BUSINESS and SUSTAINABILITY
This section covers the JT Group’s mid- to long-termbusiness and sustainability strategies and initiatives inthat context. Here our CFO and CSO explain Group capital policy, financial strategy and the principles for sustainability that together sustain Group value creation.

028 Business Plan 2022
030 Sustainability
034 Message from the CFO
038 Message from the CSO
040	Overview of tobacco business and its sustainability initiatives• Products & services• Building sustainable supply chains• Optimizing the regulatory environment andtackling illegal trade060	Overview of pharmaceutical business and its
sustainability initiatives
064	Overview of processed food business and its
sustainability initiatives
068 Investing in people• Health and safety
072 Three absolute requirements for sustainability• Respect for human rights• Improving our social impact• Improving our environmental impact
080 Risk factors
084 Regulation and key laws
087 Litigation

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Business Plan 2022

Every year the JT Group publishes a three-year rolling business plan, reflecting the changing operating environ-Roles and targets of each business

ment, including economic trends, geopolitical risks and the competitive landscape. We will achieve sustainableprofit growth by investing in our businesses, maximally leveraging our resources on a Group-wide scale andtransforming ourselves even in a drastically changing operating environment.

Tobacco Business* The content of this section is based on the information disclosed in February 2022.

• Prioritize investment of management resources towards HTS and combustibles– Combustibles to remain the largest category over the coming decade– In RRP, HTS to be highest potential for sustainable profit growth

Operating environment outlook 2022-2024
Uncertainties are expected to increase due to COVID-19,
changes in consumer behavior caused by the pandemic andrisks of global economic stagnation, in addition to changes
in international political conditions, exchange rate fluctuations, and other factors.
In accordance, there is a necessity to:•M onitor changes in the business environment such as pandemic-driven governmental tax increases to secure financial resources, and tighter, more complex regulations• Consider uncertain geopolitical risks, such as economic
sanctions or political unrest in some markets

RRP (Reduced-Risk Products)–	Continued demand increase especially for HTS (heated
tobacco sticks)–	Intensified competition and regulatory developments inleading markets–	Uncertainty in device procurement due to global semiconductor shortage–	Continued downtrading and industry volume decrease inleading markets–	Profit pool likely to expand through pricing opportunities*1 On a basis of revenue, excluding revenue in China*2 Japan, Russia, U.K., Italy*3 Global basis (assumes existing geographic footprint and the current expansion plan)*4 Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

Consolidated adjusted operating profit (AOP) at constant FX growth rate of mid to high single
digit

Outlook 2022-2024

Annual average growth of a mid single digit rate despite significant investments towards RRP

Supplemental note: Why we use adjusted operating profit at constant FX as the primary index
for performance management• P reviously, adjusted EBITDA had been used as an index for
performance management, but to better manage business
investment and returns, starting with the 2014 Business
Plan it was replaced with adjusted operating profit, as thelatter does not require the addition of amortization and de-• Enhance investment in the HTS category to win more support from consumers*4 to:– Expand geographically (e.g., Russia and Europe)– Continue to improve products– Reinforce our strategic capabilities
Please refer to Overview of tobacco business and its sustainability initiatives (P. 40) for more details.

Mid- to long-term target

Japan Tobacco Inc.

Strategy of Tobacco
Business

Combustibles

Group profit target028• Strive to fulfill following goals by the end of 2027 (when the HTS segment is estimated torepresent 15% - 20%*1 of the total tobacco industry):– Drive segment share for HTS in the key HTS markets*2 to the mid-teens level– Reach break-even*3 in the RRP category

Pharmaceutical Business/
Processed Food Business•A djusted operating profit is used to show, in a readily
understandable way, our business performance for the current fiscal year, excluding any effects of amortization costs
related to acquisition(s) in the previous years.

The tobacco business, the core and driver of the JT Group’s profit growth, aims to grow at a
mid to high single digit CAGR over the mid to long term of AOP at constant FX.

Resource allocation policy
Resource allocation policy
based on the 4S model• Prioritize business investments*1 for sustainable profit growth in the mid to long term
• Strike a balance between profit growth through business investments and shareholder return– Aim to enhance shareholder returns by realizing the Group’s mid- to long-term profit
growth, while maintaining a strong financial base*2– Target a dividend payout ratio of about 75%,*3 a competitive level*4 in the capital markets– Consider implementing a share buy-back program, mainly taking into account the Group’s
financial outlook of the respective year and mid-term capital needs

preciation costs, which vary with the business investment
in a given year.

• In order to more clearly illustrate the strength of our businesses themselves, we adopt the figures at constant FX,
thereby disregarding possible exchange rate fluctuations
which can move upward or downward significantly overthe short term due to factors not directly related to ourbusinesses, such as geopolitical risks.

T he pharmaceutical and processed food businesses aim to complement the JT Group’s profit
growth• Pharmaceutical business: Focus on R&D investments toward next-generation strategic products and maximize the value of each product• Processed food business: Ensure sustainable profit growth through quality top-line growth

Shareholder return policy*1 Investment towards the growth of the tobacco business is our highest priority. Pursue growth of AOP atconstant FX through quality top-line growth*2 The Group will maintain a strong financial base that secures stability in case of changes in business environment such as economic crises and flexibility enabling expeditious responses to business investment
opportunities*3 To be in the range of approximately ±5%*4 We monitor the shareholder return trends of Fast-Moving Consumer Goods companies which have a
stakeholder model similar to our 4S model and have realized strong business growthIntegrated Report 2021

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Sustainability

Our material issues

Overview of the sustainability strategy

To help the JT Group to grow, and to build a sustainable
future as a member of the society in which we operate,
we have identified a list of high-priority material issues.
Our materiality is based on the JT Group’s management
principle, the 4S model. In 2015, we performed a materiality
assessment covering the entire Group for the first time. We
selected our material issues through interviews with ourinternal and external stakeholders.
Since we first selected our original material issues, external circumstances and the business environment in which
we operate have changed. In 2021, we began updating theGroup’s materiality framework by revisiting and identifying
our material issues. With this in mind, external and internal

stakeholders are being consulted to prioritize our new
materiality topics.
In updating our materiality, there are several issues weare paying particular attention to: the rise and growth of RRP(Reduced-Risk products); the increasing global awareness tocombat climate change; impacts of the COVID-19 pandemic,
the progress of information technology; greater diversity
in the workplace; regulatory trends such as the revision ofJapan’s Corporate Governance Code, to name but a few. We
also recognize the importance of creating new shared value,
together with our stakeholders. Taking these factors into
consideration, as well as the ESG issues facing our Group, we
will set out our new materiality.

The JT Group’s sustainability strategy is based on the 4S
model, our management principle, and encompasses ourmateriality analysis. The foundations of our sustainability
strategy, which apply across the Group, are outlined below.

Three absolute requirements for sustainability

Respect for human rights

An improved social andenvironmental impact

Good governance andbusiness standards

We are committed to respecting
human rights across our global
operations and value chains, as
expressed in the JT Group Human
Rights Policy.

We are committed to protecting theenvironment and making a positive
difference wherever we operate.

We are committed to promoting
transparent, fair, and timely
decision-making that carefully
considers the respective interests ofconsumers, shareholders, employees, and the wider society.

4P. 73

4P. 75

4P. 88Laws andregulations

Product safety
and productresponsibility

Supply chain
management

Product
innovation andintellectual
property

Environment

Respecting
human rights

MediumImportance to external stakeholders

High

The JT Group’s materiality
Corporate
governance andtransparency

Environmental
impacts ofproducts

Information
security

Responsible
marketingAnti-competitive
behavior

Being aresponsible
employer

Anti-bribery
and corruption

Collaborations
andpartnerships

Employeedevelopment
and talentmanagement

Workplacehealth and safety

Focus areas by business segments
We have identified priority areas, aspirational goals andtargets for each business segment. As JT Group Environment

Plan 2030 was updated, greenhouse gas emission targets ofall of our business segments were also updated.

Tobacco businessWe have selected the following four focus areas for tobacco,
our core business. In 2019, we set out 11 specific targets
covering each focus area and have been reporting on progress. In 2020, we set a new target relating to the appropriate

Litigation

use and responsible disposal of materials, including plastics,
used in our products and packaging. As a result, a total of 12
targets are in place.

Focus areas

Products and services

Aspirational goals

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

Illegal trade

4P. 50Equality anddiversity inthe workplace

Political andregulatory
decision-making
processes

Contributions
to society

Tax practices

In 2021, we updated our JT Corporate Governance Policy
and the Group Environment Plan 2030, which includes acommitment for a net zero target.

We will be the employer of choice by investing in people.
4P. 68We will reduce environmental and social risks, and enable transparent and responsible

Supply chain

High

MediumPeoplepractices across our supply chain.

Regulatory environment andWe will ensure the Company is included in policymaking leading to fair and balanced

illegal trade

regulation, and enhance our cooperation with governments to combat illegal trade.

Importance to the JT Group
Value chain boundaries

Our supply chain

Our Company

4P. 54

4P. 57

Our customers and consumers

Read about the targets of our tobacco business and progress in 2021
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Sustainability

Contributing to the SDGs

Pharmaceutical business
The mission of our pharmaceutical business is to create
innovative, original drugs to support patients in the shortest
time possible. In view of this mission, in 2019, we selected

Focus areas

Products and services

the following three focus areas. We subsequently set fivespecific targets for these focus areas.

The JT Group supports the Sustainable Development
Goals (SDGs) adopted by the United Nations. Through ourbusiness activities, we will contribute to the SDGs related toour business and its environment. We have mapped related

SDGs against our initiatives for sustainable business, andidentified the nine SDGs to which our business can best
contribute.

Aspirational goals

We will create innovative, original drugs to support patients in the shortest timepossible.

PeopleWe will strive to nurture talent development which enables us to create first-in-class(FIC) drugs.

Product safety and responsibility

We will strictly comply with all relevant laws, regulations, and industry standards in

Sustainability Advisory Forumorder to deliver safe drugs to patients.
Read about the targets of our pharmaceutical business and progress in 2021

Processed food business
The processed food business comprises three businesses:
frozen and ambient food, seasonings and bakery businesses.
Our mission is to deliver safe, high-quality food to our

Focus areas

Products and services

consumers. In 2019, we selected the following three focus
areas. We subsequently set eight specific targets for these
focus areas.

Since 2020, we have held regular Sustainability Advisory
Forums to discuss the Group’s sustainability issues. With ourChief Sustainability Officer acting as Chairman, the forum
is attended by heads of the JT Group’s businesses and corporate functions. In 2021, three forums were held. We discussed and shared information on a number of sustainability
issues such as updating the Group’s materiality, progress ofthe sustainability strategy, action against climate change ordiversity and inclusion. Discussions at the forum are appropriately reported to the CEO and board of directors.

Aspirational goals

In the processed food business, we seek to provide
safe and delicious food for consumers, in the hopethat they will choose our products for their loved ones.
Through our three businesses of frozen ambient food,seasonings, and bakery, we are working on our sustainability issues. I have participated in the forum since
its inception. While being conscious of sustainability
trends or regulatory developments and the challenges
that we face, the forum serves as a place to discuss theGroup-wide sustainability issues.

