Tobacco
Our core business is tobacco, which generates nearly 90% of our consolidated revenue. Ourconventional tobacco products are manufactured in over 30 factories around the world and are
distributed in more than 130 countries. In addition to conventional tobacco, we have a Reduced-Risk
Product (Reduced-Risk Products are products with the potential to reduce the risks associated withsmoking.) portfolio which includes e-cigarettes and tobacco vapor products.
We recognize that cigarettes are a legal but controversial product. People smoke for pleasure but there
are real risks that come with that pleasure. That’s why we are as clear and transparent about our
positions on smoking and health as possible, and we have policies that de ne our attitude to smoking
and responsible marketing.

Our tobacco principles

Smoking and health

For more details on our approach to responsible marketing, please refer to ourGlobal Tobacco Marketing Principles.
In the following four strategic focus areas, we cover our approach to sustainability across our tobacco
business.

Our tobacco business value chain

The four strategic focus areas of our sustainability
strategy

Products and services (RRP)

Supply chain

Optimizing the regulatory environment

Investing in people

Tackling the illegal trade

Copyright© Japan Tobacco Inc. All rights reserved.

Reduced-Risk Products (RRP)
Exceeding expectations with products and services

Aspirational goal
We will be a total tobacco company, offering consumers an even greater choice of products byfocusing on quality, innovation, and reduced-risk potential.

TargetWe will lead in providing the widest range of consumer choice in the Reduced-Risk Productcategory.

Progress
At the end of 2019, our Reduced-Risk Product portfolio was present in 28 countries, with achoice of three tobacco vapor offerings (T-Vapor) and ve types of e-cigarettes (E-Vapor).
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy

Our approach.

As alternatives to traditional combustible products, e-cigarettes (E-Vapor) and tobacco vapor products(T-Vapor) are gaining popularity with consumers around the world. Our industry is changing, but ourcommitment to consumer choice remains.
We are always listening and reacting to the changing tastes of adult smokers and vapers around theworld. We develop, test, and bring to market new and innovative forms of Reduced-Risk Products(Products with the potential to reduce the risks associated with smoking.) and offer real bene ts to
consumers, society, and our business.
While we believe that vaping products have reduced-risk potential compared to smoking cigarettes,
they should only be used by adult consumers who are informed of the associated risks, including
nicotine addiction.
Between 2018 and 2020, we are investing 100 billion Yen in Reduced-Risk Products, to further develop
our supply chain and expand our research and development capabilities.

Putting consumers rst
For products to have the potential to reduce the risks associated with smoking, consumers must rst
understand and appreciate their value. We therefore take a consumer-centric approach towards
research and development, and focus on four major factors that motivate consumers to consider
Reduced-Risk Products:■

The potential for a product to reduce the risks associated with smoking■

Affordability and value for money■

Social considerations – seeking products with low smell, so as not to disturb others■

The convenience of being able to use a product in a wide variety of locations and situations

This approach to our Reduced-Risk Product research and development re ects the Harm Reduction
Equation shown below, and helps us to concentrate on exceeding the expectations of all of our key
stakeholders: consumers, shareholders, employees, and the wider society.
The success of any harm reduction intervention is dependent on two factors: its potential to reduce therisks associated with a particular activity and the number of people who adopt the intervention. Theirpotential value is lost when consumers do not accept these alternative propositions.

Empowering consumer choice
We support consumers to make informed choices, by providing information acquired through thescienti c assessment of the products they may wish to use.
At the end of 2019, our Reduced-Risk Product portfolio was present in 28 countries, with a choice of
three tobacco vapor offerings (T-Vapor) and ve types of e-cigarettes (E-Vapor).

What is T-Vapor?

What is E-Vapor?

T-Vapor products contain tobacco that is

Also known as electronic cigarettes, E-Vapor

heated (but not burnt) to create an inhalable

products heat a liquid that usually contains

vapor. Consumers particularly enjoy the wider

nicotine, but no tobacco. They create ansocial freedoms that these bring, compared toinhalable vapor by electrically heating a liquid

conventional products. Our T-Vapor category(known as ‘e-liquid’) contained within thecurrently consists of Heated Tobacco anddevice or a replaceable cartridge. Consumers

Tobacco-Infused Vapor products:

are particularly drawn to the wide range ofdifferent devices and avors available. These›› Heated Tobacco delivers the satisfaction of a

products offer optimum levels of social

tobacco experience

consideration, convenience, and affordability.

›› Tobacco-Infused Vapor addresses theconsumer needs of social consideration andconvenience, while continuing to deliver a true
tobacco taste experience

Our product portfolio(As of December 2019)

Where are our Reduced-Risk Products available?
(As of December 2019)

Reduced-Risk Products Supply chain(As of December 2019)

We have established a dedicated supply chain for our Reduced-Risk Products, building strong supplierpartnerships that support business expansion and meet the demands of our increasingly sophisticatedportfolio. In addition to our in-house production capabilities, we source from manufacturers acrossAsia and Europe.
In 2018, we opened an e-liquids (E-Vapor) production facility on the premises of our manufacturing sitein Gostkow, Poland. We then further boosted our in-house production in 2019, with the bringing into
service of a new Ploom products (T-Vapor) plant in the same location. These new facilities will enableus to keep up with the demand for e-liquids containing nicotine, tobacco capsules, and tobacco sticks
in expanding markets across the world.

JT SCIENCE: AN ONLINE RESOURCE FOR ALL
There are currently no globally agreed standards for assessing the risk-reduction of the alternatives tocombustible tobacco products. Our team of scientists is developing methods and applying them in
research contributing to the increasing scienti c evidence on Reduced-Risk Products. We will continue
with these studies and share progress updates on our science website, JT Science.

JT Science is a valuable online resource for both scientists and non-scientists. Our mission is to inform,
educate, and collaborate with anyone who is interested in learning about the science behind theproducts – from consumers to scientists to the regulatory community.
The aim of JT Science is to provide an open, balanced, and fair platform, where we can share factual
scienti c data and assessments in a transparent way. The results of our scienti c studies
evaluating our Reduced-Risk Products are publicly available.

Responsible recycling and disposal schemes for
Reduced-Risk Products
Read about the Environment and our products.

Our view on Reduced-Risk Product regulation
Read about our perspective on Reduced-Risk Product regulation.

Notes: This section is intended only to explain the business operations of the JT Group, not to promote salesof tobacco or vaping products or encourage smoking or vaping among consumers.

Related links
TobaccoReduced-Risk
Products (RRP)

Supply chain

Optimizing theregulatoryenvironment

Investing inpeopleOur tobacco
principles

Smoking andhealthTackling illegal
tradeCopyright© Japan Tobacco Inc. All rights reserved.

