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

Our tobacco principles

Smoking and health

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

Our tobacco business value chain

The four strategic focus areas of our sustainability
strategy

Products and services (RRP)
Products and services (Environment)

Supply chain

Optimizing the regulatory environment

Investing in people

Tackling the illegal trade

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TobaccoInformation by

Reduced-Riskbusinesssegment

Products (RRP)

Supply chain

Smoking and health
People smoke for pleasure, but there are real risks that come with that pleasure. Smoking is a cause
of serious diseases, including lung cancer, coronary heart disease, emphysema, and chronic
bronchitis. These risks distinguish tobacco from most consumer goods and place a particularresponsibility upon us, our industry, and public authorities.
The JT Group is committed to being transparent about the health risks of smoking. We do this byproviding consumers with scientific information to help them make informed decisions aboutsmoking. We also subject all of our ingredients to toxicological assessments, in line with stipulated
requirements.
Our positions on smoking and health are available on our websites, as are the lists of ingredients we
use in our products.

Ingredients list of JT products (in Japanese)
Ingredients list of JTI products
Our attitude to smoking
Our attitude to smoking (in Japanese)

Related links
TobaccoReduced-Risk

Products andProducts (RRP)

services(Environment)

Tackling illegal
trade

Investing inpeopleSupply chain

Optimizing theregulatoryenvironment

Smoking andhealth

Products and services(RRP)
Exceeding expectations with products and services

Aspirational goal
We will be a total tobacco company offering consumers (The word, consumers, used in thecontext of the tobacco business means adult consumers. Minimum legal age for smoking

varies in accordance with the legislation in each country.) an even greater choice of products
by focusing on quality, innovation, and reduced-risk potential.

TargetReduced-Risk Products (RRP) offer real benefits to consumers and society. Our responsibility
as a manufacturer is to continuously develop and launch RRP that meet consumer
expectations and to provide information on them. We will lead in providing a range ofconsumer choice in the RRP category.

Progress
In 2021, we offered products (RRP) with the potential of risk reduction, social consideration,
convenience, and affordability, such as Heated Tobacco Sticks (HTS), infused tobacco
products, e-cigarettes and oral products.
In an effort to increase the presence of JT Group in reduced-risk products, we will be
accelerating the level of investment, mainly towards heated tobacco sticks. In the last three
years, we invested approximately JPY 200 billion towards R&D, marketing and capital
expenditures.
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy.

*1 Japan, Russia, UK, Italy

Our approach
Responsible innovation focusing on consumer choice has always been at the heart of what we do at
JTI. The growing global market for potentially Reduced-Risk Products [Reduced-Risk Products are
Products with the potential to reduce the risks associated with smoking] is a bold new frontier fordelivering exactly that. We believe that the direction the vaping products market takes will – andshould – be driven by consumers. It is up to us, the innovators in the tobacco industry, to listen to
consumers and ensure their needs are met with high-quality products.
We have committed to investing significantly in Heated Tobacco propositions to compete more
successfully in this growing market of RRP. We have also enhanced our capabilities – or acquired
new capabilities – to succeed beyond combustible products by further focusing on consumercentricity.
We have partnered with startups and incubators to give emerging technologies and ideas theopportunity to reach our R&D centers.
While we believe that vaping products have reduced-risk potential compared to smoking cigarettes,
they should only be used by adult* consumers who are informed of the associated risks, including
nicotine addiction.
* Minimum legal age for smoking vary in accordance with the legislation in each country. In Japan,
smoking is not permitted for those under 20 years of age.

Putting consumers first
We take a consumer-centric approach to research and development, and focus on four major
factors that motivate consumers to consider Reduced-Risk Products:■

The potential of reducing the risks associated with smoking■

Affordability and value for money■

Social considerations■

Convenience of usage in a variety of locations and situations

This approach to our Reduced-Risk Product research and development enables us to drive strong
benefits for all of our key stakeholders: consumers, shareholders, employees, and the wider society.
It also reflects the Harm Reduction Equation shown below.
The success of any harm reduction depends on two factors: the potential to reduce the risks
associated with using a particular product and the number of people adopting the product. Its
potential value is lost when consumers do not accept these alternative propositions.

Empowering consumer choice
We support consumers to make informed choices, by providing information acquired through thescientific assessment of the products they may wish to use.
These products offer potential of risk reduction, social consideration, convenience, and affordability.

Heated tobacco sticks
Heated tobacco sticks contain tobacco leaf and create a tobacco-enriched vapor that can beinhaled. They deliver an enjoyable tobacco experience through heating with high temperature (c.

230-350 Celsius), not burning.

Infused tobacco products
Infused tobacco is another variant of heated tobacco products. It combines a tobacco capsule anda liquid cartridge. Tobacco leaf contained inside the capsule releases vapor via infusion of vaporized
liquid.

E-cigarettes
Also known as electronic cigarettes, e-cigarettes heat a liquid that usually contains nicotine, but notobacco. They create an inhalable vapor by electrically heating a liquid (known as ‘e-liquid’)
contained within the device or a replaceable cartridge.

Oral products
Oral products include snus and nicotine pouches. These nicotine-containing products are placed
inside the mouth, between the gum and upper lip, where nicotine is absorbed through the oral
mucosa. Oral product consumers are not exposed to the toxic compounds resulting from the
combustion of tobacco. While oral products are not risk free, they do not generate environmental
tobacco smoke (also known as second-hand smoke).
Snus contains tobacco (cut, ground, powdered, or leaf), while nicotine pouches are completely
tobacco-free.

Realizing the full potential of Reduced-Risk Products
Our Reduced-Risk Products will be defined by their potential to reduce the health risks associatedwith smoking and their ability to provide an acceptable user experience for consumers. We’recommitted to bringing new and innovative Reduced-Risk Products to market, and are continuallydeveloping and testing them using scientifically-rigorous methods.
While it is still too early to understand the long-term health effects of RRP, various factors (including
the elimination of combustion and the fewer toxicants found in the vapor) suggest there is potential
for them to reduce the risks associated with smoking. That’s why we’re committed to ensuring that
all our Reduced-Risk Products fulfill this potential.

Case study

A step towards reduced-risk substantiation
After five years, many studies and clinical trials and more than 200,000 pages submitted to FDA, we
are excited to have received marketing orders for the Logic Pro, Power, and Vapeleaf* devices, aswell as their tobacco flavored capsules.
FDA confirmed that Logic's products have demonstrated that marketing of the products isappropriate for the protection of the public health. This underscores years of scientific study andresearch dedicated to ensuring that adult consumers have access to Logic products.
Logic has always supported effective, proportionate and evidence-based regulation of ENDS
(Electronic Nicotine Delivery Systems). From the moment FDA issued the Deeming Rule regulating
ENDS, Logic has been engaged in a robust and committed effort to comply with all FDA
requirements. Logic submitted Premarket Tobacco Product Applications (PMTAs) for its Logic Pro,
Logic Power, and Vapeleaf products on August 19, 2019, well before the PMTA deadline.
* In the US, Ploom Tech, our Tobacco Infused Capsule system, has been sold as ‘Logic VapeLeaf’. It has notbeen commercialized there recently.

JT Science: an online resource for all
JT Science is a valuable online resource for both scientists and non-scientists. Our mission is toinform, educate, and collaborate with anyone who is interested in learning about the science behindthe products – from consumers and scientists to the regulatory community.
We strive for an open, balanced, and fair environment where factual scientific data and assessments
are shared in a transparent way.
While there are currently no globally agreed standards for assessing the risk-reduction of thealternatives to combustible tobacco products, our team of scientists is developing methods andapplying them in research contributing to the increasing scientific evidence on Reduced-Risk
Products. We will continue with these studies and share progress updates on our science website,
JT Science. As an example, a publication on the reduced exposure to selected harmful andpotentially harmful constituents when switching from combustibles to heated tobacco products
here.

Read more about our research on the JT Science

Our product portfolio

website.

(As of December 2021)

Case study

Enhancing the consumer experience
Ploom X is our latest generation and most exciting and ambitious proposition.
The cutting-edge device combines an aesthetic and innovative design with a more intuitive user
experience, with no buttons on its surface. In addition to the ability to precisely control heating
temperature, Ploom X is equipped with a new heating technology which focuses on air flow,
significantly improving user experience.
We will continue to develop new functionalities for our devices to make them as safe and userfriendly as possible.

Case study

Ploom X and the power of teamwork
Developed as a global initiative, Ploom X is a perfect example of successful collaboration acrossdifferent functions in multiple locations.
At the start of this truly global project, our Product Design team partnered with a design agency in
the U.K. The technical configuration was then defined by our R&D teams in Japan, Germany, andHong Kong. Now, the products are manufactured in China, and Quality Assurance is conducted inJapan and Germany.
Teams of experts from across the organization have been collaborating closely and everyone
involved has gone the extra mile to make the project a success, in spite of the challenges of working
across different time zones during a pandemic. The result is a new star product that will help us tosecure future growth.

Ploom X will make theuser experience more
pleasurable and uniquethan ever before.
Listening to consumers
globally, we have createda proposition that isaligned with today’s
lifestyles and choices.
This includes a moreauthentic tobacco taste,
through proprietary
technologies and astylish design.

Takehiko Tsutsui,
SVP, Reduced-Risk ProductsCase study

U.K. Enviromentum project: “Doing loads morewith tonnes less”
Read more about the environment and our products.

Reduced-Risk Products supply chain(As of December 2021)

We have established a dedicated supply chain for our Reduced-Risk Products, building strong
supplier partnerships that support business expansion and meet the demands of our increasingly
sophisticated portfolio. In addition to our in-house production capabilities, we source frommanufacturers across Asia and Europe.

Where are our Reduced-Risk Products produced?

