In this section

Strategy and approach > P.13
The JT Group governance > P.14
Sustainability governance > P.15
Stakeholder engagement > P.16
Identifying our material issues > P.18
Performance highlights > P.19

01 The JT Groupand sustainability

Our approach to sustainability is governed by our management
principle, known as the “4S” model. Under the model, we balance theinterests of consumers, shareholders, employees, and wider society,and fulfill our responsibilities towards them, aiming to exceed theirexpectations.
Using the “4S” model, we strive for sustainable growth over the mid- tolong-term by continually delivering added value to our consumers. We
believe that pursuing this model enhances corporate value and helps
us to meet and exceed stakeholders’ interests in the most balanced way
possible. We take pride in the strong relationships we have built withthe four stakeholder groups within the “4S” model, and through ourengagement we are able to reflect stakeholder views in our businessactivities.
12 | JT Group Sustainability ReportStrategy and approach
In addition to the “4S” model, our responsibilities as a corporate citizen are also reflected in the JT Group Mission, “To create,develop and nurture its unique brands to win consumer trust, while understanding and respecting the environment and the diversityof societies and individuals”. Responsible behavior and continuous improvement are also commitments that are outlined in the JT
Group Way, and our Codes of Conduct.
For more information on the “4S” model, the JT Group Mission, and the JT Group Way, please visit www.jt.com/about.

01|“4S” model

Based on the “4S” model and the JT Group Mission, we work
to continually strengthen our sustainability management
and performance. We take a value chain approach tosustainability focusing on issues at every stage of our business
operations, from supply chain, research and development, andmanufacturing to sales and marketing, distribution, and productuse and disposal.

Business-specificsustainability issues
Given the international and diverse nature of our organization,different parts of the JT Group have developed business-specificapproaches to sustainability linked to the level of exposure tosustainability risks. For example, in our tobacco leaf supply
chain, we aim to safeguard the long-term supply of highquality tobacco leaf for the JT Group. Sustainability issues
play a significant role in meeting that aim, including improving
environmental and social conditions, protecting humanrights, and working in partnership with stakeholders. In ourinternational tobacco business, our supply chain strategy also
focuses on enhancing the livelihoods and long-term profitabilityof farming communities, particularly those in developing
countries (see page 33).

In our beverage and processed food businesses, our key
commitments are to delivering the highest-quality products,ensuring food and product safety (see page 58), and minimizing
our environmental footprint from manufacturing, sales, anddistribution (see pages 40–41).
With operations in more than 70 countries, our international
tobacco business is exposed to a wide range of sustainability
issues and risks. To identify the most important sustainability
issues across this business, a materiality exercise wasconducted in 2013 as a first step towards developing a moredefined strategic approach. Further detail is provided on
page 18.

Developing a new strategy
Recognizing the importance of an organization-wide, forwardlooking approach to sustainability, we are in the process ofdeveloping a comprehensive sustainability strategy, which
will be rolled out across various parts of the JT Group over thecourse of 2014 and 2015. A number of organizational changes
were implemented in 2013 to support this process, including
appointing a Senior Vice President for CSR, who is a member of
the JT Executive Committee, and establishing a dedicated CSR
department in our international tobacco business.

In our pharmaceutical business, some of the key strategic issues
that we consider, based on importance to patients, include an
ethical approach to research and development, responsible
marketing of our products, and a reliable supply of drugs (seepage 56).

JT Group Sustainability Report | 13

The JT Group and sustainability

Value chain approach

The JT Group governance
The JT Board of Directors holds the ultimate responsibility for the administration and supervision of our activities. The Board is
supported by a number of governance structures. These include the Compliance Committee; the Compensation Advisory Panel; theExecutive Officer system responsible for efficient business management; and the Audit & Supervisory Board, a separate governanceboard that oversees our audit activities.
In 2013, our Board of Directors consisted of nine Directors, two of which are independent. Five members of the Board also serve as
Executive Officers and three are non-executive, including the JT Group Chairman. The separate Audit & Supervisory Board consists offour members, two of which are independent.
Within our corporate governance framework, we develop appropriate internal controls, including compliance, internal audit, and risk
management, and results of these activities are reported regularly to the Board. Our Annual Report provides further details on ourlatest governance structures and Board members (www.jt.com/investors/results/annual_report).

Remuneration

Risk management

The Compensation Advisory Panel supports the Board ofDirectors with the compensation calculation policy and thecompensation system for Directors and Executive Officers.
Remuneration for our Directors is determined by the Board ofDirectors, taking into account the range approved at the Annual
General Meeting of Shareholders (AGM) and deliberations of theCompensation Advisory Panel.

Our approach to addressing key financial and business risks
is detailed in our Annual Report. Financial risks and disaster
incidents are reported to the Board of Directors quarterly. As partof our risk management process, internal audits are conductedby the independent Operational Review and Business Assurance
Division, which reports directly to the President of JT. We also
have crisis management and disaster control systems in place.