Supply chain
Building sustainable supply chains
Maintaining a well-managed supply chain is essential for our business sustainability. We work closelywith all of the stakeholders involved to reduce negative social and environmental impacts.
Our factories produce ready-made cigarettes, other tobacco products, and some of our Reduced-Risk
Products. We purchase approximately half of our tobacco leaf from directly contracted growers, andthe other half from tobacco leaf merchants.
To ensure the highest levels of sustainability and integrity across the supply chain, all of our suppliers
are required to comply with our supply chain policies and standards.

Aspirational goal
We will reduce environmental and social risks, and enable transparent and responsible
practices across our supply chain.

Targets and Progress
AGRICULTURAL LABOR PRACTICES
TargetWe will implement our Agricultural Labor Practices (ALP) program in all sourcing countries by2025.

Progress
In 2019, 81% of our supplying entities reported against ALP. [58%*1 of our directly contracted
growers and 98% of our leaf merchants were covered by ALP; leaf merchants data come from
reporting entities only and excluding India and China.] 74% of our volumes were covered by ALP.

SUPPLIER SCREENING
TargetWe will screen all key suppliers against environmental, social, and governance criteria by 2023.

Progress
At the end of 2019, 67% of our key suppliers were screened against ESG criteria.*2

GREENHOUSE GAS EMISSIONS
TargetWe will reduce greenhouse gas emissions from our own operations by 35% and from our directleaf supply chain by 40%, between 2015 and 2030.

Progress
Since 2015, we have reduced greenhouse gas emissions from our own operations by 17.4%.
Greenhouse gas emissions from our direct leaf supply chain increased by 17.9%.*3

WATER AND WASTE
TargetWe will reduce water withdrawal by 15% and waste by 20%, in relation to our own operations,
between 2015 and 2030.

Progress
Since 2015, we have reduced water withdrawal by 9.7% and waste by 6.3%, in relations to ourown operations.*3

FORESTRY
TargetWe will replace all wood from natural forests used in the tobacco curing process of our directly
contracted growers with renewable fuel sources by 2030.

Progress
Based on our 2019 sustainable tree planting activities in Tanzania, Zambia and Brazil, we
estimate that we are on a path to achieve 59% renewable wood sourcing by 2026.

Read more about our latest progress on the JT Group's
tobacco business sustainability strategy.

*1 The decrease from 96% in 2018 to 58% in 2019 is due to new acquisitions.
*2 Results for our international tobacco business.
*3 The main reason for the increase in GHG emissions from our direct leaf supply chain is theincreased volume sourced from Zambia and Tanzania, both of which use wood for curing thatcurrently is predominantly non-renewable. We expect that the impact of initiatives to reduce
leaf-related emissions will be seen from 2022 onwards, with curing barn upgrades and theincrease in proportion of renewable wood used for curing in Zambia and Tanzania.

Leaf supply chain - Raw material sourcing

Non-tobacco materials, other products, and services

Reducing our environmental impact in the tobacco value
chain
Read more about our targets on 'Greenhouse gas emissions', 'Water and Waste', and 'Forestry'.
Read more about our programs and initiatives in our international tobacco business.

Related links
TobaccoReduced-Risk
Products (RRP)

Supply chain

Optimizing theregulatoryenvironment

Investing inpeopleOur tobacco
principles

Smoking andhealthTackling illegal
trade

Copyright© Japan Tobacco Inc. All rights reserved.

Leaf supply chain - Raw material
sourcing
Tobacco leaf sourcing
Tobacco leaf sourcing is a key part of our supply chain, and a critical component of future businessgrowth. We have been working closely with our directly contracted tobacco leaf growers and merchants
to build security of supply and enhance leaf provenance. This gives us greater exibility when
responding to changing market requirements.
In 2019, we contracted 86,757 tobacco leaf growers directly in Bangladesh, Brazil, Ethiopia, Japan,
Malawi, Serbia, Tanzania, Turkey, the U.S., and Zambia. Contracting leaf growers directly allows us tomonitor cultivation and labor practices more effectively.

How do we work with leaf merchants?
Every year, we buy around 50% of our leaf from leaf merchants. The sourcing countries vary from year
to year, depending on the quality and volumes required. In most cases, our leaf merchants source thetobacco leaf directly from the grower. This means that there is a direct contract between the leaf
merchants and the growers, and that the grower receives advice on crop management and good labor
practices from the leaf merchant.
In some countries, leaf can be sourced in a different way, for example at auction. This can make itchallenging to determine the provenance of the leaf and implement Agriculture Labor Practices. In
these cases, we work with the leaf merchants and other stakeholders (e.g. the Indian Tobacco Board inIndia) to nd a way to implement a robust and relevant supply chain due diligence process. Although
we source leaf from more than 30 countries, the vast majority still comes from eight key global
suppliers. We work closely with these suppliers to ensure good practices.

Sustainable agriculture
As well as securing the long-term supply of quality tobacco leaf for our business, we want to createshared value for both our growers and our business. We do this by providing services that increase

grower productivity, while at the same time always trying to improve our social and environmental
impact. This results in higher yields and better quality, which in turn drives greater pro tability.
Grower return is based on more than price alone. By enabling growers to become more productive ande cient in the way they grow, harvest, and cure tobacco leaf, we ultimately help them to use resources
wisely and responsibly, and increase pro ts. For example, we help to cut costs by up to 20% by using
fertilizers and agrochemicals more e ciently.
All of our leaf suppliers are expected to follow Good Agricultural Practices (GAP) as set out by the
Cooperation Centre for Scienti c Research Relative to Tobacco(CORESTA). The concept of GAP isto produce a quality crop while protecting, sustaining, or enhancing the environment with regard to soil,
water, air, animal, and plant life.
In addition to GAP, the majority of our directly contracted growers are also required to comply with our
Minimum Agronomic Standards (MAS). These growers are contracted to grow tobacco under our
stewardship. In return, they receive credit for prescribed crop inputs as well as dedicated extension
service provision from one of our Leaf Production Technicians. This support includes advice andrecommendations throughout the entire crop cycle.
Contracted large-scale commercial growers – notably in the U.S. – don’t require dedicated extensive
service provision from us. This is why not all of our directly contracted growers are required to comply
with MAS.
These farming practices are not limited to tobacco. We encourage growers to use seasonal crop
rotation i.e. growing other crops such as groundnuts or maize on the same land in alternate seasons.
The bene ts of this are extra income, improved food security, and soil conservation.
We are always looking to improve our understanding of tobacco farming. Our investment in researchand development involves partnering with leading international academic institutions to develop
innovative new ways of producing tobacco.

Agricultural Labor Practices and Leaf Supply Chain Due
Diligence
Our Agricultural Labor Practices (ALP) are based on the International Labour Organization’s
conventions and recommendations. The program consists of three pillars: tackling child labor, respect
for the rights of workers, and ensuring workplace health and safety.

