JT Group Sustainability Report
FY2014

Scope of data and information presented in this report
Unless the context indicates otherwise, references in this report to‘we’, ‘us’, ‘our’, and ‘JT Group’ are to Japan Tobacco Inc. and its
consolidated subsidiaries. References to ‘Torii Pharmaceutical’ are toTorii Pharmaceutical Co., Ltd., our pharmaceutical subsidiary. References
to ‘TableMark’ are to TableMark Holdings Co., Ltd., our processed foodsubsidiary, and its consolidated subsidiaries.
This report contains Standard Disclosures from the Global Reporting
Initiative (GRI) G4 Sustainability Reporting Guidelines. It is not yet inaccordance with the GRI G4 ‘Core‘ Guidelines and we have not madedisclosures in all areas.
Due to the diverse nature of the JT Group, we do not have Group-wide
figures for all information presented in this report. As a result, we use
the following notation to show the scope of the data and information
reported:*A = the entire JT Group including subsidiaries(i.e. international tobacco, Japanese domestic tobacco, pharmaceutical,
beverage and processed food businesses)*B = solely Japan Tobacco Inc. (JT)(includes Japanese domestic tobacco, pharmaceutical, and beveragebusinesses, and excludes processed food business, international
tobacco business, and subsidiaries of all businesses)*C = Japan Tobacco Inc. (JT) and Japanese domestic Group companies(includes subsidiaries of Japanese domestic businesses, excludes
international tobacco business)*D = Japan Tobacco Inc. (JT) and Japan Tobacco International (JTI)*E = solely Japan Tobacco International (JTI)(our international tobacco business)

Contents
CEO statement
Corporate profile

4
6

Our key issues and impacts
2014 at a glance

8
10

About this reportGRI G4 index summary

JT Group and sustainability

14

Strategy and approach
JT Group governance
Stakeholder engagement
Our material issues

15
16
17
19

How we do business20

Code of Conduct
Anti-competitive behavior
Anti-bribery and corruption
Tackling illegal trade

21
22
22
23

Our people

24

Workplace health and safety
Human rights in the workplace
Employee development and talent management
Working with our employees
Equality and diversity

25
27
28
29
30

Responsible supply chain

32

Supply chain management
Tobacco supply chain – strategy
Tobacco supply chain – long-term farmer profits
Tobacco supply chain – Agricultural Labor Practices,
including child labor prevention
Tobacco supply chain – sustainable wood

33
35
36
37

Environment

40

Environmental management
Energy and GHG emissions
Resource efficiency – water and waste
Biodiversity

41
42
44
45

Product and consumer impacts

46

Tobacco – smoking and healthTobacco – product innovation
Tobacco – regulatory landscape
Tobacco – responsible marketing
Pharmaceutical – product responsibility
Beverage and processed food – product responsibility

47
48
49
50
52
54

The bigger picture

56

Continuous post-earthquake support in Japan
Caring in the community
Helping young musicians

57
57
57

39

58
60

CEO statement

4 | JT Group Sustainability ReportDespite heightened geopolitical tensions and difficult economic
circumstances, 2014 was another year of success for the JT
Group. We also faced challenges associated with increased
regulation and rapidly evolving consumer trends around theglobe.
I am convinced that our greater focus on sustainability
has helped to deliver this encouraging progress. All the
management decisions that we take in the interests of
the Group have been underpinned by the “4S” model, ourmanagement principle. This provides us with a framework
to balance the concerns and expectations of consumers,
shareholders, employees, and wider society, always with aview to fulfilling our responsibilities toward these stakeholders.
From 2014 to early 2015 we took measures to respond toever-changing market dynamics; we announced a proposed
restructuring of two factories in Europe as well as thewithdrawal from manufacturing and sales in our beveragebusiness in Japan. We took these tough decisions only after
evaluating them in the context of our “4S” model.
At the same time we embarked on a number of new
sustainability initiatives in 2014 that will reap further rewards
in the future. In our tobacco businesses we strengthened ourefforts on innovation – represented by emerging products
such as e-cigarettes and tobacco vapors – by setting up a
global team to oversee developments in that area. We alsoenhanced our community support programs in areas where we
directly procure tobacco in order to help farmers improve theirlivelihoods. Our efforts focus on growing tobacco sustainably
and addressing societal and environmental issues such as childlabor and resource depletion. We will continue to develop such
efforts in partnership with governments, NGOs, and industry
peers in the coming years.

Across the Group we accelerated the development of ouroverarching sustainability strategies that will be implemented
by our dedicated Corporate Social Responsibility (CSR)
departments. At present our strategies are based on amateriality assessment of our international tobacco business,but we have also begun to analyze key material issues for theentire Group.
These measures, and others, have not only helped us tounderstand and respond to the expectations of our key
stakeholders; they have also helped us to gain external
recognition for doing so – including, for the first time, ourinclusion in the Dow Jones Sustainability Asia/Pacific Index lastyear.
Nevertheless, we are only at the beginning of our journey, andwe recognize that there is much more to do. We must – andwill – make further strides on sustainability if we are to continue
our success. As we implement improvements in the years tocome, we look forward to an even more prosperous future thatwill benefit not only the Group but society in general.

Mitsuomi Koizumi
President and Chief Executive Officer
Japan Tobacco Inc.

JT Group Sustainability Report | 5

CANADA

U.S.A.

Corporate profile
About the JT GroupWe are the third-largest international tobacco products manufacturer
in the world by market share, with offices and factories in more than
70 countries. Our products are sold in more than 120 countries, andwe own three of the top ten global cigarette brands by sales volume:
Winston, Mevius, and Camel. We also operate pharmaceutical,
beverage and processed food businesses. Headquartered in Tokyo,
JT is listed on the Tokyo Stock Exchange and is made up of five main
business units: international tobacco, Japanese domestic tobacco,
pharmaceutical, beverage, and processed food.

BRASIL

Number of full time employees (*A)
934
892International tobacco business

848

6,096
6,563

Japanese domestic tobacco
business

25,829Pharmaceutical business

24,397

5,122

5,035

4,912
1,744

5,968
26,73149,507
End of FY2012

51,563

1,787

End of FY2013

1,840

51,341

Beverage business
Processed food businessEnd of 2014

Other business

11,043

11,022

11,648

Revenue (billions of Yen *A)
International tobacco business

FY2012 FY2013

2014

1,010.7

1,270.0

1,328.0

Japanese domestic tobacco business

687.1

710.3

685.9

Pharmaceutical business

53.2

64.4

65.8

Beverage business

185.5

184.5

181.3

Processed food business

168.7

156.9

161.2

Other business

15.0

13.6

11.3

2,120.2

2,399.8

2,433.5

Total

International tobacco business
From its headquarters in Geneva, Switzerland, our international
tobacco business runs 30 tobacco-related manufacturing
facilities around the world and sold 398.0 billion cigarettes in
2014. Its global flagship brands are Winston, Camel, Mevius,LD, Benson & Hedges, Glamour, Silk Cut, and Sobranie. Key
markets are France, Italy, Russia, Spain, Taiwan, Turkey, andthe U.K.
*Employees’ data excludes locations not currently on our SAP HRManagement System.

International tobacco business in 2014
Sales

¥1,328.0 6,547 16,580
billionfemales

Sales volume

Cigarette andtobacco-related
factories

398.0

billion cigarettes

6 | JT Group Sustainability Report

Employees*

males

30

RUSSIANORTHERNIRELAND

Cigarette and tobacco-related factories

SWEDENGERMANYBELGIUM

POLANDUKRAINEKAZAKHSTANROMANIA
SWITZERLANDSERBIA

International

30

Japanese domestic

12

Total

42

TURKEY

ANDORRACountries in which we directly source tobacco

JORDAN

SPAIN

7

EGYPT
MYANMAR
SUDAN

SOUTH SUDAN
MALAYSIATANZANIAZAMBIAJapan

MALAWI

SOUTH
AFRICA

Cigarette and tobacco-related factoryCountries in which we directly source tobacco

Japanese domestic tobacco business in 2014
Japanese domestic tobacco business
JT is the sole manufacturer of tobacco products in Japan.
Total sales volume was 112.4 billion cigarettes in 2014, andwe held a 60.4% market share in Japan based on sales
volume, as reported by the Tobacco Institute of Japan. Our
main brands are Mevius, Seven Stars, and Pianissimo. Our
Japanese domestic tobacco business also sells cigarettes in
China, Hong Kong, and Macau.

Sales

Employees¥685.91,519 10,129

Sales volume

Cigarette andtobacco-related
factories

billion112.4

femalesmales

billion cigarettes

Pharmaceutical business
Our pharmaceutical business conducts
research and development both in Japanand the U.S.A., and its key market isJapan. It focuses on three areas: glucose
and lipid metabolism, virus research, andimmune disorders and inflammation.
Our products include Remitch Capsules(anti-pruritus), Truvada Combination
Tablets (anti-HIV), and Stribild
Combination Tablets (anti-HIV). In Japan,
sales and marketing is conducted by our
subsidiary, Torii Pharmaceutical.

Pharmaceutical business in 2014
Sales: ¥65.8 billion
Employees:
344 females and 1,496 males
Production sites: 1

12

Beverage businessOur beverage business focuses on theJapanese market only, and produces
non-alcoholic beverages such as readyto-drink coffee and other soft drinksthat are sold in convenience stores andsupermarkets. Our beverage businessalso owns one of Japan’s leading
vending machine operators and sells
many of its brands through vending
machines across the country. Brands
include Roots and Momono Tennen-sui.

Processed food business
Our processed food business focuses
mainly on the Japanese market and isoperated by our subsidiary, TableMark.
Key brands are Sanuki Udon noodles,
Takitate Gohan packed cooked rice, andBakers Select frozen baked bread andpastries. We also operate a production
facility for seasonings, as well as theSaint-Germain bakery chain in Japan.

Beverage business in 2014

Sales: ¥161.2 billion

Sales: ¥181.3 billion

Employees:
2,768 females and 3,200 males

Employees:
549 females and 4,573 males

Production sites: 31

Processed food business in 2014

Production sites: 30
business partner manufacturers (contracted
manufacturing not owned by the JT Group)

JT Group Sustainability Report | 7bauy to cco leabefW

We source

For the full list of material issues in ourinternational tobacco businesssee page 19.

Consumers

merchants
rom
ff

ro

er

half of our l
ea
hly
g
u

Although our pharmaceutical, beverageand processed food businesses face somesignificant issues – including aroundthe ethics of research and development
and food safety – the majority of ourimportant impacts are in our tobacco
businesses, where smoking and health,child labor, and illegal trade are among
the major causes of concern for our
stakeholders. Here we map out what
those issues are, and where they occur
along our tobacco value chain.

8 | JT Group Sustainability Report

Our supply chain

2,000 farmThis means we must take measures
to exert our positive influence and to
reduce our negative impacts, not just inareas where we have direct control andinvolvement – such as manufacturingand marketing – but in spheres where
we have only indirect influence, such aswith suppliers and consumers.

tly from mor
et
ri ec
d

n4
ha

As a global company we have
many impacts – some big, some lesssignificant. To make a real differenceon sustainability, we need to focus on
tackling the bigger issues – and to do so
across our entire value chain, from thestarting point where our raw materials
are sourced to the end point where our
products are thrown away.

Our tobacco value chains

Our key issues
and impacts

Human rights(see p.27)

Illegal trade(see p.23)

Child labor prevention(see p.37, 38)thr

9 plants

co leafbac
toprocess
and
th
h
e
es

Our company

Human rights(see p.27)(see p.23)

Our customers and consumers
Product innovation(see p.48)

and sold to(see p.47)

33 facountries

Smoking and healthin more tha
ers
n
l
i
ta

0c
12

(see p.23)

reIllegal trade

to more th
ted
an
u
ib

0 warehouses
50

ducts are d
ist
Pro
r

(see p.25)

ducts
pro

Workplace healthand safetyo(see p.28)

ke our toba
ma
cc
s
e

tor
i

Employee development andtalent management

ls
ria

Su
pp

Illegal trade
f other m
ate
rs o
lie

Tobacco regulatory
landscape(see p.49)

JT Group Sustainability Report | 92014 at a glance
JT Group and sustainability
In 2014 we accelerated thedevelopment of our Group-wide
sustainability strategy, a process thatbegan in 2012. As a first step, weare developing and implementing
the strategy in our international
tobacco business, reflecting its sizeand potential impacts. We now havededicated CSR departments in JT and
our international tobacco business.
Since 2013 we have a Senior Vice
President for CSR in JT, reflecting theseriousness of managing CSR issues
across the Group.

• We were included for the
first time in the Dow Jones
Sustainability Asia/Pacific Index,
and were placed on the Japan500 2014 Climate Disclosure
Leadership Index (CDLI) by
the CDP for the depth andquality of the climate change
information we disclosed in2014.

• We held around 60 interviews
with external stakeholders
to seek their views on
sustainability issues that affectour international tobacco
business, and will use theresults to shape our future
strategy.

p.14

How we do business
We revised the Code of Conduct of
our international tobacco business toprovide more information on areas
such as anti-bribery and corruption
and human rights.
Over the year, 99.5% of employees
required to adhere to the JT Group
Code of Conduct participated incompliance training.

• There were 402 cases of alleged
Codes of Conduct breaches
reported across the JT Group,up from 375 in FY2013. We
believe this rise is evidence ofincreasing confidence in thereporting system rather than anunderlying jump in the numberof breaches.
• We established a Group-wide
anti-bribery policy.
• Our Anti-Illicit Trade team gave
more than 850(*E) tip-offs about
illegal tobacco trade to law
enforcement agencies – a 60%
increase from FY2013.

p.20
10 | JT Group Sustainability ReportOur people
There were five occupational fatalities
in our international tobacco businessduring the year. Two employees
died in incidents while traveling on
company business. Three contractors
died as a result of accidents during
construction and maintenanceactivities. In addition, there were two
third party fatalities, one as a resultof a collision with a company vehicle
and one as a result of an accident on
the construction of a building thatwill be occupied by the business oncompletion. All reportable incidents
are investigated to determine root
causes so as to identify actions that
could be taken to reduce the chance of asimilar incident occurring. For further
information see page 25.

• Our lost time incident (LTI) rate
– which measures the numberof LTIs per 200,000 hours
worked was 0.32(*D), up from
0.26 in FY2013. The increase
was largely a result of incidents
in business locations that wererecently acquired.
• In JT, female representation
within management increased
to 2.6%(*B) from 1.4% two
years ago, against our aim ofreaching 10.0% by 2023.

• Our international tobacco
business was recognized as a
Top Employer in 33 countries
around the world, including the
top 3 position in Europe, and iscertified by Investors in People
in 17 countries.
• 98.0% (*D) of management
positions were filled throughinternal hires.

p.24

Responsible supply chain
We updated our Agricultural Labor
Practices (ALP), which have been inplace for two years and apply to allcontracted tobacco farmers outside
Japan, so that they now contain aclear definition of what constitutes
hazardous work. In 2014 ALP covered
7% of our directly contracted farmers.
We will also extend our ALP to cover
third party tobacco leaf suppliers from2016.

