Integrated Report 2023
Japan Tobacco Inc.

Fulfilling Moments,
Enriching Life

The wordings on this slide represent the values we cherish in order to co-create with society at large towards realizing the JT Group Purpose“Fulfilling Moments, Enriching Life.” We, the JT Group, will continue to move forward towards the realization of our Purpose.

Japan Tobacco Inc. Integrated Report 2023

001

CONTENTS

004

MESSAGE from the CEO“Fulfilling Moments, Enriching Life”
“I will continue my dialogue with our people andstakeholders outside the Company to further
promote the Purpose and demonstrate specificactions to fulfill it”

034
036

040

SUSTAINABILITY MANAGEMENT

098

GOVERNANCE

About our integrated report

JT Group sustainability strategy

100

Executive roundtable

In this report, we integrate financial information such as
management policies, business strategies, and performancetrends with sustainability information that support our
growth over the medium to long term. It is published withthe aim to deliver and inform our value creation story, bothpresent and future, to a wide range of stakeholders, including shareholders and investors.

CSO interview

“ With the Purpose as our origin, we identified ourmateriality and formulated the JT Group
Sustainability Targets comprised of 25 target items.
We will revisit the targets regularly so that they canevolve further.”“ Together with the newly elected Outside Directors,
executives discussed the direction to which the JT
Group is heading and challenges during the course.”

Additionally, please take a look at the online version forenhanced readability.

Financial information

010

042	Living with the planet

IDENTITY048	Value creation that exceeds consumer expectations

012

Our management principle

050	Investing in our people and supporting their growth013

JT Group Purpose

060	Responsible supply chain management014	Interview with
the Executive Vice Presidents	“Embodying the JT Group Purpose”

062	Community investment063	Good governance

064
066

068

BUSINESS and STRATEGIESBusiness Plan 2024

Message from the CFO

	“We will strive to enhance corporate values throughfinancial and capital strategies that contribute to
the realization of the JT Group Purpose, and throughcommunications with our stakeholders”

020

JT Group Journey

022

At a glance024

Key performance indicators

106

Corporate governance

116

Management structure122	Internal controls

126

OTHER INFORMATION

128	Risk factors
132

Regulation and key laws

135

Litigation

136

Financial information

030

Our value chains

074

Business Purposes

Japan Tobacco Inc. Integrated Report 2023

• IR calendar• For debt investors		・Financial data for each business140

JT Group Sustainability Targets

144

Glossary of terms

146

Awards and recognitions

148	Shareholder information and contact information

Integrated Report 2023
Japan Tobacco Inc.

JT website Sustainability• Message from top management• Sustainability strategy• Living with the planet• Value creation that exceeds consumer expectations• Investing in our people and supporting their growth• Responsible supply chain management• Good governanceCover story
The cover and the following page express the value we cherish in order to achieve
our Purpose. We are steadily making progress towards the realization of the JT Group
Purpose, which sets the direction the JT Group aims for. In order for our Group tocontinue to be a sustainable entity, we will advance our efforts towards the realization of the JT Group Purpose, and through co-creation with all of our stakeholders,we will continue to evolve constantly.

002• For shareholders		・Long-term consolidated financial data		・Non-financial performance review
Value creation process• Management information• Results and reports

		・Financial performance review
028

JT website Investor Relations076

Tobacco business

090

Pharmaceutical businessWe would like to express our gratitude towards our stakeholders for the many comments we receive each year on our integrated report. We have incorporated thesecomments as an important element during the planning process and the production of this report.

094

Processed food businessNote: The illustration on the cover was created using generative AI

Non-financial information

Forward-looking statements contained in this document
are necessarily dependent upon assumptions, estimatesand data that may be incorrect or imprecise and involve
known and unknown risks and uncertainties. Actual results,
performance or achievements, or those of the industries
in which we operate, may differ materially from any future
results, performance or achievements expressed or impliedby these forward-looking statements. Please see “FORWARD-LOOKING STATEMENTS” on P. 149 for further details.

Japan Tobacco Inc. Integrated Report 2023

003

MESSAGE from the CEO

MESSAGE from the CEO“Fulfilling Moments, Enriching Life”

IDENTITY

My mission is to lead the evolution of the JT Group to assure that we maintain the trust of society while creating value in developing “fulfilling moments,” despite these changing over time and based on each individual,
and continue to make important contributions to society worldwide.

SUSTAINABILITY MANAGEMENT

Masamichi Terabatake
Representative Director and President,
Chief Executive Officer

 usiness environment and the JT Group’s performance in 2023 and progressBtowards achieving the JT Group Purpose

Q. What was 2023 like for the JT Group?

Despite these headwinds, our continued focus on futureoriented business investments have led to improved results

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Japan Tobacco Inc. Integrated Report 2023

In combustibles, in addition to steady pricing contributions,
we maintained strong share momentum leveraging ourbalanced portfolio of high-equity brands. For RRP (ReducedRisk Products)*2, we gradually expanded the sales territories
for Ploom X, making it available in 13 markets at the end of

I would like to touch on the JT Group Purpose, which weannounced in 2023. I have been personally involved inhelping disseminate the Purpose, through dialogues intown hall meetings and with employees at every worksite I
visited. These efforts are meant to reinforce our foundation
towards fulfilling the Purpose, taking in the viewpoints ofall stakeholders in and outside the Company. Many people
have shared their support towards the values the JT Groupis committed to uphold, as well as towards the image of society we envision. I was particularly impressed by the strong
commitment from each employee to make it happen.

*1 Revenue, Adjusted operating profit, Operating profit and Profit attributable toowners of the parent company in the ongoing business*2 R
 RP (Reduced-Risk Products): Products with the potential to reduce the risks
associated with smoking

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Our operating environment was not exempt of challenges
in 2023, including new and greater geopolitical risks, higher
supply chain costs amid global inflation, and large exchange
rate fluctuations, to name just a few factors.

For the tobacco business, the Group’s core business andprofit growth engine, 2023 marked the second year of
the integration of the domestic and international tobacco
businesses. In January 2024, as the final integration stage,
we completed our unified business infrastructure to further
enhance our strong global operations as One Team. The
integration is already showing positive results, in terms ofglobal resource allocation and collaboration.

The pharmaceutical and processed food businesses alsodelivered solid year-on-year profit increases and continued
to positively complement Group profit growth.

In 2024, we are entering a new phase, during which wewill work to better embody the Purpose, through a set ofimportant initiatives. To ensure that the JT Group Purpose
is fulfilled, we have created Business Purposes for better
integration in each business and in the evolution of its
operations. In addition, we have also set action guidelines
and initiatives within each business and corporate division.
These decisions are made to encourage conscious actionsin accordance with the Purpose, and are designed tosupport each employee in individual practice throughworkshops, and the like, provided by fellow employees. By
taking ownership of the Purpose, and following throughon action guidelines as well as delivering on the businessplan through the execution of each business strategy, I am
confident the fulfillment of the Purpose is within our reach.

GOVERNANCE

Before looking back on the year, let me express my heartfelt
support to all those affected by the many natural disasters,
conflicts and painful incidents around the world, particularly
in Ukraine, Sudan, the Middle East, Japan and Taiwan. The
JT Group will continue to provide assistance to impacted
regions, maintaining top priority on the security of ouremployees and their families.

over our 2022 figures and the targets set at the beginningof 2023 for all businesses, setting new records*1 across all
indicators from revenue to profit.

2023. Within HTS (heated tobacco sticks), we continued togrow, particularly in Japan, the world’s largest market for thisproduct category, reaching 11.4% of the HTS segment in
December 2023.

BUSINESS and STRATEGIES

Town hall meetings held in 2023

005

MESSAGE from the CEO

Q. Tell us about Business Plan 2024 withyour understanding of our businessenvironment.

The Group as a whole

We expect that the environment for the tobacco businesswill continue to be impacted by the decline in total industry
volume, ongoing downtrading, new and increasing geopolitical risks, tighter and more complex regulations andtax regimes on RRP and intensifying competition, as well as
currency risks.

006

Japan Tobacco Inc. Integrated Report 2023

For the JT Group to remain purposeful to our stakeholders
now and going forward, we needed to define more clearly
why the JT Group exists, using the 4S model management
principle as a compass.
In creating the JT Group Purpose, we looked to the past
for the kinds of value the Group has been offering ourcustomers. We then looked at ourselves in the present, thenin the future, imagining what we hope to be, say, in 2050.
Backcasting from the future, we conducted many discussions to determine answers to important questions like:“What does the JT Group want to be in the future society?”,“What will make the JT Group appreciated by the futuresociety?”, and “How can we contribute to the future society?”.
To answer all these questions, we summarized the meaningof the JT Group’s existence in this short phrase: “Fulfilling
Moments, Enriching Life.”
We have been working diligently to stay close to fulfilling
moments through our products and services, and evenby creating such moments. Continuing this endeavor andworking for the sustainability of the Group as a corporate
member of future society, we believe that both, the Groupand society, will be sustainable. I firmly believe that the JT
Group Purpose carries that message.
“Fulfilling Moments, Enriching Life” also expresses theGroup’s hope to be close to the people and in their hearts inthis rapidly changing society and highly unpredictable business environment. We work to deliver our value of fulfilling
moments not just through the products and services of ourtobacco, pharmaceutical, and processed food businesses,
but through our many forward-looking corporate efforts
that will take us beyond what the JT Group is now.
To that end, we set up D-LAB, a corporate R&D organization
for multi-angle research, centered on fulfilling moments andon an effort to explore and create seeds for future businesswith a long-term vision. About 100 projects are going
forward there now, making steady progress by adopting a
trial-and-error approach, and aiming to contribute to the
future profit growth of the Group. Subjects include mental
wellness, breathing, sleep, aroma, diet, and appeal to theJapan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONTo ensure sustainable growth in this operating environment,
we will accelerate strategic investments in HTS, a category
which we estimate will have the strongest growth going
forward, to gradually build HTS as the second profit growthengine next to combustibles. Our investment will focus onmarketing, in particular to fund the expansion of Ploom

Q. Tell us again about the significance of creating

Pharmaceutical businessTo strengthen the value of the JT pharmaceutical business,
we have integrated its value chain with listed subsidiary
Torii Pharmaceutical Co., Ltd. (Torii). Together, we haveestablished an efficient collaborative system, in which JT
handles research and development while Torii produces andmarkets the products. And while there are costs for keeping
Torii public, we are strong believers that these are more thanoffset by the advantages of letting Torii be independent.
For instance, Torii can attract and keep excellent people,* Within a margin of ±5%

Significance of creating the JT Group Purpose
the JT Group Purpose.

Given high public pressure for drug price reductions
amid a worldwide need to reduce healthcare costs due totightening public budgets, we expect the environment forthe pharmaceutical business will remain challenging, androyalty income from abroad will continue to erode. We arenevertheless continuing to conduct research and development of next-generation strategic products and working tomaximize the value of each product to enhance the profit
contribution to the entire Group. For the three-year period
starting in 2024, we project the profit level will be stable.

As for the 2023 dividend, we have agreed to distribute 100
yen per share at the end of the year, up six yen from theinitial forecast, based on our 2023 financial results and shareholder return policy. Adding the interim dividend of 94 yen,
we paid a record-high dividend of 194 yen per share in 2023.

GOVERNANCE

Tobacco businessJapan’s processed food market is trending larger driven by
lifestyle changes and related needs for greater convenience.
In addition, opportunities are expanding outside Japan as
populations grow, coupled with higher income standards
and broadening popularity for Japanese cuisine worldwide.
We intend to drive sustainable profit growth, mainly throughtop-line expansion, by allocating our resources to high-value
product groups and taking necessary related measures. We
project mid-single-digit profit growth over the three-year
period starting in 2024.

BUSINESS and STRATEGIESWe remain committed to our medium- and long-term profit
growth targets, specifically mid- to high-single-digit annual
growth on average for adjusted operating profit (AOP) atconstant currency on a consolidated basis. Over the three
years of our current business plan (2024-2026), we project
mid-single-digit annual growth on average for consolidated
AOP at constant currency, the lower limit of our mid- tolong-term targets. Despite expectations for similar resultsin 2024, we expect to return to a growth trajectory from2025 onwards with the growth rate increasing at constantcurrency.

Regarding more specifically the RRP category, I can also
confirm that we are making steady progress toward the
medium-term ambitions for 2028 I have mentioned previously, specifically a mid-teens category share in the HTS
segment and reaching breakeven in the RRP category. While
our investment will grow, we project a gradual improvementin the profitability of the RRP business in the latter half of thecurrent business plan period, fueled by top-line growth andthe resulting productivity improvement.

Processed food business

The priority in allocating resources will continue to be on
investments leading to sustainable profit growth, especiallyin the tobacco business, based on the 4S model and the JT
Group Purpose. Shareholder returns, which we are working
to enhance, are also a priority, focusing on a payout ratio of
75%*, which we view as benchmark, by achieving mediumand long-term net profit growth.

SUSTAINABILITY MANAGEMENT

The corporate environment continues to evolve, becoming
more complex than before. The changes I am referring toinclude very diverse aspects, including climate change, human rights and ESG issues, geopolitical risks, and technological innovation. This means that moving a corporation in theright direction is incrementally challenging. To address this,I feel we must ask ourselves how we will make the Group’sbusinesses more sustainable, while supporting continuously
growing profit.

Resource allocation policy

IDENTITY

Our business and operating environment

X sales territories, to grow our share in existing and newmarkets and to introduce new HTS devices. We expect
these investments will drive an increase in RRP volume and
RRP-related revenue, which we forecast will grow by 2026 toabout 2.5 times the RRP-related revenue of 2023. In parallel,
sustained share expansion and pricing opportunities in
combustibles will continue to be the main drivers of our
top-line growth. For 2024, rising supply chain costs with
inflation and greater investments in RRP will likely offset
top-line growth. As these effects will gradually phase out,
we are confident in our forecast for the tobacco businessof mid-single-digit compounded annual growth for AOP atconstant currency from 2024 to 2026.

cultivate their morale, and build trust, as well as sharpen
its competitiveness and expand its growth opportunities
through its own operations. I am confident that thesefactors will help Torii build strong corporate value and enhance its contribution to the Group’s target of medium- andlong-term sustainable profit growth and building value forthe entire Group.

MESSAGE from the CEO

Business Plan 2024

007

MESSAGE from the CEO

The JT Group Purpose is our North Star, giving the Group aclear sense of direction, and our 4S model is the compass tohelp us reach the destination. As they guide us in pursuing
our objectives, our business endeavors will evolve, building
sustainable corporate value over the very long term.

Evolution of sustainability management
strategy, recently revised to embody the
Purpose.

In setting specific goals and initiatives for the JT Group
Sustainability Targets, we focused our attention on the

Similarly, in considering the materiality “Investing in ourpeople and supporting their growth,” we set clear targets focused on securing and expanding our human capital in theGroup. We defined human capital from three angles: People
who generate corporate activity, Organizational Culture thatencourages better corporate decisions and activities, andOwnership which enables the creation of a beneficial cycle
between both people and organizational culture. In setting
our targets, we assigned metrics not only to the state of human capital but also the progress and results for related HR
initiatives. We will monitor them regularly to steadily expand
and cultivate our human capital.
For details of our material topics and related targets andinitiatives, please refer to the JT Group sustainability strategy
in the report (P. 36).

Q. Please give our stakeholders a message.
In creating the value of “fulfilling moments,” which willchange in different ways over time and according to eachindividual, we, the JT Group, are working to maintainthe trust of society and will continue to make important
contributions. For that, we must carry our initiatives forward
and fulfill the JT Group Purpose. We have been graduallybuilding the framework to achieve this, such as our action
guidelines, the JT Group Sustainability Targets and theinitiatives of D-LAB. To maximize the effect of our initiatives
within that framework, I will continue my dialogue with ourpeople and stakeholders outside the Company to further
promote the Purpose and demonstrate specific actions tofulfill it.

shareholders, employees, and the wider society, carefully
considering the respective interests of these four key stakeholder groups and exceeding their expectations wherever
we can. I strongly believe that leveraging the Group’s
strengths, our solid financial base, superior brand equity,and diverse workforce, as well as relentlessly working toachieve the ideals of the 4S model will lead to medium- andlong-term sustainable profit growth, constant improvementof our corporate value, and realization of our Purpose.
The value the JT Group has been offering, “fulfilling moments,” will continue to evolve for everyone. This means that
we too will have to continue evolving to keep offering thatvalue for the years to come, regardless of change. To makethat happen, I will continue to focus on a long-term view ineverything I do.

Let me reiterate that the compass for fulfilling our Purposeis the 4S model, our management principle under which we
strive to fulfill our responsibilities to our valued consumers,

GOVERNANCE

JT Group Materiality: five topics of materiality

008

Value Creation that
Exceeds Consumer
Expectations

Japan Tobacco Inc. Integrated Report 2023

Investing in ourPeople and Supporting their Growth

Responsible
Supply Chain
Management

Good Governance

OTHER INFORMATION

Living with thePlanet

BUSINESS and STRATEGIES

Furthermore, based on the revised materiality, we have beenworking on specific goals and initiatives for the Group. We
have now set the JT Group Sustainability Targets, consistingof a total of twenty-five items, which we believe will help us
embody the Purpose in our work to achieve them.

To our stakeholders

relationship and ties with the revised materiality, while also
including past initiatives. For example, in pursuing our materiality “Living with the planet,” we will perform a comprehensive assessment on the impact of the Group’s business on
the ecosystem, with a view to preserving biodiversity.

SUSTAINABILITY MANAGEMENT

We believe that as nature, society and people’s lives areintertwined, sustaining our ways of living, and the activities of entities, will depend on the sustainability of theenvironment and society in which we exist. By realizing
the JT Group Purpose, we would like to contribute to thesustainability of our environment and our society. In May of2023, we revised the JT Group Materiality, and selected five
topics of materiality as the foundation for our sustainability
management.

As CEO, I am involved in setting and managing the newsustainability strategy, along with other Board Members. As
part of managing the JT Group Sustainability Targets, wewill revisit these targets regularly so that they can be further
evolved.

IDENTITY

Q. Tell us about the Group’s sustainability

The essence of the new sustainability strategy based on
the Group Purpose is that people’s lives, society, activities ofentities, and the activities of all humans are part of the ecosystem. As a company responsible for creating the future,
the Group is determined to proactively work on resolvingsocial issues.

MESSAGE from the CEO

five senses, which we think will impact our existing business areas as important prospects. Step by step, D-LAB isshowing increasing deliverables, such as products marketed
through crowdfunding and technologies that have won
innovation awards abroad.

Japan Tobacco Inc. Integrated Report 2023

009

IDENTITYMESSAGE from the CEO

This chapter includes interviews from two of
our Executive Vice Presidents, in which they
have spoken about their current and futurecommitment to the realization of the JT
Group Purpose.

IDENTITY

Additionally, we will introduce both the pastand current situation of the JT Group, as wellas our approach to value creation moving
forward.

SUSTAINABILITY MANAGEMENT
BUSINESS and STRATEGIES

012 Our management principle
013 JT Group Purpose
014 Interview with the Executive Vice Presidents

GOVERNANCE

020 JT Group Journey
022 At a glance
024 Key performance indicators• Financial performance review• Non-financial performance review
028 Value creation process

OTHER INFORMATION

030 Our value chains

Photos on the Right: Employees from JT and JTI

010

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

011

Our management principle

JT Group Purpose

MESSAGE from the CEO

To pursue the 4S model
Under the 4S model, we strive to fulfill our responsibilities toour valued consumers, shareholders, employees and thewider society, carefully considering the respective interestsof these four key stakeholder groups and exceeding their
expectations wherever we can.

Consumers

Employees

IDENTITY

By pursuing the 4S model, we aim to achieve sustainableprofit growth over the medium and long terms. We firmly
believe that pursuing the 4S model is the best approach tocontinuously grow our corporate value and serve our four
stakeholder constituencies’ common interests.

Shareholders

Society

We aim to enhance shareholder returns by delivering
medium- and long-term profit growth, placing priority on
striking a balance between profit growth through business
investments and shareholder returns.

Employees

Society

We aim to be an appealing, highly esteemed company forwhich our employees are proud to work. While evaluating
employees fairly and transparently and supporting theirpersonal growth, we aim to foster a corporate culture that
respects and embraces diverse values.

In order to fulfill our responsibility as a member of society
and contribute to the sustainable development of society
through our business, we will work with a wide range ofstakeholders and strive to resolve various issues together.

GOVERNANCE

We provide exceptional products and services that deliver
value beyond fulfillment of diverse needs and preferences.
To keep doing so, we will upgrade our innovation capabilities by leveraging our Group’s diversity.

BUSINESS and STRATEGIES

Shareholders

SUSTAINABILITY MANAGEMENT

Consumers

OTHER INFORMATION

012

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013

Interview with the Executive Vice Presidents

Embodying the JT Group Purpose

At first, we announced the Purpose only to the corporate
divisions. While we heard many supportive responses, we
also received questions about what the phrase “fulfilling

Anticipating that the tobacco business and others would
respond to the Purpose in the same way the corporate
divisions did, the President and Executive Vice Presidents
have shared the task of visiting all Group business sites, inthe year following the announcement, to communicate the
Purpose in person. After stepping up these efforts, I feel that
understanding is growing among employees. It will taketime to establish complete understanding among all employees, so I am relentlessly continuing that effort.

Kei Nakano

Koji Shimayoshi

Representative Director andExecutive Vice President

Representative Director andExecutive Vice President

Nakano014

Japan Tobacco Inc. Integrated Report 2023

We also talked a lot about why we should formulate a
specific Purpose, and to what extent. After asking ourselves
what values we cherish and have been offering, we concluded that “fulfilling moments” would be our key phrase. Once
that decision was made, our discussion revolved aroundthis central concept. We also invited the tobacco businessexecutives to the discussion to help us clarify whether “fulfilling moments” would be convincing enough to motivate
JT Group employees worldwide and initiate positive action.
Through a long series of talks, we reached consensus on the
Purpose, “Fulfilling Moments, Enriching Life.”

NakanoTo truly understand “fulfilling moments,” I think
we first have to undertake some introspection. Individuals
experience this kind of fulfillment in uniquely different ways,
but there are certainly common threads. It’s important that,
individually, we ask ourselves, without worrying about what
others think, what we really like and dislike and what wewant to do. We can then look for the common threads ineveryone’s answers. Without clarifying our own thoughts
and feelings, communication and discussion with others is

Shimayoshi In addition to daily actions and attitudes, tofulfill the Purpose, it’s important to follow through on thestrategies we’ve set for each business and build positive results in our efforts to achieve the goals of our business plan.
So, we created separate Business Purposes for the tobacco,
pharmaceutical and processed food businesses, drawing on
the essence of the JT Group Purpose and applying it to theiroperations.

For example, the tobacco Business Purpose is “Creating
fulfilling moments. Creating a better future.” This expresses
our intent to help create a better future for our consumers
and society by offering products and services that provide
fulfilling moments.
The pharmaceutical Business Purpose is “Respecting science,technology and people, we will contribute to patients’ lives,”
expressing the specific value the business exists to create.
Pharmaceuticals are regulated under strict quality standards,
their market success rate is low, and when they succeed it’s
only after a great deal of time in development. Because thisJapan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

We announced the JT Group Purpose in February 2023, following a process that took nearly four years
from when we began discussing ideas for it. JT tends topursue the essence of things, in other words, commit to indepth, thorough discussions when instituting a new framework. Since I became Senior Vice President in charge ofCorporate Strategy in October 2019, we have been bringing
leading executives together to talk about the Purpose over
and over again. These talks brought up “fulfilling moments”
as a key concept.

It would be too easy to say that the guideline can change
everyone’s actions right away. However, since we didn’t
create it from scratch but by refocusing on the values we’velong cherished such as “fulfilling moments,” we believe thateveryone can understand and put it into action gradually.
Even though there may be only limited opportunities atwork for our people to be fully conscious of the Purpose explicitly, I’m confident that we will be much closer to fulfillingit in 20 or 30 years, if everyone acts within the framework of
the Purpose on a daily basis.

GOVERNANCE

Tell us about the story behind creating the JT Group Purpose.

exists, and we intend to honor that over the long term.
Because our employees are not always conscious of the
Purpose at work, we’ve created an action guideline to help
everyone work with a sense of ownership.

harder. So, I often say that the starting point of a dialogue isto have a clear thought and share that with the other party.
This kind of dialogue with employees is very important,something we, as management, should be doing constantly.

BUSINESS and STRATEGIESWe asked our two Executive Vice Presidents to give us their thoughts on the progress and the processof creating the JT Group Purpose, the initiatives implemented to promote the Purpose across the entire
Group, and the corporate R&D organization D-LAB, which focuses on the Company’s shared value of
offering fulfilling moments.

Shimayoshi The Purpose describes why the JT GroupSUSTAINABILITY MANAGEMENT

How do you plan to permeate and embody the Purpose in the future?

IDENTITY

Nakano The phrase “enriching life” carries the image of
becoming more aware of and attentive to the diverse values
and feelings that individuals hold, and striving to realize
them beyond what was previously considered, aiming fortheir fulfillment. That’s why we will need to continue evolving, which we see as a commitment that we must meet inorder to fulfill the Purpose of “enriching life.”

moments” specifically means, given that it could be interpreted in many ways. So, we explained the background of
the Purpose and our process in creating it, and discussed itwith employees many times.

MESSAGE from the CEO

So the phrase “enriching life” was added.
How did employees respond to this Purpose?

015

Interview with the Executive Vice Presidents“Fulfilling Moments,
Enriching Life”

NakanoD-LAB has been operating for over 10 years,
first as a project within the Business Development & Corporate Strategy Division for seven years, then as an independent organization as of 2020. It conducts multifaceted
research centered on fulfilling moments, explores businessprospects, and creates ideas for future businesses. Over 100
projects are taking place simultaneously.

Koji Shimayoshi
Representative Director and Executive Vice President

Spent many years in business development and has richexperience in tobacco marketing and communications,
including IR and PR.

Spent many years in tobacco production in Japan andabroad, with a range of experience including tobacco
business planning, HR and working abroad fulltime as a
JTI member.

4For details about him, refer to Management structure on P. 116.

nCreation of seeds for future businessWe do not expect these projects to become profitable inthe short to medium term; instead, we are cultivating a wide
range of projects with a long-term view.

How do you decide which projects to take on
at D-LAB?
NakanoAt the moment, we are interpreting “fulfilling
moments” quite broadly, in part because the reference to“Fulfilling Moments, Enriching Life” in the Purpose is broadin its implications. As I mentioned, everyone feels fulfilled on
different occasions, and our ideas about such moments canshift with cultural differences, the times and society. So, we
apply this value in a broad sense and carry out a wide range
of initiatives to promote it.

OTHER INFORMATION

Kei Nakano
Representative Director and Executive Vice President

Exploration of business prospects

GOVERNANCE

In this multifaceted research, we work with other companies and universities to deepen the understanding of thevalue of fulfilling moments. To explore business prospects,
we have set aside a fund for investing in startups, currently
standing at about 200, mainly in Europe and the UnitedStates, that we think are compatible with fulfilling moments.
To create ideas for future businesses, we are starting projects
from scratch. Some of these projects are already running
trials on new products and services, and some have actually
put products on the market, providing fulfilling moments to
consumers.

n

BUSINESS and STRATEGIES*R RP (Reduced-Risk Products): Products with the potential to reduce the risks
associated with smoking

Corporate R&D group
D-LAB

Multifaceted research on the value we call“fulfilling moments”

SUSTAINABILITY MANAGEMENT

Shimayoshi Tobacco is just one way to deliver the value ofthe Purpose to consumers in the form of fulfilling moments.
To explore other product categories and services that canachieve the same, we decided to create D-LAB to exclusively
focus on the Purpose.

D-LAB works with a long view to help
“fulfilling moments” grow in our society while
helping the JT Group grow profits.

n

In addition, to contribute directly to fulfilling the Purpose,
we have D-LAB, a corporate R&D organization conducting
multifaceted research centered on fulfilling moments aswell as exploring prospects and creating seeds for futurebusiness.

What’s the background of D-LAB?
Nakano It started with the awareness that the JT Groupneeds more new businesses. Our main operation is andwill remain the tobacco business, which I believe will still
grow, notably the RRP (Reduced-Risk Products)* segment.
However, looking at our direction over a longer time span,
as well as taking into account the tobacco operating environment such as the trends in product demand, regulations,and changes in taxation, it raises the need for supplemental
businesses beyond the existing businesses.

JT Group Purpose

IDENTITY

The processed food Business Purpose is “Bringing Joy to
Meals and Fun to the Table.” This expresses our intention todeliver through our food products not just nutrients thatare safe, reliable, and delicious, but many happy surprises,
culinary discoveries and joyful occasions with special people
and smiles around the table. We believe that promoting
these Business Purposes will lead to fulfilling the Purpose.

A range of discussions are going on in the corporate divisions, without reference to divisional boundaries, on ways
to realize the Purpose. One result of the discussions from a
medium- and long-term standpoint is the JT Group Sustainability Targets, announced in February 2024. Through ourwork to achieve those 25 targets, we hope to embody the
Purpose as we increase value for our stakeholders.

MESSAGE from the CEO

is inevitable in this industry, we make extensive efforts todevelop pharmaceuticals bearing in mind that value creation is only possible when we stay focused, make the mostof the latest science and technology, and collaborate closelywith coworkers and many others.

4For details about him, refer to Management structure on P. 116.

016

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

017

Interview with the Executive Vice Presidents

Shimayoshi In 2013, when plans related to the initiatives

I basically accept all they want to do and givethem free rein to conduct research. I don’t interfere muchwhen they set up small startup projects, either. I get more
involved when they reach the stage of needing funding tofollow through, but I give them a lot of freedom there, too.
In starting a new business, there are standard protocols,from a specific concept to feasibility studies and test-marketing. Following these protocols, they can make decisions
on their own, with certain limitations, on whether to takethe next step.
We’ve only just started, moving steadily forward from zero
to one. To go from one to ten, then reach a hundred fromten, we’ll need different capabilities. Scaling up and speeding up will be the next theme, and we will tap further into
the experience and knowledge we’ve built jointly with ouroutside partners.

The results of the research are graduallytransforming into products, including the fufuly cushionthat “breathes,” and COLDRAW, a technology platform that
efficiently extracts the flavors and colors of botanical ingredients for non-alcoholic beverages. We will be taking on
more initiatives offering tangible results to stakeholders likethese, as manifestations of fulfilling moments that will contribute to the JT Group’s profit growth in the long run. These

Shimayoshi Our core tobacco business still has good
growth potential, and we hope to offer products in a wider
variety of forms, including HTS (heated tobacco sticks), tomeet consumer needs. If efforts inside the tobacco businessto explore such prospects organically overlap with D-LAB
initiatives and develop into collaborations, there may be asignificant increase in the opportunities where we can offer
fulfilling moments.

Before we close, tell us about what you’ve resolved to do to fulfill the JT Group Purpose.
NakanoI’ve been speaking mainly about D-LAB, outof my commitment to create new businesses to fulfill the JT
Group Purpose. Let’s not forget that the tobacco business isalso designed to provide fulfilling moments, and that business is in a way a precondition for the Purpose.
D-LAB will naturally work on new business prospects. That’s
a long-term effort, however, and the Company’s current
daily focus will remain on the tobacco business. I understand that our initiative to promote the understanding of
the Purpose within and outside the Group requires longterm efforts. I will continue discussing this and establishinginitiatives for better understanding and broader support.

Shimayoshi We conduct our businesses primarily for better

financial performance of the Group. With that in mind, we
often do it purely for the joy of what we do. We enjoy fulfilling the Purpose, and conduct our business as a means tothat end. We hope to start more businesses to offer fulfilling
moments, as well as expand existing ones.
We will manage the JT Group’s current and future businesses with the aim to bring our vision for “Fulfilling Moments,
Enriching Life” into reality.

BUSINESS and STRATEGIES

currently going on at D-LAB came up, I was an HR vicepresident and saw that the personnel would need to be reorganized for new projects. JT has a high execution capacity.
Once a decision is made, the Company tends to powerfully
push things forward all at once, like a big machine turning
on. To bring “fulfilling moments” up from the idea stage totangible reality, we thought we would need people withdiverse ideas and working methods to be involved in thewhole process leading up to the final decision-making. So,

NakanoNakanoinitiatives are designed to go forward over long timescales,
so short-term returns are not a priority.

SUSTAINABILITY MANAGEMENT

What can you tell us about the people andorganization at D-LAB?

For the actual initiatives, we as senior management stay outof the way and leave all the decisions to the people on the
projects. As Mr. Nakano mentioned, I want them to have as
many options as possible to try.

What are the D-LAB initiatives going
forward?

IDENTITY

Nakano Yes, exactly. Offering fulfilling moments
through products and services is the primary value of the JT
Group, regardless of where the market is. We think constantly about offering the value of fulfilling moments throughall our forward-looking operations, going beyond what it is
now and making sure we stay close to fulfilling momentsfor people and society, even as they change in diverse ways
over time and for each individual.

we expanded our horizon in recruiting both new graduatesand experienced people, and put together a group from awide range of backgrounds. We continued discussions tocreate optimal working conditions and organization to help
all our people make the most of their individual talents.

MESSAGE from the CEO

What is your primary judgment criterion? Is
it just whether something can help create“fulfilling moments?”

GOVERNANCEOTHER INFORMATION

Robotic cushion with deep breathing technology

018

Japan Tobacco Inc. Integrated Report 2023

This is a COLDRAW-exclusive extraction device designed to quickly and efficiently extract the high-quality potential of botanical ingredientsJapan Tobacco Inc. Integrated Report 2023

019

JT Group Journey

Profitn JT Group identity (values we cherish)  n Action

JPYnT
 he New “43” Long-

Term Business PlannT he founding ofJapan Tobacco Inc.

We set our core mission as “tobecome a marketing company
that creates moments ofpleasure.”

1985

nJ
 T establishesnW e announce JT-11

Long-term vision: A growing global company
providing diverse value unique to the JT Group.
The JT Group Mission
The JT Group WaynnO ur managementnprinciple: Pursue the
4S model

2023

1994

1996

1998 1999

2002

nJ
 T joins the Tokyo

2007

nJ
 T acquires Gallaher

Stock ExchangeGroup Plc (U.K.)

2008

2013

n A new name forMild Seven: MEVIUS

2016

Establishment of
the JT Group Purpose

2021“Fulfilling Moments,
Enriching Life”nJ
 T introduces Ploom X

HTS (heated tobacco
sticks)nJ
 T acquires majority

GOVERNANCE

our processedfood andpharmaceuticalbusinesses

We add a new concept: “delight,”
encompassing moments of discovery,
surprise and joy in a wide range ofencounters.

stake in Torii Pharmaceutical Co., Ltd.
nJ
 T acquires the non-

U.S. tobacco businessof RJR Nabisco Inc.

n JT acquires majority stake in

Katokichi Co., Ltd. (currently
TableMark Co., Ltd.) and Fuji
Foods Corporation
tobacco business of
Natural American Spiritn Expand the rollout of

Ploom X in global
marketsn JT introduces Ploom

TECH (infused tobacco
capsules)Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONn JT acquires the non-U.S.

020

BUSINESS and STRATEGIES

1968n JT Management Vision ‘96

Offering our stakeholders the unique added value of
irreplaceable delight, surprise and joy through our entire
operation. In following through on this promise, we work to
be irreplaceable to society at large.

SUSTAINABILITY MANAGEMENT

The plan was established tomaintain and develop thesocial role of the tobacco
business into the future
in response to constantly
developing social andeconomic environments,
specifically the rapid progressof globalization.

n We announce a new JT branding statement

IDENTITY

The tobacco business is uniquein its purpose of affording, inthe brief moment of a puff, abroad range of multifaceted
effects on the delicate humansenses and psychology, to help
alleviate the stress of daily life
and offer rich delight.

482.3BNMESSAGE from the CEO

Since the formulation of The New “43” Long-Term Business Plan in 1968, when JT was a government corporation, the social role of the tobacco business and an awareness of globalization torealize this role have been emphasized. In 2023, we defined the area where we will continue to contribute with confidence as "fulfilling moments" and designated “Fulfilling Moments, Enriching
Life” as the Purpose for the JT Group. This new Purpose has been steadily taking root in the organization, and we will strive for even further implementation.

021

At a glance

Revenue (2023)
Processed foodbusiness 5.4%

Others 0.1%

Number of employees (As of December 31, 2023)
Processed foodbusiness 8.1%

53,239The Group’s tobacco business has the third-largest sales
volume in the world*1 and includes 3 of the top 10 global
selling combustible brands*2 in its product portfolio.

5 factories in Japan (3 manufacturing tobacco and 2 tobacco-related factories), and 33 factories in 27 other countries(including tobacco-related factories).

The Group has a global manufacturing footprint and aims
to manufacture quality tobacco products that secure
consumers’ trust. As of the end of 2023, the Group operates*1 Excluding China National Tobacco Corporation*2 As of 2022

IDENTITY

2,841.1

Others 1.7%

Global business foundation

Key market shares in tobacco business (As of December 31, 2023)

employees(JPY BN)Tobaccobusiness 91.2%

Pharmaceuticalbusiness 2.5%

Tobaccobusiness 87.7%

23.2%

RUSSIA
ITALY

37.4%

U.K.

Tobacco business
The tobacco business, headquartered in Geneva, Switzerland since 2022, manufacturesand offers tobacco products all over the world.

27.4%

43.7%

JAPAN

SPAIN

Its key markets include Italy, Japan, Romania, Russia, Spain, Taiwan, the Philippines, theU.K., and Turkey, with leading brands in combustibles, such as Winston, Camel, MEVIUS
and LD, as well as in RRP (Reduced-Risk Products),* such as Ploom and Logic.

TAIWAN
TURKEYTHE PHILIPPINES

26.9%

42.4%

42.8%

50.3%

* RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking

BUSINESS and STRATEGIES

27.9%

SUSTAINABILITY MANAGEMENT

ROMANIA

Pharmaceuticalbusiness 3.3%

MESSAGE from the CEO

The JT Group is a leading global tobacco company and our products are sold in over 130 markets. In addition to the tobacco business, we operate pharmaceutical and processed food businesses.

Pharmaceutical business

Its products include CORECTIM® Ointment 0.5% and 0.25%, Riona® Tablets 250 mg and
ENAROY® Tablets 2 mg and 4 mg, among others.

Note: SoM is computed based on combustibles and HTP (heated tobacco products) industry size

Factories (As of December 31, 2023)
Tobacco business

38 factories

Processed food business

24 factories

		Processed food business

Major products include Sanuki Udon (frozen noodles), Gottsu-umai okonomiyaki(Japanese savory pancakes), and HIMAX (yeast extract) in particular.

Sanuki Udon celebrates its 50th anniversary this year, with about 600 million servings
produced and sold annually.

022

Japan Tobacco Inc. Integrated Report 2023

		(Japan: 16, other countries: 8)

Note: There are no factories in the pharmaceutical businessTobacco factories
Europe: 11
Middle East/Africa: 8
Asia: 9North America: 1
Central and South America: 1nOther tobacco-related factories
Europe: 2
Middle East/Africa: 2
Asia: 3
North America: 1nProcessed food factories
Asia: 22
North America: 2nJapan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

The processed food business is present in the frozen and ambient food business, mainly
for frozen noodles, frozen okonomiyaki (Japanese savory pancakes), and packaged cooked
rice, and the seasonings business, focusing on yeast extracts.

(Japan: 5, other countries: 33)

GOVERNANCE

The pharmaceutical business focuses on the R&D, manufacturing, and sale of prescription drugs, concentrating on three specific therapeutic areas: Cardiovascular, Kidney
and Skeletal Muscle; immunology; and neuroscience.

023

Key performance indicators

Revenue

Profit2,841.1(JPY BN)2,657.8
2,324.8
2,175.6

2,092.6

2,841.1

Free cash flow

(JPY BN)JPY
BN
6.9% YoY increase

MESSAGE from the CEO

Financial performance review

442.7

482.3

(JPY BN)

6000
503.9

348.2
310.3

338.5

4500

404.2

Since 2021, our consolidated revenue has been growing, mainly
due to positive foreign exchange effects in addition to market

482.0

443.7
382.9
IDENTITY

3000

share growth and positive pricing effects.
1500

In 2023, revenue grew by 6.9% year on year to 2,841.1 billion yen.
In 2019 and 2020, despite continuing growth of market share and2019

positive pricing effects in the tobacco business, revenue decreased

2020

2021

2022

2023

0
2019

2020

2021

2022

2023

effects, growth of the Japanese RRP (Reduced-Risk Products)
market, and a continuing downward trend in the Japanese market
as a whole.
2019

2020

2021

2023

2022

482.3

443.7

JPY
BN
8.9% YoY increase

JPY
BN
JPY60.8BN YoY increase

Profit grew by 8.9% year on year to 482.3 billion yen, driven by op-

In terms of free cash flow, the cash-generating capacity of ourerating profit growth, as well as lower financial costs and corporate

businesses is stable.

income tax.

Free cash flow for 2023 increased by 60.8 billion yen to 443.7 billionof costs related to initiatives to strengthen competitiveness in the
tobacco business in Japan and lower corporate income tax, partially offset by an increase in capital expenditures.

Adjusted operating profit(JPY BN)+37.9 765.7

728.0
-37.7

610.4
515.9

487.0

5.2% YoY increase on a constant FX basis
JPY728.0BN (reported basis) stable as previous year

(JPY)

188

194

We paid total dividends of 194 yen per share for 2023.
154

154

In 2021, we changed our policy on shareholder returns, and to140

Adjusted operating profit on a reported basis was stable at 728.0

increase those returns by realizing medium- and long-term profit

billion yen, due to negative foreign exchange effects despite

growth for the JT Group while maintaining a strong financial base*1,

increases across all businesses on a constant FX basis.

we benchmarked our payout ratio at 75%*2, a competitive level inthe capital markets*3.

on year to 765.7 billion yen.