As part of our continuous improvement approach, the ALP program allows us and our suppliers to
identify potential labor challenges on tobacco farms and help improve labor practices on the tobacco
farm. Being an integral part of the supply chain due diligence process, it also contributes to the social
aspects of grower communities and supports sustainable agriculture overall. Whether we source
tobacco directly from growers or through tobacco leaf merchants, our contracted suppliers arecommitted to implementing our ALP.
Our leaf supply chain due diligence process is based on a ve-step framework - Identify, Prioritize,
Respond, Measure, and Report, while our ALP’s role is to help us to identify issues on tobacco farms ona daily basis. This process follows the Guidance on Responsible Agricultural Supply Chains provided by
the Organization for Economic Co-operation and Development (OECD) and the Food and Agriculture
Organization (FAO), as well as recommendations by the International Labor Organization. It also follows
the UN Guiding Principles for Business and Human Rights.

To run our leaf supply
chain due diligenceprocess perfectly will
require a mindset shift
and changes in the way
we work, but we aremaking steady progress.
In 2019, we continued
training our own teams
and suppliers, speaking tovarious internationalorganizations, andcollaborating with othercompanies on industrywide programs.

Vuk Pribic,
Director, Leaf Supply Chain Due
Diligence,
JT International

ALP forms part of Leaf Production Technicians’ farm visits. The
technicians visit every single farm several times per year,
according to clear visitation plans with assigned farms. For
example, during the last crop season, our Leaf Production
Technicians made more than 350,000 visits to our directly
contracted growers.

During these visits, the Leaf Production Technicians provide technical advice on crop management anddiscuss good labor practices. In cases where they identify labor-related issues, they report theirobservations in the system. Depending on the nature of the issue, the Leaf Production Technicians may
also provide recommendations to the grower.

These observations are then analyzed and prioritized by the local country management. This enables
us to select the right improvement measures to address root causes, and respond to the adverse
impacts in the right way. We track the effectiveness of our response using KPIs, internal evaluation,assessments, and on-site investigations. We also consult relevant stakeholders, such as government
authorities, civil society, members of affected communities, workers’ organizations and workers.
Our main objective at present is to align all of our processes with the ve-step framework: Identify,
Prioritize, Respond, Measure, and Report. To ensure a streamlined and consistent approach, we aim tond synergies between our supply chain due diligence and the ALP program with the Sustainable
Tobacco Program (STP).
We are facing a number of complex challenges. These include issues that are di cult for Leaf
Production Technicians to observe, such as how to identify discrimination in smallholder farming, or
how to optimize our process for dealing with extreme breaches and ensure that both potential victims
and rapporteurs are protected.
Extreme breaches include the worst violations of workers’ rights, such as slavery, forced labor, humantra cking, violence, or severe physical, mental, or sexual abuse. These can be di cult for a Leaf
Technician to identify and address – especially if the issue is associated with criminal activity.
Responding to extreme breaches therefore requires care and, in many cases, support from the police
and/or other authorities or non-governmental organizations.
It is essential for us to have a management process setting out how to respond to an extreme breach,to ensure that action is taken promptly and appropriately when indicators are observed. We expect
each supplier to have a management process incorporating three elements: protection for the victim
and observer, a clear escalation route, timeline, and remediation plan, as well as access to specialist
support.
Read more on ALP in our booklet

Target
AGRICULTURAL LABOR PRACTICES
We will implement our Agricultural Labor Practices (ALP) program in all sourcing countries by2025.

Progress

Towards the 2025 ALP target

100% of our supplying entities to report on ALP

2019 Progress

81% of our supplying entities reported against
ALP

58% of our directly contracted growers and100% of our growers to be covered by ALP

98% of our leaf merchants were covered by
ALP

100% of tobacco leaf volumes to be covered by
ALP

74% of our volumes were covered by ALP

For more details, please see below.

Historical data
We previously made a commitment to implement ALP in all sourcing countries by 2019. In 2018, wewere very close to achieving this commitment, as we had observed 96% of our directly contracted
growers against ALP, and 96% of our tobacco leaf merchants reported against ALP. See our three-year
progress between 2016 and 2018, below.

Due to our constant growth we have broadened our ALP target to include all of our acquisitions up until
the end of 2018, with a new target date of 2025. Find out more about how we plan to achieve thistarget, below.

100% of our supplying entities to report on ALP
Progress so far: Of all the entities that provided us with tobacco leaf, either directly or through leaf
merchants, 81% reported against ALP in 2019.

100% of our growers to be covered by ALP
Progress so far: In 2019, 58% of our directly contracted growers and 98% of the growers supplying
through our leaf merchants were covered by ALP. The decrease from 96% in 2018 to 58% in 2019 is due
to new acquisitions. Before acquiring Bangladesh, for instance, we had around 40,000 directly
contracted growers. Bangladesh alone brought 29,000 more growers. Reaching this target is one of ourmajor challenges.

100% of tobacco leaf volumes to be covered by
ALP

Progress so far: In 2019, 74% of our volumes were covered by ALP.
We have made several new acquisitions in recent years, including in Ethiopia, Bangladesh, Indonesia,
and the Philippines. We will approach these on a case-by-case basis, as we need to understand the
local market, culture, and challenges before putting in place the necessary programs.
In Bangladesh, our rst challenge is to reach the large number of growers. In Ethiopia, we will introduce
our ALP program in 2020 for the rst time, following the completion of our Supply Chain Impact
Assessment in 2019 as a part of our supply chain due diligence process.
In Indonesia, our leaf merchants have been reporting on ALP for several years. Since the newacquisition, our leaf supply chain has changed signi cantly, and we will carry out an impact
assessment in 2020 to better understand how to implement supply chain due diligence and ALP. In thePhilippines, on the other hand, our suppliers already implement ALP and submit reports regularly.

Implementation of Agricultural Labor Practices in Japan
We have a long-standing relationship with growers in Japan. Following a 2017 pilot study, theAgricultural Labor Practices program was fully implemented in 2018. As a result, we carried out farm
visits and questionnaires to address labor issues on tobacco farms. Throughout 2019, our JT Leaf
Production Technicians continued to meet growers to provide feedback and offer advice. We also
customized our surveys for different production regions. Based on our ndings and observations, wewill continue to make improvements.