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

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

Notes: This section is intended only to explain the business operations of the JT Group, not to promotesales of tobacco or nicotine-containing products or encourage smoking or using nicotine-containingproducts among consumers.

Related links
TobaccoProducts andProducts andservices (RRP)

services(Environment)

Tackling illegal
trade

Investing inpeopleSupply chain

Optimizing theregulatoryenvironment

Smoking andhealth

Products and services(Environment)

Aspirational goal
We will be a total tobacco company offering consumers (The word, consumers, used in thecontext of the tobacco business means adult consumers. Minimum legal age for smoking
varies in accordance with the legislation in each country.) an even greater choice of products
by focusing on quality, innovation, and reduced-risk potential.

TargetWe will reduce the environmental impact of our products and packaging through design
solutions, facilitating responsible collection and disposal, and consumer awareness andeducation. More specifically, we will reduce our packaging (including plastic) and ensure thatthe remaining is 85% reusable or recyclable by 2025, rising to 100% by 2030. In total,
recycled content will account for 20% of our tobacco business packaging by 2025.

Progress
We have carried several initiatives looking at design solutions and responsible collection anddisposal, and consumer awareness and education.
In 2021, our efforts led to:■

84% reusable or recyclable packaging■

16% recycled content of packaging

Our investment in product sustainability takes into account the type of materials and packaging weuse. In 2020, our international tobacco business set up a cross-functional team to embedsustainability in product development and minimize our environmental impact across our portfolio.
For more specific initiatives, read more on Environment and Our Products

Related links
TobaccoReduced-Risk

Products andProducts (RRP)

services(Environment)

Tackling illegal
trade

Investing inpeopleSupply chain

Optimizing theregulatoryenvironment

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

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

Targets and Progress
AGRICULTURAL LABOR PRACTICES
TargetWe will implement our Agricultural Labor Practices (ALP) program in all sourcing countries
by 2025.

Progress
In 2021, 97% of our supplying entities*1 reported against ALP.
84% of our directly contracted growers and 97% of our leaf merchants' growers*2 werecovered by ALP.
79% of our volumes were covered by ALP.

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

Progress
At the end of 2021, 100% of our key suppliers were screened against ESG criteria.

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

Progress
Since 2015, we have reduced greenhouse gas emissions from our own operations by 27%,
while greenhouse gas emissions from our direct leaf supply chain increased by 9%*3 in 2021.
Following announcement of JTG Net-Zero target in February 2022 “JT Group Environment
Plan 2030” and Tobacco Business Sustainability Strategy was updated. Read about the
updated GHG related targets on JTI.com.

Progress against new targets will be reported in 2023.

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

Progress
Since 2015, we have reduced water withdrawal by 16% and waste by 15%, in relations to ourown operation.

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

Progress
Based on our 2021 tree planting activities in Tanzania, Zambia and Brazil, we estimate that
we are on a path to achieve consolidated 81% renewable wood sourcing by 2028.

*1 ALP coverage in grower base is calculated based on the data reported by 97% of our leaf
merchants.
*2 Growers from India and China are excluded.

*3 Increase in emissions is due to increased leaf volume sourced from Zambia andTanzania, where currently wood used for curing is predominately non-renewable.
Initiatives are in place to improve curing barn efficiency, reduce wood consumption, andincrease the proportion of renewable wood used. We expect that impact of these
initiatives will be seen from 2022 onwards.

Leaf supply chain - Raw material sourcing

Non-tobacco materials, other products, and services

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

Related links
TobaccoReduced-Risk

Products andProducts (RRP)

services(Environment)

Tackling illegal
trade

Investing inpeopleSupply chain

Optimizing theregulatoryenvironment

Smoking andhealthSupply chain policies andstandards
All of our suppliers* are required to comply with our JT Group Supplier Standards. We selectsuppliers based on quality, service, and cost, which is reflected in our JT Group Responsible
Procurement Policy. Our contracted tobacco leaf growers and merchants must also adhere to the JT
Group Principles in Leaf Tobacco Production.
Although we work with many different suppliers, our leaf supply chain due diligence processprovides us with a 360° view of the entire supply chain at farm level. This process includes:■

Supply Chain Impact Assessments■

Our Agricultural Labor Practices (ALP) program■

Our ARISE (Achieving Reduction of Child Labor in Support of Education) program■

Grower Support Programs* includes tobacco suppliers.

The JT Group
Responsible

The JT Group
Supplier

The JT Group
Principles inAgricultural
Labor Practices

Procurement

Standards

Leaf Tobacco

The JT Group Responsible Procurement Policy
The mission of the JT Group is to create,develop, and nurture its unique brands to win
consumer trust, while understanding andrespecting the environment, and the diversityof societies and individuals. To achieve thismission, the JT Group operates procurementin the manner as stated in the JT Group
Responsible Procurement Policy.

1. Implementation of compliance■Acting in a manner to comply with the legislation and regulations relating to procurement as well
as social norms.

■

Providing appropriate measures to protect all information provided to us by our suppliers for
procurement activities.

■

Operating procurement activities in an appropriate and sincere manner that follows the JT Group
Code of Conduct.

2. Environment
The JT Group operates procurement in a manner to pay due consideration to the environment inaccordance with the basic principle of the JT Group Environment Policy.

3. Supplier selection
Our supplier selection is based on our review of a supplier’s quality, price, and service. In particular,
the JT Group will consider the supplier’s historical success with respect to the delivery of goods andservices to be supplied to the JT Group, as well as the supplier’s capability to ensure ongoingdelivery of these requested goods and services. In addition to these criteria, the JT Group willconsider the following:■The supplier’s compliance with relevant laws and regulations for each country and region.

■

The supplier’s policies that respect human rights and social norms.

■

Whether the supplier has appropriate measures to pay due consideration to the environment.

■

Whether the supplier has appropriate measures to protect confidential information, trade secrets,
and any other information provided by business partners.

■

Whether the supplier has appropriate measures that ensure business continuity, free from any
operational and financial instability.

Reporting Concerns

The JT Group Supplier Standards
Wherever we operate, we expect our business partners to share our commitment to the highest
standards of business integrity, legal compliance, and responsible business practice. At the Grouplevel, our Responsible Procurement Policy sets this expectation. It clarifies that when selecting
suppliers, we take account of candidates’ compliance with relevant laws and regulations, andrequires that we consider human rights, the environment, and other social responsibilities.
The JT Group Supplier Standards

NOTE
Japan Tobacco International (JTI), which is the international operation of the JT Group, has specificselection criteria for suppliers which are consistent with those of the JT Group. For more
information, please refer to JTI's policy.
JTI Supplier Standards

The JT Group Principles in Leaf Tobacco Production

The JT Group conducts business following
our management principle, the 4S model,
under which “we strive to fulfill our
responsibilities to our valued consumers,
shareholders, employees and the wider
society, carefully considering the respective
interests of these four key stakeholder
groups, and exceeding their expectations
wherever we can.”We secure a stable supply of quality tobaccothat meets required standards at best costthrough direct-procurement of leaf fromgrowers. We then process this leaf tobacco*1
at our designated factory (hereinafter the“leaf tobacco production”).

To pursue our above-mentioned management principle in leaf tobacco production, we haveestablished, and abide by, the following JT Group Principles in Leaf Tobacco Production in origins
where we do business.

Our principles■

Sustainable leaf tobacco production following the JT Group’s Code of Conduct.

■

Adherence to the JT Group Environment Policy, which aims to reduce environmental impacts andensure efficient use of natural resources while striving to conserve biodiversity.

■

Endeavor to produce leaf tobacco that satisfies consumers’ requirements.

■

Strive to improve quality and integrity of leaf tobacco production through promotion of Good
Agricultural Practice (GAP)*2.

The JT Group, together with our contracted growers, will promote:1 Compliance with applicable national and local legislations
2 Respectful treatment without applying any unlawful discrimination, abuse, or harassment of any
kind to workers and prohibition of use of child labor and/or use any form of forced orcompulsory labor to workers
3 Reasonable measures to create and maintain a safe and healthy working environment

4 Proper management of seed and varieties
5 Consideration for the environment in leaf tobacco production through conservation of forestry,soil, water resources, biodiversity, and ongoing improvement of energy efficiency
6 Adoption of techniques including Integrated Pest Management (IPM)*3 practices, aiming at
reduced use of CPAs in the control of diseases, infestation of harmful insects and weed control
7 Management practices which contribute to avoiding Non Tobacco Related Material (NTRM) or
any other contaminants
8 Sustainable grower incomes through responsible pricing principles and practices
9 Management of transportation and storage practices that ensure quality and integrity of leaf
tobacco is maintained
In order to achieve these objectives, we educate and train relevant employees in the JT Group, ourcontracted growers and any people involved in our leaf tobacco production on an ongoing basis.
In addition to leaf procured directly from contracted growers, we also purchase leaf tobacco fromthird party suppliers*4. In these cases, we conduct business in accordance with the JT Group
Responsible Procurement Policy and we will also encourage such suppliers to follow the JT Group
Principles in Leaf Tobacco Production.

NOTE*1 Leaf tobacco processing:
To separate the lamina portion of tobacco from the stem and pack tobacco for storage andtransportation.
*2 Good Agricultural Practice (GAP):
Agricultural practices which produce a quality crop while protecting, sustaining, or enhancing theenvironment with regard to soil, water, air, animal and plant life, and which aim at ensuring sustainable,
economically viable production of usable tobacco.
*3 Integrated Pest Management (IPM):
A sustainable approach to managing pests, diseases, and weeds by combining biological, cultural,
physical, and chemical tools in a way that minimizes health and environment risks.
*4 Third-party supplier:A supplier who supplies processed packed tobacco to manufactures or any non-tobacco producer who
produces green leaf for onward sale to a tobacco manufacture.