”

Hiromasa Furukawa

We will continue to provide high-quality, technology-driven products in response to

Senior Vice President
Food Businessour customers’ needs: satisfaction and trust.

People“

We will ensure workplace safety for our employees, while continuously investing inpeople who can contribute to enhancing corporate value.

Supply chain

We will reduce social and environmental impacts and continue to deliver safe products to consumers.
Read about the targets of our processed food business and progress in 2021

Stakeholder engagement* Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

032

Japan Tobacco Inc.

It is paramount that we regularly engage with our
stakeholders, striving to create value for the wider society.
Stakeholder engagement is essential for the Group’s
sustainable growth. Our 4S model is the foundation of ourmanagement principle. In accordance with this principle,
we communicate with a diverse group of stakeholders
every day.
4Read more about stakeholder engagement on our website.

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GOVERNANCE

Key performance indicators

Non-financial performance review
2021 sustainability highlights
We continuously revisit the material issues of our Group,
while striving to achieve our aspirational goals. Summarized
here are some of our sustainability achievements andprogress. It is paramount that we continue to monitor andreport on our strategy, initiatives, goals, and progress. By

JT Group environmental performance dataassessing the impact, not only on our Group but on ourvalue chain as whole, we wish to create shared value for ourplanet and the communities in which we operate.

We announced our commitment to

To coincide with the 10th anniversary

accelerate our efforts to reduce green-of the United Nations Guiding

house gas (GHG) emissions across the entire

Principles on Business and Human Rights, wevalue chain and achieve

have published our first

net zero GHG
emissions by 2050. We aim to be

Rights Report. The report explainscarbon neutral for our own operations by 2030.

our approach to human rights’ due diligence

Among other initiatives, we plan to achieve

based on the JT Group Human Rights Policy. It

this by increasing the proportion of renewablealso identifies nine salient human rights issues

electricity that we use.

and the steps we are taking to remedy them.

4Read more on P. 76.

As a global organization, we recognize that we have a keyrole to play in reducing our environmental impact – notonly in our own business operations, but across our value

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

GHG emissions Scope 1 and 2

GHG emissions Scope 3(CO2e thousand tons)(CO2e thousand tons)

1,000

8,000

750

6,000

7,331

Human

250

work proactively to fulfill this requirement.
In our latest Corporate Governance Report,

skills matrix for
the Directors and Membersof the Audit & Supervisory
Board. For the sustainable growth of ourGroup, we are introducing an ESGrelated index for director
remuneration, starting from FY2022.

we introduced a

331

306

347

359

4,000

2,000

378

4Read more on P. 73.
2019

key priorities of our Group and we

5,473

378
500

0

Corporate governance is one of the

5,812

EY’s
Global Equality
Standard certificate, as one of
In 2021, JTI received

Scope 1

2019

2021

2020

Scope 2

Water withdrawal

Waste generated(Thousand m3)(Thousand tons)

12,000160

10,835 10,777

the first multinational companies in the world.
EY’s GES is one of the first worldwide Diversity



0

2021

2020

10,500 10,690 10,411 10,227

140

9,856

9,000

120

6,000

80

3,000

40

134

133

134

133

2016

2017

2018

2019

127

124

2020

2021

& Inclusion (D&I) certifications measuring
equal opportunities and equal pay in theworkplace.
4Read more on P. 68.

0

2015

2016

2017

2018

2019

2020

2021

0

2015

4Read more on P. 88.

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Message from the CFO“

E ven in a highly uncertain business environment, we are working to maintain astrong financial foundation and enhancebusiness investment to achieve profit
growth over the mid to long term and raise
shareholder returns.

”

Nobuya Kato
Senior Vice President, Chief Financial Officer

I took office as CFO in January 2022. Making the most of my experience, particularly related to mergers and acquisitions in the international tobacco business, I am committed to realizing sustainablegrowth for the JT Group and am undertaking reforms to that end, firmly supporting the CEO in thateffort.

Looking back on 2021 results
Our adjusted operating profit at constant FX – our primaryperformance indicator – increased by 22.9% year on year,
driven by the tobacco business through the year in spiteof the ongoing pandemic conditions and related highuncertainty. The international tobacco business in particular
contributed with a strong pricing effect and volume growth.
Turning to progress regarding our mid to long term KPI goal,
specifically, mid to high single digit growth in adjusted operating profit at constant FX, we see that over the past three
years we have been reporting year-on-year increases in our
growth rate. This has occurred despite difficult conditions inwhich we have consistently lagged behind our competitors
in terms of RRP market share amid overall industry volume
growth.

Both revenue and adjusted operating profit on a reported
basis increased year on year, the former by 11.1% to 2,324.8
billion yen and the latter by 25.4% to 610.4 billion yen,owing to robust top-line performance and favorable foreignexchange impacts.
Operating profit showed year-on-year growth by 6.4%, to499.0 billion yen, despite the higher costs in the Japanesedomestic tobacco business, including initiatives to enhance
management systems and adjust tobacco cultivation areas.
Despite an increase in corporate tax, profit for the term grewby 9.1% year on year, to 338.5 billion yen.
Although our ability to generate cash remains solid, free
cash flow was down by 21.9 billion yen compared withthe corresponding figure for 2020, partly due to the latterincluding a one-time revenue from the sale of the former JT
head office building.

Operating environment outlook 2022-2024
We predict that current trends will continue in our tobacco
business, in both RRP and combustibles, over the course of
our current business plan. The RRP segment is developing
into the core pillar of business growth for the future,with demand continuing to increase, especially for HTS.
Combustibles will likely continue to experience down-trading and contraction in demand, but we believe they cancontinue to reliably deliver profit by seizing appropriate
pricing opportunities and building market share.
Although the pandemic itself is not predicted to havea significant impact on our tobacco business, we mustnevertheless consider the possibility that the economic
stagnation may prompt some governments to raise tobacco

and/or consumption taxes to secure financial resources. We
also project that domestic demand for certain high-value
products, which surged in 2020 and 2021 as a consequenceof tighter travel restrictions and limited cross-border traffic,
and which ultimately contributed to the growth of ourinternational tobacco business, will gradually return topre-pandemic levels. In addition, we foresee tighter andmore complex government regulations on tobacco worldwide, as well as the impact of geopolitical factors on somemarket environments. However, as a responsible global firm,
the JT Group will comply to all regulations, while monitoring
the trend in government sanctions and regulations, andtake appropriate measures as necessary.

Financial policy
The JT Group draws up and executes its financial plans inline with two core values: resilience, to be able to maintainour businesses despite significant and/or unexpected risks,such as an economic crisis, and flexibility, to promptly
respond to attractive investment opportunities.

Cash flow management
In our cash flow management, we put highest priority on
stable cash generation from top-line business growth. On
the financial side, we are undertaking initiatives to reduce
foreign exchange impact and optimize operating capital. In
the tobacco business, particularly in the emerging markets,
we are working to optimize our businesses for local levels of
economic growth and build the value of our businesses inlocal currency over the mid to long terms.
We pursue cash creation via top-line growth, made possible
by, on the one hand, pricing that takes into consideration
tax hikes and inflation, and on the other, share gains building on the strength of our brand portfolio, enhanced witha long-term strategic investment view. Pricing is a driver of
profit growth in our tobacco business, but we refrain fromextreme pricing that could harm our brand equity or impair
profit growth in the long run. Consequently, we consider it
essential to understand the consumers* trends, competition,and regulations in each market before implementing any
price revision.
To reduce foreign exchange impact, we utilize natural hedging, by which we mean matching incoming and outgoingcurrencies, as well as risk-hedging using exchange forwards
and other derivatives, except for certain currencies. In principle, foreign-currency credits and debts are fully hedged. We
also hedge 25-90% of future cash flow, and in some cases
apply hedge accounting to reduce foreign exchange risk,taking into account possible impact on the profit-and-loss
statement.

* Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

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Message from the CFO

To optimize operating capital, we continuously improve
our cash-conversion cycle, reviewing terms for receivables
and payables and applying methods such as liquidation ofreceivables and supplier finance, while optimizing inventory
levels. Excluding the temporary impact of M&A and so forth,over the past ten years we have been generating free cash
flow of about 400 billion yen per year.

FCF (BN JPY)

IR activities

600

455.4

451.3
400
200

316.0

503.9 482.0
404.2

386.7

212.6
72.6

105.6

0
-200
-400

-316.2
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (FY)
(LfL)

Investment distribution
There is no change in our two key policies for management-resource allocation: give top priority to business
investment, and balance profit growth resulting from suchinvestment with shareholder returns. Based on the 4S model, our management principle, we will give top priority tobusiness investments leading to sustainable profit growth,
especially in the tobacco business.
In February 2021 we revised our shareholder return policy tobalance profit growth and shareholder returns, with the understanding that continued investment is needed to rebuild
our share of the RRP market and stay competitive. Although
in 2021 we revised our dividends upwards reflecting thestrong performance of our international tobacco business,under the current business plan, we will invest about 300
billion yen, particularly in HTS, as the necessity for substantial investment in HTS remains unchanged.
Under the circumstances, and based on the policy I outlined
earlier, we will aim to sustainably increase shareholder returns while maintaining a target payout ratio by continuing
to increase adjusted operating profit at constant FX, thefoundation of our current-term profit growth, over the mid
to long terms. Furthermore, as we have publicly announced,
we will be making significant investments to achieve ourgoals for carbon neutrality by 2030 and net zero by 2050.
Our total shareholder return, including dividends, hascontinued to be significantly below that of the TOPIX
average, mainly due to its stock price performance, and we
humbly accept this as an honest evaluation of the Company
by our investors. In order to further promote shared value
with our shareholders and pay closer attention to thestock-price trend, in our executive-compensation system
we have introduced a restricted-stock remuneration plan,
paid in Company shares, with the performance share unit
linked to business results over the most recent three-year
period. Additionally, reviewing our KPIs related to executive
remuneration, we have increased the percentage thatreported-base results comprise of executive bonuses, while
as an initiative to realize mid to long term growth we haveintroduced new assessment indices, including the ESG index(see P. 100 for details).

The JT Group appropriately discloses timely information
both financial, as with business results, and non-financial,
such as management strategy, ESG factors and the statusof each business segment, and engages in active dialogue
with shareholders and institutional investors.
Our IR teams in Tokyo and Geneva, where JT and JTI are
respectively headquartered, meet with securities analysts
and institutional investors to discuss recently-announced
financial results and other disclosed information, as well as
conducting individual conferences on ESG matters. Due tothe pandemic, these IR events are still held mostly online,
as in 2021 when we held some 340 individual conferences.
IR representatives participate in conferences hosted by
securities houses and meets with domestic and overseas
institutional investors. On some of these occasions, the CEO,myself as CFO, and the director(s) in charge are present.

Japan Tobacco Inc.

The investor feedback we gather through such IR eventsis regularly reported to the Board of Directors and shared
among all Executive Officers and people in the relevant
divisions. Going forward, we will continue our efforts toensure that investors understand the JT Group’s businessresults and initiatives, and moreover, continue to properlyreflect their opinions and expectations in our strategies andbusiness operations.

