OUR GROUPOUR BUSINESSESFY 2016

OUR STRATEGIC APPROACH

PAGE 12OUR WAY OF DOING
BUSINESSPAGE 16

OUR PEOPLE

PAGE 24

JT Group
Sustainability
ReportCEO
STATEMENT

Q&A
PAGE 08

OUR TOBACCO BUSINESSPAGE 44

OUR PHARMACEUTICAL
BUSINESSPAGE 64

OUR PROCESSED FOOD
BUSINESS

PAGE 68

PAGE 06

OUR PLANETABOUT THISREPORT

PAGE 32

PAGE 72

OUR C
 ONTRIBUTIONS 
TO SOCIETY

PAGE 40CORPORATEPROFILEPAGE 10GRI G4
CONTENT INDEXPAGE 742

Issue in focus

Issue in focus

RESPECTINGHUMAN
RIGHTSILLEGAL
TRADE

PAGE 22

PAGE 58
3

Contents
CEO statement								Page 06
Q&A									Page 08
Corporate profile								Page 10

OUR GROUP
Our strategic approach							Page 12
Our way of doing business						Page 16

Issue in focus: Respecting human rights					Page 22

Our people								Page 24
Our planet								Page 32

Scope of data and information presented
in this report
Unless the context indicates otherwise, references in thisreport to ‘we,’ ‘us,’ ‘our,’ and ‘JT Group’ are to Japan Tobacco
Inc. and its consolidated subsidiaries. References to ‘Torii
Pharmaceutical’ are to Torii Pharmaceutical Co., Ltd., ourpharmaceutical subsidiary. References to ‘TableMark’ are to
TableMark Holdings Co., Ltd., our processed food subsidiary,and its consolidated subsidiaries.

*B = solely Japan Tobacco Inc. (JT) (includes Japanese
domestic tobacco and pharmaceutical businesses, andexcludes international tobacco business, processed foodbusiness, and subsidiaries of all businesses)

This report contains Standard Disclosures from the Global
Reporting Initiative (GRI) G4 Sustainability Reporting
Guidelines.

*D = Japan Tobacco Inc. (JT) and Japan Tobacco International(JTI)

We report data for the entire JT Group including subsidiaries,
wherever possible.
In this report we used the following scope notations:*A = the entire JT Group including subsidiaries (i.e.,international tobacco, Japanese domestic tobacco,
pharmaceutical, and processed food businesses)

4*C = Japan Tobacco Inc. (JT) and Japanese domestic Group
companies (includes subsidiaries of Japanese domestic
businesses, excludes international tobacco business)*E = solely Japan Tobacco International (JTI) (our international
tobacco business)Any data without annotated scope in this report covers theentire JT Group including subsidiaries – *A.

Our contributions to society						Page 40

OUR BUSINESSES
Our tobacco business							Page 44
Issue in focus: Illegal trade							Page 58
Our pharmaceutical business						Page 64
Our processed food business						Page 68

About this report								Page 72

See our Basis of Reporting document for further detail.
GRI G4 Content Index							Page 74

5CEOstatement

The year 2016 was one in which there were game-changing
economic and geopolitical developments in various partsof the world, including the introduction of negative interest
rates in Japan, leadership changes in the U.S., and the U.K.’s
decision to leave the European Union (EU).
Yet against this backdrop of challenging and uncertain
conditions, the JT Group not only posted strong businessresults but made solid gains on a range of sustainability
issues.
We did so by upholding the principles of our “4S” model,
under which we strive to fulfill our responsibilities to ourvalued consumers, shareholders, employees, and the wider
society, carefully considering the respective interests of thesefour key stakeholder groups, and exceeding their expectations
wherever we can.
Our sustainability strategy, which continued to evolve during
the year, will be the key to embedding a rigorous and longterm approach to sustainability across our business.
During the year we implemented a number of importantmeasures on sustainability, including the JT Corporate
Governance Policy and the JT Group Human Rights Policy.
Emerging products are one of our top investment priorities
for future growth, and continued to evolve in 2016. We madesignificant progress by making new offerings in E-vapor
categories in international markets, as well as the launch of a
new T-vapor product in Japan.
Throughout the 12 months we continued to ensure that thefocus of our activities was on helping the communities inwhich we operate, in particular those where tobacco farmers
live. This we have done through ongoing schemes to improve
economic, social, and environmental conditions in thosecommunities, and via our substantial community investment
program. This is the right thing to do, but also helps us securea long-term supply of the materials that we need.

6

Elsewhere we continued to make strides on tackling the illegal
trade in tobacco, working as a trusted partner with various
law enforcement authorities.
Our work on sustainability is being recognized by bodies
that monitor such activity. For the third consecutive year wewere a member of the Dow Jones Sustainability Asia PacificIndex, and in 2016 we were awarded a position on the CDP
Climate A List of the world’s best climate change reporters.
We also retained the highest level of certification from theTop Employers Institute, which is given to organizations that
globally demonstrate the best standards for employees.
However, we still have a considerable way to go. On healthand safety, for instance, there were four fatalities during 2016,
which shows that we urgently need to enhance local safety
cultures in some countries.
Global conditions will continue to be uncertain in the year
ahead. This means we will need to adapt to a fast-moving andchanging environment, and to enhance our ability to identify
the key issues likely to affect our business in the mid-to-longterm. That is why our sustainability journey is so importantto the future of the Group. We are moving along the righttrack, and I am confident that we will continue to build on theimpressive progress we have made so far.

Mitsuomi Koizumi
President and Chief Executive Officer
Japan Tobacco Inc.

7

Q&A

With Ryoko Nagata,
Senior Vice President, CSR

In 2016 you made further progress
toward your target of reducing
absolute greenhouse gas emissions
by 20% compared with 2009, andnow expect to reach that target
ahead of schedule. Where do you
go once that goal is achieved?

government tax revenues. It also
harms legitimate retailers and is badfor our business because it impacts
revenues. So the measures we take tohelp authorities combat illegal trade
are good for society and good for ourGroup.

When we set the figure of a 20%
reduction by 2020, it was considered
to be a challenging target. So if we getthere early, then we should take that asa sign that the measures we’ve been
introducing over the past few years
have been working very effectively.
That is evidenced by the fact that in2016 the JT Group was one of only 18
consumer staples companies globallyto be included on the CDP Climate A
List. Having said that, we cannot afford
to rest on our laurels, and we will belooking at ways of maintaining ourprogress and to keep the momentum
going.

We have a social responsibility to help
with the battle against illegal trade,and governments rightly expect us
to provide them with information. By
doing so, we also forge more open
relationships with authorities that allow
us to help them tackle various issues
that lead to an increase in illegal trade,including taxation, price disparities, andplain packaging.

What progress was made during
2016 on working to improve theeconomic and social conditionsof tobacco farmers and theircommunities?
The key to enhancing the financial andsocial welfare of farmers is helping
them to improve the yield and qualityof tobacco they produce. We haveexcellent local farming experts whogive tips in this area, including on
mechanization. Advice on how to growcrops more efficiently helps to increaselong-term profits for farmers andbenefits the communities within which
they live.

You launched a Group-wide Human
Rights Policy in 2016. Why isthis important, and why launch a
policy when you already have aclear approach to child labor andagricultural labor practices?
It is important as this is the first time
we clarify in detail what we mean
by respecting human rights. While
our position on human rights is
encapsulated in our Codes of Conduct
and is fundamental to delivering ourcommitments to all stakeholders
through our “4S” model, we now havea policy that will guide us through thisarea. It also sets out how we intend
to achieve our commitments more
widely on human rights, rather thanjust focusing on a specific area such as
child labor.

8

The policy also helps us to clarify the
expectations we have of everyone we
employ and who we do business with.
It is a tool we can refer to in our day-today business activities as we implement
the commitments we’ve made in thepolicy.
There were four reported fatalities
within the JT Group during 2016.
What are you doing to address
the safety issues that led to these
deaths?
It is a matter of deep regret to everyone
within the Group that four fatalities
occurred in Zambia during 2016. Oneof the fatalities was due to an accident
involving an employee on a motorcycle
and two others were third-party
fatalities where employees, outside ofwork time but driving company cars,

collided with pedestrians, who diedas a result. The fourth fatality, of acontractor, was due to the collapse of atelecommunications mast.
As a Group we view health and safety
as being of paramount importance,
and we’re determined to move towarda zero-accident rate. The tragedies
in Zambia show that we still have aconsiderable way to go to achieve that
aim, but in many areas I think we aremaking progress, including through our
motorcyclist training program, which
we believe will begin to pay dividends inthe near future.

Emerging products are a growing
area for the business. What weresome of the key developments inthis field in 2016?
Emerging products are a priority area
for our business, and our current focus
is on E-vapor and T-vapor products. In
2016 Logic, our e-cigarette brand in the
U.S., extended its position with new
product launches. On the T-vapor front,
in Japan we launched Ploom TECH,
initially making it available online andin the city of Fukuoka. Demand was sostrong that we have had to make further
investment in manufacturing and supply
plans.

A product such as Ploom TECH has
the potential to reduce health risks
associated with the use of combusted
tobacco products, and we are
currently working on the collectionof data required to substantiate suchclaims. From a regulatory point ofview, a revision of the EU’s Tobacco
Products Directive came into force in
May 2016, and for the first time thisincluded emerging products in its
remit. In the U.S., in 2016 the Foodand Drug Administration (FDA) also
released regulations covering emerging
products. So in both those jurisdictions
we have been making sure that wecomply with any new requirements.
We support a reasonable andproportionate regulatory framework for
emerging products, but will continue
to advocate against any regulation that
may have unintended consequences.
What comes next on sustainability?
In 2016 we focused on working behindthe scenes to develop a comprehensive,
long-term sustainability strategy for theGroup that is based on the key material
issues we identified with stakeholders
in 2015. The strategy will be the next
step in our sustainability journey, andwill provide us with a strong frameworkaround which we can further improve
our performance. It will also identify
focus areas and commitments that wewill take forward as priorities in the
coming years.

Another important element of helping
farming communities is our Agricultural
Labor Practices (ALP) program. In 2016
we made steady progress on rollingout ALP. We continued implementationin Brazil, Malawi, Zambia, Tanzania,
Turkey, Italy, and Serbia, and began
expanding this in to the U.S. Our thirdparty suppliers are also committed to
implementing ALP, and our objective
is to implement ALP throughout our
supply chain by 2019.
You provided 973 intelligencereports to law enforcement
agencies in 2016, leading to theseizure of more than 911 million
illegal cigarettes. Why put so much
effort into tackling illegal trade in
tobacco?
Illegal trade is bad for society because
it supports and funds organized crime,
allows substandard products to reachconsumers, and substantially reduces
9

NORTHERNIRELAND1SWEDENCANADABELGIUM1

Corporate
profileRUSSIASWITZERLAND

POLANDGERMANYKAZAKHSTANUKRAINE

ROMANIASPAIN(CANARIES)U.S.

SERBIA
TURKEYIRAN
JORDANEGYPTDOMINICAN
REPUBLIC

MYANMAR
REPUBLIC OFSUDANWe are one of the world’s leading

SOUTH SUDAN

tobacco companies, with offices andfactories in more than 70 countries
and products sold in more than 120

CIGARETTE AND TOBACCORELATED FACTORIESMALAYSIAJAPANTANZANIAINTERNATIONAL

30 *JAPANESE DOMESTIC

6

markets. Headquartered in Tokyo,

TOTAL

Japan Tobacco Inc. (TSE:2914) is

COUNTRIES IN WHICH WE DIRECTLY
SOURCE TOBACCO

listed on the Tokyo Stock Exchange.

TAIWANZAMBIABRAZIL

MALAWI36

7

We also operate pharmaceutical andprocessed food businesses.

TOTAL REVENUE IN 2016

7.7%

NUMBER OF EMPLOYEES IN 2016

0.4%

4.1%

2.4%

12.7%

59.5%

56.0%
4.1%

44,667

2,143.3

EMPLOYEESBILLION YENINTERNATIONAL TOBACCO

JAPANESE DOMESTIC TOBACCOOur international tobacco business is headquartered in
Geneva, Switzerland. We manufacture and sell cigarettes;
cigars; cigarillos; snus; roll-your-own, pipe, and water-pipe
tobacco; e-cigarettes; and other tobacco-based products.
Our main markets include France, Italy, Russia, Spain,
Taiwan, Turkey, and the U.K.

Our Japanese domestic tobacco business is headquarteredin Tokyo, Japan, and manufacturing and sales are largely
focused on the Japanese market. We are the market leader
in Japan, which is one of the largest markets in the world.

Key brands
Winston, Camel, Mevius, LD, Benson & Hedges, Glamour,
Sobranie, Silk Cut, Natural American Spirit

Key brands
Mevius, Winston, Seven Stars, Natural American Spirit

PHARMACEUTICALSPROCESSED FOOD

Our pharmaceutical business focuses on the research,development, production, and sale of prescription drugs,
focusing on three therapeutic areas: metabolic diseases,
viral infections, and autoimmune/inflammatory diseases.

Our processed food business manufactures and sells goods
such as frozen noodles, frozen and packed cooked rice, frozen
baked bread, pastries, and seasonings.

21.2%

31.9%

10

Our businesses

INTERNATIONAL TOBACCO BUSINESSINTERNATIONAL TOBACCO BUSINESSJAPANESE DOMESTIC TOBACCO BUSINESSJAPANESE DOMESTIC TOBACCO BUSINESSPHARMACEUTICAL BUSINESSPHARMACEUTICAL BUSINESSPROCESSED FOOD BUSINESSPROCESSED FOOD BUSINESSOTHERS

OTHERS*

Includes the Lisnafillan factory in Northern Ireland and the Gryson Wervik factory in Belgium, which are planned for closure in 2017.

11

OUR GROUP

Our strategic
approach

Our management approach
Our management principles and our approach to sustainability are governed by our “4S” model,
under which we strive to fulfill our responsibilities to our valued consumers, shareholders,
employees, and the wider society, carefully considering the respective interests of these four
key stakeholder groups, and exceeding their expectations wherever we can.
We have made progress in laying
the foundations for our sustainability
strategy over the past few years,
including by engaging withstakeholders, completing our firstGroup-wide materiality assessment,
understanding key sustainability issues
across our value chain, and hosting
human rights roundtables both at Grouplevel and in our international tobacco
business. We have also engaged withkey business divisions on strategic
issues and on collecting baseline
performance data.

In 2016

Insights gained through all of these
initiatives have enabled us to identify
the areas on which we need to focus.
In 2016 we continued to make strides
on producing a Group sustainability
strategy, including by bringing together
52 members of our global CSR teamover three days in Tokyo to obtain their
input in the development of the strategy,
and foster collaboration in embedding
sustainability across the business.

Our sustainability performance isdiscussed regularly by a group of
Board members and Executive Officers,
along with the CEO and the SeniorVice President for CSR, assisted by
our CSR division. However, businessand corporate divisions have ultimate
responsibility for planning andimplementing their own sustainability
initiatives.

THE “4S” MODEL

52 members of our global Corporate
Social Responsibility (CSR) teamgathered over three days in Tokyo
to discuss the development of oursustainability strategy

12

OUR VISIONOUR MISSION

THE JT GROUP WAY

is to become a company committed
to global growth by providing
diversified value that is uniquely
available from the JT Group.

is to create, develop, and nurture
our unique brands to meet
consumers' needs while
understanding and respecting theenvironment and the diversity ofsocieties and individuals.

• Fulfill the expectations of ourconsumers and behave responsibly• Strive for quality in everything we
do through continuous
improvement• Leverage diversity across the
JT Group

13

OUR STRATEGIC APPROACH

Our material issues

Stakeholder engagement

We have a list of 22 material issues that are of medium- and high-level importance to the JT

Under our “4S” model we talk to stakeholders across the JT Group on a daily basis, but alsoGroup and external stakeholders (see matrix below). We compiled the list through a materiality

engage with them in special forums.

assessment that took into account the views of internal and external stakeholders, including
employees, suppliers, investors, trade unions, non-governmental organizations (NGOs), andindustry organizations. In 2016 we continued to address the highest priority issues.
We are committed to carrying out materiality reviews on a regular basis in the future so that
we can check the issues we have identified are still relevant – and to realign our priorities if

We communicate with consumers on adaily basis through our sales force andcall centers, and often make productimprovements based on consumer
comments. We also receive feedback
via our websites.

JT GROUP MATERIALITY MATRIXOne of the main forums for engagementwith shareholders is our General
Meeting of Shareholders (GMS). We
also discuss sustainability issues atregular and ad hoc meetings withinstitutional investors. In 2016 around
4,000 shareholders attended our GMS
at which we answered questions fromshareholders on issues such as tobacco
product innovation and staff turnoverrates.

MediumHigh

Shareholders

Importance to external stakeholders

necessary.

Corporate governanceand transparency

Laws andregulations

Product safety andproduct responsibility

Supply chain
management

Product innovation andintellectual property

Respecting
human rights

Responsible
marketing

Litigation

Anti-bribery andcorruption

Illegal trade

Equality anddiversity in theworkplace

Environmental
impacts ofproducts

Information security

Anti-competitive
behavior

Being a responsible
employer

Workplacehealth and safety

Collaborations
and partnerships

Employeedevelopment andtalent management

Environment

Contributions tosociety

Political andregulatory
decision-making
processes

Tax practices

+

High

MediumImportance to the JT Group
Value chain boundaries
Our supply chain

14

Consumers

Our Company

Our customers and consumers

Employees
The key channel for communicatingwith employees is in their everyday
work, including through performanceappraisals and face-to-face meetings
with line managers, as well as regularsurveys. In 2016 we conducted an
Employee Engagement Survey in
our Japanese operations. Employees
expressed a desire for a clearer viewof their career development options,and we have begun to look at ways ofachieving this.

Society
Suppliers and communities
We engage with tobacco farmers andtobacco growing communities regularly
via our local farming experts, not only
about good farming practices but also
about labour practices via our ALP
program and our tailored child labor
program ARISE. For example, in 2016 at
an ARISE conference in Brazil we spoke
to farmers about the challenges they
face in complying with Brazil’s childlabor legislation and the various tools
available to help them.

Governments and regulators
We seek an open dialogue withgovernments and regulators so we
can provide our point of view on
regulations that affect our businessand society. In 2016 we made anumber of submissions to governments
highlighting the negative consequencesof extreme regulation, including plain
packaging of tobacco products. At
the same time, we put forward more
proportionate alternative solutions to
help achieve legitimate public policy
objectives. We also regularly engage
with government bodies on combatingillegal trade.
International organizations
and NGOs
We work in partnership with a numberof international organizations and NGOs
to implement social programs in thecommunities where we operate. In
2016, for instance, we had discussions
with the International Labour
Organization’s (ILO’s) Alliance 8.7 onforced labor, modern forms of slavery,
and child labor, and provided ongoingsupport for their Child Labour Platform.
We also continued our partnerships
with the ILO and Winrock Internationaland established a partnership with theInternational Organisation of Employers.
We worked with the NGO Build
Change on disaster risk reduction
programs in Indonesia, and signed anagreement with Peace Winds Japan,
an international NGO, to help it prepare
more thoroughly to respond to disasters
both in Japan and other parts of theworld.
Retailers
We communicate with retailers in a
number of ways, covering a range of
topics from preventing youth accessto cigarettes, to dealing with litter
associated with tobacco products. In
2016 we held seminars on preventing
youth access to tobacco productswith retailers in the Middle East, North
Africa, and Eastern Europe.