• There were 5,470 children
withdrawn from child labor in
Brazil, Malawi, and Zambia
thanks to our ARISE program,which helps tobacco farmers
send their children to school.
We also engaged with Human
Rights Watch on eliminating
child labor in the U.S.A. andchaired a group in the U.S.A.
to coordinate tobacco industry
efforts in that sphere.
• Implementation of our new
profit model, designed to help
tobacco farmers improve theirlivelihoods, was completed
in all countries outside Japanin which we directly source
tobacco leaf.

• During 2014, as part of a pilot
program, we helped farmers in
Malawi and Zambia build 3,130
live barns in total by planting
trees that grow to form themain structure of a curing barn,
thereby doing away with theneed to cut down trees to makethe barn.
• Our international tobacco
business issued 205
merchandise suppliers witha questionnaire about issues
such as child labor and theenvironment. Around 65%
proved to be fully compliant
with our requirements.

p.32
JT Group Sustainability Report | 112014 at a glance
Environment
We reduced Scope 1 and 2 greenhousegas (GHG) emissions by 1.2% (*A)
compared with FY2013, largely byintroducing energy action plans at
our sites. By the end of the year we
had achieved a 12.6% cut in GHG
emissions over our baseline of FY2009,
putting us well on track to achieve our
20% emissions reduction target for2020.

• We consumed 10,096
terajoules (TJ) of energy across
the JT Group, down from
10,468 TJ in FY2013, and weare making cuts in energy use
through efficiency programs.

• The amount of water wewithdrew fell by 0.2 (*A)
million m3 compared with
FY2013.

p.40

Product and consumer impacts
We further strengthened our efforts
on emerging products – such as
e-cigarettes and tobacco vapors – bysetting up a global team to focus onbringing together all our functions
and know-how in this area. We also
introduced Ploom, a heated tobacco
product based on vaporization
technology, into two new markets –France and the U.K. – and acquired
the U.K. company Zandera, whichmakes the e-cigarette brand E-Lites.

12 | JT Group Sustainability Report• In the U.K. our youth accessprevention program of morethan 6,000 test purchases led
to a 7% increase in the numberof retailers requesting ID.
• Our pharmaceutical businessprovided refresher training for
medical representatives on
how they can better inform
health workers about theeffectiveness and possible
side effects of our prescription
drugs.

• In Japan our beverage andprocessed food businesses
conducted extra inspectionsof all factories, partly inresponse to major food safetyincidents involving some othercompanies in Asia.

p.46

The bigger picture• Our international tobacco
business provided support to314 programs worldwide.

We invested ¥8,923 (*A) million incorporate citizenship and community
activities, including through donations
to the Eliminating Child Labor in
Tobacco Growing Foundation and arange of community support activities
within our tobacco supply chain.

• In the U.K., volunteering by our
employees benefited more than
13,000 vulnerable people.
• In Japan we provided¥94.3 million to support 24
reconstruction projects arisingfrom the Great East Japan
Earthquake.

p.56

JT Group Sustainability Report | 13

JT Group andsustainability
Our approach tosustainability is governedby the JT Group “4S”
model, under which webalance the interests offour stakeholder groups:
consumers, shareholders,
employees, and wider
society.
We consider the interestsof our four stakeholder
groups before making
business decisions.
By doing so, we aim
not only to fulfill our
responsibilities toward
these groups, but to exceed
their expectations of us.

14 | JT Group Sustainability ReportStrategy and approach
The “4S” model

Our mission

The “4S” model
We have built strong relationships with thefour stakeholder groups in the “4S” model,
and through engagement are able to reflect
their views in our business activities.

Developing our strategy
In 2014 we accelerated the developmentof our Group-wide sustainability
strategy, a process that began in 2012.
As a first step, we are developing
and implementing the strategy in ourinternational tobacco business, reflecting
its size and potential impacts. We now
have dedicated CSR departments
in JT and our international tobacco
business. Recognizing the seriousnessof managing CSR issues, in 2013 we
appointed a Senior Vice President for
CSR in JT, who is also an Executive
Officer.
Since 2013 we have conducted regular
engagement with stakeholders to
identify the most important sustainability

issues for our international tobacco
business, and to monitor whether thesematerial issues are changing over time.
This approach will be extended across
the JT Group in 2015.
The JT Group is looking to adopt global
standards on sustainability, and in2014 our reporting began referencing
GRI, a body that provides sustainability
reporting guidelines. We aim for our
FY2015 report to be in accordance withGRI G4 ‘Core’.

which evaluates companies’ approachon sustainability in their sectors. We
were also placed on the Japan 500 2014
CDLI by the CDP – a global body thathelps companies measure, manage, anddisclose environmental performance –for the depth and quality of the climatechange information we disclosed in
2014.

The JT Group’s progress on sustainability
is being recognized: in 2014 we were
included for the first time in the Dow
Jones Sustainability Asia/Pacific Index,

Business-specific sustainability issues
Different parts of the JT Group havedeveloped specific approaches tosustainability linked to their level of
exposure to risks. In our tobacco
businesses, for example, stakeholder
engagement has shown us that
we need to continue to focus on
the health impacts of our products.
In our tobacco leaf supply chain,
improving the environmental and social
conditions of farming communities andrespecting human rights are among

the most material issues, while in ourpharmaceutical business, where patientsare our most important stakeholders, we
focus on an ethical approach to researchand development and responsible
marketing of products. In our beverageand processed food businesses, foodsafety is a key issue. For detail on
how we identify our most importantsustainability issues in the tobacco
business see ‘Our material issues’ on
page 19.

JT Group Sustainability Report | 15

JT Group and sustainability

To create, develop, and nurture
unique brands to win consumer
trust, while understanding andrespecting the environment andthe diversity of societies andindividuals.

JT Group governance
The JT Board of Directors holds ultimate responsibility forthe administration and supervision of our activities and is
supported by a governance structure that includes bodies suchas the JT Group Compliance Committee and the Compensation
Advisory Panel.
Since April 2014 our Board of Directors consisted of eight
Directors, two of which were independent. Five members of
the Board also served as Executive Officers and three were

non-executive, including the JT Group Chairman. The separate
Audit & Supervisory Board consisted of four members, two of
which were independent.
Our corporate governance framework features internal
controls, such as audit and risk management, with results ofthese activities reported regularly to the Board. Our Annual
Report provides further details on our governance structures.

Compliance and audit

Risk management

We outline our compliance requirementsin the JT Group Code of Conduct, underwhich all Directors and employees mustfully comply with applicable regulations,internal rules, social norms, and othercompliance standards. The JT Group
Compliance Committee discusses
important compliance-related issues andreports to the Board, while the Audit andSupervisory Board conducts audits on
operations, including compliance-related
issues, and on accounting.

Our approach to addressing key financial
and business risks is detailed in our
Annual Report. These risks are reported
to, and discussed within, the Boardof Directors at least every quarter. As
part of our risk management process,internal audits are conducted by the
independent Operational Review andBusiness Assurance Division, reporting
directly to the President of JT. We also
have crisis management and disaster
control systems in place.

JT Group sustainability governance structure

Identification and mitigation ofsustainability risks is incorporated into
our Group risk management approach.
Key Group-wide sustainability risks
include instability in the procurement of
key materials, pressure from illegal trade,and natural disasters.

Top Level
Management Committee
Discussion and decision making on theGroup-wide policies and themes that are
relevant to the JT Group's social andenvironmental responsibilities

Sustainability
governance

CSR Division
Develop an understanding of global CSR trends;
conduct gap analyses on the JT Group approach andperformance; make recommendations to the JT Groupmanagement; and assist businesses in incorporating
CSR into their respective businesses
Establish the Group-wide CSR policies and carry out
related initiatives
Internal and external CSR communications
Monitor CSR-related activities andmanagement (including those of other functions)

Businesses

Corporate functions

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

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

16 | JT Group Sustainability Report

A group of Board Members andrelevant Executive Officers, along with
the CEO and the Senior Vice President
for CSR, regularly discuss Groupwide sustainability issues. The CSR
Division helps with these discussions
as well as Group-wide managementof sustainability – including identifying
and evaluating sustainability issues,measuring and reporting on nonfinancial performance, and encouraging
employees to pursue sustainability
objectives in their work. Businesses
and corporate functions have ultimate
responsibility for planning andimplementing their own sustainability
initiatives.

Stakeholder engagement
Under our “4S” model we talk to stakeholders across the JT
Group on a daily basis, but also engage with them in special
forums. In 2014 we held a series of around 60 interviews
with stakeholders – including consumer groups, employees,
investors, NGOs, trade union representatives, and suppliers– to seek their views on sustainability issues that affect ourinternational tobacco business. We are using the results
to shape our future strategy, and the views expressed bystakeholders have also fed into the development of this report.
This exercise will be expanded to Group level in 2015.

Our supply chain

SOCIETY

Our company

Our customers
and consumers

CONSUMERSSHAREHOLDERSEMPLOYEESSOCIETY

SOCIETY

Shareholders

Consumers

Employees

Society

One of the main forums
for engagement withshareholders is our General
Meeting of Shareholders(GMS). There has been agrowth in interest at GMSs
in our sustainability activities,
and this continued in 2014
with a focus mainly on
tobacco product innovation.
During the year we also
dealt with an increased
number of requests frominstitutional investors wanting
to talk about sustainability.
We discussed these issues
both at regular and ad hoc
meetings with shareholders.

We communicate with
consumers on a daily basis
through our sales force
and our call centers, andwe aim to make productimprovements based on
consumer feedback. We
also receive feedback via
our website. Stakeholder
engagement conducted in2014 by our international
tobacco business showedthat key issues for consumers
were health risks of smoking,responsible marketing,product innovation, illegal
trade, and environmental
impacts of products. For
details on how we have
responded to such concerns
see page 46.

The most important channel
for communicating with
employees is in theireveryday work, including
through performanceappraisals and face-to-facemeetings with line managers.
We gather staff opinions
via the intranet and throughour Employee Engagement
Survey, which highlights
our strengths as well as
areas for improvement.
Our 2014 survey (*C) showedthat key strengths included
the strong commitmentof employees to company
goals and values. Potential
areas for improvement varyfrom function to function,and rather than taking a
one-size-fits-all approach,each division takes its own
initiatives to improve theworkplace. Additionally,
employees can reportconcerns on potential
violation of our Codes ofConduct confidentiallythrough our reporting
concern mechanism(see page 21).

The list of our stakeholders
in wider society is long,including governments andlocal authorities, NGOs, tradeunions, academics, retailcustomers, and suppliers.
We talk and listen to thesegroups in different ways andthrough various forums, but
often our contact – such aswith retail customers andsuppliers – is on a daily basis.
One key way of interactingwith stakeholders in societyis through our involvement
in organizations concernedwith societal issues, suchas the Industrial Federationfor Human Rights, Tokyo,
and the Institute of Business
Ethics in the U.K.
Formal stakeholder
engagement to understandmaterial issues for ourinternational tobacco
business in 2014 showedthat concerns of stakeholders
in wider society wereparticularly focused on thehealth risks of smoking,bribery and corruption,
human rights, and illegal
trade.

JT Group Sustainability Report | 17

JT Group and sustainability

Engaging with our stakeholders throughout the value chain

Memberships and endorsements
In 2014 our international tobacco
business became a member ofBusinessEurope, an advocacy groupthat campaigns on issues affecting
businesses in Europe. We sit on multiple
BusinessEurope working groups –including one on the European Union’s
Tobacco Products Directive and anotheron plain packaging of tobacco products.
We are also a member of the U.S.based Farm Labor Practices Group,a multistakeholder organization that
focuses on improving conditions forfarm workers in the U.S.A. We chaira group to coordinate efforts amongtobacco-buying companies to tackle
child labor in the U.S.A.

JT is a member of the Business Ethics
Research Center in Japan, which helps
participating corporations consider
ethical issues in the workplace, includingby sharing experiences with otherJapanese companies.
The JT Group is a member of the
Eliminating Child Labor in Tobacco
Growing Foundation, and in 2014,
signed the Foundation’s Pledgeof Commitment and Minimum
Requirements on combating child labor.
The Pledge affirms that Foundation
Board members respect and recognize
the principles and rights enshrined in theInternational Labour Organization (ILO)
Conventions and Recommendations

on child labor. It further affirms a
sector-wide commitment to uphold arobust policy on child labor, minimum
requirements on tackling child labor,
and implementation consistent with theUnited Nations (UN) Guiding Principles
on Business and Human Rights.
Our international tobacco business isalso a member of the UN’s Child Labour
Platform, a multisector, multistakeholder
forum for sharing experiences andlessons learned in eliminating child labor,
particularly in the supply chain.

Engaging with governments and regulators
We seek open and transparent dialogue
with governments and regulators so
we can express our point of view on
regulation that affects our business,and, within our international tobacco
business, have clear guidelines forpolitical engagement embedded within
the Code of Conduct. If we see an issue
or oversight within a government’s
proposed course of action, we offer
alternative solutions wherever possible.
We have certain responsibilities when

18 | JT Group Sustainability Report

we are consulted by governments or
take part in consultation processes.
Among these are:

• To provide credible evidence
substantiating our positions andarguments.

• To be respectful of each country’s
decision-making process.

We believe participation of this kind iscritical to ensuring regulation is effective,
proportionate, and meaningful. Openand honest engagement results in betterand more informed regulation and is in
the best interests of all parties. See page
49 for further details.

• To offer alternative solutions, wheneverpossible, that meet the principles ofbetter regulation if issue is taken witha government’s proposed course ofaction.

Our material issues
Identification

Going forward

In 2014 we engaged with 60 external
stakeholders, as well as relevant
employees, to calibrate the list of
material issues for our international
tobacco business. This helped to refine
the matrix below, which shows the 19
most material issues and how theyrank in relative importance among both
external and internal stakeholders. The
final list was reviewed and validated
internally by senior management.

Work on identifying our material issues
will, from 2015, expand to cover thewhole JT Group. Once this has been
completed, we will carry out annual
assessments with stakeholders tomonitor any changes in materiality
over time. In the absence of such a
detailed process for our non-tobacco
operations in 2014, for the purposes ofthis report we selected issues material
to our pharmaceutical, beverage andprocessed food businesses via internal
discussions and by examining theapproach of peer companies.

HIGH
MEDIUM

Importance to external stakeholders

Our material issues in the international tobacco business• Working with employees• Equality and diversity in the workplace• Anti-bribery and corruption• Resource efficiency: water and waste• Anti-competitive behavior• Health risks of smoking,transparency, and regulation *• Product innovation• Workplace health and safety• Human rights **• Elimination of child labor• Illegal trade• Employee development and talentmanagement• Energy and emissions• Product environmental impacts• Tobacco supply chain: sustainable
wood ***• Biodiversity• Responsible marketing• Agricultural labor practices ***• Long-term tobacco farmer profits ***MEDIUM

HIGH

Importance to the international tobacco business
MATERIALITY
THRESHOLD*Content on health risks of smoking, transparency, and regulation can befound within the following sections in the report: Tobacco: smoking andhealth (page 47); Tobacco: regulatory landscape (page 49).
**Human rights issues in the matrix include those in the supply chain(page 37) as well as in our workplace (page 27).