Compliance and audit

Each of our business units has individual sustainability risks,
based on the nature of their operations and geographicallocation. Identification and mitigation of sustainability risks
is incorporated into our Group risk management approach.
Our key Group-wide risks that relate to sustainability include
instability in the procurement of key materials and natural
disasters.

Compliance requirements are outlined in the JT Group Code ofConduct, which has been approved by the Board of Directors.
Under the Code, all Directors and employees are expected
to fully comply with applicable regulations, our Articles ofIncorporation, social norms, and other compliance standards(see page 21). The Compliance Committee discusses importantcompliance-related issues and reports to the Board of Directors.
The Audit & Supervisory Board conducts audits on operations,
including compliance-related issues, as well as accounting
audits, while exchanging relevant information with independent
auditors and the Operational Review and Business Assurance
Division, which conducts internal audits.

14 | JT Group Sustainability Report

Sustainability governance
The Executive Committee holds responsibility for Group-wide sustainability decision-making and is supported by the Senior Vice
President for CSR, who is a member of the Executive Committee and also leads the CSR Division. The CSR Division monitors Groupwide sustainability issues, initiatives, and performance; implements Group-wide policies and procedures; and is responsible forinternal and external communication and knowledge sharing on sustainability. The CSR Division also helps Group businesses andcorporate functions understand global CSR and sustainability trends.

Sustainability governance in the JT Group

Executive Committee
Discussion and decision-making on theGroup-wide policies and themes that arerelevant to the JT Group's social andenvironmental responsibilities

CSR Division01|

The JT Group and sustainability

Develop an understanding of global
CSR trends; conduct gap analyses on
the JT Group approach and performance;
make recommendations to the JT Groupmanagement and assist businesses inincorporating CSR into their respectivebusinesses
Establish the Group-wide CSR policies,and carry out related initiatives
Internal and external CSR
communications
Monitor CSR-related activities andmanagement (including those of otherfunctions)

Businesses
Plan and conduct CSR-related initiatives
based on their respective strategies

Corporate functions
Plan and conduct CSR-related initiatives
based on their respective strategies

JT Group Sustainability Report | 15

Stakeholder engagement
Stakeholder engagement across the JT Group is conducted under our “4S” model, which requires us to balance the interests of four
stakeholder groups. We are working towards a Group-wide approach to stakeholder engagement on sustainability issues, and within
our international tobacco business, we have begun to systematically seek and address feedback on issues relevant to our businesssustainability from our various stakeholder groups. We will continue to develop our approach to stakeholder engagement as part ofdeveloping our new sustainability strategy in 2014 and 2015.

Shareholders

Consumers

Along with the Annual General Meetingof Shareholders (AGM), we hold regularmeetings with institutional investors.
In 2013, the number of shareholders
attending the AGM rose to 2,638
from 763 in 2012. There was greaterinterest in our corporate citizenship andsustainability activities at the 2013 AGM,
and an increase in interview requests
from institutional investors specificallycovering our sustainability activities in
2013.

We provide consumers with detailsof our products and their ingredientson product packaging and/or on ourwebsites. Consumers can contact us andprovide feedback through consumer callcenters in several countries. Consumer
feedback is fed into our productdevelopment processes, and we aim to
make product improvements based on
feedback where possible.

“4S” model

Employees

SocietyWe use a variety of communication
channels to keep our employees
informed on important company
matters and to gather their opinions andfeedback. These include our intranet andregular employee engagement surveys.
Our employee engagement surveys
provide a view on employee satisfaction
and highlight areas where changes orimprovements can be made. We aremembers of organizations working on
employee-related sustainability issues,
such as the Japan Women’s Innovative
Network (J-WIN) and the Japan Industrial
Safety and Health Association.

A range of stakeholders fit within thesociety category of our “4S” model.
These include local communities,suppliers, retail customers, governments
and regulators, and non-governmentalorganizations (NGOs). We engage
with NGOs and local communities
where we operate to understand theirneeds and concerns in relation to ouroperations, products, or specific issues.
We have measures in place to engage
with our suppliers in relevant parts ofthe business, and we work with ourcustomers and regulators to address
issues such as preventing youth access

16 | JT Group Sustainability Report

to tobacco and combating the illegal
tobacco trade. We are members ofa number of bodies concerned withsocietal issues, including the Industrial
Federation for Human Rights (Tokyo), theBusiness Ethics Research Center (Japan),the Institute of Business Ethics (U.K.), theILO/United Nations Global Compact Child
Labor Platform, the Eliminating Child
Labor in Tobacco Growing Foundation,and the CEB Compliance & Ethics
Leadership Council.