Agricultural Labor Practices

Our Agricultural Labor Practices (ALP), launched in 2013, define the standards we expect of ourcontracted tobacco growers for safe working conditions, fair treatment, working hours, provision
against forced labor, and freedom of association. They also describe our stance against child laborand measures to eliminate it. Our farming experts, who are all fully trained on ALP, observe labor
practices during farm visits, report on their findings, give advice to growers and agree improvement
programs. We have continued implementing ALP with our directly contracted growers as well aswith indirectly contracted growers through our tobacco merchants.
Agricultural Labor Practices 2017

Related links
Supply chain

Supply chain

Leaf supply chain

Non-tobacco

policies andstandards- Raw material
sourcing

materials, otherproducts, andservices

Leaf supply chain - Raw material
sourcing
How do we work with our leaf suppliers?
Tobacco leaf sourcing is a key part of our supply chain, and a critical component of future businessgrowth. We work closely with our directly contracted growers and third-party leaf merchants toenhance security of supply and leaf provenance. This provides greater flexibility when responding tochanging market requirements.
In 2021, we worked with 59,236 directly contracted tobacco leaf growers in Bangladesh, Brazil,
Ethiopia, Japan, Malawi, Serbia, Tanzania, Turkey, the U.S., and Zambia. Contracting leaf growers
directly enables us to produce a customized crop, while improving growers’ productivity, leaf quality
and leaf integrity. The direct contracting model also allows us to maintain verifiable provenance andtraceability of leaf supply.

Tobacco leaf sourcing
Every year, we purchase approximately 50% of our planned leaf requirements from leaf merchants.
The volume of leaf sourced from each established sourcing country varies from year to year,
depending on the quality and volumes required. In most cases, our leaf merchants source thetobacco leaf directly from contracted growers. This means that there is a direct contract between
the leaf merchants and the growers, and that the grower receives advice on crop management andgood labor practices from the leaf merchant.
In some countries, leaf can be sourced in a different way, for example in India at auction. This canmake it challenging to determine the provenance of the leaf and implement Agricultural Labor
Practices. In these cases, we work with the leaf merchants and other stakeholders (e.g. the Indian
Tobacco Board in India) to find a way to implement a robust and relevant supply chain due diligenceprocess. Although we source leaf from more than 30 countries, the vast majority still comes fromeight key global suppliers. We work closely with these suppliers to ensure good practices.

Sustainable agriculture
As well as securing the long-term supply of quality tobacco leaf for our business, we want to createshared value for both our growers and our business. We do this by providing extension services,
including crop inputs in specific origins aimed at increasing grower productivity, while trying to
improve our social and environmental impact. By enabling growers to become more productive andefficient in the way they grow, harvest, and cure tobacco leaf, we support them in becoming more
profitable and to use resources in a more responsible way.
All of our leaf suppliers are expected to follow Good Agricultural Practices(GAP). The conceptof GAP is to produce a quality crop while protecting, sustaining, or enhancing the environment withregard to soil, water, air, and animal and plant life.
In addition to GAP, the majority of our directly contracted growers are also required to follow our
Minimum Agronomic Standards (MAS). These growers are contracted to grow tobacco under our
stewardship. In return, they receive credit for prescribed crop inputs as well as dedicated extension
service provision from our Agronomy Technicians. This support includes recommendationsdelivered through a scheduled visitation program for the duration of the crop cycle. Contracted
large-scale commercial growers do not require dedicated extension service provision from us.
These farming practices are not limited to tobacco. We encourage growers to use seasonal crop
rotations, i.e. growing complementary crops such as maize, groundnuts, or soya on the same land inalternate seasons. The benefits of this are extra income, improved food security, and soil
conservation.
We continually look to improve our understanding and methods of tobacco farming and have made

significant investments in this regard. We have Agronomy Development & Extension Training (ADET)
facilities in Brazil and Zambia that explore ways of improving productivity and leaf quality in tobacco
farming. Both provide relevant, applied research and development activities, such as trials on topics
like crop management, soil fertility, improvements in curing barn efficiency, production cost savings,
mechanization, and agroforestry. Validated trial outcomes are passed on to growers through our
extension service provision. ADET facilitates the provision of training and extension services for our
growers in order to promote optimal grower productivity, quality, and leaf production integrity. Ourinvestment in research and development also involves partnering with leading international
academic institutions to develop innovative new ways of producing tobacco.

Agricultural Labor Practices (ALP) and Leaf Supply
Chain Due Diligence (SCDD)Our Agricultural Labor Practices (ALP) are based on the International Labour Organization’s
conventions and recommendations. The program consists of three pillars: tackling child labor,
respect for the rights of workers, and ensuring workplace health and safety.
As part of our continuous improvement approach, the ALP program allows us and our suppliers to
identify potential labor challenges on tobacco farms and help improve labor practices on the
tobacco farm. Being an integral part of the SCDD process, it also contributes to the social aspects ofgrower communities and supports sustainable agriculture overall. Whether we source tobacco
directly from growers or through tobacco leaf merchants, our contracted suppliers are committed to
implementing our ALP.
Our SCDD is based on a five-step framework - Identify, Prioritize, Respond, Measure, andCommunicate and Report, while our ALP program helps us to identify issues on tobacco farms on adaily basis. This process follows the Guidance on Responsible Agricultural Supply Chains provided
by the Organization for Economic Co-operation and Development (OECD) and the Food andAgriculture Organization (FAO), as well as recommendations by the International Labour
Organization. It also follows the UN Guiding Principles for Business and Human Rights.

In spite of the ongoing pandemic, we took
some big steps forward in 2021. We not only
continued our Supply Chain Due Diligenceprocess, but also integrated it further into theway we operate. For example, our local teams
developed action plans following the 2020
Grower Livelihoods Assessment in Zambia
and Supply Chain Impact Assessment in India,
a new livelihoods assessment was carried out
in Malawi, and Supply Chain Impact
Assessments were executed in Bangladesh,
Turkey, and Ethiopia. As this importantjourney continues, we remain committed todriving positive change across the leaf supply
chain by making an impact throughcollaboration and listening to rightsholders.

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

During these visits, the Agronomy Technicians provide technical advice on crop management anddiscuss good labor practices. In cases where they identify labor-related issues, they report theirobservations directly into our dedicated Enterprise Resource Planning (ERP) system. Depending on
the nature of the issue, the Agronomy Technicians may also provide recommendations to thegrower.

These observations are then analyzed and prioritized by the local country management. This
enables the selection of the right improvement measures to address root causes and respond to theadverse impacts in the most appropriate way. We track the effectiveness of the response using
KPIs, internal evaluation, assessments, and on-site investigations. We also consult relevant
stakeholders, such as government authorities, civil society, members of affected communities,
workers’ organizations and workers.
Our main objective at present is to align all our processes with the five-step framework. To ensure a
streamlined and consistent approach, we aim to find synergies between our supply chain due
diligence and the ALP program with the Sustainable Tobacco Program (STP).
We are facing a number of complex challenges. These include issues that are difficult for Agronomy
Technicians to observe. For example, how to identify discrimination on smallholder farms, or how to
optimize our process to deal with an Extreme Breach (if one is found) to ensure that both potential
victims and rapporteurs are protected.
Extreme Breaches include the worst violations of workers’ rights, such as slavery, forced labor,human trafficking, violence, or severe physical, mental, or sexual abuse. These can be difficult for an
Agronomy Technician to identify and address – especially if the issue is associated with criminal
activity. Responding to an Extreme Breach therefore requires caution and, in many cases, support
from the police and / or other authorities or non-governmental organizations. In 2021, weinvestigated 33 potential Extreme Breaches that were recorded by our Agronomy Technicians in the
JTI AgroMobility App. After further investigation, 17 of the reported cases were found to be either
unsubstantiated or incorrectly recorded in the system and 16 were confirmed as an Extreme Breachand swift corrective action followed.
It is essential to have a management process setting out how to respond to an extreme breach, toensure that action is taken promptly and appropriately when indicators are observed. We expect
each supplier to have a management process incorporating three elements: protection for the victim
and rapporteur, a clear escalation route, timeline, and remediation plan, as well as access to
specialist support.
Read more on ALP in our booklet

Achieving Reduction of Child Labor in Support of
Education (ARISE)
Our flagship program ARISE – Achieving Reduction of Child Labor in Support of Education – hasbeen committed to tackling child labor in our tobacco growing communities since 2011. Developedby JTI, the International Labour Organization (ILO), and non-profit organization Winrock International,
it continues to forge real sustainable change by implementing robust solutions to prevent childlabor.
In 2020, we restructured ARISE. Representatives in the countries where we grow our tobacco leaves
are now responsible for managing local partnerships, assessing projects, and implementing local
activities. This approach allows us to maximize efficiency, strengthen our relationship with growers,
and harmonize the program with other relevant community projects.
Moving forward, we will embed the ARISE program within the ‘Respond’ element of our Supply Chain
Due Diligence (SCDD) process: Identify, Prioritize, Respond, Measure, Communicate, and Report. We
will also integrate data requirements for child labor into our existing leaf monitoring system, Leaf
Point.

Launching our new ARISE model2021 was a year of transition for ARISE, following the formal launch of our new ARISE model at the
beginning of the year.
Under the new model, the overall ARISE strategy remains largely unchanged, as it has proven to be
successful. However, we now determine projects and project goals based on local needs andchallenges and define Key Performance Indicators (KPIs) accordingly.
Winrock International continued to implement the ARISE program during the first six months of theyear, before we took over the full responsibility for identifying and implementing projects during thesecond half of the year.
Unfortunately, due to COVID-related issues such as school closures, we had to pause or adapt someof our programs in 2021. We also had to delay some of the project deliverables. In spite of thesechallenges, our local teams successfully launched three new ARISE programs in Malawi, Tanzania,
and Zambia. Other locations are preparing to follow suit in 2022.
Moving forward, we will continue to expand this vitally important program as necessary. For
example, local management are planning to launch ARISE programs in Bangladesh and Ethiopia,
after identifying potential issues through our SCDD assessments.
Read more about the ARISE program.