***Supplier standards and practices were identified as an issue of highimportance by stakeholders, and were included in our materiality matrix
in the FY2013 report. During the internal validation process in 2014, thisissue was agreed to be a management approach rather than an ‘issue’ initself. Long-term farmer profits, agricultural labor practices, biodiversity, andsustainable wood are material issues within our supply chain approach.
Therefore, these have replaced supplier standards and practices within thematrix. Please refer to page 33 for further details on how we manage ourrelationships with suppliers, which remain a key element of our sustainability
approach.

JT Group Sustainability Report | 19

JT Group and sustainability

We conducted our first materiality
assessment in 2013 for our international
tobacco business by drawing on,among other things, internal policies,
reports and surveys, and media
communications. This resulted in apreliminary list of 43 sustainabilityrelated topics that are relevant to our
tobacco business. After discussions
with internal and external stakeholders,these were then prioritized to 20 topics.
The final list was reviewed and validated
internally by senior management.

Calibration andstakeholder feedbackHow we do business
All operations and employees
within the JT Group mustcomply with the high standardsof integrity laid down in our
Codes of Conduct, which
underpin how we do business.
Our Codes also outline our
responsibilities to stakeholders,which include preventing bribery
and corruption, avoiding
discrimination, respecting
human rights, environmental
protection, data privacy, andfair competition.
Employees are trained on
our Codes, and there aremechanisms for them to reportconcerns about potential
breaches or violations.

99.5%

(*C)

2014

98.9%
FY2013of employees trained on the JT
Group Code of Conduct

20 | JT Group Sustainability Report

1.7%

(*A)

We have signed

42

(*E)

agreements with government
authorities in 34 countries to help
counter illegal tobacco tradeinternationally

2014

2.9%
FY2013of reported concerns related tocorruption

Code of Conduct
The JT Group Code of Conduct outlines our responsibilities
toward consumers, shareholders, employees, and society.
Our international tobacco business and our pharmaceuticalsubsidiary have their own Codes of Conduct, based on the JT
Group Code but reflecting their operating circumstances.

The Code of Conduct of our international tobacco business wasrevised in 2014 to provide more information on areas such as
anti-bribery and corruption and human rights. The JT Group
Code is being revised in 2015.
During 2014, 99.5% (*C) of employees who are required toadhere to the JT Group Code of Conduct participated incompliance training, an increase from FY2013 (98.9%). To
meet the needs of various employees, compliance training isprovided face-to-face, online, or on the job.

ComplianceIn our Japanese domestic tobacco,
pharmaceutical, and beverage andprocessed food businesses, every
division is required to assess compliancerisks and submit plans to address them.
An annual compliance survey feeds
into each division’s action plans foraddressing compliance risks, and eachdivision must hold a compliance meetingat least once a year. Approximately
28,300 employees1 (96.2%,*C)
responded to the 2014 compliancesurvey.
As a result of feedback gathered fromthe survey, we have, among otherthings, reported the outcomes to senior
management, encouraged them todeliver compliance-related messages
and to participate in management
meetings, and carried out a review of
the Reporting Concern Mechanism user
guide.

In our international tobacco business,
almost 20,000 employees responded
to the 2014 JTI compliance survey – a
response rate of 86%. More than 80%
of responses were positive for the
majority of topics covered, making ourinternational tobacco business oneof the best ranked companies whencompared to similar industries. The
survey also showed a high level ofawareness among employees about theCode of Conduct, with most saying theyfound it relevant to their work and that it
was properly enforced.

Excluding Torii Pharmaceutical.

1.7%

Breakdown of cases
reported (*A)

FY2013

If an employee is concerned about
a potential violation of our Codes ofConduct, they can contact their line
manager, human resources lead, amember of the compliance team, or insome countries, including Japan, an
external concern-reporting service. Allconcerns are treated confidentially.
We follow up on all reports across the
JT Group and, where necessary, launch
investigations and take corrective action.
In 2014, 402 cases were reported
across the JT Group, up from 375 in
FY2013. We believe this is a reflectionof increasing confidence in the systemrather than an indication that theunderlying number of concerns is rising.

cases related to corruption

50.5%

375

Reporting concerns

21.6%

2.9%

41.9%

responded to the 2014 compliancesurveyHowever, the survey revealed someareas that require attention. For instance,a significant number of respondents
were concerned about possible
retaliation when raising complianceconcerns, and only 37% of employees
who believed they had witnessed a
violation of the Code of Conduct actuallyreported it. Only two-thirds of those who
did report their concerns said they had apositive experience.
1

23.5%

96.2%

(*C)

402

0.2%

cases related to human rights
cases related to anticompetitive behavior

2014

25.9%

cases related to labor
practices (excl. human rights)
cases not related to above
categories

31.7%
JT Group Sustainability Report | 21

How we do business

Every employee across the Group receives the relevant Codewhen they join, or when there is an update to the Code.
We also require all commercial partners in our international
tobacco business to act in accordance with our standards.
Our Codes of Conduct outline our legal and ethical obligations
and describe practices and procedures that must be followed
to meet these obligations. By doing so, they protect ourbusiness from actions that might lead to fines or criminal

penalties, loss of business, and reputational damage.

Anti-competitive behavior
Competition laws and fair competition are covered by ourCodes of Conduct, which prohibit employees from discussing
business operations with competitors.
In our international tobacco business, for example, if an
employee is in a conversation with a competitor and sensitive
commercial information is discussed, they must end theconversation, express disagreement with discussing such
topics, leave immediately, and report the matter to the legal
department.

We provide employees with guidelines on our anti-trust andcompetition law policy, and all employees in our international
tobacco business are required to attend annual training eventson anti-competitive behavior.
We have one case pending for alleged anti-competitive
behavior in Tanzania. This was filed by the Tanzania Fair
Competition Commission in 2008 against a local subsidiary.
The allegations are rejected and the case is ongoing.

Anti-bribery and corruption
Our Codes of Conduct set out a zero tolerance approachto corruption in our operations. Our international tobacco
business provides employees with online training, runs
anti-corruption compliance workshops for regional and local
management teams in its manufacturing operations, andincludes anti-bribery and corruption clauses in all its suppliercontracts. We also encourage employees to report concerns
about bribery or corruption.
The JT Group established a Group-wide anti-bribery policy
in 2014 that takes into account legislation such as the Unfair
Competition Prevention Act of Japan, the U.S. Foreign Corrupt
Practices Act, the U.K. Bribery Act 2010, and anti-bribery laws
in China.

22 | JT Group Sustainability Report

In 2014 our international tobacco business, which is most
exposed to risks in this area, commissioned a law firm to
identify any gaps in its anti-bribery and corruption efforts.
In 2015 we will use the results of this exercise to makeadjustments to our policies and procedures, and to engage
with employees. Employees in our international tobacco
business are kept up to date on anti-bribery and corruption
via training both on the Code of Conduct and on our gifts,
hospitality, and entertainment policy.

Gifts, hospitality, and entertainment
We do not encourage a culture of
exchanging gifts, hospitality, andentertainment (GHE) as this may
damage the JT Group’s reputation. We
believe the purpose of GHE should be topromote healthy business relationships,
not to seek preferential treatment, andwe comply with all local laws in thisarea. We updated the JT Group’s GHE
policy in 2014, and our international
tobacco business will adjust its policy in2015.

GHE policies and procedures arecontained in the Code of Conduct of ourinternational tobacco business, which
all employees are required to confirm
that they have received and read. Usersof our GHE software must take part in
specialized online training on GHE. In
2014, 304(*E) employees underwent suchtraining.

Tackling illegal trade
Illegal trade is a major issue for the tobacco industry andgovernments. According to Euromonitor, around 570 billion
cigarettes – or 10% of the world’s supply – are produced
illegally each year, leading to annual tax revenue losses of
US$39.0 billion and funding organized crime. The diversion of
product into illegal channels remains a constant threat.
We seek to combat this criminal activity by raising awarenessamong consumers, retailers, and the authorities, andby working closely with law enforcement agencies andgovernments.

illegal activity internationally. These include a 15-year European
Union ‘Cooperation Agreement’ and a similar agreement with
the Government and Provinces of Canada.
It is important that we tackle illegal trade across our entire
value chain and in conjunction with others in the industry. For
instance, we need to work with suppliers to prevent tobacco
being diverted straight from farms into illegal channels. Key
programs such as Know Your Supplier (page 34) and KnowYour Customer ensure that we only buy from, and sell to,
reputable business partners.

Our international tobacco business has signed 42 agreementswith government authorities in 34 countries to help counter

Our approach
As with any business, it is in our own
interests to ensure that our products are
not diverted from their planned route.
One way to do this is by supplying
products only in quantities that reflect
legitimate consumption levels in theirintended market of sale. We study
market demands so that we can adjust
supply accordingly.
Our international tobacco business
investigates the smuggling of its
products and takes action to stop thiscriminality. This includes providing
information and support to law

enforcement officials that can lead to theprosecution of illegal traders.
Our Anti-Illicit Trade team focuses on
prevention as opposed to reaction.
We provided more than 850 (*E)
tip-offs to law enforcement agencies
in 2014 (a 60% increase from 2013),
including notification of 324 illegal
shipments, leading to 389 seizuresof illegal products. In Russia alone
we have helped to reduce seizures ofgenuine JT Group product from 24.7
million cigarettes in 2010 to 149,000
in 2014. The number of genuine JT

Group product seizures notified by theEuropean Anti-Fraud Office (OLAF)
worldwide has fallen by 77% in the four
years up to the end of 2014.
We invest heavily in developing
technology to combat illegal trade. In
many markets we use ‘Codentify’ trackand-trace technology to help determine
where our tobacco products may havebeen deviated from their intended
distribution route into illegal channels.

JT Group Sustainability Report | 23

How we do businessAs a rule, approval must be sought
for all GHE exchanges for any JT
Group company including those withgovernment and public officials. In ourinternational tobacco business all GHE
exchanges with non-governmental third
parties above US$250 must receive priorapproval. For government and public
officials, all requests, regardless ofamount, must be approved. The numberof GHE requests in 2014 rose to 772 (*E),
from 673 in FY2013.

Our people
Our employees are a critical factor in our success,and are one of the key stakeholder groups in our“4S” model. We need to attract and retain the best,from a diverse range of backgrounds, which means
providing working environments that offer people
the opportunity to thrive and to develop theirtalent. We have rules and standards to govern thefair treatment of employees – and aim to ensure
they are safe and healthy at work. We also engage
in open dialogue with employees to generatemutual respect.

5

77.8%

0.32

(*D)

2014

85.4%

2014

0.26

2014

1

FY20139.4%(*A)

of management positions held by
women at the end of 201424 | JT Group Sustainability Report

FY2013

FY2013of cigarette and tobacco-related
factories certified to OHSAS 18001
safety management standard(*D)

lost time incident rate per
200,000 hours worked

fatalities

98.0%

(*D)

2014

95.9%

FY2013management positions filled byinternal hires

8

(*A)

alleged cases of workplace
discrimination in 2014

Workplace health and safety
We believe that effective health and safety management
goes well beyond complying with legislation. Our company
standards often exceed local legal requirements and our scope
extends beyond our employees to cover contractors andvisitors to our operations.

All Japanese domestic cigarette and tobacco-related factories
owned by JT and 69.7% in our international tobacco businessare certified to the OHSAS 18001 safety management
standard.

We have a uniform understanding of the importance of healthand safety, but each business has its own policies and takes
an approach that best suits its situation, maintaining robust
management systems and systematic assessment proceduresthat identify workplace risks. We are committed to continual
improvements in performance on health and safety, and toeliminating all accidents.

TargetWorkplace health and safety data (*D)

Certify all cigarette and tobacco-related
factories to OHSAS 18001 by 2017

FY2012FY20132014

Target

1

1

1

5

0

Number of lost time incidents (LTIs)

105

92

92

113

N/A

LTI rate (number of LTIs per 200,000 hours worked)

0.31

0.28

0.26

0.32

N/A

% of cigarette and tobacco-related factories certified to OHSAS 18001

90.0

89.7

85.4

77.8

100

Number of fatalities

Safety in our Japanese domestic businesses
JT is two years into a five-year
Occupational Safety Hazard Prevention
Plan that has set a target to eliminate
all occupational accidents by 2017.
Although ten out of 12 cigarette andtobacco-related factories reported nolost time incidents (LTIs) in 2014, there
were a total of 27 (*B) LTIs, which means
we still have some way to go if we are tomeet our target. In particular, we need toreduce accident rates among our sales
staff.

TargetEliminate occupational
accidents in JT by 2017

Training is an essential part of achieving
our goal, and our Japanese domestic
tobacco manufacturing operations
are provided with Kiken Yochi, or risk
prediction training. This brings together
small groups of employees to identify
operational risks, determine root causes,and develop risk mitigation approaches
and goals for their factory. Awarenessraising training programs will also be
extended to our sales staff.

Safety in our international tobacco businessIn our international tobacco business,
our strategy is to build a sustainablesafety culture that delivers an incidentfree work environment – and to do thisby encouraging employees to adopt safe
workplace behaviors. However, given
the vast differences in safety culture weface across the countries in which we
operate, this is not a simple task.
In 2014 there were five occupational
fatalities in our international tobacco
business. Two employees died inincidents while traveling on company
business. Three contractors died as aresult of accidents during construction
and maintenance activities. In addition,
there were two third party fatalities,
one as a result of a collision with acompany vehicle and one as a resultof an accident on the construction ofa building that will be occupied by thebusiness on completion. All reportable
incidents are investigated to determine
root causes so as to identify actions that
could be taken to reduce the chanceof a similar incident occurring. We
have carried out a review of incidents
and audit findings in order to identify
our highest risks. We are developing
and implementing programs to further
address these, which include working
at height, working with machinery andequipment, managing contractors, andfleet and vehicle safety.
Unfortunately, having made progressin previous years, the LTI rate in ourinternational tobacco business increased
in 2014 from 0.24 to 0.33. A major
factor in this increase was incidents
that occurred in recently acquired
businesses, and we are prioritizing
efforts to address this.
The 2014 vehicle accident frequency
rate in our international tobacco
business improved slightly, from 6.1
to 5.8 accidents per million km. Road
traffic accidents are an important factor
in our accident and fatality statistics.
One way to improve our performanceis through our Fleet Safety Program,which provides safe driver training
and guidance to reduce road trafficcollisions.
JT Group Sustainability Report | 25

Our people

FY2011International tobacco business road safety data (*E)

2011

2012

2013

2014

TargetNumber of vehicle accidents

1,757

1,508

1,362

1,318

N/A

8.4

7.1

6.1

5.8

N/A

Vehicle accident frequency rate (accidents per million km)

Employees’ health
The well-being of our employees isimportant to us, as a healthier workforce
is more productive.
In our international tobacco business
we have a wellness strategy focusedon identifying health risks within our
manufacturing operations. In 2014
we piloted a program to provide moreconsistent monitoring of employee
exposure to occupational health risks,
allowing us to identify areas where risk

exposure may occur and helping us todevelop plans to address them. We also
set up a global program to develop a
database of all hazardous substances
at our facilities, helping us to protect
our employees from exposure to suchmaterials.
In JT we provide a full time medical
staff of 14 doctors and 36 public healthnurses across 11 office locations,providing legally required medical

Online stress checks
As part of a new focus on mental health,in 2014 employees of JT were given
the opportunity to complete a pilot
online stress check. The web-based
system asked employees to answer aseries of questions and then made abasic assessment of their well-being,
highlighting any potential issues andkeeping the information on file so those
who took part can gauge any changes intheir mental health status over time.
Although individual results haveremained confidential, underlying data
26 | JT Group Sustainability Reportexaminations as well as health checks
and consultations to help employeeswith lifestyle-related health issues.
During 2014 our priorities in Japan
included ensuring that all staff received
health checks, educating employees
about lifestyle diseases, and mental
health.

has been made available to company
doctors, who will use it to identify trends,
monitor overall mental health status,and consider areas where preventative
strategies are advisable.
As well as offering practical help for
employees right now, the system ispreparing both the business and its staff
for the future, as Japanese companies
will be required by law to provide
employees with individual stress checks
from the end of 2015.