Better communication with bond investors
The JT Group is also working to enhance communications
with bond investors. Corporate bonds are an importantmeans to procure funds to help achieve sustainable growth.
To reliably procure funds even in an unstable financial
environment, we are endeavoring to broaden our scopeof communications with domestic and overseas bondinvestors. To create more opportunities for dialogue withthem and facilitate better understanding of the JT Group,
we regularly hold non-deal roadshows in addition to those
held at the time of bond issuances. These roadshows havebeen held in Europe, the Middle East, and Asia since 2018,
and we plan to launch them in other regions in the future
to reach more bond investors and increase opportunities forcommunication.
We have also begun an initiative to upload to our website
new content designed for bond investors as part of our ongoing efforts to provide timely information tailored to theirneeds. In addition to these initiatives to enhance dialogue
with bond investors, we are strengthening engagementwith organizations that make ESG assessments widelyreferenced in the capital markets as we work to improve our
ESG scores. We believe that we can further strengthen our
relationships with bond investors by helping them better
understand our ESG initiatives.

My resolve as a new CFO
In participating in the process of crafting the image of what
the JT Group hopes to become over the long term, I hope to
set optimal financial targets, KPIs, resource allocation, investment discipline, and so forth, while further expanding andstrengthening the foundation for the Group’s sustainablegrowth over the mid to long term. I am aware of the need to
implement initiatives to raise our capital efficiency, and will036

In fiscal 2019 we began conferences specifically focused on
ESG, to have occasions to seek investor opinion, including
assessments of our Integrated Reports, and we continue toremain active in dialogue with investors, making the most of
the opportunities we have created. For individual investors,
we held an online briefing in May 2021 with about 1,200
participants.

begin discussions on that soon.
As I mentioned, I will work on sustainable funding for the
long-term future. Simultaneously, I will be working on implementing, and further improving, our short and mid-term
initiatives and necessary operations, while contributing toincreasing our stakeholder engagement.

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Message from the CSO“

 s the Group CSO, my wish is to embedAsustainability into the root of our management. I would like all our employees
to take actions that will lead us to thesustainable growth of our society andour business.

”

2021 Sustainability highlights by our CSO
We have outlined three basic requirements that apply across the whole Group, while each business has set out its
own focus areas. The following are some of our initiatives and progress in 2021.
Improving our environmental impact
In the updated JT Group Environment Plan 2030, our target is to achieve net zero greenhouse gas (GHG) emissions by 2050
throughout our value chain. We will continue to work on improving our environmental impact. Our GHG emission target has
been revised accordingly. Our initiatives are recognized by external parties. We were recognized by CDP, securing a place on its
prestigious ‘A List’ for tackling climate change and acting to protect water security for the third consecutive year.

Improving our social impact
We have long-term partnerships with local and international organizations, with around 400 community investment programsin 60 countries. These programs help communities to become more inclusive, sustainable, and resilient. In response to the
COVID-19 pandemic, precautionary measures were put in place, while we continued to provide opportunities for our employees to engage with their communities.

Hisato Imokawa
Senior Vice President, Chief Sustainability Officer

Respecting human rights
Our approach to human rights’ due diligence is collated and described in this report and is based on our Group Human Rights
Policy, our commitment to respecting human rights and our past and current initiatives. In 2021, we issued our first JT Group
Human Rights Report.

Where we stand
COVID-19 and geopolitical issues have triggered drasticchanges to our daily life and to our social environment.
As we continue to face challenges from the pandemic,
we should take initiative and act swiftly. Changes are also
seen within ESG, as ESG investment is gaining increasing

momentum. With both of these factors, we are enteringa period of transformation regarding how corporations
are managed. Some may take a pessimistic view of the
turbulent times, while others would see the changes asopportunities. Needless to say, the mindset of our Groupbelongs to the latter.

Sustainability of our GroupPursuing the JT Group’s 4S model is about pursuing thesustainability for a foundation as well as the universe where
we can exist and be utilized. Based on the 4S model, we
have a history of proactively transforming our Group andare equipped with the ability to transform. It is my belief
that disruptive environmental change is an arena where wecan show our true strength. Here in lies the essence of ourGroup’s sustainability.

My role as CSO and the challenges
The role of a CSO is to promote sustainability management
as a whole group, while anticipating where and how wewant to be in the future. I consider myself as part of an ecosystem with a very long-time axis. My role is to persistently
strive for new initiatives, to collaborate with a diverse rangeof partners, and to proactively embed a universal perspective in which we believe. In other words, the role of a CSO is
to look ahead to the year 2050, 2100 or even beyond, andto expand or to create the structures we need to enhance
our Group’s capability and assets, offering both financial andnon-financial value.

038

Japan Tobacco Inc.

2022 marks a year of significant transformation for our
tobacco business, our core business. It is also the starting
point of the transformation of the entire Group. As theGroup CSO, my wish is to embed sustainability into the rootof our management. I hope that all our employees will takeactions that will lead us to the sustainable growth of oursociety and our business, and I look forward to driving thischange together.

Investing in people
The effect of the COVID-19 pandemic persisted throughout 2021. We continued to find flexible ways to work, primarily throughremote working. We prioritized the safety and well-being of our employees and their families, by organizing or providing information about COVID-19 vaccinations. As reported in the previous report, we have set out a Group-wide target for representation of women in leadership and we continue to work on diversity initiatives.

GovernanceCorporate governance is one of the priority agendas for the JT Group and we work proactively to fulfill this requirement.
To ensure sustainable profit growth, we believe it is essential to further secure a strong commitment of the Group’s management. In this light, we are introducing an ESG-related index for director remuneration, starting from FY2022.

Business progress
Each business has set out focus areas with sustainability targets. In our tobacco business, we are reporting on the target progress for Reduced-Risk Products to reflect our resource allocation and focus on HTS (heated tobacco sticks). In leaf supply chain
management, Agricultural Labor Practices (ALP) remains our core program. Preparatory work is underway for the program to
be extended to additional sourcing countries.

We are also working to establish frameworks for pursuing sustainability initiatives.
Sustainability Advisory ForumIn order to discuss our sustainability issues and challenges, we have held regular Sustainability Advisory Forums since 2020.
CSO is the Chairman of the forum, and heads of the JT Group businesses and functions attend.

Materiality
Since we first set out our material issues, external circumstances and the business environment in which we operate havechanged. Bearing this in mind, we started to update the Group’s materiality in 2021. The new materiality will take into account the changes that our Group has gone through as well as current ESG issues. We will of course engage our stakeholders
throughout the process.

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Overview of tobacco business andits sustainability initiatives
Note: The word, consumers, used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with the legislationin each country.

Eddy Pirard
Chief Executive Officer,
JT International S.A.

S tarting in 2022, post the combination of our two tobacco businesses, we embarked on a journeyguided by a unique strategic focus, under a single management team. By bringing together resources, talents and expertise, we are confident that we will enhance our competitiveness in numerous
areas, most notably in RRP (Reduced-Risk Products).

Tobacco industry overview
The tobacco industry includes different product categories.
While the best-known category is cigarettes, others include
FCT (Fine Cut Tobacco), cigars, pipe, oral and waterpipe
tobacco. In addition to these, there is a new category – RRP(Reduced-Risk Products) – which has been gaining popularity in recent years and encompasses different segments.
One RRP segment is HTP (Heated Tobacco Products), whichis growing in selected markets. HTP contain tobacco leaves
and generate a tobacco-enriched vapor by heating the
tobacco with no combustion. In general, HTP is regulated
and taxed as other tobacco products. In the HTP segment,
tobacco companies are focusing primarily on developing
HTS (heated tobacco sticks) through continuous innovation.
An additional product line-up in the HTP segment is Infused(infused tobacco capsules), a hybrid system which vaporizes
tobacco using indirect heating.
A second RRP segment is E-Vapor. E-Vapor products, whichheat a nicotine-based liquid instead of tobacco leaves, havereached a certain market presence in several countries.
Initially they were not regulated or taxed as tobacco040

Japan Tobacco Inc.

pandemic, including a return to industry volume growthin certain markets. Nonetheless, the tobacco industry
profit-generating model remains robust. Even amid thecurrent, challenging environment, we expect the industry
value to continue growing during Business Plan 2022,
mainly driven by a positive combustibles price/mix variance.
This divergence between industry value growth and volume
contraction is expected to continue. The RRP category,though smaller than combustibles, has been growing year
after year, and we expect this growth to continue, notably in
HTS. The largest RRP markets include the U.S., Japan, the U.K.,
Russia, Italy, China and South Korea. Importantly, and unlikein the combustibles category, the most successful RRP
segment can vary from one market to another, depending
on consumer preferences.
Excluding China National Tobacco Corp. (CNTC), the biggest
global players in the tobacco industry are the JT Group,
Philip Morris International, British American Tobacco, andImperial Brands. In addition to these four majors, key players

in the RRP category include JuuL Labs, a U.S. company specializing in E-Vapor products, and Swedish Match, a Swedishcompany focused primarily on oral products.
The JT Group’s tobacco business is ranked third in theworld (excluding China) by shipment volume. The Group
operates in over 70 markets while its products are sold inover 130 markets. It owns brands with strong equity as GFB(Global Flagship Brands), which satisfies a diverse worldwide
demand from adult consumers.
Following the global pandemic in 2020, the outlook forthe tobacco industry has become increasingly uncertain.
While the impact on consumer behavior will persist to someextent, we expect that COVID-19 will not have any material
impact in the mid term. We will continue to monitor changes in the business environment, as conditions differ frommarket to market, and some governments may raise taxes tofund fiscal spending in response to the pandemic.
* Based on 2021 data.

Tobacco business strategy
products, as they do not contain tobacco leaves. However,countries have started to make regulatory and/or tax changes to account for this relatively new RRP segment.
Another RRP segment is comprised of oral products, whichtake the form of small pouches to be inserted in the mouth
between the lip and the gum. Oral products can contain
tobacco, like snus, or not, like nicotine pouches. This segment has been growing in popularity, mainly in mature oral
tobacco markets such as Europe and the U.S.
The global combustibles industry volume totals theequivalent of 5.4 trillion units annually, representing a valueof roughly US$830 billion*. The largest cigarette market
is China, which accounts for over 40% of global volume,
followed by Indonesia, the U.S., Russia, Turkey, Germany
and Japan*. In China, there is a near-monopoly run by astate-owned enterprise covering product manufacturing,
distribution and sales.
Global combustibles industry volume* is declining,although we have seen some exceptional trends during the

In recent years, the tobacco industry has substantially evolved, driven by increased traction from RRP, as technology and product quality improvements generated higher consumer acceptance and adoption over past attempts to introduce productswith the potential to reduce the risks associated with smoking.

A clear and focused strategy
The JT Group believes that the RRP adoption trend willcontinue, as these products have potentially less risk for the
adult consumer. To address this evolving environment andensure sustainable growth in the mid to long term, the JT
Group has articulated a clear strategy for its tobacco business, prioritizing management resources towards HTS, thefastest-growing RRP segment, and combustibles, the largest,
most profitable category across the tobacco industry.
The combination of the JT Group’s tobacco businesses
into a single business segment will support this prioritization of resources, globalize the Group’s knowledge andexpertise, drive increased agility, and accelerate strategic
decision-making.

