IN FOCUS
18

RESPECT FOR
HUMAN RIGHTS

1.

Message from our CEO

40
OUR TOBACCO BUSINESS

4.

Our year in brief

42. Building sustainable6.

Corporate profile

supply chains

45. Tobacco leaf sourcing

8
OUR SUSTAINABILITYSTRATEGY
IN FOCUS68TACKLING THE ILLEGALTRADE OF OUR PRODUCTS

43. Non-tobacco materials, otherproducts, and services

9.

50. Promoting forestry on small-scale
farms
52. Reducing our environmental impact
in manufacturing
54. Exceeding expectations withproducts and services(Reduced-Risk Products)

We have been guided by GRI Standards in preparationof the report.

11. The foundations of the JT Groupsustainability strategy

64. Optimizing the regulatoryenvironment
12. Tobacco businesssustainability strategy

68. IN FOCUS
Tackling the illegal tradeof our products

13. Committed to the UN Sustainable

Development Goals

74. Investing in people

our tobacco business

Absolute requirements forsustainability
FY 2018

18. IN FOCUS

80
OUR PHARMACEUTICAL
BUSINESS84
OUR PROCESSED FOOD
BUSINESS

Respect for human rights
24. Improving our social impact
26. Improving our environmental impact
32. Good governance andbusiness standards
36. Our people
38. The JT Group health and safety
strategy

We report data for the entire JT Group including
subsidiaries, wherever possible.
See our Basis of Reporting document for further details.

In this report we use the following scope notations:*A The entire JT Group, including subsidiaries:

our international tobacco, Japanese domestic
tobacco, pharmaceutical, and processed foodbusinesses

14. Driving sustainability across

16
OUR WAY OF DOING BUSINESS

Unless the context indicates otherwise, referencesin this report to ‘we,’ ‘us,’ ‘our,’ and ‘the JT Group’are to Japan Tobacco Inc. and its consolidated
subsidiaries. References to ‘Torii Pharmaceutical’ areto Torii Pharmaceutical Co., Ltd., our pharmaceuticalsubsidiary. References to ‘TableMark’ are to TableMarkCo., Ltd., our processed food subsidiary that
manufactures and sells the ambient and frozen foods
and its consolidated subsidiaries.
References to ‘Reduced-Risk Products’ and/or ‘RRP‘
are to products with the potential to reduce the risks
associated with smoking.

4S model10. Our material issues

SCOPE OF DATA AND
INFORMATION PRESENTED
IN THIS REPORT88
ABOUT THIS REPORT*B Solely our Japanese domestic tobacco andpharmaceutical businesses: Japan Tobacco Inc.
(JT)
(excludes our international tobacco business,processed food business, and subsidiaries of all
businesses)*C Our Japanese operations, including subsidiaries

of Japanese domestic businesses: Japan
Tobacco Inc. (JT) and Japanese domestic Group
companies (excludes our international tobacco
business)*D Our Japanese domestic tobacco andpharmaceutical businesses - Japan Tobacco Inc.
(JT); and our international tobacco business Japan Tobacco International (JTI)*E Solely our international tobacco business: Japan
Tobacco International (JTI)90
GRI INDEXFRONT COVER IMAGE: A view of the rooftop-mounted fresnel collector at our Jordan factory in Amman. Awarded the ‘Environmental

Stewardship Award’ by the Ministry of Environment in Jordan and the World Bank, this is the first tobacco factory in the world to use direct
solar steam generation for process heating and cooling. The factory’s ultimate ambition is to be 100% carbon neutral.

Any data without annotated scope in this reportcovers the entire JT Group including subsidiaries: *A.

Message from
our CEO
A sustainable society
Global affairs and regulations continued to evolve
rapidly in 2018.
Reduced-Risk Products meanwhile have shownstrong growth over the last few years and we havewitnessed a surge in this new category.
Although the risks surrounding our business haveincreased, new opportunities have emerged, as thetobacco industry goes through a period of significant
transformation.

In the meantime, we have seen major societal andbusiness shifts towards sustainability around theworld. Corporations are showing greater awarenessfor environmental issues triggered by climate change,a greater respect for human rights that extends to a
corporation’s supply chain, and a sustained uptake
in Environmental Social and Governance (ESG)
initiatives. Society now expects corporations to beproactive about creating a sustainable and inclusive
future.

Sustainability at
our Group
Our management principles and our approach tosustainability are governed by our 4S model, underwhich we strive to fulfill our responsibilities toour valued consumers, shareholders, employees,
and the wider society, carefully considering therespective interests of these four key stakeholders,and exceeding their expectations wherever we can.
We engage with our stakeholders and work on
our sustainability issues to fulfill our responsibility
as a member of society. The JT Group prioritizes
investments in its business: we invest in our products
and services, our production facilities, in innovation,
our people, and, at times, through acquisitions. These
investments enable our business to create value,
which is distributed to our stakeholders in a balancedmanner. Our ethos is to grow together, in a viablefashion.
With sustainability at the heart of our management,
early 2019 saw a reorganization of our organizational
structure. We created a Sustainability Management

3

Division at the JT Group head office in Tokyo, andappointed a dedicated Senior Vice President for
Sustainability. This reflected our focus in 2018 as oursustainability strategy was formulated.
We outlined three ‘absolute requirements’ forsustainability, which apply to the whole Group:
Respect for Human Rights, An Improved Social andEnvironmental Impact and Good Governance andBusiness Standards. Our core business, tobacco,
has already set out its four focus areas, and eachremaining business division will establish its own
focus areas. Our pharmaceutical division andprocessed food business are currently defining theirown approaches. Both our sustainability strategy andthe philosophy of our 4S model is perfectly alignedwith the objectives of the United Nations’ Sustainable
Development Goals (SDGs) which seek to achieve
17 global goals, for the realization of sustainable andinclusive society.

1The JT Group’s
Sustainability Strategy

Sustainability within our
tobacco business

Let’s look at our sustainability strategy in moredetail. Our Group strategy is based on threeabsolute requirements for sustainability: ‘Respectfor Human Rights’, ‘An Improved Social andEnvironmental Impact’, and ‘Good Governance andBusiness Standards’.

Our tobacco business has set out four focus areas for its
sustainability strategy. These are ‘Products and Services’,‘People’, ‘Supply Chain’ and ‘Regulatory Environment
and Illegal Trade’.

RESPECT FOR HUMAN RIGHTS continues to be a priority for our Company. We have beenbuilding upon an important step forward we made in 2016, when we set out the JT Group
Human Rights Policy. A Group-wide e-learning module enabled employees to gain a better
understanding of this subject. We then initiated our human rights due diligence process,an ongoing management procedure for assessing human rights impacts, acting on thefindings, tracking responses, and communicating our progress. We continue to work hardto embed this process into our organization’s Plan-Do-Check-Action (PDCA) cycle.

IMPROVING OUR ENVIRONMENTAL IMPACT is critically important, as we seek to manage
our business while simultaneously protecting the environment. The greenhouse gas (GHG)
reduction target within our current plan, the ‘JT Group Long-Term Environment Plan 2020’
was achieved in 2017, three years ahead of target. Beyond 2020, we have set out a newplan, the ‘JT Group Environment Plan 2030’. This outlines clear objectives for energy andemissions, natural resources (water and forestry), and waste. We will continue to engage
with stakeholders such as CDP and have set and obtained approval for Science Based
Targets for reducing our GHG emissions as well as employing scenario analysis. All this is
to better understand the impact of climate change on our business and to integrate thesefindings into our organizational structure.

To serve the needs of society in the areas in which we operate, we consider IMPROVINGOUR SOCIAL IMPACT to be an integral part of the JT Group’s sustainability strategy. We
specifically target three areas: reducing inequalities, improving community resilience, andprotecting the environment. By offering volunteering opportunities to our employees, we
can help make communities more sustainable and inclusive.

GOOD GOVERNANCE AND BUSINESS STANDARDS is a priority for the JT Groupmanagement as we seek to continuously improve our framework for corporate
governance. To enforce our supervisory function and improve the transparency of ourbusiness, in March 2019 we welcomed one additional new external director, and one
additional new external auditor and supervisory board member. An advisory panel on
nomination and compensation* was also established, comprised mostly of external
directors. These initiatives will help us to ensure transparent, fair, timely and effective
decision-making.

Within ‘PRODUCTS AND SERVICES’, we will be a
total tobacco company offering consumers an evengreater choice of products by focusing on quality,
innovation, and reduced-risk potential. Specifically,
we will lead in providing the widest range ofconsumer choice in the Reduced-Risk Products
category.
Employees are one of the key stakeholders of our
4S model and investing in PEOPLE lies at the heartof what we do. Our efforts in this area have beenrecognized by a number of external institutions.
Our Japanese operations was certified for a third
consecutive year as an ‘Outstanding Company in
Health and Productivity Management 2019 White
500’, a program that recognizes large companies
that strategically engage in improving employee
well-being. We were also recognized as a ‘Nadeshiko
Brand 2019’ for our initiatives in encouraging
women’s empowerment in the workplace. I am also
pleased to announce that our international tobacco
business was certified as a Global Top Employer in
53 countries around the world, and a Global Top
Employer for the fifth consecutive year.

Sourcing a sustainable supply of quality tobacco leaf
at an optimum cost is essential for the sustainabilityof our business. In 2018, our Agricultural Labor
Practice (ALP) program, the core program for
managing our leaf SUPPLY CHAIN, showed solid
progress: 96% of our directly contracted growers
were observed against ALP, while 96% of ourleaf merchants reported on ALP. Through ARISE(Achieving Reduction of Child Labor in Supportof Education), we continued to tackle issues
fundamental to eliminating child labor in our leaf
supply chain.
The REGULATORY ENVIRONMENT surrounding
the tobacco industry is becoming increasingly
challenging; the way in which we operate in thisheavily regulated environment is a key concern toour business. We will ensure that the Company isincluded in policymaking leading to fair and balanced
regulation which meets societal concerns andsupports business growth.
ILLEGAL TRADE is another factor that can seriously
affect the sustainability of our business. We work
hard to combat all kinds of illegal trade and willcontinue to engage in dialogue with law enforcement
agencies to help reduce the presence of illegal
tobacco products around the world.

Working towards asustainable future
Sustainability calls for our management to havea broad long-term perspective, and to ensure thebusiness continues to create value, thus ensuring thesustainability of our business and of society, over thelong term. If all corporations make similar efforts, oursociety can grow and flourish. With the full rollout of
our sustainability strategy, the JT Group is moving
into a new phase. Our Group will act as one, andtogether with our stakeholders, we will jointly movetowards sustainable growth.

Masamichi Terabatake,President and Chief Executive Officer, Japan Tobacco Inc.

2*

The Advisory Panel on Nomination and Compensation is a voluntary advisory body to the Board of Directors, which was newly established on
March 20, 2019 by merging the functions of the existing Meeting for Talent Development and the Compensation Advisory Panel.

3

Our year in brief
REDUCED-RISK
PRODUCTS
We expanded our Reduced-Risk Products portfolio
to provide consumers with greater choice:

ANTI-ILLICIT TRADEENVIRONMENTHUMAN RIGHTS

E-VaporLOGIC COMPACTLAUNCHED
IN THE U.K.

We provided information to law enforcement that
led to:We created the JT GROUP ENVIRONMENT PLAN 2030.
The scope extends beyond our own operations.

T-Vapor

PLOOM TECH+ AND
PLOOM S LAUNCHED
IN JAPAN (JANUARY 2019)+

COUNTERFEIT TOBACCOFACTORIES AND STORAGE
LOCATIONS RAIDEDOur GHG emission reduction targets wereapproved by the Science Based Targets initiative(February 2019).

5

ILLEGALCIGARETTESSEIZED

31%

100

+

BILLION YEN

39
+2.7

OF ELECTRICITY IN OURINTERNATIONAL FACTORIESWAS EITHER PURCHASEDOR GENERATED FROMRENEWABLE SOURCES.

HUMANRIGHTS IMPACTASSESSMENTS

We completed 5 Human Rights Impact
Assessments in high-risk markets.

BILLION

We are investing 100 billion Yen in Reduced-Risk
Product development between 2018 and 2020.

AGRICULTURALLABOR PRACTICES

96%
96%
4

OF OUR DIRECTLYCONTRACTED LEAFGROWERS WEREOBSERVED BY
LEAF PRODUCTIONTECHNICIANSOF OUR LEAF
MERCHANTS REPORTEDON ALP

ARISE
Achieving Reduction ofChild Labor In Supportof Education

7,123

CHILDREN OFF FARMS
AND INTO SCHOOLS
THROUGH THE ARISE
PROGRAMHUMAN
RESOURCESCOMMUNITYINVESTMENT

Our international tobacco business was certified as a
GLOBAL TOP EMPLOYER for the 5th consecutive year.

We were certified as Top Employer by the Top
Employers Institute in 53 countries around theworld.

9,986

EMPLOYEES VOLUNTEERED
25,429 HOURS ON
COMPANY TIME

4,694

EMPLOYEES SPENT 23,493
HOURS OF THEIR OWNTIME TAKING PART IN
VOLUNTEERING ACTIVITIESORGANIZED BY THE
COMPANY5

Corporate
profileSWEDENPOLANDGERMANYRUSSIAUKRAINESERBIASWITZERLAND
CANADAWe are one of the world’s leading
tobacco companies, with offices andfactories in more than 70 countries
and regions, and products sold in
more than 130 countries and regions.
Headquartered in Tokyo, Japan Tobacco
Inc. (TSE:2914) is listed on the Tokyo
Stock Exchange.
We also operate pharmaceutical andprocessed food businesses.

U.S.
DOMINICAN
REPUBLIC

EGYPT

ROMANIABANGLADESHKAZAKHSTANPHILIPPINESGREECETAIWAN

TURKEYMYANMAR

IRAN

INDONESIAJORDANSPAIN (CANARIES)REPUBLIC OF SUDANETHIOPIAJAPAN

MALAWIBRAZILZAMBIATANZANIACIGARETTE AND TOBACCO-RELATED FACTORIESTOTAL REVENUE IN 2018 (%)
5.1

7.3

NUMBER OF EMPLOYEES IN 2018 (%)
1.4

0.3

International

35

Japanese domestic

6
41

TOTAL

Countries in which we directly source tobacco

98.3

Our businesses

2.9

¥

28.0

16.5

2,216
BILLION YEN

63,96859.2

EMPLOYEES

70.8

INTERNATIONAL TOBACCO

JAPANESE DOMESTIC TOBACCOOur international tobacco business is headquarteredin Geneva, Switzerland. We manufacture and sell
ready-made cigarettes, fine cut, cigars, pipe tobacco,snus and kretek, water pipe tobacco, and ReducedRisk Products.

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

Our main markets include France, Italy, Russia, Spain,
Taiwan, Turkey, and the U.K.

Our Japanese portfolio includes key brands such as
Winston, Mevius, Seven Stars, and Natural American
Spirit as well as Ploom TECH for Reduced-Risk
Products.

The portfolio includes leading brands in cigarettes
and fine cut, such as Winston, Mevius, Camel, andLD, as well as in Reduced-Risk Products*, such as
Ploom and Logic.

6

International tobacco business

International tobacco businessJapanese domestic tobacco businessJapanese domestic tobacco business

PHARMACEUTICALSPROCESSED FOOD

Pharmaceutical businessPharmaceutical business

Processed food business

Processed food business

Other

Other

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

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

7

OUR TOBACCO BUSINESS

4S modelOur management approach and our approach to sustainability are
underpinned by our 4S model. Consumers, shareholders, employees, andsociety represent the four stakeholder groups (4S) at the heart of everything
we do. Our commitment to serving these groups is represented in thismodel and throughout the report. Based on the principles of the 4S model,
we always strive to exceed the expectations of our four stakeholder groups,
wherever we can.

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.

89For our Group to grow and build a sustainable futurewith our stakeholders, we have selected a list of
material issues or key issues with high priorities.
This list was compiled for the first time in 2015,
by engaging internal and external stakeholders,

including employees, suppliers, investors, tradeunions, non-governmental organizations (NGOs), andindustry organizations. We are committed to carryingout materiality reviews on a regular basis in order toupdate issues that are important to us.

HIGH

IMPORTANCE TO EXTERNAL STAKEHOLDERS

Corporate
governanceandtransparency

Laws andregulations

Product safety
and productresponsibility

Supply chain
management

Product
innovation andintellectual
property

Environment

MEDIUM

Respecting
human rights

Environmental
impacts ofproducts

Information
security

Anti-competitive
behavior

Being aresponsible
employer

Anti-bribery
and corruption

Illegal trade

Workplacehealth and safety

Collaborations
andpartnerships

Employeedevelopment
and talentmanagement

Equality anddiversity inthe workplace

Tax practices

Contributions
to society

Political andregulatory
decision-making
processes

Responsible
marketing

MEDIUM

Our supply chain

HIGH

Our Company

The foundations of our sustainability strategy,
applying across the Group, are our ‘Three absolute
requirements for sustainability’:

Respect forhuman rights
We are committed to respecting humanrights across our global operations andvalue chains, as expressed in the JT Group
Human Rights Policy.

Litigation

IMPORTANCE TO THE JT GROUP

Value chain boundaries

The foundationsof the JT Groupsustainability strategy
Our sustainability strategy is based on our Group’smateriality assessment and underpinned by our 4S
model. It encourages us to look beyond our usual
planning cycle period and think about the longevity ofour business, the future of our planet, and the society
we live in.

THE JT GROUP MATERIALITYOUR SUSTAINABILITY STRATEGY

Our material issues

Our customers and consumers

Since the first materiality assessment was carried out, we have noted increasing concern about the adverse
effects on our environment. We share this concern and have therefore repositioned ‘Environment’ from MediumMedium to High-High in the above matrix. We will continue to strive to reduce environmental impact on ourplanet.

An improved social andenvironmental impact
We are committed to protecting theenvironment and making a positive difference
wherever we operate.

Good governance andbusiness standards
We are committed to promoting transparent,
fair, and timely decision-making that carefully
considers the respective interests of consumers,
shareholders, employees, and the wider society.

Read more on JT.com.

1011

We formulated and introduced our tobacco businesssustainability strategy in 2017. It illustrates theimportant choices we have been making for years– and will continue to make – across all of ourmarkets and business functions to drive sustainability
throughout the entire organization. We have chosen
four focus areas which we consider to be essential
for the sustainability of our tobacco business and forour stakeholders.

OUR SUSTAINABILITY STRATEGY

Committed to
the UN Sustainable
Development Goals

Tobacco businesssustainability
strategy
In 2018, our sustainability strategy evolved further,with eleven specific targets set for each of the four
focus areas. These will provide a solid basis formeasuring and benchmarking our sustainability
performance, and support the sustainability of the
JT Group. We will be updating our progress regularly,
as we strive to contribute and fulfill our commitmentsthat we have made to our stakeholders and toourselves. To learn more about our targets, pleasesee page 14.

The four strategic focus areas
PRODUCTS AND SERVICES

SUPPLY CHAIN

We will be a total tobacco company
offering consumers an even greater
choice of products by focusing on quality,
innovation, and reduced-risk potential.

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

Our commitment
In order for our Group to achieve sustainable growth,
it is essential for our business to contribute to thesustainable development of our society. We maintainongoing dialogues with our stakeholders and work
continuously on a variety of sustainability issues tofulfill our responsibilities.
Our Group supports the United Nations’ Sustainable
Development Goals (SDGs) and their related targets
in the context of its own business and operational
environments. Our commercial strategies andbusiness practices support the global goals, and wehave developed specific targets and initiatives that
contribute to the SDGs’ global agenda. We take our
responsibility to manage our business sustainability
very seriously. Our Group’s three businesses –tobacco, processed food, and pharmaceutical – differ
by sector, scope, and size, and therefore each one
contributes to the SDGs in different ways.