024

Japan Tobacco Inc. Integrated Report 2023

FX

2023

2019

2020

2021

2022

2023

*1 The Group will maintain a strong financial base that secures stability in caseof changes in business environment such as economic crises and flexibility
enabling expeditious responses to business investment opportunities*2 To be in the range of approximately ±5%*3 We monitor the shareholder return trends of Fast-Moving Consumer Goods
companies which have a stakeholder model similar to our 4S model andhave realized strong business growth

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

On a constant FX basis, adjusted operating profit grew by 5.2% year

2019 2020 2021 2022 Business 2023 at
momentum constant
FX

194

JPY

GOVERNANCE

727.8

Dividend per share

BUSINESS and STRATEGIES

yen, driven by a favorable comparison to 2022 due to the absence

SUSTAINABILITY MANAGEMENT

for two consecutive years, as a result of negative foreign exchange

025Key performance indicators

2023 sustainability highlights4For details, please see JTI website.

“Living with the planet” is one of the five
topics of the JT Group Materiality. Target
items include “Emissions reduction” and“Protecting water.” JT achieved a place on CDP’s
prestigious “A List” for both tackling climatechange and water security, recognized for its
leadership in corporate sustainability. This is thesixth recognition (for five consecutive years) forclimate change, and fourth recognition for water
security. JT was also recognized as Supplier
Engagement Leader 2023 in addressing climatechange for the fifth consecutive year. Throughdialogue with our stakeholders, we will be sure
to follow through on our initiatives to support
sustainable growth for both the Group andsociety.

“Responsible supply chain management” is one of the five material issuesof the Group. Launched in 2012,
Agricultural Labor Practices (ALP) is the key program for the Group’s leaf supply chain management. ALP today is a part of the broader Leaf
Supply Chain Due Diligence process. We continue to deliver against our target to implement
ALP in all sourcing countries by 2025, making
significant progress in 2023. Working with over
65,000 directly contracted leaf growers acrossvarious leaf sourcing countries, 100% of our directly contracted growers are now covered by
ALP. We are dedicating efforts to enhance thelivelihoods of growers in countries facing challenges, and we have established new targets toachieve this goal.

Japan Tobacco Inc. Integrated Report 2023

Greenhouse Gas emissions Scope 3 Category 1(CO2e thousand tons)(CO2e thousand tons)

1,000

8,000

6,293
750

6,000

6,466
6,018

5,734
5,101

369

500

319

295

339

352

276

240

250

2,000

368

0

4,000

2019


2020

Scope 1

2021


342

340

2022

2023

0

2019

2020

2021

2022

2023

Scope 2
Note: The increase was mainly due to temporary procurement increases from
Tanzania and other nations that will require more time to shift to renewable energy sources in the leaf-drying process, as a result of business scale
expansion and climatic influences

Water withdrawal

Waste generated(Thousand m3)(Thousand tons)

12,000160

10,440 10,443 10,183 10,373
9,000

10,105 9,904

9,605

131 132

9,221
8,523

120

6,000

80

3,000

40

0

2015 2016 2017 2018 2019 2020 2021 2022 2023

0

131

133

132

126

124

118

116

2015 2016 2017 2018 2019 2020 2021 2022 2023

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

4For details, see P. 36.

Greenhouse Gas emissions Scope 1 and 2

GOVERNANCE“Investing in our people and supporting
their growth” is one of the five topics of
the JT Group Materiality. In 2023, we set
new target items such as “Talent attraction” or“Attractive working conditions” in addition to“Diversity, equity & inclusion.” For the PRIDE
Index, which recognizes the most LGBTQ+
friendly companies, JT achieved Gold status, thehighest ranking in 2023 for the eighth consecutive year. JTI was certified as a Global Top
Employer for the tenth consecutive year by2023. This award recognizes employers that
globally create the ideal conditions for their employees to develop, both professionally and personally. The Group works to create environmentsthat are open to diversity, where all employees
are treated equally regardless of different backgrounds and values and continue to perform attheir best.

We will continue to measure performance across a range
of environmental topics and set ourselves targets along theway.

BUSINESS and STRATEGIESThe Group’s management principle isthe 4S model. We believe that as nature, society and people’s lives are intertwined, sustaining our ways of living, and theactivities of entities, will depend on the sustainability of the environment and society in which
we exist. In pursuing this principle and by realizing the JT Group Purpose, we will contribute to
the sustainability of our environment and oursociety. With the revision of the JT Group
Materiality, the foundation of our sustainability
management, we identified five material topics. Based on the revised materiality, the JT
Group Sustainability Targets have been set
consisting of a total of 25 items. We will pursue
initiatives as set in the JT Group Sustainability
Targets based on materiality, to realize our
Purpose and to contribute towards a sustainable
environment and society.

As a global organization, we recognize that we have a keyrole to play in reducing our environmental impact – not only
in our own business operations, but across our value chain.

SUSTAINABILITY MANAGEMENT

and initiatives based on materiality, the JT Group will strive
for a sustainable growth for nature, society and our businesswithin.

IDENTITY

Summarized here are some of our sustainability achievements and the progress we have made in 2023. Materiality is
the foundation for managing our business. By setting targets

4For details, please see our press release.

026

JT Group environmental performance data

MESSAGE from the CEO

Non-financial performance review

027Value creation process

JT Group Purpose

MESSAGE from the CEO

The JT Group believes that people’s lives and corporate activities can only be sustainable if the natural environment and society are sustainable.
Based on this belief, we will contribute to the creation of a society in which people’s lives are enriched, aiming for realizing the JT Group Purpose, “Fulfilling Moments, Enriching Life.”
Leveraging strengths cultivated from capital received from nature and society and taking actions based on the JT Group Materiality, we will foster “fulfilling moments” in society with various stakeholders and partners throughour business activities. By connecting new capital gained from a fulfilled society to even more business activities, we will continue to contribute to the sustainable growth of the JT Group and an enriched society.

“Fulfilling Moments, Enriching Life”
IDENTITY

Activities to actualize the JT Group Purpose

Strengths cultivated from capitalreceived from nature and society

Our business activities towards the sustainable growth of the environment and society
together with the JT Group, aiming for realizing a society in which everyone feels fulfilled

ng

Good
governance

ufa

cturi

Responsible
supplychain
management

Medium- and long-term
profit growth andimprovement of shareholder
returns

Contribution toa sustainable environmentand society

Respecting individual values
and providing
opportunities for growthsuited to the individual

M arketin g

JT Group Sustainability Targets

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Social and relationship capital(Business footprint, growers,
suppliers, etc.)

Diverseworkforce

Investing in
our people
andsupporting
their
growthM

les(Manufacturing sites)

Japan Tobacco Inc. Integrated Report 2023

Future upcoming businesses

Sa(Water, forest)

Processed food businesson/

Natural capitalSuperior
brandequityLiving withthe planet

Pharmaceutical businessValuecreationthat exceeds
consumer
expectations

an(Our workforce)

Manufacturing capital028

m

Tobacco business

Human capital
Distrib utiExpanded business areas inwhich we operate as a trusted
actor
Enhanced diverse workforce
through deepened
collaborative activities

re

GOVERNANCE



cu

t

Additional capitals

Pro

D

en

R&

Employees(Intellectual property,
brand equity)

Solidfinancial
base

SocietyIntellectual capital

Offering fulfilling moments,
through products andservices exceeding
consumers’ expectations

Shareholders(Profit, capital, cash flow)

Consumers

JT Group Materiality

Financial capital

BUSINESS and STRATEGIESOur core capitals and strengths

SUSTAINABILITY MANAGEMENT

Nurturing “fulfilling moments” within society
through collaborations with various stakeholders/partners

Collaboration

029

Our value chains
The JT Group strives to provide products and services that exceed our consumers’ expectations, with each of its businesses demonstrating its strengths and adding value at each stage of the value chain.

Solidfinancial baseProcurement

Manufacturing

MarketingDistribution/Sales

Diverseworkforce

IDENTITY

Superior
brand equity

R&D

8 R&D centers covering scientific research,nConsumer-driven R&D focusing on whatmatters most to consumers*nn2,000+ IP filings, 90+ innovation partner-

integrated operations and third parties

which four produce RRP (Reduced-Risk

Reliability of leaf supply regardless of

Products)

weather or market fluctuations

1nnFull compliance with regulations; assurance of leaf integrity and origin

ships with third-party players

38 factories across our footprint, out of

n

n

n

Development of innovative drugsnnSales in 130+ markets

Camel, MEVIUS & LDnTailored RTC*2 on market-by-market

Consumers*1 at center of our offerings:

State-of-the-art equipment and manu-

We provide freedom of choice andfacturing processes

superior quality

Industry-leading quality standards for allnour productsnStrong brand equity, notably Winston,Ability to stably manufacture high-

basis
n

Motivated salesforce with strong ties
with trade

Full compliance with local regulation in
all countries where we operatenConduct responsible detailing activitiesnTop-market-share*3 products/brands

quality pharmaceuticalsnnProprietary yeast, processing and freezingnStable, cost-competitive sourcing ofnManagement systems that ensuretechnologies

high-quality ingredients (extensive

stable, efficient manufacturing of

Ability to develop high-value-added

supplier network and inspection pro-high-quality food products based on

products that meet consumer needs andgram)food safety management

Sales force capable of proposing prod-(Sanuki Udon, Gottsu-umai series, etc.)

ucts that meet consumer needs with anMarket insight based on communication

extensive product lineup

with consumers (identification of consumers’ increasingly diverse needs/

OTHER INFORMATION

preferencesnnpreferences)*1 Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country*2 Route to consumer*3 Fuji Keizai Co., Ltd., Foodstuff Marketing Handbook 2024: Vol. 2, 3, 2022 results

Japan Tobacco Inc. Integrated Report 2023

GOVERNANCE

Processed food businessnn

BUSINESS and STRATEGIES

Pharmaceutical businessTobacco businesstechnology & product development

Leaf supply diversified across vertically

SUSTAINABILITY MANAGEMENTn030

MESSAGE from the CEO

Three strengths driving
our global growth

Japan Tobacco Inc. Integrated Report 2023

031

Our value chains

Each of the JT Group’s businesses are also working to further leverage their strengths in the value chain, in order to increase the value they can provide to our consumers.

n

n

n

Priorities andactions toachieve them
Initiatives tomaintain/
upgradestrengths

n

n

n

n

n

n

 s the Group’s exposure to RRP grows, we are adaptAing our device procurement strategy to be more
resilient in case of disruptions

Improving R&D efficiency through concentration of resources in targeted disease domains
Promoting efficient and expeditious clinical development through coordination among domestic and foreign
R&D sites
Proactively pursuing opportunities to out- and in-license compounds

 dd more research themes and expedite progressADevelop proprietary drug discovery technology
 evelop new products tailored to consumer needsDbased on market/competition research and analysis
Develop new technologies and production methods through external collaborations

Initiatives tomaintain/
upgradestrengths

 evelop high-value-added products that meetDconsumer needs and preferences–Develop new products that take into accountenvironmental impact and sustainability

n

n

n

n

n

n

n

n

n

n

n

 erifying ingredients’ safety based on quality specifiV
cation certifications submitted by suppliers
Monitoring main ingredients’ pesticide residue
content and periodically inspecting ingredientproduction plants in accord with applicable laws/
regulations and our own standards
Inspecting source farms’ soil and water quality,
verifying crop conditions, checking pesticide
management practices, and inspecting livestockand fish farms

S trengthen supply chain to enable sourcing of safe,
high-quality ingredients–Building a sustainable supply chain by fosteringtransparent relationships with suppliers and taking
human rights and environment into account whensourcing ingredients

n

n

n

 onstantly reviewing and optimizing our manufacC
turing footprint
Ongoing capital expenditures to increase our RRP
production capacity
K aizen approach for all our manufacturing
processes

T o support the Paris Agreement on global climatechange, we are accelerating the pace of ourenvironmental impact reduction initiatives

F ormulated guidelines to verify conformity
between drugs’ approved specifications and actual
manufacturing processes
Continuing annual inspections of contract manufacturing plants based on guidelines
 ontinuously monitor compliance with laws/C
regulations
 andatory certification of compliance with ISO
M
22000 or FSSC 22000 international food safety
standard across all JT-affiliated plants and contract
manufacturing plants globally
Verifying end products’ compliance with pesticide
content and other safety standards throughmonitoring inspections
Reducing contamination risk by establishing andcomplying with food defense guidelines

n

n

n

n

n

n

n

n

n

n

 ontinued investment in GFB’s (Global Flagship
C
Brands) brand equity and in establishing the Ploom
brandNurturing consumer-centric mindset across theentire organization
Additional internal initiatives as self-regulation and
JT Group Code of Conduct
 iven growing importance, expanding ourGcapabilities in areas of digital, advanced analytics
and B2Cnnn*Route to consumernn anufacture safe, high-quality food products
M–Building optimal production systems that ensure
efficiency and product quality
Install energy-efficient equipment to reduce
environmental impacts–Pursuing transition to clean energynL ooking to enhance our e-commerce capabilities
in markets where it is legal for nicotine andtobacco productsF ormulated internal standards based on Guidelines for Sales Information Provision Activities for Ethical Drugs
issued by Ministry of Health, Labour and Welfare
Thoroughly complying with said standards through training of Torii Pharmaceutical’s medical sales reps

Continue above initiative

 onducting consumer-centric market analysis toCdevelop product proposals that add new value
Building more brand equity through product line
expansion and effective sales promotion
Stepping up marketing/sales activities thatprioritize highly profitable products

n

n

n

n

 egularly assessing entries in new markets/chanRnels considering present and future profitability
Optimizing RTC* based on evolving environment
Strengthening relationships with key distributors
and tobacconists

 ropose products and promote sales strategies inP
response to increasingly diverse consumer needs
and trends–Proposing products personalized to consumers’
individual preferences and lifestylesnnE xpanding in-store product selection and gaining
preferential display locations through aggressive
sales approach targeted primarily at supermarkets
and convenience stores
Strengthening communication with consumers
through online disclosure of product information andlabeling of products with production location, main
ingredients’ place of origin, and contact information
for consumer inquiries/feedbackImproving safety visibility through traceability ofinspection/audit results across the entire value
chain from raw material sourcing through production, processing, distribution and salesS trengthen sales capabilities and disclose information to reassure consumers–Disclosing more information, e.g. on website andproduct packaging
Stable supply to consumers–Building an optimal logistics network that maximallyutilizes in-house logistics (in response to Japanese
government’s logistics reform initiative)

OTHER INFORMATION

Priorities andactions toachieve themnn

GOVERNANCE

Processed food businessnn ontinuously balancing risk mitigation and sourcing
Cflexibility
Advanced planning and inventory management for
uninterrupted manufacturingIncreasing emphasis on social and environmental
sustainability of supply

BUSINESS and STRATEGIES

Priorities andactions toachieve themn

As RRP (Reduced-Risk Products)*2 industry innovation cycles get shorter, the Group is implementing
initiatives to accelerate the development of new
RRP platformsnDistribution/SalesSUSTAINABILITY MANAGEMENT

Pharmaceutical businessInitiatives tomaintain/
upgradestrengths

 oving from “site-based” teams to “outcome-based”
M
global teams
Enhancing cascading in R&D of consumer-related*1
data and analytics
Protecting innovation with sound intellectual property (IP) strategy

Marketing

IDENTITY

Tobacco businessn

Manufacturing

Procurement

MESSAGE from the CEO

R&D*1 Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country*2 RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking

032Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

033

SUSTAINABILITYMANAGEMENTMESSAGE from the CEO
IDENTITY

This chapter introduces the sustainability strategy of the JT Group. We will delve
into our thoughts regarding the goals andinitiatives of our Group (the JT Group Sustainability Targets), which are aligned with
the Group’s materiality. Furthermore, wewill provide updates on the progress of initiatives corresponding to each materiality.
In the CSO interview, we will discuss theprocess for formulating the Group Sustainability Targets and our thoughts on the evolution of our sustainability strategy, taking
into account future challenges.

SUSTAINABILITY MANAGEMENT
BUSINESS and STRATEGIES

036 JT Group sustainability strategy
040 CSO interview
GOVERNANCE

042 Living with the planet
048	Value creation that exceeds consumer expectations
050	Investing in our people and supporting their
growth060 Responsible supply chain management
062 Community investment

OTHER INFORMATION

063 Good governancePhoto on the right are related to our sustainability strategy:
Employees, Products (Ploom X), and Environmental protection
initiatives (solar panels in the Philippines factory)

034

Japan Tobacco Inc. Integrated Report 2023

Photo taken at the canteen of the JT HQ office in TokyoJapan Tobacco Inc. Integrated Report 2023

035

JT Group sustainability strategy

The JT Group Purpose indicates the direction in which the
JT Group will be heading to ensure the sustainability of oursociety and the Group’s business therein.

The JT Group Sustainability Targets and 25 Target Items

JT Group
PurposeAs nature, society, and people’s lives are intertwined, sustaining our ways of living, and the activities of corporate entities,
will depend on the sustainability of the environment and society in which we exist. ​In realizing the JT Group Purpose, we are contributing to that sustainability through our commitment to working on the issues identified in our materiality.​

Preserve a harmonious
relationship between our environment, people, and corporate organizations throughinitiatives to improve our
impact on our environment​

4Read more about our process for identifying materiality on JT.com.

The underlying point of the new sustainability strategy
based on our Group Purpose is that people’s lives, society,activities of entities, and the activities of all humans are partof the ecosystem. As a company responsible for creating thefuture, we are determined to proactively work on resolvingsocial issues.

Create diverse products andservices beyond consumer
expectations​

Invest in people to support
their development withattention to diversity, andenhance human capital by
fostering a corporate culturethat maximizes individuality
and ability of each person​

Create a sustainable supply
chain capable of withstanding
sudden changes in the business environment, by tacklingsocial issues such as respecting human rights or preservation of our environment​

Good Governance
Enhance our governance byimproving our stakeholder
satisfaction and continue tobe a trustworthy corporate
entity​Emissions reduction

Renewable energy

Protecting water

Enhancing biodiversity –No deforestation, no conversion

Waste reduction

Designing for circularity –Packaging, product and device

Sustainable agriculture

Reduced-Risk Products

Transparency in reduced-risk science

Youth access prevention

Creating first-in-class drugs

Food inclusion

Diversity, equity & inclusion

Talent attraction

Attractive working conditions

Health and safety

Development support

Internal and external collaboration

Supplier screening and supply chain
due diligence

Grower living income

Human rights in grower communities

Grievance mechanisms

Community investment

OTHER INFORMATION

Japan Tobacco Inc. Integrated Report 2023

Responsible Supply Chain
Management

Biodiversity impact assessment

Internal control

036

Investing in our People andSupporting their Growth

GOVERNANCE

JT Group
Sustainability
Targets

Value Creation that Exceeds
Consumer Expectations

BUSINESS and STRATEGIES

Based on the revised materiality, the JT Group Sustainability
Targets have been set, consisting of a total of 25 items.
In setting the new targets and initiatives, we focused ourattention on the relationships and ties with the revisedmateriality, while also including past initiatives.

Our Board is involved in setting and managing the sustainability strategy. The JT Group Sustainability Targets will berevisited regularly so that they can be further evolved. With
our new sustainability strategy in place, we will uphold ourcommitment to provide value in realizing the JT Group
Purpose “Fulfilling Moments, Enriching Life.”

Living with the Planet

SUSTAINABILITY MANAGEMENT

JT Group
Materiality

IDENTITYThe Group’s management principle to pursue the 4S
model. We believe that as nature, society and people’s
lives are intertwined, sustaining our ways of living, and theactivities of entities, will depend on the sustainability ofthe environment and society in which we exist. In pursuingthis principle and by realizing the JT Group Purpose, wewill contribute to the sustainability of our environment andour society. The JT Group Materiality, the foundation of oursustainability management, has been revised and we haveidentified five material topics.

MESSAGE from the CEO

Setting the JT Group Sustainability
Targets

Read more about the JT Group Sustainability Targets on P.140

Japan Tobacco Inc. Integrated Report 2023

037

JT Group sustainability strategy

The JT Group Sustainability Targets
With the JT Group Purpose as our starting point and basedon the JT Group Materiality, we have set the JT Group
Sustainability Targets, comprised of 25 items. We will contribute to a sustainable planet and society by realizing ourGroup Purpose and moving forward with specific initiatives

set as sustainability targets. The targets are based onmaterial issues relevant to our Group. Here, we will explain
the thoughts and messages behind each material issue andrelated targets.

Our supply chain is essential for our business. It is crucial for our supply chain to be resilient to rapid changes in the business environment. As part of the key initiative, we perform supplier screenings and due diligence, and are committed toaddressing the social issues facing our suppliers and the communities in which they operate. It is important that we work
jointly to resolve these issues. Bearing these factors in mind, we have set related sustainability targets.

MESSAGE from the CEO“Responsible supply chain management”

4Read more about related targets on P. 60 and P 142.
4Read more about our tobacco business on P. 76, pharmaceutical business on P. 90, and processed food business on P. 94.
4Read more about the JT Group’s initiatives on human rights on P. 61.

IDENTITY“Living with the planet”

4Read more about related targets on P. 140.
4Read more about the JT Group’s environmental initiatives on P. 42.

We strive to provide value that exceeds the expectations of a wide range of consumers or society with innovative products and services. We have set related sustainability targets with the aim of realizing our aspirations, through initiatives ineach of our businesses of tobacco, pharmaceutical, and processed food.
4Read more about related targets on P. 48 and P. 141.
4Read more about the JT Group’s initiatives in the tobacco business on P. 76, pharmaceutical business on P. 90, and processed food business on P. 94.

4Read more about related targets on P. 142.
4Read more about the JT Group’s initiatives related to investing in our people on P. 50.

The Board of Directors is involved in setting and managing
the Group’s sustainability strategy, and targets are periodically reviewed so that they can evolve.

food businesses have also been incorporated, and new
targets have been set. Please see details of the FY2023
results on JT website.

The JT Group’s environment plan and targets have been
carried over or updated and integrated into the JT Group
Sustainability Targets. Moreover, sustainability targets previously set by the tobacco, pharmaceutical and processed

Reporting of the JT Group Sustainability Targets will commence with FY2024 results in 2025.

Sustainability Advisory Forum
Since 2020, we have held regular Sustainability Advisory
Forums to discuss the Group’s sustainability issues. With
our Chief Sustainability Officer acting as Chairman, theforum is attended by heads of the JT Group’s businesses
and corporate functions.
In 2023, three forums were held. We discussed andshared information about sustainability issues such as

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Japan Tobacco Inc. Integrated Report 2023

setting the JT Group Sustainability Targets, checking the
progress of our GHG emissions reduction targets, ourhuman rights initiatives and governance, sustainability
issues of each business, EU Corporate Sustainability
Reporting Directive, and stakeholder engagement,
among others. Discussions at the forum are appropriately
reported to the CEO and Board of Directors.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

We believe that each employee is the starting point for all the activities in realizing our Purpose. The importance ofhuman resources will continue to grow in the future. We have set related sustainability targets with the aim of tackling
multiple themes from multiple angles, in order to further expand the Group’s human resources.

Monitoring and progress of targets

GOVERNANCE“Investing in our people and supporting their growth”

4Read more about related targets on P. 143.
4Read more about the JT Group’s governance on P. 98.

BUSINESS and STRATEGIES“Value creation that exceeds consumer expectations”

Good governance is the foundation for improving the satisfaction of various stakeholders and for our Group to continue
to be a trustworthy corporate entity. We believe that this is the basis for all our activities. We strive to realize sustainableprofit growth and continuous improvement in corporate value over the medium- and long-term, while also contributing
to the development of our stakeholders, the economy and society as a whole. With this in mind, we have set related
sustainability targets, taking into account the characteristics of each of our businesses.

SUSTAINABILITY MANAGEMENT

We believe that people’s lives, society, corporate activities, and the activities of all people are part of the ecosystem. On
this basis, we have looked at our past environmental initiatives from the perspective of the ecosystem, considering the
aspect of biodiversity as well as the impact that our business may have had on the ecosystem. To resolve any negative impact beyond the resilience of the ecosystem, we have established sustainability targets related to our materiality “Livingwith the planet.”“Good governance”

039

CSO interview

Shin Ozaki

Sustainability Management
Division (Interviewer)

Senior Vice President,
Chief Sustainability Officer

Sustainability Management
Division (Interviewer)

Q(Imokawa) In 2023, we identified five topics of materiality:“Living with the planet,” “Value creation that exceeds consumer expectations,” “Investing in our people and supporting their growth,” “Responsible supply chain management”
and “Good governance.”

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Japan Tobacco Inc. Integrated Report 2023

Q

(Ozaki) How did you formulate the JT Group
Sustainability Targets?

(Imokawa) In setting thetargets and initiatives basedon the JT Group Materiality,
we placed importance on
setting targets that reflected
our identity. We first lookedat what our goals should
be or where we should beheading. We reflected upon
discussions surrounding therevision of materiality, analyzed changes in the environment surrounding our Group as
well as possible changes to come, and thereby worked out
our goals and initiatives in accordance with each material
topic. In parallel to this exercise, we revisited and updated(Imokawa) Firstly, it is quite
different in terms of theflow and interrelations of“Purpose” to “Materiality”
and “Sustainability Targets.”
In total, there are 25
targets—9 new targets, 10
revised targets and 6 targets
that were maintained. I trust
we have been able to comeup with an evolved set oftargets that can accommodate diverse sustainability topics.
In terms of new targets, for example, in relation to “Livingwith the planet,” we believe that as nature, society and people’s lives are intertwined, sustaining our ways of living, andthe activities of entities, will depend on the sustainabilityof the environment and society in which we exist. Looking
ahead and to maintain biodiversity, we wanted to comprehensively understand the impact of our business on theecosystem. We have therefore set a target for “Biodiversity
impact assessment,” and as a first step, we will assess theimpact and dependence of each of our businesses on theecosystem. We have also added targets related to pesticides,
which cannot be overlooked from the perspective of theirimpact on the ecosystem.
As for “Investing in our people and supporting their growth,”
we clarified our stance on the Group’s human capital andhave set a number of targets which are going to aid in expansion. Regarding “Responsible supply chain management,”
we have set a target for “Grower living income,” as we believe
it is necessary to work together to address social issues(Imokawa) When we consider the group of social issues, welook at those issues that have surfaced and are visible to us.
However, the issues may be inter-related so working on theessence of the issues to find solution is necessary. I trust thatby focusing on the essence of the issue, the issue itself willchange and evolve. The task is therefore not complete bymerely setting targets. It is important to revisit and updatethem on a regular basis. We have a framework whereby
our CEO as well as the Board of Directors are involved insetting and managing the sustainability strategy, so using
this framework, we will revisit and update the JT Group
Sustainability Targets so that they can continue to evolve.
Moreover, looking at sustainability trends in general, statutory disclosure of sustainability information will be commencing in various jurisdictions. The integration of financial
and non-financial information, the collection and the
management of the data, and how we utilize data would
have to be more sophisticated. Through the exercise, I hope
to find capabilities that we have not noticed or realized yet.
I’m sure such findings will help to elevate our sustainability
management. You asked me about future challenges. You
asked me about future challenges. I would say that there will
be many more “expectations” to come.
With the Purpose as a starting point and based on materiality, we have set sustainability targets that will serve as thecenter of our sustainability
management. I will strive
to pursue sustainability
management so that our organization will continue tobe needed by stakeholders
in the future.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION(Yamamoto) You mentioned that materiality
is the foundation for managing our business.
Can you tell us about how you revised themateriality?

*The JT Group’s three absolute requirements of sustainability: “Respecting
human rights,” “An improved social and environmental impact,” and “Goodgovernance and business standards”(Yamamoto) How do the JT Group Sustainability
Targets differ from previous targets?

(Ozaki) Please tell us about future challenges.

GOVERNANCE

The framework for this is our Group’s sustainability strategy.
Specifically, 1) With the JT Group Purpose as the starting
point, 2) the JT Group Materiality has been identified as thepriority material issues for the Group, and 3) based on thatmateriality, the JT Group Sustainability Targets have beenformulated. This is the backbone of our sustainability strategy. Materiality is the foundation for managing our business.
By setting targets and initiatives based on materiality, ourGroup will strive for sustainable growth for nature, society
and our business.

Q

Q

BUSINESS and STRATEGIES(Imokawa) The JT Group’s management principle to pursue
the 4S model. We believe that sustainability of our ways ofliving and the activities of entities will depend on the sustainability of the environment and society in which we exist.
This is based on our humbleness that human activities, ourways of living and the activities of entities are all part of theecosystem. Moreover, we will not only pursue our own sustainability but also the sustainability of our society, so that
we can continue to be a company that can help shape thefuture. The JT Group’s sustainability management is to takeinitiatives in carrying out all activities to achieve this goal.

With the revised materiality, we reorganized and incorporated the original three absolute requirements of sustainability* into the Group materiality. At the same time, we elevatedsome of the business focus areas or business-driven issues
to the Group level. For example, “Value creation that exceeds
consumer expectations,” which relates to products and services, and “Responsible supply chain management,” which
relates to our business and stakeholders, were incorporated.
“Investing in people” had already been selected by all businesses as a focus area and was thus elevated to the Groupmateriality as “Investing in our people and supporting their
growth.” Eventually, we identified the current five topics ofmateriality.

2023 results for those targets carried over to the new targets
are more or less on track. I believe the targets are manageable against the respective goals.

SUSTAINABILITY MANAGEMENTQ(Ozaki) Please tell us your thoughts on the JT
Group’s sustainability management.

The JT Group Sustainability Targets not only incorporate
past targets set by each business by maintaining or
updating them, but also include new targets. The JT Group
Environment Plan 2030 has also been integrated into the
JT Group Sustainability Targets by maintaining or updating
past targets. I believe we have been successful in wholistically setting various sustainability targets under one roof.

IDENTITY

Hisato Imokawa

faced by our suppliers and their communities. By 2025, we
will measure living income in our direct tobacco leaf supply
chain origins.

MESSAGE from the CEO

Akie Yamamoto

past targets set by each business. Targets created using thisapproach were reviewed by external experts before being
finalized.

041

Living with the planet

Road map to Net-Zero
The JT Group is working to make its operations carbon neutral by 2030 and achieve Net-Zero GHG emissions across theentire value chain by 2050, and its 2030 reduction targets
have been validated by SBTi. In June 2024, we submitted acommitment letter declaring to make science-based GHG
emissions reduction targets within two years toward NetZero GHG emissions across the value chain.

Achieve Carbon Neutrality for JT Group
operations by reviewing andenhancing existing initiatives– 2030Targets

have been updated to more ambitious targets, with some
new targets added as well.

Equipment
investment

4Read more about targets and progress on JT.com.

RenewableenergyRepresentative targets

Green fleet
vehiclesEmissions reduction

All JT Group operations will be carbon neutral by 2030, and the entire value chain will achieve Net-Zero by 2050.
• Reduce absolute Scope 1 and 2 GHG emissions by 47% relative to 2019 levels by 2030, in line with the 1.5°C global
warming scenario.
• Reduce absolute Scope 3 GHG emissions associated with purchased raw materials and services by 28% relative to2019 levels by 2030.
Convert all sources of energy used throughout the JT Group to renewable in order to achieve Net-Zero GHG emissions by 2050.
• Increase ratio of renewables in total energy consumed by the entire JT Group to 50% by 2030 and 100% by 2050.
• Reduce water used in tobacco business operations by 33% relative to 2019 levels by 2030.

Enhancing biodiversity- No deforestation, no
conversion• Replace all wood fuel from natural forests that directly contracted tobacco leaf growers use in the tobacco curing
process with renewable fuel sources by 2030.
• Achieve Net-Zero deforestation of managed natural forests throughout the JT Group’s entire tobacco businesssupply chain by 2030.

Waste reduction• Achieve zero factory waste to landfills in our tobacco business by 2030.

Designing for circularity• Reduce the volume of packaging (including plastic) used in JT Group operations, and bring reusable and recyclable- Packaging, productpackaging to 88% by 2025 and 100% by 2030.
and device

Promote energy
efficiency initiatives
Purchasing
green electricity, PPAs

Expansion of energy efficient equipment andreplacement manufacturing facilities
Using carbon removal credits

Promote the Green Mobility Program, Greener logistics and distribution

Scope 3

Supplier
engagement

Enhance cooperation and engagement with suppliers

Scope 37,761

(1,000 tons CO2e)Achieve

Carbon Neutrality
by 2030

Scope 3Purchased goods
and services
28% reduction

Scope 1 and 2

Scope 1 and 2

737

47% reduction(1,000 tons CO2e)

Reduce absolute Scope 3 GHG emissions associatedwith purchased goods and services
by 28% by 2030 from a 2019 base year

Achieve

Reduce absolute Scope 1 and 2 GHG emissions
by 47% in line with a 1.5°C reduction pathway
by 2030 from a 2019 base year

Net-Zeroby 2050

Carbon Neutralization using carbon removal offsets

2019

2023

2050

2030

Note: These are the plans as of May 31 2024, and they are subject to revision in accordance with future business strategies

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Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Our tobacco business will eliminate the use of Criterion 1 Highly Hazardous Pesticides (HHPs) from its tobacco leaf
supply chain in 2024 and all HHPs by 2040. 100% of our directly contracted growers will adopt the Good Agricultural
Practices (GAP) Protocol of our tobacco business by 2030.

Expansion of self-generated power facilities, including solar panels
Achieve
50% ofrenewableenergyGOVERNANCE

Protecting water

Solar panel
installation

BUSINESS and STRATEGIESEach JT Group business will perform an assessment to evaluate its impact and dependence on ecosystems, including
biodiversity aspects. We will complete impact assessments for our tobacco business in 2024, and for our pharmaceutical and processed food businesses by 2025.

Sustainable agriculture– 2050

Scope 1 and 2

Biodiversity impact
assessment

Renewable energy– 2040SUSTAINABILITY MANAGEMENT

Targets and progress
In 2024, we set several targets related to “Living withthe planet,” one of the materiality topics in the JT Group
Sustainability Targets. Following up on efforts to achieve
the objectives of the JT Group Environment Plan 2030, they

Achieve Net-Zero GHG emissions acrossthe entire value chain by implementing initiatives
to further reduce GHG emissions

IDENTITY

How the JT Group plans to achieve Net-Zero

4Our environmental initiatives are based on the JT Group Environment Policy.

MESSAGE from the CEO

Interest in environmental issues has been growing every year worldwide, and climate change is a leading concern. Corporations influence the environment through their operations, procuring resources needed to conductbusiness, emitting Greenhouse Gases (GHG) and producing waste in the process. At the same time, environmental factors influence our operations as well. As a worldwide business concern, the JT Group accepts the important
responsibility of working to reduce the environmental footprint of its operations across the entire value chain
to help make society more sustainable. Through sustainable operations, we conserve natural resources, reduce
waste and make our business more cost-efficient. Responding to customer demand for environment-friendly,
sustainable products, we are working to build harmony between our businesses and our environment.

043

Living with the planet

Scenario analysis
To identify risks and opportunities for our business related
to climate change, the Group conducted scenario analyses
using multiple scenarios (1.5°C, 4°C, etc.). In conducting
these analyses, we utilized scenarios based on typicalconcentration pathways outlined by the Intergovernmental

Risks andopportunities

Applied scenariosand financial impacts (billion yen)
1.5°C

Governance

Description

Climate-related issues are of strategic importance to our business. Through our business-wide
enterprise risk management process, we have identified climate-related risk as one of theenterprise-level risks for our tobacco business, which also needs to be considered in local risk
inventories and assessment processes. Board oversight is critical and climate-related issues, especially those that may have impacts on business strategy, are brought up in quarterly Board-level

Transition risks

Indicator

meetings. See P. 114 for the ESG-related index for executive remuneration.

chain and address areas for improvement.

Physical risks

Strategy

Through climate scenario analysis performed in 2019, we identified two main risks: potential
cost increases due to governments raising carbon taxes to further reduce GHG emissions andthe impact on tobacco leaf growing due to changes in environmental conditions. Our plan is
to mitigate these risks by continuing to implement climate-related initiatives across our value
4See the JT website for general information on environmental initiatives and Risk factors (P. 128).

We consider climate-related risks and identify risk mitigation and management approaches
through our enterprise risk management (ERM) process. We also include these risks in local risk

4See Country-level climate scenario analysis.

Metrics and targets

Our JT Group Environment Plan 2030 includes a commitment to reduce GHG emissions fromour own operations by 47% (2030 versus 2019). We have also set a longer-term GHG emissions
reduction target, as well as targets for renewable electricity, backed by our Group-wide climate
scenario analysis.

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Japan Tobacco Inc. Integrated Report 2023

Short Medium

Long

–2.8

●

●

• Land-use restrictions limiting
material production• Closely examine policy trends• Deepen low-carbon production methods• Closely monitor carbon-tax
trends• Promote advanced decarbonization• Collaborate with suppliers●

Carbon pricing–108.9

–2.7

●

●

●

Demand/supply
shift for materials
and energy

–0.9

3.3

●

●

●

• Increasing/decreasing costs
for oil, electricity and materials,
including batteries• Procure with future costs inmind• Continuous reviews to ensure procurement from best
locations• Apply smart farming methods• Reinforce relationships with key
farmers

Changes in farming environments
due to rising average temperatures

–3.5

–34.8

●

●

●

• Higher costs for raw materials,
like tobacco leaf and rice, due
to changes in farming environments

More frequent,larger-scaleabnormal climatic
events

–7.1

–18.8

●

●

●

• Impediment to plant operations• Raw material shortages andhigher material costs• Develop or choose weatherresistant varieties• Diversify supply and production locations●• Suspension of plant operations
due to drought• Increased processing costs with
reduced produce quality• Increase efficiency of water use
at production sites• Monitor consumer trends• Develop products catering tocustomer needs• Promote smart farming andbetter varieties• Partnerships with startup firms

–0.1

–0.1

●

Changes in customer lifestyles

0.1

0.7

●

●

• Higher demand for ethicalproducts• Increased demand for processed and frozen foods due toa growing need for easy meal
preparation, an effect of risingtemperatures

Effects of risingtemperatures on
supplier locations
and methods

0.2

1.1

●

●

• Harsher price competitivenessfor higher-yielding wheat varieties and the like

OTHER INFORMATION

4Read more about the JT Group Environment Plan 2030, Environmental data/External verification and Data calculation/
consolidation methods on JT.com.

4°C• Higher procurement costs for
raw materials and others• Higher in-house operational
costs

Tight water supply

Opportunities

inventories, assessment processes, and action plans, which are partly based on our ongoing country-level climate scenario analyses.
We will compare business-wide risks from local assessments and identify the most critical ones.

Countermeasures

GOVERNANCE

Risk management–8.5

Impacts

BUSINESS and STRATEGIES

4Our corporate governance position and structure can be found on the JT website.

Measures andpolicies to address
climate change
effectTime frame

SUSTAINABILITY MANAGEMENTThe JT Group has been disclosing information in accordance with the Task Force on Climate-related Financial Disclosures
framework.

Panel on Climate Change (IPCC), such as Representative
Concentration Pathways (RCP2.6, RCP8.5). As a result of
the analyses, we identified two major climate-related risks:carbon pricing (increased carbon taxes) and changes ingrowing environments due to rising average temperatures.

IDENTITY

Climate change is one of the most serious environmental challenges our society and businesses have ever faced.
Manifesting as the greenhouse effect, extreme weather and the like, climate change affects not just the supply chain
for our products, made mainly through agricultural production, but our operations worldwide as well. Addressing
this challenge is therefore a serious commitment for the Group. Working to reduce GHG emissions over the longterm, we are contributing to global measures against climate change. In February 2022, we announced our ideal ofentirely carbon-neutral operations by 2030. This is an ambitious, science-based objective. In 2022, SBTi validated
targets set by the Group in pursuit of limiting the increase in global average temperature to less than 1.5°C above
pre-industrial levels. In June 2024, we submitted a commitment letter declaring to make science-based GHG emissions reduction targets within two years toward Net-Zero GHG emissions across the value chain by 2050.

MESSAGE from the CEO

Climate change

4Read more about climate scenario analysis on JT.com.

Japan Tobacco Inc. Integrated Report 2023

045

Living with the planet

Believing that the sustainability of people’s lives and corporate operations is possible only when nature and society
are sustainable, the JT Group has made biodiversity preservation a high priority. By understanding how our businesses affect and depend on ecosystems, we are working harder to preserve biodiversity.

Water is an important natural resource for our business activities, and we have already achieved a 15% reduction
in water withdrawal associated with our tobacco business compared to 2015 levels, a target of the JT Group
Environment Plan 2030, ahead of schedule. Under the JT Group Sustainability Targets, we have set our own independent standards that reflect or exceed those of laws and regulations, including more ambitious targets for water
withdrawal reduction and targets related to preventing water pollution so as to minimize impacts on ecosystems,
and we monitor our performance. We require all of our tobacco leaf suppliers to produce high-quality tobacco
leaf and implement our GAP Protocol with a view to protecting ecosystems. This not only increases the economic
sustainability of the tobacco leaf growers, but also prevents the risk of water pollution with nitrate nitrogen, a highly
water soluble compound that is incorporated in many chemical fertilizers and agrichemicals that are widely used on
agricultural land.

Risk assessment
In 2022, we undertook a qualitative assessment of theeffects of our tobacco business and its dependence on ecosystems, based on TNFD v0.3 and the International Union forConservation of Nature’s guidelines. We assessed our impact
on natural resources at each stage of business, namelymaterial procurement, production and disposal, as well as
the scope and gravity of the influence, to identify where our
impact on ecosystems is greatest. We did the same assessment and identification concerning dependencies.

Enhancing biodiversity – No deforestation, no conversion

ecosystem services, such as protection from flooding andstorm damage and land stabilization and erosion prevention
in Brazil, and we found similar tendencies in othertobacco-producing nations.

