JT Group Sustainability Report
FY2013

Scope of data and information presented in this report
Unless the context indicates otherwise, references in this report to ‘we’,‘us’, ‘our’, and ‘JT Group’ are to Japan Tobacco Inc. and its consolidated
subsidiaries. References to ‘TableMark’ are to TableMark Co., Ltd., ourprocessed food subsidiary, and its consolidated subsidiaries. References
to ‘Torii Pharmaceutical’ are to Torii Pharmaceutical Co., Ltd., ourpharmaceutical subsidiary.
Due to the diverse nature of the JT Group, we do not have Group-wide
figures for all information presented in this report. As a result, we use
the following notation to show the scope of the data and information
reported (please see page 64 for a diagrammatic representation of thescope of our reporting).
This report follows the reporting principles of the Global Reporting
Initiative (GRI) G4 Sustainability Reporting Guidelines; however,
our reporting is not yet in accordance with the GRI G4 Guidelines.

*A = the entire JT Group
including subsidiaries (i.e. international tobacco, Japanese domestic
tobacco, pharmaceutical, beverage and processed food businesses)*B = solely Japan Tobacco Inc. (JT)(includes Japanese domestic tobacco, pharmaceutical, and beveragebusinesses, and excludes processed food business, international
tobacco business, and subsidiaries of all businesses)*C = Japan Tobacco Inc. (JT) and Japanese domestic group companies(includes subsidiaries of Japanese domestic businesses, excludes
international tobacco business)*D = Japan Tobacco Inc. (JT) and Japan Tobacco International (JTI)*E = solely Japan Tobacco International (JTI)
our international tobacco businessContents
CEO statement > P.04
Impacts in focus > P.08

Corporate profile > P.06
About this report > P.64

01 The JT Group and sustainability > P.12
Strategy and approach > P.13
The JT Group governance > P.14
Sustainability governance > P.15
Stakeholder engagement > P.16
Identifying our material issues > P.18
Performance highlights > P.19

02 How we do business > P.20
Code of Conduct > P.21
Anti-bribery and corruption > P.23

03 Our people > P.24

Health and safety > P.25
Responsible employer > P.27
Employee development and talent management > P.28
Equality and diversity > P.29

04 Responsible supply chain > P.30

Supplier standards and practices > P.31
Tobacco supply chain- strategy > P.33
Tobacco supply chain- long-term farmer profits > P.34
Tobacco supply chain- Agricultural Labor Practices and child labor > P.35
Tobacco supply chain- sustainable wood > P.37

05 Environment > P.38

Environmental management > P.39
Energy and GHG emissions > P.40
Resource efficiency – waste and water > P.42
Biodiversity > P.44

06 Product responsibility and consumer impacts > P.46
Our tobacco principles > P.47
Tobacco- health risks, transparency, and regulation > P.48
Tobacco- product innovation > P.49
Tobacco- responsible marketing > P.50
Tobacco- tackling illegal trade > P.52
Tobacco- products’ environmental impacts > P.54
Pharmaceutical- product responsibility > P.56
Beverage and processed food- product responsibility > P.58

07 The bigger picture > P.60

Providing training and employment support for disabled people > P.61
Supporting environmental protection > P.62
Supporting disaster relief and recovery > P.63

CEO statement

4 | JT Group Sustainability ReportThis year marks the 15th anniversary of JTI, our international
tobacco business, and the beginning of our shift from a primarily
Japan-focused company to a global business. Since then, we
have plotted a course of steady growth, navigating our way
through turbulent economic times, with stricter regulations andharsher competition. Today, the JT Group is one of the leading
tobacco companies in the world, with offices and factories inover 70 countries, and distinctive pharmaceutical, beverage andprocessed food businesses.
In the fiscal year 2013, we achieved another set of soundfinancial results, and at the same time reconfirmed ourcommitment to being a responsible corporate citizen. The “4S”
model, our management principle, guides our approach tobusiness, outlining the requirement to balance the interests ofconsumers, shareholders, employees, and wider society, while
fulfilling our responsibilities towards them and aiming to exceed
their expectations. I am convinced that following the “4S” model
will not only support our mid- to long-term growth, but also
support our contribution to the sustainability of society.
During the year, we strengthened our commitment tosustainability by appointing an Executive Officer with dedicatedresponsibility for our corporate social responsibility (CSR). In
our international tobacco business, we also created a new
CSR department to deliver our sustainability drive. I expect
these organizational changes to strengthen our sustainability
performance in the coming years.
We continue to seize opportunities and tackle challenges bothwithin and outside our direct operations. In our supply chain, we
work with thousands of small-scale tobacco farmers who facecomplex challenges such as child labor and deforestation, which
are often linked to wider issues of poverty and development.
We aim to exert a positive influence within our tobacco farming
communities to help address these issues as they can directly
and indirectly affect our own operations.

In our own operations, we established our long-term
commitment to environmental management through a new
Long-term Environmental Plan to 2020. The Plan focuses on our
most important environmental issues: climate change, waste,water, and biodiversity.
This report also reflects a growing commitment tocommunicating our sustainability performance, and in the
coming years we will report in accordance with the Global
Reporting Initiative (GRI), the global standard for sustainability
reporting.
These examples reflect only a fraction of our initiatives within the
JT Group. In carrying out these initiatives, we recognize the needto embrace change and to remain innovative in order to meet
our combined business and sustainability goals. We still havea long way to go, but I assure you that we are committed tofurther improvement and to meeting stakeholders’ expectations.

Mitsuomi Koizumi
President and Chief Executive Officer
Japan Tobacco Inc.

JT Group Sustainability Report | 5

Corporate Profile
About the JT GroupThe JT Group is a leading international tobacco company with offices and factories in over 70 countries. Our products are soldin more than 120 countries, and our internationally recognized brands include Winston, Camel, and Mevius. We also operate
pharmaceutical, beverage and processed food businesses, which allow us to diversify our sources of profit and achieve futuresustainable growth.
Headquartered in Tokyo, JT is listed on the Tokyo Stock Exchange and our company comprises five main business units:

Japanese domestic tobacco businessWe are the sole manufacturer of tobacco products in Japan.
Total sales volume was 120.1 billion cigarettes in 2013, and weheld a 61.0% market share based on sales volume of cigarettes
in Japan.

International tobacco business

Headquartered in Geneva, Switzerland, our international tobacco
business has 30 tobacco-related manufacturing facilities aroundthe world. Our international tobacco brands are distributed in
more than 120 countries worldwide.

Combined, our tobacco business is the third-largest manufacturer of tobacco products in the world by market share* and produces
three of the top ten global cigarette brands by sales volume.
* Based on unit sales of cigarettes and excluding China National Tobacco Corporation

Pharmaceutical business

Our pharmaceutical business conducts
research and development both inJapan and the U.S. We focus on threeareas: glucose and lipid metabolism,
virus research, and immune disorders
and inflammation. In Japan, sales andmarketing is conducted by our subsidiary
Torii Pharmaceutical.

6 | JT Group Sustainability Report

Beverage businessOur beverage business focuses on theJapanese market only and produces nonalcoholic beverages such as ready-todrink coffee and flavored waters.

Processed food business

Our processed food business also
primarily focuses on the Japanesemarket and is operated by TableMark,our processed food subsidiary. Key
products include frozen noodles,frozen and packed cooked rice, andfrozen baked bread. We also operatea production facility for seasonings, aswell as the ‘Saint-Germain’ bakery chain
in Japan, which offers fresh oven-baked
bread.

Key products and brands
Tobacco business

Beverage business

Winston, Camel, Mevius (previously Mild Seven), Benson& Hedges, Silk Cut, LD, Sobranie, Glamour, Seven Stars,
Pianissimo

Pharmaceutical business

Roots (canned coffee), Momono Tennen-sui (bottled flavoredwater)

Processed food business

Remitch Capsules (anti-pruritus), Truvada Combination Tablets(anti-HIV), Stribild Combination Tablets (anti-HIV)

Sanuki Udon (frozen noodles), Takitate Gohan (packed cookedrice), Bakers Select (frozen baked bread and pastries)

Quantity of cigarettes sold (billions of cigarettes)

120.1

416.4
International

Japanese domestic

Total number of cigarette and tobacco-related factories

30

International
Japanese domestic

Total

9
39

892

6,096

Total revenue*

5,035(billion Yen)

51,563

1,787

26,731

2,399.8
2,033.8

2,120.2

11,0222,000

Number of employees by business *A

1,000International tobacco business

2011

2012

Beverage businessJapanese domestic tobacco business

Processed food businessPharmaceutical businessCorporate

2013*Please refer to the Annual Report for further
details on financial information

JT Group Sustainability Report | 7

Impacts in focus
ARISE in action

8 | JT Group Sustainability Report

Business skills training in Malawi

Baking classes in Brazil

In 2012, in partnership with U.S.-based NGO Winrock International and the International Labour Organization (ILO), JTI launched amulti-year program, Achieving Reduction of Child Labor in Supporting Education (ARISE), with the aim of helping to eliminate childlabor in the tobacco growing communities where we do business.
The ARISE program works to tackle the social and economic factors that cause tobacco farmers to engage children in hazardous
work and provides a long-term, sustainable solution to the problems associated with child labor in tobacco growing communities.
ARISE aims to ensure that children are not part of the workforce by providing education and engaging with tobacco farming
communities in various ways. This ranges from providing educational materials, after-school tutoring, and mentoring, to vocational
training for older children in farming schools. Through ARISE, we work with communities to improve their understanding of thelong-term value of education, and the future prospects that it can bring. ARISE also works to replace lost income from child laborers
through Family Support Scholarships, which can enable parents or guardians to send their children to school.
Through long-term investment and expansion of the program, we aim to ensure the ongoing prosperity of children and their families.

Working to eliminate child labor
In Mthyoka, a village 33km from Malawi’s capital, Lilongwe, thecommunity depends on agriculture and small-scale businesses
to sustain their livelihoods. During the intensive growing
seasons, it has historically been regarded as normal practice forsmallholder farmers to use their own children, or employ otherchildren, to work on their farms.
When ARISE commenced in Mthyoka village, 30 of the mostvulnerable households were identified in an effort to curb
this trend. A Community Child Labor Committee (CCLC) wasestablished in the village and the mothers within these 30
vulnerable households were each given financial support, tohelp develop individual and group businesses, on the condition
that they enrolled and maintained their children in school.
ARISE aims to facilitate economic empowerment withinhouseholds in order to alleviate financial dependency onchildren’s labor and income. Together with the financial supportand some additional training provided by ARISE, the womenestablished local businesses and initiated a village savings andloan scheme to enable borrowing. By 2013, their savings meantthat the lost income from removing their children from farmlabor had been recouped through their new business ventures.
The women re-distributed this money according to the initialinvestment made by each of them, and they began saving
once more. As a result of ARISE, their children are attending
school on a regular basis, and the women were able to enroll 21
more children from the community into school, thanks to theirsavings, as well as purchasing play equipment for after-school
programs.
The CCLC members monitor the school attendance of children
and visit small-scale tobacco farmers in the village to assess theextent of any child labor.

JT Group Sustainability Report | 9

Impacts in focus
Supporting recovery
after the 2011 earthquake
in Tōhoku

10 | JT Group Sustainability ReportNew rice variety developed by the
JT Group set to revitalize local agriculture
October 2013 saw 12 farmers from Rikuzentakata City in Iwate Prefecture, one of the hardest-hit areas from the 2011 earthquake andtsunami in Japan, harvest their crop of a new rice variety. It was a significant moment, and those working to restore agriculture in theregion have placed high expectations on the new rice variety, ‘Takata no yume’, developed by the JT Group. Ukyo Niinuma, who hasleased the family’s land to another farmer to grow Takata no yume, said, “It’s a delight to see the new variety of rice growing in ourfield with its robust growth.”
Takata no yume was originally developed by the JT Group’s Plant Innovation Center (PIC) in 2000 as a new rice variety to suit theclimate of the Tōhoku region. It was officially registered as ‘Iwata 13’, but before it was commercialized, our agribusiness was closed
in 2003, leaving the seeds dormant inside the PIC’s seed bank.

Ukyo Niinuma, who has leased the family’s land to another farmer to grow Takata no yume

Iwata 13 becomes Takata no yume

The Great East Japan Earthquake struck the Tōhoku region
on March 11, 2011. The city of Rikuzentakata was hit by thetsunami and suffered unprecedented damages to its fields andcrops. Nine months after the earthquake, the JT Group donatedthe ownership rights and dormant seeds of Iwata 13 to the cityof Rikuzentakata in a bid to restore the city’s primary industry
and the livelihoods of its residents.
In April 2012, we set out to identify local farmers to cultivate therice. At first, there was little uptake as farmers were reluctant tocultivate a nameless rice variety with no previous track record,
especially in light of the challenges faced since the tsunami.
However, with the help of the local government, we were able tofind a farmer keen to grow the rice.

the farm on numerous occasions to provide assistance. In theautumn, soon after the first harvest was completed, the rice wasentered in a tasting event and its taste was highly appreciated.
At the same time, a competition was held to establish a newname for the rice variety and ‘Takata no yume’ was the winning
name, meaning the ‘dream of Takata’.

A symbol of the reconstruction

Takata no yume has become a symbol of the reconstructionof Tōhoku. In 2013, 12 farmers harvested a total of 28 tons.
Although only a small fraction of Iwate Prefecture’s annual rice
crop of 300,000 tons, it is nevertheless an important first step forthe people of Rikuzentakata City, who welcomed the JT Group’scommitment to assist in the reconstruction efforts.

Taste was the most important consideration for the first
cultivation, and JT employees with agricultural expertise visited

In 2014, the farmers aim to produce 150 tons and expand sales
to the general public. We will also continue to provide support in
helping to revitalize Rikuzentakata City’s agriculture.