Prioritization process
WITH TARGETS SET FOR:
REDUCED-RISK PRODUCTS

WITH TARGETS SET FOR:
GREENHOUSE GAS EMISSIONSWATER AND WASTE, FORESTRYAGRICULTURAL LABOR PRACTICESSUPPLIER SCREENINGPEOPLEREGULATORY ENVIRONMENT
AND ILLEGAL TRADE

We will be theemployer of choice byinvesting in people.

WITH TARGETS SET FOR:ZERO INJURIESCOMMUNITY INVESTMENTEMPLOYER OF CHOICE

12

In 2018, we determined how our approach tosustainable business is aligned with the SDGs. We
mapped the activities of our tobacco business against
all 17 SDGs and concluded that our tobacco business
contributes most significantly to the following ninegoals. We intend to undertake the same process forthe other two businesses in the Group.

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

WITH TARGETS SET FOR:ENGAGEMENTILLEGAL TRADE

13

4 strategic focus areas

aspirational goaltarget*PRODUCTS
AND SERVICES

We will be a total tobacco company offering
consumers an even greater choice of products byfocusing on quality, innovation, and reduced-risk
potential.

REDUCED-RISK PRODUCTSPEOPLEWe will be the employer of choice by investing inpeople.

ZERO INJURIES

sdgs

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

In line with our vision of zero workplace injuries, we will reduce injury
rates by 25% by 2023 and 50% by 2030. (Baseline year: 2015).
COMMUNITY INVESTMENT

Between 2015 and 2030 we will invest 600 million U.S. dollars to
help make communities inclusive and resilient, with our employees
contributing 300,000 volunteering hours.
EMPLOYER OF CHOICE

We will be a certified employer of choice every year in at least
60 locations by focusing on talent management, rewards, andempowerment.

SUPPLY CHAIN

We will reduce environmental and social risks, andenable transparent and responsible practices acrossour supply chain.

GREENHOUSE GAS EMISSIONS

We will reduce greenhouse gas emissions from our own operations
by 35% and from our direct leaf supply chain by 40%, between 2015
and 2030.
WATER AND WASTE

We will reduce water withdrawal by 15% and waste by 20%, in
relation to our own operations, between 2015 and 2030.
FORESTRY

We will replace all wood from natural forests used in the tobacco
curing process of our directly contracted growers with renewable fuelsources by 2030.
AGRICULTURAL LABOR PRACTICES

We will implement our Agricultural Labor Practices (ALP) program inall sourcing countries by 2025.
SUPPLIER SCREENING

We will screen all key suppliers against environmental, social, andgovernance criteria by 2023.

REGULATORYENVIRONMENT
AND ILLEGAL TRADE

We will ensure the Company is included inpolicymaking leading to fair and balanced
regulation, and enhance our cooperation withgovernments to combat illegal trade.

ENGAGEMENT

We will always protect our ability to participate in public policy debatewith the aim to achieve balanced regulation that meets societal
concern and supports business growth.
ILLEGAL TRADE

We will engage in dialogue with law enforcement agencies, with thegoal to exchange intelligence regarding illegal tobacco products, inorder to support the reduction of illegal tobacco products.
14*

The targets are for the JT Group’s tobacco business, except for Community Investment which is a Group-wide target.

15

OUR SUSTAINABILITY STRATEGY

Driving sustainability acrossour tobacco business

The SDGs provide a shared blueprint for peace and prosperity for people and the planet, now and into the future. The goals
recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education,
reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.
That makes sense to us at the JT Group. We share and support these goals and here are the specific ways in which we believe,
we can contribute to achieving some of the goals.

OUR TOBACCO BUSINESS16

17

IN FOCUSRESPECT FOR HUMAN RIGHTSOUR SUSTAINABILITY STRATEGY

ABSOLUTE REQUIREMENTS

RESPECT FOR
HUMAN RIGHTS

We operate in parts of the world where human rights are at risk, and are therefore
exposed to human rights-related issues, such as child labor, bribery and corruption,
workplace discrimination, and inequality.
Our sustainability strategy is driven by three absolute requirements that are at the heart ofeverything we do. One of these requirements is respecting human rights.

Our Human Rights strategy

Our commitment to human rights is reinforced
in both our Codes of Conduct and our Reporting
Concerns Mechanism, which ensure that we listen
to and act on the grievances of those whose humanrights are impacted by our activities. We encourage
employees and suppliers to speak up on humanrights, without fear of retribution, about any concerns
they may have.

2016

Our suppliers and growers throughout the world arealso obliged to respect human rights by adopting
and maintaining internationally recognized labor
standards regarding child labor, rights of workers,
and workplace health and safety. They do this in linewith our JT Group Responsible Procurement Policy,
JT Group Supplier Standards, and Agricultural Labor
Practices (ALP). Read more on page 46.
Our strategy is based on three pillars: Inform, Assess,and Improve. Each plays a crucial role in embedding
human rights protections into the business anddriving continuous improvement. This approachprovides a consistent, efficient, and systematic wayof conducting ongoing due diligence and allows us toproactively shape a strategic plan regarding humanrights.

Chigusa Ogawa,Senior Vice President, Sustainability Management, JT

In line with the UN Guiding Principles (UNGPs) on
Business and Human Rights, we have made humanrights due diligence an essential and integrated partof our business. This enables us to identify and assess
actual and potential human rights risks, as statedin our JT Group Human Rights Policy. Conducting
human rights due diligence – through Human Rights
Impact Assessments – is part of our Company’s
responsibility to prevent adverse impacts on people
and ensure the highest standards of behavior are
upheld within our business and value chain.

TOBACCO BUSINESSThe JT Group Human Rights Policy follows theframework provided by the UN Guiding Principles
on Business and Human Rights (UNGPs) to monitor,
influence, and improve business practices within
our own operations and those of our suppliers andpartners. This means avoiding infringing the rights
of others and addressing the adverse impacts of ourglobal operations. We not only have a responsibility
to respect human rights – we also have the ability toadvance and promote these rights in all the areas we
operate.

OUR COMMITMENT TO CONDUCTINGHUMAN RIGHTS DUE DILIGENCE

To achieve this, we are committed to assessing 100%of our high-risk countries by 2025, in our tobacco
business.

NOVEMBER 2016

FEBRUARY 2017

OCTOBER 2017

MARCH 2018

JUNE 2018

OCTOBER 2018

A human rights e-learning
program is provided for our
employees in Japan with a
92% completion rate. (*C)

The annual meeting of the
Human Rights External
Advisory Board takes place. (*E)

Our international tobacco businesslaunches a human rights e-learning
program in 25 languages with a
68% completion rate.

A Human Rights Impact
Assessment takes place inTanzania.

We trained 75% of ouremployees through a humanrights e-learning module in ourinternational tobacco business.

Internal guidelines for thehiring and labor managementof foreign workers are
established in Japan. (*C)

2017

OUR WAY OF DOING BUSINESSWe recognize respecting human rights
as one of our absolute requirements
for sustainability.
Whilst we have made progress,
respecting human rights is a journey,
and our approach and managementof human rights issues will evolveand mature.
We still have much more work
to do and we will update you on
our progress as our human rights
initiatives unfold in the coming
years.

2018

SEPTEMBER 2016

DECEMBER 2016

SEPTEMBER 2017

FEBRUARY 2018

APRIL 2018

SEPTEMBER 2018

NOVEMBER 2018

The JT Group Human Rights
Policy is launched, formalizing
our commitment to respecting
human rights.

A Human Rights Impact
Assessment takes placein Japan. (*C)

An external gap analysis
concluded that we have a robust
set of policies and procedures toaddress human rights risks in ourinternational tobacco business.

The annual meetingof the Human Rights
External Advisory Board
takes place. (*E)

The Reporting
Concerns Mechanism
is enhanced for
migrant workers inJapan. (*C)

A Human Rights
Impact Assessment
takes place in Mexicoand the Dominican
Republic.

A Human Rights
Impact Assessment
takes place in
Myanmar andMalaysia.

18

19

IN FOCUSRESPECT FOR HUMAN RIGHTSINFORM

We train our employees on human rights through an
online human rights e-learning module, available in
25 languages. By June 2018, 75% of our employees
had completed the module in our international
tobacco business. To reach employees without
computer access, we now have a dedicated section
on respecting human rights integrated into face-toface training on the Code of Conduct.

ASSESSIn 2018, we completed our pilot year of Human
Rights Impact Assessments in five high-risk countries
in our international tobacco business. These countries
were identified through a risk analysis using publicly
available country risk human rights indices.
They covered a mix of geographical regions and thebreadth of our supply chain operations, from farmto store. In line with the UNGPs, the Human Rights
Impact Assessments focused on the greatest risk topeople, both within our own Company and throughbusiness relationships with our suppliers.
The Impact Assessments took place in Dominican
Republic, Malaysia, Mexico, Myanmar, and Tanzania,
demonstrating our willingness to go into countries
where serious human rights violations have beenreported, and assess the on-the-ground reality.
In our Japanese operations, the Impact Assessments
were implemented through self-assessment
questionnaires and site visits. We conducted due
diligence through self-assessment questionnaires inour processed food business in China and Thailand,
which will be followed by site visits and capacity
building in 2019.
Our corporate policies are consistent with humanrights best practice, as demonstrated by a third-party
assessment. Human Rights Impact Assessments
enable us to test the effectiveness of these policies
on the ground, and make improvements where
necessary.

IMPROVE
To address issues identified through Human
Rights Impact Assessments and self-assessment
questionnaires, we develop action plans. These
plans enable us to drive improvements and integrate
human rights into our existing management
processes, in a consistent manner.
The plans have defined responsibilities, clear
timelines for implementation, and key performanceindicators to monitor progress.

20

Governance andstakeholder engagement
Given the breadth of the JT Group’s operations
around the world, it was critical to establish an
appropriate governance structure. We believe it
is important to embed respect for human rights
throughout our entire organizational structure.
This is driven by our dedicated human rights team,which is responsible for raising awareness andimproving engagement internally. Our Business
Ethics Committee (*E) also has an important role toplay, as it provides overall governance to ensure thatrightsholders’ concerns are listened to and addressed
effectively.
Central to our governance structure was theestablishment of a Human Rights Champions
network in 2018. This network comprises employees
from the countries in which we have conducted
Human Rights Impact Assessments, and facilitates
the sharing of guidance and best practice on humanrights.
To advance the rights of our stakeholders, it isimportant that we listen to the advice, concerns, andcriticisms of people outside the JT Group. Therefore,
we have continued to take counsel from our Human
Rights External Advisory Board.

To further strengthen our external engagement,
we have partnered with Business for Social
Responsibility (BSR), Mazars, EY, and KPMG Azusa
Sustainability. These organizations provide technicalsupport with our ongoing human rights due diligenceapproach and overall human rights strategy.

HUMAN RIGHTS EXTERNALADVISORY BOARDTOBACCO BUSINESSIn November 2018, we organized an awarenessraising session on human rights, which 81 employees(*E) attended. The objective of the session was toengage and educate our staff on the subject throughan external voice. In line with our aim to harness
external expertise as part of our strategy, we invited
BSR’s Human Rights Managing Director, Margaret
Jungk, to give a speech at the session. Margaret
previously directed the business and human rights
department at the Danish Institute for Human
Rights and was a member of the UN Working Groupon Business and Human Rights. Her speech wasrecorded and shared with the rest of the Company
via our intranet.

We also provide printed communication materials
to increase employee awareness and strengthen
their understanding of human rights. In 2018, wedeveloped an educational booklet on respecting
human rights in our businesses in line with the
UNGPs and shared this with over 25,000 employees
in our Japanese operations (*C). In addition, ourCode of Conduct was revised to include updated
information on human rights.

In our Japan operations, we agreed on action plansfor 21 key sites (*C) which have head office functions.
In addition to those local efforts, we also enhanced
our corporate policy and Reporting Concerns
Mechanism towards migrant workers.

OUR WAY OF DOING BUSINESSOur efforts to build awareness of the JT Group
Human Rights Policy and provide human rights
information to employees start with training,awareness raising, and communication. This is about
getting human rights thinking into the culture of theCompany and helping employees understand thehuman rights implications of business decisions.

In 2018, we developed five action plans with therespective countries, each with an agreed timeline.
A total of 12 Human Rights Champions wereappointed within these countries, as part of a
network. The responsibility of this network is
to ensure that action plans are managed andimplemented by each country and respect for humanrights is firmly established in the business.

OUR SUSTAINABILITY STRATEGYOur approach and progress in 2018

Our Human Rights External Advisory Board
plays a vital role in providing us with a broadexternal perspective in the human rights area.
Made up of international experts on businessand human rights, the Board advises us on
all issues that the members consider relevant
for the implementation of our human rights
strategy. The panel of experts guides us with
their expertise and challenges us where
they believe we need to improve, helping
strengthen our efforts to deliver on our humanrights commitments.

Our programs
We have a long and complex supply chain and are exposed to a diverse range of human rights risks. To addressthese, we have put in place a number of corporate programs and initiatives. Read more about them on the pages
listed below.
Code of Conduct
see page 32

ARISE
see page 48

Workplace Health & Safety
see page 38

Community Investment
see page 24

Agricultural Labor Practices (ALP)see page 46

Diversity & Inclusion
see page 76

21

IN FOCUSRESPECT FOR HUMAN RIGHTSOUR SUSTAINABILITY STRATEGYHUMAN RIGHTS IMPACT ASSESSMENTS
Our Human Rights Impact Assessments focus on our main operations and value streams. Key activities during the
Impact Assessment include visiting and observing farming, processing, manufacturing, and sales and distribution
operations. During the assessments, we conduct a series of interviews with employees and workers, in ourinternational tobacco business as well as representatives from suppliers, clients, and partners.

SOME KEY FINDINGS AND HOW WE ARE ADDRESSING THEM

MEXICO
Mexico’s severe security concerns will continue to be taken into consideration when
designing routes and sales objectives across the country. As the third-party sales team
expands, workers at JTI distributors need to be properly trained on security and safety.
WE WILL: consider Mexico’s security problems in fine-tuning sales routes. We will design an
online training platform so that any field sales force member can easily access information.
This will enable us to increase security levels and personal safety.

OUR WAY OF DOING BUSINESSTANZANIA
Awareness of the Your Voice grievance mechanism can be improved to increase its overall
effectiveness.
WE HAVE: relaunched the Your Voice communication in May 2018 to reach all employees.
We translated our communications and training programs into Kiswahili, the local language.
We have actively promoted Your Voice and the Code of Conduct on notice boards, leaflets, viaa launch event, and direct communication from the General Manager. In our continuous global
effort to encourage employees to speak up, we continue to provide targeted communications
for markets in this regard.

MALAYSIA
Workers at a JTI supplier reported long working hours.
WE WILL: clarify with the supplier the labor laws on working hours, ensure they are not inbreach of the law, and increase sharing of best practice on working hours.

JAPAN
TOBACCO BUSINESSThe guidelines in some of our Japanese subsidiary companies are not fully aligned toaccommodate the rapidly increasing flux of migrant workers in Japan.
WE HAVE: developed a set of Group-wide guidelines on responsible labor management, withthe focus on hiring of foreign workers. We made the Reporting Concerns Mechanism moreaccessible to migrant workers by making it available in Vietnamese and Nepali.

Going forward
MYANMAR
Contracted workers have written contracts and received pay slips, but this documentation
was not communicated in the local language.
WE HAVE: translated all contract worker contracts and pay slips into Burmese. All
communication posters regarding the Your Voice grievance mechanism and the ‘Your Guide to
Making Ethical Decisions’ are now available in both English and Burmese.

DOMINICAN REPUBLIC
Transition to two shifts at the factory could lead to potential human rights risks.
WE WILL: conduct a survey amongst employees to understand the potential impact of theshift change on factors outside of work, such as transportation, healthcare, and day care.
We will ensure key risk-management activities are in place before moving to two shifts, with
controls around transportation, food service, and a safety training program.

22

Our work to promote and respect human rights will
evolve and adapt to the changing economic andpolitical context of the countries where we operate.
Our approach to human rights due diligence is ongoing, as the risks to human rights may changeover time. We will continue to act where actions arenecessary and focus on our human rights priority
areas.
In 2019, we will review the list of high-risk markets
in which we have committed to conducting Human
Rights Impact Assessments. We will prioritizecountries based on a set of risk-based criteria in order
to assess our most high-risk countries first. Goingforward, we are committed to assessing actual andpotential human rights risks in at least six countries
each year and will continue to embed respect forhuman rights within the business.
In our Japanese operations, as a continuing processof Human Rights Impact Assessments, we will makesite visits in our processed food business in China
and Thailand, and provide capacity building in theserespective operations.

23

ABSOLUTE REQUIREMENTS

AN IMPROVEDSOCIAL AND
ENVIRONMENTAL
IMPACT

OUR APPROACH
In 2018, we revised our Community Investment Policy
which determines a common goal for Community
Investment across the JT Group: “To contribute to thedevelopment of sustainable societies, by helping to
make communities more inclusive”. This will allow us
to maximize our social impacts and contribute more
to our sustainable growth.

Improving oursocial impact

Through long-term partnerships with various
stakeholders, we are implementing 315 community
programs that contribute to the developmentof inclusive and sustainable societies across 63
countries. The programs are based on global andlocal needs, and three specific issues:

Community Investment has always been an inherent
part of the JT Group’s Corporate Sustainability
strategy. A cornerstone of our 4S model, which
focuses on consumers, shareholders, employees,
and the wider society, is our belief that our businesscan prosper only in stable and open societies. We are
therefore committed to making communities where
we operate more inclusive and resilient.
These activities also offer volunteering opportunities,
enabling employees to engage with our communities,
develop new skills, and gain a sense of pride andsatisfaction. Find out more about our projects in the‘Investing in People’ section on page 74.

We encourage more accurate reporting andmeasurement to ensure all of our programs deliver
the social impact according to our policy.
OUR WAY OF DOING BUSINESS

We believe that everyone should have the opportunity
to participate in society, and that inclusive societies
are also better for business. Our policy helps ensurethat this philosophy is coherently implemented, bothinternally and externally, and that all of our programs
have a positive impact.

To measure the social impact of our work, we use theframework provided by the London Benchmarking
Group (LBG). According to this benchmark, theJT Group ranks 10th out of 96 companies for total
community contributions.

1. Reducing inequalities, e.g. helping underprivileged
people gain access to food and education.

An employee volunteering project to protect saplings in Kosuge, Japan

3. Protecting the environment, e.g. replanting
trees with the help of our employees in severely
deforested areas.

OUR TARGET*

Between 2015 and 2030
we invest USD 600 million
to help make communities
inclusive and resilient,with our employees
contributing 300,000
volunteering hours.

CONTRIBUTING TO COMMUNITIES

2. Improving community resilience in disaster-prone
areas, e.g. providing access to clean water and/or
electricity.

Our work is highly rated by external agencies,
including the Dow Jones Sustainability Indices(DJSI), which recognized us as the industry leader in
corporate citizenship and philanthropy, with a perfectscore of 100.
Accessibility program, La Scala, Italy*This is a Group-wide target.

TOTAL VALUE OF INVESTMENTS
IN THE COMMUNITY IN 2018* (%)

TOTAL

53 million

6,285,671

25,429315

839

BENEFICIARIES

U.S. dollars

VOLUNTEER HOURS

46,778,935 in cash
5,525,526 in management cost
717,987 in employee
volunteering time
85,236 in kind24*

We applied average exchange rate in 2018

COMMUNITY INVESTMENTPROGRAMS

1 U.S. dollar = 110.44 Yen

ORGANIZATIONSSUPPORTED

We strive to make a positive differencein everything we do. Our Community
Investment program focuses on
projects and initiatives that will help
make the communities in which we
operate more inclusive. This enables
everyone to thrive and play an activerole in their community.
Suzanne Wise,
Senior Vice President, Corporate Development, JT International

25

THE JT GROUP ENVIRONMENT PLAN 2030
To create the JT Group Environment Plan 2030, we
firstly carried out a review of global environment
trends to understand which topics matter most to ourbusiness and stakeholders. We then identified the key
environmental risks and opportunities associated withthose topics in order to define the focus areas forthe plan, namely “Energy and Emissions”, “Natural
Resources”, and “Waste”. Our 2030 plan reflects
changes in our business, societal expectations, andgrowing scientific understanding of the environment.