Trade and business associations
In general, we are members of national industry and businessassociations in the countries where we operate as well as
being members of regional and international organizations that
represent the interests of the sectors in which we work. These
include, but are not limited to, KEIDANREN (Japan BusinessFederation), Tobacco Institute of Japan (TIOJ), Confederationof European Community Cigarette Manufacturers (CECCM),
European Cigar Manufacturers Association (ECMA), Japan
Pharmaceutical Manufacturers Association (JPMA), Japan Soft
Drink Association, Japan Frozen Food Association, and JapanEU Business Dialogue Round Table.

01|

We believe that appropriate and proportionate regulation ofthe tobacco sector is both necessary and right. All tobacco
regulation should be evidence-based, practical, enforceable, andcompetitively neutral.

Responsible engagement

Open and transparent engagement• To be open and transparent in our dialogue with authorities• To be respectful of each country’s decision-making process• To offer alternative solutions, whenever possible, that meetthe principles of better regulation if issue is taken with agovernment’s proposed course of action• To provide credible evidence substantiating our positions andarguments

We have a right – and an obligation – to express our pointof view regarding regulation that affects our business andproducts. Like other businesses, we actively seek open andtransparent dialogue with governmental authorities, regulators,
decision-makers, and opinion-formers around the world. If
we see an issue or oversight within a government’s proposedcourse of action, we offer alternative solutions whereverpossible.
We believe that transparency and stakeholder participation
are critical to ensuring that the resulting regulation is effective,
proportionate, and meaningful. Open and honest engagement
results in better and more informed regulation and is in thebest interests of all relevant parties. We are opposed, therefore,
to any efforts to exclude the tobacco industry from regulatory
engagement. Political stakeholders and policy-makers should beindependently minded and consider the merits of our position,
as well as those of other legitimate stakeholders, before making
any policy decisions.

We have certain responsibilities when we are consulted bygovernments or take part in consultation processes. Amongthese are:Within our international tobacco business, we have clear
guidelines for political engagement and an anti-bribery policythat is embedded within our Code of Conduct (see page 23).
We comply with all applicable requirements pertaining ourrelationship with governments, for example with the U.K. Bribery
Act and the EU Transparency Register. For more information
regarding our position and views on the regulation of tobacco
products, see www.jti.com.

JT Group Sustainability Report | 17

The JT Group and sustainability

Engaging with governments and regulators

Identifying our material issues
Due to its international reach and exposure to a range of sustainability risks, we undertook a first-phase materiality assessment forour international tobacco business in 2013. As part of this process, we engaged with internal and external stakeholders to gather
feedback on the JT Group’s 2013 CSR Report. A benchmarking exercise against peers and competitors, and a media analysis werealso carried out.
External stakeholders were identified based on their relevance to the tobacco industry as well as the nature and scale of theirrelationship with us. These included suppliers, NGOs, and academics.
Internal stakeholders were identified based on their relevance to the JT Group’s strategic approach to sustainability and thesustainability reporting process. These included senior management across the international tobacco business from divisions
including Human Resources; Regulatory Affairs; Corporate Strategy; Global Leaf; Global Supply Chain; and Environment, Health andSafety.
The outcome of the engagement was a materiality matrix (see below), which was reviewed and validated by senior management. Our
approach to managing these material issues and, where relevant, our performance is provided in this report. Our materiality process
is ongoing and we plan to expand it to better cover all of our business operations in the future.
Issues material to our pharmaceutical, beverage and processed food businesses were selected for reporting based on peerbenchmarking and an internal prioritization exercise.

Materiality matrix for the JT Group international tobacco business

MEDIUM• Employee development and talentmanagement• Equality & diversity in the workplace• Employer responsibility• Energy & emissions• Biodiversity• Sustainable wood
• Product environmental impacts• Long-term tobacco farmer profits• Elimination of child labor• Agricultural labor practices• Workplace health & safety• Anti-bribery & corruption• Anti-competitive behavior• Responsible marketingLOW

Importance to external stakeholders

HIGH• Supplier standards & practices• Human rights• Resource efficiency• Health risks, transparency, andregulation• Product innovation• Illegal trade

LOW

MEDIUM

HIGH

Importance to the JT Group international tobacco business

18 | JT Group Sustainability ReportPerformance highlights

11.5%

Decrease in total Scope 1 and Scope 2
greenhouse gas (GHG) emissions since 2009

3,071

Children withdrawn or prevented fromchild labor

51,563

Number of permanent employees

9,130

Number of temporary employees

57.1billion Yen

24.9%

Female workforce

446

0.73

tons per million
cigarettes equivalent

Number of new suppliers certified toKnow Your Supplier (KYS)

GHG emissions intensity

100%

96.1%

ISO 22000 certified frozen food factories

Participation in Employee Engagement
Survey in Japan

7,780 million Yen

global expenditure on community
investment and corporate citizenshipprograms

JT Group Sustainability Report | 1901|

The JT Group and sustainability

R&D spend globally