Collaboration with suppliers is important for understanding and improving our impacts on ecosystems, including
realizing Net-Zero GHG emissions throughout the value chain.
To reduce Scope 3 GHG emissions, we are using a supply chain program provided by CDP, an international environmental NGO, to help us ascertain environmental information related to diverse suppliers associated with ourbusiness, including suppliers of raw materials, such as tobacco leaf, and logistics companies.
By doing so, we have strengthened our engagement with suppliers, enabling us to identify environmental risks
and business opportunities in the value chain, and we are now examining and implementing measures for more
efficient energy use and reduction of GHG emissions.
We will be constantly mindful of what the JT Group can achieve as we continue to collaborate with suppliers incommitted efforts to preserve healthy relationships between nature, people, and companies.
Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Japan Tobacco Inc. Integrated Report 2023

Collaboration with suppliers

GOVERNANCE

046

forests by assisting with natural regeneration. In Zambia,
we participate in the Shishamba Forest Livelihoods Projectfor sustainable management of the Miombo woodlands. In
Brazil, we work to restore over 300 hectares of permanently
protected areas in partnership with research institutes,
environmental-education organizations and the nation’s
National Bank for Economic and Social Development. As
part of this transformation, we have been accelerating ourefforts to organize and standardize data pertinent to biodiversity preservation in partnership with the international
non-profit LIFE Institute since 2017.

We have already achieved our JT Group Environment Plan 2030 target of a 20% reduction in the volume of waste
associated with our tobacco business compared to 2015 levels ahead of schedule, and we have now set a more
ambitious target in the JT Group Sustainability Targets. In addition to reducing waste generated in our businessactivities and changing our waste disposal methods, we have also incorporated initiatives related to products usedby consumers with the goal of reducing environmental impacts throughout the value chain. Targeting zero factory
waste to landfills by 2030, we are reducing the use of packaging materials that contain plastic, and aiming to have
100% of our packaging made from recycled or recyclable materials by 2030.

BUSINESS and STRATEGIES

and discover more opportunities to procure tobacco leaf
in reliable, sustainable ways by following through on our
initiatives to maintain and enhance ecosystem services liketree-planting and agrichemical restrictions.

Reducing impact and dependence on biodiversity
We are working to reduce both the impact and dependenceon biodiversity of our Tobacco business, with reference to
the AR3T framework, based on the Science-Based Targets
for Nature guidance, from the standpoints of avoidance,
reduction, regeneration, restoration and transformation. We
avoid the use of toxic agrichemicals and replace them withsafer, more environment-conscious products. We reduce
waste by managing the safety and possible impacts of our
products and packaging on society and the environment
throughout their life cycles, and by operating systems
designed for effective recycling of products as resources
and managing industrial waste. The Group helps preserve

4Please refer to JT website for details of the initiative.

Waste reduction

Early-stage analysis of risks and opportunities
We identified the effects of landslides and floods, consequences of progressive soil deterioration following forest
development, and overuse of agricultural chemicals as
major risks to production volume and quality of tobacco
leaf. We believe we can reduce such risks to some degree

We have a target to totally replace the naturally obtained wood that our directly contracted tobacco leaf suppliers
use to dry tobacco leaves with renewable fuel resources by 2030. We use the Agroforestry app to log annualtree-planting progress in tobacco farmlands in Tanzania, Zambia and Brazil. The JT Group also works to achieve NetZero destruction of the forests it manages across its entire supply chain for the tobacco business by 2030.

SUSTAINABILITY MANAGEMENTBusiness effects and dependence on biodiversity
In tobacco leaf production, land use and soil pollution in
Brazil were identified as the strongest effects of our businesson biodiversity, and that holds true in other tobaccoproducing nations. On the dependency side, we foundthat our tobacco business greatly depends on a range of

IDENTITY

Protecting water

MESSAGE from the CEO

Biodiversity

047

Value creation that exceeds consumer expectations

Our tobacco business sets out specific targets, namely “RRP
(Reduced-Risk Products)*,” “Transparency in reduced-risk
science” and “Youth access prevention.”

4Please see Tobacco business P. 84 for details on specific initiatives andsustainability targets.

4Please see Pharmaceutical business P. 92 for details on specific initiatives
and sustainability targets.

Processed food business
Our processed food business has set “Food inclusion” as atarget. This demonstrates our will to contribute to a society
where everyone can enjoy any food freely and a good taste,
while embracing diverse perspectives and values.

4Please see Processed food business P. 96 for details on specific initiatives
and sustainability targets.

BUSINESS and STRATEGIESDue to the changes in external environments and lifestyles,
consumers’ values and interests have become more diverse.
We aim to achieve this target by further advancing efforts
to develop and provide high-value-added products, suchas allergy-friendly products, products that do not use ingredients derived from animals, or products that satisfy otherpreferences including health-consciousness.

SUSTAINABILITY MANAGEMENT

In the tobacco business, we consider our mission is to provide a diverse range of options that meet the needs of eachindividual consumer at a high standard. To achieve this, it isnecessary to expand product categories considering changes in society, in addition to conventional combustibles. We
are aware that there are societal expectations for RRP related
to the potential to reduce the risks associated with smoking.
To meet these expectations and enable more consumers tochoose our products, we have “RRP” as one of the targets, todrive its geographical expansion. Simultaneously, in orderfor consumers to properly evaluate our RRP, it is essential todisseminate evidence-based information, hence we have set“Transparency in reduced-risk science” as a target.

Additionally, the Group believes that minors should not use
tobacco/nicotine products, and therefore, our consumers
are only adults. In our tobacco business, we have alreadybeen implementing various measures to prevent underagesmoking, but it continues to be an important issue for thesustainable growth of society where our business is alsopresent. With this understanding, we have set “Youth accessprevention” as a target. Not only will we continue to provide
ongoing training to our sales representatives, but we will
also collaborate with our partners to address this issue.

Our pharmaceutical business has been aiming to create
groundbreaking original drugs that are globally recognizedand deliver them to patients in a swift manner, as also
stipulated in our previous sustainability strategy. The importance of this goal remains unchanged, and for “Creating
first-in-class drugs,” we will continue to put our efforts andinvestments in research and development activities forinnovation in specific therapeutic areas.

IDENTITY

Tobacco businessPharmaceutical business

MESSAGE from the CEO

To remain a trusted corporation, it is essential for each business unit within the JT Group to provide value centeredaround “fulfilling moments” to our consumers. Under “Value creation that exceeds consumer expectations,” a pillar of
our materiality, we have established five sustainability targets, aiming to actualize our Group’s desire to deliver valuethat exceeds expectations from a wide range of consumers and society, through our efforts to create innovative
products and services.

5 sustainability targets to deliver “Value creation that exceeds consumer expectations”
Materiality

Japan Tobacco Inc. Integrated Report 2023

Reduced-Risk Products
RevisedOur tobacco business will make its RRP* available in an increasing number of countries worldwide.

Transparency in
Reduced Risk ScienceNew

In our tobacco business, we will ensure that reduced risk claims are substantiated and that we are transparent about the risks of our products.

Youth AccessPrevention (YAP)New

In our tobacco business, we will continue deliver training on YAP to our marketing and sales force. We will
also continue to work with our trading partners to ensure compliance with its YAP pillars.

Creating first-in-classdrugs

In our pharmaceutical business, we will continue our efforts and investments in research and development
activities for innovative drugs in specific therapeutic areas.

Food inclusion
RevisedIn our processed food business, we will be aware of the diversifying values and interests of our consumers. Most of all so that our consumers can enjoy delicious food, we will not only exclude certain
raw materials, but also develop and provide high-value-added products, such as allergy-friendly
products, products that do not use ingredients derived from animals, or products that are healthconscious and satisfy other preferences.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

048

Targets
GOVERNANCE*RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking
Notes: Please refer to Glossary of terms on P.145 regarding the word “consumers” used in the context of the tobacco business

Target items

049

Investing in our people and supporting their growth

Human Capital in the JT Group

Follow and promote Values/Behaviors

Organizational Culture
Support growth

Challenges

Inclusion and collaboration

Integrity

Expand social value
offerings throughour people

To remain an employer of choice for a diverse range of people, we prioritize our employees’ mental and physical healthand safety with a “People come first” approach. In addition,
we offer various programs to ensure work-life balance andcareer paths suitable for all life stages to help them work
happily in JT Group workplaces.

The Group has been building a corporate culture thatencourages integrity, based on a highly tuned ethical sense
and mutual assistance among employees for personal
growth. While continuing to cherish this cultural tradition,
we support employees in rising to new challenges andpromoting collaboration within the Group and with external
parties, so we can offer fulfilling moments despite theever-diversifying values of society, and foster an organizational culture unique to the JT Group and the times.

To help our diverse people make the most of their potentials
and create value unique to the Group, it’s important for each
employee to take ownership in order to enable a mutually
beneficial cycle between our people and the organizational
culture. To assure this, it’s essential that each employee
understands and supports the JT Group Purpose, takes
ownership in the Group’s priority values and desired actions,puts them into practice and helps promote them throughtheir own initiative. We have formulated Values/Behaviors as
guidelines for the desired actions that should be taken, andwe not only encourage each and every employee to livein these actions, but we have also introduced an appraisal
system that regularly reviews employees’ actual actions.

While defining human capital as the combination of “our people,” “organizational culture” and “ownership,” we will attract diverse
people externally and internally, create an organization which makes our people work happily and encourage each of them togrow and make the most of its strength and skill, we have set six priority themes to focus on, as well as metrics to track progress and impacts of initiatives based on the themes. We will continue to conduct JT Group engagement surveys to ascertain
the status of the Group as a whole and to verify and improve our initiatives on an annual basis. In the previous JT Group survey(with a response rate of 92%), the Employee Satisfaction (eSat) score (“How happy are you working at this company?”) was 77*,
but we aim to further improve it through our Group-wide initiatives.
* eSat score: Average of response scores
Data coverage: JT Inc. and major subsidiaries including global tobacco business (the same applies from the next page)

Human capital growth themes
1. Diversity,
equity & inclusions

2. Talent attraction

3. Attractive working
conditions

4. Health & safety

5. Development support

6. Internal and external
collabration
Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Japan Tobacco Inc. Integrated Report 2023

Explore andcreate new value

Understand and support our Purpose

GOVERNANCE

050

Ownership

Ownership

Organizational culture
Our organizational culture, expressing the values the organization shares, is important to help diverse people work
together and steer corporate activities as Group members.
We consider it important to cultivate shared values, so they
become deeply rooted across the organization and form
the basis for good decisions and standard practices as we
continue creating unique value.

Diverse experience and values

Expand and evolve
the value on offer

BUSINESS and STRATEGIESDiversity forms the foundation of a company’s success andcontribute to real sustainable growth. We try to bring ourhuman best, which empowers all Group businesses. We are
putting special effort into strategic hiring and development
support for people who contribute to the growth andoptimization of our existing businesses (tobacco, pharmaceutical, and processed food), who develop new businesses
to meet the ever-changing consumer sense of fulfilling
moments, and who lead the businesses and managementof the Group.

People empower

SUSTAINABILITY MANAGEMENT

Our people

× all JT Group businesses

Make the most of
individual strength

IDENTITY

Based on this understanding, we advance the JT Group Human Resource Management Philosophy as our basic
principles concerning our employees and work to raise our HR initiatives to a higher level so we can more clearly
define our human capital and secure and expand that resource. In defining human capital, we look at it fromthree angles: People who generate corporate activity; an Organizational Culture that encourages better corporate
decisions and activities; and Ownership, which facilitates a beneficial cycle between Our People and organizational
culture. We regularly monitor related HR initiatives to steadily expand and cultivate our human capital. By pursuingthese efforts, our people will contribute to build a society where everyone feels fulfilled by enhancing current business activities while exploring ways of creating new value for the business, while also engaging as active citizens
beyond our business and organizational boundaries.

Our People

Fulfilling moments for Society

In an era of continuous changes in society and the business environment, we recently redefined and announced
the JT Group Purpose as “Fulfilling Moments, Enriching Life,” which indicates the direction in which we are working
to ensure the sustainability of society and our Group. The Purpose extends beyond offering value to society, now
and in the future, in the business areas that the Group works in, becoming a force that binds the Group’s range
of initiatives together as we determine and execute medium- and long-term strategies, develop new business,promote sustainability initiatives and foster a common corporate culture. All efforts to fulfill this Purpose begin witheach one of the Group’s employees, and we recognize that they are more important than ever to our success.

MESSAGE from the CEO

Human capital in the JT Group051

Investing in our People and Supporting their Growth

The JT Group believes that effort to create a work environment where diverse people can continue to perform at the
top of their potential leads to sustainable growth.
Diversity forms the foundation of a company’s success and contribute to real sustainable growth. We work to create
environments that are open to diversity, where all employees are treated equally regardless of different backgrounds and values and continue to perform at their best.

(Unit: %)Items

Employee demographics

Male
9.0

5.0

14.0

30-49

51.5

16.8

68.3

50 and older

13.8

3.9

17.7

76.5

23.5

100

Management

100

97.9

—

Non-Management

100

112.6

—

These initiatives made Ernst & Young Global Limited recognize JTI as one of the first in the tobacco industry worldwide
to meet their Global Equality Standard. We are steadily
making gender and LGBTQ+ inclusion efforts in Japan aswell, and in 2023, JT was included for an eighth consecutive
year in the Gold PRIDE Index of the nonprofit organization
work with Pride.

Various approaches to secure excellent talentadvancement of women. We are undertaking multiple initiatives to help accelerate women’s career development andpromote gender equality Group-wide, actively nurturing thepipeline of female management candidates and monitoring
the gender pay gap.
*1 To foster the growth and participation of women in the JT Group, weare promoting various Group-wide measures, such as unifying the scopeof monitoring across the Group and targeting positions in managerial
positions. As a result, we have decided to raise the target for the proportionof women in management positions from 25% to 30% by FY2030

The Group sets compensation benchmarks specific to eachcountry and business to ensure our compensation andbenefit packages are attractive and competitive. We also
put effort into communicating the attractiveness of Group
companies to excellent employee prospects. To that end, JTI
has successfully established an excellent company brand bywinning the recognition of the Top Employer Institute as a
Global Top Employer for 10 years running, while continuing
hiring campaigns specific to each country. When hiring new

graduates, in addition to hiring people who aim to build awide-ranging career that goes beyond the functions, we
also hire by job type from the joining stage. Furthermore,when hiring mid-career employees, we disclose the roles
and responsibilities at the time they join the Company.
This helps create an environment and career development
supportive of meeting our employees’ future direction andneeds. Through these initiatives, we secure the talent pool
we need for each business.

OTHER INFORMATION

Japan Tobacco Inc. Integrated Report 2023

For us to remain a company that’s attractive to diverse people and retain enough excellent talent, we set attractive
compensation levels for each location and business, and recruit candidates with a focus on value, in the way thatbest suits each business. We also hire and develop talent who will lead the Group as senior management and eachbusiness as a leader, who expand and optimize our businesses and who explore new areas where we can offer value
to society.

GOVERNANCE

052

The Group runs multiple businesses globally, so its sustainable growth requires a sufficiently talent pool for eachlocation and business.

4Please see Awards and recognitions P. 146 for details.

Gender equality—Unleashing the talent of our women
Gender equality is a high priority in Group operations.
Assuring equality at all career levels, particularly by increasing the ratio of women in managerial positions, is an important challenge. Under its committed senior management
team, the Group has announced a target of having womenin 30%*1 of its managerial positions by 2030. To that end, oursenior managers support career growth for female employees, while educating senior managers educate employees
on gender equality, helping motivate women, organizing
seminars to promoting understanding of the obstacles
in women’s career paths, and promoting the workplace

Priority theme 2: Talent attraction

BUSINESS and STRATEGIES

We continuously hire people with various backgrounds
and values and help employees value diversity throughwork opportunities and seminars intended to facilitate theunderstanding of gender, ethnicity or how the LGBTQ+
community experience work or life. We offer training
programs to employees to help them be more aware of
their own biases and embrace diverse values. We are also
working to give same-sex partners and all types of families

equal access to the benefits and programs the Group offers
to its employees, so we can be an equal-opportunity organization, impartial about differences in individual preferencesor orientation.

SUSTAINABILITY MANAGEMENTThe Group is a workplace for people from over 100 nationalities. We consider their diversity in terms of race, faith, ethnicity, background, birthplace, gender, age, ability or disability,
sexual orientation and marital status to be as valuable as
their individual experiences and specialties. We aspire to be
an organization that respects all employees and helps themfeel they belong to one team, with psychological safety.

*2 We calculated women’s wages relative to men’s (100%) by nation and company, then calculated a weighted average according to number of employees

IDENTITY

Including all talents

Total

29 and younger

Management ratio
Gendered wage differences*2

FemaleMESSAGE from the CEO

Priority theme 1: Diversity, equity & inclusion

Japan Tobacco Inc. Integrated Report 2023

053

Investing in our People and Supporting their Growth

Pipeline for executives and business leaders
working in a range of positions around the world. In 2023,
about 500 people participated in the program as executive
and leadership candidates. For about 150 people, senior
management team and business leaders monitor theirdevelopment status, and discuss their individual potential,
medium- and long-term growth challenges and careerplan, referring to objective external assessments and theircompetitiveness in the labor market.

Candidate selection andreshuffles

To make working easy for employees in all life stages, theGroup assists them in balancing work and family. Under
Leadership experience

Talent pool

The Group uses the advantages of both in-office and remote
working and encourages its employees to choose the workstyle that each finds most suitable. A case in point is our
flextime system that does not impose a fixed work schedule.
By the best combination of flexible schedules and the possibility of remote working, we believe each employee canmake the most of their strengths and live fully, which willlead to optimal performance for the organization.

(Unit: %)Item
Ratio of employees who took parental leave*

Male

Female

Total

91

105

95

* Of the employees have become a parent via adoption, surrogacy or birth, the percentage of employees in FY2023 who took childcare leave not only statutory leave,
but also those who took childcare leave further approved by the company. If there are any employees who have taken childcare leave for their child born in theprevious fiscal years, the rate of employees who took childcare leave may exceed 100% in this fiscal year

Healthy individuals and relationships

054

Japan Tobacco Inc. Integrated Report 2023

activities, we are working to recruit and develop people
to support this new business development by operating a
training program that includes growth opportunities not
only within the Company but also outside the Company,
Expand and evolveand by adopting
uniqueHR policy that is tailored to thethea value
in offercharacteristics of each activity based on the differences inworking styles and skills required.

OTHER INFORMATIONThe Group explores opportunities to offer new value overthe medium- and long-term while working to expand
existing businesses. In addition to M&A, a new organization
called D-LAB was established in 2020 to expand corporate
R&D activities that explore and create future businessseeds. In 2023, we newly appointed a dedicated Senior Vice
President. In order to continuously develop talent for theseengagement in Group companies and divisions. In addition,
we believe trusting relationships between employees andtheir line managers and among coworkers is importantin shaping workplaces where diverse individuals can truly
thrive. We set up regular dialogue opportunities, conduct
360-degree surveys and offer one-on-one assistance tools toimprove the quality of dialogue.

GOVERNANCE

Securing human resources to explore areas of new value

The Group implements initiatives to improve complianceand conducts JT Group employee engagement surveys aswell as pulse surveys as needed. The results illustrate thestate of our organizations and inspire evolution so all employees feel safe and can make the most of their strengths
and talents. In Japan in 2016, the local group set up an organization specialized in assisting organizational development.
They plan and conduct initiatives to improve employee

BUSINESS and STRATEGIESCustomized training
programs

Discussion of career plans withexecutives and business leaders

the Global Family Leave Policy, all employees working
on JT and global tobacco business sites are allowed paid
equivalent leave of up to 20 weeks when they become
parents, regardless of gender, sexual orientation and theway the employees become parents (natural birth, adoption
or surrogacy). In Japan, we are working to improve systems
for leave related to care of children and seniors and for otherfamily-related purposes, and we encourage employees tomake use of them. So far, the ratio of employees who tookparental leave is as shown in the table below.

SUSTAINABILITY MANAGEMENT

C a ndan db u s i i d a t e s f o r e xe c u t i v e i o n sness leade rship posit

Work-life balance
IDENTITY

For the sustainable growth of the JT Group, we think it’s important not only to recruit talent needed for each location
and business, but also to have initiatives to promote themthrough talent development. To secure a pool of internal
candidates as future Group executives and business leaders
over the medium- and long-term, we provide early-stage
training for both selected candidates and open applications.
We pool generation-specific talent by providing opportunities for prospects to gain broad leadership experience by

The Group notes the importance of creating environments that help employees make the most of their individual
strengths and contribute to the optimum performance of the organization. We maintain systems that support each
employee in choosing a workstyle that suits them. We are working to create a workplace with a high level of psychological safety so that employees can feel safe and demonstrate their strengths and skills.

MESSAGE from the CEO

Priority theme 3: Attractive working conditions

Japan Tobacco Inc. Integrated Report 2023

055

Investing in our People and Supporting their Growth

The JT Group believes that to build and expand human capital it’s essential to realize work environments thatencourage the health, safety and well-being of everyone including employees, contractors and visitors, enabling
individuals to immerse themselves in their work both physically and mentally. That’s why we have created the JT
Group Health and Safety Policy to aim for zero harm. We put a range of measures in place to raise employee safety
awareness and improve work environments continuously. We also put effort into health-related support to help
each employee promote their own health.

instituted, and these initiatives are audited and assessed.
All our tobacco factories have implemented health andsafety management systems in compliance with ISO 45001,
an international safety standard that specifies requirementsfor occupational health and safety management systems, inaddition to local laws and regulations.

MESSAGE from the CEO

Priority theme 4: Health and safety
initiatives according to the features of locations to reduce
the risk of work accidents.
We will continue monitoring work accidents across theGroup and promoting effective preventive measures toachieve our goal, zero work accidents.
4Please refer to the JT website for data on contractors.

In offices and research centers, we are implementing various

To promote health and assure safety at work, the Group has
established the JT Group Health and Safety Policy approvedby the Board of Directors.

indicators to track the Group’s health and safety initiatives,and institute measures promptly as they are determined asnecessary.
In addition, each business establishes its own version of the
Health and Safety Policy based on the policy, and works to
implement it among employees and all people concerned.
Health and Safety Policies are also established at each location as needed, and reviewed regularly.

HOW WE ACT

Initiatives to prevent workplace accidents

3

0

2

0

Employees

0.99

1.09

1.16

1.02

Occupational Illness Rate (OIR)*1

Employees

0.51

2.37

2.96

0.03

Work accident severity rate

Employees

—

—

—

0.03

Lost Time Injury Frequency Rate (LTIFR)*2*1 The number of people per 1,000,000 working hours*2 The number of days per 1,000 working hours

The JT Group also puts effort into initiatives to help promote
the mental and physical health of each employee. We
are designing and introducing systems to better support
employees with spontaneous health action.
For mental health support, for example, we offer employees
opportunities to self-assess their stress conditions and thishelps us to implement workplace-specific measures basedon the results of analyses, to facilitate access to specialists
and counselors, and to offer training and other measures
to prevent employees’ mental issues. For physical healthsupport, we better understand risk through data gathering
related to occupational health and develop consistent
approaches. If the issues are attributed to the work or workplace, we take appropriate measures immediately to protect
employees’ health and prevent recurrences. At JT, health andproductivity management is promoted under the leadershipof the CEO, and occupational health staffs are assigned in 11

key areas across Japan to help employees take care of their
physical and mental health. Specifically, occupational healthstaffs across Japan have one-to-one interviews with employees and provide them with support programs to meet issues
and needs. Our support systems allow each employee totake initiative to promote their own health and that of theirfamilies as well, providing financial assistance for testing andvaccinations they have selected.
In collaboration with Group companies in Japan, we set up awalking challenge program. This unique initiative has created a range of opportunities to promote health, revitalize theorganization and contribute to society in combination withTABLE FOR TWO.
JT has been certified as a health and productivity management organization (White 500) for eight consecutive years
under the Ministry of Economy, Trade and Industry.

special on-the-road safety policy was revised and a mobile
app were introduced in 2023 in response to risk assessment
results and best practices identified. Safe driving training
was held for more than 2,000 drivers, as well as on-the-roadtraining for drivers recognized as having the potential tocause an accident.

OTHER INFORMATION

Japan Tobacco Inc. Integrated Report 2023

Employees*1

GOVERNANCE

To align with our policy, we will implement the following:
1. Complying with all applicable laws, regulations and internal rules in the respective country or region.
2. Working towards eliminating or reducing hazards and harmful factors.
3. Advocating for the physical and mental health of all our employees.
4. Proactively and continuously providing essential education and training on occupational health and safety.
5. Regularly evaluating these efforts and continually improving them.
6. Encouraging open communication with our employees regarding occupational health and safety.
7. Appropriately disclosing essential information on occupational health and safety to our stakeholders.

056

2023

BUSINESS and STRATEGIES• In our pursuit of “Fulfilling Moments, Enriching Life,” the JT Group upholds the philosophy of “People come first,” placing the utmost
importance on safety and health and aims for zero harm.
• To achieve this commitment, we will create a work environment that encourages the health, safety and well-being of everyone including employees, contractors and visitors, enabling individuals to immerse themselves in their work both physically and mentally.

On global tobacco locations with driving operations, a2022

Initiatives to promote physical and mental health

WHAT WE AIM

The Group believes that preventive measures according to
the features of locations are important to achieve zero work
accidents, and has implemented a range of measures to that
end. We have processes for identifying and minimizing risks,preventing incidents, responding to emergency situations,and continuously improving safety. Driving vehicles andoperating machines are particularly at-risk activities.

Number of Fatalities

2021

SUSTAINABILITY MANAGEMENT

Specifically, we implement health and safety initiatives (thebelow described) under the responsibility of the CEO torealize “WHAT WE AIM” in the policy and enhance Group
governance under a system supervised by the Board of
Directors. Based on the policy, we have set up monitoring

2020

Item

IDENTITY

JT Group Health and Safety Policy

On locations with machine operations, targets and plans toachieve them are set, risks identified, mitigation measures

Japan Tobacco Inc. Integrated Report 2023

057

Investing in our People and Supporting their Growth

Priority theme 6: Internal and external collaboration

To expand our human capital, the JT Group focuses on providing learning and development opportunities for all
employees to support their career aspirations based on their self-prepared development plans.

The Group actively creates opportunities fostering collaboration within the Group at the regional, functional and individual levels. The same goes for collaboration between the Group and other companies, community organizations
and the like to put together various viewpoints and knowledge outside the Group’s borders, so we can create new
types of fulfilling moments.

MESSAGE from the CEO

Priority theme 5: Development support

Encouraging self-motivated career development

Every year, employees have a career discussion with the line
manager about their aspirations and plans. We also offer
them opportunities to explore career options from among
many, beyond the function in which they currently work.

JT’s career challenge initiative is a case in point, allowing
employees to apply for a position of their choice once ayear. Another is the job posting of the tobacco businessthat globally discloses open positions, inviting employees
to apply. In FY2023, 4,251 positions became open and 7,532
employees applied for them.

remote work becomes more established as a workstyle, we
believe physical offices are important for promoting collaboration. For example, both the JT and JTI head offices havebeen designed to promote exchange and collaboration
among employees and the pursuit of projects spanning
across locations and functions.

choice, and assessments. We offer training options suchas LinkedIn Learning and Udemy, allowing employees tochoose content and embrace opportunities to study on
their own initiative. Building an online learning environmentis also a high priority, to help free employees from timespace constraints.

BUSINESS and STRATEGIESThe Group responds to the growth needs of employees
and provides learning opportunities to help realize diverse
career plans. In identifying the strengths and challenges of
employees in their various development stages, we have introduced original learning programs that effectively employ
on-the-job training, off-the-job learning of the employee’s

The Group is working to create opportunities to put arange of forces together beyond organizational boundaries
for inducing innovation. Through the use of Workplace, a
digital communication tool for the Group, we encourage
the creation of various communities that transcend regions,businesses, and functions, and promote mutual understanding, knowledge sharing, and motivation for co-creation. As

Foster a feedback culture for employee growth
The Group values its organizational culture of interest in
employee growth and provides extensive support to help.

Japan Tobacco Inc. Integrated Report 2023

To create new fulfilling moments the Group considers it necessary to go beyond the framework of our businesses andorganizations to bring together viewpoints and knowledge
from outside. When Group employees contribute outside
the Company as members of society, we think it benefits theemployees themselves, the Group’s business operations andthe local community, leading to new value creation. So we
actively encourage a broad range of collaboration, on bothorganizational and individual levels, with people outside theCompany, other companies, universities, research institutes
and community organizations. Our corporate R&D organization D-LAB, for instance, participates in the THINK SPACELIFE platform of the Japan Aerospace Exploration Agency as
an incubation partner to create fulfilling moments imaginedfrom space.
The Group actively offers employees opportunities for volunteering and donating with financial assistance backed by
the Company, and considers this is important, not just as apath to corporate social contribution, but also as opportunities for employees themselves to gain new perspectives. As
a result, 11,310 Group employees volunteered and worked a
combined total of 24,549 hours in the past year.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION058

For the entire organization to support growth for every
employee, managers meet ahead of employee performanceappraisals to discuss each employee’s performance andchallenges for growth from various viewpoints, as well as
the kinds of new experience needed for further growth.

Promoting external collaboration

GOVERNANCE

To cultivate feedback culture, we promote ongoing regular
one-to-one meaningful conversation which includes discussions about each employee’s strengths and developmentareas. In addition to various training, materials are being
provided, and we offer the possibility of mentors within
the organization as well as external coaches to support
employees in their growth and development. In 2023, about

94% of Group employees participated in feedback meetings
about their achievements as well as advice leading to
improvement.

SUSTAINABILITY MANAGEMENT

Learning opportunities to meet the diverse needs of employees

Promoting internal collaboration
IDENTITYThe Group works to create opportunities for employees tothink about and choose their careers.

059

Responsible supply chain management

Supplier screening and supply chain due diligenceFor details about the supply chain of our tobacco business,see P. 83, P. 88, P. 89.

4 sustainability targets to deliver “Responsible supply chain management”
Materiality

Targets

Supplier screening andsupply chain due
diligence
RevisedThe JT Group will screen all key suppliers against ESG criteria.
Our tobacco business will screen 100% of its key suppliers against environmental, social and governancecriteria by 2023. The tobacco business will also implement Agricultural Labor Practices (ALP) program in allleaf-sourcing countries by 2025.
Furthermore, by 2025, our tobacco business will proactively manage ESG risks with all its critical suppliers, toensure a sustainable business continuity. By 2028, all tobacco supplying entities will achieve a Supply Chain
Due Diligence maturity score >90%, verified by an independent third party.​​
By 2025, we will complete supply chain due diligence of all key suppliers for our pharmaceutical businessand processed food business and will also perform regular due diligence thereafter.
Through the JT Group Supplier Code of Conduct and supplier questionnaires, our processed food businesswill work jointly with, share its values and communicate closely with its suppliers to realize a sustainablesupply chain.
In our tobacco business, the ambition is for all our leaf growers to achieve a living income. By 2025, we will
implement our Living Income Calculator in 100% of our direct tobacco leaf supply chain origins.

Human rights ingrower communities
RevisedBy 2025, our tobacco business will monitor 100% of farms in its direct tobacco leaf supply chain origins onhuman rights including child labor, and annually disclose related KPIs, prevention and remediation actions.

Grievance mechanisms
New

By 2027, our tobacco business will provide access to remedy via safe, accessible and effective grievancemechanisms for 100% of growers and farm workers in its direct tobacco leaf supply chain origins.

Our human rights strategy is based on five pillars. This
circular approach provides a systematic way of conducting
ongoing due diligence and is in line with the UN Guiding
Principles on Business and Human Rights, the Organisation
for Economic Co-operation and Development (OECD)
guidelines, and the Food and Agriculture Organization (FAO)
guidance on responsible agricultural supply chains.

1. Embed
2. Identify and prioritize
3. Respond
4. Measure
5. Report

Our human rights due diligence
We have made human rights due diligence an essential andintegrated part of our business. It helps us to prevent adverse impacts on people and ensure the highest standardsof behavior are upheld within our business and value chain.
In promoting initiatives based on the concept of “prioritize,”
we conduct assessments in countries where the greatest
risks to people lie. We also regularly review high-riskcountries with an eye to changes in business and social
environments.
In 2017, we conducted human rights impact assessments aspilots in Japan, where the Group’s headquarters are located,
and Switzerland, where the headquarter functions of thetobacco business are located.

Since then, our tobacco business has conducted assessments in identified high-risk countries for human rights, andas of the end of 2023, we have completed human rights
impact assessments in 11 countries and self-assessment
questionnaires in 17 countries. In addition, supply chain
impact assessments focused on the leaf tobacco supply
chain were conducted.
For the pharmaceutical and processed food businesses,
self-assessment questionnaires targeting our domestic
business locations were completed in 2023. In 2024, we plan
to conduct assessments on-site in several locations.

GOVERNANCE

Grower living income
New

A five-pillar strategy

BUSINESS and STRATEGIES

Target items

We respect human rights across our value chain, and recognize the International Bill of Human Rights and theInternational Labour Organization’s Declaration on Fundamental Principles and Rights at Work. The JT Group Human
Rights Policy follows the framework provided by the UN Guiding Principles on Business and Human Rights.

SUSTAINABILITY MANAGEMENT

For example, by 2025, our tobacco business will proactively
manage ESG risks in relation to all its critical suppliers. Also,
by 2028, all tobacco supplying entities will achieve a Supply
Chain Diligence maturity score >90%, verified by an independent third party.

Additionally, our pharmaceutical and processed food businesses will complete supply chain due diligence for all key
suppliers by 2025.

Respecting human rights is essential in conducting our business based on our management principle, the 4S model.
We also believe that respecting human rights is fundamental to the JT Group Materiality, which is the core of sustainability management.

IDENTITY

Supplier screening and supply chain due diligence is aimed
at ensuring the sustainability of the Group, as well as better
understanding the challenges faced by suppliers and thecommunities in which they operate.

Respect for human rights

MESSAGE from the CEO

For the sustainable growth of the JT Group, it is crucial that our supply chain, essential for our business, is sustainable, being resilient to rapid changes in the business environment. Based on this belief, we have established four
sustainability targets to address social issues facing our suppliers and the communities in which they operate,
together with those stakeholders.

4Read more about respecting human rights on JT.com.

OTHER INFORMATION

060

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

061

Good governanceCommunity investment

MESSAGE from the CEO

Corporate governance is the foundation for improving the satisfaction of various stakeholders and the JT Group tocontinue to be a trustworthy corporate entity. We believe it is the basis for all our activities. As part of our commitment to “Good governance,” one of our materiality, we have set “Internal control” as a sustainability target to ensure
proper governance in each business, which is essential for sustained growth and enhancing corporate value.
Specifically, we address aspects related to the sustainable growth of each business. Our tobacco business will

For our Group to grow sustainably, it is vital for us to contribute to the sustainable development of our society.
the development of inclusive and sustainable communities.” We believe that everyone should have the opportunity to participate in society, and that inclusive societies are better for business. In line with our community investment policy, and as a responsible local community member, we work with a wide range of stakeholders to resolve social issues.

also engage in dialogue with law enforcement agencies, with the goal to exchange intelligence regarding illegal
tobacco products. In the pharmaceutical business, we target aspects such as “ethical awareness and a sense of
responsibility towards saving patients.” For the processed food business, our targets revolve around “food safety.”
Furthermore, within the Group, we have been enhancing corporate governance by making changes to thecomposition of the Board of Directors, establishing the Advisory Panel on Nomination and Compensation, andand long-term, but also to benefit our stakeholders and, in turn, help the economy and society move forward.

To measure the social impact of our efforts, we use the Business for Societal
Impact (B4SI)* Framework provided by
Corporate Citizenship.

Volunteering brings mutual benefits
for employees, our business, and thecommunity. It also enables our teams
to make a positive impact in the communities where they live and work by
sharing their skills and knowledge.

In 2023, we invested around 50 million
US dollars in corporate community
investment in countries where we
operate. We encourage more accurate
reporting and measurement to ensure
all of our programs deliver social
impact according to our policy.

We actively encourage our employees
to take part in volunteering activities.
We do this by organizing programsand events or by providing thenecessary resources (funds throughcorporate matching, employee time,in kind, or employee donations).

Please see the chapter on Governance P. 106 of this report for details regarding governance within the Group.
For sustainability targets in each business, please see Tobacco business P. 84, Pharmaceutical business P. 92, andProcessed food business P. 96.
Materiality

Target items
Internal control

Targets
Our tobacco business will always protect its ability to participate in public policy debate with the aim toachieve balanced regulation that meets societal concern and support business growth. The tobacco business will also engage in dialogue with law enforcement agencies, with the goal to exchange intelligence
regarding illegal tobacco products, in order to support the reduction of these products.
In our pharmaceutical business, to develop talent and foster employees’ ethical awareness and sense of
responsibility towards saving patients, we will continue to learn more about patients’ needs by engaging
in dialogue with medical experts through our internal educational activity “For the Patients Project”. We will
also conduct, among others, regular training programs for our medical representatives to provide medical
professionals with latest, appropriate information on pharmaceutical products.
Our processed food business will promote food safety management in compliance with global food safety
standards to develop the highest level of food safety. While working on enforcing food safety and quality
assurance, the processed food business will also enhance the way it communicates with consumers toprovide them with safe, secure and high-quality products.

GOVERNANCE

1.	Reducing inequalities, e.g., helping underprivileged people gain
access to food and education.
2.	Improving community resiliencein disaster-prone areas, e.g.,
providing access to clean water.
3.	Protecting the environment, e.g.,protecting and reinvigorating
forests and green public spaces.

Volunteering
opportunities

4Read more about community investment on
JT.com.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION* B4SI is the global standard in measuring andmanaging corporate social impact

062

BUSINESS and STRATEGIES

Through long-term partnerships withlocal and international organizations,
we have 513 community investment
programs in 97 countries. Based on
global and local needs, these programs help communities to become
more inclusive, sustainable, and resilient. We focus on three specific issues:

Measurement andmanagement

SUSTAINABILITY MANAGEMENT

reviewing the executive remuneration policy. In addition to our efforts as a group, by strengthening internal controls within each business, we aim not only for sustainable profit growth and corporate value over the medium-Our focus areas

IDENTITY

The JT Group Community Investment Policy determines a common goal across the JT Group: “To contribute toalways protect its ability to participate in public policy debate with the aim to achieve balanced regulation. It will

Japan Tobacco Inc. Integrated Report 2023

063

BUSINESS andSTRATEGIESMESSAGE from the CEO
IDENTITY

This chapter introduces the strategies andresults in both financial and non-financial
aspects across the entire group and withineach business. In the CFO message, we willreflect on the financial performance of fiscal
2023 and discuss the financial and capital policies that support our Business Plan
2024, as well as the thoughts behind the
dialogue between the Group and the capital
markets.

SUSTAINABILITY MANAGEMENT

It also includes messages from the head ofeach business segment, in which they haveexpressed their Business Purposes and directions that have been set for the realization of the JT Group Purpose.

BUSINESS and STRATEGIESGOVERNANCE

066 Business Plan 2024
068 Message from the CFO
074 Business Purposes
076 Tobacco business
090	Pharmaceutical business

OTHER INFORMATION

094 Processed food businessPhotos on the right: Employees of JT and JTI who are actively
involved in the supply chain

064

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

065

Business Plan 2024

Given the increasing uncertainty and complexity in our business environment, we will build a businessfoundation for sustainable future profit growth through optimal leveraging of our resources on a global scale and aggressive business investment.

Tobacco business
operating policy* Breakeven at brand contribution level representing gross profit less commercial expenditure and before
allocation of overheads

Operating environment outlook 2024-2026

IDENTITY• Prioritize investment in HTS, which is expected to be the fastest growing RRP segment• Ploom X will be available in over 40 markets by the end of 2026
• At the end of 2026, RRP-related revenue is expected to increase by approximately 2.5
times compared to 2023, driven by increased sales volume• Our shares of the HTS key markets segment in key markets will expand to the mid-teens
by 2028• Our RRP business will breakeven by 2028*• Pursue top-line growth and continuing ROI improvement in the combustibles business• Selective investment in RRP category products other than HTS, based on future market
potential• Continue strengthening Company-wide strategic capabilities

MESSAGE from the CEO

Every year, the JT Group publishes a three-year rolling business plan reflecting the changing operating
environment, including economic trends, geopolitical risks and the competitive landscape. Business
Plan 2024 covers the three years from 2024 to 2026.

4Please see Tobacco business (P. 76) of this report for details.

Pharmaceutical businessWe are projecting a difficult business environment ahead,with erosion of total industry volume, continued down-trading, prominent geopolitical risk, a tougher operational environment for RRP (Reduced-Risk Products) due to tightening
regulations, higher taxes and stronger competition on top of
exchange risk. Higher supply chain, due to rising raw material and logistics costs, and indirect costs, as well as increased
illicit trade as travel restrictions ease, are also concerns.

We project drug price reductions both in Japan and abroad,following a global trend toward rationalization of drug costs.

Processed food businessPharmaceutical business/
Processed food business

4Please see Pharmaceutical business (P. 90) and Processed food business (P. 94) of this report for details.