15

OUR GROUP

Our way of
doing businessCorporate governanceand transparency
The JT Corporate Governance Policy, implemented in 2016, outlines the way corporate decisions
should be made. This policy has been designed to promote transparent, fair, and timely
decision-making that carefully considers the respective interests of consumers, shareholders,
employees, and the wider society. In 2016 we declared compliance with all of the principles ofJapan’s Corporate Governance Code. The JT Board of Directors holds ultimate responsibility for

In 2016

administration and supervision of our activities, and is supported by a governance structure that
includes bodies such as the JT Group Compliance Committee and the Compensation Advisory
Launched the JT Group
Human Rights Policy

Panel. Our Annual Report provides further details on our governance arrangements.

Risk management
Implemented the JT
Corporate Governance Policy

Our key financial and business risks are
considered by the Board of Directors
at least quarterly. Internal audits are
conducted by a division independent
from the business, reporting directly

to the President of JT. We also havecrisis management and disaster control
systems. Identification and mitigation ofsustainability risks is incorporated into
our Group risk management approach,and we have begun looking into theimpacts of human rights-related risks in
our operations and supply chain.

Our tax practices

185.3

billion Yen paid in corporate
tax across the JT Group

Launched an anti-bribery
and corruption policy in
our international tobacco
business
16

66.9%

*E

of employees trained on anti-bribery and corruption

We are fully committed to paying ourfair share of taxes at levels that are not
only within the letter and spirit of local
laws but are in accordance with our
responsibilities to all stakeholders in
our “4S” model. We do not engage inaggressive and artificial tax planningor tax avoidance schemes, and never
use legal entities for tax purposes only.
Nor do we undertake any transactions
whose sole purpose is to reduce our tax
contribution.
Our approach to tax is guided by aglobal tax function that requires all
business units to issue detailed annual
reports showing how they meet
local tax obligations and ensure thatappropriate expert advice is sought on
all commercial and financial decisions.
In 2016 we paid a total of 185,285

million Yen in corporate tax across
the JT Group, compared with 132,027
million Yen in 2015.
Tax legislation and practice havebecome increasingly complex in recent
years, but we try to nurture good
relationships with tax authorities inorder to reduce uncertainty on bothsides.
In 2016 the U.K. introduced a lawthat requires U.K. large businesses topublish an annual tax strategy settingout, among other things, the approach
toward tax planning and showing how
tax risk is managed. We have taken thisopportunity to update our tax strategy,
which will be published on our website
in 2017.

In other countries, governments
are beginning to implement
recommendations from the OECD’s
Base Erosion and Profit Shifting (BEPS)
Project, which aims to clamp down on
artificial tax planning strategies. One
consequence will be the emergence of
new country-by-country tax reporting
requirements. We have undertaken amajor review of our processes and data
capture systems, and we are prepared
to meet our obligations.
In 2016 we organized training for morethan 200 employees to raise awarenessof BEPS issues and other recent tax
developments.
JT Group Tax Policy can be viewed on
JT website.
17

OUR WAY OF DOING BUSINESS

Living our Codes of Conduct
Our Codes of Conduct outline our
responsibilities toward consumers,
shareholders, employees, and society,and define our legal and ethicalobligations.
Our Codes are essential for conducting
business ethically as a responsible
corporate citizen, and our top
management has affirmed its strong
commitment to compliance. Ourcontinued success and reputation
depends on each of us, every day andeverywhere, living our values and acting
ethically and responsibly in compliancewith the law and our Codes of Conduct.
Employees are encouraged to referto the Codes whenever guidance isneeded.
The Codes are updated periodicallyto reflect any changes in legislation,

96.1%

*C

of employees responded
to the 2016 compliancesurveyReporting concerns

internal requirements, and the needs ofsociety. During 2016 our international
tobacco business updated its Code of
Conduct following the launch of newpolicies on human rights and antibribery and corruption, including also an
update of its Supplier Standards.

the Code of Conduct. This discussion
encouraged employees to give
their views on how they felt aboutcompliance within JT Group. The
discussion was written up into an article
and provided on the intranet for all
employees.

Compliance training for employeeson the JT Group Code of Conduct
is provided regularly face-to-face,
online, or on the job. During 2016 wereinforced the principles of the Codeof Conduct through various training
programs. In our Japanese operations,
11,813 (*C) employees completed theCode of Conduct training online. We
have carried out a variety of education
and awareness activities, including
holding a discussion involving the
Chairman and young employees,
centered around compliance with

In our Japanese operations, we held ourannual compliance survey, which wascompleted by 96.1% (*C) of employees,
up from 94.0% in 2015. As a resultof feedback from the survey, relevant
departments will introduce measures toimprove the situation on long working
hours in their annual compliance actionplans, and use quantitative targets toevaluate the effect of these measures.

We encourage employees, customers,
distributors, and suppliers to speak up
about potential violations of our Codesof Conduct, and protect employees who
speak up from retaliation.
There are multiple communication
channels through which employees andbusiness partners can confidentiallyraise concerns, one of which is ourReporting Concerns Mechanism (RCM).
In our international tobacco business, in2016 this was rebranded as ‘Your Voice’to create an even greater association
with our employees, although thesystem itself remains otherwise
unchanged. We ran a two-month global
communications campaign across ourinternational tobacco business in 2016
to publicize the new name.

Reported concerns received internally
are initially dealt with by speciallytrained employees, to whom we provide
ongoing training. We now also have
escalation guidelines for line managers
in Japan as well as in our international
tobacco business, which will
standardize how line managers respondwhen they are consulted with concernsand help them to escalate serious
compliance violations promptly.

corrective action. In 2016 we received
441 reports across the JT Group, up
from 415 in 2015.

BREAKDOWN OF REPORTED CASES

2.5%
34.5%

19.7%
2016

441

To increase awareness of the RCM
in our processed food business, we
distributed posters in several languages
to subsidiaries outside Japan.

25.2%
18.1%
3.9%
50.5%

19.9%

CASES RELATED TO CORRUPTIONCASES RELATED TO HUMAN RIGHTSCASES RELATED TO LABOR PRACTICES(EXCLUDING HUMAN RIGHTS)

2015

415

CASES RELATED TO FRAUD AND
MISUSE OF COMPANY ASSETS

25.7%

CASES RELATED TO ANTI-COMPETITIVEBEHAVIOROTHER

Information security
The JT Group’s information security
risks lie in damage to, or leakage
of, information that we hold on ourcustomers, consumers, suppliers, andemployees, as well as data on ourbusiness strategy and on engineeringand experimental data, including resultsfrom research.
We are committed to continuous
enhancement of our information
security framework, and regularly
update our policies and procedures
to adapt to evolving business andtechnical landscapes.
To strengthen our defenses we haveintroduced a computer-security incident
response team. We have also applied
for membership of the cross-industry
Computer Security Incident Response

18

We follow up reports of potential
violations and, where necessary, launch
investigations that may lead toNote: There are no cases related to anticompetitive behavior for 2015 or 2016.

Team Association (Nippon CSIRT
Association), which pools resources tofight and resolve cyberattacks.
We also regularly draw up actionplans on forthcoming information
security regulations. For instance, wehave already begun to prepare a newframework that will help us comply
with the EU’s General Data Protection
Regulation, which will focus on
personal information protection and isdue to come into force in 2018.
As the majority of incidents occur due
to lack of awareness, we regularly
train and provide information to ouremployees on information security
issues.

24,390*employees participated insecurity training*excluding employees in one of our Japanese
domestic Group companies, which is
conducting training in a different way

19

OUR WAY OF DOING BUSINESS

Anti-bribery and corruption

Gifts, hospitality, and entertainment

The JT Group has a zero-tolerance approach to bribery and corruption. We have an antibribery policy in place, which covers the entire Group. In Japan, a guidebook on the policy wasdeveloped and provided to each department to be followed.
In 2016 our international tobacco
business launched its own anti-bribery
and corruption policy, backed up by aglobal communications campaign that
included an online video, translated
into 24 languages, in which the CEO
and senior executive committee

members of the international tobacco
business reinforced the zero tolerance
toward bribery and corruption. We alsoestablished an online training moduleon the policy, reaching 15,202 (*E)
employees.

COMMUNICATION OF ANTI-BRIBERY AND
CORRUPTION POLICIES AND PROCEDURESTO EMPLOYEES IN 2016 (*E)

EMPLOYEE CATEGORYIn our processed food business,
we have continued working withsubsidiaries in China, in complying with
the new policy. We also conducted ananti-bribery and corruption seminar for
local executives.

NUMBER OF
EMPLOYEES% OFEMPLOYEES

16

100%

MANAGEMENT (EXCLUDINGEXECUTIVE OFFICERS)

1,096

100%

EMPLOYEES (EXCLUDINGMANAGEMENT AND
EXECUTIVE OFFICERS)

18,993

87.6%

EXECUTIVE OFFICERS

We do not proactively encourage aculture of exchanging gifts, hospitality,and entertainment (GHE). The giving
and receiving of GHE must always bereasonable, proportionate, transparent,
and in line with local legislation. If not,this may damage our reputation. We
believe the purpose of GHE should be topromote healthy business relationships,
while not to seek preferential treatment
in return. For government and public

officials, all GHE exchanges for any JT
Group company, regardless of amount,must be approved. Based on our Gifts
and Entertainment Guidelines, eachdepartment sets thresholds on theamount of each exchange.
In our international tobacco business, all
GHE exchanges with non-governmental
third parties above 250 U.S. Dollars
must receive prior approval.

In 2016 our international tobacco
business provided online training
to 1,151 employees (2015: 927)
to help them understand the GHE
requirements.
The number of requests for GHE
approval in our international tobacco
business in 2016 was 702, comparedwith 738 in 2015.

Anti-competitive behavior

66.9%

*E

of employees received
anti-bribery andcorruption training

Our Codes of Conduct underpin the
JT Group’s strong commitment tofair competition. At all times, ourcommercial strategy and actions
must be determined independently ofcompetitors. Our international tobacco
business has in place a competition law
policy and guidelines, recently updated,that are designed to ensure that its
business operations are conducted fairly
and in compliance with competition
laws wherever it does business.
In order to help employees understandthe principles of fair competition
and the standards of the policy andguidelines, face-to-face training isprovided across our international
tobacco business to all relevant
employees, with online training alsoavailable to complement this asnecessary.

20

21

“It was clear to me that the JT Group was taking the stakeholder engagement
session very seriously. Several experts were flown in from abroad, and we hada substantive discussion with people at a senior level. Unlike similar sessions
I have attended with other companies, the JT Group seemed to understandthat short-term solutions are insufficient, and that it needs to include respectfor human rights in the core of its business model. It will surely take time forhuman rights to be incorporated in this way, but I am encouraged to see that
the Group is heading in the right direction.”
JT Group stakeholder dialogue participant from a human rights advocacy organization

Respecting
humanrightsRoundtable on human rights

Issue in focus

to the Company that occur throughexposure to human rights violations.
We have made significant progress insome areas, including by working toprevent child labor in tobacco farming
communities (see pages 49–50), byworking closely with our tobacco

leaf suppliers on labor standards (seepage 47), and on a daily basis in theworkplace (see pages 48–53).
More generally, we have sent out astrong message on the importance ofhuman rights through our Codes ofConduct.

Launching a human rights policy
Although we have been identifying andaddressing human rights issues in our
day-to-day operations, over the past
two years we have been working on amore systematic approach to humanrights issues.

As a result, in September 2016 welaunched the JT Group Human
Rights Policy, which commits us
to respect human rights across ourglobal operations as expressed in theInternational Bill of Human Rights andin the ILO’s Declaration on Fundamental
Principles and Rights at Work.

The policy follows the UN Guiding
Principles on Business and Human
Rights and helps to deliver on ourmanagement principles as set out in our“4S” model. The policy complements
our Codes of Conduct (see page 18).

It was felt that it is important for the
JT Group to set up and monitor key
performance indicators that support
implementation of its Human Rights
Policy and also that all employees needto understand the JT Group’s underlying

rights. A similar program will be
introduced in our international tobacco
business. This will be made available
in 35 languages, covering all countries
in which we operate, with a viewto completion by all eligible Group
employees in 2017.

Due diligence process
The policy commits us to undertake asystematic due diligence process to
identify and assess actual and potential
human rights risks.
In the first phase of this process, wewill run several pilot programs acrossour businesses. These will use acombination of interviews, surveys,
field visits, and questionnaires to assess
actual and potential risks.

human rights principles so that theyknow how to respect human rights intheir daily operations.
Roundtable participants additionallyconcluded that a dialogue with external
stakeholders on human rights topics
is critical, as they can provide the JT
Group with information about humanrights risks of which it may be unaware.
Going forward we will seek to addressthese points in our approach toward
human rights issues.

The aim is for these pilots to provide
us with a system of due diligence thatcan be rolled out globally, adopting
different approaches appropriate to
local conditions where needed.

92.0%

*C

of employees completed
e-learning on businessand human rights in 2016

In our international tobacco business,
we are also creating a plan to engage
with suppliers on due diligence,
partly through our supplier life cycle
assessments (see page 47).

Next steps
We will act upon the findings of the due
diligence process to seek to mitigate
and prevent any adverse actual andpotential human rights impacts.
We will then track the effectivenessof our actions and will publicly report

22

The roundtable concluded that the JT
Group is in a strong position to thinkglobally and act locally on humanrights, and that its influence should beleveraged not only within its businessparameters but also within its supply
chain.

Training
We informed employees about thelaunch of the Human Rights Policy
via various internal communications,
including our intranet. In addition, inJapan we implemented an employee
e-learning training program to raiseawareness on business and human

Our approach
The JT Group operates in parts of theworld where human rights are at risk.
We strive to make a positive impact
on communities in these territories
by helping to make sure the highest
standards of behavior are upheld within
our business and our value chain. At thesame time, we also aim to reduce risks

The Human Rights Policy wasdeveloped in consultation with internaland external stakeholders, including
through a roundtable in Japan in
March 2016, following a roundtablethat our international tobacco businesshosted in London in 2015. Six humanrights experts from around the worldand nine JT Group senior executives
participated in the Tokyo roundtable anddiscussed key human rights impacts
faced by our Group – as well as details
and expectations of the Human Rights
Policy.

on our progress on implementing
the policy at least annually, including
through our Sustainability Report.
We know there is still much to do andwill seek to update our policy as wemove forward.
23

OUR GROUP

Employee development andtalent management

Our people
JT GROUP HUMAN RESOURCES
MANAGEMENT PHILOSOPHY
In order to contribute to the Company’s sustainable growth, and withthe recognition that highly skilled, talented, and diverse people are thefoundation of its success, JT Group management strives for the highest
level of employee satisfaction with a long-term view.

4

In 2016

employee, contractor, andthird-party fatalities(2015: 3)

TREAT ALL EMPLOYEES FAIRLY AND RESPECTFULLYENSURE TRANSPARENCY OF RULES AND STANDARDSPROVIDE ALL JT GROUP EMPLOYEES WITH GROWTH OPPORTUNITIES

Lost-time incident (LTI) rate:

0.42(2015: 0.36)

12.7%

of management positions
held by women(2015: 11.4%)

In 2016 our international tobacco
business was again certified as a
Global Top Employer for its consistenthigh-quality work environment,
and we were recognized by the Top
Employers Institute in 33 countries
around the world.
24

91.8%

A highly motivated and competentworkforce is an important factor
in sustainable business growth.
We therefore believe in creating awork environment that inspires our
employees, promotes their self-driven
development, and nurtures excellent
performance.
In 2016 the JT Group identified talentmanagement as a key mid- to long-term
focus area to contribute to Company
growth. On-the-job learning is central tothis, but as a complementary measure,various kinds of employee development
opportunities and training programs arealso provided. We continuously review
our programs so that we can meet theaspirations of employees, helping themto contribute even more effectively tothe future success of our business.

Designated talent management
teams, appointed with sponsorship at
executive committee level, are in chargeof a number of initiatives, including
new learning and development
strategies, the continuous review of
our assessment and development
procedures, the improvement ofour career progression systems
and strategic support to succession
planning.
In JT, the evaluation of managers’
performance now places moreemphasis on how they promotetalent development, to reflect thefact that employees’ performanceand motivation are largely driven bymanagement support. The weight given
to performance in this area increased
from 10% to 20% in 2016. This change

was supported by six training sessions,attended by 289 managers, designed tohelp them prioritize talent development.
Providing constructive feedback is key
to employee development and talentmanagement. In 2015 we carried out
performance appraisals with 79.7% of
our workforce. Performance appraisals
conducted in 2016 are currently being
evaluated.
To attract the best, we offer excellent
career development opportunities, highquality training, and competitive salaries
and benefits. In 2016 our international
tobacco business put a focus oncommunication with future hires anddirect candidate search through keysocial media channels such as LinkedIn
and Facebook.

of management positions
filled by internal hires
25

OUR PEOPLE

Being a responsible employer

Diversity in the workplace

As a responsible employer, we maintain an open dialogue with employees, making use of a

A diverse workforce provides us with different perspectives that feed positively into ourwide range of tools, including notice boards, face-to-face meetings, and digital communication

business, suggesting new ways of doing things and making us more competitive. In 2016 ourand engagement tools.

employees came from more than 100 countries, but beyond national diversity we value diversityof opinion. We encourage people to express their personalities and create a work environmentthat fosters fairness, creativity, and innovation.

We also aim for open and constructive
relations with trade unions and works
councils, and support the freedom of
association and the right to collective
bargaining, even in countries where thisis not legally required.
We run an Employee Engagement
Survey (EES) as a tool to enhanceorganizational strength for sustainablegrowth, looking into whether eachdivision has a working environment
where employees’ engagement
toward the Company is high, as their
engagement level and performanceare closely related. One of the ways inwhich we use the EES is to ask eachdivision to review its specific EES
results, discussing how to address
issues relevant to the division internallyand acting upon these themselves.
In our Japanese domestic operations,the results of the EES in 2016 showed
positive scores in relation to whether
respondents thought their division
appropriately followed up on last year’s
results. The score in this area increased
by 9.8%, compared with 2015. This

26

allows us to be confident that those in a
management position proactively follow
up on EES results to make their divisionstronger. In 2016 we held workshops
for around 140 senior management
responsible for organizational
development, to share best practices
in effectively utilizing feedback from
employees.
In our international tobacco business,
EES results generally vary according
to local circumstances, so we respondwith local action plans rather thanadopting a one-size-fits-all approach.
However, one common theme was
employees expressing a need to have aclearer view of their career development
options. We are looking into waysof achieving this, including throughcommunications that increase clarity
and transparency in this area.
Group-wide, we plan to give further
support to senior management so thatthey can nurture a culture where each
employee can thrive and deliver theirbest performance.