Rice balls made of Takata no yume

A grower harvesting rice

JT Group Sustainability Report | 11

In this section

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

01 The JT Groupand sustainability

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

01|“4S” model

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

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

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

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

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

JT Group Sustainability Report | 13

The JT Group and sustainability

Value chain approach

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

Remuneration

Risk management

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

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

Compliance and audit

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

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

14 | JT Group Sustainability Report

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

Sustainability governance in the JT Group

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

CSR Division01|

The JT Group and sustainability

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

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

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

JT Group Sustainability Report | 15

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

Shareholders

Consumers

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

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

“4S” model

Employees

Society

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

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

16 | JT Group Sustainability Report

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

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

01|

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

Responsible engagement

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

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

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

JT Group Sustainability Report | 17

The JT Group and sustainability

Engaging with governments and regulators

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

Materiality matrix for the JT Group international tobacco business

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

LOW

Importance to external stakeholders

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

LOW

MEDIUM

HIGH

Importance to the JT Group international tobacco business

18 | JT Group Sustainability ReportPerformance highlights

11.5%

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

3,071

Children withdrawn or prevented fromchild labor

51,563

Number of permanent employees

9,130

Number of temporary employees

57.1billion Yen

24.9%

Female workforce

446

0.73

tons per million
cigarettes equivalent

Number of new suppliers certified toKnow Your Supplier (KYS)

GHG emissions intensity

100%

96.1%

ISO 22000 certified frozen food factories

Participation in Employee Engagement
Survey in Japan

7,780 million Yen

global expenditure on community
investment and corporate citizenshipprograms

JT Group Sustainability Report | 19

01|

The JT Group and sustainability

R&D spend globallyIn this section

Code of Conduct > P.21
Anti-bribery and corruption > P.23

02 How we dobusiness
Our Codes of Conduct underpin how we dobusiness across the JT Group. They outline
our individual and collective responsibility
to key stakeholder groups and to wider
society. All operations are required tocomply with the high standards of businessintegrity laid down in the Codes. These
include preventing bribery and corruption,
avoiding discrimination, respecting humanrights, environmental protection, data
privacy, and fair competition.
We establish systems and checks to ensurecompliance, and all employees are required
to abide by their respective Code. Employees
are trained on the requirements of the Codeand are provided with mechanisms toreport concerns about potential breaches orviolations.

20 | JT Group Sustainability ReportCode of Conduct
The JT Group Code of Conduct outlines our responsibilities towards consumers, business partners, shareholders, employees, andsociety. Our international tobacco business and pharmaceuticals subsidiary have their own Codes of Conduct, which are based on the
JT Group Code but also reflect their individual operating circumstances.
Our Codes of Conduct outline our legal and ethical obligations and describe practices and procedures that must be followed to meetthese obligations. The standards set within our Codes of Conduct form an integral part of how we manufacture, sell, and market our
products and are supported by our policies, procedures, and operating guidelines. The consequences of violating laws and ethicalprinciples can be severe, including large fines or criminal penalties, loss of business, and damage to our reputation. Our Codes ofConduct work to protect our business from actions that might lead to these consequences.
Our Codes of Conduct are regularly updated. The JT Group Code of Conduct is updated in line with changes to relevant laws andregulations, and the most recent update was in 2012. In our international tobacco business, we update the Code of Conduct every
three years. The most recent revision was in 2011 and the next update will be in 2014.
All employees and executives are required to adhere to their relevant Code of Conduct, and in our international tobacco business wealso require all commercial partners to act in accordance with our standards. Every employee across the JT Group1 receives a copyof the relevant Code of Conduct when they join the Company or when there is an update to the Code. Each employee is required tosubmit an acknowledgement that they have received the Code. Please see www.jt.com and www.jti.com for full details of the Group
Code and international tobacco business Code, respectively.
1

excluding Torii Pharmaceutical

Ryoji Chijiiwa
Senior Executive Vice President, Compliance and General Affairs,
Japan Tobacco Inc.

Code of Conduct training
We provide online, face-to-face, and on-the-job training toraise awareness of our Codes of Conduct and embed ethicalbehavior across our business practices. For employees required
to adhere to the JT Group Code of Conduct, we expanded
the scope of our online training in 2013 and 98.9% of eligible
employees participated in compliance training during
the year *C.

In our international tobacco business, employees are required
to complete an online or face-to-face training session once
every three years. The last session of Code of Conduct training
was delivered to 22,365 employees around the world in 18
languages.

98.9%

of employees participated incompliance training during the year *C

JT Group Sustainability Report | 21

02|

How we do business“Our Codes of Conduct are vital to our success and are critical documentsthat support our compliance and ethics programs. Our Codes reflect the
JT Group’s values and responsibilities to consumers, business partners,
shareholders, employees and society; and they indicate the behavior thatevery one of us should follow.”ComplianceIn our Japanese domestic tobacco, pharmaceutical, andbeverage and processed food businesses, every division isrequired to assess their compliance risks and submit plans toaddress any risks identified. A compliance survey is carriedout each year, and the results of the survey feed into eachdivision’s plans for addressing compliance risks. Approximately
28,500 employees2 responded to the 2013 compliance survey,
representing a response rate of 95.5%. Each division2 is also
required to hold a compliance meeting at least once a year. The
meetings raise awareness of compliance issues and risks andallow risk management plans to be developed.
In our international tobacco business, we launched a second
global compliance survey in 2014 to evaluate employees’
perception of the culture of compliance within the business andwhether we operate in line with the Code of Conduct.
2“The response rate of 86% for the2014 Compliance survey exceeded
expectations and benchmarks of otherhigh performance companies. This
response represents almost 20,000
employees participating either online
or in paper format.”Bruno Duguay
Chief Compliance Officer, Japan Tobacco International

excluding Torii Pharmaceutical

Reporting concerns
Across the JT Group, each of our operating companies has its
own compliance team. If an employee is concerned about apotential violation of our Codes of Conduct, they can contact
their line manager, human resources lead, or a member of thecompliance team. All employees in Japan2 receive a Reporting
Concerns booklet explaining the process. In Japan, we also
provide an external reporting concerns service, run by anindependent provider. All reported concerns and investigation
reports are treated on a strictly confidential basis.

2013
Total cases
reported toCompliance *A

375

In our international tobacco business, our Reporting Concerns
Mechanism (RCM) is a confidential channel for employees toraise concerns. The system uses a network of more than 200
RCM contact people from around our global operations. RCM
contact persons are trained to listen carefully to any employee
reporting a concern, collect information in a consistent way,
and protect the identity of the reporting employee and any
employee suspected of misconduct. The Corporate Compliancefunction follows up on all reports and, where necessary,launches an investigation. If appropriate, corrective measures
are taken. In the last five years, use of the RCM system has
steadily increased, pointing to increasing confidence among our
employees in the RCM process.

Anti-competitive behavior
Competition laws and the issue of fair competition are coveredby our Codes of Conduct. Our employees are prohibited fromdiscussing business operations with competitors. This includes,
but is not limited to, pricing, terms and conditions of sales orpurchases, customers, suppliers, markets, or any other sensitive
or confidential commercial information.
In our international tobacco business, for example, if an
employee is engaged in a conversation or meeting witha competitor and sensitive or inappropriate commercial
information is discussed, they are instructed to end theconversation, express their disagreement with discussing such
topics, leave the meeting immediately, and report the matter to a
Legal department representative.
Compliance news bulletin

22 | JT Group Sustainability ReportAnti-bribery and corruption
With operations spanning the world, some of our business is conducted in jurisdictions with a high prevalence of bribery andcorruption. Our Codes of Conduct forbid corrupt practices in any form. With its wide geographical spread, our international tobacco
business faces the greatest exposure to corruption risk. To ensure our approach reflects the latest regulatory developments, suchas the U.K. Bribery Act, we updated the anti-bribery and corruption requirements of JTI’s Code of Conduct in 2011. This reinforced
our zero tolerance approach to corruption in our operations. Employees are encouraged to report any concerns regarding bribery or
corruption through our Reporting Concerns Mechanism (see page 22).

% of Reporting Concerns Mechanism claims relating to corruption *E

2011

2012

2013

2.1%

3.4%

4.3%

02|

How we do businessTraining
In our international tobacco business, we train employees
on anti-bribery and corruption through our Code of Conduct
training. In 2013, we developed three training approaches
specific to anti-bribery and corruption: online training for
employees with a higher risk of exposure to bribery andcorruption; anti-corruption compliance workshops for regional
and local management teams, and the leadership team of ourmanufacturing operations; and the inclusion of anti-corruption
case studies within our online Code of Conduct training, which
is provided to all international tobacco business employees.

Gifts, hospitality, and entertainment
Our international tobacco business also has a policy tocomply with all laws on the exchange of gifts, hospitality, andentertainment (GHE), including with government officials. We
do not encourage a culture of exchanging GHE as it could
potentially breach local legislation and is a source of reputationalrisk. Under the policy, prior approval must be sought for all GHE
exchanges with government and public officials regardless ofvalue. In other cases, we take into account local circumstances
and all GHE exchanges above US$250 must be approved.
The purpose of GHE should be to promote healthy business
relationships rather than seeking to gain a business or personaladvantage or reward preferential treatment. In 2013, weupdated our GHE policy as part of a wider review of our anticorruption approach and launched a new GHE online training
course, which was delivered to 1,090 relevant employees during
the year.

To ensure complete transparency and provide a clear audit trail,
we have a central system to log, approve, and report all requests
for GHE. On a quarterly basis, our Corporate Compliancefunction analyzes GHE requests and reports to management the
number and value of GHEs exchanged.
In 2013, the total number of GHE requests that were fully
approved increased to 673 from 519 in 2012. The increase in
GHE requests matches the increase in awareness across ourbusiness in line with communication, training, and management
workshops delivered in the past two years. This will continue
to be a strategic priority in order to minimize the possibility ofcorruption cases in our operations.

JT Group Sustainability Report | 23

In this section

Health and safety > P.25
Responsible employer > P.27
Employee development and talent management > P.28
Equality and diversity > P.29

03 Our people
A large part of how we dobusiness relates to how weattract, retain, and treat ouremployees, and how we keepthem safe at work.
Our approach to humanresources is grounded in
our “4S” model. We provide
all JT Group employeeswith growth opportunities,
adopt transparent rules andstandards, treat all employees
fairly, respect diversity, andseek a variety of talent.
Our employees are a criticalcontributor to our successand by following thisapproach, we aim to provide
workplaces where they can
thrive and develop.

24 | JT Group Sustainability ReportHealth and safety
To the JT Group, effective health and safety management means not only complying with all relevant legislation but also establishingsystems to minimize risks for employees, contractors, and visitors to our operations.
Group-wide, we have a uniform understanding of the importance of health and safety, and this is reflected in individual policies
within our business units that are tailored to specific business needs. Although each business has its own policy, there are a numberof common factors to our approach, including maintaining effective management systems, using systematic risk assessments to
identify workplace risks, and investing in continual performance improvement.

Health and well-being team in Brazil

HealthIn our international tobacco business, we launched a wellness
strategy in 2013 that defines our approach to worker health,hygiene, and well-being. The strategy consists of four pillars
for improvement of health management and performance:
reaction, risk assessment, control and management, and wellbeing. The initial focus has been on understanding absence
through ill health by determining health risks in our supply chain
and manufacturing operations so that we can make informed
decisions on worker protection. Future focus areas include
exposure control and risk management, developing competence
among our employees, and developing global well-being
programs that address the reasons for employee absence.
We will also focus on business resilience through pandemicplanning and endemic disease programs, such as for HIV/AIDS.
We are taking the model of our successful Action Against AIDS
program in South Africa and have initial plans to roll the initiativeout across our operations in Malawi, Tanzania, and Zambia.
Here, prevalence of HIV and AIDS are among the highest rates
globally.

Safety in our Japanese domestic
businesses
In 2013, we renewed our five-year Occupational Safety Hazard
Prevention Plan *B that sets a target to eliminate occupational
accidents in JT by 2017. With one lost time incident (LTI) acrossour 13 Japanese tobacco-related manufacturing facilities in
2013, we are close to achieving zero LTIs. Our ongoing focus

Training is an essential part of achieving our goal, and amajor training program in our Japanese domestic tobacco
manufacturing operations is Kiken Yochi training, or risk
prediction training. The training brings together small groups of
employees to identify operational risks, determine root causes,and develop risk mitigation approaches and goals for their own
factory.

Safety in our international
tobacco businessIn our international tobacco business, our safety strategy targets
work-related injuries and aims to build a sustainable safety
culture. Twenty-one of our manufacturing sites are certified to
the OHSAS 18001 safety management standard, and in 2013
the first of our research and development facilities achieved
certification. Our target is to certify all manufacturing, researchand development, and tobacco leaf supply chain operations
to ensure we have a consistent and systematic approach to
improving workplace safety.
Key safety initiatives that we are implementing include
Safety Culture and Fleet Safety Programs. Our Safety Culture
Program engages and encourages employees to adopt safe
workplace behaviors. It includes safety leadership training,safety observation, and dialogue processes, and establishes
task-teams for specific safety topics. The Fleet Safety Programprovides defensive driver training and web-based safe driver
training, as well as setting objectives to reduce road trafficcollisions. These programs have contributed to a downward
trend in work-related injuries. As our business grows, wewill review and revise these programs to ensure all high-risk
activities continue to be targeted for safety improvement.

JT Group Sustainability Report | 25

03

Our people

The health of our employees is directly linked to theirproductivity and satisfaction at work. Within JT *B, we provide afull-time medical staff of 14 doctors and 34 public health nurses
across 11 office locations. They provide legally required medical
examinations as well as health checks and consultations to help
employees with lifestyle-related health issues.

is on eliminating all recordable incidents, and we developed
new ‘Safe Working Guidelines’ for our tobacco manufacturing
operations in 2013.

Japan Tobacco Inc.*B

2011

2012

2013

Occupational accident frequency rate*1

1.13*30*3

4.44

Occupational accident severity rate*2

0.012*3

0*3

0.031

Total number of fatalities

0

0

0

Total number of lost time incidents (LTIs)

25

20

31

1,000,000 x (Number of lost time incidents/Total working hours)
1,000 x (Number of work loss days/Total working hours)*3
Please note that 2011 and 2012 data for occupational accident frequency rate and accident severity rate represented production sites only; however, 2013 data
includes all JT operations*B due to improvements in the scope of reporting*1*2

International tobacco business *E

2011

2012

2013

Number of fatalities

2

2

3

Number of lost time incidents (LTIs)

76

68

58

LTI rate (LTIs per 200,000 hours worked)

0.32

0.29

0.22

Number of vehicle accidents

1,757

1,508

1,362

8.4

7.1

6.1

Vehicle accident frequency rate (accidents per million km)

In our international tobacco business, safety performance in certain areas can be challenging due to vast differences in safety cultures
within the geographies in which we operate. In 2013, across the international tobacco business, there were three fatalities. We had
58 lost time incidents (LTIs), the lowest number since measurement began in 2003. The number of vehicle accidents was reduced
by around 22%, and our vehicle accident frequency rate was reduced from 8.4 to 6.1, which again is the lowest in the international
tobacco business’s history. We will continue to improve our safety performance until we achieve our vision of an injury-free work
environment. Further details can be found within the JTI Environment, Health & Safety (EHS) report on www.jti.com.

