug legislation and regulations.

36 | JT Group - CSR Report 2013 | Consumer Issues

Prioritizing safety control in the beverage andprocessed food businesses
Food communication
The ISO 10002 complaint management
system creates a means for consumers
to dialogue with the beverage andprocessed food businesses, to express
issues regarding its products. Other
communication methods include
providing traceability information and thedisclosure of ingredients on its products.

Food quality control

The JT Group’s food businesses
manufacture products thatmeet the highest standards ofquality and safety.
To ensure that consumers enjoy its products
safely, the JT Group has implemented foodsafety measures and established independent
food safety management divisions withineach of its beverage and processed foodbusinesses, with four distinct approaches inplace:
Food safety
The JT Group reviews product-specificfood safety, and conducts inspections andaudits based on detailed risk information. It

ensures the correct operation of food safety
management systems, consistent withstandards such as ISO 22000.
Food defense
The Group promotes a Risk Management
Integrated Program that adheres to risk
management policies and procedures.
The program incorporates knowledge via
management systems, security in the formof appropriate hardware and standards
compliance with factory checks and audits.
Food quality
Quality management systems arecoordinated across the entire supply chain.
Consumer satisfaction, and consequently
product value, is enhanced by constantly
improving products based upon feedback
from consumers.

Promoting crossfunctional safetycontrols
The JT Group promotes cross-functional
food product safety controls. For
example, TableMark’s Tokyo Quality
Control Center analyzes raw materials
and finished goods for the beveragebusiness.
Additionally, the beverage andprocessed food businesses benefit fromassessments and advice from external
food safety experts, incorporating
opinions and knowledge into its foodsafety controls.

Communicating with
consumers
As part of its food communication initiatives,
the JT Group’s beverage and processed foodbusinesses provide information on products
and ingredients in accordance with relevantlaws and regulations and information that is
above and beyond what is required by law.
In addition to the information provided on
the JT Group websites, toll-free numbers areprovided on product labels to give consumers
the opportunity to request additional
information. The in-house team responds
directly to these inquiries. For example, on
the packaging of its frozen food products
and website, TableMark discloses the factory
where products are manufactured and theorigin of the main ingredients. The Company
also provides consumers with traceability
information on its website for some of its
packed cooked rice, which includes specificdata on where the rice was grown, the factoryof manufacture, production dates and details
relating to suppliers.

Consumer Issues | JT Group - CSR Report 2013 | 37‘Dreams never get old’ initiative,
2011 ‘Grand Rider’ participants

ISO 26000: Community Involvement & Development

Contributing
to communities
The JT Group nurtures its relationship with local
communities, providing a unique mix of programs
that contribute to their development.

38 | JT Group - CSR Report 2013 | Community Involvement & Development

Helping local people with compassionate aid programs
The JT Group helps to address social needs
in local communities, often in relation
to the elderly and those at an economic
disadvantage.
Activities aim to improve people’s lives,
alleviate suffering and complement theefforts of local systems providing services
to the underprivileged. This often includes
partnering with charities, non-governmentalorganizations (NGOs) and non-profit
organizations (NPOs).

96-year-old Mary taking part in a Leonard Cheshire
Disability performance with the London Philharmonic
Orchestra

Residents at a Leonard Cheshire Disability residential
home enjoying an art workshop with the Royal Academyof Arts

The JT Group’sbusinesses areintegral to thecommunities inwhich they operate:
primarily as an
employer, but also as
a partner that helps
to better the lives of
local people facing
social challenges.

Community Involvement & Development | JT Group - CSR Report 2013 | 39

Bringing sustenance to a city in need of help
In 2011, the Great East Japan Earthquake and resulting tsunami
caused extensive damage to Rikuzentakata located in the Iwate
prefecture of Tohoku. The JT Group, as part of its many efforts in
responding to this national disaster, created an initiative focused
specifically on the city and people of Rikuzentakata. The intention of
the project was to support reconstruction efforts over the long-term.