We are determined to foster work
environments that are free from all
forms of discrimination. We do notallow age, gender, disability, ethnic
origin, marital status, nationality, race,
religion, beliefs, or sexual orientation
to influence decisions about the career
progression of employees, nor to bea factor in areas such as recruitment,compensation and benefits, or
succession planning.
An important aspect of our effort toensure that work environments are freefrom discrimination is our commitment
to gender equality. We do not makedecisions about our employees’ payon the basis of characteristics such as
gender, and salary structures in mostoperations across the JT Group are set
up to take into account only a position’s
significance and responsibilities. Thissystem is designed to ensure equalpay for equal positions, allowing
some variability driven by merit andperformance over time but not bygender.

While 27.3% of our employees are
women, only 12.7% of our management(excluding Executive Officers) is female.
We have set targets to increase this
proportion.

section on our intranet site. We held
various training programs for womenat each job level, which focused on
encouraging them to pursue a careerdevelopment path.

Female representation withinmanagement in JT increased from
4.0% (*B) at the end of 2015 to
4.7% at the end of 2016, against ouraim of reaching 10% by 2023. Ourinternational tobacco business is aiming
to have 30% female Directors by 2020.
At the end of 2016, 28.4% (*E) of
Directors were women, up from 27.6%
in 2015.

JT also put in place a support systemcalled ‘Work Style Plus’ for employees
who care for children or elderly
parents. This helps them express theirtalents by overcoming economic ortime constraints. The introduction of
support systems like Work Style Plusis fully aligned with our goal to support
the diversity of our human capital. To
further support this strategic goal, we
also promoted a series of development
programs to enhance managers’
mindsets and behaviors toward thework-life balance of themselves andsubordinates. By attending these
programs, managers understand thevalue of a balanced work-life style for
their team as a strategic enabler of the

In JT, we established a Diversity
Development department to promote
decent working conditions in which
diversity is respected. To promote
diversity, we implement various
initiatives including workshops andseminars for managers and a special

best results for the organization. We
held eight sessions in 2016, and 94.9%
of managers in scope participated in thesessions.
In 2016 we held two one-day seminars
for employees at our headquarters inJapan to raise awareness of lesbian,gay, bisexual, and transgender (LGBT)
issues, and we plan to expand activity
in this area from 2017.
Our international tobacco businessdrives a number of programs topromote women into leadership
positions. For example, in 2016, 50% ofseats were allocated to high-potential
females on its Executive program ‘LightUp,’ which supports the development of
future leaders with a specific focus on
women in leadership roles.

EMPLOYEES BY POSITION AND GENDER AT THE END OF 2016

3.0%

67
EXECUTIVE OFFICERSFEMALE

MALE

12.7%

97.0%

3,359
MANAGEMENT(EXCLUDING EXECUTIVE OFFICERS)FEMALE

MALE

87.3%

28.7%

71.3%

37,412EMPLOYEES(EXCLUDING MANAGEMENT AND
EXECUTIVE OFFICERS)FEMALE

MALE

27

OUR PEOPLE

Workplace health and safety

SafetyWe aim to enhance safety byconcentrating on three areas: safety
culture, safe workplaces, and safetycompetence.

Providing a safe and healthy workplace environment for our employees is fundamental to

The highest safety risks across the
JT Group are associated with drivingof vehicles, working at height, andwith slips, trips, and falls. Working
with machinery is also an important
issue, and in 2016 our international
tobacco business continued to survey
all production sites against our global
standards on the safe operation ofmachines and equipment. Areas ofnon-compliance were identified andmeasures were put in place to eliminate
them.

our business. It is also an important way to support sustainable growth, not least because ahealthier workforce contributes more fully to our business.
Our standards on health and safety
usually exceed legal requirements,
and their scope extends beyond our
employees to cover contractors andvisitors in our operations. Well-being
programs often also include family
members of employees.

One other key area of activity in 2016
was our motorcyclist risk management
program, which reaches all of the morethan 400 people in Malawi, Zambia, andTanzania who use motorcycles in theirwork for us – usually to visit tobacco
farmers. A motorcycle risk management

WORKPLACE HEALTHAND SAFETY DATA*NUMBER OF
FATALITIES**NUMBER OF
LOST-TIME
INCIDENTS (LTIS)

FY2012FY2013

2014

2015

2016

TARGET

1

1

2

1

1

0

0 (*E)

0 (*E)

3 (*E)

1 (*E)1

0

EMPLOYEES

N/A

N/A

113

154

186

N/A

CONTRACTORS

N/A

N/A

12 (*E)17 (*E)

8

N/A

0.28

0.26

0.32

0.36

0.42

N/A

89.7%

85.4%

81.0%

78.9%

77.8%

100%

1,508 (*E)

1,362 (*E)

1,341 (*E)

1,108 (*E)

1,294 (*D)

N/A

7.1 (*E)

6.1 (*E)

5.9 (*E)

4.8 (*E)

4.4 (*D)N/A

EMPLOYEESCONTRACTORSEMPLOYEE LTI RATE(NUMBER OF LTIS PER 200,000 HOURS WORKED)% OF CIGARETTE AND TOBACCO-RELATED
FACTORIES CERTIFIED TO OHSAS 18001(*D)
NUMBER OF VEHICLE ACCIDENTS
VEHICLE ACCIDENT FREQUENCY RATE(ACCIDENTS PER MILLION KILOMETERS)

course is provided annually in Malawi
and Zambia, and was introduced in 2016
in Tanzania – with refresher training atleast every three years. In Tanzania, we
contract out delivery of the course to a
local safety school. It runs the training
using our program and materials toensure consistency in the delivery to ouremployees and the local community.
We regret to say that in 2016 there werefour fatalities across the JT Group – allin Zambia. One of our employees died ina motorcycle accident, and a contractor
was killed due to the collapse of atelecommunications mast. There were
two separate third-party fatalities whenemployees, outside of work time but
driving company cars, collided withpedestrians, who died as a result. In
each case, investigations were carriedout and, where necessary, remedial
measures were introduced to avoid
similar incidents.

Our LTI rate for employees increased in2016 from 0.36 to 0.42, partly due toa rise in the number of slips, trips, andfalls in certain parts of our business. We
are working to address these issues.
Standards are key to instilling astronger safety culture. In 2016 ourinternational tobacco business launched
a contractors’ safety management
standard supported by training for 10
employees who will now train others
in seven countries. The initial round of
training focused on high-risk countries;
in 2017 we aim to reach all relevant
employees.
We maintain robust management
systems and assessment proceduresthat identify workplace risks. Of ourtobacco-related factories, 77.8% arecertified to the OHSAS 18001 safety
management standard – against a targetof 100%.

* Unless otherwise specified, 2016 safety data covers the entire JT Group. The scope of reporting for contractor fatalities and LTIs, as well as vehicle accident data,
has expanded in 2016 over previous years. Further details on the scope of data can be found in the Basis of Reporting document.
** Excludes third-party fatalities. For details on third-party fatalities, please refer to the Safety section.

28

29

OUR PEOPLE

Employee healthManaging chemicals safely

In 2016 our international tobacco
business launched a bespoke online
system – called SDS (Safety Data
Sheet) Manager – to help manage
data, communication, and storageof potentially hazardous substances,which, if not effectively controlled,
could cause occupational diseases
in our workers. While not used in our
products, these substances are used
In 2016 our international tobacco
business launched a framework toassess in a more consistent way
employee exposure to health hazards,
beginning with noise and dust. Key
to the framework is a new metric, theExposure Potential Index, based on
the level of noise or dust at standard
sample points, defined throughidentification of significant exposuresources, together with the amount oftime employees work at that exposuresource. A database was developed in2016 to collect and analyze data and tohelp us identify priorities for action.
In 2016 our international tobacco
business also completed thedevelopment of an ergonomic risk
assessment tool that provides a system
for analysis, assessment, and control
of musculoskeletal problems. We
produced a global standard and user
guide for the tool, and in 2017 will
launch complementary online and faceto-face training courses.

30

During the year our international
tobacco business established an online
pre-travel health assessment process,
MyTravelHealth, to help employees
traveling to areas with health risks suchas malaria and deficient health care. In
addition, we trialed malaria prevention
guidelines in partnership with thehuman resources team in Malawi, alongwith e-learning, education materials,
and on-site visitor induction. Once
finalized, the guidance will be rolled out
for all employees traveling to malariarisk areas.
In our international tobacco business,
we also reviewed and updated ourapproach to pandemic preparedness.
We continue to monitor the situation
with regard to potential pandemics andepidemics, and how this may impact
our business.
In JT, to offer a health promotion
program for the prevention of diseases
and consultations on lifestyle issues, wefor activities such as manufacturing,
engineering work, maintenance, andcleaning.
The system stores information on
more than 3,700 substances in one
place and is globally accessible,
allowing us to automatically produce
multi-language, one-page summary
sheets and labels for containers. This
information identifies the chemical

inside the container, its potential healtheffects, and any protective measures tobe taken in an emergency. The system
also allows for easy assessment of how
substances should be stored.
The system, together with a supporting
hazardous substance management
standard, will provide a more robust
global approach to this issue.

have a medical staff of 14 doctors and36 public health nurses across 11 officelocations. They undertake face-to-faceinterviews with all full-time employees
based on the result of each medical
examination, providing advice on
exercise and diet.
To enhance awareness of health issues,in JT we invited teachers of yoga andkick-boxing to provide fitness lessons
for employees as part of our new
Offispo program of sporting activities
that can be carried out in the office.
More than 500 people took part in these
events across 10 sites, and we plan toexpand Offispo in 2017.
We provide all employees in Japan
with annual mental health checks.
Anyone found to have high stress levels
is offered a consultation with one ofour doctors. We also run seminars for
employees on the prevention of stress.

“The summary sheet and label functions in SDS Manager
allow me to automatically produce documents in the common
Swiss languages of French, German, and English, and otherlanguages spoken on-site such as Romanian and Polish, whichmeans I do not need to write them manually. This also ensuresthey are correct, up-to-date, and meet legal requirements.”
Arnold Hurschler, EHS Manager, Switzerland

31

OUR GROUP

Environmental management
The three main drivers behind our strategy to reduce environmental impacts are ourOur planet

responsibility as a corporate citizen, our business performance, and regulatory requirements.
As a responsible business, we are committed to protecting the environment for future
generations. Additionally, by reducing our environmental impacts we also cut costs, conserve
resources, improve our performance, and enhance our reputation.

In 2016714

thousand tons of CO2e in
Scope 1 and 2(2015: 719 thousand tons)

77%
waste recycled(2015: 77%)

9,896

thousand m3 of water withdrawn(2015: 9,753 thousand m3)

0.65

tons of CO2e per million cigarettes
equivalent for tobacco business(2015: 0.65 tons)

113

thousand tons of waste
generated(2015: 119 thousand tons)

80%

ISO 14001 certified cigaretteand tobacco-related factories(including Group factories)

Recognized for the first timeon the Climate A List by CDP

32

Our environmental management
approach is laid out in ourEnvironment Charter, which requiresthat where practicable we reduce
our environmental impacts in all thecountries in which we operate, andacross our value chain.
The charter is supported by the JT
Group Long-term Environment Plan
2020, which sets out our environmental
objectives and targets relating togreenhouse gas (GHG) emissions,water and waste management, andbiodiversity.
Our Executive Deputy President
has responsibility for environmental
management, and our Group Executive
body monitors environmental
performance.
For our Environment Charter, please
visit www.jt.com/csr/environ/management/index.html, and forhistorical data on our environmental
performance, please visit www.jt.com/
csr/environ/data/index.html.

JT GROUP LONG-TERM ENVIRONMENTPLAN 2020

Minimize our contribution to global warming witha target of 20% reduction of GHG emissions andintensity by 2020

Protect water resources through sustainable useof waterPrevent waste, promote recycling, and optimize
resource use

Conserve biodiversity through promoting sustainablestewardship of the natural environment

Environmental management systems
To ensure a consistent approachacross the JT Group, we have anenvironmental management system
based on the ISO 14001 standard. In
2016 all of our Japanese domestic
tobacco business factories and 73%
of our international tobacco businessfactories were ISO 14001 certified.
By 2020 we aim to achieve 100%
certification. We have carried out a gap
analysis against the requirements of therevised ISO 14001:2015 standard, and

our Kansai factory was certified to therevised standard in 2016.
As a result of feedback from the ISO
14001 audits, our international tobacco
business improved classificationand segregation of waste, provided
guidance to factories on reducing theuse of ozone-depleting substances inrefrigerants, and issued guidelines on
hazardous substance management.

In 2016 our international tobacco
business set out a strategy for its
factories to formalize their energy
management systems and seek
certification to the ISO 50001 standard
for energy management systems.
Through these initiatives, factories can
reduce their GHG emissions and costs,
and better integrate their energy andenvironmental management systems.
By the end of 2016 four factories werecertified to ISO 50001.
33

OUR PLANET

GHG emissions

GHG EMISSIONS IN OURVALUE CHAIN IN 2016

COMBINED SCOPE 1 AND 2 GHG
EMISSIONS (CO2e thousand tons)(CO2e thousand tons)

1,000
8%

Climate change is one of the biggest environmental challenges the world faces today. From a512business perspective, it poses a threat to the supply of key raw materials, given the potential

use and GHG emissions.
The 2015 Paris Agreement committed
the world to keeping global warming
to significantly less than two degrees
Celsius, compared with pre-industrial
temperatures. As a business, we areconsidering how this may influence
our management approach, including
whether science-based targets areappropriate for our business.

11%

5%

385

20.0% REDUCTIONON FY2009

371

356

340

368

500

714

349

negative impacts on tobacco crops, as well as on the production of many of the non-tobacco
materials used across our supply chain. It is therefore in our interest to reduce fossil fuel energy

394

475

421

407

400

379

2014

2015

346

11%

735

FY
2009

6,513

FY
2012

FY
2013

2016

BASE
YEAR

2020
TARGET

SCOPE 1SCOPE 265%

4,203
GHG EMISSIONS INTENSITY FOR TOBACCO
BUSINESS (CO2e tons/million cigarettes equivalent)
1.00
SCOPE 1 AND 2

0.80

0.75

0.74

0.70

FY
2012

FY
2013

2014

SCOPE 3
PURCHASED GOODS AND SERVICES

0.65

0.65

2015

2016

20.0% REDUCTIONON FY2009

0.50

TRANSPORTATION AND DISTRIBUTIONCAPITAL GOODSOTHERSFY2009

GHG emissions in our operations
In 2016 we continued to makeprogress toward our target of reducing
absolute GHG emissions by 20%
between 2009 and 2020. This relates
to emissions for which we are directly
responsible (Scope 1) and those fromour consumption of energy suppliedby third parties, such as electricity(Scope 2). In 2016 we cut Scope 1 and2 emissions by 1% over 2015. Savings
were largely achieved by initiatives toreduce energy use across all operations
and to increase renewable energy use.
We are making further efforts to reduce
our GHG emissions and hope to achieve
our emissions reduction target ahead ofschedule.
We continue to seek to reduce our
Scope 1 emissions through energy andfuel efficiency and better refrigerant
management.

34

Examples of initiatives include our Brazil
operations switching to bioethanol
vehicles and our pharmaceuticalbusiness enhancing the use of exhaust
heat energy in its laboratory.
Also, in 2016, we gained a better
understanding of refrigerant use
associated with our operations acrossour entire business. This has allowed us
to better account for refrigerant-related
emissions and provides us with better
information as to how we can reducethese through alternative refrigeranttypes and leakage reduction.
In order to further reduce our Scope 2
emissions, we carried out a review ofgreen energy availability in countries
where we operate. As a result of this,we have increased our consumption ofgreen energy (see Switching to green
energy).

Additionally, we continue to identify
opportunities for on-site generation ofrenewable energy. We have a number oflocations that use solar, hydro, biomass,
and ground-sourced energy. Examples
include the new headquarters buildingof our international tobacco businessin Geneva, which uses geothermal
ground-source heating and cooling, andour processed food factory in Thailand,
which uses a biomass boiler.
In 2016 our international tobacco
business developed a tool designed to
calculate the costs of reducing carbon
emissions. This marginal abatement
cost approach allows the business toprioritize emissions reduction projects
and initiatives.

2020
TARGET

BASE
YEAR

Switching togreen energy
Our review of available green energy
supply options has resulted in ourfactories and offices in Germany andRomania switching to zero-carbon
electricity tariffs. This has avoided
approximately 17,000 tons of annual
GHG emissions. Although this increases
our operating costs, we hope thatthe procurement of green energy willencourage further development of
renewable energy infrastructure.

35

OUR PLANET

GHG emissions in our value chain
As well as our own emissions, weseek to reduce GHG emissions acrossour value chain (Scope 3 emissions)– in particular, those associated withtobacco leaf, our main raw material,
which represents the largest single
source of Scope 3 emissions.
In 2015 we made improvements inthe way we collect life cycle data
within our leaf operations. This has
allowed us to more accurately reflectemissions associated with the growing
and supply of tobacco leaf, which arealso the Scope 3 activities over which
we have the most influence. Based on
this, we can focus our efforts on key
emissions reduction drivers, including
more efficient fertilizer formulations,

adapting curing technologies to reduce
fuel consumption, and establishingwoodlots and live barns (see page 51).
In addition, we ran a number ofenvironment-related training courses
with around 300 managers, supervisors,
and technicians in our leaf operations.
These help increase understanding of
the GHG emissions associated with
our activities, and show how climatechange can impact our business inmany ways. They also show individuals
how they can help to reduce emissions,both as employees and as members ofsociety.

Water
It is important for our business and the communities in which we operate that we understandand manage water-related issues. In 2016 water withdrawal increased by 1% due toacquisitions and adjustments to our calculation methodology. Without these changes, our water
withdrawal would have slightly decreased compared with last year. By aligning our reporting ofwater with international standards, we have a better understanding of the sources and uses ofwater across our business.

Reducing our Scope 3 emissions
related to flue-curing
Flue-curing is a crucial process thatdries tobacco leaves, but in Japanmachine dryers are typically poweredby oil, associated with high carbon
emissions. We identified that the bestway – and the reasonably affordable one
for tobacco farmers – to reduce fluecuring emissions was to ask the dryer
manufacturers to improve the energy
efficiency of the models already used by
farmers.
The resulting modifications haveincreased energy efficiency by 30% andreduced carbon emissions by 30%.

The added benefit to farmers is thatless heat is dissipated into their working
area, creating better working conditions.
In 2016 around 120 machines wereintroduced at our Japanese tobacco
farms. Because there are approximately
14,000 dryers in Japan, this is only
the beginning. Replacing a dryer isexpensive, so we have set up a subsidy
mechanism for farmers that we hope
will encourage them to make newpurchases.