Human rights in the workplace
The two main human rights issues in our workplaces are
freedom of association and the right to collective bargaining,
and non-discrimination. We promote both, as we area healthier business when we work in partnership with

employees and make full use of the skills, knowledge, andperspectives they offer – regardless of an individual’s race,
nationality, creed, religion, gender, sexual orientation, or
physical ability.

Working with trade unions
We regularly assess our arrangements ineach country to ensure that we continue
to respect the rights of our employees
to freedom of association and collective
bargaining.
In 2014 we announced the proposed
closure of our factories in Wervik,
Belgium, and Lisnafillan, Northern
Ireland between 2016 and 2018,
potentially affecting around 1,100
jobs. Consultations with employee
representatives, trade unions and theEuropean Works Council about the
proposed closures have been a key

focus over the last months and havebeen concluded.

95.1%

(*C)

of eligible employees are covered bycollective bargaining agreements

Non-discrimination
We are committed to maintaining work
environments that are free from any
form of unfair or illegal discrimination.
We do not allow considerations ofage, gender, disability, ethnic origin,marital status, nationality, race,
religion, beliefs, or sexual orientation
to influence decisions relating to thecareer progression of any employee,
nor in areas such as recruitment,compensation and benefits, or
succession planning. Our Codes ofConduct guide the way the JT Groupdeals with discrimination in theworkplace. In 2014 we had eight alleged
incidents of workplace discrimination.
We reviewed all cases and only one
required the implementation of a
remediation plan.

8

(*A)

alleged incidents of workplace
discrimination in 2014

Human rights reporting concerns
Our employees are encouraged to report any breaches ofhuman rights via their manager, their compliance office and/or human resources department, or through a confidential
Reporting Concerns Mechanism (RCM), which provides abreakdown of any allegations to the Board once a year. Pleasesee page 21 for further details.
In all, 87(*A) cases of human rights violations have so far beenreported to the RCM. We recognize the need to ensure that
employees feel comfortable about speaking up if they witness
something they are unhappy about.

JT Group Sustainability Report | 27

Our people

As part of our commitment to freedomof association, we aim for open andconstructive relations with trade unions
and works councils. Within our Japanese
domestic group, 28 companies have aunion and 95.1%(*C) of eligible employees
are covered by collective bargaining
agreements. In our international tobacco
business, trade unions or local works
councils represent the workforce in 22
countries. Our European Works Council,
consisting of employees and managers,
operates as an employee informationand consultation body and meets several
times a year.

Employee development and talentmanagement
Employees are a cornerstone of our success, and we invest
in them accordingly. We employ more than 57,000 people inmore than 70 countries, around 80% of them on permanentcontracts.

one week in Japan and one in Switzerland. During the program
they worked in teams analyzing the results of our Employee
Engagement Survey and made recommendations to senior
executives.

To develop and retain talent, we generally fill open positions
with internal candidates. We filled 98.0%(*D) of management
positions by internal hires in 2014.

Employee training is provided through a mixture of on-the-job
learning, formal courses, and e-learning. In our international
tobacco business we have centralized training academies that
ensure a consistent approach, regardless of geography, inareas such as marketing and leadership development. In 2014
we sent more than 400 employees on leadership courses run
by independent business schools and training companies.
Performance appraisals are also an important way ofdeveloping employee potential: in 2014, 67.3% (*A) of ourworkforce received such appraisals.

We run a Talent Partnership Program that builds up employee
skills and experiences by switching them between ourJapanese domestic and international tobacco businesses.
As of December 31, 2014, 192 people took part in suchexchanges. As part of the program, in 2014 we also ran an
Exchange Academy for 25 employees from around the world
who participated in a two-week joint training program, with

External recognition
Our commitment to employee
development often receives external
recognition. The JT Group now has
the highest level of certification fromthe Top Employers Institute, which is
given only to organizations that globallydemonstrate the highest standards of
HR practices and employee offerings.

Top Employers 2015
Armenia, Austria, Azerbaijan, Belarus,
Belgium, Bulgaria, Cyprus, Czech
Republic, Denmark, France, Georgia,
Germany, Greece, Hungary, Iran,
Ireland, Italy, Jordan, Kazakhstan,
Lithuania, Moldova, Netherlands,
Poland, Romania, Russia, Spain,
Sweden, Switzerland, Taiwan, Turkey,
Ukraine, United Arab Emirates,
United Kingdom

28 | JT Group Sustainability Report

In addition, we have received individual
Top Employers certifications from theInstitute across three regions and in
more than 30 countries.

Investors in People
Cyprus, Jordan, Lebanon,
Nigeria, Philippines, Russia,
Saudi Arabia, Serbia, South
Africa, Tanzania, Turkey,
United Arab Emirates, U.K.,
as well as JTI World Wide
Duty Free offices in
Switzerland, Ukraine,
Singapore, and the U.S.A.

Working with our employees
We strive to provide an open, fair, and stimulating work
environment in which we provide growth opportunities for all
employees and ensure we have the right person to fill the rightposition. We see this as an investment in our future success.

Our Japanese operations carry out an annual Employee
Engagement Survey to gather employee views on theirworking environment, the way we do business, and thebusiness unit or function they belong to. Each function uses
the results to make changes as necessary. In 2014, 96.9% of
our workforce in Japan participated in the survey, up slightly
from 96.1% in 2013.

Our people

We aim to have compensation packages that attract, motivate,
and retain employees. Although each of our businesses
designs its own compensation policy, our international tobacco
business strategically positions its compensation levels at 75th
percentile versus premier companies with which we compete
for talent. According to geographical location, we also offer
several benefits, including healthcare, defined contribution
pension plans, life and disability insurance, and parental or
nursing care leave. In our international tobacco business weare piloting an employee share purchase scheme that will bemade available to all permanent employees over the courseof the next three years in all jurisdictions where the scheme islegally feasible. A similar scheme is already in place in JT andsome of our Japanese domestic businesses.

Aside from providing attractive compensation, communication
is key to our aim of being a responsible employer, and weengage in open dialogue with employees. Across the JT Group
we communicate with employees irrespective of whether or
not a trade union is in place, using everything from noticeboards and face-to-face meetings to web-based channels andelectronic communications for our sales forces.

JT Group Sustainability Report | 29

Equality and diversity
Employing a diverse workforce is a strong source ofcompetitiveness within an international marketplace, as itprovides us with different perspectives and outlooks thatfeed into our business, helping us do things in new ways
and with new outlooks. In 2014 we employed more than 100
nationalities. Beyond national diversity, we value diversityof opinion, allow people to express their own personalities,

and create a work environment that fosters creativity andinnovation.
Our commitment to equal opportunity and anti-discriminationis reflected in our Codes of Conduct and human resources
policies.

Gender diversity
The JT Group takes a gender-neutral
approach to recruitment and aims tocreate workplaces that are attractive
to women. While 24.7% of JT Group
employees are women, only 9.4% of
our management (excluding Executive
Officers) is female. We have therefore
set targets to increase this proportionand have begun to implement plans todeliver against these targets.
In JT we have a Diversity Development
Department and have extended
gender diversity awareness-raising
workshops to all managerial employees.
In Japan we hold seminars on female

empowerment in the workplace andhave a section on our intranet dedicatedto promoting diversity.
Female representation withinmanagement at JT increased from 1.4%
at the end of March 2013 to 2.6% at theend of December 2014 against our aimof reaching 10% by 2023.
In 2014 our international tobacco
business set up an advisory group to
examine the reasons for low female
representation in management. As aresult of its findings, we are looking
at how to ensure locally competitive

Employees by position and gender (*A)

working arrangements are in place,and are considering the launch of adevelopment program to increase thenumber of women in key positions in
all functional areas as well as at generalmanagement level.
Our international tobacco business isaiming to have 30% female Directors
by 2020, with longer-term aspirations tohave the same balance at Vice President
and Executive Committee level. At theend of 2014, 27.0% of Directors were
women.

FemaleMale

Total number

Executive Officer

2.8%

97.2%

72

Management (excluding Executive Officers)

9.4%

90.6%

4,099

Employees (excluding Management)

26.2%

73.8%

44,468*Data is at the end of 2014 and excludes locations not currently on our SAP HR Management System.

30 | JT Group Sustainability Report

Generational diversity
Just as gender diversity introduces new
perspectives and experiences into the JT
Group – to the benefit of our business –so does generational diversity. We do notdiscriminate on the basis of employee
age or generation, and we adopt
ways of working that are appropriate
to all generations represented in our

Breakdown of employees by gender and age group (*A)

workforce. We also promote a culturethat values intergenerational learningand experience sharing.

FemaleMale

Under 30

2,725

6,252

30-50

7,183

21,371

Over 50

2,018

8,912

*Data excludes locations not currently on our SAP HR Management System and some companies in locations where registering
employees’ age is prohibited by law.

Our people
JT Group Sustainability Report | 31

Responsible
supply chain
Tens of thousands of suppliers
provide us with the products, services,and raw materials needed for our
tobacco, pharmaceutical, beverageand processed food businesses. We
expect all suppliers to uphold the highstandards of integrity, quality, andsafety that are detailed in our Codesof Conduct, the JT Group Responsible
Procurement Policy, the JT Group
Principles in Leaf Tobacco Production
and the JTI’s Supplier Standards.

Farmer profit modeling
implemented in

7%

(*E)

100%

(*E)

2014

of countries in which we directly
source tobacco leaf

32 | JT Group Sustainability Report2014

of farmers covered under Agricultural
Labor Practices implemented incountries where we directly source
tobacco

5,470

(*E)

2014

3,071
FY2013children withdrawn from childlaborSupply chain management
new technology, the aim is to adopt a more tailored, risk-based
approach over the next two years for those suppliers we havenot already directly assessed.

Our supply chain is large and complex, and we recognize
the necessity to work with our partners within it. In ourinternational tobacco business, monitoring of complianceof suppliers against JTI’s Supplier Standards has focusedon those with potential exposure to illegal trade. Directly
contracted tobacco farmers – as well as the merchants that
we buy processed tobacco from – are a key component of our
supply chain and are monitored through our Agricultural Labor
Practices (see page 37). Tobacco merchants, as well as thecompanies that supply us with other materials, are additionallychecked through our Know Your Supplier program. For
other products and services, checks have begun on specificmerchandising product areas.

We expect that increased monitoring of our suppliers will leadto a better understanding of the risks and challenges they face,
and will allow us to help them increase their capacity to upholdour standards.
In our pharmaceutical, beverage and processed foodbusinesses, we source ingredients for our products fromvarious partners, with whom we work closely on improving
supply chain resilience and maintaining the highest quality andsafety of the products we sell.

The next step will be to develop a program for assessing
suppliers based on the risk of not meeting our standards. Using

Our international tobacco supply chain(*E)
Suppliers

About

About

directly contracted
farmers and mainly 12
major merchants(each group providing
roughly half of ourleaf)

Total spend
About

500

materiaherls
Ot

Total spend
About

50%

25%

Total spend
About

25%

Toba
cc

o

cts manu
odu
prf

Offices

ing
tur
ac

eshing anthrdaf

essingoc
prTobaccoleOurcompany

tributionDis

Our customers
and consumers

JT Group Sustainability Report | 33

Responsible supply chain

25,000About

ucts and s
od
er
pr

s
ce
vi

36,000bacco leaf
To

SuppliersOtherSuppliersKnow Your Supplier
Our international tobacco business runsa Know Your Supplier (KYS) programfor key suppliers that requires themto respect business integrity, equal
opportunities, fair employment, healthand safety, and the environment. KYS
also aims to ensure that our supply chain
is free from any association with theillegal tobacco trade (see page 23).

Potential suppliers have to complete an
online questionnaire, with supporting
evidence, to show they meet our KYS
standards. If we discover suppliers haveknowingly been involved in illegal trade
in tobacco, their contract is terminatedautomatically.

Certification to Know Your Supplier program

Supplier certification (*E)
Number of global and local suppliers in scope of KYS% of total global and local suppliers certified

2012

2013

2014

Global: 297

Global: 566

Global: 588

Local: 292

Local: 507

Local: 251

91%

65%

75%

The number of local suppliers covered by KYS dropped in 2014 due to a review that led to rationalization. In 2013 the number of local
suppliers under KYS had increased by 73% on the previous year due to expansion of the program's scope to include textiles andelectronics.

Merchandise supplier assessment
In 2014 our international tobacco
business issued a questionnaire to 205
merchandise suppliers (those that supply
us with products such as lighters andmatches that help promote sales) to

34 | JT Group Sustainability Report

establish whether they have programs
and policies on areas such as childlabor and the environment. Around 65%of these suppliers proved to be fullycompliant with our requirements, while

14% took corrective action to becomecompliant. The remainder took no suchaction, and despite our efforts to help
them improve, we subsequently had toend our contracts with them.