Our farm practices in Japan

JT Farm

Enhanced curing and baling

In order to share effective tobacco cultivation

We are implementing a new curing process forpractices with growers, we established the JT

burley tobacco at present, which can reduce

Farm in Japan in 2018. The farm functions as aworking hours by 15%. This method also helps

development center, where we try out new

to prevent the contamination of non-tobacco

techniques, methods and crop varieties before

related materials during green leaf baling. By

introducing them to growers.

the end of 2019, 5% of burley tobacco growers
had adopted this new process. We will

Progress continued in 2019, with a trial of newcontinue to scale up this practice in 2020 andcrop varieties and the development of a self-

beyond.

driven vehicle in partnership with anothercompany. The aim of the trial is to deliver leaf
samples to R&D for product development. The
vehicle would support growers’ practices on
the farm such as, for instance, Crop Protection
Agents (CPA) application or tobacco leaf
transportation. The aim of both projects is toincrease growers’ productivity.

Collaboration with growers for sustainable leaf productionin Japan
In Japan, the number of tobacco growers and the land dedicated to tobacco cultivation have been
shrinking. There are various reasons for this, including older generations going into retirement, younger
generations choosing to pursue less physically demanding jobs that involve less heavy work, and a lackof progress in farming methods. As a result, many growers feel anxious about the future of theiragricultural activities and are investing less in tobacco leaf production.
In 2019, Japan Tobacco and Japan Tobacco Growers’ Association discussed various new initiatives toensure the sustainability of tobacco leaf sourcing and meet the market’s needs. Due to be launched in
2020, these initiatives include providing tailor-made support for individual farms, and gathering andsharing the best practices of more experienced growers.
We hope that these activities will help growers to implement more e cient production methods, which

in turn will strengthen the foundations of their operations and secure a more sustainable future for
tobacco leaf production in Japan.

Engaging with our stakeholders
Working in collaboration with internal and external stakeholders has been key to the progress andsuccess of the Agricultural Labor Practices program.
Our relationships with directly contracted growers produce tangible results, thanks to regular farm
visits, dialogue, and training. Local and global meetings with leaf merchants enable us to identify where
additional training, mechanisms, and processes are needed to manage labor risks. Engaging with local
government agencies in the countries where we operate enables us to address fair and safe labor
conditions in speci c locations. For example, we have been successfully engaging with the Indian
Tobacco Board to make progress in the area of labor rights in India.
Our international tobacco business is an active member of the Sustainable Tobacco Program (STP)
and chair of the STP Steering Committee, consisting of industry peers. STP is an industry-wide
platform enabling businesses to collaborate on human rights, environmental issues, and othersustainability challenges, and to drive sustainable agriculture through a continuous improvement
process. 2019 was a year of reform for STP, as it was restructured around the ve-step framework Identify, Prioritize, Respond, Measure, and Report. The aim of this change is to put in place a robust
supply chain due diligence process with a focus on impact. The new process will be nalized in 2020.
In 2018, we became part of the pilot project on Guidance for Responsible Agricultural Supply Chains.
This initiative was run by the Organization for Economic Co-operation and Development (OECD) in
conjunction with the Food and Agriculture Organization of the United Nations (FAO). By participating inthis project, we have been able to share our own experiences, broaden our understanding, andbenchmark against others.
The OECD-FAO Guidance for Responsible Agricultural Supply Chains, published 2019, presents the

key ndings of the pilot, lessons learned, good practices, and challenges in implementing supply chain
due diligence shared by the participants. It also sets out recommendations and next steps forcompanies and policymakers to follow in the agricultural sector.

Case study

Grower clubs in Zambia
In Zambia, we have an established network of approximately 488 grower clubs. Each club is formed of
10 to 20 growers and led by a chairman.
The aim of the clubs is to bring growers closer together and create more effective dialogue. The clubs
allow continuous communication and engagement on a variety of topics such as Farmer Finance,
Agricultural Labor Practices, Minimum Agronomic Standards, and other best practices.
In 2019, we trained over 488 chairmen, in partnership with the government and the banking sector. As aresult, all of our contracted growers in Zambia, for instance, now have bank accounts.

Case study

Training growers and workers in Tanzania
In Tanzania, Leaf Production Technicians reported labor issues related particularly to child labor, rights
of workers, and workplace health and safety on farms in 2016. After identifying the root causes ofthese issues, the local Corporate Affairs and Communication team established a set of measures totackle them. These measures were then implemented between 2016 and 2019.
Growers were trained on the effects of child labor and parents were economically empowered throughtraining and the establishment of income-generating activities. Other measures included opening more
schools to reduce walking distances and refurbishing classrooms to make better use of the space
available. Both attracted more children to attend and stay in school.
We provided ALP information and training for growers, their workers, and members of the Grower
Management Board to ensure that the rights of farm workers are respected. The training explained how
Tanzania Labor Laws de ne the minimum requirements on labor practices, and the implications ofthese for the participants and for JTI, as a business partner.
Growers and workers bene ted from refurbished clinics with a better supply of equipment, providing
improved access to basic health care services.
To measure the effectiveness of the training, we assigned Leaf Production Technicians to closely
monitor the growers and workers involved in previously reported labor issues. So far, these issues havenot been observed again.

Case study

Workplace health and safety training in Turkey
In 2017, Leaf Production Technicians in Turkey reported that several growers and their workers were
not using adequate Personal Protective Equipment (PPE) when handling tobacco.
The local Corporate Affairs and Communication team decided to provide these growers and workers
with workplace health and safety training and the correct PPE. This led to a 20% decrease inobservations of these issues in 2019.

ARISE
Our agship program ARISE – Achieving Reduction of Child Labor in Support of Education – has beencommitted to tackling child labor in our tobacco growing communities since 2011. In 2019, ARISE
placed 6,186 children into formal education, building on the impact of previous years. The program isforging real sustainable change by implementing robust solutions to prevent child labor.
In 2019, we focused on mapping out new communities to scale up ARISE, building on community
capacities to ensure the sustainability of the program, and digitizing our Child Labor Monitoring System(CLMS) using blockchain technology.
Read more about the ARISE program

Case study

Eliminating child labor with blockchain
Following a successful six-month trial period, our ARISE program is about to start using a digitizedChild Labor Monitoring System (CLMS) based on blockchain technology in Malawi, Zambia, Tanzania,
and Brazil, where we directly contract tobacco growers.
The CLMS will use a cloud-based platform, providing JTI with an in-depth 360° view of ARISE
bene ciaries. The system will enable data collection in a streamlined, mobile, immutable, and secureway. We expect the new system to help strengthen the existing anti-child labor activities and to focus
on communities where these activities are most needed.
Our Leaf Production Technicians visit our growers several times a year, for technical support. During
these visits, the technicians collect data on tobacco growing and make observations on labor practices(read more about our Agricultural Labor Practices). As a result of our newly adopted CLMS, thetechnicians also collect kinship data from the growers, including the names of any children living on thefarm, which school the children attend, and which year group they are in.
As this data collection is part of the Company’s formal annual contracting process, it enables us tosecure the grower’s consent – an essential element of the process. The kinship data is then uploaded
into the new system, to help us understand where child labor might be used in our supply chain andbetter target our ARISE activities. This will bene t children who are vulnerable to child labor, as well as
those involved in child labor.
The software behind the new system was developed by BanQu, a ground-breaking blockchain-as-aservice software company that helps connect growers to global supply chains. The technology
provides end-to-end transparency in supply chain management.