ALP progress update
TargetAGRICULTURAL LABOR PRACTICES
We will implement our Agricultural Labor Practices (ALP) program in all sourcing countries
by 2025.

Progress

Towards the 2025 ALP target

100% of our supplying entities to report on ALP

100% of our growers to be covered by ALP

100% of tobacco leaf volumes to be covered by
ALP

2021 Progress

97% of our supplying entities reported against
ALP

84% of our directly contracted growers and 97% of
our leaf merchants' growers were covered by ALP

79% of our volumes were covered by ALP

We made significant progress over the last few years. Here are a few examples of how we
did it:■Reporting improvements
In 2020, we launched a new online reporting platform for ALP. This enables us toprocess data faster and with greater accuracy.
In 2021 we improved our dialogue with Leaf Merchants – not only through annual
Supply Chain Due Diligence (SCDD) reporting and annual meetings, but also byconducting series of webinars around supply chain due diligence. This enabled us
to share best practices, discuss each step of the SCDD process, and promotecollaboration. Momentum is building behind a common focus across the sector.
In 2021, the team in Bangladesh also implemented ALP and due to the highnumber of directly contracted growers in this origin it had a significant impact onsome of our reported KPIs.

■

Sustainable Tobacco Program (STP)
Our international tobacco business is one of five global manufacturers
participating in the STP Steering Committee. STP is a risk-based program, acollaborative platform to enable continuous improvement in relation to supply
chain due diligence. It is also an impact driven program. The aim is to improve thesectors environmental and social footprints, to contribute towards the United
Nations Sustainable Development Goals (SDGs) and to enable transparent
communication of responsible practices across the supply chain. Since 2019, we
have been working with other manufacturers, leaf merchants, external subject
matter experts, and various organizations and service providers to further develop
STP. One of the key themes is “Human and Labor Rights”.
The development phase of the new STP was completed in June 2021, and full
implementation of STP begun. An external STP Secretariat has been appointed tosupport the implementation by selecting One Peterson, a company with a provensustainability track record. After two years of chairing the STP throughout thedevelopment, JTI handed over the rotational role of the STP Steering Committee
chair to another manufacturer.
Also in 2021, our Leaf Merchants finalized the online self-assessments for thecrop year 2020. Self-assessments cover all STP themes: Water, Human and Labor
Rights, Livelihoods, Climate Change, Soil Health, Crop, Natural Habitat andGovernance. Online self-assessments for the crop year 2021 are well in progress.
Detailed and focused in-country pilot assessments are underway for 2022.
In other developments, the STP’s IT platform, hosted by Worldfavor, hasevolved to provide an even more efficient and digitally enabling environment not
only for data analysis, but also to support the continuous improvement process of
the STP Supply Chain Due Diligence.
■

Progress in Indonesia
By 2017, all of the leaf merchants the business was purchasing leaf from inIndonesia were reporting on ALP, with almost 100% of our grower base included in
our leaf merchants’ ALP observations.
In 2018, we acquired new business in Indonesia and extended the supplier base,not only for leaf but also for Rajangan tobacco and cloves. The plan is to carry out
a leaf supply chain impact assessment in 2022. The impact assessment
scheduled in 2021 was postponed due to COVID-19.

■

Progress in India
Following a Supply Chain Impact Assessment (SCIA) in India in 2019, where morethan 500 people in the tobacco sector were interviewed (led by consultancy firm
twentyfifty, leaf merchants have established a sustainability committee in

2020, under the Indian Tobacco Association, to drive change on a sectoral levelagainst mapped priorities. The business is working in collaboration with the leaf
merchants and other manufacturers in this process.
We made significant progress in India in 2021, despite significant COVID-related
challenges. The project involved all leaf merchants supplying Virginia tobacco to
three global manufacturers including JTI. Through our Supply Chain Impact
assessment, facilitated by the sustainability consultancy twentyfifty, the following
priority issues were identified: health, income, climate impacts and resilience, andliving conditions of the more vulnerable migrant workers.
Based on our Supply Chain Impact Assessment findings and as importantly,
rightsholder feedback, the Indian Tobacco Association’s Sustainability Committee
defined industry-level responses. An action plan was developed, including pilot
improvement projects and additional research. This action plan is now, in its
preliminary phase, being implemented across approximately 10% of the growerbase.
The main activities include distributing personal protective equipment (PPE),
improving tobacco profitability measures, focusing research on health andwellbeing, and training farmers and workers on various topics, including healthand safety, root causes driving child labor and adverse working conditions. The
next step is to assess the effectiveness of the pilot program in tackling theseissues and adjust our response accordingly.
■

ALP roll-out in Ethiopia and Bangladesh
A Supply Chain Impact Assessment (SCIA) was executed in both Bangladesh andEthiopia in 2021. This allowed the local business to identify adverse impacts andprioritize them according to severity of impact and likelihood of the harm
occurring. The local team then developed detailed action plans to address thesesalient issues.
The prioritized issues also helped them to select the most appropriate ALP
observation criteria for Bangladesh and Ethiopia. This tailored approach madeALP implementation easier and more targeted. It also increased the relevance ofthe program in these countries.
The original plan was to implement ALP in both Ethiopia and Bangladesh in 2021.
However, due to the worsening security situation in Ethiopia, we were only able toimplement it in Bangladesh.
In Bangladesh, the local team selected the main growing region (Kushtia) as apilot. Local management, supervisors, and Agronomy Technicians weresuccessfully trained on ALP.

In 2022, the local team will continue their efforts to implement ALP in Ethiopia(dependent on security situation). The local Bangladesh team will also roll out ALP
to all the other growing regions in Bangladesh before the start of the next crop
year in June 2022.

Historical data
Our target is to implement ALP in all sourcing countries by 2025. In this journey, the sourcing base ischanging year on year due to new acquisitions or closures, demand to supply impact, climatechange, etc. In spite of these changes, we have made progress in 2021, and we have a clear plan tofurther continue the progress in 2022: we will continue onboarding remaining suppliers, start
implementing ALP in Ethiopia and scale up in Bangladesh, continue supply chain due diligenceprocess in India… A credible, impactful implementation of our programs and processes requires
time and efforts, and we accept no compromises.

Find out more about how we plan to achieve this target, below.

100% of our supplying entities to report on ALP
Progress so far: of all the entities that provided us with tobacco leaf, either directly or through leaf
merchants, 97% reported against ALP in 2021.

100% of our growers to be covered by ALP
Progress so far: in 2021, 84% of our directly contracted growers and 97% of the growers supplying
through our leaf merchants were covered by ALP.

100% of tobacco leaf volumes to be covered by
ALP
Progress so far: In 2021, 79% of our volumes were covered by ALP.
We have made several acquisitions in recent years, including in Ethiopia, Bangladesh, Indonesia, and
the Philippines. These will be approached on a case-by-case basis, as we need to understand the
local market, culture, and challenges before putting in place the necessary programs.
In November 2021, the local team successfully implemented the ALP program as a pilot in the
Kushtia growing region of Bangladesh, which covers approximately 50% of our growers in this origin.
The local team was also planning to implement ALP in Ethiopia in 2021 but unfortunately theworsening security situation there made this impossible. They now plan to implement ALP in
Ethiopia in 2022, subject to the situation on the ground improving.

Implementation of Agricultural Labor Practices inJapan
Our ‘One Tobacco’ journey – to align our Group-wide leaf supply management activities – started
back in 2017, when we carried out an ALP pilot study in Japan. Full implementation of the program
then followed in 2018. We have a long-standing relationship with growers in Japan, and the ALP
program has reinforced this relationship by continuously improving the labor environment on
tobacco farms.
In 2021, we gained a deeper understanding of the farm situation and provided feedback and advice
to growers. Based on our observations, we will continue to make improvements to ALP.

Our farm practices in JapanADET JAPANEnhanced curing and baling

In Japan, we are constantly looking to

We are currently implementing a new curingpromote optimal grower productivity inprocess for burley tobacco, which can reduce

tobacco farming. ADET JAPAN (formerly JT

working hours by 15% thanks to theFarm) runs research and development

mechanization of sewing and curing and by

activities, such as trials for developing

using a no-sorting packing method. Thisefficient cultivation methods, agricultural

method also helps to prevent themachinery, and Crop Protection Agents. We

contamination of non-tobacco related

also assess the productivity of our cultivationmaterials during green leaf baling. By the end

methods for new leaf varieties in Japan forof 2021, 8.6% of burley tobacco growers had

testing purposes. We aim to expand new

adopted this new process. We will continue totechnology or leaf varieties with leaf growers

scale up this practice in 2022 and beyond.

as quickly as possible.

Collaboration with growers for sustainable leaf
production in Japan
In Japan, the number of tobacco growers and tobacco cultivation areas have been shrinking.
Reasons for this include a shortage of workers due to a lack of successors and employment. Due tothese circumstances, further productivity improvement is required.
In 2019, Japan Tobacco and Japan Tobacco Growers’ Association discussed various new initiatives
to ensure the sustainability of tobacco leaf sourcing and meet the market’s needs. Launched in
2020, these initiatives included the provision of tailor-made support for individual farms, andgathering and implementing the best practices of more experienced growers.
We hope that these activities will help growers to implement more efficient production methods,
which in turn will strengthen the foundations of their operations. We are aiming for more sustainableleaf tobacco production through the continuous collaboration with farmers.

Supporting and communicating with growers
during the pandemic

Due to COVID-19, we have had makechanges to the way we interact withgrowers. Here are a few examples of how
we have adapted:■

Where practical, our field Agronomy
Technicians provided growers withtechnical support via phone or video
call, instead of face-to-face.