Tobacco supply chain – strategy*
work. Our vision for international tobacco procurement is to‘lead in sustainable leaf supply’ and is underpinned by four key
strategic goals:

g in sustainable
lea
adin
e
fs
L
:
up
n
p
si io

Social andenvironmental
leadership

Operational
exellence

Securedleaf accessecu
For an explanation of how we work to
improve long-term farmer profits see
page 36.
2. Social and environmental
leadership
We can contribute to improvements insocial conditions in tobacco farming
communities not just by helping farmers
to maintain profitability in the longterm but by making targeted social
investments that enhance the quality ofm supp ly o f q u a

lit y

f
lea

at

life in their communities. We do this in a
number of ways, such as by improving
access to clean water and creating new
educational opportunities.
We also aim to reduce theenvironmental footprint of our tobacco
supply chain, chiefly by encouraging
farmers to reduce the amount ofagrochemicals and energy used infarming, and to adopt good forestry
practices. Both of these measures bring
benefits that extend beyond tobacco
growing, as many farming communities
rely on wood as a vital fuel source andbuilding material.
For more on our approach to agriculturallabor practices see page 37. For detail on
eliminating child labor see page 38, andfor further information on sustainable
wood see page 39.
3. Operational excellence
We need to make sure our operations
are well equipped to support our
supply chain. To help us do this, in2014 we introduced a set of key
performance indicators that give us areal-time overview of our performanceand provide a way to manage theunexpected, allowing us to deliver onour business commitments. We use

custom-made enterprise resource
planning (ERP) software to help us
collect and interpret tobacco growing
and processing data that are essential
to determining yields and quality. ERP
software also allows us to monitor
health and safety performance in ourfactories and labor practices in the fields.
This in turn enables us to ensure an
uninterrupted supply of quality tobacco.
4. Secured leaf access
By working in close partnership with our
farmers, we put ourselves in a better
position to address the economic, social,and environmental factors that influence
the long-term supply of tobacco leaf. We
therefore build up direct relationships
with farmers and, wherever possible,
purchase tobacco directly from them,rather than from traders on auction
floors. This also helps secure accessto high-quality tobacco leaf in a
responsible manner. In addition, we form
partnerships with NGOs, leaf merchants,
governments, and other stakeholders
to help us responsibly tackle potential
issues in our tobacco supply chain.

* The initiatives and data in the tobacco supply chain section of this report primarily relate to farmers directly contracted by our international tobacco business.
JT Group Sustainability Report | 35

Responsible supply chain

Through our work with farmers we
aim to make tobacco farming profits
sustainable.

-t e rest:S
We have implemented a farmer profits
model in all countries where we directly
source tobacco leaf. Under this model,
we work closely with farmers to ensure
they have access to the right growing
materials and that they use the best
methods to maximize the quality andyield of leaf. We also encourage crop
rotation to provide an alternative income,
improve food security, and promote soilpreservation.

ng

eb

io n
1. Preservation of tobacco farming
Our business will not succeed unless thefarmers who supply us are able to makea profit and can continue to grow the
tobacco we need.

loc o stPreservationof tobacco
farming

th

M iss

re

12
34

ly

V

The foundation of our tobacco supply chain strategy is tomaintain a supply of quality tobacco leaf over the long term.
Only by doing this will we create value both for the JT Groupand for the tobacco farming communities with which weTobacco supply
chain – long-term
farmer profits

Inpu
ts m
a

If we are to secure a lasting supply of high-quality tobacco leaf, we must deliver
long-term profits to the farmers who supply us. This is not always easy, as some of
the factors that feed into profitability – such as the weather – are out of our control.
However, we can influence areas such as cost of production, yield, quality, andprice. To do this, we take a ‘modular design approach’ rather than a one size fits all
solution, adapting our methods to local situations. We work directly with farmers
on three key areas to help them improve their profits:

t
men
ge
na

Pr
i

ce

Long-term
farmer profitsle• Price• Input management, concentrating on production cost savings• Best farming practices with emphasis on efficiency and innovation
Managing direct relationships with
farmers
Our local farming experts build andmaintain strong relationships with ourdirectly contracted farmers in order tohelp them improve tobacco production
techniques and thereby increase theirprofitability. Across Brazil, Zambia,
Malawi, and Serbia in 2014 we had 368
farming experts in place, up from 319 in2013, providing support to all small-scale
farmers.
We developed comprehensive minimum
agronomic standards in 2010, and sincethen have worked with all our farming
experts to ensure they are adopted.
Relevant supporting materials havebeen tailored to the needs of different
countries.
In 2014 we prepared to buy tobacco
leaf directly from farmers in Tanzania,
and we intend to train enough farming
experts there to ensure all future contact
with farmers is with our own directly
employed experts. We have set up a
training program for farming experts in
Tanzania to make sure this happens.

Farmer profit modeling implemented (*E)

36 | JT Group Sustainability Report

Modeling sustainable farmer returns
In 2014 we introduced our farmer profits
tool into Malawi, Zambia, the U.S.A., andSerbia after it had been piloted in Brazil.
The tool takes into account various
factors – including local conditions,costs, risks, and quality – to help us
settle on a price that we negotiate with
farmers each year. We also use it tocheck that the average price paid overmultiple crop cycles delivers progress
toward a sustainable profit for farmers.
Our goal is to enable farmers to earnsustainable profits; we will aim tomonitor and report progress on this overthe next few years.
Supporting production cost savings
We help farmers save money andincrease profits by enabling them tobecome more efficient in the way theygrow, harvest, and cure tobacco leaf.
By encouraging farmers to adopt our
minimum agronomic standards, we canhelp to cut costs through more efficientuse of fertilizers and agrochemicals.
This can lead, in some cases, to cost
reductions of around 20%.
We also buy many input materials inbulk and pass the savings onto our

rel
a

ti o

nsh

ips, i nce

n o v a tio n ,

m
and

gn

esi

m i n g p r a c ti

rd

ab

d

far

s

Be
En

st

od

ul

a

farmers. The materials we buy are alsoof a better quality and reliability, andmight be safer to use than farmers cannormally source.
Innovation and better farming
practices
Our Agronomy, Development, Extension,and Training (ADET) center in Brazil,
which will be supplemented in 2015 witha similar new center in Zambia, explores
new ways of improving quality andproductivity in tobacco farming. During
2014 the Brazil center carried out trials
on topics such as irrigation methods,
curing efficiency, mechanization, andagroforestry. The results of research are
passed on to farmers, including throughtraining – with the aim of continuallyworking toward best farming practices.
Outside our ADET program, ourfarming experts also hold training
days at farms where a local farmer
has been recognized for particularskill and commitment in applying ourrecommended agronomy practices –allowing other local farmers to learn
from their example. By the end of 2014,
for instance, we had 108 such ‘model
farms’ in Zambia.

2012

2013

2014

TargetPiloted in Brazil

Redevelopedmodel to be
simpler and moreuser-friendly

Implemented
across all
countries

Implement across all countries
where we source tobacco
directly from contracted
farmers by the end of 2014

Harvest delay pays
dividends
Adair José Reis, who has been growing
tobacco in southern Brazil for more than
20 years, had a particularly good season
in 2013–2014 – thanks to advice fromour farming experts. The 40-year-old
listened to one of our field technicians,

who suggested delaying his harvest as
much as possible so that the tobacco
had more time to mature. Adair’s
patience paid dividends, as his 60,000
tobacco plants produced a much higher
quality product than usual, securing him
a 29% increase in revenue per hectare.

Tobacco supply chain – Agricultural Labor
Practices, including child labor prevention
Alongside improving growing standards, we work with our
farmer communities to address a range of other important
issues. These include ensuring the rights and safety of
tobacco farmers and those who work on their farms throughOur ALP defines minimum requirementsfor preventing and eliminating childlabor, respecting workers’ rights, andapplying health and safety measures at
the workplace. We work with farmers
who are committed to continuous
improvement in agricultural labor
practices.
In 2014 ALP covered 7% of our directly
contracted farmers against our target of
100% by 2018. We made a decision toextend the scope of ALP to cover third
party tobacco leaf suppliers from 2016.
Our farming experts, who are fully
trained on ALP and have speciallydesigned materials to help themcommunicate ALP standards to farmers,
observe labor practices during farm

visits and provide advice on making
improvements. They also play a crucialrole in changing attitudes and cultural
perceptions around labor practices.
We are also working with theInternational Labour Organization (ILO)
to develop training materials to help
farmers comply with ALP, with particularemphasis on tackling child labor.
In 2014, with the support of the ILO,
we developed a list of ten hazardous
activities mostly applicable to agricultural
production, including tobacco growing,such as handling chemicals, working
at night and under intense weather
exposure. These clarify the types of workthat are hazardous and require specificattention for all workers but are also
unacceptable for children to undertake,even when old enough to do some workon a farm.

Grower Support
Programs
Our Grower Support Programs (GSP)
deliver community projects focusedon school, education, water, andcommunity well-being. In 2014 weran 30 programs benefiting 140
communities: nine in Brazil, seven in
Malawi and 14 in Zambia. We also
launched a GSP-related ‘sponsor ateacher’ scheme that improves the
skills of teachers and creates conditions
where both they and their students can
succeed.
Additionally, in 2014 we published a
handbook for local managers outlining
the best way to implement GSPs, withadvice on policies and procedures andhow to avoid inefficient use of funds.
In 2015 we will carry out an impact
assessment of the benefits of GSPs.

ALP rollout

2013

2014

% of farmers covered under ALP
implemented in countries where we
directly source tobacco

1%

7%

Update on progress

Pilots run in Serbia
and Brazil• Implemented in Brazil (10% of farmer base) and Serbia (100%)• U.S. Tobacco Good Agricultural Practices (GAP) Program (industry-wide labor
practices related program) implemented in the U.S.A.
• Pilots run in Zambia and Malawi• Agreed pilots for Tanzania, Italy, and Turkey in 2015

% of farming experts trained

30%

94%
JT Group Sustainability Report | 37

Responsible supply chain

Agricultural Labor
Practices

Agricultural Labor Practices (ALP), enhancing living conditions
and livelihoods through our Grower Support Programs (GSP),
and eliminating child labor through our Achieving Reduction ofChild Labor in Support of Education (ARISE) program.

Child labor prevention
In addition to our work with all directly
contracted farmers through our ALP,
we have the ARISE program. This wasdeveloped in partnership with Winrock
International (an NGO that specializes
in agricultural development) and the
ILO. The program tackles social andeconomic factors that tempt farmers to
employ children. Originally launched in
Brazil and Malawi, it was then expanded
into Zambia in 2013. From 2015, theprogram is extended to include Tanzania.

the distribution of educational materials,
after-school tutoring, and mentoring or
vocational training for older children.
In this way it hopes to improveunderstanding of the value of education
as well as the prospects and prosperity it
can bring.
ARISE works to replace lost income
from child laborers through Family
Support Scholarships, which enable
parents or guardians to send theirchildren to school.

While progress is being made through
ARISE, changing behaviors and cultural
perceptions that underpin child labor inremote rural communities is a longterm project. Since its inception in2012, ARISE takes four children out ofchild labor every day. Nonetheless, werecognize that we have started a processthat requires continued attention overmany years.

ARISE educates and engages withtobacco farming communities through

ARISE

Total 2013

Total 2014

BrazilMalawi

ZambiaChildren withdrawn or prevented from child labor

3,071

5,479

998

2,697

1,784

Children and youth enrolled in formal and informal education

2,981

5,512

998

2,697

1,817

Households with improved livelihoods

976

1,162

97

730

335

Mothers with access to income-generating activities, and conditional
capital investments

528

1,001

93

908

0

2,092

17,990

4,199

3,342

10,449Community members educated in child labor elimination

Quick-build schools in Africa
There is an urgent need for new school facilities in many parts of rural Africa, but
often local materials to build them with are scarce. So sometimes imaginative
solutions are needed. In 2014, as part of our GSPs in Zambia and Malawi, we
contracted a specialist South African company to put up two prefabricated schoolbuildings in remote parts of each country. The buildings, which created capacity for
500 children in Zambia and 1,000 in Malawi, were assembled in just 20 weeks. We
are now looking to replicate this approach in other areas where needs are identified
by our farming experts though ALP reporting.

The Chief of Kaoma, Zambia at the school opening
in March 2015

Child labor in the U.S.A.
A 2014 report from Human Rights
Watch alerted us to the risk of child laborin the U.S.A. As a result, we had several
discussions with Human Rights Watch,and have worked with them to review
how we can address this issue. Thesetalks led directly to us clarifying andreinforcing our ALP.

38 | JT Group Sustainability Report

We also agreed to chair the child labortask force of the U.S.-based Farm
Labor Practices Group. Additionally,
we support Human Rights Watch intheir efforts to improve legislation andbring higher standards of protection tofarm workers in the U.S.A. in line withinternational labor standards.

Tobacco supply chain – sustainable wood
Wood is used for tobacco curing in many regions, both as afuel and for building barns. A sustainable supply of wood istherefore key to ensuring a long-term supply of leaf tobacco.
We work with tobacco farmers to educate them on theenvironmental and economic value of wood, helping them not
only to use less of it, but to replenish forestry stocks.

We train and support farmers to plant and maintain enoughtrees for their needs, both now and in the future. By 2018 all
wood will be from sustainable sources on all the farms that
directly supply us with tobacco. In Brazil that aim has alreadybeen achieved, and in Zambia and Malawi it is likely to beachieved before the target date of 2018.

100% sustainable
wood sourcing in
BrazilAll flue-cured Virginia contracted
farmers have access to sustainably
produced wood for use in tobacco
production, either from their own
woodlots or through commercial
suppliers.

Barn construction
techniques
Wood is a common fuel for flue-curing,and is often used to build barns forcuring. So we can help farmers reduce
their use of wood in both these areas.
To help make flue-curing more efficient,
one solution we have developed is a
low-tech barn design that reduces wood
consumption by 70%.
‘Live barns’ are built by planting trees,
which after three years grow to form themain structure of an air-curing barn. Thisavoids the need for maintenance and acontinuous supply of wood for

There were 1.1 million trees planted
in 2014, based on our tree seedlingnurseries and our contracted growers’commitment and engagement in theirown tree seedling production andwoodlot establishment. We pursue an
achievable target of 100% sustainable
planting/usage rate by 2016.

construction. During 2014, as part of apilot program, farmers in Malawi and
Zambia planted 3,130 live barns in total.

deforested areas in locations where wehave directly contracted farmers living incommunities that depend on wood forfuel or timber. Figures gathered in 2014
showed that during 2013 we exceeded
our reforestation targets in Zambia’s
Eastern Province. We raised 3,595,281
seedlings and planted 3,304,679 trees
against a target of three million in eachcase.

TargetEstablish 16,500 live barns
across Malawi and 4,700
in Zambia by 2018.

Reforestation

At the end of a four-year period endingin 2014, we had funded the planting of
24 million trees across Malawi, Zambia,
and Tanzania.

Aside from our focus on sustainable
wood supply for tobacco farming, ourreforestation program regenerates
JT Group Sustainability Report | 39

Responsible supply chain

Tree planting initiative in Western Provinceof Zambia

Environment
Environmental protection is a critical aspect of our responsibility to society, andkey to the sustainability of our business. We work to reduce our environmental
impacts not just because it is the right thing to do, but because it delivers businessbenefits such as cost reduction and enhanced reputation. We pay attention to
impacts across a wide spectrum, from procurement of raw materials to production,
distribution, and sales.
Market conditions sometimes make it difficult for us to make consistentimprovements, but we aim to make progress in four areas: greenhouse gas (GHG)
emissions, sustainable water use, prevention of waste and promoting recycling,along with effective resource use, and protecting biodiversity.