Although we do not have Companywide water reduction targets, allbusiness units establish annual water
withdrawal targets, which are approvedby headquarter functions.
Water-related issues pose potential
risks to our operations and across ourvalue chain. These include risks related
to the availability and quality of water,
flooding, regulations, and reputation.
In 2016 we completed the pilot phase of
our water risk assessment. This process

has already resulted in increased
awareness of water risks, putting us in abetter position to manage such issues.
The water risk assessment methodology
will be rolled out across our businessover the coming years.
In 2016 our international tobacco
business invited 35 suppliers todisclose information relating to water
management through the CDP supply
chain program. We made use of thisinformation through a risk assessment

process to improve our understandingof water risk and management practices
among our suppliers.
One challenge we face is finding
the best environmental balance at aparticular location. For example, inorder to reduce energy use at one of
our production facilities, a cold steam
generator humidifier was installed. Thishas significantly reduced energy use but
increased water consumption by 13%.

WATER WITHDRAWAL (thousand m3)
15,000

CDP update

12,113

In 2016 our CDP climate change score
was A, which is the highest possible. As
a result of this, the JT Group was oneof only 18 consumer staples companies
globally to be included on the CDP
Climate A List.

10,000

CLIMATE36

11,354

FY
2009

FY
2012

10,457 10,234

FY
2013

2014

9,753

9,896

2015

2016

37

OUR PLANET

Waste

Biodiversity

Our Long-term Environment Plan 2020 sets out our approach to managing waste, according to

In line with our Long-term Environment Plan 2020, we work within various parts of ourthe ‘Reduce, Reuse, Recycle’ waste hierarchy.

business to maintain and enhance biodiversity. In particular, we help our farmers – who need ahealthy and balanced environment to produce quality tobacco – to understand biodiversity as
an integral component of crop production and to adopt good agricultural and environmental
practices in their farms and communities, which are usually located in biologically diverse
areas.
In Western Zambia, for example, weare promoting tree planting initiatives
to support the buildup of wood
resources for tobacco production and to
improve livelihoods and environmental
quality. We are also focusing efforts
on promoting the rehabilitation of
degraded Miombo woodland areas inpartnership with local communities.
This involves working to introduce
sustainable and responsible
management practices and harvesting
regimes that restore and/or maintainthe amount of forest products available,
while enhancing overall biodiversity
associated with the Miombo woodland.

Waste is generated across our value
chain, including by our raw material
suppliers. We work with farmers andother suppliers to help reduce waste,
and we are working to better

We have recorded waste data since1995 and have programs to improve
our waste management practices,
especially in our factories, where mostwaste originates. We recycled 77%of the waste we generated in 2016,
compared with 77% in 2015.

WASTE GENERATION (thousand tons)

understand wastes associated with our
emerging products (see page 63).
Our total waste generation in 2016
decreased by 4% over 2015.

BREAKDOWN OF WASTE GENERATED IN 2016 (%)

15%

200
145

124

RECYCLING
RECOVERY

117

118

119

100

113

DISPOSAL

8%In Brazil, we are in the second phaseof a pilot biodiversity inventory andmonitoring project, in partnership withan NGO and farmers. The project is
helping our leaf production teams andcontracted growers to begin to view
biodiversity as being integral to their
day-to-day life and work, and to give
special attention to compliance withenvironmental regulations.
We work with universities and NGOsin various countries to help us withresearch on the fauna and flora intobacco growing areas and to provide
advice on environmental regulation
requirements, restoration, andconservation projects.

113

FY
2009

FY
2012

FY
2013

2014

2015

2016

thousand tons

77%

38

39

OUR GROUP

Ourcontributions
to society

Our approach
As a multinational business, we are part of creating a sustainable future for all. Our international
outlook and our business presence across the globe gives us a valuable perspective on many of
the world’s social challenges. We also have the resources and skills needed to tackle someof these.

In 2016

7,446
million Yen contributed
to corporate community
investment, including cash
contributions, management
costs, volunteering time, andin-kind contributions

In the U.K., we continue tohold the CommunityMarkfor excellence in community
investment from Business in theCommunity. We are one of only
34 current holders

2,114
employees and their family
members donated 24,957
volunteering hours to help
others40

Through long-term partnerships withcharitable partners, we address social
issues, protect the environment, andsupport disaster management. In
addition, we have a long tradition of
supporting arts and culture, an area
in which we are keen to maintain ourcommitment while widening accessto all.
We support these four focus areas
through financial contributions,employee volunteering, and theendowment of a charity, the JTIFoundation, to which we contributed
317 million Yen in 2016. During theyear we contributed a total of 7,446
million Yen in corporate community
investment.
In all, we have 347 community
investment programs across 62
countries.
All our community investment activities
are managed by a dedicated community
investment coordinator located in the

country or region where a program is
implemented, supported by the CSR
team at Group level. The JT Group
Community Investment Policy guides
the implementation of our community
investment.
We use the LBG model, which is theglobal standard for measuring corporate
community investment, to report on our
activities.
By encouraging a strong elementof employee engagement in ourcommunity investment, we contributeto the creation of an inspiring
workplace that generates pride andmotivation among our people, andhelps employees with their personal
development.
Through our community investment
activities, we also strengthen our
reputation as a trusted and responsible
corporate partner that is able to make apositive economic and social impact incountries in which we operate.
41

OUR CONTRIBUTIONS TO SOCIETYOUR FOUR FOCUS AREAS

Social welfare

Project Ikotos in South Sudan

To address the needs of the

Economic crisis, conflict, andlow rainfall has led to oneof the worst food shortages
ever in South Sudan, with 4.9
million people facing severe
food insecurity. To help tackle
this poverty and vulnerability,
we worked with the charity
Emerge Poverty Free to boost
agricultural production, improve
adult literacy and numeracy,and empower women throughbusiness skills training.

most vulnerable in communities
where we operate, and to
involve our employees insharing their skills and timewith the community wheneverpossible735

people benefited fromagricultural training

600 adults upskilled theirnumeracy and literacy

269 women received“With the support of Project
Ikotos, I have gained a lot
through studying. Once
I achieve my academic
certificate, I can better my life
through getting a job.”
Elizabeth,
Project Ikotos participantbusiness skills support

Environmental
protection
To promote respect for theenvironment through our
initiatives addressing thesustainable management of
natural resources, especiallyforests and green public
areas

9 forests protected36.8 hectaresof land maintained

12

events were held inwhich our volunteers gave
hours of their time

431

42

JT Forest program in Japan
Japan’s large forest landscapes
were weakened by periodsof deforestation followedby rapid reforestation. Thishas threatened the delicate
biodiversity balance. To help
better protect these forestry
assets, JT and Japanese
domestic Group companies
have supported this flagship
Forest program since 2005,
including by planting trees andmaintaining them with the helpof volunteers.
“Over the last six years I’ve
seen our continuous effort
transform a project site. Wildlife
is now taking over our forest.
I feel very proud to be part ofthe program and volunteer mytime.”
Daisuke Fujimaki,
Deputy Manager, General
Administration Department,
JT Tokai Area Sales HQ

Arts andcultureTo support arts and culture
and continue investing in thedevelopment of programs that
render culture more accessible
and inclusive, reflecting ourcommitment to openness,tolerance, and fairness insociety

298 disabled adults able

to visit

3

Widening access to the arts in Italy
To break down barriers forpeople with disabilities, wehave provided funding for anaccessibility project at theTeatro alla Scala Museum in
Milan. Each week, free entry
and carefully curated tours
using sounds, sign language,
and accessible routes are on
hand. This tailored experience
makes attendance possible forthose who may not otherwise
be able to visit.
“We are especially proud of
the JTI-supported accessibility
project which has allowed
us to offer dedicated time todifferently abled visitors. With
this help, La Scala confirms its
desire to be the theater for all.”charities partnered withLa Scala

Alexander Pereira,
General Manager and Artistic
Director of the Teatro alla Scala

Disastermanagement

Supporting risk reduction in Indonesia

To make communities safe,
sustainable, and more resilient
to natural and man-madedisasters through JT disastermanagement programs andthe endowment of the
JTI Foundation

352 brickmakers trained
120

small enterprises
supported

In line with its focus on disasterrisk reduction programs, the JTIFoundation supported the NGO
Build Change’s Better
Building Materials projectin Indonesia. A practical
approach to increased disaster
resilience, the project trains
local brickmakers to makestronger bricks so that houses
are more resistant to frequent
earthquakes.
“It’s not an earthquake itself
that kills people, it is thecollapse of their buildings.
This is completely preventable.
Build Change sees this asboth a social justice issue andan engineering challenge –something we want to help fix.”
Dr. Elizabeth Hausler,
Founder and CEO of Build Change© LOLA GOMEZ

43

OUR BUSINESSES

Our tobacco
business

Overview
Our value chain is large and diverse, with more than 43,000 directly contracted farmers
supplying us with half of our tobacco leaf requirements, the other half coming from merchants,
and around 27,000 suppliers providing non-tobacco materials and other products and services,
including for emerging products. Managing sustainability across our value chain is a complex
operation, which includes, among other things, manufacturing, processing, warehousing, anddistribution.

In 2016TOBACCO

BUSINESS VALUE CHAIN
Made further progress
on developing a life cycle
management system to enableassessment of suppliers against
the JT Group Supplier Standards

NON-TOBACCO
MATERIALS

OTHER PRODUCTS
AND SERVICESTOBACCO LEAF

43,000+- DIRECTLY CONTRACTEDFARMERS- THIRD-PARTY MERCHANTS400+
SUPPLIERS

27,000+SUPPLIERS

OUR SUPPLIERS

29
Established Group-wide Global
Tobacco Marketing Principles
and made them publicly available
on our website

7

LEAF
THRESHING AND
PROCESSING
FACTORIES

4

LEAF STORAGE
WAREHOUSESFACTORIESOFFICESOUR COMPANY

973

44

intelligence reports provided
to law enforcement
agencies, leading to theseizure of more than 911
million illegal cigarettes

9,742
Launched Ploom TECH,
our new innovative T-vapor
product, in Japan

children taken off farms andinto schools

500+

WAREHOUSESDISTRIBUTIONSALES IN

120+
COUNTRIESOUR CUSTOMERS & CONSUMERS
45

OUR TOBACCO BUSINESS

Supply chain management

Upholding and monitoring standards

We strive to adopt an integrated approach to managing sustainability issues across our tobacco
supply chain, and over the past few years we have been adapting our procurement systems tohelp with this process.
The largest part of our supply chain is
tobacco leaf, which is the core of ourbusiness. In addition, we use suppliersof non-tobacco materials such asfilters and papers, and services suchas marketing support. We also havea separate supply chain for emerging
products.

All suppliers to our tobacco businesses
are expected to uphold the standards
set out in the JT Group Responsible
Procurement Policy, the JT Group
Principles in Leaf Tobacco Production,and our JT Group SupplierStandards. Tobacco leaf growers are
subject to our Agricultural Labor
Practices (ALP) program.
In 2016 our international tobacco
business made significant progress
on developing an IT-based supplier
life cycle (SLC) management systemthat will enable assessment of ourdirectly contracted suppliers against ourstandards, including on key compliance,
environmental, and social risks.
While the SLC system assesses our
non-tobacco leaf suppliers, ALP looks at
the labor practices of leaf suppliers. Our
farming experts, who are all fully trainedon ALP, observe labor practices during
farm visits, report on their findings,
give advice to farmers, and agree
improvement programs.
In 2016 we continued implementing
ALP with our directly contracted
farmers as well as with indirectly
contracted farmers through our tobacco
merchants. As a result, we now have46

a far better understanding of what isgoing on with our indirectly contracted
farmers. Our ALP reporting coverage inthis area moved from 0% of sourcing
countries in 2015 to around 70% in
2016.
While we have made significant
progress in regards to ALP
implementation, there is still much to be
done. For example, implementation incountries where there is no relationshipwith the farmer remains a challenge.
We will continue to tailor our approachin these countries. However, thismay have an impact on our ability to
implement ALP in all sourcing countries
by 2019.
During 2016 we developed an
implementation plan for ALP in Japan,
which includes a pilot study that will
cover 20% of farmers in 2017.
Our international tobacco business isalso working to build an understandingof social and environmental issues
within its emerging products supply
chain through visits to key e-cigarette
suppliers in China in 2017. These visits
will identify good practice and offer
suggestions for areas of improvement.

47

OUR TOBACCO BUSINESSOur tobacco leaf supply chain

Improving social and labor conditions
By improving social and labor
conditions in tobacco farming areas, wehelp to create sustainable and healthy
communities that can supply us withleaf into the future.

We are committed to securing the long-term
supply of quality leaf tobacco at the best cost

At the core of our work on social
conditions is our ALP program, which
defines the standards expected offarmers on issues such as preventing
child labor, respecting workers’ rights,
and maintaining adequate health andsafety conditions.

– creating value both for the JT Group and for
tobacco farming communities. To do so, we
use a tailored approach to work with tobacco
leaf farmers to improve their economic, social,

In response to our ALP observations,
we invest, for example, in social
programs designed to improve
livelihoods of growers and theircommunities, encouraging sustainable
farming and promoting responsible
business conduct.

and environmental conditions.

Our Grower Support Programs improve
the quality of life for people living infarming communities by overcoming
issues such as access to safe drinking
water and education. The programs
make a positive contribution to social
conditions, help to uphold the rights
of workers, and promote higher
labor standards in the field. In 2016
we ran 203 such programs in 275
communities: 9 in Brazil, 104 in Malawi,
15 in Tanzania, and 75 in Zambia.
We estimate that the programs

Improving economic conditions
Helping to deliver long-term profits tothe farmers who supply us is not always
easy, as some of the factors that affectprofitability, such as the weather, areout of our control. Nonetheless, we areable to work directly with farmers on
three key areas to help them improvetheir income: price, production costsavings, and efficient and innovative
farming practices.

more efficiently has helped to improveyields per hectare, leading to increased
long-term profits for farmers. Improved
mechanization also allows farmers tomake better returns – in Turkey, we haveworked with 287 farmers in 21 villages
to introduce new machinery that has
reduced labor hours by 10%, thereby
reducing labor costs and increasing
profit margins.

Farmer profit is based on more thanjust price alone. By enabling farmers to
become more productive and efficientin the way they grow, harvest, and curetobacco leaf, we ultimately support
the farmer to use resources wisely
and responsibly, and increase profits.
By encouraging them to adopt our
minimum agronomic standards, we canhelp to cut costs through more efficientuse of fertilizers and agrochemicals.
This can lead, in some cases, to cost
reductions of around 20%.

These best farming methods are notlimited to tobacco. We encourage
the rotational production of otheragricultural crops on the same
farmland, providing farmers withadditional income, improving foodsecurity in impoverished regions,promoting soil conservation, andprotecting land resources for the next
generation.

In particular, we work closely with
farmers to ensure they use the best
growing methods, thus maximizing theamount of quality tobacco they canharvest per hectare. The greater theyield of quality tobacco per hectare, thegreater the farmer’s profit.
In Malawi, advice from our local
farming experts on how to grow crops
48

Rotational production is particularly
important as land availability andagricultural productivity come underincreasing pressure. In an effort
to improve farm productivity andreduce farm costs, we also invest in
research and development facilities
to find innovative ways of producing
tobacco. Our investment in innovation
also includes partnering with leadinginternational academic institutions.

Our Agronomy, Development,
Extension, and Training (ADET) centers
in Brazil and Zambia carry out research
into areas such as crop management,
soil fertility, production cost savings,
and mechanization. Results are passed
on to farmers to help them improve
quality and productivity – and ultimately
enhance returns in the long term.

Our ADET center in Zambia became
fully operational in 2016 and has been
focusing, among other things, on
research into curing facilities and new
tobacco varieties.

ARISE – Achieving Reduction ofChild Labor in Support of Education
is our flagship program, founded in
2011. The program develops andimplements activities and initiatives that
progressively eliminate child labor. It
uses a holistic approach that addresses
the underlying root causes of childlabor, and draws in representatives fromnational and regional governments andlocal tobacco growing communities.
ARISE raises awareness of theimportance of eliminating child labor asa social necessity. Its initiatives focus
on education and raising awareness,socioeconomic empowerment, andimproving regulatory frameworks insupport of improving labor practices.
The ARISE program is a public-private
partnership developed with Winrock
International and the ILO. It covers
Brazil, Malawi, Zambia, and, since 2016,
Tanzania.
In 2016 ARISE brought 9,742 children
into school, increased awareness of
48,723 community members aboutchild labor, and gave 1,847 households
an improved income.

KEY ELEMENTS OF ALP

One vehicle for passing on findings is
our annual ADET Day in Brazil, attended
in 2016 by 1,000 farmers, at which
demonstration plots were set up on
field sites at the ADET Brazil center near
Santa Cruz do Sul.
In 2016 our ADET center in Brazil
began testing a new type of tobacco
curing system, the Chongololo, which
is a continuous airflow system that
promotes efficient use of heated air
and will potentially deliver cost savings
for farmers. Depending on results, we
expect to make this system available tofarmers in Brazil by 2018.

benefited more than a half of ourdirectly contracted growers during theyear.

AGRICULTURALLABOR PRACTICESLABOR ISSUES MADE
TRANSPARENT

EXAMPLES OF IMPROVEMENT MEASURES
ARISE
ACHIEVING
REDUCTION OF
CHILD LABOR IN
SUPPORT OF
EDUCATIONGROWERSUPPORT
PROGRAMSGOOD

COMMUNICATIONAGRICULTURALAND

PRACTICESTRAINING

49

OUR TOBACCO BUSINESSARISE: OUR CONTRIBUTION TO PREVENTING CHILD LABORCOMMUNITYCOMMUNITY
MEMBERSMEMBERS2016
EDUCATEDINEDUCATEDIN
CHILD LABORCHILD LABORELIMINATIONELIMINATION

2016

2015

34,64034,640

CHILDREN
CHILDREN2016
OFF FARMS
OFF FARMS
AND INTOAND INTOSCHOOLSSCHOOLS

MALAWI
MALAWIBRAZIL
BRAZIL

2016

766766

In partnership with the NGO Table for
Two, ARISE provides wider support tocommunities. In 2016 more than 12,500
meals per week were distributed tochildren up to three times per week and
13 school gardens were established.

2015

2016

2016

2015

2015

ZAMBIAZAMBIA
2016

2016

2015

2015

TANZANIATANZANIA
2016

2016

2015

2016

2015

2015

0

0

5,244
5,244 11,820
15,346
1,384
11,820 15,346
1,384

11,57011,570 879879

2015

2015

2015

2016

2016

1,074
1,074 6,414
6,414
As the program is maturing, we
focus less on awareness raising, withexception for Brazil where we reacheda large audience through conferences,
radio, and social media. ARISE also
supported 11 governmental policies
and plans with input in Brazil, Malawi,
Zambia, and Tanzania.