We will continue to work
collaboratively withgrowers, communities,business leaders, andgovernments to create
solutions that address theroot causes of child labor,
while always keeping thechild’s right to quality
education at the heart ofwhat we do.
Our contractual partner
Winrock International, aU.S.-based, internationallyrenowned NGO, willcontinue to play a key rolein delivering the program.
New and innovative
partnerships, such as ourcollaboration with BanQu,
will enable us to digitize
our approach tomonitoring child labor.

Elaine McKay,
Director, Social Programs,
JT International

2019 was a year of planning and transition to the new approach designed for the third phase of ARISE.
That included scaling up to new communities, testing a new technology with BanQu and assessmentsof Community Action Plans. In addition, this year, the numbers reported come from Winrock
International only.**The previous years’ numbers included those from the International Labour Organization.

External recognition
We were categorized as a ‘leader’ by the Global Child Forum in their latest study, conducted incollaboration with the Boston Consulting Group. This benchmark report analyzes just under 700 of theworld’s largest companies and how they are safeguarding children’s rights as part of their businessvalue chain.
We are proud that the study recognizes the concrete actions we have taken to embed respect forchildren’s rights in our supply chain, notably through our agship child labor elimination program ARISE.

Grower Support Programs

Our Grower Support Programs are investments that address social needs in our tobacco-growing
communities.

Related links
Supply chain

Supply chain
policies andstandards

Leaf supply chain- Raw material
sourcing

Non-tobacco
materials, otherproducts, andservices
Copyright© Japan Tobacco Inc. All rights reserved.

Non-tobacco materials, otherproducts, and services
Non-tobacco materials include packaging, lters, and cigarette-related materials. We also have anumber of suppliers for factory machinery and logistics, including freight. We manage the sourcing ofthese centrally. Other products and services that ow through our supply chain include marketingrelated services, facility management, IT, and other professional services, which are sourced globally,
regionally, and locally.
We develop strong partnerships with our key suppliers in order to achieve mutual long-term success.
Our strategic relationships are built on shared values and objectives, which allows us to nd
sustainable solutions together, ensure a stable supply in a dynamic environment, and be able to adapt
to innovative technologies.

TargetSUPPLIER SCREENING
We will screen all key suppliers against environmental, social, and governance criteria by 2023.

Progress
At the end of 2019, 67% of our key suppliers were screened against ESG criteria*.
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy*.

Results for our international tobacco business.

Supplier screening
At the end of 2019, 67% of our key suppliers were screened against ESG criteria in our international
tobacco business. As our supplier screening target shows, we are committed to achieving 100% by2023.
We aim to achieve high standards of integrity across our business operations and supply chain. We canonly achieve this through close cooperation with our suppliers.
In our international tobacco business, prior to entering into a commercial relationship, our key
suppliers* undergo a screening process which includes onboarding and quali cation. This process
allows us to understand potential risks related to compliance, human rights, environment, and healthand safety. If any risks are identi ed, we offer support and collaboration on how to mitigate these risks
and make necessary improvements.
In 2019, we further enhanced our supplier screening process by introducing our ‘Lookback’ screening
service to identify potential supply chain risks with new key suppliers. This service automaticallyreviews a potential key supplier’s business history over the previous ve years using publicly available
information. We have also strengthened and automated the annual process for renewing thecerti cation of our existing key suppliers, by integrating a continuous key supplier monitoring service.
In Japan, suppliers of non-tobacco materials and other products and services are screened against the
JT Group Supplier Standards, and we regularly monitor key suppliers though surveys.
*Key suppliers are de ned as suppliers with a planned annual spend greater than 500,000 U.S. dollars,
suppliers who either purchase or handle Japan Tobacco International tobacco products, leaf
merchants, suppliers representing Japan Tobacco International before government, and contract
manufacturing, and licensees.

Case study

Reducing the environmental impact of packaging
We take pride in the quality of our products. To make sure that our cigarettes reach consumers in
optimal condition, they are delivered in packaging that utilizes cardboard and plastic lm. To reduce theenvironmental impact of this packaging, we are running several initiatives across our operations to use
less of these materials, or to replace them with more environmentally friendly alternatives.
For example, we have worked with our suppliers to optimize the use of cardboard and plastic lm in our
packaging, without compromising on quality. As a result, we have reduced our paper and cardboardrelated consumption by approximately 1,700 tons per year, and our plastic lm consumption byapproximately 500 tons per year. This re ects our commitment to addressing growing consumer
concern about single-use plastic and sustainability.
We are currently developing targets and action plans relating to the appropriate use and responsible
disposal of materials, including plastics, used in our products and packaging. We are also committed toreducing waste by 20% in our own operations by 2030, and will continue to work hard to meet thistarget.

Related links
Supply chain

Supply chain
policies andstandards

Leaf supply chain- Raw material
sourcing

Non-tobacco
materials, otherproducts, andservicesCopyright© Japan Tobacco Inc. All rights reserved.

Optimizing the regulatoryenvironment
Championing better regulation for informed choice
We value and support the freedom for adults to make informed choices, and we play our part by
ensuring all consumers understand the associated risks when deciding whether to smoke or not. That’s
why we are as transparent about our positions on smoking and health as possible. It is also why, nomatter what we do, we adhere to the ve core principles that de ne our attitude to smoking. We also
work in a highly regulated operating environment, and we monitor regulatory trends in order toanticipate future changes in regulation and prepare for the implementation of those changes well inadvance. This is done in line with our tobacco principles, so that we go above and beyond ourobligations.

Aspirational goal
We will ensure the Company is included in policymaking leading to fair and balanced regulation,and enhance our cooperation with governments to combat illegal trade.

TargetWe will always protect our ability to participate in public policy debate with the aim to achievebalanced regulation that meets societal concern and supports business growth.

ProgressDuring 2019, we engaged openly and transparently in public policy debate and made our views
known to regulators, NGOs and other relevant stakeholders in the countries where we operate.
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy.

Read more about our views on speci cregulatory topics

on JTI.com.