Resource allocation policy
Mid- to high-single-digit annual average adjusted operating profit (AOP) growth rate(consolidated basis) at constant currency
Consolidated AOP at constant currency is expected to remain at the same level as the

Resource allocation policy
based on the 4S modeland the JT Group Purpose• While maintaining a strong financial base, aim to improve shareholder returns by achieving medium- and long-term profit growth*2• Target a dividend payout ratio of about 75%*3, a competitive level*4 in capital markets• Consider implementing a share buyback program, mainly taking into account theGroup’s financial outlook for the respective year and projected capital needs

mid-single digits for the entire three-year period of the business plan

Roles and targets for each businessCore driver of the Group’s profit growth

Japan Tobacco Inc. Integrated Report 2023

Shareholder return policy*1 Growth of AOP for constant currency through high-quality top-line growth*2 The Group will maintain a strong financial base that secures stability in case of changes in the business environment such as economic crises and flexibility enabling expeditious responses to business
investment opportunities*3 To be in the range of approximately ±5%*4 Monitor the shareholder return trends of Fast-Moving Consumer Goods companies which have a
stakeholder model similar to our 4S model and have realized strong business growth
4Please see Message from the CFO (P. 68) for details.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

066• While continued strong top-line growth is expected, we foresee a mid-single-digit
compound annual AOP growth rate over the three-year period starting in 2024 due tocontinued investment in RRP, primarily HTS (heated tobacco sticks). However, we expect
the growth rate to increase in the later part of the business plan period due to top-line
growth contribution from RRP• Prioritize business investments*1 for sustainable profit growth over the medium and longterms
• Strike a balance between profit growth through business investments and shareholder returns

GOVERNANCE

Prospects during the business previous year for 2024 due to enhanced investment in RRP, but will likely return to a growth
path from 2025 onward, resulting in expectations of a compound annual growth rate in theplan period

Tobacco business• Pharmaceutical business: F ocus on R&D investment for next-generation strategic products, and maximizing the value of each product	Expect to maintain a stable profit level during the business plan
period• Processed food business: Realize profitable top-line growth	Targeting mid-single-digit profit growth over the business plan
periodBUSINESS and STRATEGIESJapan’s domestic market is expanding in line with lifestylechanges and rising demand for convenience, including
easier cooking that takes less time. Outside Japan, we
project expanding business opportunities due to population
growth, rising income standards and the worldwide popularity of Japanese cuisine.

Group profit targets
Mid- to long-term targets

Complement the Group’s profit growth

SUSTAINABILITY MANAGEMENT

Tobacco business

067

Message from the CFO

Senior Vice President,
Chief Financial Officer

In October 2023, I took office as the Chief Financial Officer and Senior Vice President in charge ofcorporate communications. I work to fulfill the JT Group Purpose through formulating and executing
financial and capital strategies, and build corporate value by maintaining meaningful, interactive
communication with stakeholders, especially those in the capital markets, and sharing what I hearwith the rest of our management team.

Adjusted operating profit at constant currency, the Group’s
key performance indicator, grew by 5.2% year on year, which
we attribute mainly to the positive pricing contribution of
the tobacco business throughout the year, offsetting thenegative effects of higher supply chain costs and accelerated investment in HTS (heated tobacco sticks).

Our revenue on a reported basis was 2,841.1 billion yen,up 6.9% year on year due to sustained momentum for the

068

Japan Tobacco Inc. Integrated Report 2023

Operating profit was 672.4 billion yen, up 2.9% year on yearwith reduced amortization of trademark rights, increasing
real estate sales, and an adjusted item. On top of improved
financial costs and lower corporation taxes paid, these two
factors helped boost our profit for the year by 8.9% year on
year, to 482.3 billion yen.
Free cash flow was 443.7 billion yen, up 60.8 billion yen year
on year due to the end of expenditures related to initiatives
to reinforce our tobacco business operations in Japan,
recorded in fiscal 2022, and lower corporation taxes paid,
more than offsetting the impact of the increased working
capital.
*R evenues, adjusted operating profit, operating profit from ongoing businesses, and profit from ongoing businesses attributable to owners of the parent
company

The Group formulates and executes its financial plans inline with our two core values of resilience and flexibility.
Resilience means the ability to maintain business despite
significant or unexpected risk, such as economic crisis.
Flexibility mainly means promptly responding to attractive
investment opportunities.
As a new initiative, the Group set up its first green loan
facility in 2023. This is for ESG-related funding approach,demonstrating our commitment to ESGs and sustainability
efforts. It will also help diversify our funding options andexpand our investor base. We will carry on with this keeping
funding needs in mind.
Cash and cash equivalents on our balance sheet are increasing, but include some trapped cash related to internationalsanctions on Iran as well as retained funds related to ourlitigation in Canada. We will continue to work on flexible
financing, watching the global situation from all angles,
in addition to the outlook for funding needs, the money
market environment and funding costs.

Cash flow management
In our cash flow management, we put highest priority on
stable cash generation from top-line business growth. We
are also undertaking initiatives to reduce foreign exchange
impact and optimize working capital.
In the tobacco business, particularly in emerging markets,
we are working to optimize our businesses for local levels of
economic growth and build the value of our businesses inlocal currency over the medium and long terms. We pursue
cash creation via top-line growth, made possible both by, on
the one hand, pricing that takes into consideration tax hikes

and inflation, and on the other, share gains building on thestrength of our brand portfolio, enhanced with a long-term
strategic investment view. Pricing is a profit-growth driverfor our tobacco business, but it’s done with consideration forvarious factors and from all angles, including brand equity,competition, consumer* behavior and acceptance, and theeconomic environment. In some markets, temporarily or
for short periods, our retail prices may fall behind inflation
growth, but we have been generally successful in raising
prices to meet inflation rates over the medium and longterms.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONOur growth rate of adjusted operating profit at constantcurrency has been rising year on year for four years, evenas our RRP (Reduced-Risk Products) business is still in theinvestment phase.

tobacco business and revenue growth in the pharmaceutical business. Adjusted operating profit on a reported basis
was 728.0 billion yen, at about the same level as in 2023,
affected mainly by the negative exchange effect of theRussian ruble.

Financial policy

GOVERNANCE

Throughout 2023, we saw continued challenges for businessglobally due to increasing geopolitical risks, higher supply
chain costs due to inflation worldwide, and exchange rates
broadly in flux. Despite all this, the Group was able to realize
profit growth, bring in revenues and profits above thetargets set at the beginning of the year, and achieve newrecords* for both for the second consecutive year.

4For details see Business Plan 2024 (P. 66) of this report.

BUSINESS and STRATEGIES

Looking back on 2023 results

During the period of the current business plan (2024-’26),
we project consolidated adjusted operating profit atconstant currency on a par with that for 2023 in 2024
due to enhanced RRP investment, moving to the growth
path for 2025 and onward. As a result, we project average
mid-single-digit growth over three years, near the low limitof our mid- to long-term targets of mid- to high-single-digit
growth.

SUSTAINABILITY MANAGEMENTWith these challenges in mind, we are committed tosustainable profit growth over the medium and long terms,
specifically mid- to high-single-digit annual growth on
average for adjusted operating profit at constant currency
on a consolidated basis. In combustibles, we aim to improve
ROI through marketing investments and consistent pricing
execution for top-line growth, as well as cost efficiency

Hiromasa Furukawa

initiatives through continuous supply chain improvements.
In RRP, we will prioritize reinvestment of profits generated
from combustibles towards HTS, which is expected to be
the fastest growing RRP segment.

IDENTITY

We project that conditions through the period of the current business plan (2024-’26) will remain challenging due toerosion of industry volume as well as downtrading, mainly in
our key markets, rising geopolitical risk, tougher operational
environment for RRP due to tightening regulations, higher
taxes and stronger competition, and forex risks.

MESSAGE from the CEO

Operating environment outlook for 2024-2026

069

Message from the CFO

600.0

455.4
400.0
200.0

503.9 482.0
404.2

386.7

382.9

443.7

212.6
72.6

105.6

0.0
-200.0-400.0-316.2
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
(LfL)

In discussing whether to buyback our own shares and inwhat quantities, in addition to financial prospects for thecurrent fiscal year, we carefully consider the medium- andlong-term prospects of our environment; our FCF, balance
sheet and the like; and levels of profit and progress withinvestments and initiatives.
* T o be in the range of approximately ±5%

The Group appropriately discloses timely information, bothfinancial, as with business results, and non-financial, suchas management strategy, ESG factors and the status ofeach business segment, and engages in active dialogue
with shareholders and institutional investors to ensure clear
understanding. Our IR teams in Tokyo and Geneva, where JT
and JTI are respectively headquartered, meet with securities
analysts and institutional investors to discuss recently
announced financial results and other disclosed information,
as well as conduct individual meetings on ESG matters. Our
plan for investor-focused events is in process.

of finance and myself are present.
In meetings specifically focused on ESG, we sometimes seek
investor opinions, including assessments of our integrated
reports. In 2023, we held the first meeting between our
Outside Directors and investors. We will actively continue
this kind of dialogue, making the most of the opportunities
we’ve created.
We report the investor opinions we obtain through thesemeetings to our Board of Directors three times a year, andquarterly to all executive officers and related divisions, alongwith information related to market trends, including shareprices. We consider investor viewpoints as we improve andreview our ongoing initiatives, and continue working toreflect their views and expectations appropriately in our
strategies and operations so they will better understand our
results and initiatives.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Japan Tobacco Inc. Integrated Report 2023•W
 e use adjusted operating profit to show our business results for the current
year in a way that’s easy to understand, excluding the effects of amortization
costs related to any acquisitions in the previous year.
• S tarting with our Business Plan 2014, to manage business investments andreturns more appropriately, we changed our key performance indicator fromadjusted EBITDA to adjusted operating profit, which does not require adding
back depreciation or amortization costs, which fluctuate with investment scale
for the year.
•W e use figures at constant currency, believing we can show the true strengthof our businesses much more clearly by disregarding exchange rates effects,
which can fluctuate substantially over short periods due to geopolitical risks
and other factors not directly related to our businesses.

IR activities

In 2023, we held about 400 individual conferences, and in
May an online Tobacco Investor Conference, as opportunities to explain our long-term prospects and strategies forthe tobacco business. Our IR representatives participate
in conferences hosted by securities houses and meet withdomestic and overseas institutional investors. On some ofthese occasions, the CEO, Executive Vice President in charge070* Supplemental note: Why we use adjusted operating profit at constant currency
as a key performance indicator

GOVERNANCE

Based on the resource allocation policy I’ve just described,
our benchmark payout ratio has been 75%* since February
2021. In monitoring trends in shareholder returns among
global FMCG firms, we have confirmed this as a competitive
level in terms of capital markets in Japan and abroad.

Through the term of the current business plan, we will
invest substantially in HTS. However, we are working toincrease shareholder returns by continuing to build adjusted
operating profit at constant currency, which is our foundation for profit growth over the medium and long terms,
while maintaining a target payout ratio based on the policy
I’ve outlined.

(pre-pandemic), and the end of 2023, thanks to profit
growth during the period and a higher 2022 dividend.
We believe continuous profit growth is important to themedium- and long-term stability of our equity value. We also
believe that building quantitative corporate value throughprofit growth, while cultivating a better understanding of
the Group through enhanced information disclosure from aqualitative standpoint, will lead to rising TSR.

BUSINESS and STRATEGIES

Comparing our total shareholder returns (TSR), including
dividends, with the Tokyo stock price index (TOPIX) showsthat ours have been below the TOPIX over the long term,
matching the trend in our share price, but outperformed
the TOPIX in comparison between the end of 2019

Investment distribution
There has been no change in our two key policies for
management resource allocation: give top priority to investment and balance profit growth resulting from investment
with shareholder returns. Based on the 4S model, ourmanagement principle, and the JT Group Purpose, we will
put top priority on investments leading to sustainable profit
growth, especially in the tobacco business. We continue
to designate the pharmaceutical and the processed foodbusinesses as complementary to our core business, assisting
profit growth for the entire Group.

In drawing up a business plan, we calculate and examine
our capital costs and report them to the Board of Directors.
We check and confirm that our return on equity is well
above capital costs. We set up a hurdle rate, taking into
consideration risks associated with each country in which
we operate, as well as inflation and other external risks, anduse that as our baseline for profitability. By maintaining thatdiscipline, we make sure our ROE is always above capitalcosts. The Group uses adjusted operating profit at constantcurrency as a key performance indicator*, which excludes
the effects of exchange rate fluctuations that can besubstantial due to temporary factors, as well as amortization
costs related to M&A activities for the previous year. We work
to grow profit by achieving mid- to high-single-digit growthin this KPI over the medium and long terms. We also believe
it leads to improved ROE.

SUSTAINABILITY MANAGEMENT

As a result of these initiatives, we have been reliably generating free cash flow of about 400 billion yen per year over 10
years, leaving aside the transient effects of M&A initiatives
and so forth.

FCF (BN JPY)

Profitability of capital and market evaluation

IDENTITYTo optimize working capital, we continuously enhance our
cash-conversion cycle, reviewing terms for receivables andpayables and applying methods such as liquidation of receivables and supplier financing while optimizing inventory
levels.

*A dult consumers: The minimum legal age for smoking varies with legislationin each country; in Japan smoking is not permitted for those under 20 years ofage

MESSAGE from the CEO

Because the JT Group operates worldwide, we live withconstant risk of exchange effects on our cash flow. To reduce
forex impact in this environment, we use natural hedging,by which we mean matching incoming and outgoingcurrencies, as well as hedging using exchange forwards andother derivatives, taking costs into consideration. In principle, foreign currency credits and debts are fully hedged. We
also hedge 25-90% of future cash flow, and in some cases
apply hedge accounting to reduce forex risk, taking into
account possible impact on the profit and loss statement.

071

Message from the CFO

Number of meetings

About 400
• Wide range of equity and debt investors, both active and passive, in Japan and abroad

Meeting participantsMeeting formats• Responsibilities and functions are diverse: analysts, fund managers, ESG managers, andpersonnel with voting privileges• Mainly virtual, online• One-on-one meetings and participation in conferences hosted by securities houses• Financial performance• Medium- and long-term strategies• Capital allocation policies• Environment, Social, Governance (ESG)• Integrated report

Internal sharing ofinvestor opinions

In addition to enhancing our dialogue with bond investors,
we are working to increase our engagement with theorganizations that conduct ESG assessments and to improve
our ESG scores, which are widely referenced in the capital
markets. We believe we can strengthen our relationshipwith bond investors and prepare for the next bond issue by
helping them better understand and appreciate our ESG
initiatives.

• Quarterly report to Directors, Executive Officers and related divisions on the status of IR
efforts and investor opinions• Enhancement of disclosures

The response to the Sustainability Disclosure Standards• Continued ESG-related talks• Conducting dialogue with investors by Independent Outside Directors

Reflecting the growing interest in sustainability, the range of
information stakeholders demand that corporations disclose
is widening to cover ESG areas. Talks are going on in many
countries, including Japan, to legally require the disclosureof sustainability information based on standards set by theEU, the IFRS Foundation, and the like.

We have been working to enhance our disclosure ofsustainability-related information, including in integrated
reports and on our website. Going forward, we will continue
to do so in compliance with standards as a responsible
corporation, and communicate it in ways that help us build
corporate value.

GOVERNANCE

This trend aims to increase the transparency of corporate
approaches and initiatives toward sustainability, allowing
investors and stakeholders to more accurately assess
corporations. The Group considers this as an excellent
opportunity to align with international standards fordisclosure of sustainability-related information. Providing
more transparent and comparable information builds astronger foundation for us in providing investors and otherstakeholders with truly useful information.

BUSINESS and STRATEGIESExamples referencing
investor opinions• Reports to the Board of Directors three times a year

when issuing new bonds, since 2018, we have been regularly organizing non-deal road shows with bond investors
in Europe, North America, the Middle East, and Asia. We will
be adding similar opportunities to communicate with morebond investors.

SUSTAINABILITY MANAGEMENT

Main discussion themes

The Group is also working to enhance communication withbond investors. In compliance with the Japan Tobacco Inc.
Act, on which our Company was founded, the Japanese
government is obliged to hold at least one-third of corporate equity at all times. Following this rule, the government
must also accept one-third of any new shares issued forfunds procurement. So debt finance is our primary funding
method from the standpoint of fund maneuverability.
Corporate bonds are a particularly important means forfunding to help achieve sustainable growth. For reliable
funding even in an unstable financial environment, we areendeavoring to broaden our scope of communications
with domestic and overseas bond investors. To create more
opportunities for dialogue with bond investors and promotebetter understanding of the Group, in addition to meetings

IDENTITY

CEO, Executive Vice President in charge of finance, CFO, Senior Vice Presidents (Chief

JT personnel responsible Sustainability Officer, in charge of corporate strategy, among others)

Communication with bond investors

MESSAGE from the CEO

Dialogues with investors in 2023

OTHER INFORMATION

072

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

073

Business Purposes

Tobacco Business Purpose

Pharmaceutical Business Purpose

Processed food Business Purpose“Creating fulfilling moments.
Creating a better future.”“Respecting science, technology and people,
we will contribute to patients’ lives”“Bringing Joy to Meals and Fun to the Table”

Business directionnnGrow HTS (heated tobacco sticks) and explore
other RRP (Reduced-Risk Products) segments
 ontinue strengthening Company-wide strateC
gic capabilities

n

n

n

Increase drug discovery capability and build
unique pipelines

Business directionnReinforce earnings foundation in the domestic
market aise productivity by optimizing the businessRfoundation over the medium and long termsnA ccelerating initiatives for long-term business growth

Eddy Pirard

Muneaki Fujimoto

Keisuke Nakagomi

President & CEO,JT International S.A.

Senior Vice President,
President of Pharmaceutical Business

Senior Vice President,
Food BusinessFirstly, we are about “Creating fulfilling moments.” At the heart of our Business
Purpose is the high quality and enjoyable experiences our consumers aroundthe world get from or with our products. We know that what consumers wantfrom us is constantly evolving, and we are confident that we can, and will,
always find ways to deliver on these expectations.

The word “Creating” is an integral part of our Business Purpose statement.
It signals another important third dimension. We will accelerate innovationand diversification of our product portfolio. We are committed to finding new
ways to provide fulfilling moments for consumers and in doing so, creating abetter future for them and the societies in which we work.

4Please see Tobacco business (P. 76) for details.

Japan Tobacco Inc. Integrated Report 2023

Bringing joy and fun cannot be achieved by the food’s taste alone. It involves
all value chains, such as ensuring quality, delivering safe and secure products
to consumers every day, aligning with our business partners to streamline
distribution, and removing dietary restrictions for consumers who leaddiverse lifestyles through research and development.
We strongly recognize that each employee’s work is connected to theBusiness Purpose we are aiming for. In 2023, more than 3,000 employees
participated in sessions across 38 locations, discussing the ideal future andthe value we want to offer to consumers and society.
This year, TableMark Co., Ltd. marks the 50th anniversary of the launch of its
frozen Sanuki Udon . It has been 50 years of challenges, driven by the desire
to spread Sanuki udon nationwide. Fuji Foods Corp. has been a pioneer continuously proposing new foods, with Japan’s first consommé cube released
in 1952 and oyster sauce. And now, we have launched the new product line
BEYOND FREE to create new value in food.

As part of our efforts to promote the new Business Purpose established in
2023, we have conducted sessions involving executives and employees toensure alignment on the direction, in addition to proactive communicationfrom top management. We will continue our efforts to ensure that each
employee remains aligned with this Business Purpose in their daily work,
contributing further to the health of patients.

We will continue to work on solving various social issues through food, andstrive to move forward towards a new future where our products are chosen
for your table every day.

4Please see Pharmaceutical business (P. 90) for details.

4Please see Processed food business (P. 94) for details.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Notes: Please refer to Glossary of terms on P. 145 regarding the word “consumers” used in the context of thetobacco businessWe are proud to have received manufacturing and marketing approval in
Japan for CORECTIM® Ointment 0.5% and 0.25% for indications of atopic
dermatitis and ENAROY® Tablets 2 mg and 4 mg for the treatment of anemia
associated with chronic kidney disease, both developed by our Central
Pharmaceutical Research Institute. Furthermore, we are actively strengthening our revenue base in the Japan market by applying manufacturing andmarketing approval in Japan for in-licensed JTE-061 in 2023 and leveraging
external resources. Additionally, we are investing actively in advanced technologies such as AI to innovate the drug discovery process, aiming to create
new drugs more quickly and efficiently. Through the steadfast implementation of these initiatives, we will continue making steady progress with R&D tohelp ensure sustainable profit growth.

“Bringing Joy to Meals and Fun to the Table.” This is the Purpose of our processed food business.

GOVERNANCE

Secondly, we are committed to “Creating a better future.” A better future forboth consumers and for the wider society. We will continue to invest in anddevelop products with the potential to be less harmful, based on robust
science, as well as looking for ways to make our products more sustainable.

Quoting our Business Purpose, “Respecting science, technology and people,
we will contribute to patients’ lives” as we pursue research and development
aimed at creating first-in-class small molecule drugs with global applicability. Through our efforts, we deliver new drugs to overseas patients via
out-licensing and to domestic patients through our Group company, Torii
Pharmaceutical Co., Ltd.

BUSINESS and STRATEGIESOur Business Purpose—Creating fulfilling moments. Creating a better
future—defines why we exist as a business and how we contribute to thebroader JT Group Purpose. It is also a statement to the wider society of ourintent and the North Star guiding our tobacco business strategy.

074Implement price revisions to respond to the impact of rising raw material and logistics costs,
while continuously working to improve productivity and reduce costs

SUSTAINABILITY MANAGEMENTnFurther expansion of sales for our core productswith proprietary technology, and strengthening
our ability to develop high-value-added products
in response to changing customer preferences

IDENTITYnBusiness directionI nvest to grow and continuously improve ROI in
combustibles

MESSAGE from the CEO

We have set forth Business Purposes to connect the JT Group Purpose with the activities of each business. Through our many forward-looking corporate efforts, we will work to deliver our value offulfilling moments that will take us beyond what the JT Group is now.

075

Tobacco businessNotes: 1. The word consumers used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with thelegislation in each country
2. This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine containing products or encouragesmoking or using nicotine containing products
3. RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking

MESSAGE from the CEO

Our business overview
SWOT analysis
Weaknesses

Strengths









The industry can be divided in two product categories:
combustible products and RRP (Reduced-Risk Products).

Combustibles

Heated tobacco, E-Vapor and oral products are part of the RRP
category. As they deliver nicotine without combustion, they
have the potential to reduce risks associated with smoking.

E-Vapor products heat a nicotine-containing liquid insteadof tobacco leaves and come in different formats: open tanks,closed pods and disposables. Oral products are usually

076

Japan Tobacco Inc. Integrated Report 2023

Tightening regulatory environmentChanging consumer preferences

Threats

Opportunities

Performance over the last five years

Combustibles

The tobacco business outperformed the industry volume
over the last five years through continued market sharegains driven by our GFB (Global Flagship Brands; Winston,Camel, Mevius and LD), Ploom X and acquisitions in tobacco
markets that matter.

Over the last years, the main international tobacco players
expanded their portfolio in both combustibles and RRP tooffer more choice to consumers. The JT Group’s tobacco
business is ranked third in the world (excluding China) byvolume and has a product offering across all combustibles
and RRP segments.

GFB volume grew constantly, reaching almost 390 billion
units and more than 70% of our total volume in 2023. For the
first time, Winston and Camel crossed the 200 and 100 billion
units mark, respectively. The achievement of these remarkable
milestones was fueled by our excellence in execution and by
decades of sustained investments behind our GFB.

We expect the global combustibles industry value to continue growing in the foreseeable future, while the global RRP
industry is expected to grow both in terms of volume andvalue. Among RRP segments, we expect HTS to be the largest
growth driver, followed by E-Vapor and nicotine pouches. The
growth rate will ultimately depend on innovation, consumer
acceptance, regulation and taxation of RRP products.

Since its launch in 2021, Ploom X recorded continued shareof segment gains in Japan and significant traction among
consumers, both in terms of acquisition and retention rates.
By the end of 2023, Ploom X was rolled out in 12 markets
outside Japan with encouraging results.
GFB and Ploom X volume growth, together with acquisitions, solid pricing and cost discipline, enabled the tobacco
business to consistently grow core revenue and adjusted
operating profit at constant currency over the last five years.

HTS

Other RRP

E-Vapor

Oral

InfusedJapan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONHTP (heated tobacco products) include HTS (heated tobacco sticks), which generate an aerosol containing nicotine
by heating a tobacco stick, and Infused (infused tobacco
capsules), a hybrid system which creates a tobacco-enrichedvapor using indirect heating of a tobacco capsule.

Our view of the futureSWOT

A N A L Y S I S

WTLimited geographical RRP presence
New capabilities still in the making

GOVERNANCE

RRP

The global RRP industry had an estimated value of approximately 11 trillion yen in 2023. The largest markets are Japanfor HTP and the U.S. for E-Vapor and oral products. Unlike
combustibles, the most successful RRP varies from one
market to another depending on consumer preferences. The
overall RRP category, though smaller than combustibles, hasbeen growing steadily over the last years, and we expect
this growth to continue, notably in HTS.



BUSINESS and STRATEGIES

Cigarettes, FCT (fine cut tobacco), pipe, cigars and cigarillos
are part of the combustibles category. While cigarettes contain pre-rolled tobacco, FCT products allow adult consumers
to roll or make their own cigarettes. The global combustibles
industry volume totaled around 5.0 trillion stick equivalent
units in 2023, representing a value of approximately 101
trillion yen. The largest markets are China—which accounts
for over 45% of global volume—followed by Indonesia,
Russia, the U.S., Turkey, Germany, Japan and Vietnam. While
the global combustibles industry volume is declining, theindustry value continues to increase driven by a positive
pricing contribution.

in the form of small pouches to be inserted in the mouth
between the lip and the gum. If they contain tobacco they
are referred as snus, if they don’t as nicotine pouches.

Tobacco pricing model still intact enabling us tomaximize value creation from combustibles
Grow exposure in HTS segment
RRP category far from mature

SUSTAINABILITY MANAGEMENT

Industry overview

SO

Consumer at the center of all that we doPowerful and inspiring brands
Diverse and motivated workforce
Accelerating RRP investments

IDENTITY

077

Tobacco business

1

-0.8%

3200

Business Purpose

+0.7%

600

530
2400

450

1600

300

79

Creating fulfilling moments.
Creating a better future.

2

540

527

Creating fulfilling moments

73

Creating a better future						
Combustibles

446

2020

2021

2023

2022

0



2

+15.6%
2400

-3.0%

2020

Japanese domestic

Business2021International



800

1800

-0.6%

+25.6%-3.6%

600

Sustained share gains
Capitalize on pricing opportunities
Disciplined approach to investments

n

n

n

ProductsnnReducing health impact
Designing for circularity

Operations
n

n

n

n

569

516
2,315

1200

2,479

187

400

168

1,253

2019


1,251

2020

Japanese domestic

Var at const FX

+1.9%

200

2021


2023

2022

International

+7.9%

750

754

+4.8%



0

341

2019

Consolidated



+6.4%

Var at const FX

341

2020

Japanese domestic

+7.3%

2021


International+22.8%

2023

2022

+8.2%



Consolidated+4.4%*1 Based on internal estimates excluding China*2 The year-on-year variances from 2019 to 2020 of core revenue and adjusted operating profit are calculated based on the sum of the Japanese domestic andinternational tobacco businesses. From 2022, we consolidated the tobacco business, and 2021 figures are adjusted as wellTo create fulfilling moments and a better future, we havearticulated a clear strategy for the tobacco business,

078

Japan Tobacco Inc. Integrated Report 2023

This effort will be complemented by focused investments
in other product segments, as one single solution doesn’ttranslate into sustainable success in RRP. These additional
segments, such as Infused, E-Vapor and oral, are considered
exploratory opportunities. The Group aims to gain a better
understanding of the dynamics in each of these segments
and collect relevant consumer insights ahead of future
growth. In the HTS and exploratory RRP segments combined, our ambition is to reach break-even by 2028*2, driven
by top-line growth and enhanced productivity.

The RRP category is still to mature, with each product segment being in different stages of development as consumer
acceptance varies from one market to another.

prioritizing management resources towards HTS, the main
RRP growth driver, and combustibles, the largest, mostprofitable category across the tobacco industry. This is inline with our view of the industry presented at the Tobacco
Investor Conference in May 2023.
The combination of the Group’s tobacco businesses into asingle business segment, which was completed in January2024, is supporting this prioritization of resources, globalizing the Group’s knowledge and expertise, driving increased
agility, and accelerating strategic decision-making.

To more than double our RRP core revenue by 2026*1, we
will accelerate strategic investment in RRP, notably HTS. We
expect to exceed the 300 billion yen investment which was
originally planned from 2023 to 2025. Another investmentarea will address R&D efforts towards next-generation
products (NGP), as we think the RRP category will continue
to expand beyond the current product lineups.
In 2021, the Group launched its latest heated tobacco
device—Ploom X—in Japan, followed by the U.K. in 2022
and 11 additional markets in 2023. Since Q1 2021, our shareof HTS segment more than tripled in Japan, renewing our*1 Compared to 2023
*2 Breakeven at brand contribution level representing grossprofit less commercial expenditure and before allocationof overheads

Combustibles
We recognize the combustibles industry volume will continue to decline. However, combustibles users will remain thelargest cohort of consumers within the industry for at least
another decade.
Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Our strategy

RRP

GOVERNANCE

Our Purpose—Creating fulfilling moments. Creating abetter future—defines why we exist as a business and how
we contribute to the broader JT Group Purpose. It is also astatement to wider society of our intent and the North Star
guiding our tobacco business strategy.

confidence in our ability to offer superior-quality productsin this growing segment. The Group is planning to roll out
Ploom X and its dedicated consumables in more than 40
markets by 2026, with the ambition to reach a mid-teensshare of the HTS segment in key markets by 2028.

We expect HTS will offer the strongest growth profile among
existing product segments in RRP. In this context, the Groupis prioritizing investments towards HTS and accelerating
efforts to increase share of segment.

Business strategy
Our Purpose

This strategy, moreover, confirms the tobacco businessas the profit engine of the Group and strengthens its roleas the main source of profit growth for the medium- andlong-term.

BUSINESS and STRATEGIES

0

A
 ttracting talent and fostering an inclusive employee
experience
Improving grower livelihoods
Tackling climate change
Conserving nature

639

2,002
600

Ploom X geographic expansion
Enhanced capabilities
Exploratory initiatives beyond HTS

Sustainability priorities

Consolidated

2+18.0%+13.3%

2023

2022

Adjusted operating profit (JPY BN)*

+7.1%

n

Prioritize investments in HTSSUSTAINABILITY MANAGEMENTCore revenue (JPY BN)*

n

n

2019

Sustainability

2019

RRP

Maximize top-line and ROIIDENTITY

150

800

0

436

MESSAGE from the CEO

Total shipment volume (BnU)*

Total industry volume (BnU)*079

Tobacco businessAs part of the Group’s continuous improvement efforts, weconstantly review our global supply chain and our market
operating models for efficiencies and better effectiveness.
Within the global supply chain, we explore opportunities torationalize our manufacturing footprint and our leaf-sourcing
channels, as well as logistical routes, closer collaboration with
suppliers, and portfolio simplification.

Sustainability priority
In 2023, we launched a new Sustainability Impact
Framework. The framework is built on a double materiality
approach and defines JTI’s sustainability priorities.
The framework helps ensure we focus on the areas where,
through our products or operations, we can have the mostimpact.

Ploom X recorded continued share gains within an increasingly competitive HTS segment in Japan, reaching an exit
share of 11.0% in Q1 2024.
Consumers recognize the quality of our device, the superior
taste and the strong brand equity of our heated tobacco
sticks Camel and MEVIUS—which are the first and second
combustible brands in Japan.

As a result of our various initiatives, the Ploom solus ratio,that is the percentage of Ploom users getting 100% of their
tobacco consumption with Ploom over the last month, increased significantly over the last two years—a meaningfulachievement.

Ploom quarterly SoS in HTS in Japan*

Our commercial engine includes both physical and digitalchannels to increase Ploom accessibility and visibility. We
constantly invest in research and development to enhance
our product’s technology and address consumer feedback.
To give an example, our new Ploom X ADVANCED launchedin November 2023 delivers improved taste with a higher
heating temperature and features a reduced charging time,
as well as an automatic heating function. All features that
improve the consumer experience.

11.0%

in March 2024

In March last year, relaunched MEVIUS heated tobacco sticks
with an improved taste at a more affordable price, allowing
consumers to choose from a broader variety of flavors andto better personalize their Ploom experience.

10.7%
10.9% 11.0%

9.4%
8.2%

7.7%
6.6%

3.5%
4.0%
Q1

Q2

9.6%

8.0%

7.3%

4.2%
Q3

2021

Q4

Q1

Q2

Q3

2022

Q4

Q1

Q2

Q3

2023

Q4

Q1

2024

* Ploom shipment volume / HTS industry shipment volume

BUSINESS and STRATEGIESIn market-operating models, we optimize notably routeto-market and route-to-consumers in order to ensure we
can respond quickly and with agility to changing customer
expectations.

The quality of human resources is key to business activity
and performance, and this is the reason driving the efforts of
the Group to strengthen human resource development andenhance its ability to attract, develop, and retain employees
on a global basis.

Ploom X share gains in JapanSUSTAINABILITY MANAGEMENTStrengthening competitivenessWe believe that human resource development is key tostrengthening competitiveness. With business operations inat least 70 markets and sales in more than 130 markets, ourglobal employee workforce is very diverse, including over
110 nationalities.

Increasing HTS consumer base in our Ploom X franchise

IDENTITY

Consistently investing in the strengthening of the equityof Winston, Camel, MEVIUS and LD is key to sustain theGroup’s market share gains in the combustibles category
and leverage pricing opportunities. In addition, we assigned
each market to a strategic role (Earnings / Earnings & Share /Share) to enhance focus and guide decision-making.

We also consider corporate initiatives like the simplificationof internal structures, the migration of legacy IT systems to
global solutions and the empowerment of Global Business
Service centers to better support markets. The aim is tocontinuously improve margins, while maintaining quality,
and to enhance cash flow generation by optimizing working
capital and capital expenditures.

MESSAGE from the CEO

The JT Group intends to continue satisfying the needsof these consumers, by exceeding their expectations. To
do so, resources will be allocated in priority towards our
GFB—which have strong brand equity and high profitability—with the intent of maximizing returns and supporting
the investments in RRP.

The full framework can be seen on P. 84.

GOVERNANCEOTHER INFORMATION

080

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

081

Tobacco business2023 was the first of a multi-year geographic expansion
plan for Ploom X. As we had to build inventories of devices
following the global micro-chip shortage, this expansion
was skewed to the second half of 2023.

We expect Ploom X’s footprint to reach 28 markets by theend of 2024 and 40+ markets by the end of 2026, covering
approximately 80% of the global HTS category volume.

We have a dedicated RRP sourcing team specialized
in sourcing RRP devices. These are manufactured bythird-party contract manufacturing organizations.
Subject to strict technological and quality requirements,
we engage with our suppliers to address sustainability
risks inherent to the electronics industry.
We are a member of RBA, the world’s largest industry
coalition dedicated to corporate social responsibility.
We commit to the RBA Code of Conduct and leverage
the available tools to ensure responsible manufacturingof our products. All our Tier 1 suppliers have undergone
independent third-party audits as part of the RBA
Validated Assessment Program.

We seek to ensure the metals contained in our products
are responsibly sourced. We take a risk-based approachand conduct due diligence in line with OECD Due
Diligence Guidance for Responsible Supply Chains ofMinerals from Conflict-Affected and High-Risk Areas. We
leverage the tools offered by the Responsible Minerals
Initiative (RMI) to increase visibility further down our
supply chain.
We take a collaborative approach and support and build
supplier capability to address identified sustainability
issues in our value chain.
4Read more on responsible procurement.

Number of Ploom X markets
Global HTS volume market coverage

80%

BUSINESS and STRATEGIES

58%

more than 40
13
2023

2026

GOVERNANCE

Maximize top-line and ROIContinued strong pricing in combustibles

082

Japan Tobacco Inc. Integrated Report 2023

Focusing on pricing more specifically, key markets like thePhilippines, Romania, Russia, Spain and the U.K. supported
our top-line expansion along with many others, notably
Canada, France, Germany, Indonesia, Kazakhstan and Poland.

OTHER INFORMATION

2023 marked another record year with 144 billion yen offavorable price/mix variance to core revenue. This performance demonstrates once again the resilience of pricing in
combustibles and enabled us to more than compensate forthe cost increases due to the macroeconomic and geopolitical environments.

SUSTAINABILITY MANAGEMENT

Ploom X market share is growing steadily, including in newly
launched markets. In Italy, we have strengthened our distribution and expanded nationwide since last November. Post
the nationwide-expansion, our segment share has been

RRP sourcing

IDENTITYAs result of the ongoing expansion plan, Ploom X is soldin 15 markets outside Japan as of the end of April 2024:
the U.K., Italy, Lithuania, Portugal, the Czech Republic,
Switzerland, Poland, Hungary, Romania, Greece, Kazakhstan,
Slovenia, Slovakia, Spain, the Canary and, Islands.

growing steadily, reaching 1.5% as of March 2024. In the
Czech Republic and Switzerland, where we launched in Juneand September 2023, respectively, our segment share has
constantly increasing since the launch, with segment shareof 4.6% and 1.8% as of March 2024. Our launch strategy in
HTS focuses initially on large urban cities. This means that
our segment share performance tends to be higher in thesecities. For instance, in Geneva, our segment share reached4.1% in March. In the UK, we were humbled to hear that
Ploom was recognized with the prestigious Product of theYear award.

MESSAGE from the CEO

Encouraging results from Ploom X
geo-expansion

Looking ahead, we remain confident in the sustainability of
the combustibles pricing model across our clusters.

Japan Tobacco Inc. Integrated Report 2023

083

Tobacco business

Our Purpose—Creating fulfilling moments. Creating a better future—is the basis of everything we do.
In 2023, we developed a new Sustainability Impact Framework (see below). The framework has established threemain areas (or pillars) for us to focus on going forward. These include innovating products (product impact),

empowering people, and protecting the planet (operational impact). These focus areas were developed following athorough materiality review that was conducted in 2022 by the tobacco business.
New targets and KPIs have been established in 2023 for each impact area of the framework.

MESSAGE from the CEO

Sustainability strategy

IDENTITY

Protecting

We believe a better future starts
with our products. We are innovating
to reduce health impacts anddesigning for circularity

We believe in empowering
people. From our employees toour growers, we aim to positively
impact lives and livelihoods

We believe in protecting theplanet. Tackling climate change
and conserving nature are key
to a thriving world for today
and tomorrow

REDUCING HEALTH IMPACT
We will invest in scientifically substantiatedreduced risk products and uphold our youth
access prevention policies

ATTRACTING TALENT AND FOSTERINGAN INCLUSIVE EMPLOYEE EXPERIENCE
We will deliver fulfilling experiences andan inclusive environment for our people
to realize their full potential

TACKLING CLIMATE CHANGE
AND REDUCING EMISSIONS
We will act to minimize our climate impact
by reducing emissions towards Net-Zero

DESIGNING FOR CIRCULARITY
We will innovate for circularity to reduce
waste and to support consumers inmaking more sustainable choices

IMPROVING GROWER LIVELIHOODS
We will place the grower at the centerof everything we do to deliver a
positive impact on their livelihoods

CONSERVING NATURE
We will act to protect water, minimize
waste, enhance biodiversity andpromote sustainable agriculture

PRODUCTPEOPLE

PLANET

OUR IMPACTS

BUSINESS and STRATEGIES

Empowering

SUSTAINABILITY MANAGEMENT

Innovating

GOVERNANCE

084

Japan Tobacco Inc. Integrated Report 2023

OPERATIONAL IMPACTJTI’S SUSTAINABILITYFRAMEWORKJapan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONPRODUCT IMPACT085

Tobacco business

Reducing health impact
Reducing the health impact of our products is ofnotable importance, which is why reduced risk
products (RRP) form an important part of our offering andare a competitive driver for our business.

We have developed a circularity framework to illustrate how our Global Circular Economy ambitiontranslates into reality.
The conventional model of “take-make-waste” is antithetical2

ExtendImprove the average lifetime and utilization rate of our
products (devices) by building them with durability inmind and implementing interventions such as battery
removability and replaceability.

3

Recover
Contribute to recovery of components or materials where
possible via enabling recycled content integration in our
packaging and establishing take back for recycling schemes.

Japan Tobacco Inc. Integrated Report 2023

VIRGIN PLASTIC will be further reduced in our
packaging

100% of our packaging will be recyclable by 2030
20% recycled content in our packaging by 2025

We are working to develop more SUSTAINABLE FILTER
alternatives

100% of our RRP devices shipped to the EU by 2027 will
have removable and replaceable battery

All tobacco business targets can be found on here.

OTHER INFORMATION

Rethink
Reduce the materials used in our production process
and substitute finite and virgin materials with recycled orregenerative materials.

In 2023, 88% of our packaging (including plastic) was
reusable or recyclable. This puts us on track to achieve ourtarget of 100% recyclability by 2030. Additionally, 19% of
our packaging was made from recycled content, which willassist us in achieving our target of 20% by 2025.

Designing for circularity:

GOVERNANCE

086

1

to sustainability and we must therefore transition to a morecircular economy moving forward. It requires a complete
rethink of the way we produce and use resources andthe practical steps we can take to extend the life of our
products.

While we ultimately seek to replace polypropylene (plastic)
with non-plastic alternatives, in 2023 we began using
recycled content in our polypropylene wraps. In 2023, we
also continued replacing aluminum inner liner with a paper
one and working on rolling it out more widely. This initiative
has no impact on product quality, improves recyclability andreduces emissions footprint.

Read more about improvements of our packaging andabout our approach to circularity, post-consumer waste
management and anti-littering on our website.

BUSINESS and STRATEGIESDesigning for circularity

4Read more about the science behind RRP at www.jt-science.com

Moving forward, we have a number of ongoing key
initiatives with ambitious deliverables that will continue
to improve our product circularity, including allocatingnecessary resources such as R&D to sustainable packaging
and sustainable filter alternatives.

In Japan, we launched a program in 2019 to collect used
Ploom devices, capsules and cartridges via convenient
collection boxes at around 300 shops in Tokyo. In 2020,
this program was extended to include additional tobacco
players and it was launched throughout Japan in 2021. Since
then, around 1,200 collection points have been establishedin all 47 prefectures.

SUSTAINABILITY MANAGEMENT

That’s why we’re committed to ensuring all our RRP fulfill
this potential, also offering consumers greater choice inthis fast-moving category. We pride ourselves on an open
approach that embraces scrutiny from consumers, regulators and the scientific community, and we regularly present
our findings at scientific conferences and in peer-reviewed
journals.