2015

2015

2016

2016

3,041
3,041 2,562
2,562

In 2017 we will work with
PricewaterhouseCoopers to analyze
the social returns on investment from
ARISE. This will help us make future
decisions about which componentsof ARISE to implement in various
situations and locations.

2015

2016

5,322
5,322 00a stage where they can be used, we
will begin to see the results of thisinitiative from 2018 onwards. In 2016
we facilitated the planting of 4.3 million
trees in woodlots across Brazil, Malawi,
Tanzania, and Zambia.
We also provide finance to farmers inZambia to build more efficient Matopestyle curing barns, which use aroundfour times less wood per kilogram of
cured leaf, reduce carbon emissions,increase farmer profits, and reduce
deforestation.

A healthy and stable naturalenvironment is crucial for sustained
agricultural productivity, which can dip
dramatically if imbalances arise.

Leonidas and Vanessa, who havebeen farming in Ibarama in southern
Brazil since 2010, made changes totheir health and safety regime after
watching an ALP film on the use of crop
50

protection agents (CPAs) and attending
a CPA training course.
“We learned a lot about the importanceof using personal protective equipment
and of ensuring the correct dosagesof CPAs,” says Leonidas. “Now
we’re more careful about following
instructions more strictly, and about
making sure areas are signposted when
we’ve been spraying.”

Vanessa adds that they also pickedup valuable information about green
tobacco sickness, which is caused
when nicotine is absorbed through theskin from wet tobacco leaves. “We now
wear personal protective equipment
for harvesting as well as spraying,”
she says. “We feel more safe and haveavoided getting sick.”0

Improving environmental conditions

Helping to improve safety on tobacco farms

Tobacco farmers Leonidas Turcatto andVanessa Müller made improvements
to their operations as a direct result ofadvice we provided through our ALP
program in 2016.

0

2015

Safe and sensible use of fertilizers
and chemicals is an importantenvironmental issue on tobacco farms.
In 2016 we completed a pilot in Zambia
under which each directly contracted
farmer was provided with a sealed
box of materials, including seeds, forthe coming tobacco season. The box
included approved CPAs and fertilizers
in precise quantities according to thecontracted hectares of tobacco and therecommendations from the minimum
agronomic standards. The correct use
and handling of inputs by farmers
ensures compliance with regulations
and conservation of natural resources,and helps reduce our impact on theenvironment. Due to the success of thepilot, we will now extend the initiative
into other countries.
The responsible and efficient use ofwood resources at farms is also a key
objective for us, as wood is used by
farmers in many regions not only for
their domestic needs, but for tobacco
curing both as a fuel and for building
curing barns.
We encourage our directly contracted
farmers to establish good-quality
woodlots on their land that will help
them maintain a sustainable supply ofwood. We provide advice on how large
these woodlots should be, dependingon the size of a farmer’s operations. In
Zambia, large-scale woodlot planting
began in 2014, and because trees
take at least four to five years to reach

In Africa, we also promote ‘live barns,’
which are made by planting treesthat grow to form the main part of abarn within three to four years. Unlike
structures made with felled wood,live barns save wood resources by
lasting much longer and requiring lessmaintenance.
We now require farmers to establish
one live barn for each hectare of
tobacco they plant, and our aim is tohave 100% of farmers with at least one
live barn by 2020. That goal has alreadybeen reached in the eastern province ofZambia.
In Brazil, we help farmers to plant
areas of their land with native trees topromote biodiversity. All of our farming
experts in Brazil are trained to provide
technical assistance both on woodlot
establishment and on the optimal use ofwood resources for curing.

51

OUR TOBACCO BUSINESS

Promoting live barns in Malawi
We started planting trees in Malawi,with the aim of creating live curingbarns, back in 2013. Since then, morethan 415,989 trees have been planted,
and the first live barns were used for
tobacco curing in 2016. By 2020 we
expect to see more than 15,000 live
barns in use across Malawi, and weenvisage that all tobacco hectares will
be cured in live barns.
There are five stages to creating a livebarn:Stage 1

Training
In Malawi, we have more than 120
full-time farming experts who train our
farmers on how to build live barns. In
order to do this effectively, we regularly
train our farming experts on nurseryestablishment and management,
tree planting, tending, and live barnestablishment.
Stage 2

Stage 4

Stage 5

Potential barn

Roofing

A potential barn usually materializes three years after
planting. By this stage, the live barn is ready to be roofed
in preparation for the forthcoming growing season.

After three to four years of hard work, a roof is constructed
and a live curing barn is born.

Planting
It is always difficult to determine thebest location for a live barn as there
are so many factors to consider. The
site of planting is just as critical as the
species of tree. While proximity to thefarmer’s homestead is important, otherconsiderations such as topography,
climate, and soil are key.
Stage 3

Establishment
Once planting has taken place, it is vitalthat the trees are managed, nurtured,and tended. This requires a stronglevel of commitment from the farmer.
Livestock damage and fire and disease
can have a devastating impact on thetrees.

Our farming experts
A vital element that binds together
all our initiatives on improving the
economic, social, and environmental
conditions of our tobacco farming
communities is the local farming expert.
In 2016 we employed around 380 such
experts in Brazil, Japan, Malawi, Serbia,
Tanzania, and Zambia – all of them
devoted to building and maintaining
strong relationships with our directly
contracted farmers, helping them toimprove tobacco production techniques
and to increase their profitability.
The key to this is regular farm visits
where our experts talk to farmers about
topics such as quality management, therequirements of our ALP program, andenvironmental objectives.

52

While these visits – often to remotefarms – provide an opportunity to set
out the expectations of the JT Group,
they are a two-way conversation basedaround listening to the needs of the
farmers and understanding how we canbetter support them in their objectives.
Aside from personal visits, farming
experts also hold training days at
farms where a local farmer has
been recognized for special skill andcommitment – allowing others to learn
from their example. By the end of 2016
we had 498 such ‘model farms’ helping
us in this way – 370 in Malawi, 90 inZambia, and 38 in Tanzania.

21%of our directly contracted
farmers observed by farming
experts (2015: 7%)

53

OUR TOBACCO BUSINESS

Smoking and health
People smoke for pleasure, but there are real risks that come with that pleasure. Smoking isa cause of serious diseases, including lung cancer, coronary heart disease, emphysema, andchronic bronchitis. These risks distinguish tobacco from most consumer goods and place aparticular responsibility upon us, our industry, and public authorities.

Our approach
Our tobacco business principles commit
us to being open about the health risksof smoking and transparent about
our products. This is what consumers
demand, and by providing them with
the necessary information, we help
them to make informed decisions onwhether to smoke or not.
To take a scientific approach tounderstanding our products, we apply
global standards developed by ISO
and/or by scientific societies such as

54

the industry-supported Cooperation
Centre for Scientific Research Relative
to Tobacco (CORESTA). Where relevant
standards do not exist, we follow
common industry practice based on
robust methodology. We monitor
regulatory changes, and prepare for the
implementation of those changes wellin advance.
All ingredients go through toxicologicalassessments, and we are now
developing wider testing in accordancewith the requests of regulatory
authorities, as well as in line with
scientific developments.
We explain our positions on smoking
and health on our websites, andrespond to consumer demands toknow about our products. The numberof countries in which the JT Group
provides voluntary disclosure ofingredients was 54 in 2016.

Environmental tobacco smoke
Environmental tobacco smoke (ETS) is a
mixture of smoke from the burning endof a cigarette and exhaled smoke fromsmokers nearby. In poorly ventilatedareas, ETS can irritate eyes, noses, andthroats. It may also worsen respiratory
tract infections, as well as asthma.
However, based on scientific evidence,

we do not believe it is a cause of
diseases such as lung cancer, coronary
heart disease, emphysema, and chronic
bronchitis.
We do however promote ways of
avoiding ETS, such as smoking facilities
in public spaces. Our international

tobacco business has developed morethan 191 such facilities in 16 airports,
and in Japan we have helped set up
around 7,500 facilities in conjunction
with municipalities and businesses since
2004.

55

OUR TOBACCO BUSINESSPolitical and regulatory
landscapeDue to the health risks associatedwith tobacco products, regulation of
the tobacco sector is necessary andright. However, this regulation should
be appropriate and should not lead tounintended negative consequences. In
light of this, we support the promotionof better regulation that takes into
account the views of all stakeholders,
including tobacco companies.
We welcome any opportunity forconstructive dialogue with governments
to ensure that regulations are effective.

In the interests of transparency, we
publish key regulatory submissions on
our website, including consultations
related to plain packaging in a numberof countries such as the U.K., France,and Ireland.
Plain packaging, which is in essence a
branding ban, is an example of extreme
and unjustified regulation. The measure
was introduced first in Australia in
December 2012 but has been a failure
as there has been no change in therate of decline in smoking. However,there have been numerous negative
consequences – for example, illegal
tobacco trade in Australia has increased
since the introduction of the branding
ban. Despite the failure of Australia’s
experiment, the U.K. and France havealso implemented branding bans, andIreland, Norway, Hungary, New Zealand,
and Slovenia have adopted branding
ban legislation.

Responsible marketing
We only market our tobacco products
to adult smokers in order to maintainbrand loyalty and to encourage smokers
of competitor brands to switch to
our products. We do not market
tobacco products to minors, nor do
we encourage anyone to take up or
discourage anyone to quit smoking. We
support regulation on the responsible
marketing of tobacco products,
providing it is evidence-based, practical,
effective, and proportionate – and thatit allows us to communicate with adults
who use our products.

Our marketing principles
In 2016 we established Group-wide
Global Tobacco Marketing Principles
and made them publicly available on
our website. Our international tobacco
business also made a commitment
to ensure compliance with its Global
Marketing Standard, which is based onthese Principles. The Global MarketingStandard has been implemented in all

markets where our international tobacco
business operates, and all employees
within that entity are required to comply
with the Standard. Where applicable,
we require our suppliers to comply with
the Standard under our contracts.

Tobacco Institute of Japan and complies
with the institute’s self-regulatory
marketing standard, as well as allnational laws and regulations.

In Japan, our domestic tobacco
business is a key member of thePreventing youth access
Developments in 2016
The focus of our regulatory engagementin 2016 continued to be on brandingbans. In response to a government
review that claimed positive results fora branding ban in Australia, we worked
with an independent expert on an
analysis of the results and concluded
that the regulations had not achieved
their intended results.
In recent years we have launched anumber of legal challenges, together
with other tobacco companies, in
relation to plain packaging. We willcontinue to challenge any legislationthat we deem not to be proportionate
and appropriate.

56

In early 2017 we filed an application to
the U.K. Supreme Court for permission
to appeal one such case.
November 2016 saw the seventhsession of the Conference of theParties (COP7) to the World HealthOrganization (WHO) Framework
Convention on Tobacco Control takeplace. Although we continue to bedenied a voice at such events, wemonitor the outcomes carefully andrespond appropriately. COP7 saw a
set of non-binding recommendations
on product regulation and disclosures
adopted, including on tobacco productdesign features.

We provide full transparency in our
engagement activities, including
through the voluntary EU Transparency
Register. In 2016 we responded to
the European Commission’s public
consultation on a proposal for amandatory Transparency Register andsupported a suggestion that signingup to the register should be mademandatory.
For information on emerging products,
please refer to page 62–63.

We believe minors should neither
smoke nor be able to obtain tobacco
products. We do not market to minors,
and we support measures preventing
them from obtaining tobacco products,
for example, in some markets through‘proof of age’ programs.

In Japan, we support Youth Smoking
Prevention Councils hosted by local
retailer associations, in conjunction withrepresentatives of local government,
police, and other tobacco companies. In
2016 some of the councils discussed,

among other things, opportunities towork with companies in other sectors,
such as alcohol, on helping retailers
with age checks and preventing youth
access.

Working with retailers
We support retailer efforts to prevent
minors from buying tobacco, including
through responsible retailing initiatives
such as the U.K.’s No ID, No Sale!
program, which carried out 3,600 test

purchases during 2016 and will be fullyrolled out across the country by mid2017.
In 2016 our international tobacco
business increased its focus onproviding help for retailers in the Middle
East, North Africa, and certain Eastern
European countries, where regulation
on youth access has generally becometighter.

57

Our approach
Illegaltrade
Issue in focus

The JT Group takes a stand against illegal
tobacco and is committed to fighting all formsof illegal trade by securing our own supply chain
and working closely with our law enforcement
partners to combat this challenge. Illegal tobacco
undermines legitimate tobacco businesses,
reduces government tax revenues, and supports
organized crime. The annual consumption ofillegal tobacco is estimated to exceed 10% of allcigarettes sold globally (excluding China), with anestimated 40 to 50 billion U.S. Dollars in global
tax revenue lost each year. The JT Group remains
committed to maintaining its position as a credible
and respected partner with governments incombating illegal tobacco, reinforcing the fact thatthe tobacco industry and governments can, andmust, work together in order to be successful.

58

Our top three priorities are:
1. Working with our employees and our business
partners to prevent our products from being
diverted into illegal channels.
2. Helping law enforcement intercept the growing
phenomenon of ‘illicit whites’ – i.e., cigarettes
produced legally, but manufactured solely forthe illegal tobacco market.
3. Preventing the counterfeiting of our brands.
Our international tobacco business has 46
agreements with government authorities in 34
countries to counter illegal activity.

Our international tobacco business has
a global Anti-Illicit Trade (AIT) teamthat fights illegal tobacco trade. The
AIT team is made up of dedicated,credible, and respected professionals
with many years of public service inlaw enforcement, regulatory bodies,and governments across the globe. The
AIT team’s purpose is to support the JT
Group’s business and protect its longterm, sustainable future. To that end,
the AIT team has become a key partner
to the business by reducing the amountof illegal tobacco in the marketplaceand maintaining a robust dialogue withgovernments on the threat of illegal
tobacco. The AIT team also supports
the business by providing research on
illegal tobacco and communications
support promoting awareness of the
problem to our business partners andconsumers.
In 2016 the AIT team provided 973
intelligence reports to law enforcement
agencies, leading to the seizure ofmore than 911 million illegal cigarettes.
Moreover, based on our information,
law enforcement raided over 27
counterfeit tobacco locations in 2016.
As a direct result of our work, there
has been a large reduction in thepercentage of our products that makeit into the illegal market in Europe –down by 40% in 2016. This fact has
been recognized by the EU in their 2016
technical assessment of the cooperationagreements between the EU andthe four major international tobacco
manufacturers. However, as also
recognized by the EU, over the past six
years there has been a commensurateincrease in the number of illicit whites
and counterfeit cigarettes circulating inEurope – with many of the latter now
being manufactured inside, rather thanoutside, the EU.
Increasingly, we are examining how
to tackle illegal trade across our entire
value chain, which is resulting in amore transparent and collaborative
relationship with suppliers of items
such as tobacco leaf and cigarette
filters. We have regular meetings withthese suppliers and manufacturers to
try to help them prevent their products
from falling into the hands of criminal
networks. Our AIT team also supports
our markets by carrying out due
diligence checks to ensure they are
entering into contracts with suppliers
that can be trusted.

owners, and shipping agencies that are
facilitating the illegal trade.
We continue to receive consistently
positive feedback from law enforcement
agencies about our efforts on illegal
trade, distinguishing us as a responsible
leader in the field, and recognizing thestrong integrity of our Group – which
is a major source of pride for our
employees, because this work protects
our business, our communities, andsociety from criminal elements.

In 2015 and 2016 JTI
was publicly recognizedby an international law
enforcement agency as“the best tobacco company
in combating illegal trade.”

We are also looking closely at the way
in which criminals use shipping routes,
and are working with various law
enforcement agencies across the world
to help them track containers, container

Developments in 2016
In 2016 we launched an enhanced
global policy covering the operation of
our ongoing legitimate market demand
program, under which we sell cigarettes
only in amounts that are commensuratewith carefully calculated legitimate
demand figures in each market that
we operate in. Additionally, the AITteam has improved its detailed seizure
inspections program based on our
track and trace technology. Wheneverproblems arise, we take action,
protecting us from false allegations ofcomplicity in the illegal trade.

demonstrate to regulators that we are
behaving responsibly with our sales.
Interestingly, data has confirmed thatby capping sales in certain low-margin
markets (thereby suppressing thepotential diversion of these products),
we actually increase our overall revenue
from the sales of legitimate products inother, higher-margin, markets, which
benefits us financially and provides
the Group with more predictable andsustainable revenue and growth.

These developments further reduce
the risk that our products could bediverted into illegal channels, and also59

ISSUE IN FOCUS: ILLEGAL TRADETACKLING ILLEGAL TRADE

1
ANALYZE MARKETDYNAMICS AND RISKS

2
FORMULATESTRATEGY AND
PRIORITIZE ISSUES

E

G

AL

LL
Y

ILL

WORK WITH OUR MARKET AND
LAW ENFORCEMENT TOINVESTIGATE AND COMBATILLEGAL TOBACCO AND IDENTIFYFURTHER RISKS- Legitimate market demand program- Empty pack surveys- Due diligence- Analyze market taxation,
price disparities, and regulations- Analyze market seizure data
- Analyze intelligence fromlaw enforcement partners

A

4

ELY COM
BA
TIV
C
T
A
O

G
IN

PR

Tackling the illegal trade of e-cigarettes

TO

BA C C O G

LO

B

3
ACTIVATE STRATEGY
AT MARKET LEVELThe AIT team is continuously evolving
with the fast-moving technology inthe tobacco business. This includes
leading the fight against the illegal
trade of counterfeit e-cigarettes. For
example, in 2016 we supported U.S.
authorities in an ongoing investigation
into the sale of counterfeit e-cigarettes.
These dangerous counterfeits werebeing shipped from Asia for sale in
the U.S. Together with our affiliate in
the U.S., Logic, the AIT team provided
information identifying counterfeit
e-cigarette manufacturing and shipping
to U.S. law enforcement. In response,
U.S. law enforcement took bold action
to combat the growing stream ofthese illegal products into the U.S.,

protecting consumers from poorly
manufactured low-quality e-cigarettes.
Additionally, we provided training for
U.S. Customs officials on how to better
identify counterfeit e-cigarettes in the
future. We will continue this and otherimportant training in 2017 to ensurethat law enforcement is ready to tackle
these new and growing threats.

PRODUCT SEIZURES BY LAW ENFORCEMENT

1

ANALYZE AUTHENTICITY OF SEIZEDPRODUCTS BY FORENSIC EXPERTS
AND IDENTIFY SOURCES OF GENUINE
DIVERTED PRODUCT

ON
SI

2
S
AL

IN

R

PR

3

OD

SECURE OUR SUPPLY CHAINCONTROLS, INCLUDINGFORMING OUR MARKET AND
CUSTOMER TASK FORCESM

LAW ENFORCEMENT TAKESACTION AGAINST CRIMINALORGANIZATIONS(ARRESTS/RAIDS/SEIZURES)

OU

60

4

H
ING T E DIVE
NT
R
E
V

OF

We have made the strategic decision tocombat the growing problem of illegal
internet sales. In particular, the AIT
team, together with our U.K. market,
targeted the illegal sale of tobacco
products on social media. This project
has resulted in over 3,000 links toillegal tobacco sites being removed
from the internet. This information is
also passed to law enforcement when
the seller appears to be selling on awholesale basis, leading to significant
law enforcement action, including thearrests of the criminals involved in thisillegal online trade. The AIT team willcontinue and expand this work and will
join with other relevant organizations,
who share the same goal as ours, todevelop new and creative ways to tackle
this growing threat from the emergenceof illegal trade in e-commerce and its
related technology.