A Rikuzentakata grower planting seedlings of ‘Takata no yume’

Employees assisting the Rikuzentakata growers

The Group’s Plant Innovation Center (PIC) donated a previously
unreleased variety of rice, ‘Iwata 13’, including its ownership rights,
to Rikuzentakata. The city was given this to grow, brand and sell
as its own, with all future revenue going to the rice growers in thecity. Masakazu Kashihara, a researcher at PIC, helped develop thisparticular strain of rice. He commented: “Iwata13 has been cultivatedon a trial basis for four years in the Tohoku region and is a variety ofrice that is well suited for the climate of the Iwate district. The riceitself, when cooked, has a glossy appearance, with a sweet taste andsticky texture. It is also robust and resistant to lodging1 and to disease,which is an additional benefit.” As part of its contribution, PIC provided
assistance in helping the city grow the rice. It also helped on an
administrative level, with the application and preparation of documents
like the brand certificate of authenticity and materials relating tovarietal characteristics.
A competition was held to name the new brand of rice, which was
finally called ‘Takata no yume’, which means ‘Dream of Takata’. The
rice was nationally launched at the Agriculture Frontier 2012 exhibitionin December. In 2012, 600 kilos of ‘Takata no yume’ were harvested,with the city’s 11 rice growers planting 10 hectares in 2013. It is hopedthat this will continue to rise to tens of thousands of kilos in the coming
years.
Lodging: The collapse of top heavy plants, particularly grain crops.

1

40 | JT Group - CSR Report 2013 | Community Involvement & Development“Firstly, the rice itself isdelicious. I believe it will give us
the strength we all need to boost
the rebuilding of the city. We, thecitizens of Rikuzentakata, will
nurture this dream. I would liketo thank the JT Group for giving
us this great opportunity. Our
gratitude will be best shown when
we make a success of the brand.”Futoshi Toba, Mayor, City of Rikuzentakata

Restoring forests in Japan

Picking up on the issueof litter in Japanfor forest conservation. Areas where thecycle is halted vary from forest to forest, as
do the functions that forests play, regionally.
An improvement plan is developed according
to the characteristics of each individual
forest, with the focus on restoration andmaintenance. Ultimately, support programs
are designed to reflect residents’ needs andhopes for their forest.

JT employee engaged in conservation activities

JT Forest is an initiative that was firstestablished in 2005.
Today it includes a program of activities
in nine forests throughout Japan. This
involvement provides necessary support forforest developers, and engages with local
communities, authorities and experts.
This includes local forestry cooperatives thathave an extensive knowledge of the forests,
and the woods grown, providing invaluable
insights into local eco-systems.
Activities are designed to restore the forest
cycle and revitalize neglected forests. As well
as replanting trees, conservation measures
include forest thinning, pruning and mowing,
while constructing the strip roads essential

JT also supports local communities byactively promoting the timber from the forest
thinning activities. The timber had previously
been underutilized as an economic resource
and is now expected to contribute to thereinvigoration of these rural communities.
As part of its on-going program, JT Forest
holds Forestry Program Days on two
occasions each year. These events involve
working on the forest itself, in preservation
activities that bring together JT employees,
local residents, students and government
officials.
In addition to aiding conservation, the aim isto help build relationships between JT andthe local community, to educate employeeson environmental matters and to hand down
the responsibility for the local environment toyounger generations.

Hironori Sogawa, community event organizer“As the organizer of an event that
attracts thousands of people, I reallyappreciate the fact that the JT Groupsupports the event through tackling
the litter. Getting people to help clean
up and raise awareness of litter in thecity is a meaningful activity.”
Since 2004, the Company has run a
community clean-up campaign called‘Pick Up Litter and You Will Love Your
City’ in Japan. The overall objective
has been to raise awareness of the
problem of public littering, throughtrash collection activities. The initiative
is carried out in collaboration with local
governments, companies and volunteer
groups, as well as the organizers andparticipants of community events.
The ‘Pick Up Litter and You Will Love
Your City’ campaign has held over
1,400 events, bringing the number ofparticipating groups and organizations
to 2,950. As of March 2013, the total
number of participating individuals
has reached almost 1.4 million;
approximately 700 tons of litter has
been collected over the course of the
program.
The JT Group is committed tocontinuing its efforts to tackle theproblem of litter in communities and islooking to encourage more people tojoin and cooperate in this campaign inthe future.