5,847
2014

0.72

5,950

0.73

(*A)

10,0962014

FY2013

2014

10,468FY2013thousand tons of CO2e across thevalue chain

FY2013

GHG emissions intensity for
tobacco business

TJ of energy consumed

130

10,330
2014

82%

129

10,507

87%

(*A)

2014

FY2013thousand tons of waste generated
40 | JT Group Sustainability Report

(*A)

(*A)

FY2013thousand m3 of water withdrawn

2014

FY2013

ISO 14001 certified cigarette andtobacco-related factories

Environmental management
Three things drive our commitment to reducing environmental
impacts: the law, business performance, and our responsibility
as a corporate citizen.
Compliance with all relevant laws is our baseline, but beyond
that there are sound business reasons for exceeding legal
requirements. By doing so we can reduce costs, preserve
resources that we are reliant upon, improve our overall
performance, and enhance our reputation. As a corporate
citizen, we also recognize our obligation to conserve theenvironment so that future generations can enjoy the same
opportunities we benefit from today.

Environmental
management systems

In 2014, 100% of our Japanese domestic
tobacco business factories and 72%
of our international tobacco businessfactories were ISO 14001 certified.

Responsibility for environmental management rests with our
Executive Deputy President, with the Group Executive bodymonitoring performance.

Six key elements of our Environment Policy in theEnvironment Charter
Management
systems

Compliance

Products andservices

Establish effective environmental
management systems andcontinually improve themComply with environmental laws
and regulations everywhere we
operateReduce environmental impacts ofproducts and services in theirdevelopment phase, taking into
account potential impacts on
biodiversity

Process andsupply chain

Environmental
education

Environmental
communication

Reduce environmental impacts
and optimize the use of natural
resources at all stages of ouractivities, taking into accountpotential impacts on biodiversity,and encourage suppliers tounderstand and abide by ourEnvironment Charter

Develop environmental
awareness among employees
through education and training
and encourage them to takepersonal responsibility for theenvironment

Openly communicate ourenvironmental performance andengage with our stakeholders tobuild trust

Our approach
We strive to harmonize ourcorporate activities with theenvironment.

Timeline

Enlarging efforts of focused environmental themes

For historical data on our environmental performance, please visit www.jt.com/csr/environ/data/index.html.
JT Group Sustainability Report | 41

Environment

We have a formal environmental
management system (EMS), based on
the ISO 14001 standard, which ensuresa consistent approach across thebusiness. All our manufacturing sites
are encouraged to obtain ISO 14001
certification, while other facilities, suchas distribution centers, can either seek
certification or customize their own
ISO 14001-based EMS. Smaller sites
and offices can also do this on a more
simplified level. By using different levels
of EMS, we take account of the natureand scale of each operation.

Our approach to environmental management is described in
our Environment Charter, which requires that we reduce ourenvironmental impacts in all the countries we operate in – aswell as across our entire value chain. The Charter is supportedby the JT Group Long-term Environment Plan 2020, which setsout our targets.

Energy and GHG emissions
Climate change could have a negative impact on growing
patterns and crop yields across our supply chain, as well as on
the production of many of the non-tobacco materials found in
our products and packaging.

corporate responsibility – to reduce energy use and GHG
emissions. Our ability to do this depends on market conditions,as well as our ability to collect accurate data on emissions
across our value chain.

Given the close links between climate change, GHG emissions,and energy use, it is in our interests – as well as part of ourManaging our own energy and GHG emissions
All our sites are required to haveaction plans with quantified emissions
reduction targets. This gives us acontinual focus on performanceand on identifying opportunities for
improvements.

energy such as electricity (Scope 2) –by 20% between FY2009 and 2020. We
aim to deliver on this target throughefficiency programs, including those
identified by an ongoing energy survey
in our production facilities.

We have a target of reducing ourabsolute GHG emissions – both thosethat we are directly responsible for(Scope 1) and those produced by ourconsumption of third party-produced

We are also examining ways to replace
existing energy sources with renewableenergy, which can have a significant
impact on GHG emission levels.

GHG emissions in 2014
( *A, CO2e 1,000 tons)

Combined Scope 1 and 2 GHG emissions(CO2e 1,000 tons)
1,000

13%
10%
7%

In 2014 we consumed 10,096 TJ ofenergy across the JT Group, down from
10,468 TJ in FY2013, and reduced
Scope 1 emissions by 2.1% and Scope 2
by 0.4% over FY2013. Savings werelargely achieved by implementing energy
action plans at our sites, which included
energy efficiency programs in various
parts of our businesses.

903

789

581

836

830

799

789

20% reduction
on FY2009 value

FY
2011

FY
2012

FY
2013

2014

2020

500

420
15%

882

5,847

FY
2009

Base year

TargetGHG emissions intensity for tobacco business(tons/million cigarettes equivalent)

54%

3,175

1.00

Scope 1 and 2

0.73

0.73

0.75

0.73

0.72

FY
2009

FY
2011

FY
2012

FY
2013

2014

20% reduction
on FY2009 value

0.50

Scope 3Purchased goods and services
Transportation and distribution
Capital goods
OthersThe diagram shows performance on
Scope 1 and 2 emissions across the JT
Group. Our Scope 1 and 2 emissions
have steadily decreased over the past
few years due to an increased focus on
monitoring and improvement measures.
With a reduction of 12.6% in emissions
42 | JT Group Sustainability Report

Base year

over our baseline of FY2009, we are wellon track to achieve our 20% emissions
reduction target for 2020.
Our GHG emissions intensity is currently
not reducing in line to achieve our 2020
target. Market conditions sometimes

2020

Targetmake it difficult for us to makeconsistent improvements. However, thisis an area we will be focusing on.

Initiatives to reduce our own GHG emissions
At our factory in Yelets, Russia, wehave installed two gas-fired generatorsthat recover exhaust heat, cutting CO2
emissions by around 700 tons a year. In
our Dagmersellen factory in Switzerland,
we have replaced old fuel-oil boilers withnew gas versions, resulting in a 20%
reduction in CO2 emissions each year.

At Tablemark’s Niigata Uonuma factoryin Japan, which produces packed
cooked rice and noodles, we have
replaced an oil-fired boiler with a gasfired version, reducing GHG emissions
by approximately 4,000 tons a year.

Managing GHG emissions in our value chain
We have also begun to address Scope 3
GHG emissions that are outside ourimmediate control, and are engaging
with stakeholders to monitor andeventually reduce these emissions

across our value chain. Our international
tobacco business is using life cycle
assessments to better understand andassess carbon emissions associatedwith certain products, and is looking at

how material selection and specification
can influence and potentially reduce
emissions.

CDP – update
top quartile of reporters. The JT Group’s
disclosure score is 99 out of 100, while
our performance score is A- (topmark: A).

Initiatives to reduce
Scope 3 GHG emissions
Our processed food business hasdeveloped a range of frozen noodles thatcan be microwaved rather than boiled,theoretically cutting Scope 3 GHG
emissions by 13.6kg for every thousandpacks cooked in this way. However,
we need to do more work to educate
consumers about how microwaving cancut energy use.
In 2014 we reduced the amount ofmaterial we use in plastic bottles
for some of our beverage products,
reducing Scope 3 GHG emissions by
more than 200 tons across the year.

JT Group Sustainability Report | 43

Environment

In the three years that we have beenreporting our Group-wide GHG
emissions and climate change related
information to the CDP, our disclosure
and performance scores have increased
year-on-year. In 2014 our scores rose
again, putting us comfortably into theResource efficiency – water and waste
Overconsumption of resources – leading to the creation ofwaste and excessive use of water – can be a cost to businessthat reduces earnings and shareholder returns. It also affects
the environment and can have a negative impact on thecommunities within which we operate. It therefore has thepotential to damage both our reputation and our relationships
with stakeholders.

Managing water
Many of our operations, in particular in our processed foodbusiness, are water intensive. Our factories are located in relatively
water-rich areas, but if this is not the case then we implement
measures that reduce the amount of water used. This reduces
water risks both for our business and for the communities within
which we operate. Cutting back on use is a challenge, as watersaving measures are often expensive and it is difficult to pass costs
on to consumers. We record and report water withdrawal andwastewater discharge on a monthly basis at our factories, and take
into consideration the framework on water reporting set out by the
CDP. Over the next few years we will expand our program of waterrisk assessments to all relevant parts of our business, and will start
to assess water-related risks in our value chain.

Water withdrawal ( *A, 1,000 m3)
15,00013,251
11,862 11,414

10,000

FY
2009

FY
2011

FY
2012

10,507 10,330

FY
2013

2014

Our overall water withdrawal in 2014 decreased by 1.7%.

Managing waste
Our Long-term Environment Planprioritizes waste prevention according
to the ‘Reduce, Reuse, Recycle’ wastehierarchy. By taking steps to reduce
waste we conserve natural resourceand energy, reduce our environmental
impacts, and cut disposal costs.
We have been recording waste data
since 1995 and have programs aimed
at improving our waste management
practices. However, we need tocollect more detail through our wastemonitoring so that we can better identify
areas of good practice to share between
operations.

set up schemes to educate consumers
about the disposal of cigarettes. See
page 51 for further details.

Most of our waste is generated
by factories. But it is also createdthroughout our value chain, including
by producers of raw materials and by
consumers when they dispose of our
products. We are addressing this: for
instance, our international tobacco
business works with farmers to help
them reduce their waste, and we have

We recycled 78% of the waste we
generated in 2014. Although the
majority of our packaging components
are recyclable, there are challenges
associated with the recycling ofcomposite paper, foil, and plastic. Our
total waste generation in 2014 increased
by 0.5% over FY2013 but is 18.8% lower
than FY2009.

Breakdown of waste generated in 2014 ( *A, 1,000 tons)

Waste generation ( *A, 1,000 tons)
200
160

13%

141

140

FY
2011

FY
2012

129

130

FY
2013

2014

100

9%

130

FY
2009

78%

Recycling
Recovery
Disposal

44 | JT Group Sustainability ReportInitiatives to reduce waste
In Malawi our international tobacco
business has helped non-tobacco
farmers use pelletized leftover partsof tobacco plants as a soil improver.
Among other things, the pellets areuse as fertilizer to help establish thetree seedlings that are part of ouragroforestry activities. Pelletization
reduces fine dust associated withtransportation and makes the wasteeasier to handle. Farmers werepreviously unsure how much of thismaterial – if any – they could safely

use. So we carried out research thatshowed them how much they should
put down to deliver the best nutrient
levels while avoiding overload to the soil,
and to which crops the material could
be applied. As a result, we estimate that
1,000 tons of waste tobacco material
have been reused in Malawi since 2013.
This waste material was historicallysent to a waste site, where there wereassociated environmental and healthimpacts.

Biodiversity
Biodiversity is important to us as it plays a key role in naturalprocesses that are critical to agricultural productivity, including
crop pollination. Tobacco is usually grown in biologicallydiverse areas, and we work with farmers to try to maintain thisdiversity.

Our Long-term Environment Plan
outlines our commitment to assess theimpact of our worldwide operations
on biodiversity. Once we understandour impacts better, we can establish

measures to protect biodiversity. Asa starting point, our ADET center inBrazil is developing a way of assessing
biodiversity on tobacco farms. A final
model will be developed in 2015, to betested with around 30 farmers in thatyear. The aim is to introduce the model
to all farmers from 2016 onward.

Working on biodiversity with tobacco farmers
In our international tobacco business,
we focus on biodiversity where we canmake a direct difference. We do this infour areas:
On farms
We encourage farmers to understandthat managing biodiversity makes
their businesses more economically
viable, more socially acceptable, andenvironmentally sustainable.
Tree planting
Planting trees ensures a sustainablesupply of wood for use in barn
construction and tobacco curing, while
maintaining local ecosystems.

Agricultural practices
Good agricultural practices help
improve biodiversity: integrated pest
management, for instance, allows
farmers to reduce the use of pesticides
that may threaten biodiversity.
Endangered forests in Brazil
We have adopted a 100-hectare areaof the Araucaria forest for five years aspart of our support for the Society for
Wildlife Research and Environmental
Education (SPVS) in Brazil. This allows
time for environmental improvements to
be made to the land based on an SPVS
conservation plan.

JT Group Sustainability Report | 45

Environment

Managing biodiversity

Product andconsumer impacts
We produce a wide range of products with varying degrees of impact on consumers
and society. In our tobacco businesses, the most significant issue expressed by our
external stakeholders is health risks of tobacco products.
In our pharmaceutical business, key issues are the ethics surrounding research anddevelopment and the responsible marketing of our products, while in our beverageand processed food businesses, food safety and transparent product information areof great importance to our stakeholders.

Across Japan we havehelped to set up more

Training events in
Russia targeted

10,000retailers on
preventing youth
access to tobacco
in 2014

We introduced

Ploom,
an electronically heated
tobacco product, into
two new markets in
2014
46 | JT Group Sustainability Report

All tobacco vending
machines in Japan are
now equipped withan adult identification
system¥28.9

billion¥30.5 billion

FY2013pharmaceutical R&D spending

5,000

than
smoking facilities to create
better environment bothfor smokers and nonsmokers

100%
100%

FY2013frozen food factories certified
to ISO 22000

Tobacco – smoking and health
People smoke for pleasure, but there are real risks that comewith that pleasure. Smoking is a cause of serious diseases,
including lung cancer, coronary heart disease, emphysema,and chronic bronchitis. These risks distinguish tobacco frommost consumer goods and place a particular responsibility
both upon us, our industry, and public authorities.

Our approach
Our tobacco business principles include
a commitment to openness about thehealth risks of smoking and to beingtransparent about our products. This
is what consumers demand, and byproviding them with the necessary
information, they can make informed
decisions on whether to smoke or not.
We will continue our work to ensure weremain true to our commitments.
A scientific approach
We take a scientific approach tounderstanding the quality, health risks,and development of our products.
To help us do this, we apply global
standards developed by ISO and/or byscientific societies such as the industrysupported Cooperation Centre for
Scientific Research Relative to Tobacco(CORESTA). Where relevant standards
do not exist, we have developed ourown research and testing programs. We
also review emerging science to ensure
all standards we apply are updated andadapted to new findings and techniques.
Our tobacco ingredients go through risk

assessments that make use of publishedresearch, and if circumstances warrant,
may then be put through additional
testing programs to ensure ingredients
do not increase the inherent health risksof tobacco products.
We constantly monitor the new scientificpublications, and other information, on
the health effects of tobacco products
and e-cigarettes and look into the newissues or claims once they appear.
In 2014 we examined new data on
e-cigarettes, residual tobacco smoke,and some specific substances intobacco, either through expert internal
reviews or through the commissioningof independent external reports.
Product transparency
The JT Group believes everyone should
be appropriately informed about thehealth risks of smoking. Our tobacco
businesses explain our positions
on smoking and health throughour websites, and we respond to
consumers’ demands to know about

product ingredients. The number ofcountries in which the JT Group provides
voluntary disclosure of ingredients has
risen from 30 in 2010 to 54 in 2014,
comprising our major international
markets and areas of business. The
scope of products involved has
increased to include cigarettes, roll yourown, and snus.
We provide information online by
tobacco product type, brand, andlocation, including materials andingredients such as cigarette papers,
filtration materials, adhesives, inks, andflavorings. We also provide ingredient
information when requested bygovernments while ensuring our trade
secrets are respected and protected.
The JT Group’s voluntary disclosure
country list is reviewed annually toreflect the JT Group’s major markets andthose where it has significant market
share.