26 | JT Group Sustainability ReportEmbedding safety in new
acquisitions: Sudan
Following the 2011 acquisition of Haggar
Cigarette and Tobacco Factory in Sudan,
one of our first priorities was to improvea safety record that fell far short of ourstandards. With support from regional andglobal safety leaders, a four-year safety
roadmap was devised, starting in early2012 with the urgent need to provide
Personal Protective Equipment, and ensure
it was used. The roadmap also includes
implementing safety procedures, safety
leadership training, incident reporting andinvestigation, and regular progress review
meetings. In a short period, the intensive
safety focus started to pay off, with LTIs
reduced from 23 in 2011 to nine in 2012
and two in 2013.

Car fleet safety in Russia
In Russia, our vehicle fleet consists of
1,800 vehicles travelling some 38 million
kilometers each year. Following a study by
our safety team, we discovered that 45%
of our fleet accidents were speed related.
In response, we initiated a fleet safety
program in 2012. The program includes
GPS monitoring of our vehicle fleet, whichallows us to record vehicle speeds anddriver behavior such as accelerating,braking, and overtaking. Combined withregular driver training, the program has
halved the vehicle accident frequency (VAF)
rate from 8.7 in 2011 to 4.11 in 2013 andreduced total accidents from 347 to 150
accidents. The program has also received aState Traffic Police commendation.
VAF rate = number of fleet vehicle accidents/
distance in kilometers travelled by all vehicles x
1,000,000 kilometers

Responsible employer

Working with Trade Unions

Communicating with employees

We have a long history of positive industrial relations. Across the
JT Group, industrial relations are based on individual countries’
labor laws, and we aim for open and constructive relations
with Trade Unions and Works Councils. Dialogue with Trade
Unions is generally undertaken within the jurisdiction of our local
operations, and typical engagements cover aspects of company
management, strategy and planning, as well as operational
issues.

Across the JT Group, we communicate with our employees
irrespective of whether or not a Trade Union is in place tokeep them informed on important company matters. We
use many communication methods from notice boards andface-to-face meetings to web-based channels and electronic
communications for our sales forces in the field.

In JT *B, 99.9% of our employees in non-management positions(and 74.8% of contract and part-time employees) are covered bycollective bargaining agreements. In our international tobacco
business, Trade Unions or Local Works Councils represent
the workforce in 21 countries. These groups generally exist
to facilitate employee–management dialogue, and several
groups also negotiate on behalf of the workforce. In 12 ofthese countries, the majority of the workforce is unionized andmembership is voluntary in all but two. In two of our operating
countries, employee negotiations are carried out at an industry
level so there is little direct company involvement.

Employee Engagement Survey

One method of communicating with employees and receiving
their feedback is our Group-wide Employee Engagement
Survey (EES), conducted regularly across the JT Group. The
EES gathers employees’ views on their working environment,
our way of doing business, and the business unit or function
they belong to. Each function uses the results of the survey todevelop initiatives to improve the workplace, make operations
more effective, and further motivate employees.
In 2013, 96.1% of our workforce in Japan *C participated in thesurvey.

In line with the relevant European Directive, we also have a
voluntary European Works Council agreement in place. Our
European Works Council operates as an employee informationand consultation body for transnational issues relating to ouroperations in Europe. The Council has regular meetings eachyear and is made up of employee representatives and membersof management.

JT Group Sustainability Report | 27

03

Our people

The JT Group operates a strategic framework that acknowledges employees as a cornerstone of our success. We invest in our
employees accordingly and encourage collaboration across our diverse workforce, which spans more than 70 countries. Two criticalfactors that support this approach are ongoing engagement with our employees and positive industrial relations. Communication
is key to being a responsible employer, and we engage in an open dialogue with employees and their representatives to generatemutual respect.

Employee development and talentmanagement
Our employees contribute to the success of the JT Group and in return we provide an open, fair, and stimulating work environment
in which they can pursue their goals and improve their skills and abilities. This is reflected in our human resources policies, which
establish the Group-wide goal of providing growth opportunities for all employees and ensuring we have the right person to fill theright position at the right time. We see this approach as an investment in the future success and growth of the JT Group.

Development process
For the JT Group, dedicated communication between
managers and employees is a critical part of the employee
development and talent management process. Performanceappraisals are important means for employee development,setting an employee’s development objectives as well as
business objectives. These are based on needs identified
during the previous year or those required to deliver successful
performance in the future. In 2013, 97.9% of our workforce *B
received performance appraisals. In our international tobacco
business, the number of employees who received performanceappraisals has steadily increased over the years to approximately
15,700 in 2013.
To help develop our existing workforce, our policy is to fill open
positions with internal candidates who have the right experience
for the job. In our international tobacco business, we filledapproximately 90%* of all management positions with internal
candidates in 2013.
Enabling employees to explore opportunities or roles acrossfunctions, business units, or internationally is another key part ofdeveloping talent within the JT Group. It provides opportunities
for career progression and helps to meet the changing needsof our global organization. In our international tobacco businessin 2013, 3,999* employees changed positions internally,
representing around 15% of our international workforce.

JT/JTI Talent Partnership Program

To develop the global capabilities of our workforce and help
develop our future business leaders, we established the JT/
JTI Talent Partnership Program in 2006. The Program builds
employees’ skills and experiences by exposing them to thedifferent working styles and cultures between our Japanese
domestic and international tobacco businesses. The Programis a long-term investment for the Group and allows the transfer
of technical skills and brand knowledge as well as building
relationships between the JT Group’s two largest business
units. In 2013, 162 employees from JT were working within theinternational tobacco business, up from 136 employees in 2012.

Training
Employee training is provided through a mixture of on-the-job
learning, formal internal and external training, and e-learning.
Due to the diverse nature of our international tobacco business,
we operate a number of centralized training academies toensure we provide a consistent approach to training regardlessof geographical location. These include training academies forleadership development, Manufacturing operations, Consumer
and Trade Marketing, Corporate Affairs, Human Resources,and IT.
*Data note: data relates to our international tobacco business and excludes
locations not currently on our SAP HR Management System, amounting to3,033 people in 2013

External recognition
In a number of countries, we have received recognition for our employee practices.

Top Employers 2013

Investors in People

Belgium
Czech Republic
Denmark
FranceGreeceJordanRussiaSouth Africa
Tanzania

Italy
the Netherlands
PolandSwitzerland
U.K.

TurkeyU.K.
WWDF

Great Places to Work 2013
Ireland
Italy

Spain
TurkeyIn addition to these awards and certifications, a number of the JT Group’s entities were also recognized in local best employer awards
and ratings.

28 | JT Group Sustainability ReportEquality and diversity
We are proud of our diverse workforce and the way that it contributes to and shapes the culture of the JT Group. Employing a diverse
workforce is a strong source of competitiveness within an international marketplace and supports our goal of sustainable growth. In
2013, we employed more than 110 nationalities across our global workforce. Beyond national diversity, we value diversity of opinion,
allow people to express their own personalities, and believe in creating a work environment that fosters creativity and innovation.
We have a commitment to equal opportunity and anti-discrimination, and this is reflected in our Codes of Conduct and humanresources policies. We recruit strictly based on talent and regardless of an individual’s race, nationality, creed, religion, gender, sexual
orientation, or physical ability.

Gender diversity
The JT Group maintains an open approach to diversity. We takea gender-neutral approach to recruitment in order to appeal
equally to all potential employees irrespective of gender or any
other measure of diversity. We do not apply diversity quotas in
our hiring processes and recruit solely on ability. While we havea gender-neutral approach to recruitment, we want to ensurethat we create workplaces that are attractive to women and put
in place measures to ensure that we attract, support, and retain
female employees across the Group.
In JT *B, we established a Diversity Development Department in2013, with the aim of promoting working environments in which
diverse workforces can thrive. Although diversity covers various
factors, the current focus of the department is female

representation. Female representation within management
increased from 1.4% in 2013 to 2.2% at the end of March 2014.
We have set ourselves a target to triple this figure by 2018, andachieve 10% female management by 2023. To support thisgoal, we have established a dedicated section on our intranet
and hold seminars on female empowerment in the workplace.
During the recruitment process for spring 2014, females
accounted for more than 30% of new hires.
In our international tobacco business, the overall ratio of
men to women was 70:30 in 2013. Female representation atVice President and Director level stood at 11.1% and 25.9%,
respectively.

Female35

1Management excluding Executive Officer

1,924

261

Non-management

22,702

7,909

Executive Officer

Data note: data excludes locations not currently on our SAP HR Management System, amounting to 3,033 people in 2013

Generational diversity
In addition to gender diversity, we work to create a culture that takes advantage of inter-generational learning and experience sharing.
Our policies and practices do not discriminate on the basis of employee age or generation, and we adopt ways of working that areappropriate to all generations represented in our workforce.

3%

Breakdown of employees bygender and age group *D (%)
Male
Under 30 years old

17%

14%

From 30 to 50 years old
Over 50 years old
Female8%

Under 30 years old

2013

From 30 to 50 years old
Over 50 years old
Data note: data excludes locations not
currently on our SAP HR Management
System, amounting to 3,033 people in 2013

15%
43%

JT Group Sustainability Report | 29

03

Our people

Number of employees by position and gender in 2013

Male

*D

In this section

Supplier standards and practices > P.31
Tobacco supply chain: strategy > P.33
Tobacco supply chain: long-term farmer profits > P.34
Tobacco supply chain: Agricultural Labor Practices
and child labor > P.35
Tobacco supply chain: sustainable wood > P.37

04 Responsible
supply chain
Our supply chain provides the
products, services, and raw materials
for our tobacco, pharmaceutical,
and beverage and processedfood businesses. We have tens of
thousands of suppliers around theworld, many of which are small-scale
farmers providing the raw materials
we need for our products.
We expect all of our suppliers
and business partners to upholdhigh standards of integrity. Our
Responsible Procurement Policy, ourSupplier Standards, and our Codesof Conduct detail our approach toselecting suppliers and establishingsupplier standards.

30 | JT Group Sustainability ReportSupplier standards and practices
With businesses in a wide range of sectors, our supply chain is large and complex. Wherever we operate, we expect our business
partners to share our commitment to the highest standards of business integrity, legal compliance, and responsible business practice.
At the Group level, our Responsible Procurement Policy sets this expectation. It clarifies that when selecting suppliers, we takeaccount of candidates’ compliance with relevant laws and regulations, and requires that we consider human rights, the environment,
and other social responsibilities. Please visit www.jt.com/csr/procurement/principle for more details on the policy.

Know Your Supplier
In JTI, our international tobacco business, we operate a formal
supplier selection and review process, based on criteria suchas assurance of supply; service delivery; quality of products
and services; commercial flexibility; innovation; ethical businesspractices; and respect for environment, health, and safety
regulations.

In our pharmaceutical and beverage and processed foodbusinesses, we select suppliers based on rigorous checks thatprioritize quality and safety. Both sectors focus on the full chainof supply, an approach that is described as part of our productresponsibility approach on pages 58–59.

Through KYS, a supplier completes an online questionnaire andprovides supporting evidence to show that their business meetsrelevant technical and commercial standards and also complies
with our KYS standards. Finally, once a supplier is contracted,
they receive JTI’s Supplier Standards, which set out a number ofrequirements that suppliers must meet.
In 2012, we introduced an additional step in the certification
process, which involves a site visit to review compliance with
our standards for specific categories of suppliers. In 2013,
external auditors conducted 11 supplier site assessments,
mainly in China. The suppliers involved have completed all
corrective measures identified during these assessments.

Certification process

Step 1
Potential supplier- initiate certification

Step 5a
If needed corrective actions
are undertaken at supplierlevel

Step 5

Step 2Due diligence- EU certification- Internal audit

Supplier screening- ongoing- On-site verification

Step 4

1,057

Certified global
and local suppliers

Step 3

Annual certification renewal

Supplier certification

Start business
relationship(contract)

JT Group Sustainability Report | 3104

Responsible supply chain

In our tobacco business, we established the JT Group Principles
in Leaf Tobacco Production in 2013. Under these principles,
we work with contract tobacco growers to improve thequality of leaf tobacco, raise workplace standards, protect theenvironment, and work to eliminate child labor. Please visit
www.jt.com/csr/procurement/leaf_tobacco for more details on
our tobacco production principles. More detail on our approachto sustainability in our tobacco supply chain is also provided on
page 33.

In line with the JTI Code of Conduct and recognized international
standards, we also run a Know Your Supplier (KYS) programfor key suppliers. KYS provides a framework for assuring that
our suppliers respect business integrity, equal opportunities,
fair employment, health and safety, and the environment. KYS
also aims to help ensure that our supply chain is free fromassociation with the illegal tobacco trade (see page 52).

Supplier certification to KYS *E

2012 2013

Number of new certifications

203

446

Number of certifications renewed

386

611

Monitoring compliance
Under KYS, in the event that shortfalls in standards are identified, a supplier is given the opportunity to implement corrective
measures. We then follow up with the supplier to ensure these measures are effectively in place.
We take a zero tolerance approach to the illegal trade in tobacco products (see page 52). If we discover a supplier has knowingly
engaged in illegal trade, or facilitated it, the supplier is blocked from doing business with us and their contract is terminated.

Agricultural Labor Practices training

Know Your Grower
Our Agricultural Labor Practices (ALP) set the standards we
expect of our contracted tobacco growers for safe and fairworking conditions. Know Your Grower (KYG) is our programfor monitoring and managing tobacco farmers’ compliancewith the ALP standards. An ongoing cycle of observation andcontinual improvement, KYG directly helps our contracted
tobacco growers to meet their contractual obligations to the
ALP standards (see page 35 for more details on ALP).
Within KYG, our farming experts observe labor practices during
farm visits where they advise on the best growing methods
to improve tobacco yield and quality. Farming experts record
any misalignment with the ALP standards, along with otheropportunities for improvement on contracted growers’ farms,
and provide advice on making improvements. Our farming
experts play a central role in KYG, and their training not only
includes the ALP but also provides the skills needed to support
growers to bring about improvements.

Implement Know Your Grower incorporating
ALP

32 | JT Group Sustainability Report

With the observations and data collected through KYG, we aim
to understand better those cases where growers do not meet
the ALP. This allows programs to be developed to help themmeet their commitments. This information will also provide
the basis for tailor-made social investments in our farming
communities.
Following successful pilots of KYG in Brazil and Serbia in
2013, and guided by the International Labour Organization(ILO) principles, we are accelerating implementation in thesecountries during 2014. We plan to implement KYG in the Africancountries where we buy tobacco leaf directly from contracted
growers during the 2015–2016 crop seasons. As KYG coverage
grows, we will train more farming experts to ensure thoroughobservation and the successful expansion of the program.
In 2013, 1% of total growers were involved in KYG program
preparation. It is planned to cover the whole directly contracted
grower base by 2018.