However, minors should not use or have access to tobacco
or other nicotine-containing products. This belief is central
to JT’s Tobacco Business Code of Conduct and its marketing
practices, operational policies and way we do business. JT’s
tobacco business is committed to playing its full part inyouth access prevention, ultimately success depends on allelements of society working together.

To encourage consumers to safely recycle or dispose our
products, we inform them on how to dispose their old products in a responsible and sustainable manner. In our Ploom
markets, consumers have access to responsible disposal ofelectronic devices.

IDENTITY

While it is still too early to understand the long-term healtheffects of RRP, factors including the elimination of combustion and fewer toxicants found in the vapor, suggest there
is potential for them to reduce the risks associated withsmoking.

Providing our customers with more access to RRP is therefore the central component of our strategy in this area. It has
been contributing to our commercial growth as evidenced
by our performance in 2023 (see P. 79 earlier in this section
for more details).

We introduced new circularity targets regarding both products and packaging, including RRP devices. We are committed to embedding key circular development principles
and communicating responsively; engaging with suppliers
to support circularity principles and ensure the availabilityof circular materials at scale; actioning the comprehensive
circularity implementation plan we’ve developed to guideall our business functions, regions, and markets so they candeliver on targets; monitoring, analyzing, anticipating, andresponding to a constantly evolving circularity landscape toensure we’re making the best choices for our products both
now and in the future.

MESSAGE from the CEO

Innovating PRODUCTJapan Tobacco Inc. Integrated Report 2023087

Tobacco business

Attracting talent and fostering an inclusive employee experience
In 2023, we retained our Global Top Employer
status (as certified by the Top Employers Institute) for the
10th consecutive year.

Our Agricultural Labor Practices (ALP) program
has been expanded in scope to become more
holistic and it now forms part of our supply chain due
diligence (SCDD) in farming communities.
The SCDD process follows the Guidance for Responsible
Agricultural Supply Chains provided by the Organization for
Economic Co-operation and Development (OECD) and the
Food and Agriculture Organization, as well as recommendations by the International Labour Organization. It also

We also support communities in other ways. For example,
our flagship ARISE (Achieving Reduction of Child Labor in
Support of Education) program has been committed totackling child labor in our tobacco-growing communities
since 2011. ARISE is part of our Child Labor Elimination
Framework. To date, 66,825 at-risk children have been
withdrawn or prevented from child labor and enrolled in education through the program and 26,998 households havebenefitted from socio-economic empowerment projects
and improved incomes.
Improving grower livelihoods:

100%

Of our direct tobacco leaf supply chain origins will implement
our Living Income Calculator by 2025

100%

Of farms in our direct tobacco leaf supply chain origins will bemonitored for human rights, including child labor by 2025

100%

Of growers and farmworkers in our direct tobacco leaf supply
chain origins will get access to remedy via grievance mechanisms by 2027

We are aiming to be carbon neutral in our own operations
by 2030 and to achieve Net-Zero Greenhouse Gas (GHG)
emissions across our entire value chain by 2050.
Since 2019, when we established our baseline, we have reduced emissions from our own operations by 19%, keeping
us on track to reach our 2030 target of 47%. However, emissions associated with our leaf and non-tobacco materials
have increased slightly by 3%, which we will address moving
forward.
In 2023, we accelerated the operationalization of our NetZero strategy through workstreams dedicated to energy
efficiency and procurement, green mobility, supplierengagement and sustainable business travel.
Additionally, in 2023, we established a green loan facility tosupport investment in projects that will help us deliver on
our Net-Zero commitment. External verification of our use of
the funds will be undertaken on an annual basis. The projects
will have a timespan of three to five years and will be spread
across our operations around the world. They will include
initiatives in energy efficiency, renewable energy, power purchase agreements and nature-related agronomy programs.

With this important topic, we focus our efforts onfour areas: protecting water, reducing operational
waste, enhancing biodiversity and promoting sustainableagriculture.
In both water stewardship and waste management, wehave achieved our 2030 targets seven years early. We have
reduced our water withdrawal by 29% in relation to our own
operations (against a target of 15%) and cut operational
waste by 20% (against a target of 20%)*. Consequently, newmore ambitious targets have now been introduced.
In terms of sustainable farming, we committed to eliminate
Highly Hazardous Pesticides (HHPs) from our supply chain.
We train our growers on proper handling of Crop Protection
Agents (CPAs) to protect people, animals and the environment. We also raise awareness among our suppliers about
the importance of using less hazardous CPAs.
An example of our activities in action was in Bangladesh,a country that faced a dire water crisis that challenged
communities and ecosystems. It was notably exacerbatedby industrial pollution. Our local team introduced a newsolar-powered, chemical-free wastewater treatment plant.
They then shared their knowledge and learnings withneighboring industrial facilities, helping others to adopt theapproach.
More detailed information on our sustainability strategy,
targets and performance is available on jti.metrio.net.

All tobacco business targets can be found on here.

* Baseline year 2015

GOVERNANCE

Tackling climate change:

Carbon neutral

In our own operations by 2030

Net-Zero GHG
emissions

Across our entire value chain
by 2050

Conserving nature:

47%

Water withdrawal reduction by 2030 (against a 2019 baseline)

28%

Emissions reduction fromour leaf and non-tobacco
materials by 2030 (against a
2019 baseline)

Japan Tobacco Inc. Integrated Report 2023

33%

Zero

Factory waste to landfills by 2030

100%

All wood used in the tobacco curing process by directly contracted growers will be replaced with renewable fuel sourcesby 2030

OTHER INFORMATION

Emissions reduction fromour operations by 2030
(against a 2019 baseline)

088

BUSINESS and STRATEGIES

Improving grower livelihoods

We are dedicating efforts to enhance the livelihoods ofgrowers in countries facing challenges, and we have established new targets to achieve this goal. In 2023, we worked
with 65,315 directly contracted growers, helping them toimprove their productivity and leaf quality.

We are a global company and climate change
represents a real threat to the future of our business.

Conserving nature

SUSTAINABILITY MANAGEMENT

Thus, we constantly invest in our employees at all levels toensure they flourish. Our commitment to talent development and retention is reflected by the fact that over 90% of
our management positions are staffed internally. In 2023, wehave achieved 30% of women in leadership positions, andwe are broadening this scope through our newly updated
commitment to achieve and maintain at least 1/3 of womenin management by 2030.

Tackling climate change and reducing
emissionsfollows the United Nations Guiding Principles on Businessand Human Rights.

IDENTITY

We believe that employee engagement leads to long-term
employee retention, higher levels of productivity, andimproved quality of work. Our aspiration is that every personthat works in JT’s tobacco business feels they belong.

Protecting PLANETMESSAGE from the CEO

Empowering PEOPLE

All tobacco business targets can be found on here.

Japan Tobacco Inc. Integrated Report 2023

089

Pharmaceutical business

MESSAGE from the CEO

Our business overview
SWOT analysis
Weaknesses

Strengths











Industry environment
Worldwide pharmaceutical market*(USD BN)

1,600

1,200

1,433.7 1,472.5
1,203.2

Growth in pharmaceutical demand worldwide driven bysocietal aging in developed countries as well as economic
growth in developing countriesSWOT

A N A L Y S I SGreater difficulty with in- and out-licensingPossibility of continual drug price reductions in domestic
and overseas markets amid a global trend toward
rationalization of drug costs
Greater difficulty in developing new drugs and stronger
international competition for new drug development
Increasing use of generic drugs and growing global
market share for RX-to-OTC switched drugs**Drugs that were previously only available by prescription but have been
approved for over-the-counter (OTC) sales at pharmacies, drugs stores, etc.

Threats

Opportunities

1,261.1 1,296.0

Performance over the last five years

800

400

2018

2019

2020

2021

2022

* Copyright © 2024 IQVIA.
Calculated based on IQVIA World Review(Data period: Years 2018-2022)
Reprinted with permission

Revenue and adjusted operating profit (JPY BN)
100

88.5
79.0

75

15.9

80.4

11.1

24

17.4

18

82.9

17.2

50

94.9

12

11.1

25

6

0

To control medical care expenses, the Japanese governmenthas been promoting the use of generic drugs. This has
resulted in the expansion of the generic drugs market within
the Japanese pharmaceutical industry. Additionally, a drastic

090

Japan Tobacco Inc. Integrated Report 2023

reform of the drug pricing system has led to a gradual pricereduction each year starting from 2021, posing challenges
for the industry, with an average drug price reduction of
6.69% experienced in April 2022.

0
2019

2020

2021

2022

2023

● Revenue (left) ■ Adjusted operating profit (right)

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Industry outlook

Revenue has been fluctuating with a decrease in overseas
royalty income offset by revenue growth in the domestic
market led by Torii Pharmaceutical. The revenue growth at
Torii Pharmaceutical is attributed to significant expansions
in sales of drugs for skin diseases and allergies. Stable
investments have been made in research and development
to discover revolutionary original drugs, and we are actively
carrying out in-licensing in the domestic market. Despite
fluctuations in lump-sum and milestone payments, adjusted
operating profit from fiscal 2019 to 2023 has remainedlargely stable.

GOVERNANCE

0Investment in the latest technologies and development of aplatform for JT’s unique proprietary drug discovery technologies
Maximal leveraging of intra-Group synergies throughfunctional specialization between JT (R&D) and consolidated subsidiary Torii Pharmaceutical (domestic sales)

W
T

Acceleration of the drug discovery process

Resources focused on three priority areas: Cardiovascular, Kidney
and Skeletal Muscle; immunology; and neuroscience

BUSINESS and STRATEGIESThe global pharmaceutical market has been experiencing
an average growth rate of 4.9% over the past five years,
reaching 1,472.5 billion US dollars in 2022 and marking a
2.7% year-on-year increase. This growth can be attributed
to rising health awareness, population increases and development of public healthcare systems. While these factors
have resulted in higher demand for more advanced drugs,
governments are strengthening their control on drug prices
by reigning in medical costs, against a backdrop of rapidly
aging societies and fiscal deficits.

SUSTAINABILITY MANAGEMENT

Industry overview

SO

R&D specialization in small molecule drug discovery

IDENTITY

091

Pharmaceutical businessRespecting science, technology and people,
we will contribute to patients’ lives

MESSAGE from the CEO

Business Purpose

Specific initiatives
Case study 1

Business strategy

For the Patients Project

Cardiovascular,
Kidney andSkeletal Muscle

Immunology

Sustainability strategy

Materiality

The sustainability strategy was reviewed in 2023, and under
the newly revised edition that will take affect from 2024,
we reorganized the focus areas and set specific indicatorsand sustainability targets to be addressed. For more details,
please refer to the pharmaceutical business section.
In working to fulfill our Purpose, we will contribute to JT
Group Materiality efforts.

Foster ethical awarenessTo continuously cultivate employees, expand their senseof mission to help patients and maintain ethical awareness about it, we’ve undertaken a Group-wide educational
initiative called the For the Patients Project. Every year, weselect about 10 members to investigate patient healthcare
needs through exchanges with healthcare facilities andinternal events. In 2023, we provided information internallyabout medications that are truly needed in the medical field
through interviews with specialists related to our R&D areas
such as atopic dermatitis and pediatric allergies. Also, we
conducted interviews at children's hospices and organizeddementia experiential sessions using VR internally, providing
employees with opportunities to consider drug development from various perspectives and empathize with thepatient's standpoint.

Case study 2

Pharmaceutical development
leveraging patient opinions
Materiality

Value creation that exceeds
consumer expectations

Creating first-in-classdrugs

We will continue our efforts and investments in R&D activities for innovative drugs in specific therapeuticareas.

Target items

Creating first-in-class drugs

Emissions reduction

By 2030, we commit to reduce Scope 1 and 2 GHG emissions by 47% in line with a 1.5°C reduction pathway
against a 2019 base year. Along the way, we will help the JT Group achieve its goal of Net-Zero GHG emissions across the entire value chain.

We have undertaken an initiative to incorporate patient
opinions in pharmaceutical development.

Diversity, equity &inclusion

We promote the creation of an organizational culture where diverse talent can thrive, contributing to theachievement of the JT Group’s target of increasing the ratio of female managers.

Foster ethicalawareness

To cultivate personnel with a sense of mission and ethical awareness aimed at saving patients, we willcontinue to learn more about patients’ needs by engaging in dialogue with medical experts through ourinternal educational activity For the Patients Project.

Provide information
responsibly

We continue training our medical representatives to provide medical professionals with up-to-date, appropriate information on pharmaceutical products.

•C alling this approach “patient centricity,” we continuously
provide related information to employees to ensure theirunderstanding.
• T o communicate our appreciation to participants in clinical
trials, we send them thank-you letters.
•W e are preparing a system to provide plain-language
summaries of results.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Targets

GOVERNANCE

Target items

For progress of our sustainability initiatives in the pharmaceutical business up to 2023, refer to KPI progress.

092

Target items

BUSINESS and STRATEGIESIn our pharmaceutical business, we operate under thebusiness Purpose of “Respecting science, technology andpeople, we will contribute to patients’ lives.” In 2019, wedrew up the following sustainability strategy with threefocus areas and five specific initiatives, and report on its
progress annually.

Good governance

SUSTAINABILITY MANAGEMENT

Neuroscience

Materiality

IDENTITY

With a focus on contributing to stable profits for the entire
JT Group, the pharmaceutical business’s basic strategies are:• Increase drug discovery capability and build uniquepipelines•R einforce the earnings foundation in the domestic market•R aise productivity by optimizing the business foundation
over the medium and long terms
The pharmaceutical business focuses its R&D on these areas:
Kidney and Skeletal Muscle; immunology; and neuroscience.

We will continue to incorporate patient opinions into thepharmaceutical development process and work to makeparticipation in clinical trials easier.
Japan Tobacco Inc. Integrated Report 2023

093

Processed food business

MESSAGE from the CEO

Our business overview
SWOT analysis
Weaknesses

Strengths

*Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2024: Vol. 2, 32022 results for the frozen udon noodle and frozen okonomiyaki(Japanese savory pancake) categories
Industry overview
Industry environmenthome as a result of the widening adoption of telework andother factors, we think processed foods are gaining value for
their longer storage life, simplicity and convenience, leading
to higher demand.

Proprietary yeast, processing and freezing technologies
High-quality, efficient production systems based on foodsafety management

Robust Japanese frozen food market with favorable
growth prospects by virtue of growing demand forconvenience and preservability

SWOT

A N A L Y S I S
Growth in demand for high-value-added foods and global
expansion of “free-from” food market based on individuals’ dietaryorientations (e.g., health-consciousness) and beliefs

WT

Rebuilding logistics network to ensure supply
stability

Contraction in domestic demand due to societal aging
and population shrinkage; labor shortages due toworking-age population shrinkage
Industry inflation driven by global food shortages;
distribution cost inflation due to labor shortages inlogistics industry

Technological advancements like DX and IoT that can improve
supply chain efficiency and mitigate labor shortages

Threats

Opportunities

Performance over the last five-years
Industry outlook

On the other hand, we believe it is necessary to pay attention to the following factors: trends in distribution channels,

such as the expansion of private brand products by retailers
and the restructuring of the wholesale industry; rising laborand logistics costs due to labor shortages; and fluctuations
in raw material prices due to international market conditions
and exchange rate fluctuations.

Adjusted operating profit grew by 95.2% year on year
despite a steep rise in the costs of raw materials and

094

Japan Tobacco Inc. Integrated Report 2023

Revenue and adjusted operating profit (JPY BN)
200

10.0

158.6

149.3

147.2

155.5

150

100

153.9
6.8

5.4

7.5

5.0

4.0

3.5

50

2.5

0

0

-0.8
2019

2020

2021

2022

OTHER INFORMATIONNet sales for fiscal 2023 were roughly flat year on year. Whilethe chilled and ambient food businesses saw sales growth infoodservice products due to price revisions and the recovery
of demand from the eating-out sector, this was offset by the
decline in sales revenue from the bakery business transfer.

ingredients, owing to the positive effect of price revisions infrozen and ambient foods and sales growth for industry-use
products following the recovery of restaurant-meal demand.

GOVERNANCE

While signs of a return to pre-pandemic levels are evident,such as the recovery of dining out demand, we project thatdemand for processed foods will remain robust as lifestylechanges during COVID-19 continue to be adopted.

While our sales revenue has remained flat, the processedfood category, which is our main business, has been
showing a long-term growth trend. Adjusted operating
profit has been stable at a certain level, except for fiscal
2020, which was affected by the COVID-19 pandemic. Thisis due to factors such as improved product mix and cost
reductions stemming from the establishment of an optimal
production system. However, in recent years, the rising laborand logistics costs due to labor shortages and impacts frominternational market prices and exchange rate fluctuations
on raw material costs have been seen, and we believe it isnecessary to continue to monitor the situation closely.

BUSINESS and STRATEGIESJapan’s processed food industry has been steadily developing alongside the expansion in dual-income households andlifestyle shifts requiring quick and easy meal preparation.
Furthermore, considering that more people are eating atLopsided sales mix by category and expansion ofsales to overseas markets

SUSTAINABILITY MANAGEMENTS
O

Top-market-share* product lineup (Sanuki Udon,
Gottsu-umai okonomiyaki, etc.)

IDENTITY2023● Revenue (left) ■ Adjusted operating profit (right)

Japan Tobacco Inc. Integrated Report 2023

095

Processed food business

MESSAGE from the CEO

Bringing Joy to Meals and Fun to the Table

Business Purpose

Specific initiatives
Case study 1

Business strategy

Value creation that exceeds
consumer expectations

Target items

Contribute to food inclusion

We will continue to listen to the voices of each and every
consumer who leads a diverse dietary habit and strive to
make meals “more enjoyable and more fun.”The processed food business stays close to diversifying consumer needs, values and interests, and develops and markets high-value-added foods. As part of this effort, TableMarkCo., Ltd. offers through its online shop the BEYOND FREE
line of foods, which boasts authentic flavors without using
certain food items and ingredients.

SUSTAINABILITY MANAGEMENT

Our processed food business focuses on frozen and ambient foods such as frozen udon, packaged rice, and okonomiyaki, as
well as seasonings such as yeast extract and oyster sauce.

Materiality

Since its inception, we have been expanding its menu ranging from staple foods like rice and noodles to side dishes
and desserts that add color to your table.

Sustainability strategy
We aim to address social issues related to food together with
our stakeholders and create fulfilling moments with food.

Materiality

Target items

Specifically, we contribute to food inclusion, meaning reducing any sense of restriction among people with any dietaryneed or preference, reducing the environmental impact of our
products and production processes, and promoting food safety, a core value in our effort to achieve our business Purpose.
Including these initiatives, below are our priorities for theprocessed food business.
Targets

Promoting the use of
eco-friendly packaging
materials

We will reduce packaging weight and utilize renewable plant-based resources to reduce the environmental
impact of our products.

Waste reduction andrecycling

We will pursue waste reduction to contribute to a circular society and will aim to recycle 95% of all wastefrom our Japanese domestic sites (excluding waste heat recovery).

Protecting water

We will pursue efficient water use and wastewater quality management to preserve water stewardship asa member of the local community.

Diversity, equity &inclusion

We will promote organizational building for our diverse human resources to thrive and take active roles.
In this context, we will work to empower women, with a view to contributing to the JT Group’s target for
women in leadership.

Health and safety

We will aim for injury rates to be below 0.63 by 2030, with a view to achieving zero workplace injuries.

Sustainable supply
chain

Through the JT Group Supplier Code of Conduct and supplier questionnaires, we will work jointly with,share our values and communicate closely with suppliers to realize a sustainable supply chain.

Safe, secure andhigh-quality products

We will promote food safety management in compliance with global food safety standards to develop
the highest level of food safety. While working on enforcing food safety and quality assurance, we will alsoenhance the way we communicate with consumers to provide them with safe, secure and high-quality
products.

Japan Tobacco Inc. Integrated Report 2023

Operating a solar energy system as partof an on-site PPA
Materiality

Living with the planet

Target items

Reduce Greenhouse Gas (GHG) emissions

In February 2024, the Kanaya factory of Group firm Fuji
Foods Corp. (Shimada City, Shizuoka Prefecture) started
operating its solar energy system as part of an on-site Power
Purchase Agreement (PPA). With this, the firm projects a
reduction of GHG emissions from the factory of about 13%
from pre-installation levels.

OTHER INFORMATION

Emissions reduction

We will promote energy-saving initiatives and introduce renewable energy to contribute to the Group’s
emissions reduction targets* and to improve our impact on the environment.
*Scope 1 & 2: 47% reduction, Scope 3 Category 1: 28% reduction, both against a 2019 baseline year, by 2030

Case study 2

GOVERNANCE

Food inclusion

We will be aware of the diversifying values and interests of our consumers. Most of all so that our consumers
can enjoy delicious food, we will not only exclude certain raw materials, but also develop and provide
high-value-added products, such as allergy-friendly products, products that do not use ingredients derived
from animals, and products that are health-conscious and satisfy other preferences.

For progress of our sustainability initiatives in the processed food business up to 2023, refer to KPI progress.

096

BUSINESS and STRATEGIESWe promote sustainability initiatives based on the JT Group
Materiality, which identifies key issues for contributing to
the creation of sustainable nature and society, and the JT
Group Sustainability Targets set based on the materiality.

IDENTITY

The processed food business defines its role as complementing the JT Group’s profit growth. To fulfill that role it has the following basic strategy.
• F urther expand sales of core products that incorporate our proprietary technologies, and strengthen our capacity to develop
high-value-added products to respond to changing consumer preferences.
• Implement price adjustments in response to the effects of rising costs for raw materials, ingredients and logistics, and continue efforts to improve productivity and reduce costs.
•A ccelerate initiatives for business growth with a long-term view.

BEYOND FREE line of foods, offeringhigh-value-added products

In the processed food business, we will contribute to theGroup’s greenhouse gas emissions reduction targets by promoting energy-saving activities and introducing renewableenergy.

Japan Tobacco Inc. Integrated Report 2023

097

GOVERNANCEMESSAGE from the CEO
IDENTITY

For the JT Group, governance involves establishing mechanisms to ensure transparent, fair, agile, and decisive decision-making, all in pursuit of the 4S model. Corporate
governance is identified as one of the critical management challenges. Through its
enhancement, we aim to contribute to thesustainable growth of profit and the continuous improvement of corporate value overthe medium- and long-term, while contributing to the prosperity of our stakeholders,the economy and society at large. In thischapter, we not only present facts related
to the JT Group’s governance but also introduce efforts and challenges towards achieving “enhanced and evolving good governance” through discussions in a roundtablefeaturing the Chairperson of the Board andOutside Directors.

SUSTAINABILITY MANAGEMENT
BUSINESS and STRATEGIESGOVERNANCE

100	Executive roundtable
106 Corporate governance
116 Management structure

OTHER INFORMATION

122	Internal controls

Photo on the right: JT Group Board members

098

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

099

Executive roundtable

Management’s consciousness of capital efficiency and dialogue with the capital markets

of Directors as a visitor to JT’s “home turf.” In offering value tosociety through services and corporate activities, we think

Masato Kitera

Mutsuo Iwai

Yukiko Nagashima

Tetsuya Shoji

Kenji Asakura

Independent Outside
Director

Independent
Outside Director

Chairperson of
the Board

Independent Outside
Director

Independent
Outside Director

Independent
Outside Director

When Japanese companies consider scenarios

for global success, capital efficiency, like price-book ratio,

up when we focus on their differences. I prefer to think thatis gaining importance. Traditionally, corporations havethe ideal is a process in which we perform at our best with-placed primary importance on maintaining high domesticout being conscious of our individual differences, making

sales and share of the domestic market, because Japan is aour realization of the good that comes from difference ancountry of high domestic demand. As the Japanese popula-

afterthought. What should diversity be as a precondition

tion declines and falling domestic demand is projected, it’sfor achieving our ideal? As we welcome two new members

more necessary for management to be conscious of capitalfrom different backgrounds, I feel it’s time for a fresh discus-

efficiency. The capital market demands that corporate man-sion.

agers respond to this change.

on equity. As emphasis shifts from combustibles to RRP (Re-Two new Outside Directors, changes in thebusiness to help JT address the many challenges we face

duced-Risk Products) in the tobacco business, investment inBoard and roles of Outside Directors

with advancing globalization and geopolitical risks. I know

combustibles will be more priority-focused and disciplined

you have actively undertaken initiatives to reform corporate

to maximize return and build efficiency. Cash obtained from

culture in the past, and I hope that your firsthand experi-that investment will become source funding for secure in-ence with floor operations will help highlight issues withinvestment in RRP, a next-generation product category. I’d likethe JT culture.

to see the Board clearly define a resource distribution policy

Iwai

The JT Corporate Governance Policy requiresthat Independent Outside Directors make up at least a thirdof the Board of Directors. What’s important is not just main-

like this and monitor progress on our journey to higher

JT has been adding Outside Directors with more varied
backgrounds and experience, and evolving more effective
governance.
Because we just instituted the new system in March, I’d liketo focus on what we can expect from it rather than specificchanges already in play. Ms. Yamashina, I hope to see you
bringing your rich experience in the financial industry to
bear in providing a broad viewpoint and further enlivening

Outside Audit & Supervisory Board Member since last year.
My background is 38 years in the financial sector. JT, bycontrast, is a manufacturer operating globally in over 130
countries. Its approach to risk is different from that of thefinancial sector, and it recoups investment in different timeframes. At first, it was full of surprises for me, but by studying
its history, I’ve been gaining a deeper understanding of JT. I
hope to contribute an objective standpoint to JT’s direction,with my past experience and future trends in mind.

Lately, dialogue with investors is more important than ever,
ShojiThis year, we’ve moved from four Outside

Directors to five. The rich experience in different fields ofour two new members gives us a great new formation, I
think. The Board is always ready for open, fair discussion on
fulfilling our Purpose, including and making the most of thedifferent experiences and decision criteria that each member brings to the table.

AsakuraI took office only a month ago, so I’m stilllargely in the dark. My priority theme is to gain an understanding of the differences between JT’s B-to-C businesses
and the B-to-B business I’m from, and make best use of that
understanding in helping oversee the management of JT.

ing they may hold, and publicize and clearly explain our
position as a corporation. They may disagree and assert thatsociety works in a certain way, but we can understand eachother better. The IR divisions and executive officers in charge
compile what we discuss with investors and their opinions,and provide those reports to the Board every quarter for dis-JT’s global operations. I understand how hard you all are
working to manage businesses as they build scale while
maintaining overall governance across the Group. Throughthe Board, I hope to contribute in those areas.

KiteraAs Mr. Shoji said, the JT Board is upbeat, which

I think is helping us conduct open, goal-oriented discus-and evolution, I believe we can measure up to the expectations of the market and investors.

sions.
From the standpoint of the international situation and the

Shoji

As Outside Directors, we also participate incontext of our businesses, I understand that the environ-corporate communication with the capital markets, mainly

ment for Japan and Japanese companies is tougher than

through investors, and we are considering enhancing andever. JT is one of many Japanese firms facing the challenge

developing this practice further. On such occasions, weof change without hesitation, working hard to adapt. I’d likegain the same understanding of market expectations andto help achieve a distinctive JT way of sustainability, with therequests as the other directors. The market assesses corpo-

Purpose as our foundation.

rations like JT using a rating system and multiple objective

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONIn the global aspects of my business, I see similarities withJapan Tobacco Inc. Integrated Report 2023

investors, but also remain watchful for any misunderstand-cussion. By maintaining a positive loop for self-improvement

look forward to your input from deep experience in global

100

and on such occasions, we should not just passively listen to

GOVERNANCE

the Board from the perspective of diversity. Mr. Asakura, I

corporate value.

Yamashina I’ve been observing JT management as an

BUSINESS and STRATEGIES

taining this number, but rather energizing Board discussions by incorporating a range of opinions. In recent years,

SUSTAINABILITY MANAGEMENT

In managing its businesses, JT has been conscious of return

IDENTITY

Hiroko Yamashina

Iwaiessentially of individuals, and the “diversity” concept comes

MESSAGE from the CEO

Nagashima I’d like to add something to that mention ofdiversity. As a woman, I understand I participate in the Board

101

Executive roundtable

Sustainability at the JT GroupThe JT Group is reviewing its sustainability strategy, includ-

as we continue pushing to expand our share of the tobacco

market participants are good opportunities to exchange

ing ideas about human capital. Corporate growth and sus-

market by centimeters or even millimeters.

opinions and information, and we should continue doing

Yamashina At this historic turning point, corporations aretainability don’t always go together. In our effort to continue

them proactively.

facing the need to pursue social significance as well as eco-working to make the planet and society more sustainable,

nomic value, and have to respond to the way social value

however, I think our values are delivered through our diversechanges over time.

people, businesses and products, which helps the Company

Last year, I had an opportunity for direct contact with peoBoard Member. I found the managers on-site highly aware of
the Purpose and sustainability, and while their subordinates
did not always share the same level of understanding, theyknew that reform was needed, and were working to slowly
but steadily reinforce them. Watching them leading discusforward from a range of standpoints, I felt the energy on
the floor, and powerful first steps have already been taken
Nagashima Last year, I talked with ESG-focused investors.

toward a promising future.

along with environmental and social issues. That’s why we’ve
included items directly related to our businesses as much as

R&D functions worldwide for better efficiency and focus
on its intended purposes. I have high hopes for this move,seeing the potential for new tobacco product forms offering
greater pleasure that are different from HTP (heated tobacco
products), where the market is growing.

possible. For instance, to reliably procure the tobacco leaf
that’s essential to our tobacco business over the long term,
we set various targets for human rights, greenhouse gas
emissions and biodiversity. We spent plenty of time on the

SUSTAINABILITY MANAGEMENT

sions about progress and challenges and carrying initiatives

this year should be closely related to our daily business,verged as one team. I’m told this is an initiative to unify ourprocess of setting these targets, discussing them repeatedly
in Board meetings and on other occasions. The results, I
think, show a perfect match between the JT Group’s priorities and social needs.

It was very rewarding because I was able to learn from theirrelatively long views. They asked me two questions I’d liketo share. First, how quickly do we Outside Directors, who
are outside the management of regular business, receive
negative information about the Company. JT shares inforin a timely manner. It’s very important to get the bad news
first, and I told the investors JT communications are ideal interms of frequency and content.

floor experience. In Milan, Italy, visiting a manager in chargeof RRP marketing strategy, I witnessed people and the organization drawing simultaneous growth opportunities froman exchange of knowledge. I heard that the manager I met
was assigned to a new marketing job in the US the following month, and he planned to apply his success in Italy in achallenging experiment there. This is an example of training

The second question was whether the Board customarily ac-

global personnel, and of those people contributing to thecepts things as expected. I told them otherwise, because thegrowth of the organization. The importance of people really

JT Board makes a clear distinction between agenda items

came home to me.

AsakuraGrowth, in terms of both economic and social

value, is an important theme for corporations in general. The
subject causes robust discussion in JT Board meetings that
I find I can hardly wait to participate in. I am very interested

Yamashina Last year, I had the pleasure of visiting a

in understanding the awareness of sustainability among

business site in Manila, in the Philippines, a major JT Groupthe floor personnel who are working hard to maintain ourbase in Asia. It has a sales office, plant and business center

businesses, in terms of incorporating sustainability targets

where people of various nationalities and experience work.

in their daily tasks. On the floor, debate can happen natu-

I marveled at the perfectly balanced combination of global

rally, and that’s a healthy thing; through continuing debate,

management and localization. I listened to young, energetic

the sustainability targets truly take root. I want to see thatpeople who saw competition as the essence of businesshappen.

and were facing it with determination. As a single team,exchange of international personnel has begun, and wefor in-depth discussion and those for information sharing
only. This is because, based on the bad-news-first principle,
and the priority on items for Board discussion is clear. This
discussion with investors made me aware of how important
it is for us outsiders to provide fact-based assurances that JT
follows through on its Board policies.

Iwai

will start seeing something similar in Japan, promising the

A company’s value grows only when its em-

ployees are active. I’ve been thinking people are the mostimportant thing, and have been working to evolve theCompany’s human resources systems to reinforce corporate
value. When diverse people agree with the Purpose andprinciples of the JT Group and contribute their share, theCompany grows, paying the employees and supporting
their personal growth in return. This kind of mutual relation-

tives to build corporate value
KiteraOur recent move to unify tobacco business

operations into one team is a very ambitious initiative, and areform necessary for the JT Group to achieve the top position in the global market. Now, the domestic and global tobacco markets are managed centrally by JTI in Geneva, and
we Outside Directors visited in October 2023 to talk withthe executives there. Two things impressed me most. First,
extremely heated discussion following the analyses of thevarious markets—they were so hot I felt I might get burned

growth of an energetic, aggressive culture for global competition.

Iwai

We’ve finished reviewing internal systems andstructures to support the new one-team operations, but tobuild corporate value in the future, I think new approaches
are necessary in our tobacco, pharmaceutical and processed food businesses, rather than just extending ongoing
initiatives. In the tobacco business, we will put effort intodevelopment of a new generation of tobacco products inparallel with our development of HTP. In the pharmaceutical business, we need to explore new fields in addition to

OTHER INFORMATION

ship is necessary to success, I think.

The tobacco business as one team and initia-

GOVERNANCE

information reaches us without waiting for Board meetings,

BUSINESS and STRATEGIES

mation with us by email, even about relatively minor issues,

Nagashima Last year, I also had an opportunity for real

IDENTITY

ple working on the floor, as an Outside Audit & Supervisory

grow. In that sense, the sustainability targets we announced

JT’s research and development operation has also con-

MESSAGE from the CEO

indices. To improve our standing, dialogues with capital

just sitting there! That kind of passion is necessary, I think,

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Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

103

Executive roundtable

Nagashima Those who operate businesses are constantly

nology, such as using AI in drug discovery, is a case in point.

facing various serious issues in a global environment, so

viewpoints. I understand the importance of establishing

In the processed food business, we will develop products ofthey always need the latest information to take effective

the outcome of reform as standard practice. The capacity ofhigh added value to meet social trends like aging and healthaction. We Outside Directors oversee this, providing advice

the JT Group to offer social as well as financial value for theconsciousness and overcome the challenge of existingfrom our respective backgrounds. Our skill matrix is based

medium- and long-term depends on specific floor-level andproducts becoming ordinary commodities and reducing

on past experience, and I think we have to update ourselvesindividual initiatives. While executive officers take specificprofit potential. D-LAB is undertaking research and develop-

along with the changing environment and evolutionary

actions to embody the Purpose, it’s important for Board

ment for the Group on the theme of fulfilling moments, withtrends.

members to have regular discussions to better understandYamashina In JT workplaces, I think diversity of thinking isventure investments and the like. It has already developed

needed as well as that of personal aspects. In other words,

and commercialized several products, though on a small
scale.

ence and values bring their diverse ideas together to create
new value, and provide society and our customers with new

I hear many enthusiastic comments fromindividual shareholders in the Ordinary General Meeting of
Shareholders. As of December 31, 2023, 27.53% of JT shareholders are individuals, far above the average among Japanese firms. I imagine this has much to do with the JT policyof paying high dividends. JT values individual shareholders,ters and briefings. I feel that this sort of effort to reach out tothem should continue for even better communications.

Iwai

Increasing individual shareholders means

greater diversity, so I will continue searching for the best
ways to communicate with them. To return to shareholders,
including individuals, we focus on high dividends backed
by strong business results rather than shareholder perks andBased on the recent assessment of Board

products and services while building corporate value. That’s

effectiveness and challenges identified in 2022, in 2023, we

why diversity and its goals should always be on the Board’s

worked to further strengthen the governance functions ofagenda. JT puts priority on the diversity of its decision-makers

the Board as well as increase the efficiency of its manage-and ideas, and considering and training women for manage-

ment. To ensure there’s enough time for discussion, we gath-ment is part of that effort. As the Company creates opportu-

er detailed reference materials covering the agenda items

nities for us to talk with women employees, I want to makeahead of Board meetings, and provide explanatory answers

the most of them to help promote employee diversity into the questions we’re asked. After that, the Board discusses

terms of both individual aspects and thinking.

any matters of concern expressed by the members, andmakes its final decisions. As the Chair, I pay special attention
to the balance between explanation and discussion.

Shoji

We have been working to resolve the fiscal

2022 issues. For one-team operations, we’ve established aconsistent mindset and shared passion. From the management standpoint, however, I feel that there is a gap in theinformation-sharing approaches of JT and JTI and we arestill in the exploratory phase. The two use different measurement indices based on different perspectives, which

GOVERNANCE

gifts to take home after meetings.

Iwai(This roundtable talk was held in April 2024.)

BUSINESS and STRATEGIES

and we communicate closely with them through newslet-

ter promote that effort. I appreciate your continued support.

SUSTAINABILITY MANAGEMENT

Kiterathe spread of the Purpose across the organization and bet-

it’s important that people of different backgrounds, experi-

Toward stronger governanceCommunication with individual shareholders

Thank you for your opinions from different

is positive in a way, but I think there remains a lot of room
AsakuraSpeaking from personal experience, nothingis more important than good communication with share-

for us to reach a unified policy on top-priority information
management and sharing for realizing the Purpose.

ers, so we should continue to hold this policy. I think thatboth individual and institutional investors, and we should
continue pushing there as well.

In talking with you all, I realize that the Pur-pose, sustainability targets and one-team operations are still

KiteraThe effectiveness of the Board boils down to

how open we can be in discussions, and that’s substantiallyinfluenced by the atmosphere and culture of the Company.
For that, it’s important for JT to maintain its vibrant, energetic atmosphere. I’m personally working to make that happen,

they penetrate throughout the organization. Now that the
Purpose has been set, it should be truly owned by every
employee. I think this leads to higher corporate value and

OTHER INFORMATION

maintaining open communication is also important with

Asakuranew to the Company, requiring more effort to ensure that

holders in terms of dialogue with the capital markets. JT’s
high-dividend policy must be very attractive to sharehold-would like to discuss it more, including how it can best be
accomplished.

believing that the current vibrant atmosphere leads toeffective Board operations.

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Japan Tobacco Inc. Integrated Report 2023

IDENTITY

future business in mind, and gathering information through

Iwai

MESSAGE from the CEOenhancing existing business. The application of new tech-Japan Tobacco Inc. Integrated Report 2023

105

Corporate governance
Officer (hereinafter CEO), Executive Vice Presidents and an
outside expert; the latter is comprised entirely of Directors
who do not serve as Executive Officers, and more than halfof whose are Independent Outside Directors. We have also
streamlined our Board of Directors and expedited operational execution by delegating authority to Executive Officers.

Our corporate governance system
General Meeting of Shareholders

Select/dismiss
members

We continuously seek to improve corporate governance andincrease management transparency and objectivity through,Select/dismiss
members

Select/dismiss
members
Report results ofaudit

Accounting
AuditorReportBoard of Directors

10 Directors(5 Outside Directors)

Report/propose

Oversee performance
Audit

ReportInternal
Audit
Division

4 members(1 outside member)President andChief Executive Officer

Internal
audit

Executive Officers
Divisions

Group
audit

ReportLegal and Compliance Division

Subsidiaries

Audit & Supervisory
Board Members’
OfficeOur Board of Directors is responsible for setting JT Groupmanagement strategies, making decisions on importantmatters and overseeing all operations. The Board meetsonce monthly as a general rule, and meets promptly
whenever necessary, in order to make a decision with regard
to the important matters, including those specified by laws
and regulations, and to supervise business execution. It also
receives reports on the state of operational execution fromthe Directors. It includes at least one-third of Independent
Outside Directors with qualifications conducive to sustainable profit growth and the increase of corporate value inthe medium- and long-term in order to strengthen the

supervisory functions and make management transparent.
In March 2022, we amended the term of the Board of
Directors to one year from the previous two-year term inorder to build a management foundation to address thechanges in the business environment in a timely mannerand to strengthen our corporate governance by clearly
defining the responsibilities of the Directors and enhancing
trust with shareholders. The Board discussed importantmatters including the business plan and nomination of
Executive Officers in 2023.

ReportDivisional compliance committees

Advisory Panel on Nomination and Compensation

Internal Director and Executive Officer

Outside Director

Internal Auditor

Outside Auditor

Outside Expert

Basic policy

We have established the JT Corporate Governance Policy inrecognition that improvement in corporate governance isconducive to sustainable profit growth and corporate value

over the medium- and long-term, benefits our stakeholders
and, in turn, helps to move the economy and society
forward. We believe that the Corporate Governance Codehas high affinity with the 4S model, and fully comply withthe principles of the Corporate Governance Code, which
includes the principles of the Prime Market.
We will endeavor to continuously enhance our corporate
governance as a key management priority.
Please visit our website for more on the JT Corporate
Governance Policy.

as Executive Officers, in which more than half of its members
are Independent Outside Directors. The Panel determinedto elect a member from the Independent Outside Directors
as its Chairperson starting March 2022. Mr. Tetsuya Shoji waselected as the Chairperson for 2024. In 2023, the Panel met todecide on candidates for the Board of Directors and Audit &Supervisory Board nominations and to discuss a skills matrix;
review remuneration levels; review executive candidates;
hold discussions regarding strengthening cooperation with
the Advisory Panel on Nomination and Compensation tocontribute to enhancing the Board’s supervisory functions;and to discuss key performance indicators (KPIs) for the
executive bonus and performance share units.

Rationale behind current governance regime
We are strengthening objective and impartial management
oversight functions by positioning an independent and fair
Audit & Supervisory Board that appropriately oversees thejob performance of Executive Officers and Members of theBoard (hereinafter Directors).