While the health risks of tobacco use
cannot be completely eliminated, theJT Group is committed to developing
potential reduced-risk products that are
acceptable to adult users of tobacco
products.
We believe it is in the common
interest of public authorities andtobacco product manufacturers
to make a success of reduced-risk

tobacco products that meet consumer
expectations. That means allowing adultusers of tobacco products to evaluate
such products, if they wish to do so.
We also believe that public healthbodies, regulatory authorities,
the scientific community, and thetobacco industry should collaborate
to develop policies and frameworks
for the development and sale of suchproducts. In the current absence of clear
guidance, we have been developing
our own framework for the assessmentof reduced-risk products, covering
everything from how to assess thechemical composition of our products
through to clinical studies.

Environmental tobacco smoke
Environmental tobacco smoke (ETS),
also known as second-hand smoke,
is a mixture of the smoke that comesfrom the burning end of a cigarette andexhaled smoke from smokers nearby.
Compared to the smoke that a smoker
inhales, ETS is aged and highly diluted.
In poorly ventilated areas, ETS canirritate eyes, noses, and throats. It may
also worsen respiratory tract infections,as well as asthma. However, basedon scientific evidence, we do notbelieve it is a cause of diseases suchas lung cancer, coronary heart disease,emphysema, and chronic bronchitis.
We promote ways of avoiding ETS, suchas properly ventilated smoking facilities
in public spaces, and our international
tobacco business has worked with
airport authorities to develop more than
180 smoking facilities in 24 international
airports. By promoting such initiatives,
we not only address concerns about
exposure to ETS but build awarenessamong adult smokers of the availabilityof smoking facilities.

In Japan, since 2004, we have provided
free advice and practical help for local
governments and private businesses tohelp them create a better environmentthat respects both smokers and nonsmokers. We have also responded toaround 13,000 requests for advice andassistance, and have helped to set up
more than 5,000 smoking facilities.

JT Group Sustainability Report | 47

Product and consumer impacts

Potential reduced-risk products

Tobacco – product innovation
Product innovation is critical to the JT Group as it underpins
growth and profitability. Coming up with innovations helps
us respond to rapidly evolving consumer trends. Our productinnovation work focuses on conventional tobacco products

and emerging products based on existing regulation ofpotential reduced exposure or risk products. We also put
resources into developing innovations on filter technology,
packaging, and manufacturing processes.

Our approach
The driving force behind productinnovation in traditional products is
to respond to the evolving demandsof consumers. We closely monitor
market trends so we can spot newtechnologies and concepts that meet
consumer demands and may provide us

a competitive advantage with existing
adult smokers. We also take accountof industry analysis, market data, andchanges in the regulatory landscape –such as the European Union’s Tobacco
Product Directive – to help define the

e-cigarettes

Pioneering early commercial
launches, as with Ploomand Zero Style (smokelesstobacco products)

In 2014 we further strengthened ourefforts on emerging products by setting
up a global team that will focus onbringing together all our functions andknow-how relating to this category.
We introduced Ploom into two newmarkets – France and the U.K. – during
2014, and will continue to expand its
availability globally. We will also look toincrease the availability of E-Lites in the
48 | JT Group Sustainability Report

When it comes to innovation in
emerging products, we have five main
approaches:

Developing a product portfolio andpipeline focusing on three areas:

Striving to offer
satisfaction and pleasure
to meet consumers’
evolving needs

Conducting scientificassessments of potential
reduced-risk products

focus of our product research anddevelopment.

tobacco
vapor

other
novel
smokelessproducts

Engaging withregulators in markets
where we launch our
emerging products

U.K. and take the product into markets
elsewhere.
Innovation in product and packaging
designBy changing our product and packaging
design, we can improve resource
efficiency and reduce environmental
impacts. In 2014 our international
tobacco business completed a life cycle

analysis study to compare the carbon
emissions and other environmental
impacts of using different packaging
materials. From 2015 onwards we will
use the results of this analysis to identify
ways to reduce environmental impactsof our packaging by working with
suppliers.

Tobacco – regulatory landscape
Regulatory landscapeDue to the health risks associated withtobacco products, we believe regulationof the tobacco sector is necessary andright.
We strive for constructive dialogue
with governments on regulations toensure that it is based on solid evidence,
will achieve its desired effect, andwill not disproportionately affect thedevelopment, appearance, and placingof our product on the market.
When we are consulted bygovernments, or take part in consultation
processes, we aim to be respectfulof each country’s decision-making
process and to provide credible evidence
substantiating our positions.
For example, in 2014 we contributed
to the U.K. Government’s review ofplain packaging for tobacco products
by meeting the independent reviewer,
Sir Cyril Chantler, and submitting
a comprehensive, evidence-based
response. We also encouraged meetings
between Sir Cyril and two professors,on whose expert views we relied in our
response. After submitting our views on
plain packaging in Ireland during 2014,
we also spoke at the Parliamentary
Committee hearing on the subject.

Product and consumer impacts

Using evidence gathered by a worldrenowned legal expert, we also wrote to
the World Health Organization (WHO)in 2014, urging it to include tobaccocompanies in its discussions about
regulation – in particular on the WHO’s
Framework Convention on Tobacco
Control.
We have clear guidelines for politicalengagement and an anti-bribery policy
embedded within the Code of Conduct
in our international tobacco business.
We comply with all requirements
pertaining to our relationship withgovernments, for example with the U.K.
Bribery Act and the EU Transparency
Register. We were one of the firsttobacco companies to sign up to thelatter and have been in compliancesince signing.

JT Group Sustainability Report | 49

Tobacco – responsible marketing
We market our tobacco products to adult smokers in orderto maintain brand loyalty and to encourage adult smokers ofcompetitor brands to switch to our products. We do not market
tobacco products to minors, nor do we encourage anyone totake up smoking – or discourage anyone from quitting.
We support better regulation principles governing the
responsible marketing of tobacco products, providing it isevidence-based, practical, effective, and proportionate –and that allows us to communicate with adults who use
our products. For example, we are concerned by proposals
that would affect our ability to compete or differentiate our
products by restricting the use of brand names, or would
reduce our ability to communicate distinctions and attributes ofdifferent products and product types to adult smokers.

Our marketing
standards
Our international tobacco businesscomplies with all local laws andregulations affecting its tobacco productmarketing, and also applies internal
global marketing standard across every
country in which it operates. These cover
all aspects of marketing, including print,
billboards, electronic media, promotional
events, brand sponsorship, and healthwarnings on packaging.
Our Japanese domestic tobacco
business complies with an industry selfregulatory marketing standard set by the
Tobacco Institute of Japan, as well as
local laws and regulations.

Compliance
The Code of Conduct in our international
tobacco business requires all employees,
agencies, and suppliers to comply with
its global marketing standard.
Marketing programs have to bereviewed and approved, and compliancereviews are carried out internally toensure that we meet both regulatory
obligations and appropriately apply ourinternal marketing standards. In somecountries these standards are stricter
than national laws and regulations.

50 | JT Group Sustainability ReportPreventing youth access
The JT Group believes minors should
not smoke and should not be able toobtain tobacco products. We do notmarket to minors, and we support
measures that prevent them fromobtaining tobacco products, including
supporting regulation that imposes
fines or licensing restrictions on retailers
who sell to minors. We also support thecriminalization of proxy purchasing by
adults, and we promote ‘proof of age’programs.

In our Japanese domestic tobacco
business we have worked with thetobacco industry and the JapaneseVending Machine Association to ensure
all tobacco vending machines areequipped with an adult identification
system such as those based around ID
cards.

independent organization, of more than
6,000 test purchases in shops to checkif ID was being requested. The program,which achieved a 7% increase in thenumber of retailers requesting ID, will
now be extended across the U.K.

In the U.K., in 2014, we completed a£400,000 pilot program, run by an

Working with retailers
We support retailers in their efforts toprevent minors from buying tobacco,including through initiatives such as
the U.K.’s ‘No ID, No Sale!’ program,which we initiated with other tobacco
manufacturers in the U.K.
In our international tobacco business
we focus activities on Retail AccessPrevention programs, which educate
retailers on how to refuse tobacco sales
to minors. In Russia, together with othertobacco companies, we held around 370
training events targeting 10,000 retailers
across 19 cities in 2014.

Product and consumer impacts

Litter campaigns
Litter from tobacco products is an issue
that calls for collective action to educate
adult consumers to act responsibly in
relation to tobacco litter. A litter-freeenvironment benefits everyone, smokers
included.
We adopt a two-pronged approach on
this issue: creating awareness throughcampaigns and providing smokers
with facilities to easily throw away theircigarette butts.
This is well illustrated in the Netherlands,
where in 2014 we ran an awarenesscampaign aimed at beachgoers in
the municipality of Den Helder and,in parallel, placed around 70 cigarettebutt drop-pits along the coastline of

the region. After the campaign, a study
showed a 33% reduction in smokingrelated litter.
In Japan, since 2004, we have run a‘Pick up and you will love your city’
campaign, operating in collaboration
with more than 3,300 organizations,
including local governments, privatecompanies, and volunteer groups aswell as local citizens. We have organized
more than 1,600 events in which an
estimated 1.5 million people haveparticipated since the launch of theinitiative.

Litter awareness campaign in the Netherlands
JT Group Sustainability Report | 51

Pharmaceutical – product responsibility
Our approach
In order to efficiently create new drugs,
we focus research and development(R&D) mainly on three areas: glucose
and lipid metabolism, virus research, andimmune disorders and inflammation.
During 2014 we spent ¥28.9 billion
on R&D and put drugs into preclinical
trials. After obtaining manufacturingand marketing approval in 2014, we
began marketing a new drug, Riona
Tablets 250mg, for treatment ofhyperphosphatemia in patients in Japan.

Our mission
Our pharmaceuticalbusiness has a mission
to create, throughworld-class researchand development,
innovative drugs
that tackle diseases
in a safe and securemanner.

Responsible research anddevelopment
Our pharmaceutical business has a direct
impact on human life, and therefore
our R&D is guided by a strong sense of
responsibility and ethics. Any divergencefrom this path could result in loss of life ordamage to health – as well as diminishedtrust in the business. Our research
activities are carried out in an appropriate
and ethical manner and comply with alllaws, regulations, and industry standards.

Complying withpharmaceuticalregulations andstandards
We have a rigorous system of checks inplace to ensure new drug development
complies with all relevant laws,
regulations, and industry standards.
In-house audits make sure ourprocedures are correctly followed andthat we control safety within drug
development and trials. We also gather
data to monitor the efficacy and side
effects of drugs on the market to help
guide future drug developments anddrug safety.

52 | JT Group Sustainability ReportManaging chemical
substances
We comply with all relevant laws
and regulations on the control ofdesignated chemical substances, andour employees are made aware ofchemical safety risks and management.
Torii Pharmaceutical, our pharmaceuticalsubsidiary, separates chemicals into
different categories requiring different
levels of management. The company
has specific rules and procedures that
respond to the characteristics and safety
risks of different groups of chemicals.

Pharmaceutical R&D
expenditure (billions of Yen)
30.7
30

30.5

28.9

23.4

24.9

FY
2010

FY
FY
FY
2014
2011 2012 201320
10

Ethical considerations in research
Animal testing is an essential partof pharmaceutical research anddevelopment for determining thesafety and efficacy of drugs. We
have established in-house standards
for managing animal testing and thebreeding of laboratory animals inaccordance with relevant laws andguidelines.

We have established an Animal Testing
Committee, which reviews animal
testing and ensures it is conductedin accordance with the ‘3R’ concept:
replacing the use of animals where
possible, reducing the number ofanimals used in testing, and refining
tests so animals do not suffer
unnecessary pain. Our practices for theproper management of animal testing
have been certified by a third party.

We also established an Ethics Review
Committee for Clinical Studies toconform with the Ethical Guidelines
for Clinical Studies in Japan. The
committee’s role is to examine theethical and scientific validity of ourresearch projects utilizing human-origin
samples.

The JT Group is a member of theJapan Pharmaceutical Manufacturers
Association (JPMA), and we comply
with its code of practice, which
promotes high ethical and transparency
standards in the promotion ofprescription drugs. Part of that code
requires JPMA members to establish
their own code of practice in this area.

Torii Pharmaceutical’s own code isbacked up by training to ensure that
employees and MRs understand andabide by it. In 2014 Torii Pharmaceuticalprovided refresher training for MRs
on how they can better inform healthworkers about the effectiveness andpossible side effects of prescription
drugs.

Responsible marketing

Transparency oncooperation withinstitutions

3R
1.

2.

3.

Replacement

Reduction

Refinement

Where possible,

Minimize the

Do not let

opt for test

number oflaboratory

methods that doanimals used inanimals suffer

not use animals

testing

unnecessary pain

Cooperation with research institutes,
universities, and medical institutions isessential if we are to realize our mission.
We are transparent about financial
contributions to these bodies anddisclose such payments online.

JT Group Sustainability Report | 53

Product and consumer impacts

Medical representatives (MRs) play a keyrole in selling and promoting drugs tohealthcare professionals. In Japan, Torii
Pharmaceutical markets prescription
drugs through a team of 499 MRs.
Outside Japan we license drugs to otherpharmaceutical manufacturers and do
not have a sales function.

Beverage and processed food –product responsibility
In our beverage and processed food businesses we aim tomeet consumers’ needs – and preserve our good reputation –with the highest-quality and best-tasting products. Food safety

Delivering safe, highquality products
We have a rigorous quality andprocess control system focused onfour areas: food safety, food defense,
food quality, and food communication.
This guarantees safety in every partof our beverage and processed foodbusinesses, from the buying of raw
materials to manufacturing anddistribution. Given heightened consumerawareness of food safety in Asia during
2014 and the imminent enforcement of
new food labeling regulations in Japan,
we have reviewed our procedures inthis area to ensure we operate in an
appropriate way.

Food safety
Each of our beverage and processedfood businesses has a division to control
food safety, and each holds a quarterly
meeting to review food safety initiatives
and share best practices.
We analyze product-specific safety risks
and conduct inspections and audits inline with these risks. All our own frozen
food factories are certified to the
ISO 22000 food safety management

is a priority, and we maintain the highest standards of control
to provide safe and reliable products.

Food quality
Ensuring customers get highquality products they enjoy

FQ
FD

FS

Food safety
Preventing foodborne
health issues

Food defense
Protecting food from risk ofcontamination

FC Foodcommunication
Providing information about our products

system, as are those owned by our third
party frozen food contractors. Factories
are subject to external certification
audits.
Our beverage business outsources
its production to third parties. With
our encouragement, 68.8% of thesemanufacturers have certified theirfactories to the FSSC 22000 food safety
management system. In addition to

those already certified to FSSC 22000,
we inspect food safety systems of ourcontracted partners ourselves.
In 2014 we conducted extra inspectionsof all factories, partly in response to
major food safety incidents involving
some other companies in Asia. We
assessed risks and, where necessary,
implemented improvements.