Target2012

2013

Rollout in Serbia and Brazil during 2014

Preparation of pilot
programs in Serbia
and Brazil

Implementation of pilot
programs in Serbia
and Brazil

Rollout in U.S., Zambia, Malawi, andTanzania by 2018

Tobacco supply chain- strategy
Securing a long-term supply of quality tobacco leaf is the foundation of our tobacco supply chain strategy. It allows us to continue
creating value for both the JT Group and the tobacco farming communities we work with. Our vision for international tobaccoprocurement (tobacco leaf procured internationally, i.e. outside Japan, is used by the whole Group) is to ‘lead in sustainable leaf
supply’ and is underpinned by four key strategic goals:

04

Our first priority is to preserve tobacco farming and ensure
the long-term viability of the farmers who supply us directly
and indirectly. If farmers cannot make a profitable livingfrom growing tobacco, then our business cannot succeed.
Our farmer profits model is being tailored to different local
circumstances and helps us to offer sustainable returns overthe long term.
Profit comes from more than price alone. We work closelywith farmers to ensure they have access to the rightgrowing materials and use the best growing and curingmethods to maximize the quality and yield of tobacco leaf
per hectare. We also encourage crop rotation, which canprovide alternative income, can improve food security, andpromotes soil preservation. Research and innovation is
crucial to understanding the best farming methods. Our
Agronomy, Development, Extension, and Training (ADET)
center in Brazil studies many aspects of tobacco farming,
and works closely with farmers to implement the results on
the ground.

2. Social and environmental leadership
By helping farmers to be profitable over the long term,
we can make a positive contribution to social conditions
in tobacco farming communities. We provide additional
support by investing to improve quality of life and overall
conditions in the rural communities where we operate. We
do this by creating access to clean water, improving wellbeing, and advancing education through targeted social
investments within our Grower Community Programs (seepage 35).

We aim to reduce the environmental footprint of ourtobacco supply chain, and our primary focus is on energy
reduction and good forestry practices. The latter is ofparticular importance because we rely on wood as a vital
fuel for flue-cured tobacco.

3. Operational excellence

It is vital that our operations are well equipped to support
our supply chain. By allocating suitable resources to ouroperations, we ensure that the appropriate organization,
capital infrastructure, systems, and processes are in place.

4. Access through partnership

We can only respond to the economic, social, andenvironmental factors that influence the long-term supply
of tobacco leaf by working in partnership. We build direct
relationships with farmers and, wherever possible, we aim
to purchase tobacco directly from farmers rather than fromauction floors. This helps to ensure that we secure accessto tobacco leaf in a responsible manner. We also work in
partnership with governments, NGOs, leaf tobacco dealers,and other stakeholders on issues in our tobacco supply
chain.
The initiatives and data in the tobacco supply chain sectionof this report primarily relate to our directly contracted
farmers outside Japan.

JT Group Sustainability Report | 33

Responsible supply chain

1. Preservation of tobacco farmingTobacco supply chain long-term farmer profits
Long-term farmer profits are an essential part of our strategy to secure a lasting supply of high-quality tobacco leaf. Many factors
affect the profitability of our farmers. Although some are outside our control, such as weather patterns and demographic change,
we focus our attention on those that we can influence, including cost of production, yield, quality, and price. As a result, we haveestablished four key pillars to improve farmer profits in our international procurement of tobacco:

Managing direct relationships with farmers

Supporting production cost savings

Modeling sustainable farmer returns

Innovation and better farming practices

Building and maintaining strong relationships with our farmers helps us
to optimize the factors that improve their profitability. Our local farming
experts work with our directly contracted farmers to help them improve
tobacco production techniques. Across Zambia, Malawi, Serbia, U.S.
and Brazil in 2013 we had 243 farming experts in place, up from 159
in 2012.

We have developed a unique farmer profits tool to support our goalof enabling farmers to earn sustainable profits over three to five
years. Currently in place in Brazil, the tool takes into account the local
conditions and other factors, including costs, risks, and alternative
income sources, which inform the price that we negotiate with farmers
each year. We also use the tool to check that the average price paid overmultiple crop cycles delivers progress towards sustainable profit. We willroll out the tool across Malawi, Zambia, U.S., and Serbia in 2014.

Reducing the cost of tobacco growing, harvesting, and curing resultsin direct savings for farmers. We can reduce costs by helping farmers
to be more efficient; for instance, fertilizer application in Brazil has
been reduced by up to 15% since 2010, and by bringing down the costof materials. We buy many input materials in bulk and pass savings on
to our growers. By sourcing ourselves, we can also ensure quality andreliability.

Our ADET center in Brazil is dedicated to researching tobacco farming
innovations that will improve quality and productivity. During 2013,
there were 75 ongoing trials, including assessments on fertilizing andirrigation methods, curing efficiency, mechanization, and agroforestry
and integrated pest management practices. The results of our research
are passed on to farmers in numerous ways. In 2013, we trained 230
farmers at the ADET center, and our farming experts host field dayson ‘model farms’, where a local farmer has been recognized for theirexpertise in applying our recommended agronomy practices.

Half-a-hectare of tobacco in a box
The ‘farm in a box’, distributed by our international tobacco business, provides all asmallholder needs to start a 0.5 hectare plot of tobacco. Each pack contains selected seeds,
crop protection materials, utensils, and safety equipment. An improved Grower Pack, now
being distributed in Zambia, also contains a growing manual that provides farmers withguidance. If required, a farming expert can advise the grower, using the photographs orcalendar in the manual. The pack also provides guidance on labor practices and safety
procedures.

Target2012

2013

Good agricultural practices

100% of directly contracted farmers receive technical support

93%

95%

Farmer cost of production model

Farmer costs of production model implemented across all countries
where we source tobacco directly from contracted farmers by 2013

100%

100%

Farmer profit modeling

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

Pilot in Brazil

Review of pilot
and model
enhancement

34 | JT Group Sustainability ReportTobacco supply chain Agricultural Labor Practices and child labor
We source tobacco from several developing countries where communities are highly dependent on agriculture. Alongside improving
growing standards, we work with our farmer communities to address a range of important issues. These include improving the rights
and safety of tobacco workers through our Agricultural Labor Practices; improving living conditions and livelihoods through our
Grower Community Programs (GCP); and eliminating child labor, for instance through education with our ARISE program(see page 8).

Agricultural Labor Practices

Grower Community Programs

Our Agricultural Labor Practices (ALP), launched in 2013, define
the standards we expect of our contracted tobacco growers
for safe working conditions, fair treatment, working hours,
provision against forced labor, and freedom of association. They
also describe our stance against child labor and measures toeliminate it. Growers’ compliance with the ALP is monitored
through our Know Your Grower (KYG) program, which is partof our wider Know Your Supplier approach. We will expect allcontracted farmers to be compliant with the ALP once KYG
program is fully implemented across our tobacco supply chain.
For more detail on KYG and its rollout, please see page 32.

Our Grower Community Programs (GCP) deliver community
projects based on an assessment of need. In 2013, we
ran community programs in 82 communities: 11 in Brazil,
68 in Malawi, and 3 in Zambia. GCP priorities are school
infrastructure, education, water, sanitation, and community wellbeing. In 2014, we plan to launch a scheme to sponsor teachers
in order to build their skills and create conditions where bothteachers and students can succeed.

04

Responsible supply chain

Grower Community Program: Zambia
In 2013, we drilled boreholes to provide access to water for an
estimated 10,000 people in three Zambian tobacco communities.
This reduces the time spent fetching water and improves accessto clean running water. We have also funded a maternity ward inZambia’s Western Province, which provides access to safe pre- andpost-natal care for approximately 140 women annually. In termsof education, we are running adult literacy courses in the Chipata
district, reaching around 300 people annually. We also built the
Mwalauka village primary school, which provides education toaround 500 children.

JT Group Sustainability Report | 35

Child labor
We take a strategic approach to eliminating child labor where
we operate. At the core of our approach is an emphasis on
improving the economics of farming. Encouraging more
profitable farming practices, a guaranteed price for contracted
farmers, and good agricultural standards will help prevent
farmers from using child labor. Building on the economic
approach, our social approach engages communities on
the complex issues of child labor and establishes and trains
community members on community child labor monitoring
systems. This foundation underpins our key programs such as
ARISE.

ARISE aims to ensure that children are not part of the workforce
by providing education and engaging with tobacco farming
communities in various ways. This ranges from providing
educational materials, after-school tutoring, and mentoring
to vocational training for older children in farming schools.
Through ARISE, we work with communities to improve theirunderstanding of the long-term value of education, and thefuture prospects that it can bring. ARISE also works to replace
lost income from child laborers through Family Support
Scholarships, which can enable parents or guardians to send
their children to school.

In 2012, in partnership with U.S.-based NGO Winrock
International and the ILO, we launched a multi-year program
to help prevent and eliminate child labor in our tobacco
communities. The ARISE program works to tackle the social andeconomic factors that cause tobacco farmers to engage children
in hazardous work.

ARISE made good progress in 2013 with expansion in Malawi
and Brazil, and the program has been implemented in Zambia.
We aim to launch ARISE in Tanzania in the near future. See
page 8 for more details on ARISE.

Target
ARISE: our program to help prevent andeliminate child labor in tobacco growing
communities

Expansion of the ARISE programs in
Malawi and Brazil
Implementation in Zambia in 2013, andTanzania in 2015

ARISE in 2013

2012

2013

Program expanded in
Implementation in Malawi
Malawi and Brazil andand Brazil
implemented in Zambia

BrazilMalawi

TotalsChildren withdrawn or prevented from child labor

663

2,408

3,071

Children and youth enrolled in formal and informal education

573

2,408

2,981

Households with improved livelihoods

191

785

976

Children attending farm schools

90

500

590

Mothers attending agribusiness training

355

173

528

Community members educated in child labor elimination

930

1,162

2,092

Freedom from child labor,training for a future

Topping up vocational
schooling in Brazil

In the Ntcheu district, Malawi, the ARISE
project has withdrawn 100 children andprevented 200 more from entering childlabor. One of them, Doris, 16, could not
go to school because she needed to earnmoney for her family’s household. ARISE
provided Doris with vocational training in
carpentry skills in one of the program’sCommunity Service Outlets. It has learningmaterials, well-maintained equipment,
and provides training and start-up capitalto establish a small enterprise. ARISE also
provided similar support to one of Doris’s
relatives to make sure she and her siblings
remain free of child labor.

To reduce child labor, improve education,and retain young people in rural areas,
we invest in vocational training schools
for young people. In 2013, we renovated
the rural vocational school in the Vale doJaguari, which will serve the children of
230 of our contracted tobacco growers.
Twenty students are enrolled so far andmostly learn horticulture skills in out-ofschool lessons. The children can thenreturn to the family farm to practice what
they have learned, without interrupting
their normal school hours. According
to the President of the Vale do Jaguari
Association representing these types ofrural schools, “JTI is thinking about the
future. The Company is helping to reduce
the rural exodus by qualifying the youth inrural areas.”36 | JT Group Sustainability ReportTobacco supply chain - sustainable wood
In many regions where we operate, wood is vital for effective tobacco curing, both as a fuel and for building curing barns. A
sustainable supply of wood is therefore key to ensuring a long-term supply of leaf tobacco.
Deforestation has often been widespread due to pressure from agriculture and urbanization, weak regulation, and poor woodland
management.
To tackle this situation, we work with tobacco growers to educate them on the environmental and economic value of wood. We help
to replace the wood used for curing through tree planting initiatives and developing new barn construction techniques, supplemented
by our reforestation program.

Tree planting initiatives
Our agroforestry initiatives train and support farmers to plantand maintain enough trees to ensure they can meet the fueland timber needs of today’s tobacco growing communities,
and those of future generations. In Brazil, agroforestry is wellestablished and growers either plant trees for their own wood
supply or purchase wood from local renewable sources.

improved kitchen stoves in 2,323 households. By 2014, we plan
to have funded the planting of 24 million trees across Malawi,
Zambia, and Tanzania.

Barn construction techniques
Barns are used in both air-curing and flue-curing of tobacco.
Wood-built barns are commonly used for air-curing, and wood
is a common fuel source for flue-curing. To improve curing
efficiency, we conduct trials to develop low-tech improvements
in furnace and barn design adapted to the areas where we
operate. We train farmers in new developments and provide
direct support through our local farming experts. Recent
innovations include our live barn initiative and new flue-curing
technologies.

04

Live barns

Agroforestry in Zambia
In Zambia, our agroforestry initiative offers a financial incentive tofarmers for every tree seedling that survives each year. The year
2013 was an important one for the initiative, with four nurseries
producing 457,200 seedlings and over 1,000 farmers attending
our Agroforestry Roadshows. Three forestry experts and 41
farming experts continue to provide on-the-ground support to our
tobacco growers, showing them the benefits of ourAgroforestry Program.

Reforestation

Supplementary to our agroforestry initiatives is our reforestation
program. The program aims to regenerate previously deforested
areas in locations where we have directly contracted farmers
that depend on wood for fuel or timber. We also work on
the efficiency of cooking stoves in local communities, which
reduces fuel consumption.
During 2013, we exceeded our targets in Zambia’s Eastern
Province. We raised 3,595,281 seedlings and planted 3,304,679
trees against a target of three million, respectively. We also

100% sustainable wood supply established ineach country where we source tobacco directlyfrom contracted farmers

Live barns are changing the way that our farmers air-cure their
tobacco in Malawi and Zambia. Instead of using vertical timbers,
live barns are constructed by planting trees, which after three
years grow to form the main structure of a curing barn. Thisavoids the need for maintenance and a continuous supply ofwood for construction. During 2013, and as part of the pilot
program, farmers in Malawi and Zambia collectively planted
314 live barns. By 2018, we plan to establish 18,000 live barns
across Malawi and 4,700 across Zambia.

New flue-curing barns

Flue-curing barns require a constant heat source for each weeklong curing cycle. In Africa and Brazil, farmers mainly use wood,
which in Africa is becoming scarce and expensive to source.
Added to this, inadequate curing infrastructure and access tobuilding materials prevents farmers from realizing the full yieldand quality potential of their crop, and hence affecting theirprofitability.
To tackle this, we have developed a new low-tech barn designfor flue-curing. Farmers installing the new design features are
anticipated to benefit from an increase in cured leaf of up to
15%, a higher-quality product, and reduced wood consumptionof up to 65%.