Improving ourenvironmental impact

OUR OBJECTIVES AND TARGETS FOR 2030*

ENERGY AN D EM I S S I ON S

role to play in reducing our environmental impacts.
As with most industries, the environment has a direct
influence on our business. We also know that ouroperations impact the environment, through resource
usage, emissions, and waste generation, but westrive to minimize this impact. By implementing
sustainable business practices, we are able toconserve resources, reduce waste, manage costs,
and meet the growing consumer demand for moresustainable products – bringing benefits to boththe environment and our business. This approach is
explained in the JT Group Environment Policy.
Throughout our whole operation, we direct ourenvironmental efforts towards:›› Minimizing negative impacts on global climatechange›› Protecting water resources›› Eliminating and reducing waste›› Promoting recycling and optimizing resource use.

WHAT HAVE WE ACHIEVED
SO FAR?
Through our Long-Term Environment Plan 2020, we
committed to a 20% reduction in GHG emissions
between 2009 and 2020. These GHG emissions relate
to both Scope 1 emissions (those for which we are
directly responsible) and Scope 2 emissions (thoserelated to energy supplied by third parties).
We achieved the absolute emissions target three
years ahead of schedule at the end of 2017. By theend of 2018, we had reduced our absolute emissions
by 21.4% and our emissions intensity by 16.1%.
We are on track to achieve the quantitative goals andcommitments outlined in the 2020 Plan.

WHAT ARE THE NEXT STEPS?
In 2019, we launched the JT Group Environment Plan
2030, which sets our new objectives and targets.
Please see opposite.

26*

Solar electricity generation in our Batangas factory in the Philippines

N ATU RAL R E S O UR CE S

EnergyWater

Transition our operations to net zero carbon
energy supply.

Support global water stewardship by reducing
our water withdrawal and by encouraging
water risk management in our supply chain.

TARGETSTHE JT GROUP ENVIRONMENTMANAGEMENT

We will double the proportion of renewable electricity that
we use to 25% by 2030 and 100% by 2050.

TARGETSIn our more complex operations, we align our
approach to environmental management withinternationally recognized standards – ISO 14001
and ISO 50001*. In our smaller and less complex
operations in Japan (*B), we have implemented
our own ‘JT Green System’, which promotes asimple and consistent approach to environmental
management.

Emissions

To better understand water risk and use in our supply
chain, by 2022, we will implement a water risk
management process in our manufacturing supply chain.

ISO 14001, which was revised in 2015, encourages
businesses to think more broadly about
environmental issues – not only those associatedwith their direct operations, but throughout their
entire value chains. We have successfully aligned ourenvironmental management systems with the revised
standard. A revised ISO 50001 standard was issued
in 2018 and we are in the process of broadening ourapproach to energy management according to the
new framework. We are also working to streamline
and better integrate our environmental andenergy management systems with other businessconsiderations, such as quality, occupational healthand safety, and business continuity.

TARGETSTo objectively review our approach to environmental
management and our overall performance, we use
external disclosures and ratings agencies, such as
CDP and the Dow Jones Sustainability Indices (DJSI).
We are proud to report that in 2018 we achieved
leadership status for CDP Climate Change andmanagement status for CDP Water Security. We also
greatly improved our rating in DJSI’s environmental
dimension, and achieved the maximum score in
Environmental Reporting.

Further reduce the environmental impactsof waste associated with our processes andproducts.

ISO 14001 and ISO 50001 are the internationally recognized standards for environmental management systems and energy management systems,
respectively. These standards do not prescribe absolute performance requirements. Rather, they provide us with a framework to help build effective
management systems that deliver continual improvement in environmental and energy performance.

Reduce our greenhouse gas emissions to
support the Paris Agreement on global climatechange with the aim to achieve net zerocarbon emissions from our operations.
We will reduce greenhouse gas emissions from our own
operations by 32%.
We will reduce emissions associated with our purchased
goods and services by 23%. This will be achieved througha 40% reduction from our direct leaf supply chain
and reductions in our non-tobacco materials, such as
packaging.

WAS TEWaste

We will reduce water withdrawal associated with ourtobacco business by 15%.

Forestry
Ensure a sustainable wood supply for our
product supply chains and further contributeto forest conservation and rehabilitation.
TARGETSTo further focus our efforts on sustainable forest
management, by 2020, we will have assessed the drivers
for deforestation and forest degradation in communities
where we source tobacco and developed action plans for
improved wood resource use, forest conservation, andforest rehabilitation.
We will replace all wood from natural forests used in the
tobacco curing process of our directly contracted growers
with renewable fuel sources.

TARGETS

We will reduce waste associated with our tobacco
business by 20%.
By 2020, we will have targets and action plans relating to
the appropriate use and responsible disposal of materials,
including plastics, used in our products and packaging.

*

Baseline year for all targets is 2015.

Target year is 2030 unless stated otherwise.

The overall plan is to be reviewed every 5 years.

27

OUR WAY OF DOING BUSINESS

Environmental issues are of increasing societal
concern and have brought many challenges to oursociety. For instance, today we are facing melting
ice caps, rising sea levels, and changing weather
patterns, and we all need to address them. As a
global organization, we recognize that we have a key

It also goes further than our current plan byaddressing a broader range of issues and considering
not only our operations, but also key elements of ourvalue chain. It contains longer-term objectives forenergy and emissions, along with quantified targets
by 2030. We will track performance and progress
towards our objectives and targets and we will revisit
the plan periodically to ensure that it remains relevant
to our business and stakeholders.

MAKING PROGRESS IN ENERGYAND GHG EMISSION REDUCTION

It will have serious implications for the supply
chain of our materials, as our products are mainly
agricultural-based.

SETTING A SCIENCE
BASED TARGET
We have set a Science Based Target (SBT) to ensurethat we fulfil our commitment to reduce GHG
emissions and our contribution to climate change.
We have committed to reduce GHG emissions fromour own operations by 32% across the Group (2015 to2030). Our target was validated by the Science Based
Targets initiative (SBTi) in February 2019.

In our direct operations, the renewable electricity
target will be achieved through on-site generationand sourcing of third-party renewable energy.
Our Renewable Energy Task Team has carried out afactory-by-factory feasibility review of opportunities
associated with solar, hydro, wind, and biomass
power. Where feasible, and where it makes businesssense, we have included these opportunities inour business planning and in our feasibility study
for the 2030 Science Based Target. The team has
also reviewed options relating to zero or lowcarbon energy tariffs and green energy certificates.
In addition, our locations are encouraged to consider
fuel and emissions efficiency, and alternative vehicles
when selecting fleet vehicles.
We are well on the way to achieving our 2030
renewable electricity target. By the end of 2018, 31%of electricity in our international factories was eitherpurchased*¹ or generated*² from renewable sources.

1.00

1,000

CO2e thousand tons

7%472

21.0% reduction
achieved ahead of
the target year

10%
714

6,951

500

483

410

390

360

347

354

425

393

373

385

371

361

FY
FY
2009 2014
Base Year

2015

2016

2017

2018

65%
4,531
Combined Scope 1 and 2 GHG Emissions

SCOPE 3Purchased goods and services

0.50

Original Target:
20% on FY2009

10%
667

Beyond our own operations we take responsibility
to positively influence the environmental impactsof our value chain by working in partnershipwith our suppliers. Most Scope 3 emissions forour business are associated with the goods andservices that we purchase and in particular withtobacco leaf, our main raw material.

CO2e tons/million cigarettes equivalentCO2e thousand tons

8%
566

REDUCING OUR ENVIRONMENTAL
IMPACTS IN SCOPE 3 EMISSIONSGHG EMISSIONS INTENSITY FOR
THE TOBACCO BUSINESSCOMBINED SCOPE 1 AND 2
GHG EMISSIONSGHG EMISSIONS IN OUR VALUECHAIN IN 2018

For programs and initiatives specifically related to our
tobacco business, please see page 52-53.

OUR WAY OF DOING BUSINESSWe are committed to tackle this issue and we will
be reducing our GHG emissions to support the Paris
Agreement on global climate change, with the longerterm aim of achieving net zero carbon emissions fromour operations.

In pursuing this target, we will double the proportionof renewable electricity that we use to 25% by 2030,
in support of our goal of reaching 100% by 2050.

As part of the JT Group Environment Plan 2030, weare committed to reducing emissions associatedwith our purchased goods and services by 23%(2015-2030). We aim to achieve this through a 40%
reduction in emissions from our direct leaf supply
chain and reductions in non-tobacco materials suchas packaging. As such, we will continue to improve
our existing curing barn projects and expand to more
locations (read more on page 51). We will reduce
the amount of wood used for curing, while at thesame time ensuring that the wood we use comesfrom renewable sources in Zambia and Tanzania,
for instance. In addition, we aim to reduce leafrelated emissions by further optimizing the use ofcrop inputs, such as fertilizers and crop protection
agents, wherever possible. We will also be working
with suppliers to reduce the amount of packaging
associated with our non-tobacco materials.

2020
Target0.80 0.75 0.70 0.69 0.67 0.67

FY
FY2009 2014
Base Year

2015

2016

2017

2018

20% on FY2009

Climate change is the biggest environmental
challenge facing society and our business.

Through our Energy Opportunities Scheme, ourfactories have identified over 150 no- or lowinvestment projects. These avoid over 7,600 tons of
GHG emissions and represent a cost saving of over2 million U.S. dollars, with an average payback of 8months.

2020
TargetCapital goods
Transportation and distribution

Scope 1OthersScope 2

* 1 We purchase electricity from renewable sources in Canada, Germany, Poland, Romania, Sweden, and the Philippines.
28* 2 We generate electricity on-site from renewable sources in Jordan, Nigeria, The Netherlands, The Philippines, and Turkey.

29

Societal demand for water is increasing globally and water-related issues such as availability, quality, flooding,drought, or regulatory changes can have a major impact on society and our business.
Our tobacco and food manufacturing activities all use water. However, our main operation, the tobacco business,
is not water-intensive and the water that is required for tobacco crops comes predominantly from rainfall.
As part of our ongoing program to address water-related risks to our business and further promote effective water
management, by the end of 2018 we had completed water risk assessments at 60 of our 80 factories (75%).
OUR 2030 GOALSWATER RISK IN OUR SUPPLY CHAIN

In the JT Group Environment Plan 2030, we
commit to supporting global water stewardship byreducing our water use and encouraging water risk
management in our supply chain. We have set atarget to reduce our tobacco business-associatedwater withdrawal by 15% by 2030 vs 2015. Thistarget was calculated taking into account site level
water intensities and regional predictions for futurewater stress. We plan to achieve the target by using
less freshwater for factory site irrigation, reducing
water use in our processes and improving leakcontrol, using more recycled water, and improving
cleaning practices.

Many of our raw materials require water in theirproduction and water is an important resource formany of our suppliers. To better understand water
usage and water-related risk in our supply chain
across the Group, by 2022 we plan to implement awater risk management process.

Read about current best practices in our tobacco
business on page 52-53.

Peter Mitchell,
EHS Director, Environment, Global EHS, Corporate Sustainability,
JT International
Yusuke Takaki,
Manager, Environment, Sustainability Management, JT

WATER WITHDRAWAL

WASTE

Thousand m³

From a societal and stakeholder perspective, waste,
and particularly plastic waste is of increasing
concern. From a business perspective, all waste has
a direct cost (handling and disposal) and an indirect
cost (resource and processing costs etc.).

15,00012,958

10,56010,000

10,155 10,093 9,875 10,035

Waste management is a key component of ourEnvironment Plan. Across the Company we apply
a ‘Reduce, Reuse, Recycle’ approach. We also
set targets for waste reduction as we believe that
reducing waste helps to conserve resources, which inturn helps to minimize our environmental impact andcut business costs.

LONGER-TERM GOALS

In our Environment Plan 2030, we commit tofurther reducing the environmental impact of waste
associated with our processes and products.
By 2030, we will reduce waste associated with ourtobacco business by 20% vs 2015. We will do thisby improving resource efficiency and rolling out
innovative solutions across different sites.
Moreover, by 2020, we will have targets and actionplans relating to the appropriate use and responsible
disposal of materials, including plastics used in our
products and packaging.
Read about how we reduce waste in manufacturing
on page 53.

WASTE GENERATION
Thousand tons
200

BREAKDOWN OF WASTE
GENERATED IN 2018 (%)

150
FY
2009

FY
2014

2015

2016

2017

18

2018

FORESTRY
Ensuring a sustainable wood supply and further
contributing to forest conservation and rehabilitation
are key objectives set out in the JT Group
Environment Plan 2030.
We already have a number of programs andinitiatives in relation to sustainable forestry and wood.
Through our ‘live barns’ initiative in Malawi, we are
reducing the number of trees that are cut down tobuild curing barns, by constructing the barns out ofliving trees.
In addition to our current programs and to further
focus our efforts on sustainable forest management,

30

we will have assessed the drivers for deforestationand forest degradation in communities where wesource tobacco and we will have action plans for
improved wood resource use, forest conservation,and forest rehabilitation by 2020.
Within the JT Group Environment Plan 2030, we havea target to replace all wood from natural forests inthe tobacco curing process of our directly contracted
growers with renewable fuel sources by 2030. For
more examples and targets in our tobacco business,please see page 50 (Promoting forestry at small-scale
farms).

100

152

126

126

121

121

122

7

122
THOUSAND TONS

50

75

FY
2009

FY
2014

2015

2016

2017

2018

Recycling

Recovery

Disposal

31

OUR WAY OF DOING BUSINESSTo address pressing environmental issues, it isessential for us to collaborate across the Group.
By working towards the same goal, we havelearned a great deal from each other anddelivered solid results.
In order to achieve the targets of the JT Group
Environment Plan 2030, we will continue towork together as one team.

WATER

ABSOLUTE REQUIREMENTS

GOOD
GOVERNANCE
AND BUSINESSSTANDARDS

Our framework of governance allows us to enhance
corporate value and achieve sustainable growth in
the medium to long term. This approach is outlinedin the JT Corporate Governance Policy, which wasrevised in December 2018.

Our annual Corporate Governance Report shows ourprogress, as well as insights into our governanceframework and board structure.
For more details about JT’s corporate governance,
including tax practices, risk management, andinformation security, seewww.jt.com/sustainability/way_of_business.

As part of our efforts to improve our workplaceenvironment and better understand compliance inthe workplace, we distribute a compliance survey.
In our Japanese operations, the survey outcomesare reported to each executive officer and to eachdepartment. The relevant departments then introduce
measures in their annual compliance action plans toaddress any issues raised, using quantitative targets
to evaluate the effectiveness of these measures.
In 2018, 97.6% of employees completed the survey.

THE ROLE OF THE COMPLIANCE SURVEY IN OUR JAPANESEOPERATIONS’ ACTION PLANEMPLOYEES TAKE
THE COMPLIANCESURVEYCORPORATE GOVERNANCERISK MANAGEMENT

the Philippines and Indonesia. The same approach
applies to trainings on Anti-Bribery and Corruption,
including Anti-illicit Trade and Conflicts of Interest.

OUR WAY OF DOING BUSINESS

Conducting business in a responsible way is a toppriority for us. Our corporate governance is rooted in
our adherence to the 4S model and our commitment
to our stakeholders. We have built a robust system ofgovernance to support this commitment, to ensuretransparent, fair, timely, and effective decisionmaking. This means not only complying with local
laws and regulations, but also proactively seeking
to exceed expectations and hold ourselves to higher
standards.

We continued to provide training on the Codes ofConduct to our employees online and face-to-facein 2018. In our Japanese operations, 99.4% of
employees completed the online courses (*C).
In our international tobacco business, we launcheda Code of Conduct video that included messages
from our executives to employees. 2019 will see theglobal launch of a new interactive training video in
25 languages to enhance understanding of the Code.
For employees without computer access, we haveadopted a Train-the-Trainer approach. So far we havetrained 91 local trainers, who provide face-to-facetraining in local languages to 15,777 employees,
including those from the newly acquired entities in

RELEVANTDEPARTMENTCARRIES OUT
THE ACTION PLAN

INFORMATION SECURITY

JT COMPLIANCE
OFFICE ANALYZESTHE SURVEY RESULTS
JT COMPLIANCE
OFFICE DEVELOPS
THE ACTION PLAN

TAX PRACTICES

Our business ethics
Our JT Group Codes of Conduct form the foundation of our business ethics. Reflecting our commitment to the 4S
model, they outline our responsibilities towards our consumers, our shareholders, our employees, and the wider
society. Our Reporting Concerns Mechanism allows employees and business partners to report concerns in aconfidential manner. We take a zero-tolerance approach to bribery, corruption, and other financial crime, and we
actively manage risks related to these areas.

LIVING OUR CODES OF CONDUCTOur Codes of Conduct allow us to conduct businessethically and be a responsible corporate citizen.
We ensure that they are implemented effectively
throughout the entire business by running various
training courses for employees.
Our employees also sign an acknowledgment formto show their commitment to following our Codes ofConduct.
Our international tobacco business and Torii
Pharmaceutical have developed a version of theCodes of Conduct to reflect the needs of theiroperations.

32

We review and update our Codes of Conduct
continuously to improve our standards, and thelatest revision took place in 2018. In our Japanese
operations (including the subsidiaries of ourprocessed food division in China, Thailand, andthe U.S.), the revised Code now includes new
sections such as Sensible Conduct as a Member ofSociety, Prohibition of Discrimination, and Maintainand Promote Health. In our international tobacco
business, we digitalized the Code into an accessible,easy-to-read document, including a decision-making
guide to assist employees in making the rightchoices. It is now available in 36 languages, andwe provide printed booklets for those with limited
internet access.

In our Japanese operations, the latest survey results
showed that preventing long working hours andharassment* remained top priorities in 2018. As aresult, we shared recommendations and tips with
our employees on how to prevent long working
hours, and provided online training and seminars on
harassment prevention. We will continue to monitor
progress and make every effort to improve thesituation in these two key areas.
In our international tobacco business, the Employee
Engagement Survey covers compliance questions.
It is distributed every three years, and the last one
was completed in 2018. The results showed that,compared to the previous survey, line managers
are now understanding and enforcing the Code of
Conduct more effectively.

*

Includes sexual harassment and bullying

33

REPORTING CONCERNS

Any concerns are then dealt with by specially trained
contact persons. Contact persons follow a mandatory
face-to-face training course. In our international
tobacco business, there is a Reporting Concerns
Mechanism called Your Voice, which is available in 16
languages. Newly appointed contact persons receive
face-to-face training and a manual detailing their role.
In 2018, we received 414 reports across the
JT Group, covering issues such as labor practices
and discrimination. In the case of proven violationsof our Codes of Conduct, we took appropriate actionin the form of dismissal, verbal or written warnings,
financial penalties, or other measures.

BREAKDOWN OF REPORTED CASES (%)

ANTI-COMPETITIVE BEHAVIOR

Our internal policies and procedures help to prevent
bribery and to ensure an appropriate level ofexchange of gifts, hospitality, and entertainment,
which must be transparent and reasonable, andmust respect local regulations. We therefore require
all employees in our Japanese operations to seek
approval for anything they receive or wish to offer.
To ensure that compliance is well-embedded within
the organization, we conduct regular training and run
communications campaigns across the Group.