Community Involvement & Development | JT Group - CSR Report 2013 | 41

Volunteering help in Spain
In recent times the economic conditions in
Spain have made it difficult for the more
vulnerable members of society to maintaina healthy, dignified life. With unemployment
levels up to 27% in Spain, the number ofpeople dependent on soup kitchens, often
run by charities and NGOs, has increased
dramatically.

The Madrid Banco de Alimentos Foundation
is a non-profit charity dedicated to improving
the quality of life of people with limited
resources facing poverty. Its mission is tocollect and distribute food among more than
400 officially registered NGOs in the Madrid
community.

In 2012, JTI Spain contributed to the work of
the Foundation, helping it build a new foodbank facility in the southern part of Madrid,creating a new point for the collection anddistribution of food. This new bank will
dramatically increase the number of soup
kitchens and service centers that receive fooddaily.

“JTI made possible a projectthat was ready on paper but
sitting in a drawer. The new
distribution center is now
a reality.”
Francisco Garcia,
Vice President, Banco de Alimentos Foundation

On May 5 2012, JTI employees participatedin ‘Operation Kilo’, an initiative run by
the Foundation. To accomplish this, 25
employees stood at the entrance to amajor supermarket in Madrid, engaging
with shoppers as they exited the store,
asking them to donate at least a kilo of theirgroceries to the Foundation. The results
were outstanding, with 5,400 kilos of foodcollected by employees on behalf of theorganization.
Two weeks later, another 10 employee
volunteers visited the Foundation to assist in
the process of sorting and storing the food, inorder to facilitate the distribution among thesoup kitchens and social service centers.

Employees participating in ‘Operation Kilo’

42 | JT
42 Group| JT Group
- CSR
- CSR
ReportReport20132013| Community Involvement & Development

Caring for the community
Aiding senior citizens in Madrid
Amigos de los Mayores is a social foundation
dedicated to improving the quality of life ofsenior citizens with limited resources, whoface a situation of isolation.
With the help of qualified volunteers, theFoundation aims to create social situations
that bring these lonely, elderly people
together for cultural and entertainment
excursions.

JTI Spain worked with Amigos de losMayores to organize a guided tour for seniorcitizens to the Prado Museum. Employee
volunteers visited the homes of the elderly tocollect and accompany them to the venue.
Following the tour, guests enjoyedrefreshments at the museum cafeteria andthen were returned to their homes.

Supporting the ‘Dreams never get old’ initiative
partner of the Hondao Senior Citizens Welfare
Foundation, whose mission is to help seniorcitizens make their dreams come true throughthe ‘Dreams never get old’ program. The aim
is to meet the physical and psychologicalneeds of the elderly by facilitating events thatare both fun and rewarding.

Aging populations are a global concern.
Taiwan is among the most rapidly aging
societies, with elderly people accounting for
10% of the population. JTI in Taiwan is a key

Building a future for the under-privileged and elderlyin Malaysia

In 2011 alone, more than 100 employees
from the Taiwan office helped the Foundation
fulfill 10 different dreams for 462 seniorcitizens over 75 years of age. Activities
included becoming a ‘soldier for a day,’creating a life journal, and participating as a‘Grand Rider’ in a convoy of motorcycles.

JTI Malaysia partners with a number oforganizations that assist those needing
economic aid and help senior citizens
maintain an overall quality of life.
The ‘Support To The Elderly’ program began
in 2008 as a long-term initiative. Actions todate include providing resources for elderly
people to refurbish their homes; employees in
Malaysia have volunteered their time toward
this endeavor.
Additionally, in the Tumpat and Pasir Putih
districts in the state of Kelantan, the local
office collaborated with a range of partners
to build new homes for the elderly. JTI
also helped rebuild a Community Center in

Cheras, Kuala Lumpur, in partnership with theTaman Cuepacs Residents Association. The
Center has been operational since June 2011
and is now an important place for residents
to meet and interact with their peers.