Virginia, Flue-cured 100%by 2018

Burley, Air-cured 100%by 2018

2012

2013

Brazil90%

100%

ZambiaImplemented from 2013

2%

Malawi

Implemented from 201333%

ZambiaImplemented from 20133%

JT Group Sustainability Report | 37

Responsible supply chain

A tree nursery at a local school in Zambia to teach the children about
ecology, and provide seedlings to JTI contracted growers

In this section

Environmental management > P.39
Energy and GHG emissions > P.40
Resource efficiency – waste and water > P.42
Biodiversity > P.44

05 Environment
Environmental protection is a critical partof our responsibility to society. We work hard
to identify, understand, and reduce ourenvironmental impacts, going beyond strictlegal minima. We do this not only because
it is the right thing to do, but also because it
delivers business and cost benefits.
Our commitment to environmental protection
is reflected in the JT Group Environment
Charter and Environmental Policy. Ourcommitment is wide-ranging and focuses on
our whole value chain, from the procurementof raw materials to production, distribution,and sales.
To deliver improvements across the business,
we have set targets in four key areas:
prevention of global warming by reducing
greenhouse gas (GHG) emissions, protection ofwater resources through sustainable water use,
protecting biodiversity, and prevention of waste
and promoting recycling along with effective
resource use. Our newly developed Long-term
Environmental Plan outlines initiatives that
aim to deliver these goals by 2020.

38 | JT Group Sustainability Report

Environmental management
Three critical factors drive our commitment to reducing the environmental impacts of our business: our legal obligations, our businessperformance, and our responsibility as a corporate citizen.
Compliance with all relevant laws and regulations is our baseline everywhere we operate. Beyond compliance, there are soundbusiness reasons for effective environmental management. By reducing consumption of resources such as energy and water, as well
as avoiding waste, we minimize our impacts while also reducing costs. We also recognize our obligation to preserve resources andprotect the environment so that future generations can enjoy the same opportunities that we benefit from today.

Management approach
The JT Group Environment Charter and Environmental Policy
provide the foundation for our commitment to environmental
protection. They require that we reduce our environmental
impacts in every country that we operate in and acrossour entire value chain, from raw materials procurement toproduction, distribution, and sales. Our Environmental Policy
applies to all operations and covers the following areas:• Management systems: establish effective environmental
management systems and continually improve them
• Compliance: comply with environmental laws and regulations
everywhere that we operate• Products and services: reduce environmental impacts of our
products and services in their development phase, taking into
account potential impacts on biodiversity• Process and supply chain: reduce environmental impacts
and optimize the use of natural resources at all stages of ouractivities, taking into account potential impacts on biodiversity.
We encourage suppliers to understand and abide by ourEnvironment Charter• Environmental education: develop environmental awarenessamong employees through education and training, andencourage them to take personal responsibility for theenvironment• Environmental communication: openly communicate ourenvironmental performance and engage with our stakeholders
to build trust

The JT Group Long-term Environmental Plan

To support our Environment Charter and Policy, in 2014 wedeveloped a Long-term Environmental Plan to 2020. The Plan
outlines medium- and long-term improvement targets andinitiatives in four key areas:• Prevention of global warming by reducing GHG emissions• Protection of water resources through sustainable use of water• Protection of biodiversity through sustainable stewardship ofthe natural environment• Prevention of waste and promoting recycling along witheffective resource use
The Plan also aims to enhance our environmental management
approach on a global basis and deliver improvements inenvironmental data reporting.

Environmental responsibilities

Responsibility for environmental management rests with JT’s
Executive Deputy President. The head of each operating divisioncontrols environmental management within their division andrelevant Group companies. The Group Executive Committeemonitors performance and developments in environmental
management.

Environmental management systems

The JT Group’s environmental management system (EMS) isbased on the ISO 14001 environmental management standard.
Using a formal EMS ensures that our processes are consistentand systematic across the business and that we continually
improve our environmental performance.
All manufacturing sites are encouraged to obtain ISO 14001
certification. Non-manufacturing sites, such as research anddevelopment facilities and distribution centers, can seek formal
certification or implement their own ISO 14001 compliant EMS.
Smaller sites and offices use simplified versions. By using
different levels of EMS, we manage environmental impacts
according to the nature and scale of an individual operation.
In 2013, 100% of our Japanese domestic tobacco factories
and 78% of our international tobacco business factories werecertified to ISO 14001. Recent acquisitions in our international
tobacco business explain the lower figure, and we are working
towards all manufacturing sites becoming certified to ISO
14001.
JT Group Sustainability Report | 39

Environment

Environment Charter and Environmental Policy05|

Energy and GHG emissions
As a company that uses agricultural commodities as a key component in many of our products, climate change poses a potential
long-term risk to our operations. Temperature changes, shifting weather patterns, and water scarcity could all have an impact on
agricultural growing patterns and productivity, affecting the security of our supply chain. As a result, we have set long-term targets tomeasure, manage, and reduce our GHG emissions.

Managing emissions
We started measuring our energy and GHG emissions in
1995. All of our sites are required to produce action plans withquantified energy and/or emissions reductions targets that
include details of investments required and the payback period
for investments. In this way we have a continual focus on
monitoring our performance and identifying opportunities for
improvements.

Measuring emissions across our value chain

In addition to direct (Scope 1) emissions from fuel use at oursites and indirect (Scope 2) emissions from the electricity we

GHG emissions across
the JT Group value
chain (2013)
All of our Scope 1 and 2 emissions are
externally verified. Currently, some of our
Scope 3 emissions are externally verified,including emissions from purchased
non-tobacco materials in our Japanese
domestic tobacco business and tobacco
leaf for both Japanese domestic andinternational tobacco businesses. Scope
3 employee travel data in our international
tobacco business is also externallyverified.

purchase, we have been monitoring GHG emissions for the
JT Group’s entire value chain (Scope 3) since 2011. Althoughthese Scope 3 emissions are outside the direct control of the JT
Group, this process allows us to identify the areas responsible
for the greatest emissions and to examine the most effective
way to reduce them.
In 2013, approximately 87% of the total GHG emissions of the
JT Group came from Scope 3 sources, with 13% coming fromScope 1 and 2. The main sources of Scope 3 emissions are theproducts and services we purchase (55%) and transport anddistribution of our products (15%).

Scope 1 and 2

Capital goods

Purchased goods and services

OthersTransportation and distribution

GHG emissions throughout value chain 5.95 million tons
Scope 3 emissions 87%

13%

Targeted reductions
We have set long-term GHG targets for 2020:• To reduce the JT Group GHG emissions (Scope 1 and 2) by
20% by 2020 compared to 2009
• To reduce GHG emissions from our tobacco business per
million cigarettes equivalent by 20% by 2020 compared to2009• To monitor GHG emissions through the JT Group’s entire value
chain (Scope 3 emissions) and to establish an effective way to
reduce these emissions
We will deliver these targets through focused efficiency
programs, including an ongoing, comprehensive energy survey

55%

8% 9%

in our production facilities. We are also targeting fuel efficiency
and emissions from our vehicle fleet. For example, we provide
eco-efficient driver training and run high-stack loading of trucks.

Performance
The tables show our performance on Scope 1 and 2 emissions
for the whole JT Group. Our Scope 1 and 2 emissions havesteadily decreased over the past few years as a result of
increased focus on monitoring and improvement measures.
With a reduction of 11.5% in emissions over 2009, we are wellon track to achieve our emissions reduction target for 2020.

GHG emissions (Scope 1 and 2) *A
Total Scope 1 and 2 GHG emissions (1,000 tons)

GHG emissions intensity (Scope 1 and 2) *A
GHG emissions intensity for tobacco business (tons / million cigarettes equivalent)

40 | JT Group Sustainability Report15%2009 2010 2011 2012 2013
903

880

836

830

799

2009 2010 2011 2012 2013
0.73

0.76

0.73

0.75

0.73

Carbon Disclosure ProjectIn the last two years that the JT Group has been reporting to the Carbon Disclosure Project(CDP), on a Group-wide basis, we have seen improvements in our disclosure score for
effective emissions management. Our disclosure score has risen from 83 in 2012 to 96
in 2013.

Initiatives to reduce emissions

05

Vending machines are a key sales channel
for our beverage business in Japan, andwe focus on reducing their energy use.
Energy efficiency measures include
installing low-energy LED lighting (49% of
our vending machines have LED lighting)and optimizing lighting hours. 59% of ourbeverage vending machines have energyefficient heat pumps and 100% havepeak cut systems, where the refrigeration
compressor is shut down during peak load
hours in summer to save power.

Supply chain partnership

Promoting eco-driving

Our international tobacco businessis actively developing a supply chain
carbon management strategy. As part ofthis, we have partnered with 23 of ourleading international suppliers to focus
on emissions reduction in areas outside
our direct control. We are also working
with directly contracted farmers to reduce
emissions from fertilizers and tobacco
curing, the two main sources of GHG
emissions in our tobacco supply chain. For
more details on initiatives in our supply
chain, see pages 30–37.

We undertake a variety of eco-driving
training across the JT Group. In ourinternational tobacco business, this has
included training fleet drivers to reduce
fuel consumption and emissions. In ourbeverage subsidiary, sales representatives
took part in an eco-driving contest between
August 2013 and January 2014. The
contest involved the whole sales fleet
of more than 100 vehicles and aimed to
improve fuel efficiency as well as prevent
accidents.

Investing in saving
In 2011, we conducted an energy survey
covering 20 factories in our international
tobacco business. The survey identified 100
energy saving capital-investment projects
with a combined investment of US$17
million. Senior management provided fullbacking for the investment, which will bedelivered between 2011 and 2015. The
result of these projects should be a 7%
net reduction in energy consumption by
2015 with a similar reduction in carbon
emissions.

evaporators that are eight times more
efficient. This single change is expected
to reduce energy consumption across ourinternational manufacturing sites by 2.4%.
The survey also highlighted that ongoing
review of energy efficiency opportunities isessential. As a result, factories will continue
to review their operations annually to buildon the survey findings and maintain apipeline of energy efficiency improvements
beyond 2015.

One of the highlights of the survey, and thebiggest single saving, came at our Yelets
factory in Russia. In 2013, we replaced
evaporators used in the production of
tobacco sheet with new

JT Group Sustainability Report | 41

Environment

Energy saving vending
machines

Resource efficiency - waste and water
As a business with significant global manufacturing operations, using resources efficiently is a high priority across the JT Group. Our
main areas of focus are reducing waste and increasing recycling, and using water efficiently and responsibly. This not only provides
environmental benefits, but also delivers cost savings and drives efficiency in our operations.
We project waste generation and water use at each of our sites as part of the planning cycle at our operations. We also assess ourprocesses and equipment to identify and implement waste reduction and water efficiency programs.

Our Long-term Environmental Plan prioritizes waste prevention
through continuous promotion of the 3R waste hierarchy –Reduce, Reuse, Recycle.
Our factories are the main source of waste generation across
the JT Group, and we started to monitor and record waste data
in 1995. The challenge we face is to improve the detail of ourwaste monitoring in order to identify improvement initiatives
and enable good practice sharing between operations. We
remain focused on this challenge and anticipate continued
improvements in this area.
The waste recycling rate in 2013 was 75% across the business,stable since 2012.

Performance
Our total waste generation has steadily reduced since 2009. In 2013,
we achieved a reduction of around 8% in overall waste generation over
2012.
160
Total waste generation (1,000 tons) *A

Waste

140
120
100
80
60
40
20
0

2009

Sustainable waste management practices in Malawi

42 | JT Group Sustainability Report

2010

2011

2012

2013

Initiatives to reduce waste

05

Environment

Photo by Natsuki Yasuda / studio AFTERMODEReducing packaging weight
The JT Group’s beverage business is
reducing the weight of cans and PET
bottles used for its beverages, andTableMark, our processed food subsidiary,is also reducing packaging materials where
possible. Changing the base paper used incontainers for some of our beverages, from
170g/m2 to 160g/m2 resulted in a reductionof 148 tons of packaging in 2013.

Support the food bank
‘Second Harvest Japan’
The JT Group’s beverage and processedfood subsidiaries support Japan’s first foodbank, Second Harvest Japan (http://2hj.
org/english). Through Second Harvest
Japan, products with cosmeticallydamaged packaging that are within theirsell-by date and have no safety concerns
are donated to welfare and support
organizations such as orphanages, womenshelters, and shelters for people without
homes. This support has the dual benefitof helping people in need at the sametime as stopping products that cannot besold commercially from becoming waste.
According to the Ministry of Agriculture,
Forestry and Fisheries of Japan,
approximately 17 million tons of food is
destroyed every year in Japan.

Halving waste in Jordan
In 2013, our factory in Jordan produced
five and a half billion cigarettes while
delivering a 48% reduction in waste. Witha specific focus on non-tobacco packaging
materials and raw material packaging,
the factory worked with employees andexternal suppliers to reduce waste througha commitment to reducing, reusing, andrecycling. Actions included reusing steel
and plastic drums as water containers
for agriculture, or as chemical mixing
containers for chemical companies, andthe creation of furniture from items such asaluminum foil, wooden covers, and plastic
containers.

JT Group Sustainability Report | 43

Sustainable water use
Many of our products are made from natural components; thus, we consider the conservation of water resources as one of themost important environmental issues for the JT Group. Our Long-term Environmental Plan includes a goal to conduct a waterrisk assessment for all our businesses and to establish appropriate protective and remedial measures in the coming years. The
risk mapping process will involve assessing water scarcity and availability forecasts up to 2050, as well as flood, regulatory, andreputational risks.

Performance
Our global water consumption has steadily decreased since 2009. In
2013, we achieved a reduction of around 8% in total water consumption
over 2012.

Total water consumption *A (1,000m3)

16,00014,00012,00010,000Wastewater treatment plant in Malawi

8,000
6,000
4,000
2,000
0

2009

2010

2011

2012

2013

Until recently, our tobacco processing plant in Malawi
discharged its wastewater to a municipal treatment facility. To
ensure wastewater at the site is properly treated prior to release,
our international tobacco business has built an on-site treatment
plant for all wastewater. The plant will ensure that wastewater isprocessed and re-used on-site when it becomes fully operationalin 2014.

Biodiversity
Biodiversity plays an important part in natural processes that are critical to agricultural productivity, such as crop pollination. Linked
to this, tobacco is usually grown in biologically diverse areas, so we collaborate with our supplier farmers to minimize biodiversity
impacts in our tobacco supply chain.

Our approach
We do not currently have a uniform approach to biodiversity
across the JT Group. It is, however, a focus of our Longterm Environmental Plan. This outlines our commitment andapproach towards biodiversity to 2020 and establishes a goal toassess the impact of our worldwide operations on biodiversity.
Once we understand our impacts better, we can establish

44 | JT Group Sustainability Reportmeasures to protect biodiversity in a way that responds to theneeds and challenges in our operating locations. We launcheda program to assess our biodiversity impacts in 2014, and we
expect to complete this in the next two years.