PR
E

Combating the illegal online trade of tobacco products

U CTS BYCR

I

SHARE INVESTIGATIONRESULTS WITH LAW
ENFORCEMENT AND IDENTIFYCRIMINALS INVOLVED IN
DIVERTING OUR PRODUCT61

OUR TOBACCO BUSINESSEmerging products

Our commitment to developing
reduced-risk products
We do not currently make reduced-riskclaims for our products. However, weare collecting the data that would be
required to substantiate such claims,
and the data collected so far on Ploom
TECH reinforces the potential of the
product to reduce the risks of continued
use of tobacco products. Some of thedata was presented at the European
Toxicology Conference in Spain, in
September 2016.

Our emerging products fall into two categories: E-vapor, such as e-cigarettes that provide an
inhalable vapor by direct electrical heating of a liquid, and T-vapor, tobacco-based products inwhich the tobacco is directly or indirectly heated without combustion.
These products are managed and overseen by a global team responsible for setting strategy,commercialization, branding, and regulatory engagement and for bringing emerging products

Our aim is to accelerate investmentsthat will increase the likelihood that welaunch products that can be proven to
reduce risk.

to market in the best manner possible.
We have internal standards for
emerging products, including rigorous
scientific assessments that examine
not only what goes into a product but
what comes out of it. In addition, we
have quality control requirements thatreinforce our standards with contract
manufacturers.
As well as requiring ingredient andmaterials disclosures from suppliers, we
carry out toxicological risk assessments

Product developments
In 2016 we launched Ploom TECH,
our new innovative T-vapor product,in Japan, initially making it available
only online and in the city of Fukuoka.
Demand was so strong that we have
had to put significant further investment
into our manufacturing and supply
plans for the product, especially in
preparation for expanding distribution
into major cities.
In the U.S., we launched Logic LQD,
a refillable open tank system. We also
introduced new flavors into Logic’s
range of e-liquids.

of key materials and assess them forcompliance with regulations. Productstewardship also extends to the laterstages of a product’s life cycle – forinstance, in terms of cartridge recycling.

Regulatory developments related
to emerging products
While we welcome regulation on
emerging products that further assures
product safety and quality, we haveconcerns about the possibility of
unnecessary provisions that may impact
on product innovation, increase productcosts, delay product launches, andmake it more difficult for consumers tomake informed decisions.
There were important regulatory
developments on emerging products in
2016.

62

During 2016 the WHO invited member
countries to consider prohibiting
or restricting the manufacture,importation, distribution, presentation,
sale, and use of emerging products. We
will be monitoring any developments inthis area.

In 2016 the U.S. FDA released
regulations that included emerging
products as tobacco products, which
are now subject to FDA oversight. As aresult, we have been given until August
2018 to submit detailed applications
to be able to continue marketing andselling our emerging products in the
U.S. market.

Environmental issues
Across the JT Group, the disposal of
e-cigarette components continues tobe a significant challenge. In 2016 weincreased our efforts to identify theenvironmental impacts in our emerging
products value chain, including theend-of-life impacts of e-cigarettecomponents, and to identify key areas
for improvement.

Please be reminded that this section is intended to explain the business operations of the JT Group, notto promote sales of tobacco and nicotine delivery products or to encourage smoking by consumers.

A revision of the EU Tobacco Products
Directive in May included emerging
products within its remit for the firsttime. As a result, we had to submit
dossiers on each of our products todemonstrate they were compliant.

In Japan, we set up a pilot initiative
to improve our Ploom TECH
recycling program. This involved theestablishment of two collection outlets
that accept all items related to Ploom
TECH, including USB chargers and AC

adapters. Based on the results of thepilot, we hope to expand the program
next year.
In our international tobacco business,
we are developing guidance sothat our markets better understandenvironmental impacts and theimplications of placing emerging
products on the market. We aim to
reduce the environmental impacts
across our value chain, including thoserelating to the treatment and disposal of
e-cigarette components at end-of-life.

63

OUR BUSINESSES

Our
pharmaceuticalbusiness

Overview
Our pharmaceutical business has a mission to deliver innovative drugs to patients in the
shortest time possible, in a safe and secure manner.
Our research and development (R&D)
function is largely responsible fordelivering on this important mission.
But we also work with licensed andjoint research partners to bring drugs tomarket more quickly.

are guided by a strong sense of ethics,
including in areas such as clinical trials,
animal testing, and the management ofchemical ingredients.

Throughout the business wemaintain rigorous standards toensure the efficacy and safety of our
products, which our subsidiary, Torii
Pharmaceutical, must produce andmarket in a responsible fashion. We

In 2016

PHARMACEUTICAL

30.7
billion Yen spent on researchand development, which was
the same as in 2015

Obtained manufacturing andmarketing approval for anovel anti-HIV drug, Genvoya
Combination Tablets andDescovy Combination Tablets LT
and HT, and started selling themexclusively in Japan

BUSINESS VALUE CHAIN

LICENSEPARTNERS

CLINICAL TRIALPARTICIPANTS &INSTITUTIONSJOINTRESEARCH
PARTNERS

6

SUPPLIERS

3

SUBCONTRACT
FACTORIESOUR SUPPLIERS

1

RESEARCH &DEVELOPMENTFACTORYTORII PHARMACEUTICALSALES ANDPROMOTIONSTORIIPHARMACEUTICAL

2

WAREHOUSESTORII PHARMACEUTICALOUR COMPANYPATIENTS

Around800

employees participated ine-learning training on theimportance of drug safety andrisk management
64

WHOLESALEOUR CUSTOMERS & CONSUMERS

65

OUR PHARMACEUTICAL BUSINESSApproach to
product responsibility
We focus R&D on three areas: metabolic
diseases, autoimmune/inflammatory
diseases, and viral infections. In 2016 we
spent 30.7 billion Yen on R&D. During theyear we gained approval from the Ministry

Complying with pharmaceuticalregulations and standards
We put strict processes in place toensure drug development complies
with laws, regulations, and industry
standards. In-house audits make sure
we follow procedures as laid out in ourguidelines, and that we control drug
development and trials safely. We alsocollect data to monitor the efficacy
and adverse drug reactions of postmarketing products.

PHARMACEUTICAL R&D EXPENDITURE(BILLION YEN)

30.7

30.5

30

28.9

30.7

30.7

In 2016 we provided e-learning training
to around 800 employees, mainly inclinical research, which focused on

20of Health, Labour and Welfare in Japan to
manufacture and market two new anti-HIV

10

FY
2012

anti-HIV drugs.

FY
2013

2014

2015

2016

Responsible research and development
Our pharmaceutical business has
a direct impact on human life, andtherefore our R&D is driven by a strong
sense of responsibility and ethics. Any
divergence from this path could result inloss of life or damage to health –as well as diminished trust in thebusiness. Our research activities arecarried out in an ethical manner andcomply with all laws, regulations, andindustry standards.

3R
REPLACEMENTREDUCTION

REFINEMENTWHERE POSSIBLE,OPT FOR TESTMETHODS THAT
DO NOT USE ANIMALSMINIMIZE THE
NUMBER OF
ANIMALS USEDIN TESTING

DO NOT LETLABORATORYANIMALS SUFFERUNNECESSARY PAIN

We comply with all laws andregulations on the control of designatedchemical substances, and employees
are made aware of chemical safety
risks, including through regular lecturesthat provide updates on new legislativerequirements. In 2016, for instance,around 20 staff members attended alecture on new requirements aroundthe installation of sprinkler heads andfire extinguishers in laboratories. We
have a system for managing risks, fromthe point where we take delivery ofchemicals through to their storage, use,and eventual disposal.

Torii Pharmaceutical separates
chemicals into categories requiring
different levels of management, and has
specific rules and procedures according
to the characteristics and safety risks ofeach category of chemicals.

Responsible marketing
Torii Pharmaceutical has its own codeof practice on the ethical marketingof prescription drugs. This is basedon the code of conduct of the Japan
Pharmaceutical Manufacturers
Association, of which we are members.

Ethical considerations

66

We are transparent about the financial
contributions we make to research
institutes, universities, medical
institutions, and organizations forpatients, and disclose such paymentson our website.

Managing chemical substances

drugs, Genvoya and Descovy, which arevaluable additions to our portfolio ofdrug-induced suffering in order to help
employees understand the importanceof drug safety and risk management,
as well as quality assurance of our
products.

We have in-house standards on
animal testing based on government
legislation. Our Institutional Animal
Care and Use Committee reviews
animal testing to ensure it follows the‘3R’ concept: replacing laboratory
animals with other research materials
where possible, reducing the numberof animals used, and refining tests sothat animals do not suffer unnecessary
pain. Our animal testing management
practices are certified regularly by an
external authority.
We have an Ethics Review Committeethat bases its work on the Japanese
Ethical Guidelines for Medical and
Health Research Involving Human
Subjects. The committee examines the
ethical justification and scientific validityof research utilizing human tissue
samples.

Torii Pharmaceutical runs monthly
training programs to ensure that its

511 medical representatives, whosell and promote drugs to healthcare professionals, comply with therequirements of its code. It also brings
other employees together with medical
representatives for compliance training
on the code twice a year. It has a
Medical Compliance department andCompliance Advancement departmentthat look at the way productinformation is managed and help to
educate employees on compliancewith standards on the promotion ofprescription drugs.
Outside Japan, we license drugs toother pharmaceutical manufacturers
and do not have a sales function.

Adopting a patient-focused approach
The best way to create effective
medicines is through an understandingof the needs and experiences of thepeople who are likely to use them. That
is why we keep the patient in mind
when developing and testing new
drugs.
In 2016 we interviewed more thana dozen health-care professionals,
including doctors and nurses, to seek
their views on how we can better put

the patient first. The content of theinterviews was distilled into a series
of internal newsletters and madeaccessible to around 800 employees in
the pharmaceutical business.
We also held a film screening focusing
on the views of patients who have taken
part in clinical trials, with the aim ofencouraging researchers to think more
about patient needs when they develop
and test new compounds.

In 2016, 20 new employees attended aworkshop and discussion session that
included consideration of how we canadopt a more patient-focused attitude.
Among the suggestions put forward by
employees at this session was an idea
to build in more time during the working
day to consider the needs of patients,
which is something we will consider.

67

OUR BUSINESSES

Our
processed
food businessIn 2016

Overview
The product portfolio of TableMark, our processed food business in Japan, includes frozen
noodles, frozen and packed cooked rice, frozen baked bread, pastries, and seasonings. Frozen
foods account for around three-quarters of TableMark’s turnover.
Within our frozen food business, wework with around 450 suppliers, ofwhich around 100 supply us withpackaging materials, around 300
provide raw materials, and around
50 are subcontract factories. We do
not deal directly with raw materials
producers such as farmers, whose

relationship is with the trading firms orcontract factories that supply us.
Within our frozen food supply chain,
the focus is on raw food ingredients,
so the key issue in our supply chain istherefore food safety.

17
factories in Japan certified
to FSSC 22000 food safety
management system

PROCESSED FOOD
BUSINESS VALUE CHAIN
PACKAGING MATERIALS100+
SUPPLIERSRAW
MATERIALS

100%

All TableMark suppliers are covered by
TableMark’s own sourcing policy onfood safety.

WHOLESALE
TRADINGCOMPANIESSUBCONTRACT
FACTORIES

300+

50+

SUPPLIERS

SUPPLIERS

OUR SUPPLIERS

frozen food factories
certified to either ISO 22000
or FSSC 22000

31

FACTORIESTHE TABLEMARK GROUPOUR COMPANYCUSTOMERS &CONSUMERSDISTRIBUTION

Introduced stricter rules for
disposal of food, including
expired food
OUR CUSTOMERS & CONSUMERS

68

69

OUR PROCESSED FOOD BUSINESS

Delivering safe,
high-quality products

Food quality
We ensure food quality throughcertification to ISO 22000 or FSSC
22000, and also have a Quality
Improvement Committee that responds
to consumer opinions. In 2016 feedback
from consumers led us to make packsof cooked rice easier to cut open, as
some consumers, particularly elderly
people, had said they were finding themdifficult to manage.

We have a rigorous quality and process control system based on four areas: food safety, fooddefense, food quality, and food communication. The system aims to guarantee safety in all partsof our processed food business, from buying raw materials to manufacturing and distribution.

During 2016 we introduced monthly
meetings for employees at which weshare feedback from consumers on

Independent advisers guide our approach across these areas.
In 2016 we introduced enhanced
sanitary guidelines for employees on
preventing food poisoning, including
through the norovirus. We also
improved sanitation at factories throughstricter controls in areas such as raw
materials management and the cleaningof facilities.

FOOD
QUALITY

food quality. We also now issue monthly
bulletins to staff on various food quality
topics, and encourage them to discussthese issues at factory meetings. Ourconsumer complaints management
system is compliant with ISO 10002,
the international standard for customer
satisfaction and complaints handling.

Food communication

ENSURING
CUSTOMERS GETHIGH-QUALITYPRODUCTS THEY
ENJOY

We disclose the factory where foodproducts are made and the country oforigin of main ingredients. We record
the farm origin and can trace back our
products if necessary. We offer toll-freenumbers on labels so consumers canrequest extra information.

FOOD

COMMUNICATION

FOOD
SAFETYPROVIDINGINFORMATIONABOUT OURPRODUCTSIDENTIFYING AND
ADDRESSING
BROAD FOOD
SAFETY RISKS

Food safety
We have a division to control foodsafety, and we hold quarterly meetings
to review initiatives and share bestpractice. Since 2008 three independent
food safety advisers have helped withaudits in factories and in developing ourapproach to food safety.
All of our own frozen food factories, aswell as those owned by our contractors,
are certified to either the ISO 22000
or the FSSC 22000 food safety
management standard. Seventeen of
our 31 factories in Japan are certified
to FSSC 22000, up from six in 2015.
70

FOOD
DEFENSEPROTECTING FOOD
FROM RISK OF
CONTAMINATION

Food defense
We aim to have all our own factories
certified to FSSC 22000 by the end of2017.
In 2016 we introduced stricter rules
for Group and contract factories, anddistribution warehouses, on the disposalof food products that have passed their
expiry date. This should make it evenharder for such products to re-enter the
food chain illicitly.
There were no voluntary recalls of our
products in 2016.

Food defense is about protecting ourmanufacturing processes and products
from intentional contamination.
TableMark applies robust food defense
guidelines across the supply chain, andthese were updated in 2016, including
with new procedures for employees
to report any concerns about fooddefense. We use the guidelines in ourannual audits and to provide direction
to contractor factories as necessary.
In 2016 we continued to install cameras
in factories to help detect and deter any
intentional contamination.

Environmental impacts of products
We design, distribute, and manufacture
our food products to reduce
environmental impacts. This includes
reducing packaging and cutting energy
used in manufacture and in consumeruse.
In 2016 we introduced two key
performance indicators (KPIs) on waste:
the amount of money lost throughwastage in the manufacturing process,and the amount of money lost throughdisposal of unsold end products. These
KPIs will be monitored to gauge ourprogress in this area.
71

About this report

Changes instructure, size,or ownership

We report annually on our sustainability activities and performance, and have been publishingenvironmental or CSR reports since 1998. Our last report, JT Group Sustainability Report
FY2015, was published in June 2016.

In accordancewith GRI G4‘Core’The FY2016 report has been compiledin accordance with the Global Reporting
Initiative (GRI) G4 Sustainability
Reporting Guidelines ‘Core’ level. We
defined the content of this document
using a materiality assessment thatcovered the entire JT Group.
Our GRI G4 Content Index shows thelist of Standard Disclosures for which
we have either provided information inthis report or in other public documents,
such as our Annual Report. The
identification of Specific Standard
Disclosures is based on materiality
assessments for the entire JT Group.

Notes on dataof Reporting document, which we willcontinue to update in the future.

Data in this report covers January to
December 2016, unless otherwise
stated. In 2014 the JT Group moved
its reporting period to the calendar
year ending December 31. Until March2014 the fiscal year for our Japanese
domestic operations began on April
1 and ended on March 31. Historical
data indicated with ‘FY’ covers those
periods.

The Japanese Yen exchange rates
against the U.S. Dollar used in thisreport are the same as those used in ourconsolidated financial reporting.

External
verification andassurance

Although we report overall JT Groupfigures wherever possible, in someareas this has not been possible. In
such instances we have made it clear
to which part of the business the dataapplies.

This report is not externally assured,although some of the data within it has
been externally verified. This includes
Group-wide Scope 1 and 2 GHG dataand some Scope 3 GHG data. In the
future we will consider expanding thescope of assurance of our non-financial
data and the contents of this report.

We have shown how we calculate
and consolidate compliance,
human resources, health and safety,
environment, and corporate community
investment data in our separate Basis*A *B *C *D

CORPORATEFUNCTIONS*A *B *C *D

PROCESSED FOOD

PHARMACEUTICAL

*A *C

*A *C

*A *C

SUBSIDIARIES*A = the entire JT GroupTORIITABLEMARKPHARMACEUTICAL

*A *C

*A *C

TABLEMARKGROUP COMPANIESSUBSIDIARIES*B = solely Japan Tobacco Inc. (JT)*D = Japan Tobacco Inc. (JT) and Japan Tobacco International (JTI)72

During 2016 we continued with theclosures of our factories in Moscow,
Russia, and Wadeville, South Africa.
We closed the Moscow factory end of
August 2016, affecting 237 employees
in 2016, with over 40 employees having
found employment in other parts of thebusiness. The Wadeville factory wasclosed end of June 2016 and affected
79 employees. Six employees havefound employment in other parts of thebusiness.
In October 2014 we announced
the decision to close our factories
in Wervik, Belgium, and Lisnafillan
Northern Ireland, potentially affecting
around 1,100 jobs, and we worked with
union representatives to help people
retire voluntarily, move internally, or findjobs elsewhere with support programs
and placement activities. The closures
will be completed in 2017.

Other
publications

We are a member of the Dow Jones
Sustainability Asia Pacific Index(www.sustainability-indices.
com) and of the Morningstar Socially
Responsible Investment Index (www.
morningstar.co.jp/sri, in Japanese).

Websites

In 2016 we were identified as a global
leader by CDP for our actions andstrategies on climate change. We
were also awarded a position on the
CDP Climate A List of the world’s best
climate change reporters(www.cdp.net).
In March 2016 JT was selected as aNadeshiko Brand for demonstrating
outstanding commitment toempowering women in the workplace.
It was also chosen by the Japanese
Government’s Ministry of Economy,
Trade and Industry as one of its
Diversity Management Selection 100
companies, in recognition of work onembracing diversity in the workplace.