Supporting ‘better regulation’
Smoking carries risks to health, and appropriate and proportionate regulation of the tobacco sector isboth necessary and right. To meet public policy goals, while respecting the rights of all stakeholders, it
is important that regulation is evidence-based, practical, enforceable, and competitively neutral.
To help lawmakers develop better regulation, the OECD has endorsed the internationally recognized‘Guiding Principles for Regulatory Quality and Performance’, which we support. These can besummarized as:■

Coherence■

Openness■

Proportionality■

Participation■Effectiveness■Accountability

A key aspect of better regulation is a transparent legislative process, one that involves all interested
and affected parties.
With regulation affecting our products and our industry, we exercise our right to make our views known,
by engaging openly and transparently with government stakeholders (including regulators), nongovernmental organizations, and all other relevant stakeholders. We seek to ensure that the regulatoryenvironment encourages innovation, business growth, and freedom of consumer choice so that wemay better serve the needs of consumers, society, and our business.
We engage openly in regulatory processes at all stages, and take part in public consultations byproviding arguments supported by evidence and alternative solutions.
We support public discussions on the topics of good governance, better regulation, and transparency.

Our views on Reduced-Risk Product regulation
The tobacco industry is currently undergoing a transformation as Reduced-Risk Products are gaining
popularity in many countries. We believe that these products offer real
bene ts to consumers and society, and that consumers should be free to choose them.
Governments and regulators should avoid restrictive regulation which suppresses innovation and/or
prevents adult consumers from selecting these products.
However, legislative approaches to Reduced-Risk Products continue to vary widely across the world,
and to change rapidly. Some countries ban these products outright; others try to regulate them todifferent degrees, while others lift bans altogether.
That’s why we are committed to working with regulatory authorities, public health bodies, and thescienti c community, to create the best possible frameworks for these products to reach their fullpotential, and provide a greater choice for adult consumers.

Latest regulatory developments

It is in the public interest for regulation to be evidence-based, proportionate, and effective. We support
the principles of better regulation, which argue for measures that preserve consumer choice andmarket freedom. Regulation is fast-moving and we monitor developments closely. The following are
just a few examples of some key regulatory developments around the world in 2019.
U.S. – Premarket tobacco product applications (PMTA) deadline advanced
In July 2019, a ruling endorsed by the Food and Drug Administration brought forward the submission
deadline for the PMTA review of “deemed” tobacco products (including e-cigarettes), from 8 August2022 to 12 May 2020. This has since been extended to 9 September 2020 due to the global COVID-19
crisis.
In August 2019, Logic Technology Development LLC (a subsidiary of the JT Group) submitted PMTAs
for a number of products in its e-cigarette and tobacco vapor line-up.
U.K. – Public Health England continues to see strong risk-reduction potential in e-cigarettes
In November 2019, Public Health England reassured users about the risk reduction potential of ecigarettes currently marketed in the U.K. saying, “PHE and the Royal College of Physicians estimate therisk reduction to be at least 95%.”＊

Read more from Public Health England* https://www.gov.uk/government/publications/smoking-and-tobacco-applying-all-our-health/smoking-andtobacco-applying-all-our-health

Switzerland – Snus is authorized
Following a Federal Court judgment in May 2019, the marketing of snus (tobacco for oral use) is now
permitted in Switzerland under the Act on Foodstuff.
EU – Directive on single-use plastics
The EU Directive “on the reduction of the impact of certain plastic products on the environment”
entered into force in July 2019. Member states have two years to transpose the legislation into theirnational law.
Tobacco lters are included in the scope of the Directive, and we are proactively working with our
stakeholders to prepare for these regulatory changes, to ensure compliance with laws and maximize
the positive impact that these developments might have on our customers and our business.

WHO – Framework Convention on Tobacco Control (FCTC)
We continue to follow the evolution of the WHO FCTC. The Protocol to Eliminate Illicit Trade in Tobacco
Products (the Protocol) came into force on 25 September 2018. The eighth session of the FCTC
Conference of the Parties (COP8) and the rst session of the Meeting of the Parties to the Protocol(MOP1) took place in October 2018.
At these FCTC events in 2018, there were no new recommendations or decisions that directly impacted
the JT Group and our products. As the decisions made at these events can have far-reaching
implications for our consumers, wider society, and our business, we continue to closely monitor theevolution of the FCTC and the Protocol, and are preparing for COP9 and MOP2 in 2021. Although we
continue to be denied a voice at such events, we will continue to share our views with decision-makers
wherever possible.

Engaging with our stakeholders
The JT Group remains committed to working with regulatory authorities, public health bodies, and thescienti c community. As part of this engagement, we attend industry events where we are able to makeour voice heard.
In September 2019, we attended the Global Tobacco and Nicotine Forum in Washington DC, a key
international conference where commentators gathered to discuss the future of the tobacco andnicotine industry. In 2019, the JT Group sat on panels in discussions around environmental challenges
and gender equality. The forum attracted over 250 participants working in academia, public health,regulation, and the tobacco industry.

Case study

Spotlight: branding ban
The ability to build and use a brand is essential for businesses to thrive and economies toprosper. Distinctive branded packaging is vital for competition, and enables consumers to
identify, obtain information about, and choose their preferred brands of tobacco products easily
and without confusion.
However, branding bans (also known as plain or standardized packaging) are imposed on the
tobacco sector in certain parts of the world, and these are not based on, or consistent with, acredible and scienti cally rigorous understanding of the behavior of smokers. These types ofrestrictions are also being considered for other consumer products.
Since the implementation of the plain packaging policy in Australia in 2012, no studies haveshown convincing evidence that it reduces the number of people choosing to smoke.
> Visit JTI.com to read expert reportson the impact of plain packaging.

Consequently, we believe these bans fail to achieve stated public policy objectives and are, infact, excessive and misguided.
Plain packaging has serious negative consequences for society and consumers. It makes
counterfeit products easier to produce, distribute, and sell. This encourages criminality andimpacts government tax revenues. Consumers and retailers struggle to tell the difference
between brands, which damages competition and affects business. It also infringes our rights
to property, expression, and trade, without proper justi cation.
In June 2020, the WTO Appellate Body ruled in favor of Australia in the plain packaging dispute.
The ruling is a major step backwards for the protection of intellectual property rights
internationally. Although this outcome only applies to Australia, it sets a worrying precedentthat could encourage governments to ban branding on other products. Besides, the Appellate
Body did not have the opportunity to take into account most recent data such as those from theAustralian Government, which shows that the smoking rate has not markedly declined,
indicating that it has not worked as anticipated.

Transparency
Transparency, openness, and accountability during o cial decision-making processes are essential toachieving sound public policies and fair regulation for any industry.
Since 14 November 2011, JTI has been a registrantof the EU Transparency Register setting out ourelds of interest and costs related to lobbying activities within the EU decision-making process.