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Japan Tobacco Inc. Integrated Report 2023

We have built an effective corporate governance regime under the Audit & Supervisory Board’s oversight. It includes the
JT Group Compliance Committee and the Advisory Panel on
Nomination and Compensation, both established voluntarily.
The former is comprised of the President and Chief Executive

The Audit & Supervisory Board conducts operational and accounting audits as an independent body serving the interestsof shareholders. It has five members, three of whom are outsiders, all of whom have experience in such fields as corporate
management, law, finance, and accounting. The Audit &Supervisory Board Members proactively exercise their authority, including attending and speaking at Board of Directors

meetings and other important meetings as well as actively
inspecting business sites. In addition, they also conduct audits
appropriately from an objective viewpoint in accordance withthe characteristics of the duties of the Independent Outside/Standing Audit & Supervisory Board Members. In 2023, theAudit & Supervisory Board discussed issues including auditing
policies and preparation of audit reports.
Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Audit & Supervisory Board (met 14 times with 100% attendance rate in fiscal 2023)

GOVERNANCE

The JT Group believes that corporate governance is aframework for transparent, fair, timely and decisive decision-making in pursuit of the 4S model, our management
principle. Pursuing the 4S model means striving to fulfill
our responsibilities to our valued consumers, shareholders,
employees and the wider society, carefully considering therespective interests of these key stakeholder groups, andexceeding their expectations wherever we can.

The Advisory Panel on Nomination and Compensation’s
purpose is to render the Board’s decision-making moreobjective and transparent, and to upgrade the Board’s
oversight functions by having the Board deliberate on executive appointment and remuneration in accordance withresults of deliberation in the Panel. Its specific roles include
supporting the growth, including succession plans, of
executive candidates; deliberating on selection of nominees
for seats on the Board of Directors and Audit & Supervisory
Board and dismissal of designated Directors and Directors
also serving as Executive Officers; and reporting the resultsof deliberation on remuneration of Directors and Executive
Officers. In order to ensure its independence and objectivity,
the Panel is comprised entirely of Directors who do not serve

BUSINESS and STRATEGIES(met 5 times with 100% attendance rate in fiscal 2023)

Internal Director

SUSTAINABILITY MANAGEMENT

Audit & Supervisory
Board

5 members(3 outside members)

JT Group Compliance
Committee

Report/proposeBoard of Directors (met 14 times with 100% attendance rate in fiscal 2023)
IDENTITY

7 members(5 Outside Directors)

ReportCooperate

Advisory Panel on Nomination
and Compensation

for instance, the appointment of an additional Outside
Director and Outside Audit & Supervisory Board Member inMarch 2019, appointment of an additional Outside Director
in March 2022, and appointment of an additional Outside
Director in March 2024. Through such measures, we settled
upon our current corporate governance regime as we
believe it functions effectively with respect to operational
execution and oversight.

MESSAGE from the CEO

Corporate governance structure107Corporate governancediscussions on identification of the medium- and long-term
challenges the candidates are facing and the policies weprovide to support their growth.

To develop a steady stream of highly skilled, highly qualified
leaders capable of excelling in the global arena, we selectfuture executive candidates from each hierarchy throughGroup-wide open recruitment and nomination by top management. Our CEO, along with other senior management,
are deeply involved in these selections.

Especially for those who are regarded highly qualified as our
Directors or Audit & Supervisory Board Members, we review
their development status and deliberate to enhance a succession plan and its planning process with input from both
external consultants and the Independent Outside Directors
on our Advisory Panel on Nomination and Compensation.

Our CEO participates in meetings held to support the
next-generation executives. In these meetings, participants
discuss which candidates receive support to become thenext-generation executives based on several factors. The
first factor is based on close examination of whether they
have an excellent mind of ownership, corresponding toa high sense of ethics, integrity and a broad perspective.
The second factor is based on their qualifications in termsof their abilities to accomplish achievements through ourGroup’s growth strategies as an executive or Executive
Officer. Other factors include the consideration of objective,
external evaluation and competitiveness in markets. We
also formulate development programs, which provide avariety of challenging business experiences; review statusesof development based on the programs; and hold regular

As one example, our JT-Next Leaders Program, launched in2013, aims to continuously cultivate young executives whowill spearhead the JT Group globally.

For 2023, the questionnaire was administered as outlined
below.
We take advice from external consultants in drafting thequestionnaire and analyzing the results in order to ensure
objectivity and further improve the evaluation process.
nn uestionnaire drafting period: Sept.–Nov. 2023
Q
Period for evaluation: 2023 (Jan. 2023–Dec. 2023)

n

n

n

 esponse period: Nov. 17, 2023–Dec. 1, 2023
R
Participants: Total of 14 Directors and Audit & Supervisory
Board Members
Summary: Evaluation of each question (5 grades) andopen-ended response entry
Discussion by the Board of Directors: Feb. 19, 2024

Main evaluation items are as follows:(Note: In addition to items for ongoing confirmation,questions were designed to confirm improvements to issues
identified in 2022 results.)
1. Role, function and composition of the Board of Directors(6 questions)
2. Operation of the Board of Directors (7 questions)
3. Collaboration with auditing organizations and risk management (3 questions)
4. Relationships with shareholders and investors(3 questions)
5. Voluntary committees (2 questions)
6. Issues for enhancing deliberation and sharing (1 question)

In 2023, the following initiatives were conducted for issues identified in the effectiveness evaluation pertaining to 2022.
Key issues

Initiatives in detail• Further enhancement of the supervisory
functions of the Board of Directors• More effective and efficient operations of
the Board of Directors• Further expansion of reporting and information sharing regarding various management issues, risk management status and status of deliberations by voluntarycommittees• Continued improvements in the Board of Directors operations, including enhancement of assembly hall facilities and smoother proceedings

Board Members, the Board was especially highly rated forstrengthening various initiatives on the operational front.
Among others, these included establishment of agendas for
the Board of Directors meetings and other opportunities forthe exchange of opinions, as well as the Board’s open anddynamic operation of proceedings.

For 2024 and beyond, the Board is pursuing initiatives focused on addressing the issues identified below, in order to continuously enhance the Board’s effectiveness.
Continuing issues

The Company’s initiatives going forward

The Company will continue to implement the necessary improvements, including the above mentioned initiatives, with theaim of further improving effectiveness.

108

Japan Tobacco Inc. Integrated Report 2023

Policies on the Group management
We aim for the Group’s sustainable profit growth andincrease of corporate value over the medium- and longterm by pursuing the 4S model, our management principle,
and sharing the JT Group Purpose on a Group-wide basis.
Based on our belief that better corporate governance contributes to achieving the aforementioned goals, we strive
to optimize the Group structure by defining functions andregulations shared in the Group and managing the Group asa whole. In addition, we coordinate compliance (includinginternal reporting system), internal auditing, assurance of
reliability of financial reporting and more with our subsidiaries and maintain these activities. We strive to give the best
consideration to assure independence of listed subsidiaries
and to protect the interests of minor shareholders.
Purposes of having listed subsidiary
We have a publicly listed subsidiary, Torii PharmaceuticalCo., Ltd. (Torii), in light of the management benefits ofowning a subsidiary, including capital market discipline,

and enhancement of engagement of human capital byutilizing stock remuneration. Another motivation is for Torii
to acquire increased competitive advantage in its businessthrough factors such as credibility building, securing excellent human capital and increasing motivation, all of which
are important in the pharmaceutical business.
In December 1998, we welcomed Torii as a member of theGroup after acquiring a majority of Torii’s total number ofshares issued, and it has worked to strengthen the Group’sbusiness base in the pharmaceutical business. Together
with Torii, we built an integrated value chain to collaborate
efficiently with each other. Specifically, we conduct R&D
while Torii handles manufacturing, sales and promotional
activities. In addition, both companies not only achieve efficiency through the division of functions, but also generateGroup synergy in various aspects through mutual utilizationof technology and knowledge, such as cooperation for joint
development and effective medical representative (MR)
activities, and through personnel exchanges.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION• Continued enhancement of effective• Improvements in the Board of Directors operations, including smootherand efficient operations of the Board ofproceedings
Directors• Creation of more robust opportunities to share and discuss major management• Continued enhancement of the superviso- issues
ry functions of the Board of Directors• Creation of more robust opportunities for communication among executives

Our policy pertaining to listed subsidiary’s governance

GOVERNANCE

As in 2022, the Board effectiveness evaluation for 2023 yielded generally positive results across all evaluation items. It
confirmed that the Board is functioning not only effectively
but also increasingly so. There was little variation in evaluation for each question posed. In addition to a generally
shared recognition and understanding of the strengths
and weaknesses of the Directors and Audit & Supervisory

It is open to employees in their 40s or younger who fulfill
the conditions, including new recruits not yet officiallyonboarded. Applicants are screened objectively based on
an integrated assessment with internal/external evaluation,such as human assessment, 360-degree surveys, andinterviews with Executive Officers. We preferentially support
the successful applicants’ personal growth on a Group-widebasis over multiple years. Through such programs, we are
expanding our talent pool from the bottom up age-wise
as we continue to pursue reinforcement of our humanresources.

BUSINESS and STRATEGIESWe place priority on fostering successive generations of executives who will manage our future operations, expanding
our pool of executive candidates and improving its quality.

n

SUSTAINABILITY MANAGEMENT

We evaluate annually the effectiveness of our Board of
Directors through a multi-step process. First, all Directors
and Audit & Supervisory Board Members complete a
self-assessment questionnaire with regards to factors
including the Board’s operations, oversight function anddialogues with shareholders and investors. Second, theBoard’s administrative staff interview the Directors and Audit& Supervisory Board Members individually as necessary
to delve deeper into their questionnaire responses andcompile the evaluation results. Lastly, the Board reviews andanalyzes the self-assessment results with the aim of further
improving its effectiveness.

IDENTITY

Succession planning

MESSAGE from the CEO

Evaluation of effectiveness of the Board of Directors

109

Corporate governanceexecutive remuneration is as follows:
n

n

n

n

S et remuneration at an adequate level to retain personnel
with superior capabilities
Link remuneration to Company’s performance so as tomotivate executives to achieve their performance targets
Link remuneration to Company’s value in the medium- andlong-termEnsure transparency by implementing objective andquantitative frameworks

Executive remuneration setting process
We benchmark the amount of remuneration for each
Director based on a survey on remuneration for directors
conducted by third parties, taking into account the
remuneration levels of major Japanese manufacturers withsimilar sizes and profits (benchmark corporate group) thatare operating overseas. Specifically, after benchmarking
the level of base salaries for directors of peer companies,
and the percentage of variable remuneration including
annual bonuses and medium- and long-term incentives, theamount of remuneration for each Director is determinedfollowing various calculation methods stipulated in internal
regulations, based on deliberations at the Advisory Panelon Nomination and Compensation, within the maximum
amount approved at the Annual General Meeting. Currently,
the Board considers that the Representative Director, CEO ismost qualified to determine the amount of remuneration foreach Director, having an overview of the Company’s management and performance as well as taking into accountthe evaluation on each Director’s execution of duties. Basedon this concept, the Board delegates its determination
to the Representative Director, CEO. The Representative

Director, CEO determines the amount of remuneration foreach Director including base salary, executive bonus, monetary compensation claims for the allotment of restricted
stock remuneration plan and of performance share units
plan, based on various calculation methods stipulated ininternal regulations, in accordance with deliberation at theAdvisory Panel on Nomination and Compensation. The
Board concludes the Representative Director, CEO’s determination is aligned with the policies. In 2023, Masamichi
Terabatake, the Representative Director, CEO, determined
the amount of remuneration.
The remuneration for Audit & Supervisory Board Members
is also benchmarked in the same way, and is determined bydeliberation among the Audit & Supervisory Board Members
within the maximum amount approved at the Annual
General Meeting.

GOVERNANCE

We recognize that Torii’s examination of the appointment of
its directors is conducted through a process independent
from us that is proper and transparent as a listed company,
from the perspective of contributing to the improvementof corporate value and the interests of its shareholders.
Additionally, Torii is upgrading its governance regime’s
effectiveness by transitioning to a majority-independent
Board of Directors, which was approved at its ordinary
general meeting of shareholders on March 26, 2020, andtransitioning to a company with an audit and supervisorycommittee, which was approved at its ordinary general
meeting of shareholders on March 27, 2024, thereby effectively utilizing Independent Outside Directors. When we
exercise our rights with regard to the appointment and dismissal of Independent Outside Directors of Torii, we judge
appropriately for each proposal whether the candidate iscapable of offering appropriate advice to management frommedium- and long-term perspectives while supervising
management from wide-ranging viewpoints and further
enhancing transparency and fairness of such management.
We make this judgment based on identification with Torii’s
corporate vision and understanding of its business, while
giving sufficient consideration to the interests of ordinary
shareholders.

The Board determines the policies on executive remuneration including the methodology on determination of each
Director’s remuneration. These policies are determined
after being deliberated and reported by the Advisory Panelon Nomination and Compensation comprised entirely of
Directors who do not serve as Executive Officers, in whichmore than half of whose members being Independent
Outside Directors, in order to ensure independence andobjectivity. Based on these policies, our basic concept on

BUSINESS and STRATEGIESAs for us, Torii’s autonomous corporate management as alisted company contributes to credibility-building, securing
excellent human capital and increasing motivation as
mentioned above, and because this will lead to further
strengthening of competitiveness and securing growth opportunities through Torii’s independent business activities,
we believe that it will not only enhance the corporate valueof Torii, but will also contribute to sustainable profit growthand improvement in the corporate value of the entire Groupover the medium- and long-term, which is our aim. We areconfident that these benefits outweigh the costs associatedMeasures to ensure effective governance at our listed
subsidiary
In regard to owning a listed subsidiary, we believe it is anindispensable prerequisite for the subsidiary to maintainindependence in terms of management and to duly protect
its minority shareholders’ interests in order for not only thesubsidiary, but also for us to grow in value. Therefore, weare striving to build an appropriate governance regime forTorii as a listed subsidiary. We have instituted the Group’s
Responsibility and Authority Regulations as an internal
decision-making regulation. Torii has opted to adopt
these regulations, thereby gaining autonomy in terms ofdecision-making authority. Such autonomy ensures its
independence as a listed subsidiary.

Executive remuneration policy

SUSTAINABILITY MANAGEMENT

In addition, Torii maintains a collaborative relationship with
us and seeks to increase its corporate value while engaging
in business based on independent judgment as a listedcompany. For example, backed by a system in which we
mainly bear the expenses and risks related to R&D, Torii
effectively utilizes the synergy with us, such as by focusing
on building a high-quality information provision andcollection system, including the highest level of MR development in the industry, and strengthening its R&D pipeline
by independently expanding its network of collaboration
partners for introducing drugs. It also steadily strengthens its
competitiveness in fields not dependent on us. In addition,
Torii, with over 150 years of history in the pharmaceuticalindustry, which requires a high level of expertise, has independently acquired highly specialized human resources andknowledge, which are not always available within the Groupalone, owing to its social credibility and recognition in thatindustry.

with Torii’s listing, and recognize the significant importanceof having Torii as a listed subsidiary.

IDENTITY

Although the revenue of the Group’s entire pharmaceuticalbusiness continues to increase, this is being achieved amid acontinuing gradual decrease in overseas royalty income, and
the Group owes such increase to the continuous growthin net sales of Torii. In the medium- to long-term businessvision “VISION2030” that Torii announced in February 2022,
Torii has set goals of achieving record-high net sales andachieving record-high operating profit by 2030. Accordingly,
we can also expect Torii to further contribute to increasing
profitability in the Group’s pharmaceutical business in the
future.

MESSAGE from the CEO

Executive remuneration

OTHER INFORMATION

110

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

111

Corporate governanceDirectors who also serve as Executive Officers

From 2023, as for the medium- and long-term incentives
that consist of the restricted stock remuneration plan andperformance share unit plan, we will increase the ratio of
medium- and long-term incentives further in the executive
remuneration composition, as stated above, seeking tofurther promote aggressive management from mediumand long-term perspectives. The illustration in the next pageshows specific ratios.

Composition

Monetary remuneration

Monetary remuneration(Performance-linked)

Ratio*1

Base salary
29-34%

Executive bonus
28-29%

Stock remuneration
Restricted stock
remuneration plan*2

Stock remuneration(Performance-linked)
Performance shareunit plan*238-43%

Internal Directors and non-executive officers

Outside Directors
Remuneration for Outside Directors is composed of thebase salary alone and does not include performance-linked

compensation to ensure their independence. An Outside
Director who serves as the Chairperson of the Advisory
Panel on Nomination and Compensation receives remuneration at a level of the amount corresponding to theduty, in addition to the remuneration level of other Outside
Directors.

Audit & Supervisory Board Members
Remuneration for the Audit & Supervisory Board Members
is composed of the base salary alone in light of their key
responsibility for conducting audits.

Executive bonus

Restricted stock remuneration plan
The restricted stock remuneration plan is designed tofurther enhance shared value over the medium- and longterm between the Directors who also serve as Executive
Officers (hereinafter eligible Directors) and the shareholders.

112Japan Tobacco Inc. Integrated Report 2023

In the event that we acknowledge wrongful behavior as
determined by the Board or any other wrongful act by a
Director who was allotted restricted stock remuneration
plan during the restriction period, all or a part of the allottedshares are acquired by the Company without any compensation. Additionally, in cases where the Company is involved
in mergers or other organizational realignments during the
restricted period in which the Company is the absorbed
entity, restrictions may be removed on the allotted sharesprior to the effective date of the organizational realignment
by resolution of the Company’s Board of Directors.

Performance share unit plan (PSU)
PSU is a performance-linked stock compensation systemthat aims to strengthen shared value with shareholders,to enhance the Company’s value over the medium- andlong-term and to commit to achieving business resultsover the medium term. PSU offers monetary remuneration
claims and cash to the Directors who also serve as Executive
Officers during the first year of the performance evaluation
period, as performance-linked stock compensation. After athree-year performance evaluation period ends, attainment
rates of numeric targets including earnings are determinedfollowing a review by the Advisory Panel on Nomination
and Compensation. As a general rule, eligible Directors
receive the cash and monetary claims after the end of each
Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATIONThe executive bonus for Directors who also serve as
Executive Officers will be paid as monetary remunerationreflecting the performance of a fiscal year. Core revenue atconstant currency, adjusted operating profit (AOP) at constant currency, adjusted operating profit on a reported basis,
profit results, and an RRP (Reduced-Risk Products)-related index, which will be used to measure the performance of thebusiness itself, will be the key performance indicators (KPIs)
for the calculation of executive bonuses, from the viewpointof providing shareholders with shared value of the performance of the business itself, which is the foundation ofsustainable profit growth, as well as the achievement rateof profit growth, and the viewpoint of setting indices conducive to sustainable profit growth over the medium- andlong-term. In calculating the amounts of executive bonuses,
15% accounts for core revenue at constant currency, 35%
for AOP at constant currency, 25% for adjusted operating
profit on a reported basis and 25% for profit. The ratio that
performance on a reported basis accounts for on the KPIs
used to determine executive bonuses has been set to 50%.
Performance-linked payout is based on the KPI achievementin the range of 0% to 190% and either -10%, 0% or +10% isadded/deducted to results depending on evaluations of the
RRP-related index. In a case where a Director who is a recipient of an executive bonus has carried out certain wrongful
behavior, the Director involved will be required to refund apart of the executive bonus already paid.

Eligible Directors receive monetary compensation claims
every fiscal year towards restricted shares and allocationof the Company’s common shares by paying all of themonetary compensation claims in kind in accordance withthe resolution of the Board of Directors (the allotment being
made from treasury shares). The Company enters into anagreement with the eligible Directors with regards to theallotment of the shares. Although the restriction period isthirty years, in cases where any eligible Director retires due
to expiration of the term or resigns due to reasons deemed
reasonable by the Board of Directors, from a position as
Director or any other positions separately specified by the
Board of Directors during the restriction period, the transfer
restrictions are removed on all of the allotted shares thatthe eligible Director owns. Furthermore, upon the dateof payment, in cases where any eligible Directors, Audit &Supervisory Committee Members or Executive Officers havelost their position due to expiration of the term or otherreasons deemed reasonable by the Board of Directors, thetransfer restrictions are removed on all of the allotted sharesthat the eligible individual owns as of the date of payment.

GOVERNANCE

Internal Directors and non-executive officers receive remuneration that consists of the base salary alone and excludes
performance-linked remuneration, as they are responsiblefor determining Group-wide management strategies toenhance corporate value and for fulfilling their supervisory
function: for example, monitoring the execution of mediumand long-term growth strategies.

Executives are remunerated with a monthly base salary as
per their responsibilities. They are individually evaluated onachievement of their performance targets, from the viewpoint of motivating them to achieve performance targets
through execution of their duties and actions that will leadto the Company’s sustainable profit growth. Performancetargets are set through interviews with the CEO at the
beginning of the fiscal year and evaluated at the end of the
fiscal year. The base salary for the following fiscal year will
be set within a certain range reflecting the individual performance evaluations. However, an individual performance
evaluation is not applicable for the CEO.

BUSINESS and STRATEGIES*1 The composition ratios vary depending on the duties of Members of the Board and the ranges are indicated in the table*2 The ratio of restricted stock remuneration plan and performance share unit plan is about 3 to 1
*3 Under performance share unit plan, 50% is paid as cash towards tax payment*4 T he above illustration shows the ratio of remuneration composition if the executive bonus and performance share unit plan are paid at the standard amount. The
above ratios could fluctuate depending on the Company’s performance, share price, remuneration levels of benchmark companies, etc.

Base salary

SUSTAINABILITY MANAGEMENT

For the Directors who also serve as Executive Officers,
remuneration consists of the base salary, executive bonus,
restricted stock remuneration plan and performance shareunit plan.

This composition reflects that their role is to achieve performance targets through day-to-day operational execution.

IDENTITY

Executive remuneration is comprised of (1) a monthly “basesalary,” (2) an “executive bonus” linked to the Company’sbusiness performance in a fiscal year, as well as (3) a “restricted stock remuneration plan” and (4) a “performance shareunit plan,” both of which are linked to the corporate value inthe medium- and long-term. The composition of executive
remuneration is as follows.

Components of executive remuneration

MESSAGE from the CEO

Composition of executive remuneration

113

Corporate governanceIn the event that we acknowledge wrongful behavior as
determined by the Board or any other wrongful act by a
Director during the performance evaluation period, theDirector is disqualified from receiving all or a part of the cash
and monetary claims that were planned to be paid.

Total amount of remuneration in 2023
Total amount by component (JPY MM)
Category

Total amount(JPY MM)

Base salary

Executive bonus

Restricted stock
remuneration
plan

PSU

1,364

473

417

273

202

7

82

82

—

—

—

4

168

168

—

—

—

10

1,614

722

417

273

202

21

Directors (excluding Outside
Directors)
Audit & Supervisory Board
Members (excluding outside
members)
Outside Directors
Total

Number of
eligible persons

KPIs for executive remuneration
We have introduced indices such as one on a reported basis

conducive to medium- and long-term growth and further

and non-financial to design a more multifaceted system forstrengthen shared value with shareholders.

assessing our performance. We aim to evaluate our initiatives

Executive bonus
Purpose/Details

Ratio

Assess performance of business itself which is the foundation of sustainable profit growth35%

ProfitIntroduced to share attainment rate of profit growth with shareholders

25%Core revenue atconstant currency

Assess growth rate of top-line. This KPI is introduced given significance of assessment of top-line growth
to realize medium- and long-term sustainable profit growth15%

Adjusted operating
profit on a reported
basis

Assess business performance including FX impact. This KPI is introduced to assess current performance from a multifaceted perspective considering the balance between the constant FX basis andreported basis

25%

RRP-related index

Assess qualitatively the implementation of strategies and attainment rate regarding RRP, our focus
area

±10%

Internal Directors

Restricted stock
remuneration
plan

PSU

PSU
KPI

Ratio

Introduced to share attainment rate of profit growth with shareholders

100%

ESG-related index

Introduced in order for us (evaluatee) and shareholders (evaluator) to seek agreement on what is conducive to corporate value
For 2023, indicator for evaluation will be based on efforts to realize Net-Zero, specifically, the degree ofachievement of the Greenhouse Gas (GHG) emissions reduction target±10%

Japan Tobacco Inc. Integrated Report 2023

Executive
Officers

Non-executive officers

Base salaryWithin 800 million yen(160 million yen for Outside Directors)

○

○

○

Executive bonus

Up to 0.3% of profit(profit attributable to owners of theparent company)

○

—

—

○

—

—

○

—

—

Total amount of monetary remuneration

Within 600 million yen

Number of shares distributed

Within 300,000 shares

Total amount of monetary remunerationand cash for tax payment

Up to the amount obtained by multiplying fixed number of base share
units*1 (up to 200,000 shares) withshare price at offering*2

Number of shares distributed

Within 100,000 shares*1 Number of base share units (determined by the Board of Directors based on the duties, etc., of respective eligible Members of the Board) x Offering ratio (within arange of 0-200% based on the degree of achievement of targets)*2 A
 fter the performance evaluation period ends, based on the closing price of the ordinary shares of the Company on the TSE on the preceding business day ofthe date of the resolution by the Board of Directors concerning the allotment of the ordinary shares of the Company under the plan (or the closing price on theimmediately preceding business day, if transactions are not executed on that day), the amount shall be determined by the Board of Directors of the Company
within the range not particularly favorable to eligible Members of the Board

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

114

Purpose/Details

ProfitOutsideDirectors

Amount of executive remuneration

GOVERNANCE

Adjusted operating
profit at constantcurrency

The maximum total amount of executive remuneration for all Directors is as follows. The Company’s Audit & Supervisory Board
Members are eligible only for base salary and the maximum amount of remuneration in total is set as 240 million yen perannum.

BUSINESS and STRATEGIESKPI

Maximum amount of executive remuneration

SUSTAINABILITY MANAGEMENT

Notes: 1. The amount of PSU in the diagram is the amount booked as expenses for 2023
2. Executive bonus and PSU are categorized as performance-linked remuneration
3. The restricted stock remuneration plan and PSU are categorized as non-monetary compensation
4. The diagram above includes a Director who retired on March 24, 2023

IDENTITYWe determine necessary indices to calculate the numberof shares given to eligible Directors including each numerictarget used in this compensation system and performance-linked factors following a review by the Advisory
Panel on Nomination and Compensation. Profit (attributable
to the owners of the parent company) has been set as a PSU
KPI for the evaluation periods starting in 2020 and 2021.
For the evaluation period starting in 2022, the Company
has decided to introduce an ESG- related index on top of
profit, in order for the Company and shareholders to seek
an agreement on a mutual perspective of evaluating andbeing evaluated. The decision was made to enact this samechange for the evaluation period starting in 2023 and 2024.
Performance-linked payout is set to be in the range of 0%
to 200% based on the KPI (i.e., profit) achievement in both2020 and 2021. In 2022, 2023 and 2024, performance-linked
payout is set to be in the range of 0% to 190% based on the
KPI (i.e., profit) achievement and either -10%, 0% or +10% isadded/deducted to results depending on evaluations of the
ESG-related index.

MESSAGE from the CEO

performance evaluation period. Eligible Directors receive theallotment of the Company’s common shares by paymentof all of the monetary remuneration claims in kind (theallotment is made from the treasury shares).

115

Management structure

10 Directors (including five Outside Directors)
The Directors marked with * also serve as Group Executive Officers

Mutsuo Iwai
Chairperson of the Board
Date of birth: October 29, 1960
Number of shares held: 43,200

Date of birth: February 20, 1961
Number of shares held: 700

Representative Director andPresident, Chief Executive
Officer
Date of birth: November 26, 1965
Number of shares held: 259,117

Representative Director andExecutive Vice President
Date of birth: March 1, 1968
Number of shares held: 49,878

Representative Director andExecutive Vice President
Date of birth: March 7, 1968
Number of shares held: 14,400

116

Japan Tobacco Inc. Integrated Report 2023

April 1983	Entered the Ministry of Finance (hereinafter the Ministry)
July 2006	Director for the Budget Bureau, Planningand Administration Division of Budget
Bureau, the Ministry
July 2009	Head of Secretariat Division, Minister’s
Secretariat, the Ministry
August 2012	Deputy Director-General of the Budget
Bureau, the Ministry
July 2015	Deputy Vice Minister, the Ministry
July 2017	Director-General of the Budget Bureau,
the Ministry
July 2018	Administrative Vice Minister, the Ministry (Retired from the office in July 2020)
June 2021	Outside Audit & Supervisory Board
Member, Yomiuri Land Co., Ltd. (Current
Position)
December 2021	Outside Audit & Supervisory Board
Member, The Yomiuri Shimbun Osaka

Head Office (Current Position)
	Outside Audit & Supervisory Board
Member, The Yomiuri Shimbun Seibu
Head Office (Current Position)
March 2022	Deputy Chairperson of the Board(Current Position)
June 2022	Outside Audit & Supervisory Board
Member, The Yomiuri Shimbun Tokyo
Head Office (Current Position)
Significant Concurrent Positions Outside the Company
Outside Audit & Supervisory Board Member, Yomiuri
Land Co., Ltd.
Outside Audit & Supervisory Board Member, The
Yomiuri Shimbun Osaka Head OfficeOutside Audit & Supervisory Board Member, The
Yomiuri Shimbun Seibu Head OfficeOutside Audit & Supervisory Board Member, The
Yomiuri Shimbun Tokyo Head Office

April 1989	Joined the Company
July 2005	Vice President, Secretary’s Office
July 2008	Vice President, Corporate Strategy
Division
June 2011	Senior Vice President; Chief Strategy
Officer; and President, Food Business
June 2012	Senior Vice President; and Chief Strategy
OfficerJune 2013	Member of the Board, Japan Tobacco
Inc.

	Executive Vice President, JT International S.A.
January 2018	President and Chief Executive Officer
March 2018	Representative Director and President,
Chief Executive Officer (Current Position)
Significant Concurrent Positions Outside the Company
Chairman of Supervisory Board, JT International
Holding B.V.

April 1991
Joined the Company
April 2011	Vice President, M&S Strategy Department, Tobacco Business Development
June 2014	President and Chief Executive Officer, TS
Network Co., Ltd.
January 2016	Senior Vice President, Communicationsof the Company
October 2019	Senior Vice President, Corporate
Strategy
March 2020	Director, Japan Growth Investments
Alliance, Inc. (Current Position)

January 2022	Senior Vice President, Corporate Strategy of the Company
January 2023	Representative Director and Executive
Vice President, Finance, Corporate Communications, Business Development
and D-LAB (Current Position)
Significant Concurrent Positions Outside the Company
Director, Japan Growth Investments Alliance, Inc.

April 1993
Joined the Company
July 2008	Vice President, Tobacco Business Planning Division, Tobacco Business
July 2012	Vice President, Human Resources
Division
July 2014	Vice President, Human Resources Divisionand Human Resources Planning Division
October 2015	Senior Vice President, Chief Human
Resources Officer
January 2017	Senior Vice President, Head of Tobacco Business Planning Division, Tobacco Business
October 2017	Senior Vice President, JT International S.A.
January 2018	Executive Vice President, JT International S.A.

January 2024	Executive Vice President, Corporate
Governance, Compliance, Corporate
Strategy, Sustainability, People &Culture, Information Technology, Legal,
Operation Review & Business Assurance,
Pharmaceutical Business and FoodBusiness of the Company
March 2024	Representative Director and Executive
Vice President, Corporate Governance,
Compliance, Corporate Strategy, Sustainability, People & Culture, Information
Technology, Legal, Operation Review& Business Assurance, PharmaceuticalBusiness and Food Business of theCompany (Current Position)

Date of birth: April 4, 1961
Number of shares held: 0

Masato Kitera
Director (Independent Outside Director)
Date of birth: October 10, 1952
Number of shares held: 0

Tetsuya Shoji
Director (Independent Outside Director)
Date of birth: February 28, 1954
Number of shares held: 0

Hiroko Yamashina
Director (Independent Outside Director)
Date of birth: May 20, 1963
Number of shares held: 0

Kenji Asakura
Director (Independent Outside Director)
Date of birth: December 11, 1955
Number of shares held: 0

April 1976	Entered the Ministry of Foreign Affairs(hereinafter the Ministry)
January 2008	Director-General for Sub-Saharan African Affairs, Middle Eastern and African
Affairs Bureau, the Ministry	Secretary General, Fourth Tokyo
International Conference on African
Development
July 2008	Director-General, International Cooperation Bureau, the Ministry
January 2010	Deputy Vice-Minister, the Ministry
September 2012	Assistant Chief Cabinet Secretary
November 2012	
Ambassador Extraordinary and Plenipotentiary of Japan to People’s Republic of China
April 2016	Ambassador Extraordinary and Plenipotentiary of Japan to the French Republic

June 2016	Ambassador Extraordinary and Plenipotentiary of Japan to the French Republic, Principality of Andorra and Principality of Monaco(Retired from the position in December 2019)
April 2020	Adviser of the Company
June 2020	Outside Director, Marubeni Corporation(Current Position)
	Outside Director, Nippon Steel Corporation (Current Position)
March 2021	Outside Director of the Company(Current Position)
Significant Concurrent Positions Outside the Company
Outside Director, Marubeni Corporation
Outside Director, Nippon Steel Corporation

April 1977	Joined Nippon Telegraph and Telephone Public Corporation
June 2006	Senior Vice President and General Managerof the Personnel Department, Nippon Telegraph and Telephone West Corporation
June 2009	Senior Vice President and Head ofGeneral Affairs, Nippon Telegraph andTelephone Corporation
June 2012	Senior Executive Vice President andRepresentative Member of the Board,
NTT Communications Corporation
June 2015	President & CEO and Representative
Member of the Board, NTT Communications Corporation
October 2018	Representative Member of the Board, NTT, Inc.
June 2020	Corporate Advisor, NTT Communications Corporation (Current Position)

December 2020	Outside Director, circlace Inc. (Current
Position)
March 2021	Outside Director, Sapporo Holdings
Limited (Current Position)
June 2021	Outside Director, Hitachi Zosen Corporation (Current Position)
	Outside Director, Mitsubishi Logistics
Corporation (Current Position)
March 2022	Outside Director of the Company(Current Position)
Significant Concurrent Positions Outside the Company
Corporate Advisor, NTT Communications Corporation
Outside Director, circlace Inc.
Outside Director, Sapporo Holdings Limited
Outside Director, Hitachi Zosen Corporation
Outside Director, Mitsubishi Logistics Corporation

April 1986	Joined Orient Leasing Co., Ltd. (Currently, ORIX Corporation)
March 2007	Head of Office of Internal Controls, ORIX
Corporation
May 2010	Executive Officer, ORIX Life Insurance
Corporation
January 2013	Managing Executive Officer, ORIX Life
Insurance Corporation
January 2014	Corporate Officer, ORIX Corporation
January 2016	Group Executive, ORIX Corporation(Current Position)
President, ORIX Credit Corporation

January 2021	Chairman, ORIX Credit Corporation(Current Position)
March 2023	Outside Audit & Supervisory Board
Member of the Company
March 2024	Outside Director of the Company(Current Position)
Significant Concurrent Positions Outside the Company
Group Executive, ORIX Corporation
Chairman, ORIX Credit Corporation

April 1978	Joined Nagase & Co., Ltd.
April 2009	Executive Officer and General Manager,
Automotive Solutions Department
June 2013	Director and Executive Officer
April 2015	Representative Director, President andCEO

April 2023	Representative Director and Chairman(Current Position)
March 2024	Outside Director of the Company(Current Position)
Significant Concurrent Positions Outside the Company
Representative Director and Chairman, Nagase & Co.,
Ltd.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Koji Shimayoshi*

January 2016	Senior Vice President; and President,
Tobacco Business
March 2016	Representative Director and Executive
Vice President; and President, Tobacco
Business
January 2020	Member of the Board
March 2020	Deputy Chairperson of the Board
June 2020	Outside Director, Benesse Holdings, Inc.
(Current Position)
June 2021	Outside Director, TDK Corporation(Current Position)
March 2022	Chairperson of the Board (Current
Position)January 2023	Outside Director, &Capital Inc. (Current
Position)
Significant Concurrent Positions Outside the Company
Outside Director, Benesse Holdings, Inc.
Outside Director, TDK Corporation
Outside Director, &Capital Inc.

GOVERNANCE

Kei Nakano*

April 1983	Joined the Company (Previously, Japan
Tobacco and Salt Public Corporation)
June 2003	Vice President, Corporate Planning
Division
July 2004	Vice President, Corporate Strategy
Division
June 2005	Senior Vice President; and President,
Food Business
June 2006	Member of the Board; Senior Vice
President; and President, Food Business
June 2008	Senior Vice President; and Chief Strategy
OfficerJune 2010	Member of the Board; Senior Vice
President; Chief Strategy Officer; andPresident, Food Business
June 2011	Member of the Board, Japan Tobacco Inc.
	Executive Vice President, JT International S.A.
June 2013	Senior Vice President; and Chief Strategy
OfficerMarch 2019	Outside Director of the Company(Current Position)
June 2021	Outside Audit & Supervisory Board
Member, Sumitomo Corporation (Current Position)
Significant Concurrent Positions Outside the Company
Standing Audit & Supervisory Board Member, Recruit
Holdings Co., Ltd.
Standing Audit & Supervisory Board Member, Recruit
Co., Ltd.
Outside Audit & Supervisory Board Member, Sumitomo
Corporation

BUSINESS and STRATEGIES

Masamichi Terabatake*Director (Independent Outside Director)

April 1985	Joined Recruit Co., Ltd. (Currently,
Recruit Holdings Co., Ltd.)
April 2006	Corporate Executive Officer, Recruit Co., Ltd.
January 2008	President and Representative Director,
Recruit Staffing Co., Ltd.
October 2012	Corporate Executive Officer, Recruit
Holdings Co., Ltd.
June 2016	Standing Audit & Supervisory Board
Member, Recruit Holdings Co., Ltd.
(Current Position)
April 2018	Standing Audit & Supervisory Board Member, Recruit Co., Ltd. (Current Position)

SUSTAINABILITY MANAGEMENT

Deputy Chairperson of the
Board

Yukiko Nagashima

IDENTITY

Shigeaki Okamoto(As of March 22, 2024)

MESSAGE from the CEO

Directors and Audit & Supervisory Board Members

117

Management structure

Five Audit & Supervisory Board Members (including three Outside Audit & Supervisory Board Members） (As of March 22, 2024)

Standing Audit & Supervisory
Board Member
Date of birth: February 28, 1969
Term of office: 4 years from March 2023
Number of shares held: 12,128

Tsutomu Hashimoto

April 1991
Joined the Company
March 2019	Vice President, Operational Review andBusiness Assurance

January 2021	President and Chief Executive Officer
and JT BusinessCom Inc.
March 2023	Standing Audit & Supervisory Board
Member of the Company (Current
Position)

Date of birth: September 7, 1962
Term of office: 4 years from March 2023
Number of shares held: 0March 2023	Standing Audit & Supervisory Board
Member of the Company (Current
Position)

Audit & Supervisory Board
Member (Independent
Outside Audit & Supervisory
Board Member)

Emiko Takeishi

Date of birth: February 16, 1960
Term of office: 3 years from March 2024
Number of shares held: 0

April 1981	Appointed as Public Prosecutor
October 2008	Deputy Vice-Minister of Justice, Ministryof Justice
August 2011	Director-General, Criminal Affairs
Bureau, Ministry of Justice
January 2014	Vice-Minister of Justice, Ministry ofJustice
September 2016	Superintending Prosecutor, Sendai High
Public Prosecutors Office
September 2017	Superintending Prosecutor, Tokyo High
Public Prosecutors Office
July 2018	Prosecutor-General (Retired in July
2020)

October 2020	Registered as Attorney at Law (Current
Position)
June 2021	Outside Director, Audit & Supervisory
Board Member, Nomura Securities Co.,
Ltd. (Current Position)
March 2023	Outside Audit & Supervisory Board
Member of the Company (Current
Position)
Significant Concurrent Positions Outside the Company
Attorney at Law, Inada Law Firm
Outside Director, Audit & Supervisory Board Member,
Nomura Securities Co., Ltd.