“Most of us have been in the elderly
home for more than 20 years. Our
old wooden house used to be flooded
every time the monsoon season started.
Now, with support, we have a newhome equipped with proper furniture,electricity and a clean water supply.”
Residents of Rumah Sejahtera Kampung Jalan
Besar, Tumpat, Kelantan

JT GroupGroup -- CSR
CSR Report
Report 20132013 || 4343Community Involvement & Development | Japan Tobacco

ISO 26000: Organizational Governance

Governingwith integrity
The JT Group
promotestransparency andaccountability,
creating a solid
framework fordoing business ona global scale.

44 | JT Group - CSR Report 2013 | Organizational GovernanceSupporting businesses with transparent
and sound governance
The JT Group structures its corporate
governance to enable prompt, high quality
decision-making and proper businessconduct. Enshrined within this structure areclearly defined roles and responsibilities thatallow the Group to respond to changing
business environments and manage activities
effectively and efficiently. Additionally,
this structure is complemented throughcompliance, internal audits and risk
management strategies.
All employees are expected to represent
their organization in a socially responsible
and ethical manner. They must adhere to

the principles and processes set out by
the JT Group, in relation to organizational
governance. These clearly detail stringent
personal and professional standards, based
upon the Group’s values and operating
philosophies.
Open channels of communication are
maintained among the JT Group’s boards,
management teams, employees and otherinterested parties. Transparent and regular
reporting, governed by regulatory and internal
control mechanisms, achieves stability; whichhelps drive the business forward on all fronts.

Solid governance supports the JT Group’sbusiness operations, internally and with theexternal world.

Organizational Governance | JT Group - CSR Report 2013 | 45

Ensuring effective decision-making and accountability
The JT Group comprises different commercial
entities, operational in over 120 countries.
Every company within the Group applies
rigorous and transparent policies to enableeffective corporate and organizational
governance.

Delivering efficientbusiness execution
In Japan, JT employs a corporate governancesystem that facilitates proper and efficient decisionmaking, while adhering to relevant laws andregulations, including the Companies Act of Japanand the Japan Tobacco Inc. Act.
The corporate governance system is a top-down
structure, beginning with the General Meeting of
Shareholders where decisions are taken relating
to legal requirements and items embodied in
the Articles of Incorporation. Decisions thencascade down to the Board of Directors, whichis responsible for Group-wide management
strategies, as well as overseeing the execution of all
business activities.

46 | JT Group - CSR Report 2013 | Organizational GovernanceIn addition, the Audit & Supervisory Board ensures
accountability and transparency in the conductof proper business and accounting audits.
The Compliance Committee further enhances
corporate governance by deliberating and acting
on important Group-wide compliance matters. The
Advisory Committee includes external experts andoutside directors, who bring an invaluable external
perspective, advising on the Group’s mid- to longterm direction. The Compensation Advisory Panelconsists of outside directors, outside auditors andthe Chairman; and reviews the policy and the rules
relating to compensation for board members andexecutive officers.
The Executive Committee consults on importantmanagement issues on behalf of the Company’s
President. This includes reviewing management
policies and plans in relation to overall business
operations.

JT’s Executive Officer system manages Group-widebusiness activities. Executive Officers, who areappointed by the Board of Directors, are assigned
duties in their respective areas of responsibility
which cover business execution, relationshipmanagement and signing business contracts.

Abiding by the JT Group’s
Codes of Conduct
Appropriate behavior, and an awareness of whatis expected of each employee are essential. To thisend, companies within the JT Group each havea Code of Conduct in place. These publications
clearly set ethical standards by which all employees
must abide. Reporting mechanisms are in placeso employees can report suspected misconduct
or violations of the Code of Conduct, or otheroperational guidelines.

The Group’s Compliance Officers are tasked withinvestigating reported violations and are provided
as dedicated contacts for employees at each
entity. Concerns can be reported quickly and infull confidence, ensuring the privacy of employees
who raise concerns. Detailed cases are reported
to Compliance Committees and/or the Board of
Directors. Raising awareness and communicatingby these mechanisms has resulted in an increasein early-stage reporting, enabling Compliancestaff to take prompt and appropriate actions.
Following an investigation into a reported breach of
conduct, appropriate measures are implemented
if necessary to prevent the recurrence of verified
misconduct, following consultation with therelevant departments and divisions.