Responsible marketing
We only market our tobacco products and e-cigarettes to adult smokers and vapers in order to maintainbrand loyalty and to encourage smokers of competitor brands to switch to our products. We do notmarket tobacco products or e-cigarettes to minors, nor do we encourage anyone to take up smoking, ordiscourage anyone from quitting smoking. We support regulation on the responsible marketing of
tobacco products and e-cigarettes, providing it is evidence-based, practical, effective, and proportionate– and that it allows us to communicate with adults who use our products.
We take responsible marketing very seriously, particularly when it comes to preventing youth smoking.
We never market our tobacco products to minors.
This focus is re ected in our Global Tobacco Marketing Principles, a guiding document developed in
2016.
When it comes to our retail partners, we continue to support them by training staff and providing
campaign materials to reinforce the message that underage sales are not allowed.
We provide targeted responsible tobacco-retailing programs that effectively tackle youth smoking, andthese are welcomed by retailers. In the U.K. for example, our IDentify program has been developed tolocate retailers who may be at risk, and we performed 1,282 test purchases in 2019. We offer these
retailers professional training and help them to raise standards, so that they will avoid making underagesales.

Related links
TobaccoReduced-Risk
Products (RRP)

Supply chain

Optimizing theregulatoryenvironment

Investing inpeopleOur tobacco
principles

Smoking andhealthTackling illegal
trade

Copyright© Japan Tobacco Inc. All rights reserved.

Tackling illegal trade
Experts estimate that over 10% of all cigarettes sold globally (excluding China) are illicit, withapproximately 45 billion U.S. dollars in global tax revenue lost each year. This illegal trade fuels humantra cking, organized crime, and terror groups. It causes harm to consumers, as uncontrolled products
circumvent regulations and quality controls, and undermines legitimate tobacco businesses. Tackling
illegal trade is a top priority for us, and our Anti-Illicit Trade team is recognized as the industry leader incombating this problem.

Aspirational goal
We will ensure the Company is included in policymaking leading to fair and balanced regulation,and enhance our cooperation with governments to combat illegal trade.

TargetWe will engage in dialogue with law enforcement agencies, with the goal of exchanging
intelligence regarding illegal tobacco products, in order to support the reduction of illegal
tobacco products.

Progress
In 2019, our Anti-Illicit Trade team provided 1,129 intelligence reports to law enforcement
agencies, and advised 2,687 law enforcement o cers on counterfeit recognition.
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy.

Other key wins in 2019■

Over 3.2 billion illegal cigarettes seized thanks to intelligence reports provided by our team to law
enforcement.

■

There was a 34% decrease in seizures of our genuine products resulting from our efforts to ensure
the security of our supply chain.

Our approach
Our global Anti-Illicit Trade team investigates the illegal tobacco trade and protects consumers andsociety, as well as our business and reputation, from criminal elements. It is made up of dedicatedprofessionals with many years of public service in law enforcement, regulatory bodies, andgovernments.
As a key part of our business, the team works with our markets to secure our supply chain, and assists
law enforcement in removing illegal tobacco from the marketplace. It maintains a robust dialogue withgovernments and law enforcement agencies on the threat of illegal tobacco through public-private
partnerships and provides counterfeit awareness programs for law enforcement, globally.
Our Anti-Illicit Trade team also supports other areas of our business with research on illegal tobaccoand raises awareness of the problem among our business partners, consumers, and society in general.
The team protects the JT Group’s business and reputation, supporting our long-term, sustainable
future.
Increasingly, we are examining ways to tackle illegal trade across our entire value chain. This isresulting in a more transparent and collaborative relationship with suppliers of items such as tobacco
leaf and cigarette lters. We have regular meetings with these suppliers and manufacturers to try tohelp them prevent their products from falling into the hands of criminal networks and support theircompliance training initiatives.
Our Anti-Illicit Trade team also supports our compliance and purchasing departments by carrying out
due diligence checks to ensure we are entering into contracts with trustworthy suppliers, and by helping
these departments to implement corporate policies and procedures.
We continue to closely monitor changing trends in smuggling, including the way in which organizedcrime groups use shipping routes. We are working with various law enforcement agencies across theworld, such as the World Customs Organization, Interpol, and Europol, to help them track containers
suspected of transporting illegal goods.

Case study

Positive progress continues in the Philippines
We have been tackling illegal trade in the Philippines since 2017, when the JT Group acquired Mighty
Corporation, the country’s second largest tobacco company.
There were a number of challenges to face, notably in relation to locally made counterfeit packs,
imported counterfeit products from China, packs of local brands with reused tax stamps, and illicit
whites with no tax stamps at all.
For our acquisition to make a positive impact to the business, we set up several tailor-made anti-illicit
trade projects in late 2017. Working together with JTI Philippines and various government agencies, our
Anti-Illicit Trade team successfully established processes for reporting illegal activity to law
enforcement, who in turn took the necessary action against illegal trade.
Through this new system, in 2018 we were able to pass on information about illegal factories, storage
areas, and even large retail markets where illegal sales were taking place. The results have been very
positive, with gures suggesting that illegal trade dropped by around 50% from September 2017 to theend of 2018.
Our work continued in 2019, as the following results show:■

There were over 140 million illegal cigarettes seized in 2019■

They included 57 million counterfeit JT Group branded cigarettes, and 83 million other cigarettes■

The majority of seizures that were reported to law enforcement were from six factories and 22
storage depots■

A total of 42 machines used in the production of illegal cigarettes were removed from factories(crucial to reducing future production capabilities)■

These efforts reduced the illegal cigarette level to approximately 6% in 2019, vs. 12% in 2017

August 2019: 460,000 illegal cigarettes wereseized from a cargo vessel in the Port ofZamboanga, based on intelligence shared by
our Anti-Illicit Trade team. The cigarettes were
found mixed in with a shipment of tropicalfruit.

September 2019: Our Anti-Illicit Trade teamprovided information that led to the seizure of
12 million illegal cigarettes, including
approximately ve million counterfeits of ourMarvel brand, from a warehouse in Bacolod
City.

September 2019: Our Anti-Illicit Trade teamshared intelligence that led to a raid on astorage depot in Iloilo City, where 143,000
counterfeit Camel, Winston, and Marvel
cigarettes were seized.

Late September 2019: O cials in Subic Bay
shut down a tobacco factory producing
cigarettes without tax stamps, after our AntiIllicit Trade team and other sources had
passed on information several months earlier.

*‘Illicit whites’ refer to tobacco products manufactured legitimately but without any product ow control
measures afterwards, and smuggled and sold in another market.