Biodiversity in our supply chain
Our approach is to focus on aspects of biodiversity where we can make a difference directly or have a positive influence on thoseworking in the tobacco supply chain. This includes:

05

Agrobiodiversity relates to biodiversity on farms. A key factor
in this area is including tobacco growers in the process ofmanaging biodiversity on their tobacco farms. Our aim withagrobiodiversity is to establish tobacco production systems
that are economically viable, socially acceptable, andenvironmentally sustainable. Our developing approach toagrobiodiversity is currently being monitored and studied in our
agro-research center in Brazil (ADET) through several baseline
studies in tobacco growing areas in collaboration with local
universities and NGOs.

Tree planting

Growing and planting trees is central to our sustainability
approach and serves two purposes. Agroforestry is our main
focus, and is designed to ensure an adequate and sustainablesupply of wood for tobacco curing. But we also reforest areas
where trees have been cut down for use as timber and firewood.
Please see page 37 for further details.

Good agricultural practices and integrated pest
management

Integrated pest management helps farmers with pest control
and ultimately reduces the use of pesticides, which may riskthreatening biodiversity.
A large part of our approach is assessing and tackling socialand economic factors that lead to biodiversity depletion andunsustainable natural resource use, in particular deforestation. A
large part of this is working with, and educating, growers on thebenefits of considering and managing biodiversity on their farms
and promoting the adoption of best practices.

Protecting endangered forests in Brazil

In Brazil, we are supporting a project with the Brazilian NGO
SPVS (Society for Wildlife Research and Environmental
Education) to avoid deforestation in Paraná State. Through the
project, we have adopted a 100-hectare area of the endangered
Araucaria forest for a period of five years. Protecting the forest
for this period allows time for environmental improvements to
be made to the land based on a conservation plan developed
and monitored by SPVS.

We aim to promote agricultural practices that support
sustainable tobacco production and meet our requirements, atthe same time as improving productivity and returns for farmers.
JT Group Sustainability Report | 45

Environment

Agrobiodiversity

In this section

Our tobacco principles > P.47
Tobacco: health risks, transparency, and regulation > P.48
Tobacco: product innovation > P.49
Tobacco: responsible marketing > P.50
Tobacco: tackling illegal trade > P.52
Tobacco: products’ environmental impacts > P.54
Pharmaceutical: product responsibility > P.56
Beverage and processed food: product responsibility > P.58

06 Product responsibility
and consumer impacts
Across the JT Group, our overarching management
principle – the “4S” model – and our Mission andCodes of Conduct require that we meet our consumers’
needs with the highest-quality products at the same time
as behaving responsibly while conducting our business.
The diverse nature of the JT Group, which includes
tobacco, pharmaceutical, beverage and processed foodbusinesses, raises a wide variety of product responsibility
issues.
In our tobacco businesses, key product responsibility
issues include marketing our products responsibly
and combating illegal trade in tobacco. In ourpharmaceutical business, an ethical approach toresearch and development, and responsible marketingand the reliable supply of products are key issues. In ourbeverage and processed food businesses, our main focus
is on food safety and providing transparent productinformation to consumers.

46 | JT Group Sustainability ReportOur tobacco principles
Our approach to product responsibility in our tobacco business is defined by a set of core principles that reflect the main issues
relating to tobacco products and our attitude to smoking:

1.

2.

3.

Openness about the risks of smoking
Smoking is a cause of serious diseases and everyone should be appropriately informed about
the health risks of smoking

Transparency about our products
Smokers want to know what it is they are smoking and we provide information about the
ingredients we use

Commitment to the development of reduced-risk
products

4.

5.

Youth smoking prevention
Minors should not smoke and should not be able to obtain tobacco products. This belief iscentral to our Codes of Conduct, marketing practices, and the way we do business

Accommodation between smokers andnon-smokers
Many people have concerns about exposure to environmental tobacco smoke. We advocate
tailored, practical, effective solutions that separate smokers and non-smokers whileaccommodating the legitimate interests of bothWith sales in more than 120 countries, our international tobacco business has an additional principle, to ensure we are respectful ofeach country’s culture, norms, legislation, and decision-making process.
For more detail on our tobacco principles, please visit www.jti.co.jp (in Japanese) and www.jti.com (in English).

JT Group Sustainability Report | 47

06|

Product responsibility and consumer impacts

While the health risks of tobacco use cannot be completely eliminated, we are committed todeveloping reduced-risk products

Tobacco - health risks, transparency, andregulation
People smoke for pleasure, but there are real risks that come with that pleasure. Smoking is a cause of serious diseases, including
lung cancer, coronary heart disease, emphysema, and chronic bronchitis. This conclusion has been drawn from studies that, taken asa whole, show that smokers are at a greater risk of developing these diseases compared to non-smokers, and that stopping smoking
reduces this risk over time.
Accordingly, the JT Group believes that tobacco products should be appropriately regulated. We also believe in the freedom of adults
to choose whether they want to smoke and that no one should smoke unless he or she understands the risks of doing so. These risks
distinguish tobacco from most consumer goods, and they place a real responsibility upon the industry. It is a responsibility for which
we expect to be held accountable, together with governments and the rest of society.

A transparent approach
Our principles establish openness about the health risks ofsmoking and transparency on the ingredients in our products
as two core elements of our approach to business. Consumers
also demand transparency, and providing detailed information
is an integral part of helping them make informed decisions onwhether to smoke or not.

Health risks of smoking

The JT Group believes everyone should be appropriately
informed about the health risks of smoking. Our Japanese
domestic and international tobacco businesses explain our
positions on smoking and health through their websites. These
positions are based on our programs of scientific monitoring
and review, as well as wider engagements with the scientificand regulatory community.

Product transparency

Across our tobacco business, we respond to consumers’
demands to know what ingredients are in our cigarettes andother tobacco products by providing information in 54 countries
through online ingredients’ lists. We provide information by
tobacco product type, brand, and location, with full inventories
of key materials and ingredients such as cigarette papers,
filtration materials, adhesives, inks, and flavorings. We also
provide ingredient information when requested by governments
while ensuring that our trade secrets are respected andprotected. For more information please visit http://www.jti.co.jp/
corporate/enterprise/tobacco/responsibilities/guidelines/additive/
brand (in Japanese) or http://ingredients.jti.com.

Regulatory landscapeDue to the risks associated with tobacco products, our positionis that appropriate and proportionate regulation of the tobacco
sector is both necessary and right.
As an industry, the tobacco sector is facing increased review
and regulatory change. Globally, the Conference of the Parties ofthe World Health Organization (WHO) Framework Convention
on Tobacco Control continues to progress guidelines thatcover a wide range of product issues for countries to consider
in implementing regulation. In 2014, the European Union has
introduced further regulation on tobacco products, and in
the United States, the Food and Drug Administration (FDA) isestablishing regulation for many aspects of tobacco productdesign, manufacturing, and evaluation.

48 | JT Group Sustainability Report

We monitor and respond to emerging regulatory developments
to ensure that we are well positioned for constructive dialogue
with regulators on issues affecting the development andcompliance of our products.

A scientific approach

We take a scientific approach to understanding our products
and their quality, health risks, and their development andcompliance with regulation. We apply global standards frombodies such as the International Organization for Standardization(ISO) or from scientific societies such as the industry-supported
Cooperation Centre for Scientific Research Relative to Tobacco(CORESTA). Where such standards do not exist, we have ourown internal research and testing programs.
Our tobacco ingredients are examined through an extensive
range of testing programs to ensure that the ingredients we use
do not increase the inherent health risk of tobacco products.
We also review emerging science to ensure that all of thestandards we apply are updated and adapted to new findings
and techniques.
The aim of these activities is to ensure full compliance withexisting regulations and to provide appropriate understanding of
the health risks associated with tobacco use.

Potentially reduced-risk
products
While the health risks of tobacco use cannot be completely
eliminated, the JT Group is committed to developing potentiallyreduced-risk products that are acceptable to adult users of
tobacco products. We continue to research products that may
reduce health risks, such as oral smokeless tobacco products
and those that heat rather than burn tobacco.
At the regulatory level, work is underway to establish a moredetailed understanding of the health risk of these products. In
the United States, for example, the FDA has provided guidanceon how such ‘reduced-risk’ could be assessed.

Tobacco - product innovation
Product innovation is extremely important to the JT Group and supports our growth and profitability. It is critical to remaining
competitive and responding to evolving consumer trends in a rapidly changing environment. Product innovation focuses on a broad
range of areas, from traditional and emerging products to packaging and manufacturing processes.

06|

Focusing innovation on
consumer needs
The main driving force behind product innovation in traditional
products is meeting consumer needs. We use consumer trends
and insight to identify opportunities for innovative concepts
and technologies that will work in the marketplace. We also
consider industry analysis, market data, and the regulatory
landscape when defining the focus of our product research anddevelopment (R&D).
In 2013, the R&D and EHS teams from our international tobacco
business worked together to assess the environmental impactof our product and packaging design. We are conducting a life
cycle analysis (LCA) study to compare the carbon emissions
and other environmental impacts of using different packaging
materials.

Emerging products

Consumer needs are increasingly diverse, and their interest in
emerging products is evolving. We already have a number ofcommercial products on the market that fit into the emerging
product category. These include Ploom, the only smokelesstobacco vaporizer offered by a major tobacco company, andZero Style, a smokeless tobacco product available in Japan. We
have five main approaches regarding emerging and potentiallyreduced-risk products:• We will strive to offer satisfaction and pleasure to meet
consumers’ evolving needs• We will develop a product portfolio and pipeline focusing on
three areas: tobacco vapor; e-vapor, which is non-tobacco
based; and other emerging products• We will continue to pioneer early commercial launches, aswith Ploom and Zero Style• We will continuously engage with regulators in markets where
we launch our emerging products• We will conduct scientific studies for potentially reduced-risk
products

We are committed to meeting consumer demand for emerging
products. Although the regulatory backdrop for emerging
products is not yet established, we are building our expertise inthis area and continue to research emerging products, some ofwhich may reduce health risks.
JT Group Sustainability Report | 49

Product responsibility and consumer impacts

Ploom - smokeless tobacco vaporizer

Tobacco - responsible marketing
Our view is clear: tobacco products carry risks to health. We therefore support the implementation of evidence-based, practical,
effective, and proportionate regulation that governs the marketing of tobacco products while preserving our right to communicate
with adults who use those products.
We believe that:• Minors should not smoke and should not be able to obtain tobacco products• Adult smokers should be appropriately informed about the health risks of smoking before they make the decision to smoke
We are committed to marketing products responsibly. The JT Group markets its tobacco products to adult smokers in order tomaintain brand loyalty and to encourage adult smokers of competitor brands to switch to its products.
The JT Group does not market its tobacco products to minors and does not market its products in order to encourage anyone to takeup smoking or to discourage anyone from quitting.

Our marketing standards
Today, our Japanese domestic tobacco business complies
with an industry self-regulatory marketing standard set by the
Tobacco Institute of Japan (TIOJ) as well as local laws andregulations. The TIOJ marketing standard is in line with Article
40 of the Tobacco Business Law as the Guideline Concerning
Advertising of Tobacco Products.
With products distributed in more than 120 markets, ourinternational tobacco business applies a single internal Global
Marketing Standard (GMS) wherever our products are sold. We
comply with all national laws and regulations concerning theadvertising and promotion of our products. In addition, we apply
this internal standard when applicable laws and regulations are
more permissive, silent on the particular issue, or wholly absent.
The standard covers all aspects of marketing, including print,
billboards, electronic media, promotional events, brandsponsorship, and health warnings on packaging and on
advertising and promotion materials.

ComplianceIn our international tobacco business, our Code of Conduct
requires that all employees and appointed agencies, third-party
suppliers, service providers, and distributors fully comply with
the GMS.
50 | JT Group Sustainability ReportCompliance reviews are undertaken locally. All marketing
programs are reviewed and approved to ensure compliance withregulations, and to ensure that our internal marketing standard
is correctly applied in all countries where we operate, including
markets where our standard is more restrictive than nationallaws and regulations.

Preventing youth access totobaccoThe JT Group’s position is that minors should not smoke andshould not be able to obtain tobacco products. This is central to
our Codes of Conduct, our marketing practices, and the way we
do business.
We believe that tobacco manufacturers, retailers, regulators, andeducators have a common interest in preventing minors fromaccessing tobacco. Alternative solutions for preventing minors
from obtaining tobacco products include fines and licensing
restrictions for retailers who sell to minors, ‘proof of age’programs, and the criminalization of, or imposing administrative
sanctions for, proxy purchasing by adults. We participate withother tobacco companies and retail associations in ongoingprograms to prevent minors from obtaining tobacco products.

06|

Working with retailers
In our international tobacco business, we focus our activities
on Retail Access Prevention (RAP) programs to prevent youth
access to tobacco. In order to ensure a consistent approachto developing effective local programs, employees around theworld use our Retail Access Prevention Toolkit to guide theirplanning process. The Toolkit provides background information,
recommendations, and checklists for developing various RAP
programs, and includes case studies to share good practice.
Trade seminars are one of the most efficient forms of mobilizing
the retail industry. They are typically focused on helping retailers
comply with minimum age legislation. The seminars help inform
retailers on the problem of youth smoking as well as train
them on how to cope with conflict situations that could ariseat points of sale when complying with minimum age purchaselaws. The seminars for retailers are often accompanied by panel
discussions with local and national authorities, law enforcement
agencies, consumer protection organizations, and media.

Age restrictions on vending
machines
In our Japanese domestic tobacco business, we have worked
jointly with the tobacco industry and the Japanese Vending
Machine Association (JVMA) to ensure that all tobacco vending
machines are equipped with an adult identification system,
such as the ‘taspo’ ID card system. The system ensures thatvending machines will only work once a ‘taspo’ ID card ispresented. Adult smokers must apply for an ID card with official
documentation proving they are 20 years old or over. A photois also printed on the ID card to prevent improper use, such as
lending the card to other people, notably minors. At the endof March 2014, almost all of the tobacco vending machines inJapan were equipped with the ‘taspo’ ID card reader and morethan 10.4 million ID cards have been issued.

A recent example is a new pilot initiative launched with 4,800
retailers in Northwest England, which seeks to improve
independent retailers’ compliance with the law on underagesales. The program provides retailers with the tools and training
to comply with the law and protect themselves and theirbusinesses. If the pilot proves successful, we will roll the schemeout nationally in 2014 with cross-industry support.