Our Codes of Conduct underpin the JT Group’s
strong commitment to fair competition.
Our commercial strategy and actions must be
determined independently of our competitors.
Our international tobacco business has a policy andguidelines in place, designed to ensure that business
operations are conducted fairly and in compliancewith competition laws, wherever we do business.
Our employees are trained accordingly.
OUR WAY OF DOING BUSINESS

We offer multiple communication channels for
employees, customers, and business partners
to confidentially raise concerns about potential
violations of our Codes of Conduct or policies.
We review all concerns raised, launch investigations
as needed, and take appropriate corrective actions.
Employees are informed about our Reporting
Concerns Mechanism through various channels
including the Group intranet. In 2018, our Japanese
operations made the Mechanism available in four
additional languages (English, Chinese, Vietnamese,and Nepalese) to meet the needs of our diverse
workforce.

GIFTS, HOSPITALITY, AND ENTERTAINMENT

In our international tobacco business, all exchanges
with non-governmental third parties above 250 U.S.
dollars must be approved. For government and public
officials, all requests, regardless of the amount, haveto be approved. The number of gifts, hospitality, andentertainment requests sent for approval in 2018 was
603, vs 740 in 2017.

17.6
19.1
1.6

2.9

2017

24.0

32.4

445

2018
15.9

40.1

414

23.4
23.4

Cases related to labor practices(excluding human rights)

Cases related to corruption

Cases related to human rights

Cases related to anti-competitive behavior

Cases related to fraud and misuse ofCompany assets

Other

There were no cases related to anti-competitive behavior for 2017 or 2018.

PREVENTING FINANCIAL CRIMEANTI-BRIBERY AND CORRUPTIONThe JT Group has a zero-tolerance approach tocorruption and bribery, and all executives andemployees must respect and comply with our antibribery and corruption policy.
In our Japanese operations, we run an e-learning
course on anti-bribery and corruption once every two
years. 2,179 employees took this course in 2017.
In 2018, we prepared for the next e-learning course,which will take place in 2019.

34

In our international tobacco business, since 2016,
18,468 employees have taken our online course on
anti-bribery and corruption, which included 1,546
new employees in 2018. The course has enabled us
to engage more closely with our employees on the
topic. Employees without computer access complete
face-to-face training as part of the general Code of
Conduct training provided locally (read more on page
32).

Financial crime is a global trillion-dollar issue that isof great concern to governments and businesses.
Moreover, it can harm our society.
The JT Group does not tolerate any form of financial
crime. In our international tobacco business, weabide by the EU Cooperation Agreement obligations,and take into account the U.K. Criminal Finances
Act 2017. We perform policy controls and provide
program training, and we publish employee
communications on the subject. In 2018, we updated

our existing Anti-Money Laundering policy to include
other elements of financial crime.
The global policy sets out principles and guidelines toprevent employees from being involved in any formof financial crime, including money laundering, tax
evasion, and facilitating tax evasion.

35

Our people

RESPECTING DIVERSITY IN THE WORKPLACE
TREAT ALLEMPLOYEESFAIRLY ANDRESPECTFULLY

JT Group Human
Resources Management
Philosophy
ENSURE
TRANSPARENCY
OF RULES AND
STANDARDSPROVIDE ALL
JT GROUP EMPLOYEESWITH GROWTHOPPORTUNITIESLEARNING AND SHARING BUSINESS SKILLS
Unlocking and maximizing our employees’ potential
is a vital element of our sustainable growth agenda.
Today’s business environment is disruptive anduncertain, and it requires all of our employees toacquire advanced skills. We have implemented
initiatives globally and locally to help our people
flourish professionally.
To develop the global capabilities of our employees
and to train our future business leaders, we provide
various talent partnership programs for employeeswith different backgrounds to learn and network
together. One of the programs provides specialist
leadership training courses for future businessleaders, selected globally from across our operations.

In 2018, we organized the Exchange Academy for
25 employees from our domestic and international
tobacco business around the world as part of thistalent partnership program. They participated in a
two-week joint training program, with one week
in Japan and one week in Switzerland. During the
program, the participants worked in teams in orderto analyze and formulate the JT Group strategy
for sustainable growth. Each team then gave apresentation and made a recommendation to senior
executives within our Group.
We provide comprehensive business training
programs for employees of all levels. Fundamental
business courses in presenting, writing, or time
management are available to those in juniorpositions, while more advanced programs such as
task execution, negotiation skills, or leadership are
aimed at middle-management and senior positions.
These courses are available to employees across ourorganization, offering an opportunity to meet andexchange ideas with colleagues from different teams.
In 2018, in our Japanese operations 2,039 employees
completed these courses. To attract the best talent,
we will continue to offer good career development
and training opportunities.
Moreover, we empower employees to hold regularperformance and career discussions throughout theyear, to ensure that we leverage the full potentialof our employees and boost their development andcareer progression. In 2018, 68.7% of our employees
participated in the performance review for the year
2017.
Our high internal hire rate which was 94.2% in2018, is proof of our commitment to employee
development and sustainable business practices.

36

We promote a workplace environment that allows all
employees to fulfil their potential, and this includes
working parents. In recognition of this, JT was
certified as a childcare-supporting company by theJapanese Ministry of Health, Labor and Welfare in2018.

In 2018, JT was included as a Gold Employer in
the PRIDE Index for the third consecutive year inrecognition of our commitment to inclusive policies
for the LGBT community. In 2019, JT has been nameda “Nadeshiko Brand 2019” company for the second
year running, in recognition of exceptional work inpromoting the success of women in the workplace.

OUR WAY OF DOING BUSINESSIn order to contribute to the company’ssustainable growth, and with the recognition
that highly skilled, talented, and diverse people
are the foundation of its success, JT Groupmanagement proactively takes steps tosecure long-term employee engagement andsatisfaction.

We believe a diverse workplace brings a rich mix ofviewpoints and perspectives that can inspire newideas, find solutions to complex issues, and drive
our business forward. For us, ‘diversity’ means all
the ways in which current and potential employees
may differ from one another, such as age, gender,
ethnicity, religion, disability, sexual orientation,
education, and national origin.

We are also looking to create a more genderbalanced environment across the Group. In JT, we
aim to have a minimum of 10% female representation
within management by 2023. In 2018, the ratio was
5.7% which is approximately 4 times higher thanwhen the target was set in 2013, when the figure was
1.4%. In our international tobacco business, the ratioof female to male directors was 28.4% in 2018, andwe are aiming to reach 30% by 2020.
Recognizing that different people have different
working styles and needs, we encourage flexible
hours and remote working throughout the Company.

ENGAGING WITH EMPLOYEESOur human resources programs have been developed
to motivate and empower our employees to address
new business challenges.
To evaluate the effectiveness of our programs andthe level of engagement of our employees, we carryout an Employee Engagement Survey every year in
our Japanese operations, and every three years in
our international tobacco business. The feedback we
receive from employees helps us to understand ourstrengths, the progress we have made, and the areas
where we need to keep improving.
Importantly, our people also help us understand what
we need to do differently to maintain our reputation
as a top employer.
In 2018, the overall survey response rate was 99% in
our JT and 93% in our international tobacco business.
The survey includes a ‘Sustainable Engagement’category, which measures employees’ job satisfaction
and long-term commitment to the business. In JT,
the total favorable score for this category was 82%,
which is 12 points ahead of the average score forJapanese companies. In our international business,
89% of employees gave a positive response, placing
the Company one point above the Global HighPerforming Companies Norm.

37

TOWARDS A BETTER WORKPLACEThe JT Group health andsafety strategy
Health and safety in the workplace is extremely
important to us, not only for our employees’
well-being but also for the sustainable growthof our business. We align our health and safety
standards with OHSAS 18001 and always meet or
exceed legal requirements. When our standards arestricter than local laws, we require our local offices
to comply with our standards. The scope of ourstandards extends beyond our employees, covering
contractors and visitors to our operations as well.
Well-being programs often include family membersof employees.

OUR WAY OF DOING BUSINESS

We care deeply about employee health andwell-being, and preventing work-related disease.
Our international tobacco business conducts general
occupational hygiene and ergonomic assessments.
In 2018, we started collecting data across theGroup to better understand our employees’ risk ofoccupational health issues. All reported cases areinvestigated by local managers to identify the causes.
If they are attributed to the work or workplace, wetake appropriate measures immediately to protect
employees’ health and prevent recurrences.
In our Japanese operations, we focus on boththe psychological and physical well-being of ouremployees. Programs for stress management are
in place, and we work to raise awareness about ahealthier lifestyle. As a result, JT was named a ‘White
500’ company for the third consecutive year. Thisaward is presented by Japan’s Ministry of Economy,
Trade and Industry. It recognizes large enterprisesthat are making outstanding progress towards betterwell-being and proactivity among their employees.

WORKPLACE HEALTH AND SAFETY DATA *1
2014

2015

2016

2017

2018

targetEmployees

2

1

2

0

2

0

Contractors

3*e

1*e

1

2

1

0

Employees

113

154

186

186

183

n/a

Contractors

12*e

17*e

8

13

11

n/a

NUMBER OF FATALITIES *2

NUMBER OF LOST-TIME
INCIDENTS (LTIS)EMPLOYEE LTI RATE(NUMBER OF LTIS PER 200,000 HOURS WORKED)% OF CIGARETTE AND TOBACCORELATED FACTORIES CERTIFIED TOOHSAS 18001 (*D)

NUMBER OF VEHICLE ACCIDENTS

VEHICLE ACCIDENT FREQUENCY RATE(ACCIDENTS PER MILLION KILOMETERS)

0.32

0.36

0.42

0.37

0.26

n/a

81.0%

78.9%

77.8%

74.4%

76.9%

100%

1,341*e

1,108*e

1,294*D

1,457*D

1,418*D

n/a

5.9*e

4.8*e

4.4*D

5.2*D

3.46*Dn/a

THREE PILLARS OF SAFETY
Our safety programs are based on three fundamental
pillars: safe workplaces, safety competence, and aGroup-wide culture where the safety of our people
always comes first. The level of risk varies fromlocation to location, but the highest risks across the
JT Group are driving vehicles, riding motorcycles(fleet safety), and working with machinery, as well as
slips, trips, and falls.
To mitigate these risks and prevent injuries, we
conduct risk assessments throughout the whole
supply chain. This helps us to identify hazards,
implement appropriate measures, and ensure that
our approach helps us to meet our targets. We also
focus on raising awareness among employees andthoroughly embedding our safety culture in day-today work.
Regrettably, we had to report three fatalities among
our workers and five among third parties in our
workplaces in 2018. Although we have been running
driver safety programs for many years, most of
the cases involved vehicle accidents. To eliminate
such risks, we continue to develop and improve ourprograms.
In the unfortunate event of a fatality, we work hardto support the affected families as much as we can.
We also try to learn from the incident and develop
informed and targeted measures to help reduce thelikelihood of recurrence.

The scope of reporting for contractor fatalities and LTIs, as well as vehicle accident data, expanded in 2016 compared to previous years. Further details* 1 on the scope of data can be found in the Basis of Reporting document.
38* 2 Excludes third-party fatalities.

39

OUR TOBACCO BUSINESSOur core business is tobacco, which generates nearly 90%
of our consolidated revenue. Our conventional tobacco
products are manufactured in over 30 factories around theworld and are distributed in more than 130 countries. In
addition to conventional tobacco, we have a Reduced-Risk
Product portfolio which includes e-cigarettes and tobacco
vapor products.
In this section, we will cover our approach to sustainability
across our tobacco business.
Having established the foundations of our sustainability
strategy in 2017, in 2018 we identified 11 targets under
4 focus areas which will help us measure our progress.
As the business environment and expectations fromsociety change, we will be improving and adding to thesetargets over time.
TOBACCO BUSINESSTOBAC C O B U S I N ES S S U S TAI NAB I L I TY GOAL S

40

Supply chain

Regulatory environment
and illegal trade

We will reduce environmental andsocial risks, and enable transparent andresponsible practices across our supply
chain.

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

Products and services

PeopleWe will be a total tobacco company
offering consumers an even greater
choice of products by focusing on quality,
innovation and reduced-risk potential.

We will be the employer of choice byinvesting in people.

41

OUR SUSTAINABILITY STRATEGYOUR TOBACCO BUSINESS VALUE CHAIN

OUR TARGET:
GREENHOUSE GASEMISSIONS

46,500+

7

12

130+

Directly contracted tobacco
leaf growers and tobacco
leaf merchants

Tobacco leaf
threshing factories

Leaf storage
warehouses

countries and regionsof distribution

OUR COMPANY

450+

27,500+

35

70+

500+

Non-tobacco
material suppliers

Suppliers ofother products
and services

Factories

Offices
worldwide

Warehouses

In order to ensure the highest levels of sustainability
and integrity across the supply chain, all of our
suppliers are required to comply with our JT Group
Supplier Standards. We select suppliers based on
quality, service, and cost. This is reflected in our
JT Group Responsible Procurement Policy.

42

Our contracted tobacco leaf growers and merchants
are also subject to the JT Group Principles in Leaf
Tobacco Production and our Agricultural Labor
Practices (ALP) program.

We will replace all wood fromnatural forests used in the
tobacco curing process of ourdirectly contracted growers withrenewable fuel sources by 2030.

OUR TARGET:AGRICULTURAL LABORPRACTICES

We will implement ourAgricultural Labor Practices(ALP) program in all sourcing
countries by 2025.

OUR TARGET:
SUPPLIER SCREENING

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

TOBACCO BUSINESS

Building sustainablesupply chains

Our factories produce ready-made cigarettes, othertobacco products, and some of our Reduced-Risk
Products. We purchase approximately half of ourtobacco leaf from directly contracted growers, andthe other half from tobacco leaf merchants. We don’t
own any farms, and we don’t employ any growers
directly.

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

OUR CUSTOMERSAND CONSUMERS

OUR TARGET:FORESTRY

Maintaining a well-managed supply chain is a priority
for our business. All the stakeholders in our supply
chain are equally important and essential to build asustainable business. We work closely with them toreduce negative social and environmental impacts,
based on a shared vision.

OUR COMMITMENT

We will reduce water withdrawal
by 15% and waste by 20%, in
relation to our own operations,
between 2015 and 2030.

OUR WAY OF DOING BUSINESSOUR SUPPLIERS

We will reduce greenhousegas emissions from our own
operations by 35% and from ourdirect leaf supply chain by 40%,
between 2015 and 2030.

OUR TARGET:
WATER AND WASTE

Non-tobacco materials,
other products, andservices
Non-tobacco materials include packaging, filters, andcigarette-related materials. We also have a numberof suppliers for factory machinery and logistics,
including freight. We manage the sourcing of most ofthese centrally. Other products and services, whichflow through our supply chain, include marketingrelated services, facility management, IT, and otherprofessional 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, which allows us to findsustainable solutions together, ensure a stable supply
in a dynamic environment, and be able to adapt toinnovative technologies.
For example, we worked with a number of suppliersof pulp-based products to reduce our paper andboard related waste. We achieved this by optimizing
our product specifications, saving approximately
1,700 tons of waste per year.

43

Tobacco leaf sourcing

SUPPLIER SCREENING
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.

Tobacco leaf sourcing is a key part of our supply
chain, and a critical component of future businessgrowth. We have been working closely with ourdirectly contracted tobacco leaf growers andmerchants to build security of supply and enhanceleaf provenance. This gives us greater flexibility when
responding to changing market requirements.

In our international tobacco business, prior toentering into a commercial relationship, our
key suppliers*1 undergo a screening process*2
which includes onboarding and qualification.
This process allows us to understand potential
risks related to compliance, human rights,
environment, and health and safety.

For details on how we manage our suppliers in
the Japanese market, please visit our website
www.jt.com/sustainability/our_business/tobacco/value_chain

MEDIUMQUESTIONNAIRE

HIGH

Our suppliers arecontinuously
assessed.
LOW

AUTOMATICALLYCERTIFIED UPONACKNOWLEDGING THE
JTI SUPPLIER
STANDARDS.

AUTOMATICALLYCERTIFIEDUNLESS THE
QUESTIONNAIRE
SCORE IS BELOWTARGET.

MEDIUM

HIGH-RISK SUPPLIERS
ARE ALWAYS SUBJECTTO AN APPROVAL FLOW*.

Our evaluation committee assesses thecase. If the Committee decides tocertify the high-risk supplier, thesupplier is given a year to make
improvements and showcase them in
the next renewal phase.

44

AUTOMATICALLYRENEWED UNLESS WE
HAVE UPDATED OUR
SUPPLIER STANDARDSTHAT THEY HAVE TOACKNOWLEDGE FIRST.

RENEWEDEVERY 3 YEARS.

QUALIFICATION*ESCALATION:

Upon registration,
the risk is
automaticallycalculated by theapplication.

Uncontracted
sources

In 2018, we contracted 46,500 tobacco leaf growers directly in Brazil, Ethiopia, Japan, Malawi, Serbia, Tanzania,
Turkey, the U.S., and Zambia. The number of growers we work with will increase by approximately 65% in 2019,as a result of our acquisition of United Dhaka Tobacco Company Limited in Bangladesh in 2018.
Contracting leaf growers directly allows us to monitor cultivation and labor practices more effectively. We
currently employ 373 Leaf Production Technicians in our international tobacco business*2, who each supports
on average 89 directly contracted growers. They visit every farm between seven and nine times during thecourse of the cropping cycle to ensure the growers understand how to implement best practices. We encourage
open dialogue, which allows continuous improvement on the farms. In our Japanese operations, our 126 Leaf
Production Technicians are each assigned an average of 40 directly contracted growers to observe through site
visits and questionnaire surveys.

TOBACCO BUSINESS

LOW

HIGH

30

SUSTAINABLE AGRICULTURE

Upon the calculation,
the certificationquestionnaire is
automatically triggered
and sent
to the supplier.

REGISTRATION

Contracted
sources

DIRECTLY CONTRACTED
LEAF GROWERS *1 (*E)

THE SUPPLIER SCREENING PROCESS (*E)

MEDIUM

70

53%

Since 2017, we have screened 61% of the key
suppliers in our international tobacco business.
As our supplier screening target shows, we arecommitted to achieving 100% by 2023.

We will screen all
key suppliers against
environmental, social,and governancecriteria by 2023.

LOW

LEAF
MERCHANTS*1(*E)

If there are any risks identified, we offer support
and collaboration on how to mitigate these risks
and make necessary improvements.

OUR TARGET:
SUPPLIER
SCREENING

The supplier isinvited to register
their information
during theonboarding
process.

47%

RENEWALHIGH

RENEWEDANNUALLY.

If the supplier’s
risk increases,
certification withthe higher riskquestionnaire will
be sent
immediately.

As well as securing the long-term supply of quality
tobacco leaf for our business, we also want tocreate shared value. We do this by providing
services that increase grower productivity, while atthe same time always trying to improve our socialand environmental impact. This results in higher
yields and better quality, which in turn drives greater
profitability.
Grower return is based on more than price alone.
By enabling growers to become more productive
and efficient in the way they grow, harvest, andcure tobacco leaf, we ultimately help them to use
resources wisely and responsibly, and increase
profits. For example, we help to cut costs by using
fertilizers and agrochemicals more efficiently. This canlead to cost reductions of up to 20%.
All of our leaf suppliers are expected to follow
Good Agricultural Practices (GAP) as set out by the
Cooperation Centre for Scientific Research Relative
to Tobacco (CORESTA). The concept of GAP is to
produce a quality crop while protecting, sustaining, orenhancing the environment with regard to soil, water,
air, animal, and plant life (see www.coresta.org).

our Minimum Agronomic Standards (MAS). These
growers are contracted to grow tobacco under our
stewardship. In return, they receive both credit forprescribed crop inputs as well as dedicated extension
service provision from one of our Leaf Production
Technicians. This support includes advice andrecommendations throughout the entire crop cycle.
Contracted large-scale commercial growers – notably
in the U.S. – don’t require dedicated extensive service
provision from us. This is why not all of our directly
contracted growers are required to comply with MAS.
These farming practices are not limited to tobacco.
We encourage growers to use seasonal crop rotation
i.e. growing other crops such as groundnuts or maizeon the same land in alternate seasons. This provides
extra income, improved food security, and soil
conservation.
We are always looking to improve our understandingof tobacco farming. Our investment in researchand development involves partnering withleading international academic institutions in thedevelopment of innovative new ways of producing
tobacco. See page 50 for more details.