■

Our Agronomy Technicians also
helped to raise awareness among
growers of COVID-19 secure working
practices, such as self-isolation, handwashing, and social distancing.

■

In our international tobacco business,
we launched a new online tool forprocessing grower contracts remotely,and supported growers withmarketing.

■

We helped to print and distribute
COVID-19 educational materials in
tobacco-growing communities.

■

Where appropriate, we did continue tovisit our growers in person, following
all of the relevant health and safety
guidelines set out by the World HealthOrganization (WHO) – for example bywearing masks, using hand sanitizer,
and keeping a safe social distance.
We also took additional safetymeasures, such as installing
partitions and checking visitors’
temperatures at our leaf buying
stations in Japan, and strictly
managing grower movement andattendance at all our buying stations.

Protecting our employees and their families, our tobacco growers and their communities will always
be one of our top priorities. We will continue to make every effort to sensitize communities to
COVID-19 preventive measures, working in partnership with local governments and otherorganizations.
We will also continue to engage with our leaf merchants to better understand how they are
addressing COVID-19 related challenges, and how they are supporting their growers, communities,
and employees. We hold online meetings with our key suppliers and receive their feedback on
concrete actions and plans. In our regular ALP/SCDD reporting we have a separate section
dedicated solely to COVID-19 challenges and efforts, and we share best practices with all of our leaf
merchants.

Engaging with our stakeholders
Working in collaboration with internal and external stakeholders has been key to the progress andsuccess of the Agricultural Labor Practices program.
Our relationships with directly contracted growers produce tangible results, thanks to regular farm
visits, dialogue, and training. Local and global meetings with leaf merchants enable us to identify
where additional training, mechanisms, and processes are needed to manage labor risks. Engaging
with local government agencies in the countries where we operate enables us to address fair andsafe labor conditions in specific locations. For example, we have been successfully engaging with
the Indian Tobacco Board to make progress in the area of labor rights in India.
Our international tobacco business is an active member of the Sustainable Tobacco Program (STP)
and was chairing the STP Steering Committee (consisting of industry peers) until July 2021. STP isan industry-wide platform enabling businesses to collaborate on human rights, environmental
issues, and other sustainability challenges, and to drive sustainable agriculture through a continuous
improvement process. 2019 was a year of reform for STP, as it was restructured around the five-stepframework: Identify, Prioritize, Respond, Measure, and Communicate and Report. The aim of thischange is to put in place a robust supply chain due diligence process with a focus on impact.

Case study

Eliminating Highly Hazardous Pesticides (HHPs)
from our supply chain
Across the JT Group, we are working to replace Highly Hazardous Pesticides (HHPs) with safer andmore environmentally friendly options.
In January 2022, we updated our JTI internal standards for Crop Protection Agent (CPA) residue. As
a result, the limit for HHP Criterion 1 (WHO Hazard Class 1a and 1b) is now set at laboratories’
highest Limit of Quantitation (LoQ). We will adjust this limit as necessary to reflect any futurechanges in the WHO Recommended Classification of Pesticides by Hazard.
The HHP limits will be applied to all processed tobacco from crops transplanted in 2022. If, throughour analysis, we detect that the level of HHPs Criterion 1 exceeds the LoQ, we will not purchase thetobacco. We formally communicated this to all of our tobacco suppliers in February 2021.
In addition, we have made it clear to our suppliers that we expect them to avoid environmental
contamination and protect people and animals from exposure to hazardous CPAs and reinforced thepoint that using less hazardous CPAs is as important as wearing the correct personal protective
equipment.
However, identifying and eliminating HHP Criterion 1 is only the first step. Starting from 2022, we arealso planning to address other HHPs (criteria 2 to 7).

Case study

Promoting Good Agricultural Practices

Our Minimum Agronomic Standards (MAS)include practices that contribute to waterand soil conservation, such as mulching todecrease water evaporation, reservoirs forseedling production, the use of box ridges tocapture rainwater within the field and reducerunoff and erosion. Also, we encourage
growers to use seasonal crop rotation andpractice minimum tillage.
The Target Crop Calendar that forms part of
MAS stipulates that tobacco seedlings areplanted at a preferential period in the crop
year so that the maximum plant waterrequirement is most likely to correspondwith consistent and adequate rainfall,
reducing the need for extraction of local
water supply for irrigation.

Case study

Helping growers in Zambia to run their business

Through the 2020 Grower Livelihood
Assessment in Zambia, the local teamdiscovered that around 69% of our growerbase is food-insecure*1 and susceptible topoverty.
In response, it was decided to pilot financial
literacy training for growers, with the aim of
improving their livelihood and economic
opportunities. The training is designed toempower growers with key financial
knowledge and skills to help with the day-today running of their business.

For growers, enhanced financial planning and budgeting skills can lead to improved productivity(tobacco quality and volumes) and food security. This in turn can improve the financial stability,
health and well-being of growers and their communities.
This cross-departmental project is also a perfect example of the ‘One Team’ transformation. Fourdepartments (Corporate Affairs & Communication, Agronomy, Farmer Finance and Leaf Quality)
work together to deliver the training, which has become a good communication platform forengaging growers on other important topics, such as crop production and marketing.
To date, 2,529 (39%) of our grower base in Zambia has been trained in financial literacy and theremaining will be trained during the 2022 crop year. From the total number of farmers trained infinancial literacy, 30% are female and 70% are male growers.
*1

According to the FAO (Food and Agricultural Organization of the United Nations), a person isfood insecure when they lack regular access to enough safe and nutritious food for normal
growth and development and an active and healthy life. This may be due to unavailability of foodand/or lack of resources to obtain food. Read more at www.fao.org/hunger/en/

Case study

Collaborating for change in Turkey
In Turkey, our international tobacco business sources leaf from several suppliers and regions,
including our own vertically integrated operation. In early 2021, five global manufacturers and six
local leaf suppliers, discussed to execute a shared Supply Chain Impact Assessment (SCIA) in
Turkey as a part of our Supply Chain Due Diligence (SCDD) processes. All suppliers in Turkey
contracted the sustainability consultancy twentyfifty Ltd. to carry out the assessment.
The SCIA took place between June and November 2021, with twentyfifty carrying out extensivesocial research during the July – August harvest season. Its local and international consultantsinterviewed a total of 567 rightsholders over a period of 23 days in 54 different communities in the
Aegean, Samsun, and Adiyaman regions.
The findings were discussed with the six leaf suppliers individually, resulting in unique andappropriate action plans for each company. In November 2021, the leaf suppliers and manufacturers
attended a joint industry workshop to discuss and agree collaborative industry-level actions toaddress the priority issues of shared concern. Focus areas agreed by suppliers were combating CPA
management, provision and use of personal protective equipment (PPE), transparency on workers’
wages and conditions and the root causes of child labor.
The progress of these individual and industry-level action plans will be carefully followed in 2022
and 2023. This will help to optimize the Supply Chain Due Diligence and ensure a positive impact for
the rightsholders.

Frequently asked questions about how we source
raw materials
Q: Which markets do you source tobacco leaf from? Which markets are the biggest contributors?
A: We source approximately 50% of our tobacco from directly contracted growers in the following
countries: Bangladesh, Brazil, Ethiopia, Japan, Malawi, Serbia, Tanzania, Turkey, the U.S., andZambia. The other 50% is sourced through third-party leaf merchants from a variety of countries
such as India, Indonesia, Italy, Spain, and Zimbabwe, but also from some of the countries where wedirectly contract growers. Although the main sourcing base is stable, the volumes and sourcing
countries, and therefore the suppliers, may vary from year to year.
Q: How many Agronomy Technicians do you employ? Are the visits to the farms announced in advance?
How frequently do you visit each grower?
A: In 2021, JT Group employed 638 Agronomy Technicians. The visits to our directly contracted
growers are based on a visitation plan for each country, with assigned farms, and these can be
announced or unannounced. During the visits our Agronomy Technicians provide technical advice
on crop management and discuss and observe against good labor practices. The number of visits
may vary slightly from country to country, but on average our growers are visited 7-9 times each crop
cycle.
Q: What happens if Agricultural Labor Practices are not observed? Have you experienced cases wherecontracts had to be terminated?
A: If a contracted grower does not show any sign of commitment to meeting the ALP standards, or
continually disregards agreed improvement measures, we may decide not to renew their contract for
the following crop year. Our growers are only re-contracted based on performance – which includes
compliance with contract conditions. For example, in 2021 a 95% re-contracting rate was achievedin Malawi, which clearly indicates that our grower base is predominantly made up of long-term
partnerships.
Our approach to sustainable agriculture is to be grower-centric and thus support the grower andgrower communities to apply good agricultural practices in a responsible manner. ALP is not acompliance tool, but a continuous improvement program. As such, the ALP program is an integral
part of our strategy, with a focus on improving labor practices at farm level.
Q: How are you responding to media reports on the problem of child labor on tobacco farms?
A: We follow a five-step continuous improvement cycle: Identify, Prioritize, Respond, Measure, andCommunicate and Report. If child labor is highlighted within the identification and prioritization
stages of this process, then appropriate response programs are developed in that particularcountry/region in order to address the issue. We have implemented a number of programs toaddress the root causes of child labor in a variety of countries in which child labor is a particularrisk, such as our flagship child labor eradication program ARISE (Achieving Reduction of Child Labor
in Support of Education). Our leaf merchants also have a number of their own programs in place toaddress child labor.
We do not wait for media reports to make us aware that child labor is a particular problem in a given
country or region. If the issue is identified as a priority, then targeted response programs should
already have been put in place as per our five-step framework. In the past, we have shared these
responses and any outcomes arising from them with media outlets or NGOs who raised concerns ofchild labor in a particular country. This has been done many times before and any dialogue we hadwith such parties has been made available on our web site.