100%
68.8%

ISO 22000 certified frozen food factories

FSSC 22000 certified beverage business
partner factories
54 | JT Group Sustainability ReportPartly in response to incidents ofdisgruntled factory workers at othercompanies in Japan tampering withproducts, these guidelines are now
being updated to emphasize theimportance of motivating employees.
During 2014 we held seminars for
manufacturing partners that focused on
lessons learned from recent food safety
scandals in Asia.

Food quality
We ensure quality management throughcertification to ISO 22000 or FSSC
22000. Our beverage business has also
developed its own quality assurance
system.
TableMark has a quality improvement
committee that responds to consumer
opinions. In 2014, for instance, such
feedback led TableMark to provide morecomprehensive cooking instructions for
its packed cooked rice.
Our consumer complaints management
system is compliant with ISO 10002,
the international standard for customer
satisfaction.

Food communication
We provide information to consumers
about our products, including disclosureof ingredients and where they comefrom.
In our processed food business we
disclose the factory where products are
made and the origin of main ingredients.
We also offer toll-free numbers on
product labels so consumers canrequest additional information. In Japan
we are preparing for new regulations
that will require changes to labeling.
We give details of food safety control
programs, and publish frequently asked
consumer questions on our websites.
We also communicate with consumers
by allowing them to visit factories, where
we explain what we do and how we doit. In 2014, for example, 1,499 people –mainly students – went on tours of our
Uonuma Mizunosato noodle and ricefactory in Japan.

Our food defense guidelines
Tight control offacilities, water sources,
and toxic substances

Restricted areas forboth employees andvisitors

Restrictions on personal
belongings in factories

JT Group Sustainability Report | 55

Product and consumer impacts

Food defense
Food defense is about protecting ourmanufacturing processes and products
from contamination. Our beveragebusiness, as well as our processedfood subsidiary, TableMark, havedeveloped and adopted food defense
guidelines that apply to factories anddistribution centers as well as contract
manufacturers.

The bigger picture
It is our responsibility as a corporate citizen to contribute to the communities inwhich we operate. We help to improve the quality of life in communities in various
ways, including through financial contributions and investments, employee
volunteering, and the endowment of a charity, the JTI Foundation(www.jtifoundation.org).
We are guided in this area by the JT Group Corporate Citizenship Activity Policy,
which focuses on four areas: social welfare, arts and culture, environmental
protection, and disaster relief. In 2015 we are adopting the LBG measurement
model to better assess the real value and impact of our community investment toboth business and society.

¥8,92328(*A)

million2014¥7,780 million

314

2014

2014

invested in community activities

programs to which the JTIFoundation made financial
contributions through 21 partnerorganizations in 19 countries

In the U.K.,
charities supported
by employees
benefited more than

¥94.3

FY201313,000vulnerable people

56 | JT Group Sustainability Reportmillion2014

provided to support 24 postearthquake reconstruction projects
in Japanprograms supported worldwide by
our international tobacco business

60

university scholarships agreed to
be provided over six years (from2012 to 2018) to adult orphans on
low incomes through our supportof the Al Aman Fund in Jordan

Continuous post-earthquake support in Japan
Many communities in the Tohoku regionof Japan are still suffering from the aftereffects of the earthquake and tsunamithat hit East Japan in 2011.
While support from elsewhere is
dropping away, the JT Group continues
to help affected areas that have notfully recovered from the disaster. Our
programs include the JT Reconstruction
Support Project, launched in 2013,
which provided ¥94.3 million to support
24 projects in 2014.
We continue to support the rebuildingof agriculture in Rikuzentakata, oneof the most affected communities,
through our ‘Takata no yume’ project.

Takata no yume is a new rice variety,developed by the JT Group to suit theregion’s climate and donated to the citywith its ownership rights. In 2014, 21
farmers harvested 260 tons of this rice, asignificant rise from one ton in 2012.

“Takata no yume has
resurrected agriculture in ourcommunity. Having someone
who continues to support
us is encouraging andcomforting.”
Futoshi Toba, Mayor of Rikuzentakata

Caring in the community
Five employee-led Community Care
Committees within our international
tobacco business make a difference
across the U.K. by supporting local
charities that address the needs ofcommunities where each committee
is based: in Manchester, Crewe,
Weybridge, Lisnafillan, and within thenationwide sales force. In 2014 alone,
thanks to project support and employee
volunteering, the committees changed
more than 13,000 people’s lives forthe better. Projects included finding
supported accommodation for homelesspeople (with Elmbridge Rentstartand Simon on the Streets), delivering
professional work placements for adults

with a learning disability (the Kingsley
Organisation), providing free transport
for isolated older people (Byfleet Care),and offering support and rehabilitation
for survivors of domestic abuse(Women’s Aid and Survive).

“It’s the little things thatmean so much, and thegenerosity of JTI volunteers
floors us every time.”
Christine Harmes, Counselling Co-ordinator, Survive(sexual abuse charity)

The bigger picture

Helping young musicians
No matter how musically talented
someone is, they will find it difficult
to make their way in their chosen
profession if they have little money.
In South Africa we provide financial
support for the Johannesburg
Philharmonic Orchestra’s academy,
which helps people from disadvantaged
backgrounds with tutoring and work
experience that sets them on the roadto becoming a professional musician.
Each year ten ‘cadets’ are chosen for aten-month program that allows them toreceive musical tuition at the orchestra,take part in rehearsals, perform inconcerts, and receive advice on life skills
such as money management and how
to carry out contractual negotiations.

“My time as a cadet with theacademy was great. I neverimagined how much I could
learn in such a short space oftime.”
Dineo Matsepe, 2014 academy cadet (violin)

JT Group Sustainability Report | 57

About this report
We report annually on our sustainability activities andperformance and have been publishing environmental or CSR
reports in various forms since 1998. Our last report, ‘JT Group
Sustainability Report FY2013’, was published in June 2014.
We follow the principles of the Global Reporting Initiative (GRI)
G4 Sustainability Reporting Guidelines, and though we are
not yet in accordance with the G4 ‘Core’ Guidelines, we areworking toward this goal in future reports.

Changes in structure, size, orownership

We defined the content of this document using a materiality
assessment in our international tobacco business, with peerbenchmarking and an internal prioritization exercise in ourother businesses.

In November 2014 we completed the acquisition of the U.K.
company Zandera, which makes E-Lites e-cigarettes.

In 2014 the JT Group moved its reporting period to thecalendar year ending December 31. In the past, Group
companies outside Japan reported their financial performancefrom January to December, while in Japan our business took
its financial year to be from April 1 to March 31. Due to thistransition, the JT Group’s FY2014, excluding its international
tobacco business, only consisted of a nine-month period from
April 1 to December 31. However, for comparability of the JT
Group’s year-on-year performance, in this report data indicatedas 2014 covers January to December 2014, unless otherwise
stated. Historic data indicated with ‘FY’ covers fiscal year from
April 1 to March 31 for our Japanese domestic operations.
From 2015 all the JT Group companies will report performancespanning from January 1 to December 31.

In February 2015 JT announced that 1,754 employees agreed
to take voluntary retirement under a program announced inlate 2013.

There were no major changes to the size or structure of the JT
Group within the reporting period.
However, in 2014 we announced the proposed closure offactories in Wervik, Belgium, and Lisnafillan, Northern Ireland,
potentially affecting around 1,100 jobs.

In February 2015 we decided to cease the manufacture andsale of JT brand beverages by the end of September 2015.

Notes on data
Although we report overall JT Group figures wherever possible,
in some areas this has not been possible. In such instances
we have made it clear to which part of the business the dataapplies.
The Japanese Yen exchange rates against the U.S. Dollar usedin this report are the same used in our consolidated financial
reporting.

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

PROCESSED FOOD*A *CSUBSIDIARIES*A = the entire JT Group

BEVERAGE

PHARMACEUTICALSUBSIDIARIESTORIIPHARMACEUTICAL

*A *C

*A *C

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

58 | JT Group Sustainability Report*A *B *C *D
JAPANESEDOMESTICTOBACCO

*A *C

*A *C

*A *C

TABLEMARK*A *B *C *D

INTERNATIONALTOBACCO*A *CSUBSIDIARIES*C = Japan Tobacco Inc. (JT) and Japanese domestic group companies*E = solely Japan Tobacco International (JTI)*A *D *E
JAPAN TOBACCO
INTERNATIONAL

Environmental, health and safety
data measurement

Awards and recognition

We measure Group-wide GHG emissions using the WRI/WBCSD GHG Protocol, an international guideline thatrecommends reporting across three areas:• Scope 1: Direct GHG emissions from corporate activities,
such as burning of fossil fuels at factories.
• Scope 2: Indirect GHG emissions from consumption ofpurchased electricity, heat, or steam.
• Scope 3: Other indirect emissions, including from the
manufacture of products bought from other companies.

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

For GHG reporting, in Japan we use conversion factors set
by the Japanese Act on the Promotion of Global WarmingCountermeasures, 2009. In our international businesses we use
conversion factors set by the International Energy Agency for2009.

We have also been awarded with a position on theJapan 500 2014 CDLI, run by the CDP, a global body that helps
companies measure, manage, and disclose environmental
performance. This is recognition for the depth and quality of
the climate change information we disclosed (www.cdp.net).

Environmental data is collected from all functions within thebusiness using actual data, whenever it is feasibly available, orusing estimated data where actual data is not available.

Contacts and feedback

Health and safety data for the international tobacco business iscollected from all functions via monthly or quarterly reporting
and those for JT is reported to the headquarters when a healthand safety incident takes place.
For further details on our environmental, health and safety data
methodology, please refer to the GRI G4 Content Index on our
website.

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

Other publications

Japan Tobacco Inc. (Headquarters)
2-1, Toranomon 2-chome
Minato-ku
Tokyo 105-8422
Japanwww.jt.com
JT International SA
1, rue de la Gabelle
CH-1211 Geneva 26
Switzerland
www.jti.com

For more information or to provide
feedback on this report, please email:jtgcsr@jt.com

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

JT Group Sustainability Report | 59

GRI G4 content index summary
The identification of Specific Standard Disclosures is based ona materiality assessment in our international tobacco business
only.

This report contains Standard Disclosures from the Global
Reporting Initiative (GRI) G4 Sustainability Reporting
Guidelines. However, our reporting is not yet in accordancewith the GRI G4 ‘Core’ Guidelines and we have not madedisclosures in all areas.

We aim for our FY2015 report to be in accordance with GRI G4‘Core’.

The index below provides the list of Standard Disclosures forwhich we have either provided information in this report orin other public documents, such as our Annual Report. We
also provide a self-assessment of whether these Standard
Disclosures have been fully disclosed (marked with)or partly disclosed ().

For a full GRI G4 content index (hereafter ‘GRI Index’) withmore details around our disclosure, please visit
www.jt.com/csr/report/index.html.

General Standard Disclosures
Strategy and analysis

Organizational profile

G4-1

G4-3

G4-4

G4-5

G4-6

G4-7

G4-8

p.4-5

p.6-7, AR

p.6-7

p.6-7

p.6-7

p.6-7,58-59, AR*

p.6-7

Organizational profile
G4-9

G4-10

G4-11

G4-12

G4-13

G4-14

G4-15

G4-16

p.6-7, AR,
GRI Index

p.6-7,30-31

p.27

p.8,9,11,32-39

p.6-7,58

p.41, GRI Index

p.10,18,2223,38,43-44,
49-51,56

p.18,52

G4-23

Identified material aspects and boundaries
G4-17

G4-18

G4-19

G4-20

G4-21

G4-22

p.2, AR

p.8-9,19,58

p.8-9,19

GRI Index

GRI Index

p.25, GRI Index

Stakeholder engagement

p.19,58, GRI Index

Report profile

G4-24

G4-25

G4-26

G4-27

G4-28

G4-29

G4-30

G4-31

p.17

p.15,17

p.17

p.17-19

p.58-59

p.58-59

p.58-59

p.58-59

Report profile

Governance

G4-32

G4-33

G4-34

GRI Index

p.59

p.16, AR

Ethics and integrity
G4-56
p.14-15,20-23,25-27,32-33,41,47,49-50,52-55* AR stands for Japan Tobacco Inc. Annual Report FY2014.

Specific Standard Disclosures
Economic

Environmental

Indirect economic impacts

DMA

G4-EC8p.36-38

60 | JT Group Sustainability Report

Procurement
practices
DMA
p.33

Materials

EnergyDMA

G4-EN1
p.39

DMA

G4-EN3
p.39,42,59, GRI Index

Environmental
Water

Biodiversity
DMA

G4-EN8Emissions

DMA

p.44

DMA

G4-EN15

G4-EN16

p.45

G4-EN18

G4-EN19

p.42,59, GRI Index

Environmental

Labor practices
Supplier
environmental
assessment

Effluent and waste

DMA

G4-EN17

G4-EN22

G4-EN23

Employment

DMA

p.44, GRI Index

Labor/management relations

DMA

G4-LA1

p.33-34,42

G4-LA2DMA

p.29, GRI Index

p.27,29,37

Labor practices
Occupational health and safety

DMA

G4-LA6DMA

G4-LA11

p.25-26,37, GRI Index

Supplier
assessment forlabor practices

Diversity and equal
opportunity

Training and education

DMA

p.28

G4-LA12

Labor practices grievancemechanisms

DMA

p.30, AR

DMA

p.33,37-38

G4-LA16
p.21

Human rights
Freedom of associationand collective bargaining

Non-discrimination

DMA

G4-HR3

DMA

p.27

DMA

p.27

Society

Human rights grievancemechanisms

Local communities

DMA

G4-HR12DMA

p.21,27

G4-HR5

p.37-38

Human rights

Assessment

Supplier
human rights
assessment

DMA

DMA

DMA

p.37-38

p.21,27,
GRI Index

p.33,37-38,
GRI Index

Forced orcompulsory laborChild labor

Anti-corruption

G4-SO1DMA

p. 32,36-37,56-57, GRI Index

Public policy

G4-SO4G4-SO5DMA

p. 21-23,49, GRI index

Society

G4-SO6

p.18,66, GRI Index

Product responsibility

Anti-competitive behavior

DMA

Supplier
assessment for
Customer health and safety
impacts on society

Compliance

G4-SO7DMA

p.22

G4-SO8

p.21, GRI Index

DMA
p.33,37-38

DMA

G4-PR1

p.47-48, GRI Index

Product and service labeling

DMA

G4-PR4

p.47,49-51,55, GRI Index

Product responsibility
Marketing communications
DMA

G4-PR6

Compliance
G4-PR7

p.47,49-51,53,55, GRI Index

DMA

G4-PR9p.21,47,49-51, GRI Index

JT Group Sustainability Report | 61