In addition to GAP, the majority of our directly
contracted growers are also required to comply with

Key suppliers are defined as suppliers with a planned annual spend greater than 500,000 U.S. dollars, suppliers who either purchase or handle* 1 Japan Tobacco International tobacco products, leaf merchants, suppliers representing Japan Tobacco International before government, and contract
manufacturing, and licensees.

* 1 Percentage rates are based on planned volume.

* 2 Formally known as Supplier Lifecycle Management.

* 2 This number excludes Bangladesh as it was recently acquired and Ethiopia as it operates on a different model.

45

CASE STUDYAGRICUTURAL LABOR PRACTICES
Our Agricultural Labor Practices (ALP) are based on
the International Labor Organization’s conventions
and recommendations. The program consists of threepillars: tackling child labor, respect for the rights ofworkers, and ensuring workplace health and safety.
Whether we source tobacco directly or throughtobacco leaf merchants, all of our suppliers have acontractual obligation to implement our Agricultural
Labor Practices (ALP). ALP drives a continual cycleof improvement and dialogue, a concept deeply
rooted in our business. By speaking to growers about
their experiences and the issues they face, we canconstantly make improvements on the ground andanticipate future challenges. Read more on ALP in
our booklet published on jti.com.

Our activities in JapanTOTAL NUMBER OF ALP OBSERVATIONS (*E) (%)

JT FARM

7

6

In order to share effective tobacco cultivation
practices with growers, in 2018 we establishedthe ‘JT Farm’ in Japan. The farm functions as adevelopment center, where we try out new techniquesand methods before introducing them to growers.

10

10

25

2016

9

2018

2017

ENHANCED CURING AND BALING

We are implementing a new curing process for burleytobacco, which can reduce working hours by 15%.
This method also helps to prevent the contaminationof non-tobacco related materials during green leaf
baling.

69

81

83

Of the program’s three pillars, the rights of workers is the most challenging to observe. We have therefore spent a
considerable amount of time training our own Leaf Production Technicians and raising awareness among our leaf
merchants, which has led to a steady increase in observations in this area over the last few years.* This enables
us and our leaf merchants to better identify and prioritize ALP improvement measures.

We previously made a commitment to implement
ALP in all sourcing countries by 2019. We are pleased
to share that in 2018, we observed 96% of ourdirectly contracted growers and 96% of our tobacco
leaf merchants reported against ALP.

Rights of workers

Child labor

Workplace health & safety* Combined data, observations of directly contracted growers and leaf merchants.

OUR PROGRESS AGAINSTTHE TARGETIN 201690%

IN 201796%

IN 2018

Of our directly contracted growers
were observed against ALP

31%

IN 201673%

IN 201796%

IN 2018

Of our leaf merchants reported against ALP

We were able to achieve almost 100% coverage ina relatively short period of time due to a successful
pilot program in our international tobacco businessthat ran between 2013 and 2016. Our learning
shaped our current approach and enabled effective
implementation with both our directly contracted
growers and tobacco leaf merchants.
We have now broadened the target to include newacquisitions in countries such as Bangladesh andEthiopia.

46

Working in collaboration with internal and external
stakeholders has been key to the progress andsuccess of the ALP program.

96 %OF OUR DIRECTLYCONTRACTED GROWERSWERE OBSERVEDAGAINST ALPOUR TARGET:AGRICULTURALLABOR PRACTICES

We will implement
our Agricultural
Labor Practices (ALP)
program in all sourcing
countries by 2025.

Our relationships with directly contracted growers
have continued to produce tangible results due toface-to-face training and regular farm visits. Througha series of global and local meetings in 2018, we
spoke to merchants about the strategic direction of
the program. This helped to identify additional areasof interest, such as special training on the ground,and a need for innovative mechanisms to manage
labor risks. We also engaged with government
agencies in the countries where we operate, in orderto address fair and safe labor conditions at a local
level.

Our international tobacco business is an active
member of the Sustainable Tobacco Program (STP).
This industry-wide platform enables businesses
to share best practices on labor standards, safe
workplaces, and sustainable tobacco agriculture.
Throughout 2018, we exchanged ideas with other
STP members to further develop and improve theprogram.

TOBACCO BUSINESS21%

ENGAGEMENT IN 2018

In 2018, we became part of the Guidance for
Responsible Agricultural Supply Chains pilot project.
This initiative is run by the Organization for Economic
Co-operation and Development in conjunction with
the Food and Agriculture Organization of the United
Nations. By participating in this project, we havebeen able to share our own experiences, broaden our
understanding, and benchmark against others.

CASE STUDY

Grower Clubs in Zambia
ALP IMPLEMENTATION IN JAPANWe have a long-standing relationship with growers
in Japan. Following a 2017 pilot study, the ALP
program was fully implemented in 2018. We carriedout farm visits and questionnaire surveys to address
labor issues on tobacco farms. Based on ourfindings and observations, we will continue to make
improvements.

In Zambia, we have an established network of approximately 465 Grower
Clubs. Each Club is formed of 10 to 20 growers and led by a Chairman.
The aim of the Clubs is to bring growers closer together and create more
effective dialogue. The Clubs allow continuous communication andengagement on a variety of topics such as Farmer Finance, Agricultural
Labor Practices, Minimum Agronomic Standards, and other best practices.
In 2018, we trained over 452 Chairmen, in partnership with thegovernment and the banking sector. As a result, all of our contracted
growers in Zambia, for instance, now have bank accounts.
47

ARISE
Our flagship program, ARISE – Achieving Reductionof Child Labor in Support of Education – has beencommitted to tackling child labor in our tobacco
growing communities since 2011.
In 2018, ARISE placed 7,123 children into formal
education, building on the impact of previous years.
The program is forging real sustainable change
by implementing robust solutions to preventchild labor. For more details on the program, seeariseprogram.org.
In preparation for the next phase of the program
starting in 2019, the ARISE team carried out a Social
Return on Investment assessment of the programin 2018. The aim was to better understand the valueof our investments, from the perspective of ourbeneficiaries. The findings helped us to complete acomprehensive review of all the program’s activities,
showing their impact on both the beneficiaries andour business.
The review identified a number of activities that are
particularly valuable in creating a positive impact.
These include, for instance, income generating
activities at a household level.

Although the ARISE program is formally monitored
and evaluated, it currently lacks a system to monitor
the progression of children withdrawn from childlabor over time. The program has incorporated
this learning into the design of the next phase, bydigitizing our approach to child labor monitoring.

OUR CONTRIBUTION TO PREVENTING CHILD LABORCOMMUNITY
MEMBERS EDUCATEDIN CHILD LABORELIMINATION (*E)

Elaine McKay,
Social Programs Director, JT International

This year has also seen a reshaping of the ARISE
program and the contractual framework supportingit. From 2019 onwards, we will continue to workwith our contractual partner Winrock International (aUS based internationally renowned NGO) to deliver
the program. Although the International Labour
Organization (ILO) will no longer be a contractual
partner, we welcome the ILO’s commitment tocontinue engaging with the program on the ground.

CHILDREN OFF
FARMS AND INTOSCHOOLS (*E)

2016

2017

2018

Brazil

34,64031,991

23,848Malawi

11,82010,02812,132

Zambia

1,384

8,166

99,658

Tanzania

879

5,060

55,160Brazil

766

3,185

1,893

Malawi

6,414

7,063

3,087

Zambia

2,562

4,167

1,546

Tanzania

0

680

597

TOBACCO BUSINESSThe assessment has affirmed the great value ARISE
has brought to the communities where we operateover the last eight years. The findings will alsoenable ARISE to become a more scalable and leaner
program in future.

We work collaboratively with growers,
communities, business leaders, andgovernments to create solutions that
address the root causes of child laborwhilst always keeping the child’s right toquality education at the heart of what wedo. Year on year, we help more children
into formal education and create newopportunities for them and their families.

In 2018, we focused on raising awarenessabout child labor in the communities where
we operate, through radio programs and local
events. Therefore, our numbers of community
members educated in child labor elimination
have increased significantly in Zambia andTanzania, in particular. An educated community
will also enable us to increase the number ofchildren taken off farms and into schools in the
coming years.

In the next phase of ARISE, we are committed toscaling up the ARISE program together with Winrock,and during 2019, we will embark on new andinnovative partnerships that will allow us to digitize
our approach to child labor monitoring in our directly
contracted sourcing origins, where ARISE is currently
active.

GROWER SUPPORT PROGRAMSOur Grower Support Programs are investments that address social needs in our tobacco growing communities.

ACHIEVEMENTS THIS YEAR (*E)

48

90

2,000

489

800

2,500

water systems
installed in
Malawi, Tanzania,
and Zambia

solar panels
provided to
growers in
Malawichildren benefited
from access toquality education
through school
construction in
Tanzania

adults received
literacy training
in Zambia

growers benefited
from improved
healthcare
facilities inMalawi, Tanzania,
and Zambia

49Promoting forestry on small-scale farms
OUR APPROACH

MATOPE BARNS

Responsibly managing the use of natural resources
within our operations supports the long-term viabilityof our business, and helps protect the environment.
That’s why we have embedded forestry considerations
into internal management processes and strategic
decision-making throughout the organization.

An innovative development of the ADET centers are
Matope (mud) barns, a more fuel-efficient type ofcuring barn.

We have been working closely with our growers to
improve tobacco yield and quality. Reducing intensity
in use of soil, water, and wood generates increased
returns for growers and a reduction in environmental
impact – all of which makes our business moresustainable.

OUR TARGET:FORESTRY

We will replace all woodfrom natural forests
used in the tobacco
curing process of ourdirectly contracted
growers with renewable
fuel sources by 2030.

In countries where tobacco production depends onwood for the curing process, we believe it is our
responsibility to ensure this resource is managed
and used efficiently while also contributing toenvironmental conservation.

AGRONOMY DEVELOPMENT AND
EXTENSION TRAINING

These innovative centers enable us to study, test,
innovate, and calibrate our ideas, before taking
them to growers as recommended best practices.
The ultimate goal is to ensure tobacco farming
remains viable and profitable for our tobacco
growers, while respecting and complying with therelevant environmental requirements and regulations.
In our ADET centers, we focus on forestry research
to improve wood production and efficiency intobacco curing, as well as on forest conservation
and rehabilitation. We identify the forestry challenges
along with applicable solutions to minimize our
impact on the environment at small-scale farm level.
Since 2013, we have been organizing ADETs days, towhich growers from around the country are invited
to participate. Last year, more than 1,100 growers
attended the day, the theme being “Preparing thesoil for a new future”. The growers learnt about
technological innovation in tobacco production, as
well as in soil and environment conservation.
Another fundamental part of these model farms is
capacity building. There is a robust and continuous
cycle of training and engagement of our Leaf
Production Technicians, who pass on their knowledgeof best agricultural practices and innovation to thegrowers. Read more on page 45.
50

Professor Dr. Jorge A. Farias,
Federal University of Santa Maria, Brazil

OUR MINIMUM FORESTRY STANDARDS

Through our ADET centers, we have developed our
Minimum Forestry Standards – a set of forestry
specifications and guidelines that our growers must
follow. We have established these standards inall the countries where our growers use wood for
tobacco curing, either as a source of curing fuel orfor live barn structures: Brazil (2012) and Malawi,
Tanzania, and Zambia (2014). As a result, growers
in those countries are able to establish and manage
better quality woodlots. This approach brings us
closer to achieving sustainability in wood supply.
It also reduces our environmental impact by helping
to avoid deforestation and improve the conservation
prospects for natural woodland.

This is an important development, as the emissions
associated with curing tobacco leaf represent thelargest single source of Scope 3 emissions for ourbusiness. Read about how we reduce emissions in
our own operations on the next page.

TOBACCO BUSINESSWe have model tobacco farms in Brazil and Zambia,
also known as Agronomy Development andExtension Training (ADET) centers. This is where
we carry out applied agricultural and environment
related research and development related to soil
management, mechanization, production cost
efficiencies, and cultural practices.

For me, as a researcher, JTI’s
commitment to the real quest forsustainability has been very motivating.
Our partnership forms a soundfoundation for developing energy
sustainability strategies for small-scale
tobacco growers. This in turn helps togenerate income, reduce GHG emissions,and increase the productivity of planted
forests, securing a sustainable supply ofwood for tobacco production.

Using Matope barns can lower wood consumption
by 75% and reduce carbon emissions by 12%. At thesame time, cured leaf yields are 17% higher, while
the quality of leaf also improves and grower returns
rise by approximately 400 U.S. dollars per hectare.
Growers in Zambia installed over 1,300 Matope barnunits in 2018.

CASE STUDY

Contributing to forest
rehabilitation in Brazil
JTI has partnered with the Wildlife Research andEnvironmental Education Society to restore over 300
hectares of permanent protection areas in Brazil withfunding from the National Bank for Socio-Economic
Development. These areas include land owned by
tobacco growers and part of the Irati National Forest.
The restoration work started in 2018. In Irati National Forest,
35 hectares of pine trees were replaced by native species to help
restore the natural landscape. The project also involved thetraining of 33 local college students in ecological restoration.
We defined priority areas in strategic river basins, based on
factors such as soil, rain, and proximity to other projects, tocreate green corridors (strips of land with sufficient habitat
to support wildlife) connecting different regions. One of
the first sites we selected was the Taquaral river basin in
Parana State. We introduced the project through a seriesof mobilization meetings, attended by 200 local growers.
The partnership provides growers with technical assistanceand support, before and after the restoration work
begins. We are committed to protecting and restoring
natural forests, and supporting local communities.

51

CASE STUDIESReducing our environmental
impact in manufacturing
Sustainability is deeply embedded within our manufacturing
operations. At our factories around the world, we work tominimize our environmental impact by focusing on energy
efficiency, GHG emission reduction, water efficiency, andwaste reduction.

1
GHG EMISSIONS EFFORTS IN JAPANRUSSIA

JT is certified as an Eco Rail mark company
by the Ministry of Land, Infrastructure,
Transport, and Tourism in Japan. This
group of companies is reducing GHG
emissions through techniques such asmodal shift – changing from trucking tocontainer transportation via rail and sea– and improving truck-loading ratios.

SWEDENIn recent years, we have made a concerted effort towards
increasing the proportion of our energy that comes fromrenewable sources, and this has been reflected in our
expenditure. Since 2016, we have invested nearly 13 million
U.S. dollars in renewable energy.
We are further reducing water usage and improving
recycling, enhancing our management of wastewater, andaddressing water-related risks to our operations.
TURKEYIn terms of waste, our focus is on improving yield, reducing
waste disposal, and decreasing secondary packaging.
Read about our approach to environmental management on
page 26.

IRAN
EGYPT

JORDAN3

HARNESSING RENEWABLE ENERGYGREEN ENERGYVARGARDA, SWEDEN

SOLAR STEAM GENERATIONAMMAN, JORDANSOLAR ELECTRICITY GENERATIONBATANGAS, PHILIPPINESThe program minimizes
CO2 emissions and energy
consumption at the factoryby combining green energy
alternatives with a range of costeffective energy-saving projects.
The factory is connected to a
nearby bio-steam facility, whichheats the factory by burning CO2
neutral woodchips. The factoryalso uses a steam-to-hot-water
conversion system to heat theoffices, helping it to achieve aremarkable 67% reduction in CO2emissions.

Awarded the “Environmental
Stewardship Award” by the
Ministry of Environment in
Jordan and the World Bank, thisis the first tobacco factory in theworld to use direct solar steam
generation.

In the largest self-consumption
rooftop solar system in South-East
Asia, 17,040 solar panels convert
the sun’s energy into usable
electricity. The use of solar energy
helps prevent approximately
4,000 tons of GHG emissions a
year.

To further reduce energy
consumption, the team also plansto rebuild the ventilation system,
improve the heating and coolingsystem, install a better control
system, and improve insulation.

52

A rooftop-mounted collector,
steam storage, and a steam-driven
absorption chiller provide the sitewith energy and building heating
and cooling. The system covers
85% of the plant’s annual steam
consumption, and helps reduce
its CO2 emissions by 12% or 500
tons a year.

We will reduce greenhousegas emissions from ourown operations by 35%
and from our direct leaf
supply chain by 40%,
between 2015 and 2030.

OUR TARGET:
WATER AND WASTE

JAPAN

We will reduce water
withdrawal by 15%
and waste by 20%,in relation to our own
operations, between
2015 and 2030.
TOBACCO BUSINESS2The JT Kansai factory received twoawards from Kyoto City and Kyoto
Prefecture government for its excellent
emission reduction initiatives. The factoryis proactively tackling the reduction of
GHG emissions through initiatives suchas high efficiency freezer installationand eco-friendly compressor use.

OUR TARGET:
GREENHOUSE GASEMISSIONSPHILIPPINES

WATER

WASTE

We continue to identify ways to reducewater usage in our factories.

Many of our factories reuse large tobacco
packing cases and wooden pallets. This
reduces the amount of waste generated.

›› Better irrigation processes and timing in

Jordan and Iran have reduced water demandfor irrigation by around 40% (around19,000 m3 annually).

›› Thanks to improved technology, our Turkey

factory is now able to reuse the majority of thewastewater from its water filtration process.
›› Our factory in Egypt reduced water

consumption by over 30% through improved
container washing, a mixer project upgrade,and boiler feed water reuse.
›› By reusing recovered water (condensate) for

its manufacturing process, our Yelets factoryin Russia reduced water consumption by 5%(26,400 m3 per year).

Our factory in Iran has boosted its recycling
rate from 48% to 93% by changing its
waste management method for tobacco
dust and acetate tow. Tobacco dust is used
now as agricultural organic fertilizer, andthe acetate tow as the raw material for a
specific type of packaging production.

Our Environment Program for Markets,
which will be launched in 2019, aims to help
our office and warehouse locations to raiseawareness of our environmental impact, andto develop programs to reduce this impact
by sharing guidance and best practices.

The factory’s ultimate ambition is
to be 100% carbon neutral.

53

Exceeding
expectations withproducts and services
As alternatives to traditional combustible products,
e-cigarettes (E-Vapor) and tobacco vapor products(T-Vapor) are gaining popularity with consumers
around the world. Our industry is changing, but ourcommitment to consumer choice remains.
We are always listening and reacting to the changing
tastes of adult smokers and vapers around theworld. We develop, test, and bring to market new
and innovative forms of Reduced-Risk Products thathave the potential to reduce the risks associatedwith smoking and offer real benefits to consumers,society, and our business.
Between 2018-2020, we are investing 100 billion
Yen in Reduced-Risk Products, to further develop
our supply chain and expand our research anddevelopment capabilities.

A consumer-centric
approach

OUR COMMITMENT

We will be a total tobacco company,
offering consumers an even greater
choice of products by focusing on quality,
innovation, and reduced risk potential.

For products to have the potential to reduce therisks associated with smoking, consumers must firstunderstand and appreciate their value. We therefore
take a consumer-centric approach towards researchand development, and focus on four major factorsthat motivate consumers to consider Reduced-Risk
Products:›› The potential for a product to reduce the risks
associated with smoking›› Affordability and value for money›› Social considerations – seeking products with low
smell, so as not to disturb others›› The convenience of being able to use a product ina wide variety of locations and occasions.

OUR TARGETHARM REDUCTION EQUATION

Ian Jones PhD,
Principal Scientist Vice President, R&D, JT International*

HARM REDUCTION

Cancer Research U.K., 2017

JT Science is a valuable online resource forboth scientists and non-scientists alike. Our
mission is to inform, educate, and collaborate
with all those interested in learning about thescience behind Reduced-Risk Products – fromconsumers to scientists and the regulatorycommunity. With JT Science, we strive foran open, balanced, and fair platform where
factual scientific data and assessments areshared in a transparent way. The results ofour studies that scientifically evaluate our
Reduced-Risk Products are publicly available
on www.jt-science.com.