This strategy, moreover, confirms the tobacco business as
the core business of the JT Group and strengthens its role as
the main source of profit growth for the mid to long term.

Accelerating efforts in RRPThe RRP category is still to mature with each product segment being in different stages of development as consumer
acceptance varies from one market to another.
The JT Group expects HTS will offer the strongest growth
profile among existing product segments in RRP. In this context, the Group is prioritizing investments towards HTS andaccelerating efforts to increase share of segment. To increase

Integrated Report 2021

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FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

our consumer base in HTS, we will invest approximately 300
billion yen between 2022 and 2024 including R&D, commercial expenses and capital expenditures. This is approximately
100 billion yen more than the investments made over thelast three years. Another investment area will address R&D
efforts towards next generation products, as we strongly
believe the RRP category will continue to expand beyond
the current product line-ups.

In addition, market prioritization will enable an emphasison driving returns while investment markets will focus ondelivering future growth in the combustibles category.

In July 2021, the JT Group launched Ploom X, its latest
heated tobacco device, in Japan. The initial consumer
feedback and reaction renewed our confidence in our ability
to offer superior-quality products in this growing segment.
The Group is planning to roll out Ploom X and its dedicatedconsumables in several international markets where HTS
appears to be a satisfactory alternative to combustibles
products.

Strengthening competitivenessThis effort will be complemented by focused investments inother product segments, as the JT Group believes success in
the RRP category is not limited to one single solution. These
additional segments, such as Infused, E-Vapor and oral, will
be considered exploratory opportunities in which the JT
Group aims to gain a better understanding of the dynamics
in each of these segments and collect relevant consumer
insights ahead of future growth.

The role of combustibles
Based on internal estimates, the combustibles industry
volume will continue to decline. However, combustibles
users will remain the largest cohort of consumers within theindustry for at least another decade.
In line with its 4S model, the JT Group intends to continue
satisfying the needs of these consumers, by exceeding their
expectations. To do so, resources will be allocated in priority
towards our GFB, with the intent of maximizing returns andsupporting the investments in RRP. Initiatives to support thisstrategy include GFB equity building, market prioritization,and investment markets.
GFB represent almost 70% of our global volume.
Consistently investing in the strengthening of the equityof Winston, Camel, MEVIUS and LD is key to increasing, orat least maintaining, the JT Group’s market share in the
combustibles category.

042

Japan Tobacco Inc.

These initiatives, combined with a solid pricing environment, will deliver quality top-line growth, sustainable profit
increase and cash generation to fund efforts in RRP.

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

SWOT analysis of tobacco business

Strengths (Internal / Positive)



S

SWOT
ANALYSISW

Weaknesses (Internal / Negative)




O





Tobacco pricing model still intact, enabling
maximizing value creation from combustibles
Grow exposure to HTS segment
RRP category far from mature

Threats (External / Negative)

In market-operating models, we optimize notably routeto-market and route-to-consumers in order to ensure we
can respond quickly and with agility to changing customer
expectations.
The JT Group also considers corporate initiatives like thesimplification of internal structures and the implementationof Global Business Service centers to better support markets,
the purpose of these moves being to continuously improvemargins, while maintaining quality, and to enhance cash
flow generation by optimizing working capital and capital
expenditures.

Limited RRP presence
New capabilities still in the making

Opportunities (External / Positive)TConsumers at the center of all we doPowerful and inspiring brands
Diverse and motivated workforce
Accelerating RRP investments

Tightening regulatory environment
Changing consumer preferences

Business Plan 2021 and its progress
Strategy in Business Plan 2021

Achievements in 2021

Concentrate our management resources on HTS andcombustibles

Japanese-domestic and international resources partially reallocated to HTS, our priority segment in RRP
Revised remuneration scheme to include RRP KPIs from 2022 onwards

Further strengthen RRP portfolio and digital strategies

Launched Ploom X in Japan, supported by digital campaigns
and new Ploom X CLUB portal

The Group believes that human resource development is
the key driver of sustainable profit growth in the tobacco
business.

Concentrate existing tobacco businesses into one tobacco
business

Combination effective from January 1, 2022
From blueprint to execution in only 18 months

With business operations in at least 70 markets and sales
in more than 130 markets, the JT Group’s global employee
workforce is very diverse, including over 100 nationalities.
As the Group believes that the quality of human resources
is the key to business activity and performance, it will
strengthen human resource development and enhance its
ability to attract, develop, and retain employees on a global
basis.

Strengthen competitiveness in Japanese market

Top-line and bottom-line strategies implemented, together withnew operating model

Building business foundations

In February 2021, we announced our Business Plan 2021,
together with our new strategy for the tobacco business.
Since then, both the Japanese-domestic and international
tobacco businesses have implemented a series of initiatives
in line with this plan.

In the Japanese-domestic business, Ploom X, our mostadvanced heated tobacco product, was launched in July,capturing 6.5% SoS in Q4. In combustibles, the continued
downtrading was addressed with greater focus on portfolio
management and new SKU launches.

In the international business, management focus in 2021
was on HTS and combustibles. Resources were partly reallocated to the HTS segment and new capabilities, as science,
R&D and digital were strengthened.

All these initiatives built a solid foundation to meet Business
Plan 2021 targets and generate sustainable profit growth in
the mid to long term.

Integrated Report 2021

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BUSINESS andSUSTAINABILITYVALUE CREATIONFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Overview of tobacco business and its sustainability initiatives

Performance over last five years

2021 performance and 2022 outlook

The combined international and Japanese-domestic tobacco businesses outperformed the industry volume over the last five
years through continued market share gains driven by GFB and acquisitions in important markets. This performance, together
with solid pricing and cost discipline, enabled the combined tobacco businesses to consistently grow currency-neutral core
revenue and adjusted operating profit.

Overview
2021 core revenue and AOP variance vs. PY
40
30

Total industry volume (BnU) *
3,200

2,993

10

2,944

2,847

600

+1.8%

2,857

2,400

450

1,600

73

150

2017

2018

2019

2020

0

2021

2017

Core revenue (JPY BN) *

520
582

569

2017


2018

International

Var at const FX

1,253

1,251

+7.7%

2019


182
187

168

1,482
1,251

2020

200

2021

Japanese-domestic

+5.6%

2

-3.6%

209

232

400

+1.9%

0



+7.9%

2018

International

Var at const FX

454

385

351

2017

2021

Japanese-domestic-11.0%

600

516

1,200

1,177



2020

+25.1%

+1.7%

-3.0%

1,800

600

International

2019

800

+13.3%

-0.6%

591

2018

460

436

Adjusted operating profit (JPY BN) *

2

2,400

+3.7%

446

428

398



0

79

85

93

0

67

300

800

0

Japanese-domestic

+8.9%

341

2019


341

2020

2021

Japanese-domestic+3.2%*1 Based on internal estimates and excluding China*2 The year-on-year variances are calculated based on the sum of the Japanese-domestic and the international tobacco businesses.

Japan Tobacco Inc.

80

+74

60

+43

40

+7.3%

+22.8%+10.6%

Core revenue

+8.6%
+0.8%
AOP

Core revenue

AOP

Our robust 2021 performance in both the international andJapanese-domestic tobacco businesses reflects the benefitsof our strong strategic focus and executional excellence,
despite COVID-19 continuing to impact the industry andconsumers globally.
The international tobacco business delivered industry-leading performance across all key indicators. Building on thecontinued strong market share momentum in its top-30
markets, and supported by a more resilient industry volume
in the first half, mainly due to lower illicit trade, total volume
grew to a historical record of 460 billion units.
These impressive volume gains, combined with strong
on-going pricing, resulted in solid top-line growth, and core
revenue growing 10.6% at constant FX. Adjusted operating
profit at constant currency also outperformed, setting arecord growth rate and marking the eleventh consecutive
year of double-digit increase.
In the Japanese-domestic tobacco business, both revenue
and profit increased for the first time in five years. The positive price/mix contribution exceeded the negative impact
from combustibles volume decline and the RRP revenue
growth further boosted the top-line. Adjusted operating
profit for the year was above guidance due to higher
revenue and reduced production costs, despite continued
investments in RRP.
These results would not have been possible without the commitment and dedication of our employees around the world.

044

2021 price/mix variance (JPY BN)

2

-1.8%
3,071

International *1+29.6%

20

Total shipment volume (BnU) *1

Price/Mix*1 Core revenue and adjusted operating profit (AOP) at constant FX*2 Contribution to core revenue growth at constant FX*3 Contribution to combustibles core revenue growth*4 Based on JTI’s top-30 markets (Cigarettes + FCT)

20
0International *2

Japanese-domestic *3

In the international tobacco business, we generated approximately 74 billion yen in favorable price/mix variance to core
revenue, an amount in line with the average of the previous
five years, with all clusters delivering positive contributions.
Pricing was driven by Russia, Spain, Taiwan, Turkey andthe U.K., along with many other markets, notably Canada,
Germany, Kazakhstan, the Philippines and Ukraine.
The Japanese-domestic tobacco business, following the
October 2020 retail price increase, registered a strong price/
mix variance of approximately 43 billion yen, which positively impacted core revenue.

Share of market
Share of market in combustibles
80
60
40

+1.7pp30.2%-0.7pp

59.8%

59.1%

31.9%

20
0

2020
2021
International *4

2020
2021
Japanese-domestic

In the international tobacco business, we accelerated our
growth momentum, delivering significant market sharegains by leveraging the strong equity of our brands, thehigh quality of our products, and the execution excellenceof our teams. As a result, we grew share 1.7 percentage
points to 31.9% across our top-30 markets, following a 1.4
percentage point increase in 2020.
In the Japanese-domestic tobacco business, while our market share declined in 2021 due to continued downtrading,we have implemented portfolio strategies to resume sharegains in the near-term.
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Overview of tobacco business and its sustainability initiatives

Key markets

GFB (Global Flagship Brands)
2021 marked another year of volume growth for GFB. These
flagship brands now exceed 350 billion sticks and represent
almost 70% of our global volume.
Winston volume grew 15 billion units across more than
60 markets globally, most notably in Iran, Italy, Poland andTurkey. The brand registered the highest ever combustibles
share in more than 30 markets around the globe, driven bymeaningful innovation.
Camel grew 18 billion units year on year in over 50 markets,primarily in Germany, Indonesia, Japan, Russia, Spain andTurkey. Among our top markets, Camel combustibles share
increased 1.0 percentage points to 5.8% in Japan, and 4.5
percentage points to 5.3% in Russia.
MEVIUS volume was down 3 billion units due to thedowntrading trend in Japan. Outside Japan, the brand grew
volume, despite the continued impact of travel restrictions
across Asia Pacific.

In 2022, we started to report three clusters: Asia, with Japan,
the Philippines and Taiwan as key markets; Western Europe,with Italy, Spain and the United Kingdom as key markets, andEMA*, with Romania, Russia and Turkey as key markets.
This section is intended only to explain the business operations of the JT Group,
not to promote sales of tobacco or nicotine containing products or encouragesmoking or using nicotine containing products among consumers.

LD declined slightly due to industry volume contraction
in Ukraine, which was not offset by LD volume growth in
Jordan and Poland.
Going forward, we will continue strengthening the brandequity of our GFB to sustain their momentum across ourglobal footprint.