Related links
Supply chain

Supply chain

Leaf supply chain

Non-tobacco

policies andstandards- Raw material
sourcing

materials, otherproducts, andservices

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

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

Progress
At the end of 2021, 100% of our key suppliers were screened against ESG criteria.
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy.

Our approachWith people, operations, and a supply chain that stretch across the entire globe, we are keenly awarethat our business doesn’t operate in a vacuum. We also know that the social, ethical, andenvironmental footprint of our products cannot be dissociated from our suppliers.
As such, one of our core sustainability targets is to screen our key suppliers*1 against environmental,social, and governance (ESG) criteria by 2023.
By the end of 2021, 100% of our key suppliers had been screened accordingly. To structure andfurther improve our screening methodology, our international tobacco business is now
implementing a new onboarding solution.
In 2021, we have developed a thorough new supplier screening process. We also selected andinitiated the discussion with the right business partners to kick off a pilot implementation in 2022.

Working with the right suppliers
We aim to achieve high standards of integrity across our business operations and supply chain. We
can only achieve this through close cooperation with our suppliers. We are just as committed tofollowing social and environmental due diligence in our non-leaf supply chain. All of our suppliers
are required to comply with our Supplier Standards.
Our Group-wide supplier screening process ensures that we apply enhanced due diligence. Prior toentering into a commercial relationship, our key suppliers*1 go through a detailed qualification andselection process including screening and onboarding. This process allows us to learn more about
the supplier and understand any gaps versus our standards and requirements. In particular, ithighlights any potential risks relating to compliance, human rights, environment, and health andsafety.
If any risks are identified through this process, we offer support and collaboration on how to
mitigate the risks and make necessary improvements. We follow progress on a yearly basis and, if
there is no improvement after an agreed duration, we may consider terminating our relationship withthe supplier.
In 2020, we revised the JT Group Supplier Standards into a global, Group-wide Supplier Standards,
reflecting an increase in transactions with overseas suppliers. We have been embedding thesestandards into all new requests for proposals and contracts, to ensure that all of our suppliers areaware of our requirements.
In our tobacco business in Japan, we screen key suppliers using our supplier database, which lists
companies according to their D-U-N-S® Numbers*2. In 2021, we built on this process by reassessing
the key suppliers identified as high-risk in our 2020 assessment. We also helped these suppliers tomake improvements.
*1 Key suppliers are defined as (a) suppliers with a planned or actual annual spend of more than 500,000
U.S. dollars (50,000,000 JPY) or equivalent, (b) companies involved in our Know Your Supplier (KYS)
program, (c) third-party leaf merchants, (d) intermediaries or (e) contract manufacturing and licensees.
*2 D-U-N-S® Number is a unique nine-digit identifier for businesses. This number identifies a company as
being unique from any other in the Dun & Bradstreet Data Cloud.

Moving towards ‘One Team’As part of our ‘One Team’ initiative, the non-leaf supply chain of our tobacco business is working
together to optimize the Group’s procurement activities. These ‘integration’ initiatives include
optimizing procurement costs, aligning suppliers and standardizing specifications for both readymade cigarettes and Reduced-Risk Products [Reduced-Risk Products are Products with the potential
to reduce the risks associated with smoking]. For Reduced-Risk Products, joint work on global
supply chain optimization is already underway.

Engaging with suppliers on sustainability
practices

Sustainable packaging solutions are a key focus area for us, and we cooperate closely with
suppliers in this area to identify, assess, and implement new solutions.
In 2021, we also began a new project to develop a supplier engagement framework on sustainability.
This will help us to capture progress, identify areas for improvement, build on action plans, sharelearnings, and best practices, and introduce a more holistic, end-to-end approach to sustainability.

Case study

Working as ‘One Team’ to reach our waste
reduction target
In our international operations, we are assessing the possibility of using glue instead of plastic
stretch film to wrap shipping cases of finished goods. This eco-friendlier solution is already used inJapan, so JT has been supporting JTI by providing detailed guidance and sharing key learnings. If
implemented, this relatively small change could potentially save 600 tons of plastic per year,
equivalent to around 17 million 1.5L plastic bottles.

Looking forward
To prepare for the future, our international tobacco business is currently developing an automatedinternal report, showing sustainability relating to both finished goods and components. The aim is tomake the way we gather and report sustainability data as transparent and efficient as possible.

Related links
Supply chain

Supply chain

Leaf supply chain

Non-tobacco

policies andstandards- Raw material
sourcing

materials, otherproducts, andservices

Optimizing the regulatoryenvironment
Championing better regulation for informed choice
We value and support the freedom for adults* to make informed choices. We play our part by beingtransparent about our products, and ensuring that consumers (The word, consumers, used in thecontext of the tobacco business means adult consumers. Minimum legal age for smoking varies inaccordance with the legislation in each country.) are aware of the associated risks when deciding
whether to use our products or not. That’s why we are transparent about our positions on
smoking and health.

We adhere to six core principles

that define our attitude to smoking. We also work in a highly

regulated operating environment. We monitor trends in order to anticipate future changes inregulation and engage with authorities where we see excessive or unworkable initiatives being
proposed.
Read more about our views on specific regulatory topics.

* Minimum legal age for smoking varies in accordance with the legislation in each country. In Japan,
smoking is not permitted for those under 20 years of age.

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

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

Progress
In 2021, we engaged openly and transparently in public policy debate and made our views
known to regulators, NGOs, and other relevant stakeholders in the countries where we
operate. We also published our external engagement principles.

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

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

Coherence■

Openness■Proportionality■

Participation■

Effectiveness■Accountability

A key aspect of better regulation is a transparent legislative process, one that involves all interested
and affected parties.
Engagement with external stakeholders is an integral part of our business. We are open to and seek
dialogue with governmental authorities and members of think tanks, business associations, andacademia around the world to address issues about the manufacture, sale, and use of our products.
We are committed to engaging transparently in the public decision-making processes that affect ourbusiness. We actively participate in the debate about the regulation of combustible products andproducts that have the potential to reduce the risks associated with smoking, taxation, theelimination of all forms of illegal tobacco trade, and sustainability.

Our views on Reduced-Risk Product regulation
We believe that Reduced-Risk Products [Reduced-Risk Products are Products with the potential toreduce the risks associated with smoking] can offer real benefits to consumers and society.
Governments and regulators should avoid restrictive regulation which suppresses innovation and/or
prevents adult consumers from being able to make an informed choice of whether or not to try
these products.
We believe that adult smokers should have an opportunity to choose Reduced-Risk Products if theywish, and that regulation should both enable that choice and encourage manufacturers to continue
to innovate and invest in research and development to support this.
It is our opinion that the category can be regulated with a focus on responsible marketing, youth
access prevention, product quality standards, and post-marketing monitoring and evaluation.

Latest regulatory developments
It is in the public interest for regulation to be evidence-based, proportionate, and effective. We
support the principles of better regulation, which argue for measures that preserve consumer choice
and market freedom. Regulation is fast-moving and we monitor developments closely. The following

are just a few examples of some key regulatory developments around the world in recent years.
U.S. – Premarket tobacco product applications (PMTA): the September deadline
Following several changes, endorsed by the Food and Drug Administration (FDA), the submission
deadline for the Premarket Tobacco Product Application (PMTA) review of tobacco products(including e-cigarettes) was extended. From September 9, 2020, all products must have submitted
their PMTA to remain on the U.S. market.
In August 2019, Logic Technology Development LLC (a subsidiary of the JT Group) submitted
PMTAs for a number of products in its e-cigarette and tobacco vapor portfolio. In 2022, Logic
received PMTA marketing orders for the Logic Pro, Power and Vapeleaf devices, as well as ourtobacco flavored capsules from the FDA. Read more on products & services (RRP).
U.K. – Public Health England reiterates the strong risk-reduction potential in e-cigarettes
In 2020, Public Health England reassured users about the risk reduction potential of e-cigarettes
currently marketed in the U.K. saying, “PHE and the Royal College of Physicians estimate the risk
reduction to be at least 95%.”
Read more from Public Health England
EU – Directive on single-use plastics
The EU Directive “on the reduction of the impact of certain plastic products on the environment”
entered into force on July 5, 2019. Member states have two years to transpose the legislation into
their national law.
Tobacco filters are included in the scope of the Directive, and we are proactively working withstakeholders to prepare for these regulatory changes, to ensure compliance with laws and maximize
the positive impact that these developments might have on our customers and our business.
EU – Ban on characterizing flavors
A partial exemption to the ban on characterizing flavors, part of the EU’s revised Tobacco Products
Directive, came to an end across the Union on May 20, 2020. From this date, it became illegal to
distribute cigarettes and fine cut tobacco with sales volumes greater than 3% of their respective
categories if they have a clearly noticeable smell or taste other than one of tobacco. There is someconcern, based on published consumer research conducted in Poland and the U.S. by third parties,
that smokers who have previously chosen to smoke products with, for example, a characterizing
flavor of menthol, may now seek similar products from the illegal trade instead.
Plain Packaging

In June 2020, the WTO Appellate Body ruled in favor of Australia in the plain packaging dispute. The
ruling is a major step backwards for the protection of intellectual property rights internationally.
Although this outcome only applies to Australia, it sets a worrying precedent that could encourage
governments to ban branding on other products. Furthermore, the Appellate Body did not have theopportunity to take into account the most recent data from the Australian Government, which showsthat the smoking rate has not markedly declined, indicating that plain packaging has not worked as
anticipated.
WHO – Framework Convention on Tobacco Control (FCTC)
We continue to follow the evolution of the WHO FCTC. The Protocol to Eliminate Illicit Trade in
Tobacco Products (the Protocol) came into force on September 25, 2018. The ninth session of the
FCTC Conference of the Parties (COP9) and the second session of the Meeting of the Parties to theProtocol (MOP2) took place in November 2021.
At these FCTC events in 2021, there were no new recommendations or decisions that directly
impacted the JT Group and our products. As the decisions made at these events can have farreaching implications for our consumers, wider society, and our business, we continue to closely
monitor the evolution of the FCTC and the Protocol, and are preparing for COP10 and MOP3 in
future. Although we continue to be denied a voice at such events, we will continue to share ourviews with decision-makers wherever possible.
Worldwide – Illegal Trade
In addition to the rapid spread of COVID-19, which has damaged global economies, the ongoingspread of extreme regulatory measures like plain packaging continues to elevate the risk thatsmokers will seek out illicit sources of tobacco. This threatens to reduce government revenues fromtobacco excise at a time when governments already face a global backdrop of falling tax receipts. It
will also divert money to the global network of organized criminal groups who produce and supply
tobacco to the illegal market.