OUR CONSUMER-CENTRIC STRATEGY BENEFITSFOUR KEY STAKEHOLDERSRELEVANT & DIVERSEPRODUCT OFFERINGCONSUMERS$SHAREHOLDERS

54=

PRODUCT ACCEPTANCE

Evidence so far showsthat e-cigarettes aresafer than smoking.

JT SCIENCE: AN ONLINERESOURCE FOR ALL

Science is at the very heart of our
Reduced-Risk Products business. ThroughJT Science, we aim to widen our audience,
addressing people’s natural inquisitivenessabout science in a clear, concise, and easy tonavigate manner.

X

TOBACCO BUSINESS

We welcome further studies into the effects of longterm use of e-cigarettes.

The success of any harm reduction intervention isdependent on two factors: its potential to reduce
the risks associated with a particular activity andthe number of people who adopt the intervention.
After all, while non-combusted tobacco products ande-cigarettes drastically reduce the exposure to known
harmful constituents in tobacco, and therefore havethe potential to lower the health risks of smoking,their potential value is lost when consumers do not
accept these alternative propositions.

We will lead in providing the widest
range of consumer choice in the
Reduced-Risk Product category.

PRODUCT RISK-REDUCTION

Recent third-party* reports from the U.K. and the
U.S. on the relative safety of e-cigarettes state that,based on available evidence, the current generation of
e-cigarettes are less harmful than smoking.

This approach to our Reduced-Risk Product researchand development is reflected in the Harm Reduction
Equation, and helps us to concentrate on exceeding
the expectations of all of our key stakeholders:consumers, shareholders, employees, and the wider
society.

- E-cigarettes, Seventh Report of Session 2017–19. House of Commons Science and Technology Committee. 2018. HC 505- Evidence review of e-cigarettes and heated tobacco products 2018. Public Health England. 2018
- American Cancer Society Position Statement on Electronic Cigarettes, February 15, 2018

POTENTIAL FOR
HARM REDUCTION

SOCIETY

ENHANCED RETURNSIN THE LONG TERM

NEW PROFESSIONALHORIZONSEMPLOYEES

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products
or encourage smoking among consumers

55

Empowering consumer choice

Reduced-Risk Products
Supply chain

We are committed to providing adult consumers with a relevant and diverse product offering, and tocommunicating the benefits and reduced-risk potential of each product so that consumers can make an informed
choice.
At the end of 2018, our Reduced-Risk Product portfolio was present in 13 countries with a choice of tobacco
vapor products (T-Vapor) and e-cigarettes (E-Vapor).

WHAT IS T-VAPOR?

WHAT IS E-VAPOR?

T-Vapor products contain tobacco that is heated(though not burnt) to create an inhalable vapor.
Consumers particularly enjoy the wider social
freedoms that they bring compared to conventional
products. Our T-Vapor category currently consistsof Heated Tobacco and Tobacco-Infused Vapor
products:

Also known as electronic cigarettes, E-Vapor
products heat a liquid that usually contains nicotine,
but no tobacco. They create an inhalable vapour byelectrical heating of a liquid (known as an e-liquid)contained within the device or a replaceable
cartridge. Consumers are particularly drawn to thewide range of different devices and flavors available.
They offer optimum levels of social consideration,
convenience, and affordability.

Heated Tobacco delivers the satisfaction of atobacco experience;
Tobacco-Infused Vapor addresses consumer
needs of social consideration and convenience,
whilst continuing to deliver a true tobacco taste
experience.

Our portfolio in Reduced-Risk
Products is true to our philosophyof providing consumers with choiceand quality. We are proud of ourwide range of products, both ine-cigarettes and tobacco vapor.

We have established a dedicated supply chain for
our Reduced-Risk Products, building strong supplierpartnerships that support business expansion andmeet the demands of our increasingly sophisticatedportfolio. In addition to our in-house production
capabilities, we source from manufacturers acrossAsia and Europe. Out of seven supplier factories, fivefactories are ISO 14001 certified.
In 2018, we opened a new e-liquids production
facility in Gostkow, Poland as an extension of ourexisting European Flavor House. Most of our e-liquids
that contain nicotine, and tobacco capsules, are now
produced in-house.

Daniel Torras,
Senior Vice President, Reduced-Risk Products, JT International

OUR REDUCED-RISK PRODUCTS SUPPLY CHAINTOBACCO BUSINESS

U.K.

CHINA

JAPAN

VIETNAMINDONESIA

Logic Power(Cig-a-like)

E-VAPORPOLANDTOBACCO-INFUSED VAPOR

T-VAPORHEATED TOBACCOOUR PRODUCT PORTFOLIO (as of January 2019)

Logic LQD

(Open tank system)

Logic Pro

(Closed tank system)

Logic Compact(Closed tank system)

Ploom

Logic

Device Manufacturing & Assembly (China)

Device Manufacturing & Assembly (China)

Cartridges (China, Vietnam)

Liquids (Japan, U.K., Poland)

Capsules & Sticks (Japan, Indonesia, Poland)

56

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products
or encourage smoking among consumers

57

T-Vapor Brand Focus:
Ploom TECH
Ploom TECH is our Tobacco-Infused Vapor
proposition that offers consumers a clear taste, withless smell and high usability. The product is currently
available in four markets.
Ploom TECH has been specially developed for
consumers who enjoy tobacco but want to do so in amore considerate and convenient way.
Our scientific assessments to date reinforce the riskreduction potential of Ploom TECH. The data*1 showthat compared with smoking, Ploom TECH offers amore than 99% reduction in the key constituents ofemissions that have been linked to health concerns.*2
The data*3 also shows that Ploom TECH use has
minimal impact on indoor air quality, which explains
why an increasing number of restaurants in Japan
have allowed the exclusive use of Ploom TECH (seebelow).
Details on this research can be found on our website:www.jti.co.jp/investors/library/presentation/2018_
London/pdf/20180605_4.pdf

As of March 2019 in Japan, we offer
premium tobacco capsules in ten
flavors from the JT Group’s leading
tobacco brands, Mevius and Pianissimo
following the launch of a new white
Ploom TECH device.

HOW WE ASSESS THE REDUCED-RISK
POTENTIAL OF PLOOM TECH

When it comes to the assessment of
reduced-risk potential, we take a tiered
approach by:›› Characterizing the key constituents ofthe emissions›› Examining exposure and uptake ofemissions, i.e. what is absorbed into
the body

A BETTER UNDERSTANDING OF
JAPANESE CONSUMERS
Growth in the T-Vapor category has been mainly
driven by Japan, which in 2017 accounted for over
90% of global T-Vapor sales by volume. By increasing
our share in the Tobacco Vapor category, we will
strengthen our position as the leading tobaccocompany in Japan.
In order to maximize product acceptance, in
accordance with the principle of the Harm Reduction
Equation (see page 55), we have carried out
numerous studies in Japan to identify consumer
motivations and needs. In one study of over 3,000
consumers, we learned that Japanese consumers are
motivated primarily by externally-driven needs, suchas social consideration and convenience.
They want an alternative to cigarettes that does not
disturb others with the smell of smoke, and is easy to
use in a wider range of settings.
A subsequent study of over 4,300 Japanese
consumers demonstrates that Ploom TECH deliverson these needs better than competing products,
and was rated significantly higher in terms of having
no smoke smell – a hugely important considerationin Japanese culture. With regards to convenience,
consumers rated Ploom TECH considerably higher
than the competition in terms of ease of use, lowmaintenance, and long battery life.

›› Investigating the effect (the impact of
this uptake on the body)
PLOOM TECH ATTRIBUTESSOCIAL CONSIDERATIONNO SMOKE SMELLCONVENIENCEEASY TO USE

MINIMAL MAINTENANCETOBACCO BUSINESS›› Looking at the impact on thesurrounding environment (indoor air
quality studies)

CONTINUOUS USE

CASE STUDY“No Smoking, Ploom TECH only”
in over 3,700 restaurants
As part of our commitment towards accommodating the desires of both smokers and non-smokers,
we continue to provide businesses with information on Ploom TECH to help them satisfy theircustomer needs and decide whether to allow the use of Ploom TECH on their premises.
As of February 2019, many businesses across Japan, including over 3,700 restaurants, have chosen a policy of “No Smoking,
Ploom TECH only.” This is the result of the unique ability of Ploom TECH to deliver on the no smoke-smell promise.
Following this success, similar efforts are underway to support companies across Japan in introducing “No Smoking, Ploom TECH
Only” rooms in their workplaces. We are also building partnerships with car rental companies to benefit Ploom TECH customers.
We feel that this step towards a society that is more inclusive of those who choose to enjoy tobacco will lead to a greater
understanding of the benefits of vaping products. The increased adoption and acceptance of Ploom TECH will benefit
users and society as a whole, as well as Japanese businesses that wish to accommodate the needs of their customers.

Chemical analysis and in vitro toxicological evaluation of aerosol from a novel tobacco vapor product: A comparison with cigarette smoke. Takahashi et* 1 al. Regulatory Toxicology and Pharmacology. 2018. 92:94-103
It does not imply that the health risk associated with the use of the product is relatively small compared with that of cigarettes. It compares the amounts* 2 of nine constituents, the WHO recommend to reduce as a priority, which are contained in one puff of cigarette smoke and one puff of a tobacco vapor of
Ploom TECH. Standard test cigarette (3R4F) was selected as the test cigarette product.
58* 3 Indoor air quality (IAQ) evaluation of a Novel Tobacco Vapor (NTV) product. Regulatory Toxicology and Pharmacology. 2018. 92:278-294.

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products
or encourage smoking among consumers

59

BUILDING ON THE SUCCESS OF THE PLOOM BRAND
We are committed to continually improve our product offering. In line with this, we have developed two
innovative new products in 2018, launched in January 2019 through the dedicated online store and Ploom shops
in Japan. Our national expansion plans are on track and we will achieve full national coverage by the end of 2019.
Thanks to their different heating temperatures, the new products offer consumers different experiences.
Ploom TECH+ (Plus)

Ploom SThis new tobacco-infused, low-temperature heatingproduct leverages the unique features of Ploom
TECH, such as less smell and high usability. It allows
consumers to enjoy a powerful rich tobacco vapor,while producing less than 1% of the odor*1 andproviding a reduction of over 99%*2 in the levels of
measured potentially harmful constituents comparedto cigarette smoke.

We have entered the Heated Tobacco category
with Ploom S, a high-temperature heating productthat offers a superior tobacco taste. Compared tocigarettes, it produces less than 5% of the odor*1 andprovides a reduction of over 90%*2 in the levels of
measured potentially harmful constituents.

The launch of these products will be boosted by the strong support of the JT Group in Japan, with both devices
co-branded with Mevius, the country’s #1 cigarette brand and benefitting from our leading in-market salesforce
capabilities – a critical advantage. Please see page 56 to learn how these new products fit into our Reduced-Risk
Product portfolio.

TOBACCO BUSINESSRECYCLING SCHEMES FOR PLOOM TECH
We encourage consumers to dispose of empty
capsules and cartridges from their devices in a
responsible manner.
In Japan, we introduced a recycling program whererecycling boxes were sent out to almost 270,000
people so that they could return their empties forrecycling conveniently and free of charge.
The program was a significant extension of a similarpilot conducted in 2017, where 16,000 recyclingboxes were distributed.
In addition, we sent recycling boxes to shops selling
Ploom TECH, thus providing consumers with theoption to return the items in person.
The 2018 program was a success, with 1,375,487
empty capsules and 329,394 empty cartridges
returned for recycling.
Following positive feedback from consumers, we willcontinue to investigate a more holistic approach torecycling and waste management.
We have already begun a similar program in
Switzerland and hope to roll out further programs
across our Ploom TECH markets in 2019.
Results of the research based on the three-point comparative odor intensity indication method by six people who have passed the olfactory test. Cigarette* 1 smoke and Ploom TECH+ and Ploom S tobacco vapor, which contains constituents derived from tobacco leaves, were diluted with odorless air in thebags, and the odor of each bag was statistically quantified as the “dilution factor of just no odor”.

60

It does not imply that the health risk associated with the use of the product is relatively small compared with that of cigarettes. It compares the amounts* 2 of nine constituents, the WHO recommend to reduce as a priority, which are contained in one puff of cigarette smoke and one puff of a tobacco vapor of
Ploom TECH+ and Ploom S. Standard test cigarette (3R4F) was selected as the test cigarette product.

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products
or encourage smoking among consumers

61

E-Vapor Brand Focus: Logic
With 4 E-Vapor devices and 15 rich flavors, products
under the Logic brand ensure consumers can enjoya superior and flavorsome vaping experience. Logic
products are currently sold in 11 countries and we
aim to expand this to 20 markets by the end of
2020. All products are developed in line with strict
international quality standards*.

RESPONSIBLE RECYCLING AND DISPOSAL SCHEMES FOR LOGIC
Launched in the U.K. in 2018, Logic Compact is thelatest device in our lineup. By providing high levelsof convenience in terms of both portability and easeof use, we expect that this new device will help us
to deliver the benefits of vaping products to an evenwider audience of adult smokers and vapers.

We take our responsibility for the environment very
seriously and provide consumers with advice andsupport to help them conveniently and safely recycle

or dispose of Logic products at the end of their usefullife. This is tailored to local requirements, and moredetails can be found on Logic websites.

HOW WE MANAGE LOGIC WASTE

DIRECTLY WITH CONSUMERS

THROUGH OUR PARTNERS

In the U.K. and Germany, we provide consumers
with a convenient way to return any old Logic tip,battery, or charger to us for safe disposal.

In the U.S. and France, we partner with waste
management specialists who help consumers
to easily and safely recycle or dispose of device
components.

logicvapes.co.uk/econo-weeelogicvapes.us/social-responsibility

TOBACCO BUSINESSLATEST REGULATORY DEVELOPMENTS
ON E-CIGARETTES IN 2018
It is in the public interest for regulation to be evidence-based, proportionate, and effective. We support
the principles of Better Regulation (see page 65), which argue for measures that preserve consumer
choice and market freedom. Regulation of Reduced-Risk Products is fast-moving and we monitor
developments closely. The following are just a few examples of some key regulatory developments
around the world in 2018.
CanadaAn important recent
development in North
American regulation is thelegalization in Canada ofe-cigarettes containing
nicotine.
The new Tobacco and Vaping
Products Act establishes more
liberal provisions regulating
the commercialization andpromotion of e-cigarettes.
In 2019, it is expected thatprovisions for manufacturers
to make reduced-risk claims
will be included in the Act.

*
62

Global standards: IEC 60335-1, IEC 60950-1. – EU standards: EN 55014-1, EN 55014-2, EN 60335-1, EN 60950-1, EN 62133, Directive
2006/66/EC on Batteries and Accumulators, Regulations (EC) No. 1907/2006. – US standards: FCC, CFR 47 Part 15 Subpart B (Federal
Communications Commission. Code of Federal Regulations, Volume 47, Part 15, Subpart B), Electromagnetic compatibility, UL 1642 Standard for
Lithium Batteries (CEC).

Switzerland
On April 24, 2018, theFederal Administrative Court
ruled that the 2015 ban on
retail of nicotine liquids for
e-cigarettes was illegal.
This ruling is based on the“Cassis-de-Dijon” principle,
whereby all goods permitted
for retail in the EU, should
also be allowed to be sold in
Switzerland.

U.K.
On August 17, 2018, theU.K. House of Commons’
Science and Technology
Select Committee publishedits report on e-cigarettes andnovel tobacco products towidespread media coverage.
The report is highly supportiveof liberalizing the regulationof e-cigarettes due to clear
evidence that they aresubstantially less harmful thanconventional cigarettes.

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products
or encourage smoking among consumers

63

Optimizing theregulatory environment

OUR TOBACCO PRINCIPLESOPENNESS ABOUT THE RISKS OF SMOKING

1

Championing better regulation
for informed choice
We value and support the freedom for adults to makeinformed choices, and we play our part by ensuring
all consumers understand the associated risks when
deciding to smoke or not. That is why we are astransparent about our positions on smoking andhealth as possible. It is also why, no matter what wedo, we adhere to the five core principles that define
our attitude to smoking (see opposite page). We also
work in a highly regulated operating environment,
and monitor developments and prepare for changes
in regulation well in advance. This is done in linewith our tobacco principles, so that we go above andbeyond our obligations.

2
OUR COMMITMENT

We will ensure the Company isincluded in policymaking leading
to fair and balanced regulationand enhance our cooperation withgovernments to combat illegal trade.

PLAIN PACKAGINGPRODUCT DISPLAY BANS

We believe products that do not involve
combustion and do not produce tobaccosmoke are products with the potential toreduce the risks associated with smoking.
We are committed to developing andbringing to market Reduced-Risk Productsthat meet consumer expectations. We will
help adult consumers to make informed
choices by providing factual informationacquired through scientific assessment
about the products they may wish to use.

Minors should not smoke and should not beable to obtain tobacco products. This belief
is central to our Code of Conduct, marketing
practices, and the way we do business.

Smoking carries risks to health, and appropriate andproportionate regulation of the tobacco sector is bothnecessary and right. To meet public policy goals,
whilst respecting the rights of all stakeholders, it isimportant that regulation is evidence-based, practical,
enforceable, and competitively neutral.
To help lawmakers develop Better Regulation, theOECD has endorsed the internationally-recognized‘Guiding Principles for Regulatory Quality and
Performance’, which we support. These can besummarized as:›› Openness
STAKEHOLDER PARTICIPATIONIN REGULATORY PROCESSES›› Proportionality›› Participation›› Effectiveness›› Accountability

INGREDIENTS

5ACCOMMODATION BETWEEN SMOKERS
AND NON-SMOKERS

Many people have concerns about exposure
to environmental tobacco smoke. We
advocate tailored, practical, and effective
solutions, that separate smokers andnon-smokers while accommodating thelegitimate interests of both. Further tothis, we are committed to developing andbringing to market Reduced-Risk Productsthat also have the potential to reduce theimpact of smoking to others.

SUPPORTING ‘BETTER REGULATION’›› Coherence

64

4

TOBACCO BUSINESSOur views on specific regulatory topics can be read
online: www.jti.com/about-us/our-business/our-viewson-regulation.

Smokers want to know what it is they aresmoking, and we provide information about
the ingredients we use.

REDUCED-RISK PRODUCTS

3

OUR TARGETATTRACTIVENESSYOUTH SMOKING PREVENTION

TRANSPARENCY ABOUT OUR PRODUCTS

We will always protect our ability toparticipate in public policy debate withthe aim to achieve balanced regulationthat meets societal concern and supportsbusiness growth.

E-CIGARETTES

Smoking is a cause of serious diseases, andeveryone should be appropriately informed
about the health risks of smoking.

A key aspect of Better Regulation is a transparent
legislative process, one that involves all interested
and affected parties.
With regulation affecting our products and ourindustry, we exercise our right to make our views
known, by engaging openly and transparently withgovernment stakeholders (including regulators), nongovernmental organizations, and all other relevant
stakeholders. We seek to ensure that the regulatoryenvironment encourages innovation, businessgrowth, and freedom of consumer choice so that wemay better serve the needs of consumers, society,and our business.
We engage openly in regulatory process at all stages,
and take part in public consultations by providingarguments supported by evidence and alternative
solutions.
We support public discussions on the topics of good
governance, Better Regulation, and transparency.
We demonstrate our commitment to Reduced-Risk
Products and provide tangible solutions to societal
issues.

65

OUR VIEWS ON REDUCED-RISK
PRODUCT REGULATIONSPOTLIGHT:
BRANDING BAN

The tobacco industry is undergoing a transformation
as Reduced-Risk Products gain popularity in many
countries. We believe that these products offer real
benefits to consumers and society (see page 56), andthat consumers should be free to choose them.