JT Group Sustainability Report | 51

Product responsibility and consumer impacts

Retailer training

Tobacco - tackling illegal trade
The illegal trade in tobacco products is a major concern for legitimate tobacco companies, including the JT Group, and for authorities
responsible for regulating tobacco sales.
Illegal trade undermines legitimate tobacco manufacturers, distributors, and retailers. It also deprives governments of excise revenues
and funds organized crime. In recent years, the criminal illegal tobacco market has grown while the legitimate tobacco industry has
suffered major volume losses.
One of the main drivers of the illegal tobacco trade is a steep increase in taxes on tobacco products, and this often leads to large tax
differences between (or within) countries, making tobacco smuggling or counterfeiting attractive to criminals. For more information
please visit www.jti.com.

Counterfeit analysis

An evolving challenge
As governments, the tobacco industry, and law enforcement
agencies work to shut down options for illegal trade, criminals
continually change or develop new approaches to smuggling toremain undetected.
One example that is prevalent in Europe is the recent
phenomenon of minor or local brands that are legally producedin one country with the sole intent of being smuggled and soldcheaply in other countries where they are illegal. Because of
the legal complexities in stopping this production, this part ofthe illegal trade has grown significantly within the EU. A main
contributing factor to this growth is the large tax differences
between EU countries and their bordering states.

Our response
We take a stand against the illegal tobacco trade and ourpriority is preventing genuine JT Group products from entering
illegal distribution channels. In addition, we will not tolerate
the copying of the JT Group brands or the violation of ourintellectual property rights. A key part of preventing our products
entering the illegal trade is making sure we do not oversupply

52 | JT Group Sustainability Report

the markets where we operate. As a result, we take steps toensure that we only supply tobacco products to our markets inquantities that reflect the legitimate consumption in the intended
market of retail sale.

Dedicated team

We have an Anti-Illicit Trade (AIT) team dedicated to fighting theillegal tobacco trade, and we work to ensure that counterfeiters
and others involved in the illegal trade are prosecuted to the full
extent of the law. The team consists of more than 50 employees
around the world, and includes former law enforcement officials,
customs agents, and intelligence officers.
On average, we commit more than US$25 million a year to antiillegal trade activities, including a US$400 million investment in
a 15-year Cooperation Agreement with the EU signed in 2007 tocombat the illegal trade of tobacco products in Europe.
The AIT team works both on preventing the illegal trade, trying
to stop the flow of illegal tobacco products, as well as reactive
activities, such as analyzing trends and data relating to illegal
trade. In 2013, information from the AIT team directly led to theseizure of over 736 million illegal cigarettes worldwide.

06|

Working in partnership

Our prevention activities involve working with and supporting
law enforcement agencies as well as engaging withgovernments and other stakeholders on the causes of theillegal trade and the ways to stop it. Our AIT team provides law
enforcement agencies with information on illegal trade andconducts investigations, forensic examinations, and analysis ofseizures. We also provide law enforcement officials with training
on recognizing counterfeit products and support the training of
tobacco sniffer dogs.
We identify illegal tobacco trends by collecting and analyzing
the latest illegal tobacco data. This includes studies such as
empty pack surveys, which provide a snapshot of a country’s
or region’s exposure to the illegal trade. In 2013, we conducted
empty pack surveys in more than 40 countries.

Using technology

The JT Group invests heavily in developing technology tocombat the illegal tobacco trade. In many markets, we use theindustry’s ‘Codentify’ technology to mark our products with aunique identifying code. This helps to determine where tobacco
products may have deviated from their intended distribution

route and into illegal channels. Codentify looks to replacecommonly used paper tax stamps, which are easy to counterfeit
and have proven to be ineffective in fighting illegal trade.

Secure distribution

With more than 100,000 international shipments of our products
each year, we also have a specialist team focused on the
security of our shipments and the protection of our employees,
factories, distribution centers, and other infrastructure. In thisarea, we have a single common goal to ensure that the JT
Group products reach consumers exclusively through legal tradechannels in their intended retail market.

As a result of our illegal trade prevention measures, thepresence of our products in seizures of illegal tobacco
products continues to decline, and the presence ofrecently manufactured products in the illegal tradereached an all-time low in 2013.

JT Group Sustainability Report | 53

Product responsibility and consumer impacts

Codentify technology

Tobacco - products’ environmental impacts
Our products have a number of environmental impacts related to their use and disposal and the two main issues are environmental
tobacco smoke (ETS) and litter, which we deal with at a market level.

Smoking lounge in Japan supported by JT

Environmental tobacco smoke
Environmental tobacco smoke (ETS), also known as secondhand smoke, is a mixture of the smoke that comes from theburning end of a cigarette and the exhaled smoke from smokers
nearby. Compared to the smoke that a smoker inhales, ETS isaged and highly diluted.
Many people have concerns about exposure to ETS. In poorly
ventilated areas, it can cause irritation of the eyes, nose,and throat. ETS may also worsen childhood respiratory tract
infections, as well as some childhood respiratory conditions
such as asthma. Based on current scientific evidence, we donot believe the claim has been proven that ETS is a causeof diseases such as lung cancer, coronary heart disease,emphysema, and chronic bronchitis.
One of the main concerns over ETS is that it can be a nuisanceto non-smokers. This is why we advocate tailored, practical, andeffective solutions to separate smokers and non-smokers whileaccommodating the legitimate interests of both. We encourage
all smokers to show consideration for those around them andstrongly advise against smoking when children are present.

54 | JT Group Sustainability Report

Practical solutions

We promote practical ways of avoiding ETS that accommodate
the legitimate interests of both smokers and non-smokers. These
include measures such as separate smoking and non-smoking
areas, effective ventilation to control airflow and quality, anddesignated smoking areas, such as smoking lounges.
Properly ventilated smoking lounges can provide a comfortableenvironment for smokers and prevent others from being
disturbed by ETS. We have worked closely with airport
authorities to develop more than 220 smoking facilities in 13
international airports worldwide. One of the most recent opened
at Poland’s Chopin airport in January 2014.
In Japan, we consult with owners of office buildings, shopping
centers, airports, and restaurants to help them create a better
environment for smokers and non-smokers to co-exist. We
also hold a ‘Smokers’ Style’ competition annually calling forinnovative ideas for better smoking spaces.

Litter
Litter from tobacco products, in particular cigarette butts, is an issue that calls for collective responsibility, including from smokers, thetobacco industry, local authorities, NGOs, and businesses. A litter free environment is of benefit to everyone, smokers included.
Some of our initiatives to address this issue include anti-litter campaigns and localized programs to raise awareness and offer
solutions to help avoid cigarette litter.

‘Pick Up Litter and You Will Love Your City’
campaign in action

06|

Long-term commitment inJapan
Our Japanese domestic tobacco businesshas run a community clean-up campaign
called ‘Pick Up Litter and You Will Love
Your City’ since 2004. The campaign
aims to raise awareness of the problemof public littering and to encourage
people to behave more responsibly bypicking up litter from the streets. Now
in its tenth year, the campaign operates
in collaboration with local governments,
companies, and volunteer groups and has
held more than 1,580 events, bringing
together 3,170 participating organizations.
The total number of people involved hasreached almost 1.48 million and in total,
approximately 740 tons of litter have beencollected over the course of the program.

Love your city, love yourmountain
In Switzerland, we launched a campaign
in 2009 called ‘I love my city’ to raiseawareness among smokers about cigarettebutt litter. Through the program, free

portable ashtrays were distributed inseveral cities. The same campaign was
also adapted for Swiss ski resorts under
the tag line ’I love my mountain’. So far,over 100,000 personal ashtrays have been
distributed.

Promoting responsible
consumer behavior in Italy
In Italy, we have been distributing portable
ashtrays to smokers since 2008 througha variety of distribution channels andpartners, such as la Biennale di Venezia,
the Rome Film Festival, Teatro alla Scala
Museum, and marine environmental
association, Marevivo. By the end of 2013,
we had distributed more than four million
portable ashtrays.

Design Week. In 2013, university students
in Italy, Spain, Switzerland, and the United
Kingdom took part in the competition witha theme to design an area where smokers
and non-smokers can socialize.

Volunteering for cleanerparks
In October 2013, we ran a volunteer cleanup initiative in Tbilisi, Georgia. Working in
one of Tbilisi’s central parks, our volunteers
collected over 70 bags of waste, including
cigarette butt litter. The response to theevent from park users was very positive
with many thanking volunteers for theirefforts. We plan to run similar events twicea year.

To support this process, in 2010 welaunched ‘JTI Clean City Lab’, aninternational design competition open to
students of European design schools withthe aim of creating a portable ashtray of
the future. We run the competition every
year with a different design theme, and an
exhibition of entries is held during Milan

JT Group Sustainability Report | 55

Product responsibility and consumer impacts

Portable ashtrays distributed in Italy

Pharmaceutical - product responsibility
The JT Group’s pharmaceutical business has a mission to create original and innovative drugs for patients suffering from diseases
around the world. In doing so, we aim to alleviate patients’ illnesses and to ensure our pharmaceuticals are safe and secure to use.

Responsible research and development
We have a rigorous system of checks in place to ensure new drug development complies with all relevant laws and industry
standards. Our research activities are also carried out in an appropriate and ethical manner, including the control of chemical
substances, animal testing, and gene analysis.

MetricPharmaceutical R&D expenditure *A (billion Yen)

2010 2011 2012 2013
23.4

24.9

30.7

30.5

3-Dimensional structure of trametinib, MEK inihibitor

Complying with pharmaceutical regulations andstandards
New drug development is subject to a range of laws andregulations, including those requiring safety verification of drug
ingredients at the pre-clinical stage and safety assurance fordrug trials during clinical development. We have systems inplace to comply with these laws and regulations and to control
safety within drug development and trials through in-house
audits to check that our operating procedures are correctly
followed. We also gather data to monitor the efficacy andside effects of drugs on the market to help guide future drug
developments and drug safety.

56 | JT Group Sustainability ReportManaging chemical substances

We comply with all relevant laws and regulations on the control
of designated chemical substances, and our employees are
made aware of chemical safety risks and management. Our
Central Pharmaceutical Research Institute leads the JT Group’s
new drug development and is responsible for our chemical
substances management system. Torii Pharmaceutical, ourpharmaceutical subsidiary, separates chemicals into different
categories requiring different levels of management. Eachcategory has specific rules and procedures that respond to theparticular characteristics and safety risks of different groups ofchemicals.

Ethical considerations in research

In order to examine the ethical and scientific validity of ourresearch projects, we have established an Ethics Review
Committee for Clinical Studies, which conforms with the
Ethical Guidelines for Clinical Studies in Japan. Our Ethics
Review Committee on Human Genome/Gene Analysis also
examines our research in accordance with the Ethical Guidelines
for Human Genome/Gene Analysis Research issued by theJapanese Government.
Animal testing is an essential part of pharmaceutical researchand development for determining the safety and efficacy ofdrugs. When conducting animal testing, our pharmaceuticalbusiness examines the scientific rationale, respects the lives ofanimals, and always takes animal welfare into consideration.
We have established in-house standards for managing
animal testing and the breeding of laboratory animals inaccordance with the Japanese Law for Humane Treatment andManagement of Animals and its relevant guidelines.
Our practices for the proper management of animal testing at
our Central Pharmaceutical Research Institute were externallycertified by the Japan Health Sciences Foundation. We havealso established an animal testing committee, which reviews
animal testing and ensures it is conducted in accordance withthe 3R concept, which covers:• Replacement: where possible, opt for test methods that do not
use animals• Reduction: minimize the number of animals used in testing• Refinement: do not let laboratory animals suffer unnecessary
pain

06|

Product responsibility and consumer impacts

Responsible marketing

Across the pharmaceutical industry, medical representatives(MRs) play a crucial role in the sale and promotion of medical
supplies. In Japan, Torii Pharmaceutical markets our products
through a team of 485 highly trained MRs. Outside Japan welicense our drugs to other pharmaceutical manufacturers and do
not have a sales function.
The JT Group is a member of the Japan Pharmaceutical
Manufacturers Association (JPMA), an industry associationof the pharmaceutical industry in Japan, and we comply with
the JPMA’s ‘Code of Practice’. Launched in 2013, the Codeof Practice promotes high ethical and transparency standards
for pharmaceutical companies in the promotion of their
medical supplies and prescription drugs. Part of the Code is arequirement for JPMA members to establish their own company
code of practice in this area.
To comply with this requirement, Torii Pharmaceutical has
established its own code, and we hold training sessions andseminars to ensure employees and MRs understand and abide
by both Torii Pharmaceutical’s as well as the JPMA Code ofPractice.
We also adhere to the JPMA’s ‘Transparency Guideline’, which
promotes public disclosure and accountability for paymentsfrom pharmaceutical companies to healthcare professionals
and medical institutions. For more information on the JPMA
Transparency Guideline and Code of Practice, please visit
www.jpma.or.jp.

JT Group Sustainability Report | 57

Beverage and processed food product responsibility
In our beverage and processed food businesses, we aim to meet consumers’ needs with the highest-quality and best-tastingproducts. Food safety is one of the JT Group’s main priorities, and we will continue to maintain the highest standards for safetycontrol to provide consumers with safe and reliable products.

Delivering safe, high-quality products
To ensure our consumers enjoy high-quality and safe beverage and processed food products we focus on four distinct areas:
food safety, food defense, food quality, and food communication. Activities in these areas ensure we have a rigorous quality andprocess control system to guarantee food safety in every part of our beverage and processed food businesses, from raw materials
procurement to manufacturing and distribution.

FQ

Food Quality

FS

Food Safety

FC

Food

Communication

FD

Food
DefenseFood safety

Each of our beverage and processed food businesses has
an independent Food Safety division to monitor and control
food safety. We analyze product-specific food safety risks andconduct inspections and audits in line with these risks. Across
the JT Group, our beverage and processed food businesses
hold a food safety meeting every quarter to review food safety
initiatives and share best practices.

Factories are subject to regular external certification audits aswell as unannounced audits to ensure compliance. Our beveragebusiness does not have any manufacturing operations, and all
production is outsourced to third-party manufacturing partners.
We encourage our third-party suppliers to certify their factories
to the FSSC 22000, a complete certification scheme for foodsafety systems.

All of our Group and third-party contract frozen food factories are
certified to the ISO 22000 food safety management system.

FSSC 22000 certified beverage business partner factories (%)

66.7

ISO 22000 certified frozen food factories (%)

100

58 | JT Group Sustainability Report

06|

TableMark’s Uonuma Mizunosato Factory in Japan

Food defense

Food quality

Food defense involves protecting our manufacturing processes
and products from the risk of intentional or accidental
contamination. We have an integrated risk management
program in this area and follow established risk management
policies, procedures, and audits. TableMark, our processedfood subsidiary, has created a food defense guideline thatapplies to all factories and distribution centers, as well as
contract manufacturers. The guideline outlines specific security
management measures to enhance our food defense. These
include:• Tight control of facilities, water sources, and toxic substances• Establishing restricted areas for both employees and visitors• Restrictions on personal belongings in factories

Working with business partners on foodquality and defense
In 2013, our beverage business held a quality assurance andfood defense seminar for 23 people from our manufacturing
partners. The seminar focused on measures to raise productquality, which is an important issue for our beverage businessas all manufacturing of our brands takes place in third-party
factories.