Enhancing organizational governance with internal
control systems
The JT Group has established a wide range of internal control
systems that underpin its ethical and legal approach to business
operations. Systems relate to compliance, internal audits andrisk management, and are continually reviewed and revised toensure the highest standards of self-regulating organizational
governance.
issues and make suggestions to improve
procedures that might strengthen compliant
behavior.
JT’s Compliance Office has also created a set of
educational tools for employees, to encouragehigh standards of behavior in business operations.
Materials are available on and offline.

Compliance news bulletin ‘Kawara-ban’Raising awareness ofcompliance in Japan
In every JT workplace, compliance meetings are
regularly held for employees to conduct a ‘selfcheck’ in relation to their roles and activities. During
the meetings, employees discuss complianceOver the past three years, JT’s Compliance Officehas issued a quarterly compliance news bulletin.
This includes summaries of cases relating to theCode of Conduct, such as misuse of company
property, or inappropriate disclosure of company
information via social media platforms.
Available on the intranet, it is often printed anddisplayed on bulletin boards in offices and factories
in Japan.

Defining the proper
direction and control of allinternational entities
JTI is made up of hundreds of legal entities inoperation globally. Through the publication of a setof guidelines and policies, the Company brings a
unified approach to all entities, enabling them toabide by the laws and regulations of their placeof incorporation, while operating within JTI’s own
organizational norms.
The Corporate Governance Management System(CGMS) is the JTI policy, which defines theinformation that must be reported by the CGMS
Coordinators, who are also tasked with uploading
information into a database, so that up-to-date
information pertaining to any JTI entity is constantly
available.
The ‘On Board’ publication acts as a guideline,
setting out the JTI standard model for thecomposition of a Board of Directors of a JTI
entity, as well as the roles and responsibilitiesof the Directors. It explains what is required inappointing a Board Secretary, along with theirduties, and details ‘how, when and where’ Board
meetings should be conducted. Finally templates
are provided, illustrating business reports, Board
meeting agendas and how to record the minutes ofa Board meeting.

François Dugast, JTI Corporate Secretary

François Dugast, JTI Corporate Secretary,
underlines why the policy and the guidelines are
essential to the smooth running of the business,
including safeguarding the actions of those inpositions of responsibility: “Directors of JTI entities
are given the privilege of making decisions onbehalf of the Company. However, the position
comes with considerable legal obligations andresponsibility. JTI Directors who act in accordancewith domestic legislation are offered theappropriate level of protection with respect to theirpotential liability by JTI, insofar as such cover islegally permitted locally. Having our own policy andguidelines, driven from headquarters, assures usthat our entities are aligned within a framework thatgives employees adequate levels of security, while
delivering effective global corporate governance.”

Organizational Governance | JT Group - CSR Report 2013 | 47

Group Profile Facts and Figures
The JT Group is a globalorganization, with a rich heritage
built through organic growth andsuccessful acquisitions. Integrating
varied companies, with theirindividual histories, shaped andtransformed us into one of the mostculturally-diversified, fast-moving
global businesses, stretching over
120 countries.

TobaccoFood
Pharmaceutical

Key Dates

1985

1988

1993

1994

1998

1999

Japan Tobacco Inc.
is establishedJT’s history dates back to
1898, when the Japanese
government formed amonopoly bureau to operate
the exclusive sale of domestic
tobacco leaf.

Start of the Beverage Business.

Central Pharmaceutical
Research Institute isestablished.

JT stock is listed on stock
exchanges in Japan.

Acquisition of
Unimat Corporation (nowJapan Beverage Holdings Inc.),a beverage vendor.

Acquisition of theinternational operations of
R.J. Reynolds and JTI is
founded.

48 | JT Group - CSR Report 2013

Acquisition of
Torii Pharmaceutical Co., Ltd.,a pharmaceutical company.

Business Performance

Revenue Breakdown by Business Segment

JT Group adopted International Financial Reporting Standards(IFRS) effective FY2011 ending March 31, 2012.