Japan Tobacco Inc.
(global site): www.jt.com
Japan Tobacco International(international tobacco business):www.jti.com
Torii Pharmaceutical Co., Ltd.
(pharmaceutical subsidiary):
www.torii.co.jp/en
TableMark Co., Ltd. (processed foodsubsidiary): www.tablemark.co.jp(in Japanese)
Publications
JT Annual Report:
www.jt.com/investors/results/
annual_report/index.html

In October 2016 JT was awarded Goldstatus in the first Pride Index Report ofJapanese employers, which highlights
companies that are most friendly
toward LGBT workers.

In 2016 we acquired the Natural
American Spirit business outside
the U.S. The Natural American Spirit
brand is an ‘additive free,’ premium
cigarette with a marketing theme that isenvironmentally conscious and sociallyprogressive. The acquisition will allow
us to further extend our brand portfolio.

JAPAN TOBACCO INC. (JT)*A *B *C *D

In 2016 we closed our Hiratsuka
tobacco leaf processing factory inJapan. In the two years leading up
to the closure, which affected 49
employees, we consulted with union
representatives to help people retire
voluntarily, move internally, or find jobs
elsewhere.

Awards andrecognition*A *B *C *D
JAPANESEDOMESTICTOBACCOINTERNATIONALTOBACCO*A *CSUBSIDIARIES*C = Japan Tobacco Inc. (JT) and Japanese domestic Group companies*E = solely Japan Tobacco International (JTI)*A *D *E
JAPAN TOBACCO
INTERNATIONAL

Contacts and feedback
Japan Tobacco Inc.
(Headquarters)
2-1, Toranomon 2-chome
Minato-ku
Tokyo 105-8422
Japanwww.jt.com

JT International SA
Rue Kazem-Radjavi 8
CH-1202 Geneva
Switzerland

www.jti.com

For more information or to provide
feedback on this report, please e-mail:jtgcsr@jt.com
73

JT Group Sustainability Report FY2016

GRI G4 Content Index
The JT Group Sustainability Report FY2016 contains Standard Disclosures from the Global
Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines and is in accordance with the
GRI G4 ‘Core’ Guidelines. The identification of the material Aspects is based on a materiality
assessment for the entire JT Group.
The GRI G4 Content Index below includes the location, omissions, and additional information
around the General Standard Disclosures and the Specific Standard Disclosures. Further
information on the calculation methodology and scoping is available in a separate Basis ofReporting document for the areas of compliance, human resources (HR), health and safety,
environment, and corporate community investment. Some of the data within the report has
been externally verified.

74

75

GRI G4 CONTENT INDEXGENERAL STANDARD DISCLOSURES#

GENERAL STANDARD DISCLOSURESLOCATIONOMISSIONS AND ADDITIONAL INFORMATIONSTRATEGY AND ANALYSIS
G4-1

Statement from the most senior decision-maker of theorganization

CEO statement
Q&A

ORGANIZATIONAL PROFILE
G4-3

Name of the organization

Corporate profile

G4-4

Primary brands, products, and services

Corporate profile

G4-5

Location of the organization’s headquarters

Corporate profile

G4-6

Number of countries where the organization operates, and namesof countries where the organization has significant operations

Corporate profile

G4-7

Nature of ownership and legal form

JT Annual Report FY2016

G4-8

Markets served

Corporate profile

G4-9

Scale of the organization

Corporate profile

Detailed information is presented in the JT Annual Report FY2016:www.jt.com/investors/results/annual_report/index.html

Detailed information is presented in the JT Annual Report FY2016:www.jt.com/investors/results/annual_report/index.html
The following financial information can be found in the JT Annual Report FY2016:• net sales (page 14)• total capitalization broken down in terms of debt and equity (page 5)• total assets (page 5)• beneficial ownership (including identity and percentage of ownership of largest shareholders)(pages 71–72)

76

77

GRI G4 CONTENT INDEXGENERAL STANDARD DISCLOSURES#

GENERAL STANDARD DISCLOSURESLOCATION

G4-10

Workforce information

Corporate profile
GRI Index
Basis of ReportingOMISSIONS AND ADDITIONAL INFORMATION
Employees by type of contract and gender
as of the end of 2016

Male

Female

Total

Permanent (full- and part-time)

28,0399,696

37,735

Temporary full-time

1,642

1,461

3,103

Temporary part-time (*C)

5,744

n/a

Temporary part-time (*E)

17Supervised workers (*C)

1

n/a

18
2,149

Employees per region and gender as of the end of 2016
RegionMale

Female

Total

Japan

12,485

3,147

15,632South and West Europe

2,441

1,588

4,029

North and Central Europe

3,858

1,527

5,385

CIS+*

4,339

1,763

6,102

Other

6,558

3,132

9,690

* Commonwealth of Independent States
G4-11

Percentage of total employees covered by collective bargaining
agreements

Our people– Being a responsible
employer

56 companies have a union in our Group and 91.7% (*C) of eligible employees are covered by collective
bargaining agreements. Due to legal requirements in certain countries, we cannot know whether
employees are unionized, and thus cannot provide the information for employees in our international
tobacco business.

GRI Index
Basis of Reporting
G4-12

Organization’s supply chain

Our tobacco business– Overview
Our tobacco business– Supply chain management
Our pharmaceutical business– Overview
Our processed food business– Overview

78

79

GRI G4 CONTENT INDEXGENERAL STANDARD DISCLOSURES#

GENERAL STANDARD DISCLOSURESLOCATION

G4-13

Significant changes during the reporting period regarding theorganization’s size, structure, ownership, or its supply chain

About this report

G4-14

Report whether and how the precautionary approach or principle
is addressed by the organization

JT Global website
www.jt.com/csr/environ/management/index.html

OMISSIONS AND ADDITIONAL INFORMATIONThe JT Group Environment Charter reflects how we have addressed the precautionary principle.

GRI Index

G4-15

List externally developed economic, environmental and social
charters, principles, or other initiatives to which the organization
subscribes or which it endorses

JT Global website
www.jt.com/csr/overview/
stakeholder/index.html

G4-16

List memberships of associations and national or international
advocacy organizations

JT Global website
www.jt.com/csr/overview/
stakeholder/index.html

IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES
G4-17

G4-18

a. List all entities included in the organization’s consolidated
financial statements or equivalent documents
b. Report whether any entity included in the organization’s
consolidated financial statements or equivalent documents is
not covered by the report

About this reporta. Explain the process for defining the report content and the
Aspect Boundaries
b. Explain how the organization has implemented the Reporting
Principles for Defining Report Content

About this report

JT Annual Report FY2016

Identification of GRI Aspects is based on the materiality assessment conducted for the entire JT Group.

Our strategic approach– Our material issues
GRI Index

80

G4-19

Material Aspects identified in the process for defining reportcontent

Our strategic approach– Our material issues

G4-20

For each material Aspect, report the Aspect Boundary within theorganization

Our strategic approach– Our material issues

G4-21

For each material Aspect, report the Aspect Boundary outside theorganization

Our strategic approach– Our material issues

81GRI G4 CONTENT INDEXGENERAL STANDARD DISCLOSURES#

GENERAL STANDARD DISCLOSURESLOCATIONOMISSIONS AND ADDITIONAL INFORMATION

G4-22

Effect of any restatements of information provided in previous
reports, and the reasons for such restatements

About this report

The number of reported cases for violations of the Code of Conduct reported in 2015 has been restatedto include certain cases that were not accounted for. Number of employees who received performance
evaluations reported in 2015 have been restated as the data presented in 2015 was incomplete.

GRI Index

We have previously reported that emerging products were within the scope of the international tobacco
business’s updated Global Marketing Standards. However, the Standards only apply to conventional
tobacco products.
Information reported for G4-PR2, G4-PR4, G4-PR7, G4-PR9, G4-SO7, G4-SO8, and G4-HR1 in 2016has been restated to include only our international tobacco business. The scope of information wasincorrectly reported as *A in 2015 and has therefore been changed to *E in 2016.
2015 data reported for G4-EC9 for percentage of local spend on suppliers of other products and services
in JTI HQ in Geneva has been restated to 86% due to a reclassification of vendors.
G4-23

Significant changes from previous reporting periods in the Scopeand Aspect Boundaries

About this report

STAKEHOLDER ENGAGEMENT
G4-24

List of stakeholder groups engaged by the organization

Our strategic approach– Stakeholder engagement

G4-25

Basis for identification and selection of stakeholders with whomto engage

Our strategic approach– Stakeholder engagement
Our strategic approach– Our management approach

G4-26

Organization’s approach to stakeholder engagement

Our strategic approach– Stakeholder engagement
Our strategic approach– Our management approach

G4-27

Key topics and concerns that have been raised throughstakeholder engagement

Our strategic approach– Stakeholder engagement

REPORT PROFILE

82

G4-28

Reporting period for information provided

About this report

G4-29

Date of most recent previous report

About this report83

GRI G4 CONTENT INDEXGENERAL STANDARD DISCLOSURES#

GENERAL STANDARD DISCLOSURESLOCATION

G4-30

Reporting cycle

About this report

G4-31

Contact point for questions regarding the report or its contents

About this report

G4-32

GRI Content Index

GRI Index

G4-33

Organization’s policy and current practice with regard to seeking
external assurance for the report

About this report

OMISSIONS AND ADDITIONAL INFORMATIONGOVERNANCE
G4-34

Governance structure of the organization, including committeesof the highest governance body

Our strategic approach– Our management approach
Our way of doing business– Corporate governance andtransparency
About this report
JT Annual Report FY2016
JT Global website
www.jt.com/csr/overview/
governance/index.html

ETHICS AND INTEGRITY
G4-56

Organization’s values, principles, standards, and norms of
behavior such as codes of conduct and codes of ethics

Our way of doing business
Our strategic approach– Our management approach

84

85

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

DMA

Our way of doing business– Our tax practices

OMISSIONS AND ADDITIONAL INFORMATIONECONOMIC
Economic performance

JT Annual Report FY2016

G4-EC1 – Direct economic value generated and distributed

Our way of doing business– Our tax practices

Direct economic value generated and distributed2016 (million Yen)

Revenue1

Our contributions to society

Total employee benefits and wages

367,811

Current income taxes

129,128

GRI Index

Tobacco excise taxes

4,483,518

Basis of Reporting

Dividends

JT Annual Report FY2016

Corporate community investment
1

Market presence

86

DMA

2,143,287

GRI Index

229,223
7,446

Excluding tobacco excise taxes and revenue from agent transactions

The hiring of local talent contributes to the economies of countries and regions inwhich we operate, and is a part of our corporate responsibility to those communities.
While we have no Group-wide policy on the hiring of local employees, and ourapproach is to recruit and assign ‘the right person in the right position at the righttime,’ we are mindful of our responsibilities in this area. All our businesses conformwith legally set local minimum wage levels, and in many cases are well above theselevels due to our policy of offering pay and benefits that are highly competitive. This
also applies to part-time employees.

87

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECT
Market presence

DISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR
G4-EC5 – Ratios of standard entry level wage by gendercompared to local minimum wage at significant locations ofoperation

LOCATIONGRI Index

OMISSIONS AND ADDITIONAL INFORMATION
Significant operations

Basis of Reporting
JT Tokyo HQ

JTI Moscow

JTI Trier

G4-EC6 – Proportion of senior management hired from the local
community at significant locations of operation

GRI Index
Basis of Reporting

Indirect economic
impacts

DMA

Significant location
JTI Moscow

Ratio of standard entry
level wage to local
minimum wage

Male

172:100

Female172:100

Male

213:100

Female213:100

Male

145:100

Female145:100

Percentage of senior management hiredfrom the local community
60%

Our tobacco business– Our tobacco leaf supply
chain
Respecting human rights– Due diligence process
Our tobacco business– Illegal trade
Our contributions to society

G4-EC7 – Development and impact of infrastructure investments
and services supported

GRI Index

G4-EC8 – Significant indirect economic impacts, including theextent of impacts

Our tobacco business– Our tobacco leaf supply
chain

As part of our Grower Support Programs (GSPs) and Achieving Reduction of Child
Labor in Support of Education (ARISE) activities in 2016, we invested more than 25.1
million U.S. Dollars in infrastructure-related projects in Brazil, Malawi, Tanzania, U.S.,
and Zambia.

Respecting human rights– Our approach
Our tobacco business– Illegal trade88

Our contributions to society

89

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Procurement practices

DMA

Our tobacco business– Supply chain management

OMISSIONS AND ADDITIONAL INFORMATION

Our pharmaceutical business– Overview
Our processed food business– Overview
G4-EC9 – Proportion of spending on local suppliers at significant
locations of operation

GRI Index

We define local as the country of operation.
Significant location is defined as any location with more than 5% of global spend.
Significant locations

Supplier type

% of local spend
in 2016

Japan

Tobacco leaf and non-tobacco
material suppliers

70%

JTI Geneva HQ

Other products and services
suppliers

87%

Germany

Non-tobacco materials andother products and services
suppliers

79%

RussiaNon-tobacco materials andother products and services
suppliers

89%

PolandNon-tobacco materials andother products and services
suppliers

87%

U.K.

Non-tobacco materials andother products and services
suppliers

88%

Outside of Japan our central leaf function purchases tobacco from directly
contracted farmers and merchants, which is then supplied to our cigarette andtobacco-related factories. About 50% of our spend is local – from directly contracted
farmers – and the rest we buy from merchants.
The percentage of local spend for suppliers of bulk drug substances to ourpharmaceutical business is approximately 1%.
The percentage of local spend for suppliers of TableMark is 100%.

90

91

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Procurement practices

G4-FP1 – Percentage of purchased volume from suppliers
compliant with company’s sourcing policy

Our processed food business– Overview

100% of purchased volume from suppliers is compliant with the sourcing policy of
the JT Group processed food business, via self-declaration of suppliers.

GRI Index

ENVIRONMENTAL
EnergyDMA

Our planet– Environmental management
Our planet– GHG emissions

G4-EN3 – Energy consumption within the organization

Our planet– GHG emissions
JT Global website
www.jt.com/csr/environ/data/index.html

We use renewable and non-renewable energy sources within the organization.
Renewable energy sources include solar, hydropower, biomass, and geothermal.
Non-renewable energy sources include natural gas and fuel oils for heating, anddiesel and petrol for fleet vehicles. We also purchase electricity, heating, and steam.

GRI Index
Basis of Reporting
Water

DMA

Our planet– Environmental management
Our planet– Water

G4-EN8 – Total water withdrawal by source

Our planet– Water
JT Global website
www.jt.com/csr/environ/data/index.html
Basis of Reporting

92

93

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Biodiversity

DMA

Our planet– Biodiversity

G4-EN12 – Description of significant impacts of activities,
products, and services on biodiversity in protected areas andareas of high biodiversity value outside protected areas

Our planet– Biodiversity

OMISSIONS AND ADDITIONAL INFORMATIONIn Brazil we help farmers to plant areas of their land with native trees to promotebiodiversity.

GRI Index
GHG emissions

DMA

Our planet– GHG emissions

G4-EN15 – Direct GHG emissions (Scope 1)

Our planet– GHG emissions

G4-EN16 – Energy indirect GHG emissions (Scope 2)
G4-EN17 – Other indirect GHG emissions (Scope 3)

JT Global website
www.jt.com/csr/environ/data/index.html

G4-EN18 – GHG emissions intensity

Basis of Reporting

G4-EN19 – Reduction of GHG emissions
Effluents and waste

DMA

Our planet– Waste

G4-EN22 – Total water discharge by quality and destination

Our planet– WasteJT Global website
www.jt.com/csr/environ/data/index.html

We do not have one global standard on quality of discharged water, but we comply
with local laws and regulatory requirements on water. Where there are no such laws
and requirements, we have a voluntary standard on the quality of water discharged.
We confirm our discharged water is not reused by other organizations.

GRI Index
Basis of Reporting
G4-EN23 – Total weight of waste by type and disposal method

Our planet– WasteJT Global website
www.jt.com/csr/environ/data/index.html
Basis of Reporting

94

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GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

Products and services

DMA

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Our processed food business– Environmental impacts ofproducts

Litter from tobacco products is an issue that calls for collective action to educate
adult consumers to act responsibly. A litter-free environment benefits everyone,smokers included. We adopt a two-pronged approach on this issue: creatingawareness through campaigns, and providing smokers with facilities to easily throw
away their cigarette butts.

GRI Index
G4-EN27 – Extent of impact mitigation of environmental impacts
of products and services

Our processed food business– Environmental impacts ofproducts

We understand that the mitigation of environmental impacts of products andservices is an important issue. We do not currently have a holistic approach in place
to address the environmental impacts of all our products and services. However, we
will be looking into this in future years.

GRI Index
Compliance

Supplier environmental
assessment

DMA

Our planet– Environmental management

G4-EN29 – Monetary value of significant fines and total
number of non-monetary sanctions for non-compliance withenvironmental laws and regulations

GRI Index

DMA

Our tobacco business– Our tobacco leaf supply
chain

During 2016 there were no significant monetary fines or non-monetary sanctions
for non-compliance with environmental laws and regulations in our international
tobacco business.

Our tobacco business– Improving social and labor
conditions
Our tobacco business– Improving environmental
conditions
Our planet– GHG emissions
G4-EN32 – Percentage of new suppliers that were screenedusing environmental criteria

Our tobacco business– Our tobacco leaf supply
chain

Through our Agricultural Labor Practices (ALP) program and the new supplier life
cycle management system under development, we are working toward being able
to report the percentage of new suppliers screened using environmental criteria infollowing years.

GRI Index

96

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GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

Supplier environmental
assessment

G4-EN33 – Significant actual and potential negativeenvironmental impacts in the supply chain and actions taken

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Our tobacco business– Our tobacco leaf supply
chain

Through our ALP program and the new supplier life cycle management system
under development, we are working toward being able to report the significant
actual and potential negative environmental impacts in the supply chain and actions
taken in following years.

Our tobacco business– Improving environmental
conditions
GRI Index

LABOR PRACTICES AND DECENT WORK
Employment

DMA

Our people– Employee development andtalent management

G4-LA1 – Total number and rates of new employee hires andemployee turnover by age group, gender, and region

Our people– Employee development andtalent management
GRI Index
Basis of Reporting98

New employees’ hire and turnover bygenderMale

FemaleTotal

Total number of new employees

2,686

1,423

4,109

Rate of new employees’ hire

9.0%

12.8%

10.1%

Total employee turnover

3,432

1,670

5,102

Employee turnover rate

11.6%

15.0%

12.5%

New employees’ hire andturnover by age

<30

30–50

>50

Total

Total number of new employees
(*D)

1,889

1,378

66

3,333

Rate of new employees’ hire (*D)

36.1%

6.9%

1.4%

11.1%

Total employee turnover

1,167

2,344

1,562

5,073

Employee turnover rate

16.8%

8.9%

21.1%

12.5%

99

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Employment

OMISSIONS AND ADDITIONAL INFORMATION
New employees’ hire
and turnover by region

Japan

South
and
West
EuropeNorth
andCentralEurope

CIS+*

Other

Total

Total number of new
employees

781

356

734

734

1,504

4,109

Rate of new employees’
hire

5.0%

8.8%

13.6%

12.0%

15.5%

10.1%

Total employee turnover

1,369

983

475

1,014

1,261

5,102

Employee turnover rate

8.8%

24.4%

8.8%

16.6%

13.0%

12.5%

* Commonwealth of Independent States
G4-LA2 – Benefits provided to full-time employees that are notprovided to temporary or part-time employees, by significant
locations of operation

Our people– Employee development andtalent management

As of the end of 2016 significant locations include our JT head office in Tokyo,
Japan, and our international tobacco business head office in Geneva, Switzerland.
Our international tobacco business, for instance, positions compensation levels in
the 75th percentile against companies with which we compete for talent.