The 2022 forecasts represent the estimates for the JT Group’s
entire tobacco business.
Continued combustibles market share gains, amidst a
declining industry volume and the expected, unfavorable
comparison in the first half resulting from the gradual easingof COVID-19 restrictions, are expected to result in a total
volume contracting by approximately 3%, partially offset by
RRP volume growth.
While we expect solid combustibles price/mix contribution
to continue, as well as RRP-related revenue contribution,
core revenue is forecast to decline by 1% due to combustibles volume decline.
Adjusted operating profit is expected to increase by 4%,
at constant FX, mainly driven by combustibles pricing andbenefits generated by our initiatives to strengthen thecompetitiveness of the tobacco business.

046

Japan Tobacco Inc.

Combustibles
SoM 2021

Variance vs. PY

59.1%-0.7ppTaiwan48.1%+0.3ppPhilippines

36.7%+5.1ppRomania29.8%+0.7ppRussia39.8%+1.5ppTurkey27.7%+1.1pp

Italy

26.7%

+0.9pp

Spain

27.8%

+1.1ppUnited Kingdom

45.8%+0.8pp

Key market
Asia
Japan

EMA*

Western Europe

2022 outlook
Since January 2022, following the unification of our two
tobacco businesses, we started on a journey guided by aunique strategy, under a single management team, fullycommitted to deliver sustainable profit growth in the mid tolong term.

Except for Japan, we grew our share of combustibles market
in all key markets in 2021. The strong performance was driven
by GFB, as well as local brands in the Philippines and the U.K.

On March 10, 2022, we announced the suspension of all new
investments and marketing activities in Russia, including theplanned launch of our latest heated tobacco product, Ploom
X. We are deeply concerned by the developments in the war
in Ukraine, where many people are facing tragedy and devastation, and we sincerely hope peace will return soon. We
will continue to closely monitor the situation and prioritize
the safety of our employees and their families by extending
all possible support to affected people.

2022 guidance *
+4%

4
2
0

-4

-2%
-3%
VolumeGFBCore revenue

In 2021, total tobacco industry volume was down year on
year by 3%. In combustibles, volume decreased by 8% due
to growth of the RRP category, retail price increases andnatural decline.
RRP grew to account for 30% of the total tobacco industry in
2021, driven by pandemic-led changes in consumer behavior, as well as new HTP launches and marketing initiatives.
Our sales volume underperformed the industry due to consumers’ shift towards RRP and downtrading in combustibles.
In combustibles, given the current trends, we have strengthened our efforts to capture downtrading by developing thelower-priced MEVIUS S Slim line and E series. In addition, we
have positioned Camel in the value price range to capture
the outflow from cigarillos.
In RRP, we made steady progress with the launch of Ploom X
in July 2021, as described in further detail in the RRP section.

-1%

-2

Japan

AOP

* 2 022 variance vs. prior year. Core revenue and adjusted operating profit (AOP) atconstant FX

In 2022, we forecast total tobacco industry volume to decline by approximately 4%, with the RRP category expected
to moderately expand.

RussiaIn 2021, industry volume declined by approximately 3%,
despite one of the largest excise tax increases experienced in
Russia. Lower illicit trade volumes, due to travel restrictions, andthe growing HTS segment partially offset the excise tax impact.
The pricing was robust, enabling the full pass-on of the excise
tax and fueling the growth of the industry‘s net sales year on
year. Although the value segment continued to expand, cigarettes remained affordable at an average price of US$2 per pack.
In this environment, our shipment volume increased by 5.1%,
and declined by only 0.2% when excluding inventory adjustments, clearly outperforming the rest of the industry.
Boosted by GFB, our combustibles share grew 1.5 percentage
points to 39.8%. Importantly, our total tobacco share increased
0.4 percentage points to 36.7%. As detailed in the RRP section,
Ploom continued to grow share and distribution coverage.

The U.K.
In 2021, we started the year on a very high comparative
base due to almost nine months of COVID-19-related disruptions in 2020. Industry volume had grown double-digit
while our own volume had outperformed, driven by strong
market share gains.
Twelve months later, our performance in the U.K. remained
impressive. Although industry volume continued to befavorably impacted by travel restrictions and reduced illicit
trade, we saw a gradual unwind of these catalysts in thesecond half of 2021.
Thanks to our well-balanced portfolio, Benson & Hedges incigarettes and Sterling in FCT strengthened their respective
positions, leading to a 0.8 percentage-point market share
increase, setting a record at 45.8%. Our share of retail value
also grew 0.8 percentage points.
In 2022, while we forecast a total tobacco industry decline
to low double digits due to factors such as higher non-U.K.duty-paid volume, we are confident that we can outperform
this situation, driven by the strong equity of our brands andoperational excellence.
* Eastern Europe, Middle East, Africa & Americas

Integrated Report 2021

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FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

RRP (Reduced-Risk Products)
The RRP category is composed of several segments including HTS (heated tobacco sticks), Infused (infused tobacco
capsules), E-Vapor, and oral. As announced in February 2021,
the JT Group will prioritize the allocation of resources to
HTS, with the other segments viewed as exploratory opportunities for the time being.

2021 RRP performance
In Japan last July, we introduced Ploom X, our first HTP(heated tobacco products) born from a global development
effort. At the end of December, four-and-a-half months
after its nationwide rollout, the share of Ploom X in the HTS
category grew to 6.5%.
During the second half, we expanded the lineup of Ploom X
refills by introducing several new flavors under the MEVIUS
and Camel brands. In addition, we ran awareness campaigns, expanded device color and accessories offerings,
and leveraged Ploom shops to drive more trials.
In order to improve our communication with consumers
and further ascertain their preferences, we reinforced ourpresence in the digital channels with our new Ploom X CLUBportal. After less than six months since going live, 250,000
consumers were already members of Ploom X CLUB.
These initiatives resulted in Ploom X device sales in Japansurpassing 1 million units in December 2021, exceeding our
expectations.

At the end of December, Ploom X represented over 50% of
our RRP mix in Japan. Driven by Ploom X, our share of the
RRP category in Japan reached 11.8% in the last quarter.
In Russia, the HTS segment in 2021 represented approximately 9% of Russia’s total industry volume. The segment
continued to grow, albeit at a slightly slower pace than in
2020. Ploom also grew, reaching a 4.1% share of segment in
December, an increase of 1.5 percentage points comparedto the same period in the prior year, and within a highly
dynamic and competitive environment.
In addition, our Ploom distribution coverage in Russia has
tripled year on year to reach over 105,000 outlets, or around
60% of the total number of outlets.
Building on consumer insights and learnings from Japan,
we accelerated the introduction of improved HTS. The newsticks offer greater satisfaction to consumers in Italy, Russia
and the U.K., by bringing richer tastes and flavors.
In our exploratory RRP segments, we focused on important
markets. In E-Vapor, with our Logic brand, we prioritized
Ireland, Poland, the U.K. and the U.S. In nicotine pouches,
we prioritized Sweden, Switzerland and the U.K., leveraging
our Nordic Spirit brand. In Infused, we will keep focusing on
Japan with our pocket-size “Ploom TECH+ with” device. In
these segments, we will continue to improve our consumer
knowledge and ensure we have a winning business model
before committing extensive resources.

RRP outlook
We estimate that the HTS segment will represent 15% to
20% of total tobacco net revenues by the end of 2027,
confirming HTS as the biggest segment in the RRP category.
In February 2022, we announced our ambition to reachbreak-even in the RRP business by achieving an HTS segment share in the mid-teens across our key HTS markets by
the end of 2027. The potential implications on the 2027 ambitions, if any, of the decision to suspend new investments,
marketing activities and the launch of Ploom X in Russia areunder assessment.
To increase our consumer base in HTS, we will invest approximately 300 billion yen between 2022 and 2024, in R&D,
commercial expenses, and capital expenditures, among
other matters. This is approximately 100 billion yen more

¥

300BN

Investment in HTS over2022-2024

than the investments made over the last three years.
Through this accelerated investment, we plan to achievegeographic expansion, strengthen our product pipeline, andreinforce our strategic capabilities.
The HTS segment requires significant investments andachieving profitability takes time. In the short term, thebiggest investments will be in Ploom brand equity building,consumer acquisition and retention programs.
This high initial marketing investment will be optimized in
the mid term, paving the way to break even. Going forward,
we will continue to enhance our existing offerings, as well as
developing a robust product pipeline to keep acquiring new
adult consumers in the mid to long term.

Mid-teens

Share of segment goalin key HTS markets
by the end of 2027

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

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Japan Tobacco Inc.

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Overview of tobacco business and its sustainability initiatives

Products & services (RRP)
Responsible innovation focusing on consumer choice has always been at the heart of what we do at the JT Group.
The growing global market for potentially RRP (Reduced-Risk Products) is a bold new frontier for delivering
exactly that. We believe that the direction the vaping products market takes will – and should – be driven by
consumers. It is up to us, the innovators in the tobacco industry, to listen to consumers and ensure their needs are
met with high-quality products.
We have committed to investing significantly in heated tobacco propositions to compete in the growing
global market of RRP. In the tobacco industry as a whole over the mid-term, we estimate the HTS segment will
represent 15-20%* of total revenues by the end of 2027. To make the most of future growth opportunities, wewill continue to explore non-combustible products such as E-Vapor and nicotine pouches.
*

Ploom X and the power of teamwork
Developed as a global initiative, Ploom X is designed todeliver the satisfying taste and elegant design that consumers are looking for.
To kick off this truly global project, our Product Designteam partnered with a design agency in the U.K. The technical configuration was then carried out by our R&D
teams in Japan, Germany, and Hong Kong. The products
are now manufactured in China, and quality assurance
takes place in Japan and Germany.
Ploom X features aesthetic and innovative design,

On a basis of revenue, excluding revenue in China

with a more intuitive user experience and no buttons on
its surface. This cutting-edge device is equipped with a
new heating technology, which focuses on air flow, significantly improving user experience.
A perfect example of “One Team” spirit, Ploom X is thefirst product we have ever developed remotely. Everyone
involved went the extra mile to make the project a success, in spite of the challenges of working across different
time zones during a pandemic. The result is a new starproduct that will help us to secure future growth.

Target in tobacco business: RRP

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

KPI
progress

A consumer-centric approach
We take a consumer-centric approach to research anddevelopment, and focus on four major factors that motivate
consumers to consider RRP:The potential of reducing the risks associated with smoking
Affordability and value for money
Social considerations
Convenience of usage in a variety of locations andsituationsg

This approach to our RRP research and development
enables us to drive strong benefits for all of our key stakeholders: consumers, shareholders, employees, and the wider
society.

ggg

Our key heated tobacco product in 2021

JT Science: an online resource for all
JT Science is a valuable online resource for both scientists
and non-scientists. Our mission is to inform, educate, andcollaborate with anyone interested in learning about the science behind our products – from consumers and scientists
to the regulatory community.
We strive for an open, balanced, and fair environment where
factual scientific data and assessments are shared in atransparent way.