April 1982	Joined the Ministry of Labour
July 1992	Joined NLI Research Institute
April 2003	Assistant Professor, Institute of Social
Science, The University of Tokyo
April 2004	Research Fellow, NLI Research Institute
April 2006	Assistant Professor, Faculty of Lifelong
Learning and Career Studies, Hosei
University
April 2007	Professor, Faculty of Lifelong Learning
and Career Studies, Hosei University(Current Position)
February 2015	Outside Corporate Auditor, Kewpie
Corporation
June 2015	Outside Audit & Supervisory Board
Member, Tokio Marine & Nichido Fire
Insurance Co., Ltd. (Current Position)

June 2023	Outside Audit & Supervisory Board
Member, KAJIMA CORPORATION (Current Position)
March 2024	Outside Audit & Supervisory Board
Member of the Company (Current
Position)
Significant Concurrent Positions Outside the Company
Professor, Faculty of Lifelong Learning and Career
Studies, Hosei University
Outside Audit & Supervisory Board Member, Tokio
Marine & Nichido Fire Insurance Co., Ltd.
Outside Audit & Supervisory Board Member, KAJIMACORPORATION

Senior Vice Presidents
Junichi Fukuchi
Chief Executive Officer, Tobacco Business, Japan

Suguru Fujiwara
Corporate Affairs & Communications, Tobacco
Business, Japan

Nobuhiro Uezawa
Manufacturing, Tobacco Business, Japan

Igor Dzaja
Marketing, Tobacco Business, Japan

Kazuyuki Inui
Sales, Tobacco Business, Japan

Muneaki Fujimoto

Hiroyuki Fukuda
Corporate Strategy and Business Development

Kenji Ogura
Corporate Governance and Compliance

Hisato Imokawa
Chief Sustainability Officer

Hiromasa Furukawa
Chief Financial Officer and Corporate Communications

Yoshiyuki Mishima
People & Culture

President, Pharmaceutical Business

Makoto Kakutani
Head of Central Pharmaceutical Research Institute, Pharmaceutical Business

Keisuke Nakagomi
Food Business

Hisashi Shimobayashi
Information Technology

Yuki Otaki
D-LAB* Masamichi Terabatake concurrently serves as
President of Tobacco Business

JTI CEO / Executive Vice Presidents(As of April 1, 2024)

Eddy Pirard

Rob Stanworth

Vassilis Vovos

President & CEO

Executive Vice President, Chief Consumer andProduct Officer

Executive Vice President, Chief Financial Officer

Takehiko Tsutsui

Note: JTI Executive Committee members including
the members above can be found on the JTI
websiteNobuya Kato
Executive Vice President and Deputy CEO

Executive Vice President, Reduced-Risk Products

Stefan Fitz
Executive Vice President, Chief Commercial
Officer

OTHER INFORMATION

Audit & Supervisory Board
Member (Independent
Outside Audit & Supervisory
Board Member)

July 2018	Director, Social Welfare and War Victims’
Relief Bureau, Ministry of Health, Labourand Welfare
August 2020	Director-General, Secretariat of Headquarters for Overcoming Population
Decline and Vitalizing Local Economy inJapan, Cabinet Secretariat Director, Social Security Reform, Cabinet Secretariat
February 2021	Concurrently serving as Director of
Loneliness and Isolation Office, Cabinet
Secretariat
November 2021	Deputy Director-General, Secretariat of
the Digital Garden City Initiative Panel,
Cabinet Secretariat
December 2021	Concurrently serving as Head of Preparation Work Group for Bill of EstablishingChildren and Families’ Agency, Cabinet
Secretariat
June 2022	Concurrently serving as Head of Preparation Work Group for Establishment ofChildren and Families’ Agency, Cabinet
Secretariat (Retired in June 2022)
March 2023	Standing Outside Audit & Supervisory
Board Member of the Company (Current
Position)

Corporate Governance, Compliance, Corporate
Strategy, Sustainability, People & Culture, Information Technology, Legal, Operation Review &Business Assurance, Pharmaceutical Businessand Food Business

General Counsel

GOVERNANCE

Date of birth: August 14, 1956
Term of office: 4 years from March 2023
Number of shares held: 0

April 1986	Entered the Ministry of FinanceJuly 2008	Director, Allowance Control and Mutual
Assistance Insurance, Budget Bureau,
Ministry of FinanceJuly 2009	Director, Agriculture, Forestry and Fisheries Section, Budget Bureau, Ministry of
Finance
July 2010	Director, Treasury, Financial Bureau,
Ministry of FinanceJuly 2011	Director, National Property Policy
Planning, Financial Bureau, Ministry of
Finance
July 2012	Director-General, Policy-Based Finance,
Financial Bureau, Ministry of Finance
June 2013	Director of Coordination Division,
Financial Bureau, Ministry of Finance(Retired from the office in July 2014)
July 2014	Deputy Director-General of Minister’s
Secretariat, Social Welfare and War
Victims’ Relief Bureau, Ministry of Health,Labour and Welfare
October 2015	Deputy Director-General of Minister’s
Secretariat, Medical Insurance, Ministryof Health, Labour and Welfare
July 2017	Deputy Director-General of Minister’s
Secretariat, Elderly Health Care, Ministryof Health, Labour and Welfare

Koji Shimayoshi

Osamu Hirose

Performance & Integration, Tobacco Business,Japan

BUSINESS and STRATEGIES

Nobuo Inada

Executive Vice Presidents
Kei Nakano

Daniel Torras

SUSTAINABILITY MANAGEMENT

Standing Audit & Supervisory
Board Member(Independent Outside Audit &Supervisory Board Member)

Chief Executive Officer*

Finance, Corporate Communications, Business
Development and D-LAB

Date of birth: May 31, 1967
Term of office: 4 years from March 2023
Number of shares held: 1,584

Shigeru Taniuchi

President
Masamichi Terabatake

IDENTITY

Standing Audit & Supervisory
Board Member

April 1991	Joined the Company
July 2012
Controller
October 2014	Vice President, M&S Management
Department, Tobacco Business Division
January 2017	Manager, Hokkaido Branch, Tobacco
Business Division
January 2019	Deputy Chief Financial Officer (Assistantto CFO)(As of January 1, 2024)
MESSAGE from the CEO

Hideaki Kashiwakura

Executive Officers

Notes: 1. F or reasons for appointment of the Directors and Audit & Supervisory Board Members, please refer to the Notice of Convocation of the 39th Ordinary General
Meeting of Shareholders
2. W e have established a set of independence criteria. For details, please refer to the JT Corporate Governance Policy

118

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Japan Tobacco Inc. Integrated Report 2023

119

Management structure

In order for the Board of Directors, comprised of members
based on the above view, to properly fulfill its roles andresponsibilities, the Company particularly expects each
Member of the Board to demonstrate skills based on theirknowledge and experience in the following areas, andbelieves that the Board of Directors as a whole has thenecessary skills.

Areas in which skills are expected to be particularly effective

n

n

n

Japan Tobacco Inc. Integrated Report 2023

In addition, in light of the roles and responsibilities of
Audit & Supervisory Board Members to oversee the job
performance of Members of the Board, we are particularly expecting Audit & Supervisory Board Members todemonstrate their skills in the areas of “Corporate Finance,
Accounting and Capital Policy,” “Legal, Compliance and Risk
Management,” and “Corporate Governance.” We believe thatthe entire Audit & Supervisory Board has the necessary skills.

Corporate
Management

GlobalManagement

MutsuoIwai

Chairpersonof the Board●●

ShigeakiOkamoto

DeputyChairpersonof the Board

Masamichi
Terabatake
Kei
NakanoKoji
Shimayoshi
YukikoNagashima
MasatoKiteraTetsuyaShoji
HirokoYamashina
Kenji
AsakuraRepresentative Director●

Representative Director●

Representative Director●

OutsideDirector●●●

OutsideDirector

●

●

●

●
●

●

IT/Information
Security

●

●
●

●

●

●

●

●

●

●

●

●
●

●

●

●

●

●

●

●

●

●

●

OutsideDirector●

OutsideDirector●

OutsideDirector●●

Hideaki
KashiwakuraStanding
Audit &
Supervisory
Board
Member●●●Tsutomu
HashimotoStanding
Audit &
Supervisory
Board
Member●●●Shigeru
TaniuchiStanding
OutsideAudit &
Supervisory
Board
Member

●

●

●

●

●

Nobuo
Inada

OutsideAudit &
Supervisory
Board
Member

●

●

●

●

●

Emiko
Takeishi

OutsideAudit &
Supervisory
Board
Member

●

●

●

●

●

●
●
●

●

●

●

●

●

●

●

●

●
●

●
●

DE&I/Organizational
BehavBusinessior andDevelopHuman
ment/M&A
Resource
Management

●

●

●

●

●

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

120n“ DE&I (Diversity, Equity & Inclusion)/Organizational
Behavior and Human Resource Management,” to respectdifferent backgrounds and values, such as gender, sexual
orientation, age, and nationality, as well as experience andexpertise, and promote investment in human resources
including growth support focusing on personnel diversity,and the creation of an environment where diverse employees can perform to the best of their abilities.
“Business Development/M&A” to formulate strategies andcarry out measures for further development and businessgrowth in order to continue providing “human enrichment”
in accordance with ever-changing society and the valuesof people.

Position

SustainCorporate
ability/
GoverEnvironnancement andSociety

GOVERNANCE

n

n

Name

Corporate
Legal,
Finance,CompliAccountance anding and
Risk ManCapitalagement
PolicyBUSINESS and STRATEGIESn“ Corporate Management,” including the JT Group’s management strategy, operations, and business strategy that
contribute to sustainable profit growth and enhancementof corporate value based on the 4S model, our management principle.
“Global Management,” which is essential for the JT Group,
which operates globally, in order to achieve medium- andlong-term business growth.
“Corporate Finance, Accounting and Capital Policy” and“Legal, Compliance and Risk Management,” which are thebasis of decision-making for effective management andbusiness activities for our corporate value growth andbusiness continuity.
“IT/Information Security,” which is one of the importantmanagement foundations for strengthening the competitiveness of the JT Group and for business continuity.
“Corporate Governance,” which is the foundation of ourcorporate activities in order to maximize stakeholder value,
pursue sustainable profit growth, and grow our corporate
value over the long term.
“Sustainability/Environment and Society,” which we consider to be the core to our management initiatives and forwhich we formulate strategies based on the 4S model andmateriality analysis, in order to contribute to building a sustainable environment and society through the realizationof the JT Group Purpose.

Areas in which skills are expected to be particularly effective

SUSTAINABILITY MANAGEMENTn

Skills matrix for proposed Directors and Audit & Supervisory Board Members

IDENTITY

The Company will pursue the 4S model, the Group’s management principle, and realize the JT Group Purpose. The
area of “human enrichment” undergoes changes in various
ways with the times and the people, and the Company will
strive to evolve constantly so that it can continue to betrusted by society and make valuable contributions in thisarea in the future. On that basis, the Company believes that
it is important for its Board of Directors to be comprised ofdiverse professionals who agree with the 4S model and the
JT Group Purpose, with a high sense of ethics and integrity
as well as knowledge, experience and skills.

MESSAGE from the CEO

The concept of skills necessary for the Directors

121Internal controls

The JT Group identifies and closely monitors risks that could
affect its operations and implements measures to both prevent them from materializing and minimize their impacts ifthey were to materialize. We have established an integrated
system for identifying and managing all identified risks.

We appropriately manage these risks to properly seize opportunities and strategically develop our business in orderto realize sustainable profit growth over the medium- andlong-term. Our risk management process comprises thefollowing four steps.

② Assess risks

Executive Officers assess risks in their respective organizational units probability of materializing and themagnitude of its impact if it were to materialize. They identify material risks that should be prioritizedwith attention and report them to the executive in charge of risk management. Based on such reports, theexecutive in charge of risk management identifies Group-level material risks with the potential to inflict major
losses in terms of attainment of the Group’s management targets and business strategies and reports said risks
to the CEO.

③ F ormulate plansto address risks④ M onitor progressof plans

Executive Officers oversee formulation of plans to address the JT Group’s material risks and submit them tothe executive in charge of risk management and the CEO.
Executive Officers regularly report to the executive in charge of risk management and the CEO on the progressof the plans to address the Group’s material risks.

4Please see Risk factors (P. 128) for more on risks facing the JT Group.

Japan Tobacco Inc. Integrated Report 2023

Divisional compliance committees

comprised of the CEO, Executive Vice Presidents and an
outside expert, with the CEO serving as committee chair.
We appoint an Executive Officer in charge of compliance
who oversees the Legal and Compliance Division andstrive to establish/promote a crossover system on a Groupwide basis as well as to grasp the issues. Furthermore,
the divisional compliance committees established withincorporate and business divisions autonomously deliberatecompliance-related matters within their jurisdictions. The JT
Group Compliance Committee, meanwhile, in addition to
grasping and deliberating initiatives for the entire JT Group,
strengthens ties with the Board of Directors through ample
reporting to the Board. Through this framework, we strive forrobust and enhanced JT Group compliance in terms of bothInternal reporting system (whistle-blower
system)Group companies have set up hotlines for Directors andemployees and other parties to report acts suspected ofbeing legal/regulatory violations and other such concerns.
Compliance promotion departments that receive a reportor query via their hotlines investigate its details and thentake action, including recurrence prevention measures, as
needed. Additionally, JT has set up another hotline apartfrom the one staffed by its Legal and Compliance Division.
The second hotline is independent from organizational units
involved in operational execution and staffed by Audit &Supervisory Board Members, who investigate the details of
any reports or queries received via the hotline. JT then takes
action, including recurrence prevention measures, as needed. JT refers or reports serious problems involving the JT
Group to the divisional compliance committees and the JT
Group Compliance Committee for further review as needed.

Group companies

OTHER INFORMATION

122

ReportWe annually conduct a Group-wide questionnaire survey
to check the status of compliance practices in our Japanese
operations. In 2023, 96.7% of employees completed thesurvey. The survey’s findings are reported to Directors andemployees, and are used by concerned organizational units
to reassess their respective compliance plans and formulate
and implement measures to improve compliance.

GOVERNANCE

From 2024, the JT Group Compliance Committee will
become a deliberative body responsible for the executive
management and promotion of compliance for the entire JT
Group, and will report on this work to the Board of Directors.
In terms of changes to structure, the Committee will be

JT Group Compliance Committee(Administrative department: Legal and Compliance Division)
Approve initiatives

Compliance
We enforce strict compliance. We have instituted a Code of
Conduct that mandates that all Directors and employees
act in compliance with applicable laws, government regulations, our Articles of Incorporation and societal norms pursuant to regulations established by the Board of Directors.
To achieve the compliance management that we aim for,
we have established the JT Group Compliance Committee
whose members are the CEO, Executive Vice Presidents andan outside expert.

Board of Directors

under the direction of senior executives. Such incidents andpertinent information about them are reported to the Boardof Directors in a timely and appropriate manner.

Compliance surveys

BUSINESS and STRATEGIESWe have prepared crisis management and disaster responsemanuals in preparation for emergencies. When a crisis or
natural disaster occurs, we set up an emergency project task
force. We have made advance arrangements to enable concerned organizational units and subsidiaries to swiftly takeappropriate action in close coordination with each otherCompliance Action Plans formulated by each division
include actions to maintain/enhance compliance programs,
address priority compliance issues, conduct trainings andseminars, operate the internal reporting system and implement Compliance Promotion Month.

SUSTAINABILITY MANAGEMENT

An executive appointed by the CEO to be in charge of risk management (currently the Executive Officer incharge of corporate governance and compliance) identifies all risks that could affect the JT Group.

The compliance promotion departments of the Company
and its subsidiaries (namely, the Legal and Compliance
Division in the Company, and corresponding departments
in subsidiaries) distribute compliance codes of conduct forevery department through their respective departments
and organizations to drive awareness among the Directors
and employees of the Company, as well as the directors,
employees and others of subsidiaries (Directors, employees
and others of the Company and subsidiaries hereinafter collectively called “Directors and employees”). The compliancepromotion departments also work on enhancing the effectiveness of compliance through awareness-raising activities
by enlightening Directors and employees about compliancethrough training and other programs.

Compliance Action Plans

IDENTITY① Identify risks

supervision and promotion. In 2023, under the previous
compliance system, the JT Group Compliance Committee
met three times to discuss initiatives to further promotecompliance. Its conclusions have been reflected in the
Compliance Action Plan for 2024.

MESSAGE from the CEO

Risk management

Japan Tobacco Inc. Integrated Report 2023

123

Internal controls

We are committed to maintaining the public’s trust in our
products. To do so, we have implemented quality assurance
systems across all of our businesses.

Tobacco businessIn our pharmaceutical business, we are strictly committed
to safety and quality control in compliance with regulations
such as the Pharmaceutical and Medical Device Act andministerial ordinances that govern pharmaceutical quality
and safety.

Processed food businessIn our processed food business, we place utmost priority on
food safety management across the entire value chain fromsourcing ingredients to delivering products to consumers.
We do so under our four-pronged framework, consisting of
the following viewpoints: Food Safety, Food Defense, Food
Quality and Food Communication.
*Adult consumers. Minimum legal age for smoking varies in accordance withthe legislation in each country

Information security

Japan Tobacco Inc. Integrated Report 2023

The tobacco business is operated by JTI, a subsidiary ofholding company JT International Holding B.V. With appointees from JT occupying a majority of seats on the latter’s Board of Directors, JT sets the tobacco business’s
overall strategy. Major decision-making authority and procedures between JT and JTI are prescribed in internal regulations, most notably our Responsibility and Authority
Regulations. From an operational agility standpoint, JT hasdelegated a certain degree of authority to JTI while retaining approval authority over JTI’s budgets and midterm
plans, as well as proposed investments that exceed a certain materiality threshold. Through such arrangements, JT
endeavors to exercise governance over JTI. JTI has its own
internal regulations on delegation of responsibilities andauthority called the JTI Operating Guidelines. JTI delegatesauthority to its market subunits, plants and executive offi-

cers within the scope of authority delegated to it by JT.
Additionally, JT’s Audit & Supervisory Board Members andOperational Review and Business Assurance Division are
authorized to audit JTI. JT’s Audit & Supervisory Board
Members audit JTI as warranted. While JTI’s internal audits
are conducted by its own internal auditing staff, JT’s
Internal Audit Division audits joint JT-JTI operations in coordination with JTI’s internal auditing staff. The results ofaudits by JTI’s internal auditing staff are reported to theBoard of Directors of JT International Holding B.V.
Through these arrangements, JT is building an appropriate governance regime.

OTHER INFORMATION

124

security-related educational activities globally to promote
proper handling of information assets by all employees. In
2022, 88% of all JT Group company employees attended
security training programs. Additionally, we extended asingle information classification and protection solution
across all our business divisions and established a unified
approach to security operations across the JT Group. We arealso conducting educational activities across the entire JT
Group, having rolled out our internally developed i-SECURE
program. The i-SECURE program’s effectiveness is constantly
being measured by employee behavior metrics. It has been
instrumental in raising employees’ awareness of information
security.

Internal controls over JT International

GOVERNANCE

We have established information security regulations toclearly demonstrate our commitment to information security and comprehensively promote information security measures on an ongoing basis. Specifically, we have adopted the
JT Group IT Governance Policy and JT Group Information
Security Standards and mandated and implemented therequired IT risk mitigation measures, including access restrictions, antivirus defenses, education, audits, and monitoring.
We strive to manage and safeguard our IT systems, data andother information assets in an appropriate manner. We arecontinuously pursuing initiatives to strengthen our information security with respect to both hardware and software.
Hardware-wise, we continually test and improve our key
IT systems’ security-related technologies and operations,
including requests to suppliers. Software-wise, we conduct

The Division formulates annual internal audit plans subject
to the CEO’s approval. Its head mandatorily reports internal
audit results to the CEO, reports to the Board of Directors,
and may freely and regularly confer with the CEO and our
subsidiaries’ senior-most executives about internal audit
findings, internal controls’ status and risk assessments.

Our subsidiaries may set up their own internal auditingorganizations at their own discretion. Those that havedone so include major subsidiaries JTI, TS Network, Torii
Pharmaceutical and TableMark. Subsidiaries’ internal audit
plans are approved by, and their audit results reported to,their respective presidents or the Board of Directors. JT’s
Internal Audit Division coordinates internal audits withsubsidiaries’ internal auditing organizations. Subsidiaries’
annual internal audit plans and their internal audit results
are reported to the Group CEO and our Board of Directors
through our Internal Audit Division. To increase internal
audits’ efficiency and effectiveness, we periodically holdmeetings to improve audit quality through information sharing among internal auditing staff across the Group. We also
conduct joint audits with and provide auditing assistance tosubsidiaries as necessary.

BUSINESS and STRATEGIES

Additionally, in conjunction with measures to strengthen
the tobacco business’s operating model, we established
Quality Assurance in January 2022 as a new organization
independent from the tobacco business’s markets and otherPharmaceutical business

Our Internal Audit Division conducts internal audits from an
objective standpoint independent from organizational units
involved in operational execution and reports directly to theCEO. It maintains company property and strives to enhancethe efficiency of management through its examination andassessment of controlling/operating systems which relate to
all business activities as well as the status of business execution from the perspectives of legality and rationality. To fulfill
its responsibilities, it has unrestricted authority to observe allactivities, inspect all records and question all personnel on aGroup-wide basis.

SUSTAINABILITY MANAGEMENT

Our quality assurance activities fundamentally aim to improve quality and rectify deficiencies by providing feedback
to concerned organizational units about quality issues
identified based on quality information from markets andrelated research. For example, when our RRP (Reduced-Risk
Products) devices are in the development stage, we confirm
that they not only comply with applicable laws and regulations but also that they meet industry safety standards forelectric products by having them evaluated as needed byexternal specialists.

global operational functions. Quality Assurance endeavors
to provide high-quality products by assuming accountability
for quality assurance activities across the entire value chain
from R&D through procurement, manufacturing, marketing,
distribution and sales based on fair decisions from theconsumer’s* standpoint.

IDENTITY

For tobacco products, we are building a globally uniform
quality assurance model and making necessary changes
based on this model with the aim of providing high-quality
products.

Internal auditing

MESSAGE from the CEO

Quality control

Japan Tobacco Inc. Integrated Report 2023

125

OTHER INFORMATIONMESSAGE from the CEO

In this chapter, we present an overview of
the current status of the JT Group, coveringboth quantitative financial performancetrends and qualitative environmental assessments such as risk factors, and external
evaluations.

IDENTITYSUSTAINABILITY MANAGEMENT
BUSINESS and STRATEGIES

128	Risk factors
132 Regulation and key laws
135 Litigation

GOVERNANCE

136 Financial information• Long-term consolidated financial data
• Financial data for each business
140 JT Group Sustainability Targets
144 Glossary of terms
146 Awards and recognitions

OTHER INFORMATION

148	
Shareholder information and contact information

Photo on the right taken at a JT office

126

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127

Risk factors
We have established an integrated system for identifying and managing all identified risks. We promote a four-step risk management process: (1) identify risks, (2) assess them, (3) formulate plans to address them and (4) monitor the plans’ progress.

We identify and closely monitor risks that could affect our operations and implement measures to prevent them from materializing and mitigate their impacts in the event that they come to pass.

This following discussion of risk factors should be read together with “FORWARD-LOOKING STATEMENTS” on P. 149.

Risk factors

1 Large or repeated
tax increases

Risk description

The risks enumerated below are not all-inclusive. Other risks exist that could affect our operations and/or financial results.

Potential impact(s)Main measures to address risk

Large or repeated increases in taxes on tobacco products tend

• Promote understanding among relevant authorities that large or repeated tax

been raising tobacco taxes or discussing tax increases from a fiscal and/or public health standpoint. Additionally, VAT rates

to lead to reduced consumption of, and/or increased illicit

increases may have counterproductive consequences, such as growth in illicit

generally tend to increase over time. Our policy with respect to tax increases is to raise prices to pass on the tax increase totrade in, tobacco products. They may also induce consumers*

trade and decreased tax revenue due to reduced demand

consumers*, taking into account not only the tax increase’s magnitude but also the price elasticity of demand for tobac-

to switch to lower-priced products. Consequently, they may• Optimize product portfolio for adaptability to changes in consumers* preferenc-

co products. We also endeavor to minimize tax increases’ impact on our operations through measures to drive top-line

result in reductions in our unit sales, revenue and/or profits.

es and behavior

growth and improve cost efficiency. Most governments have adopted a reasonable approach to taxation, recognizing that

• Strengthen and expand global operational platform and increase number oflarge or repeated tax increases may end up reducing tax revenues. In some instances, however, past tax increases haveconsistently profitable markets to avoid overdependence on profits from a
few markets• Set prices appropriately to minimize tax increase impact in affected markets

Illicit trade is a problem for not only the tobacco industry but also society as a whole. It harms the tobacco industry by diverting

Growth in illicit trade results in decreased demand for legitimate

demand from law-abiding businesses. Its potential societal harms include reduction in government tax revenues, increased

products and may lead to reductions in our unit sales, revenue• Take action to eradicate illicit trade in cooperation with governments, regulatory
authorities and law enforcement agencies

organized crime, and adverse health consequences due to poor production quality or inadequate post-production quality

and/or profits. Costs incurred to combat illicit trade may also weigh•O perate a track-and-trace system for tobacco products and analyze the movement

controls. Together with the rest of the tobacco industry, we continue to endeavor to eradicate illicit trade, particularly cigaretteon profits. Additionally, circulation of counterfeit products mayof products through the supply chain

smuggling and counterfeiting.

undermine trust in legitimate products and, in turn, impair the•D o business only with reputable parties in accord with stringent compliance

Illicit trade tends to grow following large or repeated tax increases. Additionally, regulations on cigarette ingredients and packag-

value of both the brand and brand owner for a number of reasons,policies

ing may facilitate illicit trade by making cigarettes easier to counterfeit and illegitimate products harder to detect.

including the low quality of counterfeit products.

• Educate consumers* on negative consequences of purchasing illegitimate

SUSTAINABILITY MANAGEMENT• Further improve cost efficiency to ensure adequate profitability

2G rowth in illicit
trade

IDENTITY

Tobacco products are subject to tobacco taxes or other similar taxes in addition to sales tax or VAT. Some countries havematerially affected our business in certain markets.

MESSAGE from the CEO

The JT Group is a leading global tobacco company, selling products in more than 130 markets. It also
operates pharmaceutical and processed food businesses. Our operations are subject to various risks stemming from their attributes, changes in business environments, and other factors.

products

3 Tightening of
tobacco regulations

The tobacco industry is subject to many regulations, most notably on sales promotion activities (including advertising).

Imposition of stricter regulations on sales promotion activities• Expeditiously collect accurate information to learn of regulatory developments

Regulatory developments may affect our operations and/or financial results.

may undermine top-line growth strategies’ effectiveness by• Pursue constructive dialogue with governments and regulatory authorities toSuch regulations can also lead to growth in illicit trade to the potential detriment of our law-abiding, above-board

depriving us of opportunities to grow brand equity. It can also

encourage reasonable, unbiased regulation that fulfills its intended objective

businesses. Additionally, if stricter regulations are imposed on communications with consumers*, they may preclude

cause us to incur additional regulatory compliance costs under

4Please see Regulation and key laws (P. 132) for more details.

effective sales promotion activities and, in turn, adversely affect top-line growth.

certain circumstances. Our unit sales, revenue and/or profits

As a responsible company, we comply with the laws and regulations of every market in which we operate. We believe

may decrease as a result of such impacts.

BUSINESS and STRATEGIES

4For more details on activities to eradicate illicit trade, please see Tackling illegal trade for more details.

laws and regulations should rightfully differ from one country to another as a reflection of countries’ respective legal
systems, cultures and social conditions.
Our tobacco business is engaged in fierce competition with competitors.

Market share fluctuations may affect our financial results.

• Optimize product portfolio by offering products that meet consumer* needs andIn the tobacco business, we have been expanding our operations through not only organic growth but also M&A, includ-

Additionally, markets in which we operate sometimes becomechanging preferences/behavior, and by achieving strong brand positioning ining acquisitions of RJR Nabisco Inc.’s non-U.S. tobacco business and Gallaher Group Plc. As a result of such acquisitions,embroiled in price competition due to events such as a brandevery price segment

we compete with both global tobacco companies and local players with strong footholds in their respective markets.

repositioning or a price cut in pursuit of market share gains.

• Strengthen sales capabilities and conduct effective sales promotions

Market shares fluctuate in response to various factors, including regulatory changes, shifts in consumer* preferences/

Such price competition may negatively impact our profit mar-

• Further improve cost efficiency to ensure profitability

behavior, and local economic conditions. Market shares are also prone to short-term fluctuations in response to one-off

gins in individual markets.

• Strengthen and expand global operational platform and increase number of consis-

events such as competitors’ new product launches and accompanying sales promotion campaigns.

5 Country risk

GOVERNANCE

4 Competition

tently profitable markets to avoid overdependence on profits from a few markets
Political instability, economic recession, social unrest or othermarkets and organic growth in existing markets, mainly in our tobacco business. Such geographic expansion has beensuch events could disrupt our operations in the market in• Collect and monitor information related to country risk in markets in which we
operate to maintain stable operations

accompanied by increased exposure to country risk. If political, economic or social turmoil were to occur in a market inquestion. The disruption includes interruption in supply chains• Strengthen and expand global operational platform and increase number ofwhich we operate, our operations and/or financial results may be affected. With the extension and increasingly complex

or distribution, damage to assets or facilities, or difficulties inconsistently profitable markets to avoid overdependence on profits from a few

effects of the Russia-Ukraine war, the Company has been operating in the Russian market in strict compliance with all

staffing and sales management. This may lead to a decrease inmarkets

sanctions and regulations imposed nationally and internationally. Since the challenges of operating in Russia at this time

our unit sales, revenue and/or profits.

are unprecedented, the Company is unable to reasonably estimate the outlook and the impact on financial results as of

OTHER INFORMATIONTo realize long-term growth, we have continued to expand our earnings foundation through M&A, entry into new

the issued date of Integrated Report 2023.
*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country

128

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129

Risk factors

Risk factors

Potential impact(s)Main measures to address risk

Our operations’ global scope exposes us to currency risk.

Our consolidated financial results are affected by changes in other• Formulate foreign exchange hedging policies that comprehensively take into

While we prepare our consolidated financial statements in Japanese yen, our overseas subsidiaries prepare their financial

currencies’ exchange value against the yen. The international

account prevailing foreign exchange market conditions, among other factors, andstatements in various other currencies, including the Russian ruble, Euro, British pound, Taiwanese dollar, US dollar and Swiss

tobacco business’s financial results, the reporting currency for

mitigate currency risk by hedging with foreign currency debt or other suitablefranc. Changes in such foreign currencies’ exchange values against the yen affect our reported earnings. Additionally, in ourwhich is the US dollar, are affected by changes in other currencies’

instruments in accordance with said policies

international tobacco business, JT International Holding B.V. consolidates its foreign subsidiaries’ financial statements into

exchange rate against the US dollar. Subsidiaries’ transactions infinancial statements presented in US dollars. Its financial statement data are affected by changes in exchange rates between

currencies other than their respective reporting currencies are

the US dollar and other local currencies used by those foreign subsidiaries. We generally do not hedge risks stemming fromalso subject to currency risk.

MESSAGE from the CEO

6 Currency risk

Risk description

such currency translation of financial statements except to hedge the currency risk posed by translating foreign subsidiaries’equity into yen. We hedge this risk with foreign currency debt, a portion of which is designated as net-investment hedges.
Additionally, gains or losses on the sale or liquidation of subsidiaries that were acquired in a transaction denominated in a nonexchange value against the yen between the acquisition date and the date of the sale, liquidation or impairment.

7 Unfavorable
litigation
developments

To date, the JT Group has never lost a case or paid any settlement award• Apply a system in order to deeply cooperate internally and externally, quickly under-or vaping, the marketing of tobacco or E-Vapor products or exposure to tobacco smoke. There are lawsuits involving smok-

in connection with smoking/vaping and health-related litigation. How-

stand the information regarding the case and share information with management

ing/vaping and health-related cases pending in which some of JT’s subsidiaries are named as defendants or for which JT

ever, the Group is unable to predict the outcome of currently pending or

and relevant departments

may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco Inc.’s non-U.S. tobacco

future lawsuits. A decision unfavorable to the JT Group and payment of• Coordinate with experienced external counsel if necessary and respond to litigation

business.

a substantial amount of monetary compensation could materially affectcases pertaining to the JT Group in a timely and appropriate manner

In addition, JT and/or some of its subsidiaries are also defendants in lawsuits other than the smoking/vaping and health-relat-

its financial performance.

4Please see Litigation (P. 135) for more details.

ed cases and may face further lawsuits in the future.

Moreover, critical media coverage of these lawsuits may reduce social tolerance of smoking, strengthen public regulations concerning
smoking and prompt the filing of a number of similar lawsuits against
the JT Group, forcing it to bear litigation costs and materially affecting its
business performance.
Apart from smoking/vaping and health-related ones, the JT Group also
may become a defendant in further litigation. Should any problems arise
liability. Such litigation cases may negatively affect the Group’s businessperformance or the manufacture, sale and import and export of its products, should the outcome of any such claims prove unfavorable.

8 Natural disasters
and other contingency situations

Our financial results could be adversely affected by earthquakes, tsunami, typhoons, floods, other natural disasters and pandemic

Natural disasters could disrupt not only our own operations but• Routinely gather and relay information related to crisis management on ongoing basis

consequences, potentially including employee casualties, supply shortages due to damage to suppliers’ facilities, disruptions inalso any of our value chain partners’ operations. Such disruptions• Insure key assets with casualty insurance as appropriate

transportation, distribution services and/or sales channels, power outages, water service interruptions, and reduced demand for

could adversely affect our financial results.

• Periodically review business continuity plans and revise them as warranted

our products.

• Conduct initiatives such as disaster preparedness drills and foster disaster prepared-

To minimize natural disasters’ impact on our operations, we have adopted a Business Continuity Plan, the scope of which

ness mindset among employees

BUSINESS and STRATEGIES

on the Group’s product quality, this may lead to claims seeking product

SUSTAINABILITY MANAGEMENT

Some of JT’s subsidiaries are defendants in lawsuits filed by plaintiffs seeking damages for harm allegedly caused by smoking

IDENTITY

yen currency and impairment losses recognized against such subsidiaries are affected by changes in the acquisition currency’s

includes global supply chain optimization.
Climate change associated with global warming has various adverse impacts, including flooding and landslides due to ab-

Climate change could adversely affect our operations and/or value• Conduct climate scenario analysis in accord with TCFD recommendations and de-normal weather events such as torrential rainfall; intense heat waves, heavy snowfall and drought due to anomalous weather;chains and, in turn, our financial results. Additionally, our financial

velop the capability to more accurately ascertain climate change’s potential impacts

water-resource change and biodiversity loss. Such impacts’ potential consequences include supply chain disruptions andresults could be adversely affected by increases in operating ex-

on our operations and take appropriate action to mitigate themchanges in the environments in which tobacco leaf and/or other agricultural commodities we use in our products are grownpenses stemming from the transition to a decarbonized society.

• Strive to reduce Greenhouse Gas (GHG) emissions to Net-Zero across our value

or raised. Such consequences may adversely affect our products and/or financial results through deterioration in thesechain to mitigate climate change’s impacts

inputs’ quality and/or increases in their prices/sourcing costs.

• Implement the measures in Section 8 above to address risks posed by natural disas-

Additionally, if a carbon tax is imposed on energy derived from fossil fuels in conjunction with the transition to a decarbon-ters and other contingencies, which may be exacerbated by climate change

ized society to mitigate climate change’s impacts, our profits may be reduced by increased operating expenses.

4Please see Improving our environmental impact (P. 44) for more details.

GOVERNANCE

9 Climate change

OTHER INFORMATION

130

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

131

Regulation and key laws

The tobacco regulatory environment has been becoming increasingly stringent since the WHO Framework Convention
on Tobacco Control (FCTC) took effect in February 2005.

Japan Tobacco Inc. Integrated Report 2023

Pharmaceutical R&D, manufacturing, sales and marketingare stringently regulated in Japan and major overseas markets. Additionally, regulatory authorities globally have beenreviewing new drug applications (NDA) increasingly rigorously in recent years in response to a growing imperative toensure drug safety. Given the need to demonstrate safety inlarger sample sizes over sufficiently long timeframes, clinical
trials are growing in both scale and duration. Meanwhile,with required NDA documentation being internationallystandardized both qualitatively and quantitatively, drug
companies now commonly use a single set of data available
in multiple countries for drug development, a practice that
increases development efficiency and reduces costs.

In July 2018, the Health Promotion Act (HPA) was amended
to better prevent unwanted exposure to secondhand smoke
in facilities frequented by the public. We recognize public
places that allow smoking are going to decrease in number
under the amended HPA, which fully took effect from April
1, 2020. While it is difficult to predict smoking environmentchanges in detail, we expect our financial results to beaffected to some extent.
In relation to RRP (Reduced-Risk Products), the U.S. andEuropean countries are starting to establish new guidelines
and frameworks for scientifically assessing the reduction in
health risks associated with smoking. Tobacco makers havebeen stepping up activities to obtain official certificationof risk-reduction benefits. Some countries have applied

While the future content of laws, regulations and industry
guidelines on smoking, tobacco products and tobacco
product marketing, sales promotions, packaging andlabeling is impossible to accurately predict, we expect theregulations discussed above to expand in scope and/or new
regulations (including municipal regulations) to be imposed
in Japan and overseas markets in which we sell products.
We are supportive of reasonable and appropriate regulationof tobacco, but if tobacco regulations like those describedabove are tightened or if we are not afforded enough time
to adequately adapt to such regulatory tightening, ourfinancial results may be adversely affected by contraction
in tobacco product demand, loss of market share and/or
increased regulatory compliance expenses.

Self-regulation of marketing
In addition to complying with the regulations of every
country and region in which we operate, we also operatein accord with our own Global Marketing Principles (GMPs),
the principles based on our recognition of the importanceof responsibly marketing tobacco products. Our GMPs are
based on the recognition of the importance of conducting
responsible marketing activities for tobacco products, anddescribe the principles for advertising, promotion, andothers activities conducted by the Group. This includes
ensuring that marketing activities are targeted at peopleof 18 years of age or older, and of legal smoking age. These
marketing activities are not aimed at encouraging anyone
to start smoking or discouraging them from quitting, even
if they are of legal smoking age. We also recognize thatthe prevention of smoking by minors (those who have
not reached legal smoking age) is an issue that needs
to be addressed by society as a whole. We are pursuing

In Japan, pharmaceutical manufacturing and sales are
regulated by the Ministry of Health, Labour and Welfare(MHLW) and/or prefectural authorities under the Act on
Securing Quality, Efficacy and Safety of Products Including
Pharmaceuticals and Medical Devices (the “Pharmaceuticaland Medical Device (PMD) Act”). The PMD Act requires
companies that manufacture and sell pharmaceuticals to
be licensed in every prefecture in which they operate andto renew those licenses every five years. Additionally, every
pharmaceutical manufactured or sold in Japan must be
approved by the MHLW. Japan’s National Health Insurance(NHI) program maintains a drug formulary and sets official
drug prices. The NHI is planning to radically reform drug
pricing. The planned reforms include annual drug pricerevisions, paring-down of the list of drugs qualifying forpremium pricing intended to incentivize drug discovery andreduce off-label drug use, and tiered reductions in long-listed drug prices based on generic substitution rates.

OTHER INFORMATION

132

Regulatory impacts on our operating performance

Pharmaceutical business

GOVERNANCE

The EU revised its July 2001 Tobacco Products Directive (TPD)
effective May 2014. The revised TPD tightened restrictions
on tobacco product packaging and labeling, added new
regulations on tobacco product additives, tobacco productflavor and E-Vapor products, and also included measures toaddress illicit trade. EU member countries have implemented
regulations associated with the revised EU TPD.

In Japan, the Tobacco Business Act (TBA) prescribes that
we are obligated to purchase a grower’s entire tobacco
crop excluding any portion not suitable for manufacturing
tobacco products and that our own tobacco products
as well as tobacco products imported by a designateddistributor may be sold by retailers only at prices approvedby the Minister of Finance. Tobacco product sales andpromotional activities in Japan are regulated under the TBA,
related laws/regulations and voluntary industry standards.
One regulatory requirement is that advertisements andproduct packaging must carry a cautionary statement about
the health implications of consuming tobacco products.
In accordance with the Tobacco Institute of Japan (TIOJ)’s
voluntary standards, the cautionary statement on tobacco
product packaging was changed to be consistent with thelatest scientific knowledge, and the area it occupied on the
packaging was enlarged. Revisions to the TIOJ’s advertising
voluntary standard included measures to more effectively
shield those under 20 years of age from tobacco productads, including online, and new restrictions on point-of-salead size and display methods.

Please visit JTI.com for more details.

BUSINESS and STRATEGIES

Among the FCTC Parties, Russia, one of our key markets,
enacted a comprehensive tobacco control law in February
2013 and phased it in from June 2013. The law restricts
retail sales locations and point-of-sale displays of tobacco
products; prohibits advertising, sales promotions and sponsorship; sets minimum retail prices; bans smoking in public;
and combats illicit trade in tobacco products.

various initiatives to address this issue in coordination withgovernments and concerned organizations in addition toappropriately operating in accord with our GMPs.

SUSTAINABILITY MANAGEMENT

While the FCTC requires its Parties to develop, implement,
periodically update and review national tobacco control
strategies, plans and programs, it leaves to the discretion ofeach country the specifics of national regulations’ content,
scope and methods. The FCTC’s governing body, theConference of the Parties (COP), has been meeting regularly
since the FCTC first took effect. The COP is a forum for ongoing discussions among the FCTC Parties on issues such as
formulating FCTC Article-specific guidelines and protocols(which must be separately ratified or otherwise acceded toby the Parties).

existing tobacco product regulations to RRP while others
have newly adopted separate regulations. In the EU for
example, it was decided in November 2022 that a flavor
ban regulation previously applied only to certain tobacco
products would also be applied to HTP (heated tobacco
products). Also, in the U.S., sales of certain flavored E-Vapor
cartridges were banned from February 2020. With a global
regulatory consensus yet to take shape, regulatory treatment of RRP varies widely among markets/countries.

IDENTITY

The FCTC’s objective is to “reduce continually and substantially the prevalence of tobacco use and exposure totobacco smoke.” The FCTC covers price and tax measures
to reduce tobacco demand, non-price measures to reduce
tobacco demand (e.g., protection from exposure to secondhand smoke, regulation of tobacco products’ contents andemissions, regulation of tobacco product disclosures, regulation of tobacco products’ packaging and labeling, regulationof tobacco advertising, promotion and sponsorship) andmeasures to reduce the supply of tobacco products (e.g.,measures to prevent illicit trade in tobacco products andsales of tobacco products to minors).

Australia mandates generic packaging of tobacco products
under its Tobacco Plain Packaging Act, which took effect inDecember 2012. The law prohibits tobacco packaging frombearing logos, brand images, promotional text or anythingelse except the product name printed in a standardized fontand color. Plain packaging regulations have since been adopted elsewhere, including in France and the U.K. A numberof other countries are exploring the possibility of following
suit or have already decided to follow.

MESSAGE from the CEO

Tobacco businessJapan Tobacco Inc. Integrated Report 2023

133

Litigation

Regulation and key laws

Our processed food business is regulated as a food productmanufacturer and distributor, mainly under the Food Safety
Basic Act, Food Sanitation Act and Food Labeling Act.

general meetings of shareholders*2 The Act on Special Measures for Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake

To date, the JT Group has never lost a case or paid any
settlement award in connection with smoking/vaping andhealth-related litigation. However, the Group is unable topredict the outcome of currently pending or future lawsuits.
A decision unfavorable to the JT Group and payment of a
substantial amount of monetary compensation could materially affect its financial performance. Moreover, regardlessof the results of these lawsuits, critical media coverage may
reduce social tolerance of smoking, strengthen public regulations and prompt the filing of a number of similar lawsuits
against the JT Group, forcing it to bear litigation costs andmaterially affecting its business performance. Apart fromsmoking/vaping and health-related ones, the JT Group also
may become the defendant in further litigation. Should any
problems arise on the Group’s product quality, this maylead to claims seeking product liability. Such litigation cases
may negatively affect the Group’s business performance or
the manufacture, sale and import and export of its products,
should the outcome of any such claims prove unfavorable.