The ability to build and use a brand is essential forbusinesses to thrive and economies to prosper.
Distinctive branded packaging is vital for competition,and enables consumers to identify, obtain information
about, and choose their preferred brands of tobacco
products easily and without confusion. However,branding bans are imposed on the tobacco sector
in certain parts of the world, and these are notbased on, or consistent with, a credible andscientifically rigorous understanding of the behaviorof smokers. These types of restrictions are also
being considered for other consumer products.
Since the implementation of the plain packaging
policy in Australia in 2012, followed by France, theU.K., Ireland, New Zealand, and Norway, no studies
have shown convincing evidence that it reduces thenumber of people choosing to smoke.

Governments and regulators should avoid restrictive
regulation that suppresses innovation and prevents
adult consumers from selecting these products.
We are committed to working with regulatory
authorities, public health bodies, and the scientificcommunity, to create the best possible frameworks
for these products to reach their full potential, and alevel playing field for all manufacturers.

REGULATORY DEVELOPMENTS
IN 2018

No new recommendations or decisions were takenthat directly impact the JT Group and its products at
COP8 and MOP1. Although we continue to be denied
a voice at such events, which we believe is wrong,
we will persist in closely monitoring the evolution of
the FCTC and the Protocol, and share our views withdecision makers wherever possible.

66

Whilst we are prevented from attending events suchas COP8 or MOP1, we do attend other industry
events such as the Global Tobacco and Nicotine
Forum (GTNF), where we are able to engage witha wide variety of stakeholders and make our voiceheard.
We attended GTNF 2018 in London, a key
international conference where commentators
gathered to discuss the future of the tobacco andnicotine industry. The forum attracted over 315
participants from academia and public healthauthorities as well as the tobacco industry. A lively
debate reflected the mixed audience and discussions
focused heavily on the inconsistent regulation of
Reduced-Risk Products.

Consequently, we believe these bans fail to achieve
stated public policy objectives and are, in fact,
excessive and misguided.

In 2018, the WTO Panel on Plain Packaging ruledin favor of Australia. The decision is a major step
backwards for the protection of intellectual property
rights internationally. It sets a precedent that could
encourage governments to ban branding on otherproducts without providing any reliable evidence ofbenefits to the public interest. The Panel decision
has been appealed by the Dominican Republic and
Honduras and the dispute is now before the WTO
Appellate Body, which will deliver a final outcome.

Expert Reports on the impact of these plan packaging
bans can be read here:
www.jti.com/about-us/our-business/key-regulatorysubmissions

Disclaimer: This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine delivery products
or encourage smoking among consumers

TOBACCO BUSINESS

We continue to follow the evolution of the WHO
Framework Convention on Tobacco Control (FCTC).
The Protocol to Eliminate Illicit Trade in Tobacco
Products (the Protocol) came into force on 25
September 2018, and October saw the eighth sessionof the FCTC Conference of the Parties (COP8), as wellas the first session of the Meeting of the Parties to
the Protocol (MOP1).

ENGAGING WITH OURSTAKEHOLDERS

What’s more, plain packaging has serious negative
consequences for society and consumers. It makes
counterfeit products easier to produce, distribute,and sell. This encourages criminality and impacts
government tax revenues. Consumers and retailers
struggle to tell the difference between brands, which
damages competition and affects business. It also
infringes our rights to property, expression, and trade,
without proper justification.

67

IN FOCUSTACKLING THE ILLEGAL TRADE OF OUR PRODUCTS

IN FOCUSTACKLING THE
ILLEGAL TRADE OF
OUR PRODUCTS
Experts estimate that over 10% of all cigarettes sold globally (excluding China) are illicit, withapproximately 45 billion U.S. dollars in global tax revenue lost each year. This illegal trade
fuels human trafficking, organized crime, and terror groups; and undermines legitimate
tobacco businesses. It also causes harm to consumers, as uncontrolled products circumvent
regulations and quality controls.
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.

Our approach
Our global Anti-Illicit Trade team investigates theillegal tobacco trade and protects consumers andsociety, as well as our business, from criminal
elements. It is made up of dedicated professionals
with many years of public service in law enforcement,
regulatory bodies, and governments. A key part ofour business, the team works with our markets tosecure our supply chain, and assist law enforcement
to remove illegal tobacco from the marketplace. It
maintains a robust dialogue with governments andlaw enforcement agencies on the threat of illegal
tobacco through public-private partnerships. Our
Anti-Illicit Trade team also supports other areasof our business with research on illegal tobaccoand raises awareness of the problem among ourbusiness partners, consumers, and society in general.
The team protects the JT Group’s business andreputation, supporting our long-term, sustainable
future.

Increasingly, we are examining ways to tackle illegal
trade across our entire value chain. This is resulting ina 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 theirproducts from falling into the hands of criminal
networks. Our Anti-Illicit Trade team also supports ourcompliance and purchasing departments by carryingout due diligence checks to ensure we are entering
into contracts with trustworthy suppliers, and byhelping these departments to implement JTI’s policies
and procedures.
We continue to closely monitor the way in whichorganized crime groups use shipping routes and weare working with various law enforcement agencies
across the world, such as the World Customs
Organization, Interpol, and Europol, to help themtrack containers suspected to be transporting illegal
goods.

OUR COMMITMENT

We will ensure the Company isincluded in policymaking leading
to fair and balanced regulationand enhance our cooperation withgovernments to combat illegal trade.

THE JTI APPROACH TO TACKLING ILLEGAL TRADE

2

3

TOBACCO BUSINESSPROACTIVELY COMBATING ILLEGALTOBACCO GLOBALLYPREVENTING THE DIVERSIONOF OUR PRODUCTS BY CRIMINALS

2

3

OUR TARGET

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

KEY WINS IN 2018
WE ADVISED 1,329 LAW
ENFORCEMENT OFFICERS ON
COUNTERFEIT RECOGNITION

With the goal of reducing the
supply of illegal products

OVER 2.7 BILLION ILLEGALCIGARETTES SEIZED

32% DECREASE IN SEIZURESOF OUR GENUINE PRODUCTS

Thanks to intelligence reports
provided by our team to law
enforcement

Resulting from our efforts
to ensure the security of our
supply chain

Our Seizure Investigation
Review Committee
collaborates with market
task forces and customers
to secure our
supply chain

Share investigation
results with law
enforcement andidentify criminals
involved in diverting
our product

Formulate strategy
and prioritize issues

Activate strategy totackle illegal trade

1

4

1

4

Analysis of market
dynamics and risks(e.g. Legitimate Market
Demand program)

Work with our markets
and law enforcement
to investigate andcombat illegal tobaccoand identify further
risks

Analyze authenticity of
seized products andidentify sources ofgenuinediverted productLaw enforcementtakes action against
criminalorganizations(arrests/raids/seizures)

PRODUCT SEIZURES BY LAW ENFORCEMENT

68

69

IN FOCUSTACKLING THE ILLEGAL TRADE OF OUR PRODUCTS

Supporting business performancethrough anti-illicit trade programs
Our global anti-illicit trade programs create theopportunity for public-private partnerships to combat
highly organized criminality. They are also designed
to support our business performance by fulfilling
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 below
KPIs:›› Number of seizures based on information we sharewith law enforcement›› The level of illicit trade in our top markets throughanalysis of empty pack surveys, and the reduction
we help achieve›› Implementation of our compliance programs›› Strengthening partnerships with law enforcement
agencies, especially through training.

STRATEGY, INITIATIVES, AND PERFORMANCEKEY STRATEGIESMaking a positive impact
in the Philippines
In 2017, the JT Group acquired Mighty Corporation, the second largest tobacco company
in the Philippines. The country faced challenges with regards to illegal trade, notably in
relation to locally made counterfeit packs, imported counterfeit products from China,
packs of local brands with reused tax stamps, and illicit whites* with no tax stamps at all.

1

For our acquisition to make a positive impact to the business, we set up several tailor-madeanti-illicit trade projects in late 2017. Working together with JTI Philippines and various
government agencies, our Anti-Illicit Trade team successfully established processes forreporting illegal activity to law enforcement, who in turn took the necessary action against
illegal trade.
Through this new system, in 2018 we were able to pass on information about illegal
factories, storage areas, and even large retail markets where illegal sales were taking place.
The results have been very positive, with the latest available figures suggesting that illegal
trade dropped by around 50% from September 2017 to the end of 2018.

TOBACCO BUSINESSCASE STUDYPROTECT OUR BUSINESSTHROUGH ANTI-ILLICITTRADE OPERATIONS

Focus on priority regions
and markets
Combat counterfeit
and illicit whites

ENSURE ANTI-ILLICITTRADE COMPLIANCE

2

Fulfil legal obligations
Legitimate Market Demand
analyses and seizure
investigations

KEY INITIATIVES

2018 PERFORMANCE

Anti-illicit trade task
forces set up in priority
markets

In 2018, new task forces were
set up in our Russia, Ukraine, andBelarus priority markets.
In 2018, our intelligence led tothe seizure of over 2.7 billion
cigarettes (or equivalent in
tobacco)Efficient and effective responses
to information requests by law
enforcement agencies

We responded to over 500 law
enforcement information
requests in 2018, and are fullycompliant with all of our legal
obligations

Global media
campaigns to
educateconsumers on
the impact ofillegal trade

In 2018, we advised 1,329 law
enforcement officers on
counterfeit recognition›› 110 million illegal cigarettes seized in 2018›› Including 60 million counterfeit JTI cigarettes – an increase of 400% vs 2017›› Over 25 machines used in the production of illegal cigarettes removed from factories(this is crucial to reducing the counterfeiters’ future production capabilities)
Our Anti-Illicit Trade team continues to work with law enforcement to tackle illegal tobacco.

*
70

3

STRENGTHEN OURPARTNERSHIP WITH
CUSTOMERS, GOVERNMENT,AND LAW ENFORCEMENT

Knowledge sharing with law
enforcement
Implement anti-illicit tradeawareness programs

Advise law
enforcement on
counterfeit
recognition‘Illicit whites’ refer to tobacco products manufactured legitimately but without any product flow control measures afterwards, and smuggled andsold in another market.
71

IN FOCUSTACKLING THE ILLEGAL TRADE OF OUR PRODUCTS

Protecting our businessIn 2018 our Anti-Illicit Trade team provided 1,328
intelligence reports to law enforcement agencies,
leading to the seizure of more than 2.7 billion
illegal cigarettes. Based on our information, law
enforcement raided more than 39 counterfeit tobacco
factories and storage locations.
As a direct result of our work to tackle illegal trade,and based on seizure statistics, notified seizuresof counterfeit products in the EU have increasedby 82% over the past four years. During the same
period, notified seizures of our own genuine productsin the EU have decreased by 57%, thanks to ourmarkets’ efforts in securing our supply chain, with thesupport of the Anti-Illicit Trade team. This has been
acknowledged by both the EU and the U.K.’s HM
Revenue and Customs, which recognized JTI as anindustry leader in the fight against illicit trade.

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 enteredinto force on September 25, 2018 and has so far been
ratified by 48 Parties.

EU SEIZURES OF TOBACCO PRODUCTSRESULTING FROM JT GROUP EFFORTS TOTACKLE ILLEGAL TRADE ( IN MILLION STICKS )200

This international treaty aims to eliminate all formsof illicit trade of tobacco products, through several
provisions that are binding on its Parties. We support
the Protocol, as it provides a global response to theglobal problem of illicit trade.

165.8
150

One of the main requirements is that the Parties
must implement a Track and Trace regime by 2023
100

(for cigarettes) and by 2028 (for all other tobacco
products). In order for this regime to be effective, we
support the implementation of an architecture basedon “open standards” and interoperability for every
actor in the supply chain, whilst taking into accountexisting systems such as the new EU-wide Track andTrace system.
We also firmly believe that the fight against illicit
trade can only be effective if governments develop
ways to address products that are not covered by theProtocol, such as counterfeits or illicit whites.

102.3
90.9

84.9

50

LEGITIMATE MARKET DEMAND
PROGRAM
Companies worldwide seek to understand thedemand for their products in their markets but there
is a clear distinction between market demand, and“Legitimate” Market Demand (LMD).
JTI must comply with the European Union
Cooperation Agreement signed in 2007. This means
supplying 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 theright way, our Anti-Illicit Trade Research team hasdeveloped a global methodology to assist JTI’s
markets with a consistent and accurate approachto annual LMD calculations. Our markets performthe LMD exercise in conjunction with their annual
plan. This creates a proactive supply chain control
mechanism to make 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 JTI’s product portfolio in thatmarket, but the global methodology provides a logicaland defendable standard.
One common factor among these varying
calculations is that our demand estimations comply
with all laws and regulations.

72

31.7
FY 2015
Counterfeit products

19.8
FY 2016

17.1
FY 2017

13.6
FY 2018

Genuine JT Group products

TOBACCO BUSINESS

Ensuring anti-illicit tradecompliance

TRACK AND TRACE
Our Track and Trace program has been an importantelement of our compliance policy for more than adecade. It helps our global efforts to support law
enforcement agencies and has been developed withmany of the biggest technology companies acrossthe world, as part of our obligations within the EU
Cooperation Agreement.
A highly technical and complex process, our Trackand 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 aresult, when seizures are brought to our attention,
we can identify the source of diversion of the seizedproducts and implement preventative measures.
In 2019, some JTI markets will be implementing amandatory Track and Trace system. Among thosecountries will be the 28 Member States of theEuropean Union, as per the European Tobacco
Products Directive (TPD2). According to this directive,
products must be tracked to the last economic
operator before the first retail outlet in all Member
States.
We are currently preparing for the important changes
that the new EU Directive entails and are working
with key stakeholders in order to comply in the mosteffective way, while ensuring our EU markets will not
be disrupted.

CASE STUDYTaking the fight to the digital world
The illegal tobacco trade was once largely confined tostreet corners or under the counter, but the digital age has
given rise to a new era, with social media exposing moreconsumers than ever to the risks of illegal tobacco.
Our project to tackle illegal online trade expanded acrossWestern Europe in 2018. It yielded excellent results,
disrupting sales through the takedown of links and social
media posts that advertise JTI products illegally.
In 2018, we took down:›› Over 5,960 posts›› Over 65,300 items
These results represent 710,433 U.S. dollars worth ofpotential product losses to the JT Group, a decreaseof approximately 14% over 2017. We believe that thisdecrease is due to a change in tactics by criminals, who areincreasingly selling products in secretive private groups onsocial media. Our efforts continue to evolve to meet thechanging patterns of this crime.
In addition to successfully taking down these illegal
advertisements, we continue to collaborate with law
enforcement agencies, providing evidence that leads toprosecutions. In October 2018 for example, a JTI Private
Prosecution led to a conviction in the U.K. of an individual
who pleaded guilty to six offences relating to illegal sales
on Facebook.
Drawing upon this continued success, similar projects
have now launched in the Americas and Eastern Europe
regions.
For more information on how we tackle
the illegal tobacco trade online, seewww.jti.com/our-views/new-era-illegal-trade73

Investing in people

Talent development

Our approach
Our sustainability journey is dependent on the skills
and spirit of our people working together with thecommunities in which we operate. We are pleased to
be an employer of choice, and our positive workplaceculture and environment help us to attract and retain
talented individuals. We will continue developing theskills and capabilities of our talented employees andtake further steps to create a diverse and inclusive
culture where everyone can feel comfortable and bethemselves.
We provide a safe and healthy environment for our
employees as we believe our people have the right toa secure workplace.
To make societies cohesive and inclusive, we invest
in the communities in which we operate, and in
the people who live there. Through our community
investment programs, we create positive impacts andgive our employees the chance to volunteer in theirlocal communities and enhance their skills. In order
to assess how effective our management approachis in our tobacco business, we have set targets
for ‘Talent Development’, ‘Workplace Safety’, and‘Community Investment’, and we will be setting atarget for ‘Diversity and Inclusion’.

OUR COMMITMENT

We will be the employer ofchoice by investing in people.

A fast-changing world continues to bring newchallenges to our Talent Management team. The skills
our company will need in the future could be very
different to those we have within our business today.
Employees are fundamental to generating returns
and securing the long-term success of our business.
We aim to ensure that we attract the best candidates
to work for our business, retain our top talent, andoffer current and future employees professional

and personal development opportunities in the best
possible working environment. With this in mind, in2018 we rolled out a new global learning platform
featuring various face-to-face and digital courses,
including leadership and language learning. These
courses are available to 20,000 employees who canchoose programs according to their interests.
We explain our initiatives as a Group on page 36.

CASE STUDY

Spreading the word

OUR TARGET

We will be a certified employer of choice every
year in at least 60 locations by focusing on talentmanagement, rewards, and empowerment.

TOBACCO BUSINESSThe tobacco industry is undergoing a major transformation, and we want to make people aware of the newopportunities that our company offers. In recognition of our need for a stronger employer brand, we launched the‘Join the Idea’ HR campaign in 2018 with the aim of making our company more visible and attracting the right internaland external talent. Our ‘Join the Idea’ campaign was hugely successful, and after its launch, the JTI Facebook pagegained five times more followers than before.
Thanks to this campaign, we have significantly raised the profile of our brand, which is already rated as a first-classemployer in 53 markets. Our intention is that by focusing on talent management, rewards, and empowerment, we will
be recognized as a certified employer of choice every year, in at least 60 locations.

In line with our vision of zero workplace injuries,
we will reduce injury rates by 25% by 2023 and50% by 2030. (Baseline year: 2015).

As the global authority on recognizing
excellence in people practices, we aredelighted to support your ambition tocontinuously improve the HR policies
that affect more than 45,000 employees
worldwide. Over the years, we haveseen great progress with regards to bestin-class Talent practices throughout
the organization. This is proven by theconsistent presence of JTI in the top
regional ratings, and the Company’s
certification as a Global Top Employer
since 2015.
David Plink,
CEO – Top Employers Institute74

APPLYING OUR POLICIES AROUND
THE WORLDAs part of our drive to expand the businessgeographically, we have made acquisitions in newmarkets. In 2017, we acquired tobacco manufacturers inIndonesia and the Philippines, and in 2018 we acquired
additional tobacco companies in Russia and Bangladesh.
These acquisitions considerably increased the size of ourworkforce.
We endeavor to introduce our HR and Health and Safety
policies to our new employees as soon as we can, andmake sure that these are endorsed across the Group.
Please refer to the GRI index at the back of thisReport for detailed information about our workforce
composition.

75

Diversity and inclusion

Workplace safety

We strongly believe that diversity in the workplaceleads to competitive advantage. Greater diversity ofthought and experience leads to enhanced innovationand creativity. In addition, we are convinced that ourpeople prosper in a workplace where differences
are valued. In some respects, we are alreadyhighly diverse – our workforce includes over 100
nationalities in more than 120 countries. However, inorder to further strengthen our organization, we wish
to increase diversity in other areas and within senior
management across our Group.

Howard Parks,
Senior Vice President, Human Resources & Chief Compliance
Officer, JT International76

In our tobacco business, the highest safety risk
relates to driving vehicles and riding motorcycles.

We proactively identify the risk profile of our fleetsin the countries in which we operate. This allows us
to target and tailor our training programs to local
conditions and to ensure our drivers and motorcycle
riders adopt best practices.

CASE STUDYAt this stage, we are still developing targets for global
diversity and inclusion programs. In our international
tobacco business we have engaged external advisorsand spoken to employees across the business toassess the strengths and weaknesses within ourorganization.
The 17 members of the Executive Committee of ourinternational tobacco business are fully committed
to making the organization more diverse andinclusive, and they each have a personal mentor tohelp improve their understanding and engagement.
We have also created a diversity and inclusion
framework to drive change and appointed a thought
leader in Diversity and Inclusion to lead our efforts inthis area.
Read more about our HR philosophy and initiatives
across the Group on page 36.