While there are currently no globally agreed standards forassessing the risk-reduction of the alternatives to combustible tobacco products, our team of scientists is developing
methods and applying them in research contributing to theincreasing scientific evidence on RRP. We will continue withthese studies and share progress updates on our science
website.

RRP supply chain

4Read more about our RRP portfolio at JT.com.

We have established a dedicated supply chain for our RRP,
building strong supplier partnerships that support businessexpansion and meet the demands of our increasingly

sophisticated portfolio. In addition to our in-house production capabilities, we source from manufacturers across Asia
and Europe.

This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine containing products or encouragesmoking or using nicotine containing products among consumers.

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Overview of tobacco business and its sustainability initiatives

Products & services (Responsible recycling
and disposal schemes)
We are constantly searching for ways to further reduce environmental impacts along our value chain (upstream
and downstream). We do this through improved product design and development, responsible procurement,
and efficient delivery of our products and services. Adopting innovative technologies and ways of working is
also essential. We will reduce the environmental impact of our products and packaging through:n

Design solutionsn

Facilitating responsible collection and disposalnConsumer awareness and education

Building a sustainable supply chain
Regulatory environment and illegal trade

Target in tobacco business: Product materials and packaging

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

KPI
progress

Ploom - Return scheme in Japan
In 2019, we collected used Ploom devices, capsules, and cartridges by introducing convenient collection boxes at around 300 shops selling Ploom inTokyo.
In 2020, this program was expanded to include the tobacco industry andwe continue to be one of the participating companies, and it was successfullylaunched throughout Japan in 2021.
Key achievements since 2020, were the introduction of around 1,200 collection points in 47 prefectures in total.

4Read more on responsible recycling and disposal schemes on JT.com.

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Overview of tobacco business and its sustainability initiatives

Building sustainable supply chains
Maintaining a well-managed supply chain is essential for the sustainability of our business. To ensure the highest levels of sustainability and integrity at every stage, we work in close cooperation with all our suppliers. These
include both those from (a) the leaf supply chain and (b) suppliers of non-tobacco materials, other products andservices.

to produce a customized crop, while improving growers’
productivity, leaf quality and leaf integrity. The directcontracting model also allows us to maintain verifiable
provenance and traceability of leaf supply. At the sametime, contracting from third parties is essential to maintain aflexibility of leaf supply. Through our ALP program, we work
closely with these suppliers and support them in improving
labor practices on their farms.

Agricultural Labor Practices (ALP)

Leaf supply chain
We manage our leaf supply chain through a Supply Chain
Due Diligence (SCDD) process that takes into account social,environmental, and economic impacts. Since 2019, we havecommitted to specific targets tackling greenhouse gas

emissions, forestry, and Agricultural Labor Practices (ALP).
These targets are explained later in this section.
4Read more about our Leaf Supply Chain Due Diligence.

Target in tobacco business: Agricultural Labor Practices

We will implement our Agricultural Labor
Practices (ALP) program in all sourcing countries
by 2025.
Key progress in 2021
In 2021, the business intention was to implement ALP in two
more sourcing countries, Ethiopia and Bangladesh, as part of
ALP target. A great deal of time, effort, planning, and preparation was required to prepare the ALP roll-out in these new
regions. This included translating ALP documentation into
local languages and training local management, supervisors,and Agronomy Technicians. The team also tailored ALP observation criteria to the prioritized issues identified in thesecountry’s Supply Chain Impact Assessments (SCIAs).
ALP was successfully implemented in Bangladesh in
November 2021; unfortunately the program couldn’t be
implemented in Ethiopia due to a worsening geo-politicalsituation and security concerns in the country. Roll-out of
ALP in Ethiopia has been rescheduled to 2022.
Prior to implementing ALP in Bangladesh and Ethiopia, thelocal teams undertook detailed SCIAs in both countries with

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Japan Tobacco Inc.

KPI
progress

Our ALP are based on the International Labour
Organization’s conventions and recommendations. The
program consists of three pillars: tackling child labor, respecting worker rights, and ensuring workplace health andsafety. As part of our approach to continuous improvement,
the ALP program allows us and our suppliers to identify
challenges on farms and improve growers’ labor practices.
Our Agronomy Technicians carry out observations on the
ground, and report through our online leaf portal. We
regularly review and act on these findings. We require ourthird-party leaf merchants to agree to the same ALP standards before we enter into a contractual agreement, and we
track ALP implementation reports yearly.

Sustainable Tobacco Program (STP)

the human rights consultancy, twentyfifty Ltd. This involved
two to three weeks conducting in-country interviews with
contracted growers, farm workers, and the broader growing
community. Once issues were identified, the local teams ran
a prioritization workshop to select the salient issues. Thesesalient issues then enabled them to select the most relevant
ALP observation criteria for those origins, rather than implementing with all possible observation criteria. This tailoredapproach was very effective.

Our international tobacco business is one of the five global
manufacturers on the Sustainable Tobacco Program (STP)
Steering Committee. Since 2019, we have been working
with third-party leaf merchants, external subject matter
experts, and various organizations on STP development.
One of the key themes of the STP is “Human and Labor
Rights.” We carried out pilot self-assessments on this subject
in 2020. Online self-assessments for the crop year 2021 alsobegan. Preparation for detailed in-country pilot assessments
is underway for 2022. As of June 2021, we have appointed
an external STP Secretariat to support the STP Steering
Committee in running the program.

Our approach to sourcing

Addressing child labor

We source tobacco through two supply models which
are either directly contracted growers or third-party leaf
merchants. These two models each supply approximately
50% of the total volume. In 2021, we worked with more than
59,236 directly contracted growers in Bangladesh, Brazil,
Ethiopia, Japan, Malawi, Serbia, Tanzania, Turkey, the U.S.,
and Zambia. Contracting leaf growers directly enables us

In 2020, we introduced a new governance model for
Achieving Reduction of Child Labor in Support of Education(ARISE), transferring ownership of the program to the representatives of subsidiary’s local offices in countries where wegrow our tobacco. These representatives are now responsible
for managing local partnerships, assessing projects, and implementing activities at a local level. These changes will allow

us to maximize efficiency, strengthen our relationship withgrowers, and harmonize the program with other relevant
community projects. Moving forward, we will embed the
ARISE program within the “Respond” element of our SCDD
process: Identify, Prioritize, Respond, Measure, Communicate
and Report. We will also integrate data requirements for childlabor into our existing leaf monitoring system, Leaf Point.
2021 was a year of transition for our flagship program ARISE
following the formal launch of our new ARISE model at the
beginning of the year.
Under the new model, the overall ARISE strategy remains
largely unchanged, as it has proven to be successful.
However, we now determine projects and project goals
based on local needs and challenges, and define Key
Performance Indicators (KPIs) accordingly.
The non-profit organization Winrock International continued
to implement the ARISE program during the first six monthsof the year, before our tobacco business took over the full
responsibility for identifying and implementing projects
during the second half of the year.
Unfortunately, due to COVID-19 related issues such as school
closures, we had to pause or adapt some of our programs in
2021, and delay some of the project deliverables. However,in spite of these challenges, our local teams successfullylaunched three new ARISE programs in Malawi, Tanzania, andZambia. Other locations are preparing to follow suit in 2022.
Moving forward, we will continue to expand this vitally
important program into countries where we have identified
a significant risk of child labor.
4Read more about the ARISE program.

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Overview of tobacco business and its sustainability initiatives

Optimizing the regulatory environment andtackling illegal trade
Our non-tobacco materials, other products and services‘Regulatory environment and tackling illegal trade’ is one of the four pillars of our tobacco business sustainability
strategy and a key focus area for us. We believe in fair and balanced regulation, which gives adults* the freedom to

We are just as committed to following social and environmental due diligence in our non-tobacco materials, otherproducts, and services supply chain. All of our suppliers are
required to comply with our Supplier Standards.

make informed choices, and we proactively engage in public policy debate. We also help governments to combat
the illegal trade of tobacco and tobacco products, which poses numerous challenges for society and our business,some of which have been exacerbated by the COVID-19 pandemic.

Target in tobacco business: Supplier screening

We will screen all key suppliers against environmental,social, and governance criteria by 2023.
Supplier screening
Our people, operations and supply chain stretches acrossthe entirety of the globe and we are keenly aware that ourbusiness doesn’t operate in a vacuum. We know that thesocial, ethical, and environmental footprint of our products
is also dependent upon our suppliers’ own actions.
Our Group-wide supplier screening process ensures that weapply enhanced due diligence. Prior to entering into a commercial relationship, our key suppliers* undergo a detailed
qualification and selection process, including screening
and onboarding. This process allows us to learn more about
the supplier and understand any gaps versus our standards
and requirements. In particular, it highlights any potential
risks relating to compliance, human rights, environment,
and health and safety. If any risks are identified through thisprocess, we offer support on how to mitigate the risks andmake necessary improvements. We follow progress on a
yearly basis and, if there is no improvement after an agreed
duration, we may consider terminating our relationship withthe supplier.
In 2020, we revised the JT Group Supplier Standards into
a global, Group-wide Supplier Standards, reflecting an increase in transactions with overseas suppliers. We have been
embedding these standards into all requests for proposals
and contracts, to ensure that all of our suppliers are aware of
our requirements.

KPI
progress

In our Japanese-domestic tobacco business, we screen key
suppliers using our supplier database, which lists companies
according to their D-U-N-S® Number**. In 2021, we built on
this process by reassessing the key suppliers identified as
high-risk in 2020. We also helped these suppliers to makethe necessary improvements.

Target in tobacco business: Engagement

New partnership with a leading sustainability
ratings company

Optimizing the regulatory environment

To structure and enhance our screening methodology,
our international tobacco business is now implementing
a new supplier information management system. We havealso partnered with a leading global sustainability ratingscompany to conduct individual sustainability performanceassessments of high-risk suppliers. This will help us to monitor environmental and social risks and enable transparent
and responsible practices across the supply chain.

We value and support the freedom for adults* to makeinformed choices. We play our part by being transparent
about our products, and ensuring that consumers are awareof the associated risks when deciding whether to use our
products or not. That is why we are transparent about our
positions on smoking and health.

* Key supplier is defined as (a) suppliers with a planned or actual annual spendof more than 500,000 U.S. dollars or equivalent, (b) companies involved in
our Know Your Supplier (KYS) program, (c) third-party leaf merchants, (d)intermediaries or (e) contract manufacturing and licensees.
** The “D-U-N-S® Number” is a unique nine-digit identifier for businesses.
This number identifies a company as being unique from any other in the
Dun & Bradstreet Data Cloud.

We will always protect our ability to participate in public
policy debate with the aim to achieve balanced regulationthat meets societal concern and supports business growth.

We adhere to six core principles that define our attitude tosmoking. We also work in a highly regulated operating environment. We monitor trends in order to anticipate futurechanges in regulation and engage with authorities where
we see excessive or unworkable initiatives being proposed.
4 Read more about our views on specific regulatory topics on JTI.com.

KPI
progress

Developments in 2021
In 2021, we engaged openly and transparently in public
policy debate and made our views known to regulators,
NGOs, and other relevant stakeholders in the countries
where we operate. We responded on regulatory issues ofconcern to society and business, such as the reduction of
the impact of certain plastic products on the environmentand restrictions on characterizing flavors. We also participated in public discussions around good governance, anti-illegal trade, better regulation, transparency, and sustainability.
Publishing our external engagement principles was anotherimportant step.