OTHER INFORMATIONIn recent decades, numerous, large-scale smoking andhealth-related cases have been brought against tobacco
product manufacturers in the U.S. and some of the cases
initially resulted in verdicts with massive damage awards.
We are not defendants in any of these lawsuits, nor are
we subject to any indemnity claims with respect to them.
The JT Group’s U.S. tobacco business does not include thedomestic U.S. counterparts of the non-U.S. business that the
JT Group acquired from RJR Nabisco Inc. in 1999, or the nonU.S. Natural American Spirits business that it acquired fromthe Reynolds American Inc. group in 2016.

Please see “Contingent Liabilities” in our Consolidated
Financial Statements’ “Contingencies” note for major lawsuits to which some of JT’s subsidiaries or indemnitees are
named as defendants.

GOVERNANCE

Japan Tobacco Inc. Integrated Report 2023

*1 Defined as classes of shares with no right to vote on any resolutions at

On March 8, 2019, JTI-Mac filed for protection from its
creditors under Canada’s Companies’ Creditors Arrangement
Act (CCAA). The Ontario Superior Court granted the CCAA
application on the same date and extended the protection infavor of JTI-Mac. All the Canadian matters against JTI-Mac referred to herein have been stayed by the court order. JTI-Mac
carries on business in the ordinary course under the CCAA.

Even now, the scale of the JT Group’s U.S. tobacco businesshistorically has been quite small and, even now, its market
share remains relatively small. Hence, we believe that litigation in the U.S. will not materially affect its businesses in theforeseeable future.

BUSINESS and STRATEGIES134

The Reconstruction Financing Act*², which took effect on
December 2, 2011, directed the government to reassessstate involvement in the tobacco industry under the
Tobacco Business Act by March 31, 2023, and to explore thepossibility of divesting its JT shareholdings.

There are 10 ongoing health care cost recovery cases in
Canada pending against JTI-Macdonald Corp. (hereinafterreferred to as JTI-Mac), our Canadian subsidiary and JT’s
indemnitees (RJR Nabisco Inc.’s affiliates), brought by
Canadian provinces. In addition, there are 8 pending classactions in Canada where plaintiffs are seeking damages forharm allegedly caused by smoking of cigarettes. Damages
claimed in some of these cases reach sums in the multi-billion-dollar range. We will continue to take all appropriate
actions to defend such claims vigorously and believe there
are a number of valid defenses.

There is ongoing litigation in the U.S. alleging health effects
associated with E-Vapor use and harm caused to consumers
by misleading representations and advertising for whichplaintiffs are seeking damages and/or demanding healthwarnings against E-Vapor manufacturers in the U.S. One
such case has been brought against a number of E-Vapor
manufacturers including JT subsidiaries. This case has been
stayed by a court order. We believe that the JT subsidiaries
have valid grounds to defend this case and intend to do sovigorously.

SUSTAINABILITY MANAGEMENT

In addition to meticulously complying with these and otherapplicable laws and regulations, our processed food business is committed to the highest standards of food safety
management from the four perspectives—food safety, fooddefense, food quality and food communication—in orderto provide consumers with safe, high-quality food productsthat they can enjoy with peace of mind.

JT was established pursuant to the Japan Tobacco Inc.
Act (the “JT Act”) to manufacture, sell and import tobacco
products. Under the JT Act, the Japanese government must
always own at least one-third of our total issued shares(excluding any non-voting share classes*¹). The Minister ofFinance must approve any offerings of newly issued stock or
subscription rights to shares, as well as any issuance of stock,subscription rights to shares or bonds cum subscription
rights to shares in conjunction with a stock swap. In addition
to manufacturing, selling and importing tobacco products
and operating businesses incidental thereto, we are permitted by the JT Act to engage in other businesses as required
to fulfill our purpose and subject to the Minister of Finance’s
approval. Other matters requiring the Minister of Finance’s
approval include appointment/dismissal of Directors,
Executive Officers and Audit & Supervisory Board Members,
amendments to our Articles of Incorporation, appropriationsof capital surplus (excluding appropriations to rectify anaccumulated deficit), mergers, split-ups and dissolution. We
are also required to submit a statement of financial position,statement of income and business report to the Minister ofFinance within three months of every fiscal year-end.

Some of JT’s subsidiaries are defendants in lawsuits filed byplaintiffs seeking damages for harm allegedly caused bysmoking or vaping, the marketing of tobacco or E-Vapor
products or exposure to tobacco smoke. There are lawsuits
involving smoking/vaping and health-related cases pendingin which some of JT’s subsidiaries are named as defendants
or for which JT may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco
Inc.’s non-U.S. tobacco business. In addition, JT and/or someof its subsidiaries are also defendants in lawsuits other than
the smoking/vaping and health-related cases.

IDENTITY

The Food Safety Basic Act, enacted and effective from2003 with the purpose to ensure food safety and protect
consumers, charges food companies with a responsibility to
implement safeguards necessary to ensure food safety froma scientific standpoint through risk control, assessment andcommunication at each stage of their entire supply chains.
The Food Sanitation Act aims to keep food and beverages
free of hygienic hazards and protect the health of consumers. It requires food companies to acquire knowledge andtechnology, verify ingredient safety, inspect their facilities,
and otherwise act diligently to fulfill their responsibilities toensure the safety of their food products, additives, utensils,
containers and/or packaging. As part of the revision in 2018,
additional requirements such as hygiene management inline with the HACCP (Hazard Analysis and Critical Control
Point) are in place. The Food Labeling Act, aiming to upholdconsumer interests and contribute to making food production support the protection and/or promotion of consumer
health, sets labeling standards for food products offered for
sale, including with respect to allergen content, shelf life, ingredients, and place of origin. Food companies are required
to label their products in compliance with these standards.

Japan Tobacco Inc. Act

MESSAGE from the CEO

Processed food businessJapan Tobacco Inc. Integrated Report 2023

135

Financial information
Long-term consolidated financial data
Mar. 2014(Millions of yen)Dec. 2014*1, *2

Dec. 2015*2

2,399,841

2,019,745

2,252,884

2,143,287

2,139,653

Dec. 2016

Dec. 2017

Cost of sales(979,975)(822,538)(920,056)(872,433)

SG&A expenses(828,942)(752,559)(789,346)(754,115)

Operating profit

648,260

499,880

565,229

Profit attributable to owners of the parent company

427,987

362,919

Adjusted operating profit

641,777

Capital expenditures

Dec. 2018

Dec. 2019

Dec. 2020

Dec. 2021

Dec. 2022

Dec. 2023(898,001)(956,861)(1,090,989)(1,225,974)(784,472)(888,574)(941,538)(981,052)

469,054

499,021653,575

672,410348,190

310,253

338,490442,716

482,288595,463

515,927

486,952

610,434

727,779

728,002140,905

159,808

131,434

112,883

100,882

101,044

125,361

140,794

145,407

158,671

183,852

179,654

187,057

199,651

179,652

57,79658,19360,60065,37764,07960,84765,01670,80875,098

1,696,874

1,798,217

1,605,990

1,707,767

1,809,406

1,925,673

2,003,919

2,321,289

2,723,591

3,259,561

1,165,088

1,121,038

1,014,343

1,104,805

1,224,782

1,261,918

1,243,673

1,122,894

1,062,995

1,022,399

1,028,482

1,584,432

1,539,376

1,429,287

1,601,987

1,891,210

2,008,416

2,002,595

1,909,392

2,060,965

2,446,063

2,616,440

377,533

347,417316,388431,592

397,725

381,660

381,130

345,178

328,960

356,026

377,615

Total assets

4,616,766

4,704,706

4,558,235

4,744,374

5,221,484

5,461,400

5,553,071

5,381,382

5,774,209

6,548,078

7,282,097

Current liabilities

1,255,834

1,360,098

1,265,920

1,356,574

1,478,623

1,430,185

1,501,757

1,323,793

1,500,326

1,562,664

1,927,276

Non-current liabilities

764,842

722,106

770,790859,759

900,833

1,330,770

1,307,702

1,458,095

1,387,803

1,368,653

1,442,329

Total liabilities

2,020,675

2,082,204

2,036,710

2,216,333

2,379,456

2,760,955

2,809,459

2,781,888

2,888,128

2,931,317

3,369,605

Equity attributable to owners of the parent company

2,505,610

2,536,838

2,451,596

2,456,091

2,761,687

2,630,594

2,662,696

2,522,834

2,809,258

3,540,435

3,830,156

90,481

85,66569,92971,95080,34069,85180,916

76,66076,82376,32682,3362,596,091

2,622,503

2,521,524

2,528,041

2,842,027

2,700,445

2,743,611

2,599,495

2,886,081

3,616,761

3,912,491

96

100

118

130

140

150

154

154

140

188

194

EPS (yen)

235.48199.67270.54235.47219.10215.31

195.97174.88190.76249.45271.69Diluted EPS (yen)235.35

199.56270.37235.33218.97215.20195.87174.80190.68249.36271.63

1,378.57

1,395.74

1,369.06

1,371.39

1,541.94

1,468.44

1,501.12

1,421.92

1,583.10

1,994.78

2,157.46

Net cash flows from operating activities

396,496543,696

468,432

376,549

419,212461,389

540,410

519,833

598,909483,799

567,014

Net cash flows from investing activities(163,473)(49,110)(63,271)(687,509)(352,632)(383,307)(123,571)

5,354(97,499)(101,822)(126,129)

Net cash flows from financing activities(145,189)(388,859)(254,852)

91,318(77,032)(62,360)(333,832)(297,404)(353,138)(306,176)(270,500)

Cash & cash equivalents at FY-end

253,219

385,820526,765

294,157

285,486

282,063

357,158

538,844

721,731866,885

1,040,206

ROE (%)

19.9

14.4

19.5

17.2

15.0

14.3

13.2

12.0

12.7

13.9

13.1

ROA (%)

15.0

10.8

14.8

12.4

10.8

10.0

8.4

7.7

8.5

9.6

9.0

Debt equity ration (times)

0.15

0.09

0.10

0.23

0.27

0.38

0.37

0.38

0.33

0.27

0.30

Dividend payout ratio (%)

40.8

50.1

53.2*3

55.2

63.9

69.7

78.6

88.1

73.4

75.4

71.4

Ratio of equity attributable to owners of the parent
company to total assets (%)

54.27

53.92

53.78

51.77

52.89

48.17

47.95

46.88

48.65

54.07

52.60

Liquidity

259,261

389,473

528,967

297,024

291,819

308,651

375,823

548,303

730,183

880,378

1,080,930

Interest-bearing debt

375,881

228,214255,291555,257

755,804

987,588974,502

958,881

918,622958,311

1,142,259(843,558)(933,034)(942,299)(786,911)(770,407)(831,707)

593,329

561,101

564,984

502,355

485,691

421,695

392,409385,677

588,684

626,657

586,777

585,300

156,158

112,448

129,751

112,998

Depreciation & amortization

132,921113,989

133,123

R&D expenses

57,10344,008Current assets

1,489,713

PPE& PP&E intangible assets (excl. goodwill)
Goodwill
Other non-current assets

Non-controlling interests
Total equity

2,092,561

Per share data
Dividends (yen)Equity (yen)

BUSINESS and STRATEGIES

2,841,077

2,175,626

SUSTAINABILITY MANAGEMENT

2,657,832

2,215,962

IDENTITY

2,324,838

Revenue

MESSAGE from the CEO

Fiscal year-end
changedCash flow data

136

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION*1 FY2014 was nine months long (Jan.-Sep. 2014) because of a change in fiscal year-end from March to December*2 In 2015, the beverage business was classed as a discontinued operation, due to the Company transferring its shares and other securities in its beverage vending machine operator subsidiary, as well as terminating the manufacturing and sale of beverages. Revenue, Cost of sales, SG&A expenses, Operating profit, Adjusted operating profit, Capital expenditures,
Depreciation & amortization and R&D expenses for 2014 and 2015 shown on this page are based on values for continuing operations*3 In 2015, the beverage business was classed as a discontinued operation, due to the Company transferring its shares and other securities in its beverage vending machine operator subsidiary, as well as terminating the manufacturing and sale of beverages. The consolidated dividend payout ratio, including the discontinued operation, was 43.6%

GOVERNANCE

Financial metrics

137

Financial information

Financial data for each business

Revenue by business segment (JPY BN)(JPY BN)2,841.1

2,657.8

2.0(JPY BN)

1.4

727.8

153.9

1,555

155.5

728.0

3.5
11.1

Tobacco business: Breakdown of core revenue by cluster(JPN BN)

6.8

17.4

94.9

82.9

Western Europe

EMA

Total
2,315.2

2022

804.9

538.8

971.5

Volume

+2.4

–40.9

+41.3

+2.8

Price/Mix

–18.9

+54.6

+108.6+144.32023@PY

1,121.5

2,462.4

749.8

788.3

552.5

FX

+8.6

+50.7

–43.1

+16.3

2023

796.9

603.3

1,078.5

2,478.6

2,590.9

2,417.4

(FY)

2023

2022

■ Tobacco ■ Pharmaceutical ■ Processed food ■ Others

-40.9

-46.0

2022

2023

(JPN BN)■ Tobacco ■ Pharmaceutical ■ Processed food ■ Others

540.1 BN

754.0

EMA
44%

(FY2023)-71.6
Western
135.7 Europe 787.5
19%

-30.6

¥2,478.6 BN

Asia
32%

(FY2023)

749.8
-37.7

EMA
36%

Asia
33%

754.0

-30.6 135.7

787.5

-71.6

787.5 -37.7

Volume

–12.0

–37.6

+19.0

–30.6

–16.9

+51.0

+101.6+135.7

Others

+10.9

–14.2

–68.3

–71.6

2023@PY

249.5

218.5

319.4

787.5

FX

–3.7

+12.9

–47.0

–37.7

2023

245.8

231.4

272.5

749.8

Price/Mix

Others2023 atconstant
FX

FX

2023 (FY)

Note: The results for fiscal year 2022 and fiscal year 2023 on a reported basis havebeen adjusted to include the impact of hyperinflationary accounting inaccordance with the requirements stipulated in IAS 29. The results for fiscal
year 2022 and fiscal year 2023 on a constant FX basis have been calculated
to exclude amounts of revenue and profit that have increased due tohyperinflation in certain markets

138

Japan2022
TobaccoInc. Price/Mix
Integrated
ReportVolumeOthers20232023
at
FX
constant
FX

2023 (FY)

Tobacco business: Key Market and Volume & Share evolution*(FY2023)

Total volume（BNU）

YoY

Total SoM

YoY

Japan

63.7

+1.3%

42.8%

+0.3ppt

The Philippines

24.1

–4.7%

42.4%

+3.9ppt

Taiwan

14.0

–3.4%

50.3%

+1.4ppt

Italy

18.7

+1.6%

23.2%

+0.2ppt

Volume (–)

Spain

14.4

–5.0%

27.9%

–0.1ppt• Total volume growth was more than offset by an unfavorable market mix

The U.K.

15.2–18.7%

43.7%–0.9ppt

Romania

7.6

+4.6%

27.4%

–0.1ppt

Russia

77.3

+0.7%

37.4%

+0.8ppt

Turkey36.4+12.8%

26.9%–0.9ppt

WesternEurope24%

WesternEurope31%

Price/Mix (+)• Pricing contribution in multiple markets, including the Philippines,
Russia and the UK, partially offset by lower product mix due todowntrading in key markets
Others (–)* Total SoM is computed based on combustibles and heated tobacco products industry size for Japan, Italy, Spain, the U.K., Romania, andRussiaRest of the key markets are computed based on combustibles• Higher input costs within the supply chain• Investments towards both combustibles and HTS (heated tobacco sticks)
FX (–)• Unfavorable foreign exchange impact on AOP, mainly due to thedepreciation of several local currencies from emerging markets

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Volume

749.8

-37.7

-30.6
2022

749.8

754.0

GOVERNANCE

135.7

754.0

-71.6

Total

¥749.8 BN

Revenue by business segment (JPY BN)

Revenue by business segment (JPY BN)

267.1

Adjusted operating profit

Revenue by business segment (JPY BN)
Asia
24%

EMA

219.3

BUSINESS and STRATEGIESCore revenue

Western Europe

267.5

Price/Mix

Tobacco business FY2023 financial data overview
Total volume

Asia
2022

(FY)

SUSTAINABILITY MANAGEMENT

Tobacco business: Breakdown of adjusted operating profit by cluster

EMA
57%

IDENTITY

754.0

Asia

MESSAGE from the CEO

Consolidated adjusted operating
profit by business segment

Revenue by business segment

139

JT Group Sustainability Targets

Materiality

Target items
Biodiversity impact
assessment
New

Emissions reduction

Investing in our People andSupporting their Growth

Responsible Supply Chain
Management

Good GovernanceTargets
Each of the JT Group businesses will perform assessments to evaluate its
impact and dependency on ecosystem, including biodiversity aspects. Impact
assessments of our tobacco business will be performed by 2024, and our pharmaceutical and processed food business by 2025.

Revised

RevisedBy 2050, the JT Group will transition all of our energy use to zero carbon energy
by 2050.
• We will increase the proportion of renewable electricity that we use to 50% by
2030 and 100% by 2050. In our tobacco business, 50% by 2025 and 100% by 2040

The JT Group will engage in responsible water management and will pursue
the following:• 	We will monitor the Group’s use of water in areas with water scarcity. Our tobacco
business will reduce water withdrawal in its own operations by 33% by 2030
against a 2019 base year. Our processed food business will pursue efficient water
use and wastewater quality management to preserve water stewardship as amember of the local community• 	We will monitor water recycling at the Group’s production facilities• 	We will prevent water pollution based on the Group’s standards, which should beequal to or stricter than local legal requirements• 	Our tobacco business will have 100% of its eligible production facilities certified
against the Alliance for Water Stewardship standard by 2030

With a view to enhancing biodiversity, the JT Group will contribute further topreserving forestry by pursuing the following in our tobacco business supply
chain:• Replace all wood from natural forests used in the tobacco curing process of its
directly contracted leaf growers with renewable fuel sources by 2030
• No deforestation of natural forests in the operations and supply chains for tobacco leaf, paper and pulp-based materials by 2025 and in our entire supply chain by2030• No conversion of natural ecosystem in the tobacco business’ own operations andsupply chains for tobacco, paper and pulp-based materials in high conservation
value areas by 2025 and all natural lands by 2030
• Zero net deforestation of managed natural forests in the entire tobacco businesssupply chain by 2030

Sustainable agriculture
New

Reduced-Risk Products

The JT Group will reduce our packaging (including plastic) and ensure that theremaining is 88% reusable or recyclable by 2025, rising to 100% by 2030.
• 	Our tobacco business will reduce packaging and achieve 85% recyclability
by 2025, rising to 100% by 2030
• 	In total, recycled content will account for 20% of our tobacco business packaging
by 2025. The tobacco business will seek to further increase the use of recycledmaterials in its packaging• 	In our tobacco business, plastic in our packaging mix is only 7% by weight. The tobacco business will aim to further reduce the use of virgin plastic in its packaging.
We are also working to develop more sustainable filter alternatives• 	Our tobacco business will take a phased approach in embedding learnings in its
circular device development globally, by achieving battery removability & replaceability for 100% of its RRP* devices shipped to the EU by 2027
• 	Our processed food business will reduce packaging weight and utilize renewable
plant-based resources to reduce environmental impact of its products

Our tobacco business will complete the elimination of Criterion 1 Highly Hazardous Pesticides (HHPs) from its direct tobacco leaf supply chain in 2024 andeliminate the use of all HHPs by 2040. 100% of our directly-contracted growers
will have adopted Good Agricultural Practices (GAP) Protocol of our tobacco
business by 2030.

RevisedOur tobacco business will make its RRP* available in an increasing number ofcountries worldwide.

Transparency in Reduced Risk Science

In our tobacco business, we will ensure that reduced risk claims are substantiated and that we are transparent about the risks of our products.

New

Youth Access Prevention (YAP)New

In our tobacco business, we will continue deliver training on YAP to our marketing and sales force. We will also continue to work with our trading partners toensure compliance with its YAP pillars.
In our pharmaceutical business, we will continue our efforts and investments inresearch and development activities for innovative drugs in specific therapeuticareas.

Food inclusion

In our processed food business, we will be aware of the diversifying values andinterests of our consumers. Most of all so that our consumers can enjoy delicious food, we will not only exclude certain raw materials, but also develop andprovide high-value-added products, such as allergy-friendly products, productsthat do not use ingredients derived from animals, or products that are healthconscious and satisfy other preferences.

Revised* RRP(Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking

140

Japan Tobacco Inc. Integrated Report 2023

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Creating first-in-classdrugs

GOVERNANCE

RevisedDesigning for circularity–p ackaging, productand device• Zero factory waste to landfill by 2030 in our tobacco business• Our tobacco business will engage trade and consumers on responsible disposalof devices through take-back schemes for Ploom, and through anti-littering
campaigns for consumables• Our processed food business will pursue waste reduction to contribute to acircular society and will aim to recycle 95% of all waste from its Japanese offices(excluding waste heat recovery)

BUSINESS and STRATEGIESEnhancing biodiversity– No deforestation, no
conversion

RevisedThe JT Group will further reduce the environmental impacts of waste associated with its processes and products.

SUSTAINABILITY MANAGEMENT

Protecting water

Waste reduction

Targets

IDENTITY

RevisedTarget items

The JT Group will reduce its emissions and commits to be Carbon Neutral for
its own operations by 2030 and achieve Net-Zero Greenhouse Gas emissions
across its entire value chain by 2050.
• 	By 2030, we commit to reduce absolute Scope 1 and 2 GHG emissions by 47% inline with a 1.5°C reduction pathway against a 2019 base year
• 	By 2030, we commit to reduce absolute Scope 3 GHG emissions associated withpurchased goods and services by 28% against a 2019 base year
• 	Our tobacco business will be Carbon Neutral for its own operations by 2030 andwill achieve Net-Zero greenhouse gas emissions across its entire value chain by
2050. In support of this, the tobacco business will reduce emissions from its own
operations by 47% and emissions associated with leaf and non-tobacco materials
by 28%, against a 2019 base year
• 	Our processed food business will promote energy-saving initiatives and introduce
renewable energy to contribute to the Group’s emissions reduction targets and to
improve impact on environment

Renewable energy

Materiality

MESSAGE from the CEO

Value Creation that Exceeds
Consumer Expectations

Living with the Planet

141

JT Group Sustainability Targets

Materiality

Target items
Diversity, equity &inclusion

Investing in our People andSupporting their Growth

Responsible Supply Chain
Management

Good GovernanceTargets
Diversity in gender, nationality, individual experiences, expertise and values
forms the foundation of a company’s success and contributes to real sustainablegrowth. We will promote initiatives to enhance diversity and promote inclusion.
Furthermore, as part of our efforts to empower women, our Group target for
women’s representation in managerial positions is to reach 30% by 2030.

Talent attraction
New

New

Health and safety
RevisedGrievance mechanisms
New

By 2027, our tobacco business will provide access to remedy via safe, accessible
and effective grievance mechanisms for 100% of growers and farm workers in
its direct tobacco leaf supply chain origins.
Between 2015 and 2030 we will invest US$600 million to help make communities inclusive and resilient, with our employees contributing 300,000 volunteering hours.

While working at the JT Group, our employees will go through various stages
in life. We will strive to improve our system so that the career path and work-lifebalance desired by each person is realized. We will also encourage and monitor
rates for parental leave, so that we can provide support to our employees inbalancing work and family life.

Internal control

Our tobacco business will always protect its ability to participate in public
policy debate with the aim to achieve balanced regulation that meets societal
concern and support business growth. The tobacco business will also engage
in dialogue with law enforcement agencies, with the goal to exchange intelligence regarding illegal tobacco products, in order to support the reduction ofthese products.
In our pharmaceutical business, to develop talent and foster employees’ ethicalawareness and sense of responsibility towards saving patients, we will continue
to learn more about patients’ needs by engaging in dialogue with medical experts through our internal educational activity “For the Patients Project”. We will
also conduct, among others, regular training programs for our medical representatives to provide medical professionals with latest, appropriate information
on pharmaceutical products.
Our processed food business will promote food safety management in compliance with global food safety standards to develop the highest level of foodsafety. While working on enforcing food safety and quality assurance, the processed food business will also enhance the way it communicates with consumers to provide them with safe, secure and high-quality products.

We will prioritize the health and safety of our employees by proactively monitoring physical and mental health with the goal of achieving zero workplace
injuries.

We will create an ecosystem in which each JT Group employee can consider
their own careers and make career choices. We will also provide learning opportunities tailored for each employee to proactively support their growth andthe growth of our organization.

Supplier screening andsupply chain due
diligence

The JT Group will screen all key suppliers against ESG criteria.
Our tobacco business will screen 100% of its key suppliers against environmental, social and governance criteria by 2023. The tobacco business will
also implement Agricultural Labor Practices (ALP) program in all leaf-sourcing
countries by 2025.
Furthermore, by 2025, our tobacco business will proactively manage ESG risks
with all its critical suppliers, to ensure a sustainable business continuity. By
2028, all tobacco supplying entities will achieve a Supply Chain Due Diligencematurity score >90%, verified by an independent third party.​​
By 2025, we will complete supply chain due diligence of all key suppliers for ourpharmaceutical business and processed food business and will also perform
regular due diligence thereafter.
Through the JT Group Supplier Code of Conduct and supplier questionnaires,
our processed food business will work jointly with, share its values and communicate closely with its suppliers to realize a sustainable supply chain.

OTHER INFORMATION

To promote collaborations within the Group across regions and functions, wewill provide opportunities for collaborations while also proactively engage incollaborating with external parties to contribute to the development of inclusive and sustainable communities. Between 2015 and 2030, our employees willcontribute 300,000 volunteering hours.

Japan Tobacco Inc. Integrated Report 2023

RevisedBy 2025, our tobacco business will monitor 100% of farms in its direct tobacco
leaf supply chain origins on human rights including child labor, and annually disclose related KPIs, prevention and remediation actions.

GOVERNANCE

142

Human rights in grower communities

Community investment

Internal and external
collaboration

RevisedIn our tobacco business, the ambition is for all our leaf growers to achieve a living income. By 2025, we will implement our Living Income Calculator in 100%of our direct tobacco leaf supply chain origins.

New

BUSINESS and STRATEGIESNewGrower living income

We will work to retain and attract our people from each location or business tobuild a continuous pipeline of talents to lead and manage our business. Our
tobacco business will aim at achieving yearly Global Top Employer certification.

• Our tobacco business will decrease the injury rate to 0.1 by 2030 in line with its
vision of Zero workplace injuries• Our processed food business will aim for injury rates to or below 0.63 by 2030,
with a view to achieving Zero workplace injuries

Development support

Targets

SUSTAINABILITY MANAGEMENT

Attractive working
conditions

Target items

IDENTITY• Target for our tobacco business is to reach and maintain at least 1/3 of managerial
positions filled by women• Our processed food business will promote organizational building for our diverse
human resources to thrive and take active roles. In this context, the processedfood business will work to empower women, with a view to contributing to the JT
Group’s goal for women in leadership

Materiality

MESSAGE from the CEO

Value Creation that Exceeds
Consumer Expectations

Living with the Planet

Japan Tobacco Inc. Integrated Report 2023

143

Glossary of terms

Financials

Sustainability* Adjusted items (income and costs) = Impairment losses on goodwill ± restructuring income and costs ± others

CDP

Headquartered in London, CDP is the leading international non-profit organization that accelerates action to achieve asustainable economy, assessing disclosure and actions by companies from around the world.

Adjusted operating profit atconstant currency

Constant currency is computed using the same foreign exchange rates as in the equivalent period in theprevious fiscal year for the tobacco business. Results at constant currency are provided additionally and are
not an alternative to finance reporting under IFRS.

DJSI (Dow Jones
Sustainability Indices)

The DJSI was created jointly by S&P Dow Jones Indices and SAM. It is a globally recognized environmental, social andgovernance (ESG) stock index and sustainability benchmark that tracks stock performance of the world’s leading
companies in terms of governance and economic, environmental and social dimensions.

Clusters

The JT Group’s tobacco markets are divided into three distinctive clusters: Asia, Western Europe, and EMA.
Please note that these three clusters are specifically designed to provide insight into our business for guidance purposes only and do not reflect the JT Group's management structure.
• Asia cluster includes the tobacco regions of Japan and Asia Pacific• EMA cluster includes the tobacco regions of Eastern Europe, MENEAT, Americas and GTR (Global Travel Retail)GHG emissions

Greenhouse Gas emissions• S cope 1 emissions: Direct GHG emissions from corporate activities, such as burning of fossil fuels at factories.
• S cope 2 emissions: Indirect GHG emissions from consumption of purchased electricity, heat or steam.
• S cope 3 emissions: Other indirect emissions, including from manufacture of products bought from othercompanies.

Core revenue at constantcurrency

The sum of revenues in the pharmaceutical business, processed food business, and others, as well as the core
revenue in the tobacco business, which is computed using the same foreign exchange rates as in the equivalent period in the previous fiscal year. Results at constant currency are provided additionally and are not analternative to finance reporting under IFRS.

SBTi (Science Based
Targets initiative)

The SBTi was formed in 2015 by CDP, the UN Global Compact (UNGC), the World Resources Institute (WRI), and theWorld Wide Fund for Nature (WWF). The SBTi validates targets submitted by companies to confirm and communicatethat they are science-based and in line with the Paris Agreement.

SDGs

The Sustainable Development Goals (SDGs) were adopted by all United Nations Member States in 2015 as a universal
call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.

FCF (free cash flow)

The sum of cash flows from operating activities and investing activities, excluding the following items:• F rom operating CF: Depreciation from lease transactions, interest received, dividends received, interest paid
and income taxes related to these items excluding lease transactions, and other items• F rom investing CF: Purchase of investment securities (both short-term and long-term), payments into time
deposits, proceeds from sale or redemption of investment securities (both short-term and long-term),
proceeds from withdrawal of time deposits and other investing activities not for business operation purposes

TCFD (Task Force on
Climate-related Financial
Disclosures)

TCFD was established by the Financial Stability Board (FSB) to examine how climate-related information should be
disclosed, and how financial institutions should respond. TCFD positions climate change as a serious risk to the world’s
economy and publishes its recommendations for companies to identify and disclose items such as “Governance,”“Strategy,” “Risk Management” and “Metrics and Targets.”

IFRS (International Financial
Reporting Standards)

The JT Group adopted IFRS from the fiscal year ended March 31, 2012.

ProfitProfit attributable to owners of the parent company

Revenue

Revenue excluding tobacco excise taxes and revenue from agent transactions•C ore revenue: Core revenue includes all revenue excluding those from distribution, contract manufacturing
and other peripheral businesses.

Consumers(Tobacco business)

Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

BnU

Billion units

RRP-related revenue(Tobacco business)

RRP (Reduced-Risk Products)-related revenue, as a part of core revenue, represents all sales of RRP, principally
consumables, devices and related accessories.

JPY BN

Billion Japanese yen

Total volume(Tobacco business)

The volume of tobacco-based products which excludes contract-manufactured products, waterpipe, RRP
devices and related accessories.

USD MM

Million US dollars

OthersCombustibles include all tobacco products excluding contract-manufactured products, waterpipe, heated tobacco
products, oral and E-Vapor.

FCT (fine cut tobacco)

Loose tobacco products also known as rolling tobacco. These can be used for both RYO (roll-your-own) cigarettes, i.e.
using rolling papers, and MYO (make-your-own) cigarettes, i.e. by filling a filter tube with cut tobacco.

GFB (Global Flagship
Brands)Winston, Camel, MEVIUS, LD

RRP (Reduced-Risk
Products)

Products with the potential to reduce the risks associated with smoking.
• E -Vapor: Products which consumers use by heating electronically a nicotine-based liquid that contains no tobacco leaf.
•H TP (heated tobacco products): Products that contain tobacco leaf and create a tobacco-enriched vapor byheating electronically the tobacco, either directly or indirectly, without any combustion.
•H TS (heated tobacco sticks): High-temperature heated tobacco products.
• I nfused (infused tobacco capsules): Low-temperature heated tobacco products.
•O ral: Products delivering nicotine in the form of a closed pouch. These pouches can contain tobacco and are
known as snus. Without tobacco, these consumables are referred to as nicotine pouches. To deliver nicotine andflavor, these pouches are inserted between the consumer's lip and gum.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

144

Combustibles

GOVERNANCE

Products

BUSINESS and STRATEGIESAgricultural Labor Practices

SUSTAINABILITY MANAGEMENT

ALP

IDENTITY

Operating profit + Amortization cost of acquired intangibles arising from business acquisitions + Adjusted
items (income and costs)*

Adjusted operating profit

MESSAGE from the CEO

Unless otherwise stated, terms and numbers reported in this glossary are in accordance with IFRS (International Financial Reporting Standards).

Japan Tobacco Inc. Integrated Report 2023

145

Awards and recognitions

S&P / JPX Carbon Efficient Index

Swiss LGBTI LabelPRIDE Index

We are a member of the DJSI Asia Pacific Index for the 10th

We have been selected as a member of the S&P/JPX Carbon
Efficient Index since its launch in 2018.

In 2020, JTI was awarded the “Swiss LGBTI Label,” a certification
for companies and organizations with an open and inclusive
structure.

In the PRIDE Index, which recognizes the most LGBTQ+friendly companies, our Japanese operations (JT) achieved
Gold status, the highest ranking, in 2023 for the eighth consecutive year.

consecutive year.
JT Group press release, December 2023

JTI News & Views, September 2020

MESSAGE from the CEO

Dow Jones Sustainability Indices (DJSI)

November 2023

IDENTITYFTSE Blossom Japan IndicesSports Yell Company

Including in 2024, JT has been recognized as a Certified HealthJapan Index every year since its launch in 2017 by GPIF. We
have also been selected as a member of the FTSE Blossom
Japan Sector Relative Index since its launch in April 2022.

We were selected as a member of the Morningstar Japan
ex-REIT Gender Diversity Tilt Index (one of the gender diversity
indices of GPIF) in 2023 for the second consecutive year.

and Productivity Management Outstanding Organization(“White 500”) for its excellent health-conscious management by
the Ministry of Economy, Trade and Industry (METI) and the
Nippon Kenko Kaigi since the launch of this recognition in 2017.

JT was recognized by the Japan Sports Agency as a “Sports Yell
Company 2024” for its active efforts to promote sports and improve the health of its employees for the second consecutive
year.
January 2024

March 2024

Science Based Targets

Platinum Kurumin Certification

Japan HR Challenge Awards

We continued achieving a place on CDPs “A List” for climatechange and water security.
We were also recognized as a global leader for engaging our
supply chain in addressing climate change for the fifth consecutive year.

Our Greenhouse Gas (GHG) emissions reduction targets for2030 have been validated by the Science Based Targets initiative (SBTi). The target for emissions reduction from our own
operations is in line with a 1.5ºC global warming scenario. In
June 2024, we submitted a commitment letter towards
achieving Net-Zero emissions.

JT has long been certified as a childcare-supporting company
by the Japanese Ministry of Health, Labour and Welfare.

JT Group press release, February 2024

June 2024

In 2024, JT received Innovation Award at Japan HR ChallengeAwards, which recognizes companies actively implementing
new outstanding initiatives in the field of HR. This award wasgiven in recognition of JT’s excellent efforts in fostering an inclusive culture that
respects diversity and supports employees from various backgrounds.

March 2024

GOVERNANCE

June 2024

EY’s Global Equality Standard (GES) certificate

JTI was certified as a Global Top Employer for the 10th consecutive year.

In 2021, JTI became one of the first multinational companies
to receive EY’s new Global Equality Standard. This is one of the
only global certificates that assesses companies on equal
opportunities and equal pay in the workplace.

JTI News & Views, January 2024

OTHER INFORMATION

Top Employer

JTI News & Views, November 2021

146

Japan Tobacco Inc. Integrated Report 2023

BUSINESS and STRATEGIESCDPSUSTAINABILITY MANAGEMENT

Morningstar Japan ex-REIT Gender Diversity
Tilt Index

White 500

We have been selected as a member of the FTSE Blossom

Japan Tobacco Inc. Integrated Report 2023

147

Shareholder information
Common stock

As of December 31, 2023

Principal shareholders
8,000,000,000

Issued:2,000,000,000(Treasury shares: 224,692,028)

Government offerings of JT shares

Name

Shares held
666,925,200

The Master Trust Bank of Japan, Ltd. (Trust Account)

174,583,700

Custody Bank of Japan, Ltd. (Trust Account)

61,906,618

SMBC Nikko Securities Inc.

32,423,221

STATE STREET BANK WEST CLIENT – TREATY 505234

25,094,341

JAPAN SECURITIES FINANCE CO., LTD.

17,169,700

Barclays Securities Japan Limited BNYM

16,188,600

Composition of shareholders

JP MORGAN CHASE BANK 385781

13,722,976(excluding treasury shares)

JT Group Employee Shareholding Association

11,878,075

Mizuho Securities Co., Ltd.

9,361,248

Number of shareholders: 835,441

Share registrar
Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo

Listing
Tokyo Stock Exchange: Prime Market

Minister of Finance 37.57%

Securities companies
5.06%
Foreigninstitutions
and others
11.04%

Individuals and others
27.53%

Total shareholder return
2014

2016

2017

2018

2019

2020

2021

2022

2023

1,438,000 yen(August 31, 1994)

Number of shares offered

229,920 shares

164,356 shares

Offer term

From August 15 to 18, 1994

From September 2 to 8, 1994

Note:
Listing date: October 27, 1994
Tokyo Stock Exchange: First Section

Second, Third and Fourth Offerings
Second Offering

Third Offering

Fourth Offering

MethodOffering by book-building formula Offering by book-building formula Offering by book-building formula

Offer price(Pricing date)

815,000 yen(June 17, 1996)

843,000 yen(June 7, 2004)

2,949 yen
(March 11, 2013)

Number of shares offered

Japan: 237,390 sharesInternational: 35,000 shares(Total: 272,390 shares)

Japan: 198,334 sharesInternational: 91,000 shares(Total: 289,334 shares)

Japan: 145,625,500 sharesInternational: 107,636,300 shares(Total: 253,261,800 shares)

Offer term

From June 18 to 19, 1996

From June 8 to 10, 2004

From March 12 to 13, 2013

Period covered

Published

In principle, this report covers the period from January 1, 2023 to December 31,

June 2024

105.8%

144.7%

129.4%

127.1%

100.4%

99.5%

94.1%

105.2%

121.5%

157.8%

TOPIX

118.2%

132.5%

132.9%

162.4%

136.5%

161.2%

173.1%

195.2%

190.4%

244.2%TOPIX: Foods

121.1%

155.6%

152.4%

180.8%

155.1%

155.7%

154.0%

160.6%

172.2%

213.7%

Contact information

JT International S.A.

1-1, Toranomon 4-chome,

8, rue Kazem Radjavi

Minato-ku, Tokyo 105-6927, Japan

1202 Geneva, Switzerland

TEL: +81-3-6636-2914

TEL: +41-22-703-07-77

URL: https://www.jt.com/

URL: https://www.jti.com/

Referenced guidelines

Scope of reportreferred to in the writing of this report. In addition, the GRI Standards of theJapan Tobacco Inc. and consolidated subsidiaries

Global Reporting Initiative were referred to with regard to ESG information.

The IFRS Foundation’s “International Integrated Reporting Framework” was

FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief, or current and future expectations of our managementwith respect to our business, financial condition and results of operations. In
some cases, you can identify forward-looking statements by terms such as“may,” “will,” “should,” “would,” “expect,” “intend,” “project,” “plan,” “aim,” “seek,” “target,”“anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of theseterms or other similar terminology. These statements are not guarantees of
future performance and are subject to various risks and uncertainties. Actual
results, performance or achievements, or those of the industries in which
we operate, may differ materially from any future results, performance or
achievements expressed or implied by these forward-looking statements.
In addition, these forward-looking statements are necessarily dependent
upon assumptions, estimates and data that may be incorrect or imprecise
and involve known and unknown risks and uncertainties. Forward-looking
statements regarding operating results are particularly subject to a variety ofassumptions, some or all of which may not be realized. Risks, uncertainties
or other factors that could cause actual results to differ materially from thoseexpressed in any forward-looking statement include, without limitation:(1) increase in awareness of health concerns related to smoking;(2) regulatory developments, including, without limitation, tax increases andrestrictions on sales, marketing, packaging, labeling and use of tobacco
products, privately imposed restrictions and governmental investigations;(3) litigation around the world alleging adverse health and financial effects
resulting from, or relating to, tobacco products;(4) our ability to further diversify our business beyond the tobacco industry;(5) our ability to successfully expand internationally and make investments
outside Japan;(6) competition, changing consumer preferences and behavior;(7) our ability to manage impacts derived from business diversification orbusiness expansion;(8) economic, regulatory and political changes, such as nationalization, terrorism, wars and civil unrest, in countries in which we operate;(9) fluctuations in foreign exchange rates and the costs of raw materials; and(10) catastrophes, including natural disasters.

Japan Tobacco Inc. Integrated Report 2023

OTHER INFORMATION

Japan Tobacco Inc.

this period.

GOVERNANCE

JT

Japan Tobacco Inc. Integrated Report 2023

Bid price: From 1,362,000 yen to 2,110,000 yen
Weighted average price: 1,438,000 yen(August 29, 1994)

2023, but also includes some information related to activities before and after

Note: B aselines for all percentages are a share price and actual performance as of the end of March 31, 2014. TOPIX and TOPIX: Foods are calculated based on figures
including dividends. Taking account of a change in fiscal year-end from March to December in 2014, the figures from 2014 onwards are calculated based on ashare price and actual performance as of December 31

148

Offer price(Pricing date)

Editorial policy

個人その他 27.53%

2015

Offering by non-bids

BUSINESS and STRATEGIESFinancial
institutions
16.48%

Offering by bids

SUSTAINABILITY MANAGEMENTOther institutions
2.32%

MethodIDENTITY

Minister of FinanceFirst Offering

MESSAGE from the CEO

Authorized:

149