Unit: JPY billion

FY endedMar. 2012

Japanese domestic tobacco

FY endedMar. 2013

International tobacco**

2,033.8

2,120.2

Pharmaceutical

Operating Profit

459.2

532.4

Beverage

Adjusted EBITDA

577.1

622.1

Processed foods

Revenue

0.7%

8.0%
2.5%

8.7%
32.4%

Others**Year ended Dec. 2012

Number of Employees
As of end of
Mar. 2013
Japanese domestic tobacco

11,043

International tobacco*

24,397

Pharmaceutical

1,744

Beverage

4,912

Processed foods

6,563

Others / Corporate

848

47.7%

Total Number of Employees

49,507*As of December 2012

2007

2008

2009

2011

2012

2013

Gallaher Group Plc., a UK
based tobacco manufacturer,
formerly the fifth largest global
tobacco company in theworld, was acquired, doubling
our combined employee
population. At the time,
this was the largest foreignacquisition by a Japanesecompany.

Acquisition of
Katokichi Co., Ltd.
(now TableMark Co., Ltd.),
a processed food company.

Investment in the supply chain
and acquisition of tobacco leaf
operations in Africa, Brazil andthe U.S.

Acquisition of Haggar
Cigarette & Tobacco FactoryLtd. in Sudan.

Acquisition of Gryson NV, aleading Roll-Your-Own/MakeYour-Own European tobaccocompany.

Acquisition of Al Nakhla,
an Egypt based waterpipe
tobacco manufacturer.

JT Group - CSR Report 2013 | 49

ISO 26000
Guidelines for creating a Social Responsibility framework
ISO 26000 was published in 2010 by the International Organizationfor Standardization. It offers guidance on Social Responsibility (SR)
activities and outcomes only, beyond legal requirements, and does not
set out requirements for certification.
ISO 26000 assists organizations in focusing on sustainable
development, with the core notion that businesses are wholly
connected to the communities, locally and globally, where they
operate. It addresses the concerns of multiple stakeholders, andpromotes a holistic approach to business, which incorporates widely
recognized societal values.
The guidelines highlight seven key principles on SR. These are:Accountability; Transparency; Ethical behaviour; Respect for
stakeholder interests; Respect for the rule of law, Respect forinternational norms; and Respect for human rights. Additionally, there
are seven core subjects, which define distinct areas of activity.

50 | JT Group - CSR Report 2013

Human Rights

Labor practices

The Environment

ISO 26000 takes acomprehensive view to Human
Rights, with organizations
expected to respect anindividual’s civil, economic,
political, social and culturalrights, with a particular focus
with regard to vulnerable
groups.

ISO 26000 states thatorganizations have a duty
to provide safe and healthy
working conditions andto engage in dialogue
with workers, and theirrepresentatives, in order to fully
address employees’ rights andconcerns.

Within the framework of ISO
26000, being responsible
towards the environment means
fully considering the impact ofbusiness activities on the natural
world and taking steps to remedy
and reduce this impact.

Consumer Issues

Community
Involvement& Development

Organizational
GovernanceISO 26000 outlines
organizations’ responsibilities
towards consumers, providing
safe and healthy products,
accurate information about
products’ manufacture and raw
materials, and to help promote
the notion of sustainableconsumption.

ISO 26000 promotes
organizations’ involvement withlocal communities in order tocreate better social and culturalenvironments, whereby society
in general benefits from the actof companies behaving as a‘good neighbors’.

ISO 26000 calls for transparent
and accountable business
operations, whereby company
leaders are expected to nurturea culture of decision-making
that incorporates the wider
principles of SR within an
organization.

Fair Operating
Practices
ISO 26000 defines Fair
Operating Practices as dealing
with commercial stakeholders,
including customers, suppliers
and other partners, within
the law, in a fair and fully
accountable manner.

Japan Tobacco Inc.
2-1, Toranomon 2-chome
Minato-ku
Tokyo, Japan
www.jt.com

JT International SA
1, rue de la Gabelle
CH-1211 Geneva 26
Switzerland
www.jti.com

For more information please email jtgcsr@jt.com© Japan Tobacco Inc. and JT International SA