Global Tobacco and Nicotine Forum 2021 (GTNF)
In 2021, we took part in the virtual Global Tobacco &nicotine products, and strategies to curtail the rise of ille-

Nicotine Forum. This international conference brought to-

gal networks.

gether the industry’s key stakeholders. We participated in

4Read more about our views on regulation and the latest regulatory
developments in the industry at JT.com.

panel discussions on risks emerging from the COVID-19
crisis, key causes of the illegal trade of tobacco and*056

Japan Tobacco Inc.

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

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Overview of tobacco business and its sustainability initiatives

Tackling illegal trade
Illegal trade fuels modern slavery, organized crime, andterror groups. It causes harm to society and consumers, as
uncontrolled products circumvent regulations and quality
controls, and undermines legitimate tobacco businesses.
That’s why tackling illegal trade is a top priority for us. Our
Anti-Illicit Trade team is recognized as the industry leader inthis area. This global team supports our long-term, sustainable future by protecting our business and reputation – aswell as our consumers and society – from criminal elements.

A responsible approach
Working in partnership with our markets and law enforcement, the Anti-Illicit Trade team secures our supply chain
and assists law enforcement in removing illegal tobacco
from the marketplace. It maintains a robust dialogue withgovernments and law enforcement agencies on the threatof illegal tobacco through public-private partnerships. The
team also provides counterfeit awareness programs for law
enforcement, globally.

Target in tobacco business: Illegal trade

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

KPI
progress

By tackling illegal trade, our tobacco business complies withapplicable laws and regulations while fulfilling its obligations
under the European Union Cooperation Agreement, signed
in 2007.
This means supplying tobacco products only in volumes
that correspond with the legitimate demand of the intended market of retail sale. Our international tobacco businesshas developed a global methodology to assist market
authorities in taking a consistent and accurate approach toannual legitimate market demand (LMD) calculations. Our
markets perform these in conjunction with their annual
plan. They create a proactive supply chain control mechanism to make sure that planned sales volumes are in linewith LMD, and ensure our compliance.
Compliance also means the implementation and operationof our Track and Trace program. This helps us to track the

movements of products along the supply chain, supporting
our supply chain analysis. The program has been an important element of our compliance policy for more than a decade – firstly as a self-regulation measure and later to meetlegal requirements in a growing number of jurisdictions.
As with all other regulations, we make every effort to comply with these obligations, while limiting any negative impact on our business operations. We also firmly believe thatthe fight against illicit trade can only be effective if measures
such as Track and Trace are implemented along with proper
enforcement by authorities and sanctions for those involved
in illegal trade. Governments must also implement further
measures to address products which will, by nature, escapethose obligations, such as counterfeits or illicit whites.** “Illicit whites” refer to tobacco products manufactured legitimately but
without any product flow control measures afterwards, and smuggled andsold in another market.

The perfect storm
The COVID-19 pandemic has blunted rather than extinguished the production and supply of illegal product. Some
decrease in supply and production was evident in morestrictly controlled economies during the pandemic. Westernmarkets in particular saw relatively little reduction in the
production and availability of illegal product. This is despite
criminal groups initially finding it difficult to source technicians and skilled workers to work on illegal production.
During the pandemic, heightened EU border controls
and regulations made it more difficult for criminals to bringillegal cigarettes to their markets of choice – usually thosewith high taxation policies, such as the U.K. and Ireland. By
moving illegal production and supply chains inside the EU,
criminals avoided border controls and reduced the risk of seizures or detection. More recently, with the lifting of COVID-19
related travel restrictions and opening of borders, the global
supply of illegal product has started to increase exponentially.
The resourcefulness of criminals is such that the flow ofProgress in 2021
In 2021, our Anti-Illicit Trade team provided 1,627 intelligence reports to law enforcement agencies, leading to theseizure of over 3.27 billion illegal cigarettes. Based on our information, law enforcement raided more than 53 counterfeit
tobacco factories and storage locations.
As a direct result of our work to tackle illegal trade, notified
seizures of counterfeit products in the EU have remained
consistently high over the past five years (over 98% of products seized are counterfeit). During the same period, notified
seizures of our own genuine products in the EU decreased
by 90%, thanks to our local teams’ efforts in securing our
supply chain, with the support of the global Anti-Illicit Tradeteam. This has been acknowledged by both Europol andmany law enforcement agencies. For example, the U.K.’s HM
Revenue and Customs recognized our international tobacco
business as an industry leader in the fight against illicit trade.

SwedenFinland
NorwayEstonia

1

LATVIA

Denmark
IrelandUnitedKingdom31

Lithuania

Belarus

NETHERLANDSPOLAND

Germany

BELGIUM

4

Czech
Republic

2

UkraineSLOVAKIAFranceSwitzerland

Italy

Austria1

1

Hungary

Moldova

ROMANIA

Croatia
SerbiaPortugal

SPAIN

Bulgaria

2

illegal product was still viable even when traditional sales
outlets were out of action. Technology was and still is increasingly being deployed to enable sales of illicit productto continue. This is a trend that’s likely to persist. With sales
opportunities unavailable during the pandemic, the online
world has become the environment of choice for criminals
to sell illegal tobacco products.
4Read more about our approach to tackling illegal trade, the impact of
COVID-19, and global trends at JTI.com.

GREECE

Other key wins in 2021n

Illegal tobacco factories raided by LEAs with JTI’s contribution (2020-2021)

 ver 3.27 billion illegal cigarettes seized thanks to intelliO
gence reports provided by our team to law enforcement.

n4 1% decrease in seizures of our genuine products resulting
from our efforts to ensure the security of our supply chain.
4Read more about how we tackle illegal trade on JT.com.

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GOVERNANCE

Overview of pharmaceutical business andits sustainability initiatives

Pharmaceutical business basic strategy
The pharmaceutical business aims to contribute stable profits. Its basic strategy is to:n Focus on R&D investments towards next-generation products and out-licensing them at the optimal point in time; andn Maximize value of each product.

Muneaki Fujimoto

The pharmaceutical business focuses its R&D on these areas: Cardiovascular, Renal and Metabolism (CVRM); immunology; andneuroscience.

Senior Vice President,
President of Pharmaceutical BusinessBusiness Plan 2021 strategy and achievements
Strategy in Business Plan 2021

We are committed to creating innovative, original drugs to support patients in the shortest timepossible. We are proud to have received manufacturing and marketing approval in Japan for CORECTIM® Ointment 0.5% and 0.25% for an indication of atopic dermatitis, and ENAROY® Tablets 2mg·4mg
tablets for the treatment of anemia associated with chronic kidney disease. We have been making
steady progress in our R&D and aim to contribute to sustainable profit growth.

Business environment
SWOT analysis of pharmaceutical business

Focus on drug discovery capabilities• Focused on R&D areas where accumulated knowledge can be effectively utilized• Searched for drug targets with high therapeutic effects based on a deep understanding of biological phenomena and diseases• Developed platform of JT’s unique proprietary drug discovery technologies,
including AI drug discovery technology• Promoted open innovation with external research institutions such as academia

Develop compound pipeline• Commenced overseas clinical trial for JTT-861, a compound discovered by JT• Commenced phase-II clinical trial in Japan for JTE-451 as topical medication• Maximized product value–Received Japanese regulatory approval to add iron-deficiency anemia as new
indication for Riona® tablets and launched promotions–Received Japanese regulatory approval to manufacture and sell CORECTIM®
Ointment 0.5% and 0.25% (for pediatric atopic dermatitis)• For clinical development status of other drugs, please visit our website.

Enhance both in- and out-licensing
activities• Commenced phase III clinical trial in Japan for JTE-061 (tapinarof), in-licensed
from Dermavant Sciences GmbH. Tapirnof is jointly developed by JT and Torii
Pharmaceutical.

Worldwide pharmaceutical market*(USD BN)Strengths






S


SWOT

A N A L Y S I S

W

R&D specialization in small-molecule drug discovery
Intensive allocation of resources to three focus areas: Cardiovascular, Renal
and Metabolism (CVRM); immunology; and neuroscience
Investment in latest technologies and development of platform of JT’s
unique proprietary drug discovery technologies
Maximal leveraging of intra-Group synergies through functional
specialization between JT (R&D) and consolidated subsidiary Torii
Pharmaceutical (domestic manufacturing and sales)

Weaknesses/Challenges

O

T



Expediting drug discovery process and developing proprietary drug
discovery technologies

Opportunities


Growth in pharmaceutical demand driven by societal aging in developed
countries as well as economic growth in developing countries

ThreatsPossibility of continual drug price reductions in domestic and overseas
markets amid global trend toward rationalization of drug costs
Increase in difficulty of new drug development and intensification of
its competition
Growth in generics and Rx-to-OTC switched drugs’* global market share

1,600

1,216.1
1,200 1,141.3 1,178.1

1,272.1 1,305.4

Achievements in 2021

800

Pharmaceutical business 2021 performance
400

0

2016

2017

2018

2019

* Copyright © 2022 IQVIA.
Calculated based on IQVIA World Review(Data Period, Year 2016-2020)
Reprinted with permission

2020

Revenue increased by 1.8% driven by top-line growth atour consolidated subsidiary, Torii Pharmaceutical, which
was partially offset by a decrease in overseas royalty
income. Torii Pharmaceutical reported its major growth insales of drugs for skin diseases and allergies, which led to its
top-line growth.
Adjusted operating profit decreased by 35.4% due to anincrease in R&D expenditures and SG&A expenses at Torii
Pharmaceutical.

Revenue and adjusted operating profit (JPY BN)
120

114.0
104.7
88.5

90

80.4

79.0

60

30

24.1

28.4
15.9

17.2

*Drugs previously available only by prescription that have been converted to OTC status

0060

Japan Tobacco Inc.

2017

2018

■ Revenue■ Adjusted operating profit

2019

2020

11.1
2021

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Overview of pharmaceutical business and its sustainability initiatives

Sustainability initiatives through business activities
Case study: Developing original drugs to save people from disease

Our sustainability strategy and focus areas

Our pharmaceutical business’s sustainability strategy designates “products and services” as one of the focus areas. We
aim to create innovative, original drugs to support patientsin the shortest time possible. We continue to make further
strides in new drug R&D through ongoing investment inthree specific therapeutic areas: Cardiovascular, Renal andMetabolism (CVRM); immunology; and neuroscience. In
2021, we invested 29 billion yen in R&D. Our clinical development as of February 14, 2022, can be found here.

In the pharmaceutical business, we selected three focus areas and set five specific tar-

As a result of our initiatives, in Japan we launched ENAROY®
2mg·4mg tablets (generic name: enarodustat) for anindication of anemia associated with chronic kidney disease,
and CORECTIM® Ointment 0.5% (generic name: delgocitinib)
for an indication of atopic dermatitis in 2020, as well as
CORECTIM® Ointment 0.25% for pediatric patients withatopic dermatitis in 2021.