Case study
During the early stages of the spread of COVID-19, the South African and Indian
governments chose to outlaw the sale of alcohol and tobacco products nationwide.
In South Africa, this disastrous prohibition drove huge growth in illegal tobacco networks.
The South African Revenue Service anticipates that this will take years to dismantle, giventhat the vast majority of smokers continued to buy tobacco illegally during the lockdown
period. The combined alcohol and tobacco ban cost 568 million U.S. dollars in lost
government revenues.

Engaging with our stakeholders
The JT Group remains committed to working with regulatory authorities, public health bodies, andthe scientific community. As part of this engagement, we attend industry events where we are able
to make our voice heard.
In 2021, we took part virtually in the Global Tobacco & Nicotine Forum (GTNF). This majorinternational conference brings together public health experts, academia, government, andmembers of the tobacco/nicotine industries. We participated in a special panel discussion on the
key causes that exacerbate the illegal trade of tobacco and nicotine products. The discussion also
covered risks emerging from the COVID-19 crisis, as well as strategies for curtailing the risingnumber of organized crime networks and individuals involved in illegal trade. We also set up a virtualexhibition booth to present the underlying causes of illegal trade in more detail.

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

Responsible marketingWe only market our products to adult consumers in order to maintain brand loyalty and to encourage
consumers of competitor brands to switch to our products. We do not market our products tominors*, nor do we encourage anyone to start, or discourage anyone from quitting.
We support regulation on the responsible marketing of tobacco or alternative nicotine containing
products, providing it is evidence-based, practical, effective, and proportionate – and that it allows
us to communicate with adults who use such products.
We take responsible marketing very seriously, particularly when it comes to preventing youth using
our products. We never market our tobacco products to minors.
This focus is reflected in our Global Marketing Principles, a guiding document developed in

2016.
When it comes to our retail partners, we continue to provide support by training staff and providing
campaign materials to reinforce the message that underage sales are not allowed.
We provide targeted responsible retailing programs that effectively tackle youth access to our
products, and these are welcomed by retailers. In the U.K. for example, the IDentify program has
been developed to locate retailers who may be at risk. We offer these retailers professional training
and help them to raise standards, so that they will avoid making underage sales.
* Minimum legal age for smoking varies in accordance with the legislation in each country. In Japan,
smoking is not permitted for those under 20 years of age.

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Products andservices

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Optimizing theregulatoryenvironment

Tackling illegal

Investing in

Smoking andtrade

peoplehealthTackling illegal trade
The illegal cigarette trade fuels modern slavery, organized crime, and terror groups. It causes harm
to society and consumers (The word, consumers, used in the context of the tobacco businessmeans adult consumers. Minimum legal age for smoking varies in accordance with the legislation ineach country.), as uncontrolled products circumvent regulations and quality controls, andundermines legitimate tobacco businesses. Tackling illegal trade is a top priority for us, and our
Anti-Illicit Trade team is recognized as the industry leader in combating this problem.

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

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

Progress
In 2021, our Anti-Illicit Trade team provided 1,627 intelligence reports to law enforcement
agencies, and advised 2,238 law enforcement officers on counterfeit recognition.
Read more about our latest progress on the JT Group's
tobacco business sustainability strategy.

Other key wins in 2021■

Over 3.27 billion illegal cigarettes seized thanks to intelligence reports provided by our team tolaw enforcement.

■

There was a 41% decrease in seizures of our genuine products resulting from our efforts toensure the security of our supply chain.

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

A perfect storm
The COVID-19 pandemic has blunted rather than extinguished the production and supply of illegal
product. Some decrease in supply and production was evident in more strictly controlled economies
during the pandemic. Western markets in particular saw relatively little reduction in the production
and availability of illegal product. This is despite criminal groups initially finding it difficult to source
technicians and skilled workers to work on illegal production.
During the pandemic, heightened EU border controls and regulations made it more difficult for
criminals to bring illegal cigarettes to their markets of choice – usually those with high taxation
policies, such as the U.K. and Ireland. By moving illegal production and supply chains inside the EU,
criminals avoided border controls and reduced the risk of seizures or detection. More recently, liftingof COVID-related travel restrictions and opening of borders, the supply of illegal product globally, hasstarted to increase exponentially.
The resourcefulness of criminals is such that the flow of illegal product was still viable even when
traditional sales outlets were out of action. Technology was and still is increasingly being deployedthroughout the pandemic to enable sales of illicit product to continue. This is a trend that’s likely topersist. With sales opportunities unavailable during the pandemic, the online world has become theenvironment of choice for criminals to sell illegal tobacco products.
We are responding to these new challenges through initiatives such as Project TALON. Read the
Project TALON case study to learn more about our response to this rapidly changing digitallandscape.
Read more about 'The gathering storm'

Emerging global trends■

Seizures of genuine JTI products remain very low, continuing the trend from the past two years.
However, the threat remains from counterfeit production, which makes up more than 98.5% of
the global notified seizure volume. This highlights both the security of our supply chain and thedetermination of criminals to continue selling products that imitate JTI brands.

■

In the EU, the presence of illegal cigarette factories continues to grow.

■Smuggling from state owned Grodno Tobacco factory Belarus continues to have a negative
impact on the EU and Russian markets.

■

Illicit whites from the United Arab Emirates being smuggled into Russia.

■

Illegal trade is growing in France due to recent tax rises, and is now estimated at 36% of thecountry’s total consumption, with 19% of NDP being counterfeit.

■

A new transportation trend has emerged in Asia as a result of targeted law enforcement actionsin the coastal ports of Taiwan, Philippines, and Malaysia. Criminals now often use mothervessels, anchored out at sea, and a series of smaller vessels to facilitate smuggling outside ofcontrolled areas (ship-to-ship transfers).

■

In 2021, we observed that Ukraine continued to evolve from a source or transit market to a
destination market. The key contributors to illegal trade are local producers who are not fullycompliant, as well as smuggling from Belarus. In the third quarter of 2021, the Duty Not Paid
(DNP) level was estimated at 15.9%.

■

Kyrgyzstan has become a major entry point for various non-taxed commodities, including
cigarettes, which are smuggled into the Eurasian Economic Union (EAEU). This development
affects Kazakhstan and Russia in particular.

Case study

Public private partnerships in support ofsustainable businessOur global anti-illicit trade programs create the opportunity for public-private partnerships to combat
highly organized criminality. They are also designed to support our business performance byfulfilling all legal requirements, securing our supply chain, safeguarding and creating opportunities
for volume and profit growth, while protecting our Company’s reputation.
We measure their effectiveness against the following KPIs:■

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

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

Implementation of our compliance programs■

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

Progress in 2021
The task force we set up in 2018 continued to tackle illegal trade in our Russia, Ukraine and Belarus
priority markets.
Our information led to the seizure of over 3.27 billion cigarettes (or equivalent in tobacco).
We provided 752 forensic evidence statements to law enforcement agency requests.
We proactively shared 1,627 information reports on illegal trade to law enforcement agencies.
We are fully compliant with all our legal obligations such as OLAF under Memorandum ofUnderstanding.
We advised 2,238 law enforcement officers on counterfeit recognition.

TargetWe will engage in dialogue with law enforcement agencies, with the goal of exchanging intelligence
regarding illegal tobacco products, in order to support the reduction of illegal tobacco products.
* ’Illicit whites’ refer to tobacco products manufactured legitimately but without any product flow control
measures afterwards, and smuggled and sold in another market.

Protecting consumers and government revenue
In 2021, our Anti-Illicit Trade team provided 1,627 intelligence reports to law enforcement agencies,
leading to the seizure of more than 3.27 billion illegal cigarettes. Based on our information, as aresult of JTI info, law enforcement raided more than 20 counterfeit tobacco factories and 33 illegal
storage locations.
As a direct result of our work to tackle illegal trade, notified seizures of counterfeit products in the
EU have remained consistently high over the past five years (over 98% of products seized arecounterfeit). During the same period, notified seizures of our own genuine products in the EU
decreased by 90%, thanks to our markets’ efforts in securing our supply chain, with the support of
the Anti-Illicit Trade team. This has been acknowledged by both Europol and many law enforcement
agencies including the U.K.’s HM Revenue and Customs, which recognized our international tobacco
business as an industry leader in the fight against illicit trade.

Fighting the rise of counterfeiting in Europe
Over the last few years, organized crime groups have established numerous illegal factories in
Europe producing counterfeit cigarettes, including the JT Group brands. This has brought illegal
production closer to destination markets, particularly the U.K. and Ireland, which are target markets
for criminals due to high taxation. It marks a shift away from the traditional sourcing of counterfeit
products in China.
In 2021, over 98% of the JT Group branded products seized globally were counterfeit. We hadalready established a Counterfeit Task Force in March 2019 to counter this threat.
The objectives of the task force are to:■

Coordinate our investigations into global counterfeit production■

Ensure that knowledge is shared between different regions■

Pass on meaningful and evidential information that will assist law enforcement

So far, the task force’s work has focused on locating the illegal production facilities used to produce
counterfeit cigarettes. These illegal facilities may comprise of different manufacturing components
including leaf processing, cigarette makers, and packing machines, and often storage of large
quantities of finished illegal product. Our Counterfeit Task Force compiles and assesses various
pieces of information obtained from different sources. The objective is to provide reliable andusable information to law enforcement in order to locate and seize the illegal facilities.