Supporting business performance through anti-illicit trade
programs
Our global anti-illicit trade programs create the opportunity for public-private partnerships to combat
highly organized criminality. They are also designed to support our business performance by ful lling
all legal requirements, securing our supply chain, safeguarding and creating opportunities for volume
and pro t growth, while protecting our Company’s reputation.
We measure their effectiveness against the following KPIs:■

The number of seizures based on information we share with law enforcement■

The level of illicit trade in our top markets through analysis of empty pack surveys, and the reduction
we help achieve■

Implementation of our compliance programs■

Strengthening partnerships with law enforcement agencies, especially through illegal tobaccoawareness programs

Protecting our businessIn 2019, our Anti-Illicit Trade team provided
1,129 intelligence reports to law enforcement
agencies, leading to the seizure of more than
3.2 billion illegal cigarettes. Based on our
information, law enforcement raided morethan 70 counterfeit tobacco factories andstorage locations.
As a direct result of our work to tackle illegal
trade, and based on seizure statistics, noti ed
seizures of counterfeit products in the EUhave remained consistently high over the past
four years (approximately 90% of products
seized are counterfeit). During the same
period, noti ed seizures of our own genuine
products in the EU decreased by nearly 50%,
thanks to our markets’ efforts in securing our
supply chain, with the support of the Anti-Illicit
Trade team. This has been acknowledged byboth the EU and the U.K.’s HM Revenue andCustoms, which recognized our international
tobacco business as an industry leader in the
ght against illicit trade.

Fighting the rise of counterfeiting in Europe
Over the last three years, organized crime groups have established numerous illegal factories in Europe
producing counterfeit cigarettes, including the JT Group brands. This has brought illegal production
closer to destination markets, particularly the U.K., and marks a shift away from the traditional sourcing
of counterfeit products in China.
In 2019, 94% of the JT Group branded products seized globally were counterfeit, and we established aCounterfeit Task Force in March 2019 to counter this threat. The objective of the task force is tocoordinate our investigations into global counterfeit production, ensure that knowledge is shared
between different regions, and ultimately pass on meaningful information that will assist law
enforcement.
So far, the task force’s work has focused on locating the illegal production facilities used to produce
counterfeit cigarettes. These illegal facilities may comprise of different manufacturing components
including leaf processing, cigarette makers and packing machines, and often storage of large
quantities of nished illegal product. Our Counterfeit Task Force compiles and assesses various pieces
of information obtained from different sources with the objective to provide reliable and usable
information to law enforcement in order to locate and seize the illegal facilities.

Ensuring anti-illicit trade complianceLegitimate market demand program
Companies worldwide seek to understand the demand for their products in their markets but there is aclear distinction between market demand, and ‘Legitimate’ Market Demand (LMD).
We must comply with our obligations under the European Union Cooperation Agreement signed in2007. This means supplying tobacco products only in volumes that correspond with the legitimate
demand of the intended market of retail sale.
With a commitment to doing the right thing, in the right way, our Anti-Illicit Trade Research team hasdeveloped a global methodology to assist our international tobacco businesses’ markets with aconsistent and accurate approach to annual LMD calculations. Our markets perform the LMD exercise
in conjunction with their annual plan. This creates a proactive supply chain control mechanism to makesure that the planned sales volumes are in line with LMD.
The components and parameters of the LMD estimation vary depending on each market’s uniquecharacteristics and our product portfolio in that market, but the global methodology provides a logicaland defendable standard.
One common factor among these varying calculations is that our demand estimations comply with alllaws and regulations.

Track and trace
Our Track and Trace program has been an important element of our compliance policy for more than adecade. It helps our global efforts to support law enforcement agencies and has been developed withmany of the biggest technology companies across the world, as part of our obligations within the EU
Cooperation Agreement.
A highly technical and complex process, our Track and Trace program requires markings on all
individual and aggregated levels of products. It helps us to track the movements of the products along
the supply chain and supports our supply chain analysis. As a result, when seizures are brought to ourattention, we can identify the source of diversion of the seized products and implement preventative
measures.
In 2019, Track and Trace became mandatory in several jurisdictions. In addition to the United ArabEmirates, Saudi Arabia, and Russia, the rst regional system applicable in all member states of the EU
went live on May 20, 2019, as per the European Tobacco Products Directive (TPD2). Despite thechallenging timelines to implement such complex systems, we complied with the regulations as ofentry into force, with minimal disruption in the countries where we operate.

A global response to illicit trade
The Protocol to Eliminate Illicit Trade in Tobacco Products is the rst protocol to the WHO Framework
Convention on Tobacco Control (FCTC). It entered into force on September 25, 2018 and has so far
been rati ed by 58 Parties (January 2020).
This international treaty aims to eliminate all forms of illicit trade of tobacco products, through several
provisions that are binding on its Parties. We support the Protocol, as it provides a global response to
the global problem of illicit trade.
One of the main requirements is that the Parties must implement a Track and Trace regime by 2023
(for cigarettes) and by 2028 (for all other tobacco products). In order for this regime to be effective, we
support the implementation of an architecture based on ‘open standards’ and interoperability for every
actor in the supply chain, while taking into account existing systems such as the new EU-wide Trackand Trace system.
We also rmly believe that the ght against illicit trade can only be effective if measures such as Trackand Trace are implemented along with proper enforcement by the authorities, deterrent sanctions
applicable to those involved in the illegal trade, and government measures to address products that are
not covered by the Protocol, such as counterfeits or illicit whites.

Case study

Taking the ght to the digital world
The ght against the illegal tobacco trade seems never-ending, as criminals seek to use well-tested andinnovative new methods of exploiting others. The internet continues to provide opportunities forindividuals and organized crime groups to offer illegal tobacco products. We are maintaining ourchallenge against unlawful activity, to protect our brands and support our markets.
Our project to tackle internet-based crime is well established and continues to make progress, throughthe takedown of links and social media posts which illegally advertise our products.
In 2018, we took down:■Over 5,960 posts■

Over 65,300 items

In 2019, we took down:■Over 3,100 posts■

Over 1.2 million items

These results represent 760,669 U.S. dollars’ worth of potential product losses.
We also identify those using social media sites to offer larger volumes and following ‘test purchases’ of
the JT Group products, we supply law enforcement with the evidence to take action. We have also
taken the opportunity, in the U.K., to convict other Facebook sellers through private prosecutions.
Since it began, the project has expanded both in scope and geographically, and was rolled out in Russia,
Singapore, and the U.S. in 2019. Facing threats from the illegal sale of Logic products, the U.S. project
was extended to cover internet sales of Reduced-Risk Products (Products with the potential to reduce
the risks associated with smoking.) , with over 7,100 online listings of illegal products detected in 2019
alone.
We will continue to expand the reach of this project, to ght the illegal trade of tobacco and e-cigarettes
across digital channels.

Read more about how we tackle the illegal tobacco trade online.

Related links
TobaccoReduced-Risk
Products (RRP)

Supply chain

Optimizing theregulatoryenvironment

Investing inpeopleOur tobacco
principles

Smoking andhealthTackling illegal
trade

Copyright© Japan Tobacco Inc. All rights reserved.