Quality management is established across the entire beverageand processed food supply chain through certification to ISO
22000 or FSSC 22000. We collect and monitor consumer
satisfaction data to assess the quality of our products andimplement product improvements on an ongoing basis.

Food communication
We provide a range of information to consumers about our
products, including disclosure of ingredients and traceability
information. We also give details of food safety control
programs on our websites to provide assurance to customers on
product safety.
In our processed food business, we disclose the factory
where products are manufactured and the origin of the main
ingredients. Consumers are also provided with traceability
information on our website for some packed cooked-riceproducts, which includes specific data on where the rice wasgrown, the factory of manufacture, production dates, and details
relating to suppliers.
Customer feedback, both positive and negative, helps us tounderstand and maintain the quality of our products. Ourconsumer complaints management system is compliant with
ISO 10002, the international standard for customer satisfaction.
We also provide toll-free numbers on product labels to give
consumers the opportunity to request additional information.

JT Group Sustainability Report | 59

Product responsibility and consumer impacts

Pre-harvest inspection of vegetables

In this section

Providing training and employment support
for disabled people > P.61
Supporting environmental protection > P.62
Supporting disaster relief and recovery > P.63

07 Thebigger picture
Contributing to the communities in which
we operate across the JT Group is part ofour responsibility as a corporate citizen.
We are guided by the JT Group Corporate
Citizenship Activity Policy, which focuseson community needs in four areas: social
welfare, including poverty reduction,
assisting disadvantaged elderly people,
adult education, and support for those withdisabilities; arts and culture; environmental
protection; and disaster relief.
We provide support in a number of ways,
including through financial contributions
and corporate philanthropy, employee
volunteering, and an independent charity,
the JTI Foundation (www.jtifoundation.
org). In 2013, we invested a total of¥7,780 million in corporate citizenshipand community involvement activities(2012: ¥6,197 million). This includes
financial donations to organizations suchas the Eliminating Child Labor in Tobacco
Growing Foundation and a diverse range ofcommunity involvement activities within our
tobacco supply chain.
The Verbier Festival, supported by JTI

60 | JT Group Sustainability ReportProviding training and employment
support for disabled people
In 2012, in co-operation with the Kyrgyz Society for the Blind and the Deaf, JTI launched a project to establish mini-centers infive regions of Kyrgyzstan to provide computer training for visually impaired and deaf people. With the aim of helping develop
independence and providing social activities, the project launched 11 mini-centers and by the end of 2012, 108 participants had
passed computer training courses.
In 2013, the project was modified and expanded based on the experience gained in 2012. This included the launch of ‘Equal
Opportunities’, a social center in Bishkek offering a range of new computer training courses as well as programs to facilitate social
integration and independence. The new courses include:• Computer technology courses for the blind and visually impaired, which comprise 164 hours in class, 164 hours of homework, and82 hours of individual work
• Computer technology courses for the deaf and hearing-impaired users, which comprise 80 hours in class, 80 hours of homework,and 40 hours of individual work
• Orienteering with a cane, which includes 30 hours in the classroom and 120 hours of practice outside the classroom• GPS navigation in the city for the blind, which includes 80 hours in class, 120 hours of practical work, and 40 hours of homework

07

The bigger picture

Legal support
Alongside the courses, the center also provides legal advice
to trainees and is assisted by a legal advisor, herself visually
impaired, who monitors and analyzes legislation in the Kyrgyz
Republic on the rights of people with disabilities. Employment
legislation for disabled people and government benefits for legal
support of program participants is also monitored.

Employment
Another important function of the center is an employment
program for those who have passed courses at the center, as
well as for citizens with disabilities who have applied for help.
Within the employment program, several databases havebeen established to record information on disabled people
seeking work, available jobs, and the most popular or suitablevacancies among disabled people. In March 2014, as part of theemployment program, the Equal Opportunities center launcheda joint project with call center provider Positive Contact, which
selected candidates to work as call center operators. Seven

participants started training in the call center in April 2014 andall will be employed by the call center upon completion of theirtraining.

“I was afraid to go out. Only on the initiative of mywife did I walk somewhere. Usually, I spent days
just listening to the TV. Through a blind neighbor I
learned about a society of the blind and the deaf, anddecided to join it. And today, I already signed up for acomputer course at Equal Opportunities.”
Igor Pustuyev
Equal Opportunities service user

According to the Ministry of Labor,5 there are over 155,000
people with disabilities in Kyrgyzstan, including 25,000 blind anddeaf. Annually, a quota of 500–700 jobs is allocated to disabled
people by employers; however, in practice, employment isprovided to not more than 200 people a year.
5
http://www.vb.kg/doc/273385_v_bishkeke_otkrylsia_centr_po_obycheniu_i_
trydoystroystvy_lovz.html

JT Group Sustainability Report | 61

Supporting environmental protection
Restoring forests in Japan – the JT Forest
Since 2005, we have worked to protect the environment by conserving and developing forests across Japan with our JT Forest
initiative. The initiative assists local communities in their efforts to protect and enhance areas of forest by leasing them for a fixed
period and establishing forest development plans that respond to a specific forest’s needs. We provide support for the identified
development plans in consultation and cooperation with various stakeholders, including experts, local communities, and local
governments. The ultimate goal of the JT Forest is to create thriving forests that are used and maintained in a sustainable way.
The JT Forest currently operates in nine forest areas (see map), working on issues such as reviving previously deforested areasand conducting forest maintenance, including thinning, weeding, developing narrow paths for regular use, and protecting young
trees from damage caused by wild animals. We also run Forestry Program days, where JT employees, local residents, and local
government officials can come together to work on forest preservation.

Shakotan (Hokkaido)
since December 2010

Tsuruoka (Yamagata)
since April 2009

Nakatsugawa (Gifu)
since April 2008

Yunomae (Kumamoto)since April 2009

Kosuge (Yamanashi)
since March 2006

Shigetomi (Kagoshima)
Nahari (Kochi)
since November 200662 | JT Group Sustainability Report

Nakahechi (Wakayama)
since January 2005

Chizu (Tottori)
since August 2007

Extending our support
In 2013 and early 2014, we renewed three JT Forest conservationagreements in Gifu, Kumamoto, and Yamagata Prefectures. In 2013,
we renewed our agreement with Yunomae-machi, in Kumamoto
Prefecture, which was due to expire in March 2014, for a further
five years. The JT Forest project in Yunomae has thinned the forest,
improving its ability to protect soil and absorb rainwater, and planted
trees to attract and support wildlife, including Japanese deer andJapanese dormouse. These maintenance and conservation initiatives
will continue and be expanded during the extended agreement
period.
In early 2014, we also renewed our forest conservation agreement
for the ‘Yamagata Forest of Kizuna’ with Yamagata Prefecture,
Tsuruoka-city, and Shimogawa Production Forestry Cooperative.
The new five-year agreement will continue to enhance coastal
sandstorm control and improve the forest, where environmental
education for the community’s younger generation can be provided.
The ceremony for renewed agreement for JT Forest Tsuruoka

Supporting disaster relief and recovery
Although it has been three years since the Great East Japan Earthquake hit the Tōhoku region of Japan, the recovery effort isongoing. Many people are still struggling to re-establish their lives and livelihoods. As a result, both human and financial resources
remain in high demand for the restoration of affected areas.

The ‘JT Reconstruction Support Project’ supports NPOs working
to reconstruct and revitalize communities in three areas mostbadly affected by the disaster – Miyagi, Iwate, and Fukushima
Prefectures. Its goal is to provide a greater level of funding forthese NPOs, ensuring stability for their future activities.
The JT Reconstruction Support Project is operated on our behalfby the Japan Earthquake Local NPO Support Fund, whichscreens applications from organizations for financial support.

FY2013

1st. term (Oct 2013)

The screening body, which is mainly made up of independent
experts, assesses applications four times each year. In total, theproject will provide a fund for three years to support around 20
NPOs annually with grants of three to five million Yen for each.
Examples of activities supported to date include:• Support for female-led business start-ups that work to help
communities’ everyday life in tsunami-devastated areas• Preventing isolation of community members living in both
temporary housing and their own houses• Creation of jobs for women while helping them balance theparenting of young children in the affected areas• Support for families with disabled children in disaster areas• Projects to clear debris from the sea-bed in tsunami-affectedareas• Creation of cooperative business models both with local
people and those from outside affected communities• Support projects to empower women who immigrate to
Fukushima

2nd. term (Jan 2014)

3rd. term (Apr 2014)Total

No. of NPOs

Grants(million Yen)

No. of NPOs

Grants(million Yen)

No. of NPOs

Grants(million Yen)

No. of NPOs

Grants(million Yen)

Iwate Pref.

0

0

2

7.12

1

5.00

3

12.12

Miyagi Pref.

3

13.46

1

4.40

3

10.10

7

27.96

Fukushima
Pref.

2

9.12

2

7.70

3

12.50

7

29.32

Total

5

22.58

5

19.22

7

27.60

17

69.40

Activity base

JT Group Sustainability Report | 63

07

The bigger picture

Immediately after the earthquake and tsunami, we supported
the urgent disaster relief efforts in the worst affected areas.
Over the longer term, we have supported the recovery effort
with donations, teams of volunteers, and programs of support
for non-profit organizations (NPOs) working in areas trying torecover and rebuild following the disaster. These programs arecarried out as part of the ‘JT NPO Support Program’, which has
been providing support to Japanese NPOs since 1999. Based on
the acute needs of the affected areas, however, we decided tolaunch a new support program in 2013.

About this report
This is the JT Group’s tenth report providing detail on our sustainability-related policies and activities. We report on our sustainability
activities and performance annually, and this is the first year that we have titled our report as a ‘Sustainability Report’. Our previous
report, titled ‘JT Group CSR Report 2013’, was published in June 2013.
This report follows the reporting principles of the Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines; however,
our reporting is not yet in accordance with the GRI G4 Guidelines. We have defined the content of this report using a materiality
assessment in our international tobacco business, and peer benchmarking and an internal prioritization exercise in our other Groupbusinesses.
The reporting period for this report is based on the JT Group’s financial year, running from April 1, 2013 to March 31, 2014. The
financial year of our international tobacco business matches the calendar year (from January 1 to December 31, 2013) and isconsolidated within this report. See ‘Notes on data’ below for more information on our data reporting for these two periods.
The JT Group is transitioning towards calendar year reporting, and as part of this process, our 2014 financial year will run from April 1
to December 31, 2014 (a nine-month financial year). Our 2015 financial year will run from January 1 to December 31, 2015.
In this report, the terms CSR and sustainability have the same meaning.

Changes in structure, size, or ownership
There are no significant changes to the size or structure of the JT Group within the reporting period of this report.
In October 2013, we announced that we will close some tobacco-related factories in Japan in 2015. In December 2013, we alsoannounced the acquisition of a minority stake in a leading Russian tobacco distributor. Please see www.jt.com for press releases
related to these announcements.

Notes on data
Due to the different financial reporting periods for the JT Group operations in Japan (April to March) and our international tobacco
business (January to December), the data reported in this report varies depending on the level of coverage and completeness of ourdata sets.
With the change in the JT Group accounting period from financial to calendar year from the end of 2014 onwards, our data reporting
will become more uniform across the business in future reports.
In this report, January – December Japanese Yen exchange rates against U.S. Dollar are: ¥79.80 (2011), ¥79.81 (2012) and¥97.73 (2013).

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

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

BEVERAGE

PHARMACEUTICALSUBSIDIARIESTORIIPHARMACEUTICAL

*A *C

*A *C

TABLEMARKGROUP COMPANIESSUBSIDIARIES*B =solely Japan Tobacco Inc. (JT)*D =Japan Tobacco Inc. (JT) and Japan Tobacco International (JTI)64 | JT Group Sustainability Report*A *B *C *D
JAPANESEDOMESTICTOBACCO

*A *C

*A *C

*A *C

TABLEMARK*A *B *C *D

INTERNATIONALTOBACCO*A *CSUBSIDIARIES*C =Japan Tobacco Inc. (JT) and Japanese domestic group companies*E =solely Japan Tobacco International (JTI)*A *D *E
JAPAN TOBACCO
INTERNATIONALGHG data measurement
We measure our GHG emissions across our value chain following the WRI/WBCSD GHG Protocol, an international guideline forcalculating GHG emissions. Under the GHG Protocol, three Scopes have been set to calculate and report on GHG emissions:• Scope 1: All direct GHG emissions from corporate activities, such as burning of fossil fuels at factories• Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat, or steam• Scope 3: Other indirect emissions (divided into 15 categories). This includes the extraction and production of purchased materials
and fuels, transport in vehicles not owned or controlled by the reporting entity, electricity-related activities not covered in Scope 2,
outsourced activities, waste disposal, and more

Conversion factors

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

External verification and assuranceThis Sustainability Report is not externally assured this year. Some of the data in this report is externally verified. This includes Groupwide Scope 1 and 2 GHG data and some Scope 3 GHG data. Verified Scope 3 emissions include non-tobacco materials purchasedby the Japanese domestic tobacco business, tobacco leaf for both Japanese domestic and international tobacco businesses, andemployee travel for our international tobacco business.

Other publications
Websites

Japan Tobacco Inc. (global site): www.jt.com
Japan Tobacco International (international tobacco business): www.jti.com
Torii Pharmaceutical Co., Ltd. (pharmaceutical subsidiary): www.torii.co.jp/en
TableMark Co., Ltd. (processed food subsidiary): www.tablemark.co.jp (in Japanese)

Publications

JT Annual Report: www.jt.com/investors
CSR Communication Book (only in Japanese): www.jti.co.jp/csr/report/index.html

Awards and recognition
AwardsTokyo Stock Exchange Corporate Activity Award:
www.tse.or.jp/english/news/07/b7gje6000001qpbv-att/b7gje6000001qpon.pdf

Sustainability indices

The JT Group is a member of the Morningstar Socially Responsible Investment Index (MS-SRI) (www.morningstar.co.jp/sri, inJapanese).

Contacts and feedback
Japan Tobacco Inc. (Headquarters)
2-1, Toranomon 2-chome
Minato-ku
Tokyo 105-8422
Japanwww.jt.com

JT International SA
1, rue de la Gabelle
CH-1211 Geneva 26
Switzerland
www.jti.com

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

JT Group Sustainability Report | 65