The threat from counterfeit production
The presence of counterfeit production facilities continues to be a significant threat around theworld. In Europe, 98% of seized JTI brands in 2021 were found to be counterfeit. Seizures of genuine
JTI brands are small in number and quantity. Counterfeit production is also an ongoing threat inother regions.
A Counterfeit Task Force (CFTF) was established in 2019, led by AITO and involving Quality
Assurance, Intellectual Property and key market representatives. The CFTF’s main focus is tacklingcounterfeit production in Europe. In 2021, information disseminated by AITO to law enforcement
contributed to the seizure and closure of 20 illegal factories globally, of which 15 were in EU
countries. Law enforcement agencies in Europe seized and closed down 17 illegal storage facilities
in 2021*.
In 2021, we continued to observe an increase in the production and storage of illegal cigarettes. In
many instances, the working environment and conditions can be considered as modern-day slavery.

Heightened EU border controls and regulations make it more difficult for criminals to bring illegal
cigarettes to their markets of choice – usually those with high taxation policies, such as the U.K. andIreland. By moving illegal production and supply chains inside the EU, criminals can avoid bordercontrols and reduce the risk of seizures or detection.
In addition, combating the illegal production and distribution of cigarettes is often not a high priority
for law enforcement agencies. Historically, if criminals are caught, the penalties are low. To support
law enforcement, our international tobacco business is raising awareness of the social andeconomic consequences of illegal trade. We are doing this by providing counterfeit awarenessprograms and quality information on criminal activities.
* Open source information. The actual number of illegal tobacco factories raided by law enforcement
agencies may be higher.

Case study
In 2021 there were several raids on illegal production and storage sites which were dispersed
geographically. Belgium and the Netherlands featuring prominently. Here are just a few examples ofcases where JTI contributed information:

Country

Number of illegal factories raided in 2021

Belgium

4

Greece, Jordan, Poland, Spain

2 eachDominican Republic, Latvia, the Netherlands, Romania, Slovakia, Ukraine

1 eachIllegal tobacco factories raided by law enforcement agencies (LEAs) with our contribution (2020-2021)

We also provided information that contributed to:■

421 seizures■

18 illegal factory raids■

29 illegal storage depots raided■

1,120 suspect arrests

Case study

Project Green: fighting illegal tobacco production
from outer space
Project GREEN is a unique Anti-Illicit Trade program, developed by our international tobacco
business. It combines a state-of-the-art technical solution, proactive cooperation with government
agencies, and the promotion of sustainable tobacco farming. In short, with the support of an
external service provider, we are able to arrange the legal satellite screening of tobacco fields in
Serbia.
Working in close cooperation with government agencies, we compare the satellite data with stateregistries. This enables us to separate and exclude authorized tobacco growing parcels and detect
illegal plantations. We verify all of the digital information and gather concrete evidence (photos
and/or video) before sharing our findings with government agencies for enforcement actions. The
tobacco plantations that have not been registered and authorized for tobacco growing can then be
destroyed.
The accurate and actionable information we have shared with the authorities in Serbia has made asignificant contribution to the prevention of illegal tobacco production. Our actions even help topromote sustainable tobacco farming in the country.

PROJECT GREEN

Ensuring anti-illicit trade compliance

Legitimate market demand program
Companies worldwide seek to understand the demand for their products in their markets. But there
is a clear distinction between market demand, and ‘Legitimate’ Market Demand (LMD).
In accordance with the European Union Cooperation Agreement signed in 2007, JTI ensures it
supplies tobacco products only in volumes that correspond with the legitimate demand of theintended market of retail sale.
With a commitment to doing the right thing, in the right way, our Anti-Illicit Trade team has developed
a global methodology to assist our international tobacco businesses’ markets with a consistent andaccurate approach to annual LMD calculations. Our markets perform the LMD exercise inconjunction with their annual plan. This creates a proactive supply chain control mechanism tomake sure that the planned sales volumes are in line with LMD.
The components and parameters of the LMD estimation vary depending on each market’s uniquecharacteristics and our product portfolio in that market, but the global methodology provides alogical and defendable standard.

One common factor among these varying calculations is that our demand estimations comply withapplicable laws and regulations.

Track and trace
Our Track and Trace program has been an important element of our compliance policy for more thana decade. It helps our global efforts to support law enforcement agencies and has been developedwith many of the biggest technology companies across the world, as part of our obligations within
the EU Tobacco Products Directive, the WHO Framework Convention on Tobacco Control (FCTC)
Illicit Trade Protocol and numerous national legislations.
A highly technical and complex process, our Track and Trace program requires markings on all
individual and aggregated levels of products. It helps us to track the movements of the products
along the supply chain and supports our supply chain analysis. As a result, when seizures arebrought to our attention, we can identify the source of diversion of the seized products andimplement preventative measures.
Since 2019, Track and Trace has been a legal, mandatory requirement in the following national andregional jurisdictions: United Arab Emirates, Saudi Arabia, Russia, Kazakhstan, Kyrgyzstan, theUnited Kingdom and the whole European Union. In 2021, Qatar, Bahrain and Oman are expected to
implement their own Track and Trace systems.
As with all other regulations, we put all our efforts into complying with these obligations, while
limiting any negative impact on our business operations. We also firmly believe that the fight against
illicit trade can only be effective if measures such as Track and Trace are implemented along withproper enforcement by authorities and sanctions for those involved in illegal trade. Governments
must also implement further measures to address products which will, by nature, escape thoseobligations, such as counterfeits or illicit whites*.
* ‘Illicit whites’ refer to tobacco products manufactured legitimately but without any product flow control
measures afterwards, and smuggled and sold in another market.

A global response to illicit trade
The Protocol to Eliminate Illicit Trade in Tobacco Products is the first protocol to the WHO
Framework Convention on Tobacco Control (FCTC). It entered into force on September 25, 2018 andhas so far been ratified by 64 Parties (November 2021).
This international treaty aims to eliminate all forms of illicit trade of tobacco products, throughseveral provisions that are binding on its Parties. We support this Protocol, as it provides a global
response to the global problem of illicit trade.

One of the main requirements is that the Parties must implement a Track and Trace system within 5
years for cigarettes and within 10 years for all other tobacco products respectively after the entry
into force of the Protocol for them. In order for this regime to be effective, we support theimplementation of an architecture based on ‘open standards’ and interoperability for every actor in
the supply chain, while taking into account existing systems such as the new EU-wide Track andTrace system.
The other provisions covered by the Protocol, such as Free Trade Zones oversight or Assistance andCooperation mechanisms, are equally crucial. These represent an area for public-private
cooperation, with the common goal of defeating the illegal trade of tobacco products across theglobe.

Taking the fight to the digital world
The fight against the illegal tobacco trade seems never-ending, as criminals seek to use tried-andtested and innovative new methods of exploiting others. The internet – and social media inparticular – continues to provide opportunities for individuals and organized crime groups to sellillegal tobacco products. During the COVID-19 pandemic, with other sales opportunities unavailable,
the online world has become the environment of choice for criminals to sell illegal tobacco
products. But as criminal gangs become increasingly sophisticated, so do our own efforts to fightthem.
Our projects to tackle internet-based crime are well established and continue to make progress,
through the removal of links and social media posts such as Facebook which illegally advertise our
products, or their counterfeits.
The scope of our projects to tackle internet-based crime have expanded both in scope and size, toinclude activities in France, Malaysia, Romania, Russia, Serbia, Singapore, Spain, Taiwan, the U.K.,
the U.S., and CIS+ region.
We also identify criminal gangs using social media sites which offer larger volumes. In addition,
following ‘test purchases’ of the JT Group products, we supply law enforcement with the evidence
needed to take action.

Case study

Project TALON: fighting illegal trade in the digital
world
Incredibly, organized crime groups across the globe often publish details of their illegal activities
online for millions of people to view. Our international tobacco business has been at the forefront oftackling this phenomenon since 2015, when we launched Project TALON.
Project TALON focuses on taking down links and social media posts that illegally advertise our
products, or their counterfeits. To date, we have identified and removed more than 30,000 online
adverts for illicit tobacco, representing 3.9 million U.S. dollars’ worth* of potential product losses.
The global pandemic has driven an increase in illicit trade online, as well as the associated scams
and identity fraud. In the U.K. alone, over 6,350 posts were identified and taken down between
August 2019 and January 2022, representing 1.25 million U.S. dollars’ worth of potential productlosses.
In 2021, Project TALON was extended to Romania, with excellent support from our local team andfrom law enforcement. This led to the identification of more than 5,300 listings.
This project continues to evolve, as we develop and implement new review methods to further
improve productivity, especially across emerging platforms such as Telegram and TikTok.
We have also improved our reporting methods and created workflows to gather actionable
information and monetary data for law enforcement agencies. Towards the end of 2021, local teams
carried out a two-week research trial in France and the Netherlands to investigate the anecdotal
increase in online illicit sales.
* the value of the advertised product

Focused on the future

Although criminal groups continue to adapt and diversify by moving onto new platforms, we havemanaged to stay one step ahead by expanding and enhancing our software.
In addition to website takedowns, our toolkit includes JTI AITO investigations, test purchases,
private prosecutions, and sharing information with law enforcement agencies. This gives us theability to swiftly target specific areas of a market with a high prevalence of illicit online sales.
The business is planning to re-launch Project TALON in France and other European countries in
2022.
Read more about how we tackle the illegal tobacco trade online.

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