GRI Index
Basis of Reporting

JT head office in Tokyo
Benefits

100

Permanent
employees

Temporary full-time employees

Temporarypart-time
employees

Commissioned
personnel

Contract
employees*

Y

Y

Y

Y

Bereaved family
compensation
programY

Regular healthexamination

Y

Y

Medical leavesystemY

Y

Parental leave

YY

Retirement

Y

Stock ownership

Y

101

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Employment

OMISSIONS AND ADDITIONAL INFORMATIONInternational tobacco business head office in Geneva
Benefits

Permanent
employees

Temporary fulltime employees

Temporarypart-time
employees

Life insuranceYY

Y (Prorated)

Health careYY

Y (Prorated)

Disability and invalidity
coverageYY

Y (Prorated)

Parental leaveYY

Y (Prorated)

Retirement provisionYY

Y (Prorated)

Stock ownershipY* Contract employees may be given benefits if they are exempt from Company
regulations.
Labor/management
relations

DMA

Our people– Being a responsible
employer

G4-LA4 – Minimum notice periods regarding operationalchanges, including whether these are specified in collective
agreements

Our people– Being a responsible
employer

Numberof months
between theannouncement
and the time
the first
employeeleaves thefactory becauseof the closure

Numberof months
between theannouncement
and the final
closureIs the minimum
notice period
for consultationand negotiation
specified incollective
agreements?

Wervik, Belgium

33 months

39 months

No

Lisnafillan, Northern
Ireland

20 months

32 months

No

Minimum notice
periods regarding
operationalchanges

About this reportGRI Index
Basis of Reporting

102

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GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Occupational healthand safety

DMA

Our people– Workplace health and safety

G4-LA6 – Type of injury and rates of injury, occupational
diseases, lost days, and absenteeism, and total number of workrelated fatalities, by region and by gender

Our people– Workplace health and safety

We report lost-time incidents (LTIs) instead of lost-day rate due to the format thedata is collected in our management systems.

GRI Index

Absenteeism is only recorded in the finished goods manufacturing sites andtobacco processing facilities in our international tobacco business, which covers
approximately 9,000 employees, and in 2016 was reported as 2.09, against a targetof 2.16. In 2015 this figure was 2.51.

Basis of ReportingOMISSIONS AND ADDITIONAL INFORMATIONIn JT, absenteeism in 2016 was reported as 0.55. We anticipate that data forJapanese domestic Group companies will be available in future years.

Training and education

DMA

Our people– Employee development andtalent management

G4-LA10 – Programs for skills management and lifelong learningthat support the continued employability of employees
and assist them in managing career endings

Our people– Employee development andtalent management
Basis of Reporting

G4-LA11 – Percentage of employees receiving regularperformance and career development reviews, by gender and by
employee category

Our people– Employee development andtalent management
GRI Index

Percentage of employees receiving regular performanceand career development reviews by gender (*D)

2015

Male

76.8%

Female80.6%

Percentage of employees receiving regular performanceand career development reviews by employee category
(*D)

2015

Executive Officers

100%Management (excluding Executive Officers)

97.6%

Employees (excluding management)

76.3%

Basis of Reporting

We have reported on the 2015 performance appraisal data because the informationfor 2016 is currently being analyzed. We expect to report on this in 2017. Pleaserefer to G4-22 for further details. In 2017 we will provide data for Japanese domestic
Group companies.
104

105

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Diversity and equal
opportunity

DMA

Our people– Diversity in the workplace

G4-LA12 – Composition of governance bodies and breakdownof employees per employee category according to gender, agegroup, minority group membership, and other indicators ofdiversity

Our people– Diversity in the workplace

Breakdown of employees by gender and age
group

GRI Index
Basis of Reporting

Equal remuneration for
women and men

OMISSIONS AND ADDITIONAL INFORMATION

Female

Male

Total

Under 30

2,410

4,518

6,928

30–50

7,187

19,06926,256

Over 50

1,448

5,970

7,418

DMA

Our people– Being a responsible
employer

G4-LA13 – Ratio of basic salary and remuneration of women tomen by employee category, by significant locations of operation

Our people– Being a responsible
employerSignificant
operations

Employee category

GRI Index

JTI Geneva HQVice President

97.9%

Director

98.6%

Manager

92.4%

Associate104.1%

Executive Officer

93.2%

Management

96.7%

Employee

100.0%

Basis of Reporting

JT Tokyo HQ

106

Ratio of annual basesalary of women tomen in 2016

107

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Supplier assessment
for labor practices

DMA

Our tobacco business– Supply chain management

G4-LA14 – Percentage of new suppliers that were screenedusing labor practices criteria

Our tobacco business– Supply chain management
Our tobacco business– Improving social and labor
conditions

OMISSIONS AND ADDITIONAL INFORMATION

Through our ALP program and the new supplier life cycle management system
under development, we are working toward being able to report the percentage of
new suppliers screened using labor practices criteria in following years. In Japan, we
are implementing an ALP pilot study from 2017.

GRI Index
G4-LA15 – Significant actual and potential negative impacts forlabor practices in the supply chain and actions taken

Our tobacco business– Supply chain management
Our tobacco business– Improving social and labor
conditions

Through our ALP program and the new supplier life cycle management system
under development, we are working toward being able to report the significant
actual and potential negative impacts for labor practices in the supply chain andactions taken in following years. In Japan, we are implementing an ALP pilot study
from 2017.

GRI Index
Labor practices
grievance mechanisms

DMA

Our way of doing business– Reporting concerns

G4-LA16 – Number of grievances about labor practices filed,addressed, and resolved through formal grievance mechanisms

Our way of doing business– Reporting concerns

In 2016, 111 grievances about labor practices (excluding human rights) were filed,
all of which were addressed. 98 grievances were resolved through formal grievancemechanisms.

GRI Index
Basis of Reporting

HUMAN RIGHTS
Investment

DMA

Respecting human rights– Due diligence process

G4-HR1 – Total number and percentage of significant investment
agreements and contracts that include human rights clauses orthat underwent human rights screening

Respecting human rights– Due diligence process
Our tobacco business– Supply chain management

In our international tobacco business, our business development projects areroutinely subject to compliance due diligence, including certain human rights
compliance aspects. We are currently unable to report on the number andpercentage of significant investment agreements and contracts that include humanrights clauses or that underwent human rights screening. However, we are working
toward being able to report on this in the future.

GRI Index
108

109

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

Non-discrimination

DMA

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Our way of doing business– Reporting concerns
Our people– Being a responsible
employer

G4-HR3 – Total number of incidents of discrimination andcorrective actions taken

Our way of doing business– Reporting concerns

In 2016 there was one alleged case of workplace discrimination, and the appropriate
corrective actions were taken.

Our people– Being a responsible
employer
GRI Index
Basis of Reporting
Freedom of associationand collective
bargaining

DMA

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyG4-HR4 – Operations and suppliers identified in which the rightto exercise freedom of association and collective bargaining may
be violated or at significant risk, and measures taken to support
these rights

Respecting human rights– Due diligence process

The right to exercise freedom of association and collective bargaining is at significant
risk in a number of countries where we directly or indirectly source tobacco leaf. We
assess and mitigate those risks through our ALP.

Respecting human rights– Launching a human rights
policyOur tobacco business– Supply chain management
GRI Index

110

111

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

Child labor

DMA

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Respecting human rights– Due diligence process
Our tobacco business– Our tobacco leaf supply
chain

G4-HR5 – Operations and suppliers identified as having
significant risk for incidents of child labor, and measures taken
to contribute to the effective abolition of child labor

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyOperations and suppliers identified as having significant risk for incidents of childlabor have been identified in a number of countries where we directly or indirectly
source tobacco leaf. We assess and mitigate those risks in our leaf supply chain
through our ALP and subsequently programs such as GSP, ARISE, and Good
Agricultural Practices, communication and training, and the ECLT Foundation. In
Japan, we are implementing an ALP pilot study from 2017.

Our tobacco business– Our tobacco leaf supply
chain
GRI Index
Forced or compulsory
labor

DMA

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyG4-HR6 – Operations and suppliers identified as having
significant risk for incidents of forced or compulsory labor, andmeasures to contribute to the elimination of all forms of forced orcompulsory labor

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyOperations and suppliers identified as having significant risk for incidents of forced
or compulsory labor have been identified in a number of countries where we directly
or indirectly source tobacco leaf. We assess and mitigate those risks through our
ALP in our leaf supply chain. In Japan, we are implementing an ALP pilot study from2017.

Our tobacco business– Supply chain management
GRI Index

112

113

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

Assessment

DMA

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyG4-HR9 – Total number and percentage of operations that havebeen subject to human rights reviews or impact assessments

Respecting human rights– Due diligence process

Through the new supplier life cycle management system under development, we
are working toward being able to report the number of operations subject to humanrights reviews in following years.

Respecting human rights– Launching a human rights
policyOur tobacco business– Supply chain management
GRI Index
Supplier human rights
assessment

DMA

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyG4-HR10 – Percentage of new suppliers that were screenedusing human rights criteria

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyThrough our ALP program and the new supplier life cycle management system
under development, we are working toward being able to report the percentage of
new suppliers screened using human rights criteria in following years. In Japan, we
are implementing an ALP pilot study from 2017.

Our tobacco business– Supply chain management
GRI Index
G4-HR11 – Significant actual and potential negative humanrights impacts in the supply chain and actions taken

Respecting human rights– Due diligence process
Respecting human rights– Launching a human rights
policyOur tobacco business– Supply chain management

114

115

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Human rights grievancemechanisms

DMA

Respecting human rights– Training

G4-HR12 – Number of grievances about human rights impacts
filed, addressed, and resolved through formal grievancemechanisms

Respecting human rights– Training

OMISSIONS AND ADDITIONAL INFORMATION

In 2016, 87 grievances about human rights impacts were filed, all of which wereaddressed. 77 grievances were resolved through formal grievance mechanisms.

Our way of doing business– Reporting concerns
GRI Index
Basis of Reporting

SOCIETY
Local communities

DMA

Our contributions to society– Our approach
Our tobacco business– Improving social and labor
conditions
Our tobacco business– Improving environmental
conditions

G4-SO1 – Percentage of operations with implemented local
community engagement, impact assessments, and development
programs

Our contributions to society
Our tobacco business– Improving social and labor
conditions
Our tobacco business– Improving environmental
conditions

116

Corporate community investment programs
We have corporate community investment projects implemented in 87%
of the countries where we operate. There are 62 countries in which we have
corporate community investment projects.
ARISE and Grower Support Programs (GSPs)
In addition to our corporate community investment programs, we also have ARISE
and GSPs in Brazil, Malawi, Tanzania, and Zambia in 2016, covering 57.1% of themarkets where we produce tobacco.

GRI Index

Markets

Number of GSPs

ARISE

Basis of Reporting

Brazil9

Y

Malawi

104

Y

Zambia75

Y

Tanzania

15

Y

117

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Anti-corruption

DMA

Our way of doing business– Living our Codes of Conduct

G4-SO4 – Communication and training on anti-corruption
policies and procedures

Our way of doing business– Living our Codes of Conduct
Our way of doing business– Anti-bribery and corruption

OMISSIONS AND ADDITIONAL INFORMATION

Our anti-bribery and corruption policies and procedures, including on gifts,
hospitality, and entertainment, are outlined in our Codes of Conduct, which wecommunicate to all employees. Mandatory training on our Codes of Conduct
is provided to all our employees. We also require all business partners in ourinternational tobacco business to act in accordance with our Supplier Standards.
Further details on training are included in our Sustainability Report.

GRI Index
Basis of Reporting
Public policy

Anti-competitive
behavior

DMA

Our way of doing business– Our tax practices

G4-SO6 – Total value of political contributions by country andrecipient/beneficiary

GRI Index

DMA

Our way of doing business– Anti-competitive behavior

G4-SO7 – Total number of legal actions for anti-competitive
behavior, anti-trust, and monopoly practices and their outcomes

Our way of doing business– Anti-competitive behavior
GRI Index

Compliance

Supplier assessment
for impacts on society

DMA

Our way of doing business– Living our Codes of Conduct

G4-SO8 – Monetary value of significant fines and total
number of non-monetary sanctions for non-compliance withlaws and regulations [related to accounting fraud, workplace
discrimination, or corruption]

GRI Index

DMA

Our tobacco business– Supply chain management

In compliance with Political Funds Control Laws in Japan, JT refrains from making
political contributions. None of JT’s subsidiaries made political contributions in any
jurisdiction in 2016 except a non-tobacco subsidiary in Japan, which made a politicalcontribution that amounted to low-single-digit million Yen, at its own discretion, incompliance with all relevant Japanese laws.

In 2016 there were no legal actions (court judgments or arbitration awards) for anticompetitive behavior, anti-trust, and monopoly practices in our international tobacco
business. We are currently unable to report on this indicator for the entire JT Group.
However, we are working toward being able to report this in the future.

During 2016 there were no significant monetary fines or non-monetary sanctions for
non-compliance with laws and regulations (related to accounting fraud, workplace
discrimination, or corruption) in our international tobacco business. We are currently
unable to report on this indicator for the entire JT Group. However, we are working
toward being able to report this in the future.

Our tobacco business– Improving social and labor
conditions
118

119

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATIONOMISSIONS AND ADDITIONAL INFORMATION

Supplier assessment
for impacts on society

G4-SO9 – Percentage of new suppliers that were screened using
criteria for impacts on society

Our tobacco business– Supply chain management

Through the new supplier life cycle management system under development, we areworking toward being able to report the percentage of new suppliers screened using
criteria for impacts on society in following years.

Our tobacco business– Improving social and labor
conditions
GRI Index
SO10 – Significant actual and potential negative impacts onsociety in the supply chain and actions taken

Our tobacco business– Supply chain management

Through the new supplier life cycle management system under development, we
are working toward being able to report the significant actual and potential negative
impacts on society in the supply chain and actions taken in following years.

Our tobacco business– Improving social conditions
GRI Index
Grievance mechanisms
for impacts on society

DMA

Our way of doing business– Reporting concerns

G4-SO11 – Number of grievances about impacts on society filed,addressed, and resolved through formal grievance mechanisms

Our way of doing business– Reporting concerns
Basis of Reporting

PRODUCT RESPONSIBILITY
Customer health andsafetyDMA

Our tobacco business- Smoking and health
Our pharmaceutical business– Overview
Our processed food business– Delivering safe, high-quality
products

120

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GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECT
Customer health andsafetyDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

G4-PR1 – Percentage of significant product and service
categories for which health and safety impacts are assessed for
improvement

Our tobacco business– Smoking and health
Our pharmaceutical business– Overview
Our processed food business– Delivering safe, high-quality
products

OMISSIONS AND ADDITIONAL INFORMATION
Percentage of products
for which healthand safety impacts
are assessed for
improvement

Traditional
tobaccoproducts

Processedfoodbusiness

Pharmaceuticals

100%

100%

100%

Emerging products are a new product category to our business and are not includedin the table above.

GRI Index

Product and service
labeling

G4-PR2 – Total number of incidents of non-compliance withregulations and voluntary codes concerning the health and safety
impacts of products and services during their life cycle, by type ofoutcomes

GRI Index

DMA

Our tobacco business– Responsible marketing

During 2016 there were no incidents of non-compliance with regulations concerning
the health and safety impacts of products and services during their life cyclethat resulted in a significant fine, penalty, or warning in our international tobacco
business. We are currently unable to report on the total number of incidents of
non-compliance with voluntary codes concerning the health and safety impacts ofproducts and services during their life cycle. However, we are looking into a way inwhich we can report this in the future.

Our pharmaceutical business– Responsible marketing
Our processed food business– Food communication

122

G4-PR4 – Total number of incidents of non-compliance withregulations and voluntary codes concerning product and service
information and labeling, by type of outcomes

GRI Index

G4-FP5 – Percentage of production volume manufactured
in sites certified by an independent third party according tointernationally recognized food safety management systemstandards

Our processed food business– Food safety

During 2016 there were no incidents of non-compliance with regulations concerning
product and service information and labeling that resulted in a significant fine,penalty, or warning in our international tobacco business. We are currently unable
to report on the total number of incidents of non-compliance with voluntary codes
concerning product and service information and labeling. However, we are looking
into a way in which we can report this in the future.

123

GRI G4 CONTENT INDEXSPECIFIC STANDARD DISCLOSURES
MATERIAL ASPECTDISCLOSURES ON MANAGEMENT APPROACH(DMA) AND INDICATOR

LOCATION

Marketingcommunications

DMA

Our tobacco business– Responsible marketing

OMISSIONS AND ADDITIONAL INFORMATION

Our pharmaceutical business– Responsible marketing

Compliance

G4-PR6 – Sale of banned or disputed products

GRI Index

In 2016, in our international tobacco business, the sales and/or imports ofe-cigarettes were banned in more than 20 countries, flavored products wererestricted in more than 30 countries, snus was banned in more than 40 countries,
and waterpipe tobacco was banned in more than five countries – all of which arepart of our product portfolio. The JT Group fully complies with these bans.

G4-PR7 – Total number of incidents of non-compliancewith regulations and voluntary codes concerning marketing
communications, including advertising, promotion, andsponsorship, by type of outcomes

GRI Index

During 2016 there were no incidents of non-compliance with regulations concerningmarketing communications, including advertising, promotion, and sponsorship,that resulted in a significant fine, penalty, or warning in our international tobacco
business. We are currently unable to report on the total number of incidents of noncompliance with voluntary codes concerning marketing communications, including
advertising, promotion, and sponsorship. However, we are looking into a way inwhich we can report this in the future.

DMA

Our way of doing business– Living our Codes of Conduct
Our tobacco business– Responsible marketing

G4-PR9 – Monetary value of significant fines for non-compliancewith laws and regulations concerning the provision and use of
products and services

124

GRI Index

In 2016 we did not receive any significant fines for non-compliance with laws
and regulations concerning the provision and use of products and services in ourinternational tobacco business. We are currently unable to report on this indicator forthe entire JT Group. However, we are working toward being able to report this in the
future.

125