Reducing incidents by 50%
through our Motorcycle
Safety program
Driving is a critically important area of safety for us, as it can lead to serious
injuries and even fatalities. In countries where safety standards and awareness arelower, and ingrained driver behavior is less risk-averse, the danger from driving ishigher. To address this issue, in 2016 we launched a motorcycle risk management
program in countries where employees drive motorcycles daily, such as Zambia,
Malawi, and Tanzania. We are now planning to implement this program in
our newly acquired operations in markets such as Indonesia and Ethiopia.

TOBACCO BUSINESSThe fair treatment of all employees is a
key element of our focus on diversity andinclusion. I am delighted to announce
that we obtained Gender Pay Equity
certification in our Geneva office, led
by the EQUAL SALARY Foundation.
We still have more to do in our focus
areas, but we are determined to harness
the richness of our talent, ideas,
backgrounds, perspectives and skills, tocreate business value.

We strive to achieve zero injuries and make safety
a priority so that all of our employees return homeunharmed by their work activities.

The motorcycle program is designed to reduce risks by teaching thetechnique of ‘defensive driving’ to reduce accidents, and focusing on theproper maintenance and inspection of vehicles. It emphasizes the need towear proper protective equipment, such as helmets, gloves, and high-visibility
jackets. Moreover, thanks to the Train-the-Trainer sessions, we now have 38
specialized motorcycle trainers who can provide training in their countries.
The program has had a significant impact on safety performance. In 2018,
the number of motorcycle-related injuries in the countries where we
implemented the programs was reduced by 50% compared to 2016 and 2017.

77

CASE STUDY

Making a positive
contribution to societies
As a responsible business, we wish to create apositive social impact in our local communities.
Our local programs are designed to make ourcommunities more inclusive and resilient, while
also providing volunteering opportunities for our
employees to engage with local communities anddevelop a variety of soft skills. We will continue
to make efforts to meet our target to help makecommunities more inclusive and resilient.
We explain our approach on page 24.

Building sustainability
through resilience and relief
OUR COMMITMENT

We will be the employer ofchoice by investing in people.

OUR TARGET*

Between 2015 and 2030 we will invest 600
million U.S. dollars to help make communities
inclusive and resilient, with our employees
contributing 300,000 volunteering hours.
*This is a Group-wide target.

The JTI Foundation is a charity specializing in Disaster
Management. The JT Group contributes 2 million U.S.
dollars* every year, and all funds go towards disaster
relief, disaster recovery, and building resilience indisaster-prone environments. Communities become
truly sustainable when they are not only able torespond to disasters and undertake reconstruction
work, but also when they are resilient to disasters.
In July 2018, a devastating earthquake struck theIndonesian island of Lombok. Many of Lombok’s citizens
were left in urgent need of shelter, sanitation, food, andwater. Through our partners, GEA and Shelterbox, the
JTI Foundation provided disaster relief. Just a few days
after the initial quake, humanitarian relief (blankets
and food) was delivered to 3,200 people and emergency
shelters were distributed to 600 displaced families.

CASE STUDYWhen two massive earthquakes struck Mexico in
September 2017, many families were left without
a home. Together with our partner, Habitat for
Humanity International and its Mexico National
Organization, the JTI Foundation provided
matching funding for 140 low-income families
with new, safer houses or home improvements.
We also offered training to better prepare thecommunity for possible future disasters.

In Egypt, more than 35% of the population lives
below the poverty line, and in rural areas, many
people do not have regular access to clean water.
This situation contributes to a cycle of poverty, as illhealth and the need to access water diverts residents’time and resources away from work and business.
Recognizing that water poverty is part of a wider
problem, we partnered with Resala, one of thecountry’s largest NGOs. With the help and supervisionof Egyptian municipalities and the Egyptian Water
Company, we built the infrastructure required todeliver piped clean water to eight villages. Local
employees participated in the project as volunteers,
and approximately 300 houses have now received
clean piped water, benefitting around 1,800 people.
Our staff were involved in the project selection, decisionmaking, and overseeing the legal aspects of the work.
Volunteering created a sense of belonging in what is arelatively new market for the Company. For the inhabitantsof the villages, the project brought not only clean water
but also hope. Until we reached out to them with water,most people there felt neglected by society. The successof the project is not only seen in the clean water flowing
through the new pipes, but also in the improved healthand productivity in the communities we reached.

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TOBACCO BUSINESS

Bringing water and hopeto rural Egypt

Although disaster-affected areas can be reconstructed,
resilience is key to ensuring the well-being of people andcommunities. In the Philippines, the JTI Foundation
partners with Build Change to increase families’ physical,
economic, and social resilience to natural disasters. In
particular, we have worked to build resilience among
the informal settlement communities located in the cityof Makati – these are built on unstable, disaster-prone
flood plains in the region of Metro Manila. Our project
ensures the long-term sustainability of communities
here. We helped retrofit 90 poorly built houses, trained
90 local builders and homeowners, and have also helpedby offering innovative financing mechanisms securing
affordable funding for 450 local slum dwellers.

*

The amount in U.S. dollars was calculated using average exchange rate (1 U.S. dollars = 0.98 CHF).

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OUR TOBACCO BUSINESSIn our pharmaceutical business, we aim to deliver innovative
drugs to patients safely, securely, and in the shortest timepossible. As this business has a direct impact on human healthand life, we not only strictly comply with all laws, regulations,and industry codes, but are also guided by a strong sense of
ethics and responsibility. This is particularly the case in areas
such as clinical trials and promoting drugs, as well as animal
testing and managing chemical substances.
While JT focuses on R&D, our pharmaceutical subsidiary,
Torii Pharmaceutical, produces and promotes drugs in Japan.
Outside Japan, we do not have a sales function, but we dolicense drugs to other pharmaceutical manufacturers.
In 2018, we started to develop a sustainability strategy for ourpharmaceutical business.

OUR PHARMACEUTICAL BUSINESS VALUE CHAIN *Clinical trial
participants& institutions

Joint
research
partners

5

80

*

1

Factory“Torii Pharmaceutical”

3

Contracted
factories

Wholesale

OUR CUSTOMERSAND CONSUMERS

OUR COMPANYOUR SUPPLIERS

Suppliers

Research &development

PHARMACEUTICAL BUSINESS

Licensepartners

2

Sales & promotions
Warehouses“Torii Pharmaceutical” “Torii Pharmaceutical”

Medicalinstitutions
and patients

This diagram represents the value chain of products manufactured and/or developed by JT, and sold and promoted by Torii Pharmaceutical.

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Educating employees
We strictly adhere to specific processes to ensurethat our pharmaceutical business activities are always
carried out in a responsible and appropriate way.
We provide e-learning to help employees understandthe importance of drug safety and quality assurance.
In 2018, all of the approximately 800 employees inour pharmaceutical business completed the course.

Employees based at JT’s Central Pharmaceutical
Research Institute regularly attend educational
programs in areas such as ethics, animal testing,managing chemical substances, and environmental
management. This helps keep their skills andknowledge up to date.

Ensuring ethical integrity
Our research activities are carried out in an
ethical manner and comply with all relevant laws,
regulations, and industry standards.
We have established in-house regulations on
animal testing, based on government legislation.
Our Institutional Animal Care and Use Committee
ensures that we follow the ‘3R’ concept: Replacing
laboratory animals with other research materials
where possible; Reducing the number of animals
used; and Refining tests so that animals do not suffer
unnecessary pain and distress. We carry out periodic
in-house inspections and assessments to ensurethat we comply with regulations. Our animal-testing
practices are certified by the Japan Health Sciences
Foundation, an external authority.
When utilizing human tissue samples, our Ethical
Review Committee, which follows the relevantJapanese guidelines and consists of both internal andexternal members, examines the ethical justificationand scientific validity of the research.

Our chemical management system covers every
aspect of the chemical handling process, fromthe moment we take delivery of the chemicals,
through to their storage, use, and eventual disposal.
It also provides employees with vital information,such as how much remains of the chemical, andthe most up-to-date safety data sheet for each
substance. Employees are regularly made aware ofchemical safety risks. Torii Pharmaceutical separates
chemicals into categories requiring different levels ofmanagement, and has specific rules and procedures
according to the characteristics and safety risks ofeach category of chemicals.

Quality assuranceof pharmaceuticalproducts
We have developed our own guidelines on how
to conduct annual inspections to ensure that our
production methods fully comply with government
recommendations. Since 2017, for our own factoryand half of our contracted factories, we have been
carrying out annual inspections that fully adhere tothese guidelines, and there were no discrepancies in
the annual inspections in 2017. In 2018, we started
following our own annual inspection guidelines forthe rest of our contracted factories as well.

Responsible
promotion of drugs
Torii Pharmaceutical has its own code of practice on
the ethical promotion of prescription drugs, based on
the code of practice of the Japanese Pharmaceutical
Manufacturers Association (JPMA). Medical
Representatives (MRs) of Torii Pharmaceutical provide
and gather information on drugs to/from healthcare
professionals, and run monthly training programs
to ensure adherence to this code. Through internal
communications, we provide relevant and detailed
information to our MRs to keep them up to date withthe latest promotional guidelines. We also conduct
training sessions, which include case studies ofviolations that have occurred in Japan and important
points to consider when providing lectures for
medical personnel.

We publish quarterly clinical development status
updates on our website.
In 2018, we spent 37 billion Yen on R&D.

PHARMACEUTICAL BUSINESSTransparency ofcontributions
In order to develop more effective drugs, we build
partnerships with research institutes, universities,
and medical institutions. When we make financial
contributions to our partners, we strive to ensuretransparency by disclosing these payments on our
website.

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83

OUR TOBACCO BUSINESSOur processed food business is dedicatedto delivering safe, high-quality foodproducts to consumers. We are also
mindful of the environmental impactsof our products and operations, and we
make continuous improvements to thesewherever possible.
In 2018, we started to develop asustainability strategy for our processedfood business.

OUR PROCESSED FOOD BUSINESS VALUE CHAIN *1

60+

Factories

Distribution

OUR SUPPLIERS

OUR COMPANYOUR CUSTOMERSAND CONSUMERS

50+

Contracted
factories

PROCESSED FOOD BUSINESS

300+

Wholesale trading
companies *284

25

Suppliers of
packaging material

Customers andconsumers* 1 This diagram represents the value chain of products for frozen and ambient foods.
We do not deal directly with raw material producers – such as growers – who provide raw materials to the trading firms* 2 or to the contracted factories that supply us.

85Delivering safe,
high-quality products
We have a rigorous quality and process control
system based on four areas: food safety, fooddefense, food quality, and food communication.
This system, which also applies to our suppliers,
aims to guarantee safety throughout our entire
processed food business, from buying raw materials
to manufacturing and distribution.
We regularly review our procedures to ensure thatour products are produced and delivered in the safest
possible way.

FOCAL AREAS OF FOOD SAFETY
FOOD QUALITY

FOOD COMMUNICATIONFOOD SAFETY

FOOD DEFENSE

Food safety standards
Our processed food business has 31 factories
producing a variety of food products, from frozen
foods to bakery goods and seasonings. 23 of thesefactories are located in Japan, and eight are locatedin China, the U.S., and Thailand. Our products are
sold primarily in the Japanese market. All of ourfactories (frozen foods, bakery, and seasonings)
were certified to the global food safety standard
FSSC22000 in September 2018. FSSC22000 isrecognized by the Global Food Safety Initiative, thefood industry’s global body for promoting food safety
management.

There were no voluntary recalls of our food products
in 2018.

We also listen to our consumers and theirsuggestions for improving product quality. We
swiftly share consumer feedback on our productswith our factories and operations so that further
improvements can be made. Our internal Quality
Improvement Committee enables us to effectively
respond to their recommendations. The Committee ismade up of representatives from different divisions,
including Product Development, Manufacturing,
Sales, Quality Control, and our Consumer Call Center.
Our consumer complaints management system iscompliant with ISO 10002, the international standard
for customer satisfaction and complaints handling.
To enhance the quality of our correspondence with
consumers, we introduced a voice transcription
system at our Consumer Call Center. This systemtranscribes and records correspondence withour consumers on behalf of our operators. As aresult, our operators are able to focus more on
communicating with our consumers and providing
excellent customer service.

We are always willing to provide details about our
food products. We respond to consumers’ requests
for information and can disclose the precise factory
where food products were made or the country oforigin of the main ingredients. Furthermore, in orderto ensure food safety, we have introduced a systemthat records information about our products at every
stage of the process, from the raw materials andproduction right through to processing, distribution,and product sales. This means we can retrace our
product to any point, if necessary.
We also have toll-free numbers on our product labels
for consumers to call for extra information.
We invite consumers and shareholders to our
Uonuma Mizunosato frozen udon (noodles) andpacked cooked rice factory, where we explain
our food safety approach by showing them ourmanufacturing process.
In 2018, we updated our website to make it easier forcustomers to find important information such as foodsafety management or the customer inquiry form.

Food defense practices‘Food defense’ is about protecting our manufacturing
processes and products from intentional
contamination. We apply robust food defense
guidelines across the supply chain, both in ourown factories and our contracted factories, which
are referred to during our annual audits. Recent
initiatives to strengthen our defense mechanisms
against deliberate contamination include increasing
our use of factory cameras and enhancing the way
we manage chemical substances. These measures
also help to detect and prevent any incidences ofintentional contamination.

As part of our efforts to reduce environmental
impacts within our operations, one of the companies
within the JT Group, Thai Foods International, isbuilding a biomass co-generation system for its
Thai factory, where it manufactures seasonings.
The system, due to be completed in 2019, will use
rice husks as an alternative fuel source. The factory
currently uses electricity supplied by a local company;
once the system is operational it is expected thatpurchased electricity usage and the resultant
Scope 2*1 greenhouse gas (GHG) emissions could
be significantly reduced (by 7,000 tons of CO2e*2annually). This project, which has been adopted by
the Joint Crediting Mechanism of the Ministry ofEnvironment in Japan, will not only help us to reduceenergy costs but also contribute to GHG reductionin Thailand. In addition, in 2018 we developed acompact tray for some of our packed cooked rice thatuses approximately 10% less plastic while holding thesame amount of rice.

PROCESSED FOOD BUSINESSWe also call upon three independent advisors, whohave helped to develop our approach to food safety
since 2008. In 2018, these advisors visited ourfactories, sharing useful advice and giving talks toour employees on industry topics such as food safety,or the laws and regulations relating to the Food
Sanitation Act. These events provided employeeswith a greater awareness of new developments andhot topics in the field of quality control.

Food quality control is an essential element of ourdaily operations. Along with quality improvement
efforts on factory floors, we ensure that all of ouremployees receive training through customized
e-learning materials.

Food communication

Reducing ourenvironmental impacts

All the factories that are contracted to manufacture
frozen food products on our behalf have beencertified to the food safety standard, ISO 22000 or
FSSC 22000, as an assurance of food safety.
In 2018, one of our factories received an award
for excellence in food hygiene from the Ministry of
Health, Labor, and Welfare in Japan. This award
is given to individuals and facilities for remarkableachievements in promoting food safety andsanitation.

Enhancing food quality

Scope 2 GHG emissions are those greenhouse gas emissions relating to the consumption of purchased energy, such as electricity,* 1 steam, or other energy sources.
86* 2 CO2e stands for ‘carbon dioxide equivalent’ of GHG emissions, a standard unit for measuring carbon dioxide footprints.

87

We report annually on our sustainability activities

AWARDS AND RECOGNITION

and performance, and have been publishingenvironmental or Corporate Social Responsibility(CSR) reports since 1998. Our last report, theJT Group Sustainability Report FY2017, waspublished in June 2018.

REFERENCED GUIDELINES
We have compiled the FY2018 report according to
the principles of the Global Reporting Initiative (GRI)
Sustainability Reporting Standards. We defined
the content of this document using a materiality
assessment that covered the entire JT Group.

EXTERNAL VERIFICATION AND
ASSURANCEThis report is not externally assured, although someof the information within it has been externallyverified. This includes environmental data andoccupational health and safety performance data.

Our GRI Standard Content Index shows the list of
Universal Standard Disclosures for which we haveprovided related information, either in this report or inother public documents such as our Annual Report.
The identification of Specific Standard Disclosures isbased on materiality assessments for the entire JT
Group.

The environmental data includes Group-wide Scope
1 and 2 GHG data, and some Scope 3 GHG data,
as we state on our website. Furthermore, energy
consumption, water withdrawal, wastewater
discharged, and waste generation (including each of
the sub-categories, i.e. waste recycled, incinerated
with/without heat recovery, and landfilled), have beenexternally assured.

NOTES ON DATA

In terms of occupational health and safety
performance data, only the data relating to ourinternational tobacco business is externally verified.

Data in this report covers January to December 2018,
unless otherwise stated. In 2014, the JT Group moved
its reporting period to the calendar year ending
December 31. Until March 2014 the fiscal year for ourJapanese domestic operations began on April 1 andended on March 31. Historical data indicated with
‘FY’ covers those periods.

In the future we will consider expanding the scope ofassurance of our non-financial data and the contentsof this report.

Although we report the overall JT Group figureswherever possible, in some areas this has not beenpossible. In such instances we have made it clear towhich part of the business the data applies.

In August 2018, we completed the acquisition of the
fourth largest tobacco company in Russia, Donskoy
Tabak.

Please see our website for information about the datareporting hierarchy.
www.jt.com/sustainability/report/index.html
We have shown how we calculate and consolidate
compliance, human resources (HR), health andsafety, environment, and community investment
data in our separate Basis of Reporting document,
which we will continue to update in the future. The
Japanese Yen exchange rates against the U.S. dollar
used in this report are the same as those used in ourconsolidated financial reporting.

In 2018, we were selected as a constituent of the
FTSE Blossom Japan Index, which is designed tomeasure the performance of Japanese companies
that demonstrate strong sustainability practices.
www.ftse.com/products/indices/blossom-japan

In November 2018, we completed the acquisition of
the Akij Group’s tobacco business in Bangladesh.

In 2018, JT achieved the highest ranking Gold status
for the third consecutive year in the Pride Index
Report of Japanese employers, which highlights themost LGBT-friendly companies. JT also received the‘Best Practice’ award for the second consecutive
year.

In 2018, JT was awarded the ‘Platinum Kurumin’certification for creating a supportive workplace for
employees with children.

DISCLOSURE INSIGHT ACTION

In 2018, we achieved Leadership status for climatechange and Management status for water with CDP,a globally recognized platform for environmental
disclosure.
www.cdp.net
In 2019, our approach to climate change was
showcased as an example of best practice. CDP
Stories of Change

CHANGES IN STRUCTURE, SIZE,
OR OWNERSHIPIn 2019, we have set a long-term GHG emission
reduction target in line with the Paris Agreement,
which was approved as an SBT by the Science Based
Targets initiative.
www.jt.com/media/news/2019/pdf/20190227_E01.
pdf)

OTHER PUBLICATIONSIn 2018, our international tobacco business wascertified as Global Top Employer, and JT was selected
as a ‘White 500’ company for the third consecutive
year.
Read more on pages 5 and 39.

In 2018, JT was selected as a “Nadeshiko Brand” thatencourages women’s success in the workplace.
Read more on page 37.

In January 2019, our international tobacco businessbecame the first Geneva-based multinational
headquarters to be certified as an equal salary
employer by the EQUAL-SALARY foundation.

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

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We are a member of the Dow Jones Sustainability
Asia Pacific Index.
www.sustainability-indices.com

CONTACTS AND FEEDBACK
Headquarters
JAPAN TOBACCO INC.

JT INTERNATIONAL SA

2-1, Toranomon 2-chome
Minato-ku
Tokyo 105-8422
Japanwww.jt.com

Rue Kazem-Radjavi 8
CH-1202 Geneva
Switzerland

For more information or tosend us your feedback on thisreport, please emailwww.jti.com

jtgcsr@jt.com
89