From the beginning, we had developed CORECTIM® ointment for pediatric patients in mind since atopic dermatitis
is common among not only adults but also children. In
Japan, we are currently conducting a phase-III clinical trial ininfant patients (under the age of 2) with atopic dermatitis.
The top-line results of the trial, which were released in 2021,
showed the CORECTIM® ointment’s effect in improving skineczema. The safety of the ointment within the treatment
period was also confirmed. Based on these results and otherclinical studies, we will aim to submit a manufacturing andmarketing application for delgocitinib ointment in Japan.
To enrich the lives of patients of all ages who are sufferingfrom diseases, and the lives of their families, we will continue to research and develop original drugs that can be usedsafely and with peace of mind.

gets for these focus areas in 2019 and have been reporting on progress every year.

KPI
progress

Products and services
Aspirational goal
We will create innovative, original drugs to support patientsin the shortest time possible.
As this business has a direct impact on human health andlife, we not only strictly comply with all laws, regulations,and industry standards, but are also guided by a strong
sense of ethics and responsibility. This is particularly the casein areas such as clinical trials and promoting drugs, as wellas animal experiments and managing chemical substances.

PeopleAspirational goal
We will strive to nurture talent development which enables
us to create first-in-class (FIC) drugs.
We strictly adhere to specific processes to ensure that ourpharmaceutical business activities are always carried out ina responsible and appropriate way. We provide e-learning

to help employees understand the importance of drug
safety and quality assurance. All of the employees in ourpharmaceutical business complete a mandatory e-learning
course every year. We also have an internal educational
activity to foster employees’ ethical awareness and sense of
responsibility towards saving patients.

Product safety and responsibility
Aspirational goal
We will strictly comply with all relevant laws, regulations,and industry standards in order to deliver safe drugs topatients. We have developed our own guidelines on how to
conduct annual inspections to ensure that our production
methods fully comply with government recommendations.
We started annual inspections in accordance with theseguidelines in 2017. Since 2018, we have been operating inspections at all of our contracted factories. We will continue
to operate these guidelines. We also have our own standard
on the ethical promotion of prescription drugs, based on

the guidelines on sales information provision activities by
the Ministry of Health, Labour and Welfare.
Medical Representatives of our subsidiary company Torii
Pharmaceutical Co., Ltd. provide and gather information
on pharmaceutical drugs to/from medical professionals
appropriately, and regularly participate in training programs
to ensure adherence to these guidelines. Through internal
communication, we provide relevant and detailed information to our Medical Representatives to keep them up to datewith the latest guidelines.
4Read more on JT.com.

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Overview of processed food business andits sustainability initiatives

Processed food business basic strategy

Hiromasa Furukawa
Senior Vice President,
Food Business

The processed food business comprises three businesses: frozen and ambient food, seasonings andbakery businesses. Our mission is to deliver safe, high-quality food to our consumers. We aim to contribute to the JT Group’s profit growth by continuing to optimize production operations, mainly in thefrozen and ambient food business, and by achieving high-quality top-line growth through such means
as increasing sales of our more profitable products.

Business environment
SWOT analysis of processed food business
Strengths


S

SWOT
ANALYSIS

Top-market-share* products and brands (Sanuki Udon, Gottsu-umai okonomiyaki)*Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2022: Vol. 2, 32020 results

W
O

T



Proprietary yeast, processing and freezing technologies

High-quality, efficient production systems based on food safety management

Weaknesses/Challenges


Lopsided sales mix by category



Expansion of sales to overseas markets



Rebuilding logistics network to ensure supply stability

OpportunitiesRobust Japanese frozen food market with favorable growth prospects
by virtue of growing demand for convenience and preservability
Growth in demand for high-value-added foods and global expansion of“free-from” food market based on individuals’ dietary orientations(e.g., health-consciousness) and beliefs
Technological advancements like DX and IoT that can improve supply
chain efficiency and mitigate labor shortages

Threats






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Contraction in domestic demand due to societal aging and population
shrinkage; labor shortages due to working-age population shrinkage
Intensification of competition amid blurring of delineations between
distribution channels (retailers/takeout/restaurants, store/home delivery)

The processed foods business’s role is to augment the JT Group’s profit growth. Its basic strategy is to:n further expand sales of core products incorporating proprietary technologies, and upgrade its ability to develop high-value-added products in response to changes in consumer preferences;
n increase profitability by optimizing production operations; andn minimize the impact of inflation in raw materials and logistics costs.
The processed food business operates three businesses. The frozen and ambient food business’s core products include frozenudon noodles, packaged cooked rice and okonomiyaki (Japanese savory pancakes); the seasoning business’s products include
yeast extract and oyster sauce; and the bakery business operates a chain of bakery outlets, mainly in the Tokyo Metropolitan area.

Business Plan 2021 strategy and achievements
Strategy in Business Plan 2021

Achievements in 2021

Build highly-profitable product portfolio

In the core frozen and ambient food business, we made steady progress in allocating
more resources to high-value-added/high-priced products, among other initiatives

Optimize production operations• Further increase TableMark
Group’s productivity

In addition to converting freezers to non-fluorocarbon refrigerants, we strengthened our production platform and increased productivity through such means as
relocating/consolidating production lines

Processed food business 2021 performance
Revenue is in a slight downtrend but remains in a long-term
growth trend in the core frozen food category. Adjusted
operating profit has been holding up fairly well, bolsteredlargely by product mix improvement and cost-cutting,
except in 2018, when raw material costs soared, and 2020,
when the pandemic erupted. However, the impact of laborand logistics cost inflation stemming from labor shortages
and the impact on raw material costs of international market
and exchange-rate movements still need to be monitored.
In 2021, revenue was down 1.4% year on year as a result of
two factors. First, demand for the frozen and ambient foodbusiness’s household products decreased relative to its
2020 level, which was transiently boosted by the pandemic.
Second, sales to the food service industry by the frozen andambient food and seasonings businesses also decreased.

Revenue and adjusted operating profit (JPY BN)
200

163.1

161.4

158.6

150

149.3

147.2

100

50

0

5.4

4.1

5.4

2017

2018

2019

■ Revenue■ Adjusted operating profit

(0.8)
2020

4.0
2021

Adjusted operating profit increased 4.7 billion yen year on
year, largely as a result of non-recurrence of an impairment
loss booked against the bakery business a year prior, and areduction in SG&A expenses.

Industry inflation driven by global food shortages; distribution cost
inflation due to labor shortages in logistics industry

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Overview of processed food business and its sustainability initiatives

Sustainability initiatives through business activities
Case study: Use of plastic film discontinued inside Gottu-umai okonomiyaki packaging, reducing annual plastic usage by 34t and CO2 emissions by 160t

Our sustainability strategy and focus areas

The processed food business’s sustainability strategy
designates “providing products and services that exceed
consumers’ expectations” as a priority. We aim to meet
consumer needs with products embodying a commitment
to quality and technology. Another priority is to build asustainable supply chain. We are endeavoring to reduce environmental and societal risks to ensure our supply chain’s
mid- to long-term sustainability. Based on such a mindset,
we are focused on developing environmentally conscientious products while meeting consumers’ needs.

targets for these focus areas in 2019 and have been reporting on progress every year.

4 Please visit our website for more on the processed food business’s sustainability strategy.

TableMark’s Gottsu-umai Okonomiyaki series has been
driving the frozen okonomiyaki market since its launch in
1999. Even today, it remains the top-selling product*1 in thefrozen okonomiyaki market.
Both numbers of frozen-food users and demand for moreconvenient food products are increasing against a societal
backdrop of growth in dual-breadwinner and single-occupant households, coupled with an increased frequency
of at-home meal preparation as spent more time at homeduring the pandemic.

Product packaging as of March 2022

The four Gottsu-umai Okonomiyaki products were previously covered with a sheet of plastic (polyethylene) film inside
the pouch in which they are sealed. We recently discontinued this practice, saving consumers the trouble of peelingit off before cooking. We expect the move to reduce ourplastic usage by some 34t and our CO2 emissions by roughly
160t*2 per year. Meanwhile, consumers will generate lesshousehold trash in addition to being able to enjoy delicious
okonomiyaki with less hassle.
Confident that such initiatives will lead to further growth in
the processed food business, we will continue to provide
safe products that consumers can enjoy with peace ofmind.
*1. Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2022: Vol. 2, 32020 results*2. Estimated using Ministry of the Environment’s 3R resource intensity calculation method based on the Gottsu-umai Okonomiyaki series’ actual plastic
film usage in 2020
4 See our website for more information on the JT Group Environment
Plan 2030.

In the processed food business, we selected three focus areas and set eight specific

KPI
progress

Four perspectives on food safety management
To deliver safe, high-quality processed food for consumers,
we have established four priorities to ensure that food safety
is deeply embedded within our operations. This helps us toensure that our business makes a positive impact on society
and the environment, today and in the future, by delivering
safe and sustainable food products.

Food safety standards
We make sure that all of our factories* are certified to theglobal food safety standard FSSC 22000. FSSC 22000 isrecognized by the Global Food Safety Initiative (GFSI), thefood industry’s global body for promoting food safety management. All the factories contracted to manufacture frozen
food products on our behalf are required to meet the foodsafety standard ISO 22000 or FSSC 22000, as an assuranceof food safety. We also work with multiple independent
advisors, who have helped to develop our approach to foodsafety since 2008. External expertise enables us to provide
our employees with a greater awareness of new developments and important topics in the field of food safety and/or quality control. In order to ensure food safety, we haveintroduced a system that records information about our
products at every stage of the process, from the raw materials and production to processing, distribution, and sales. Thismeans we can retrace our product to any point, if necessary.
*One of our factories, which started its operations in 2020, is on track to receive
this certification.

Food defense practices
Food defense is about protecting our manufacturing
processes and products from intentional contamination.
We apply robust food defense guidelines across the supply

chain, both in our own factories and our contracted
factories. We also carry out annual audits to check how wellthese guidelines are being implemented. We are working
on further utilization of factory cameras and enhancementof our drug management system both in our own factories
and our contracted factories.

Enhancing food quality
Food quality control is an essential element of our daily operations. Along with quality improvement efforts on factory
floors, we ensure that all of our employees receive training
through customized e-learning materials. We also listen to
our consumers’ suggestions for improving product quality,
and swiftly share these with our factories and operations.

Further food communication
We are always willing to provide details about our foodproducts. We respond to consumers’ requests for information and disclose the precise factory where food products
were made, or the country of origin of the main ingredients.
We understand the importance of listening to consumers,
and have introduced a new online tool to share consumer
feedback with all of our employees. We will continue toembed and reinforce this consumer-centric approachthroughout our operations.
4Read more on JT.com.

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Investing in people

Employee engagement
Our employees are assets to the Company: their skills and spirit are the driving force behind everything weachieve. At the JT Group, we are pleased to be an employer of choice. Our positive workplace culture and environment help us to attract, retain, and develop talented individuals. We are also taking further steps to create a diverse and inclusive culture where everyone can feel comfortable and be themselves.

We carry out an annual employee engagement survey ata regional or department level and a Group-wide survey
every three years. The feedback we receive from employees
helps us to understand our strengths, progress, and areas for
improvement. It also helps us to maintain our reputation asa top employer.
In our international tobacco business (JTI), we carry out
an employee engagement survey every year. In 2021, 89%

Diversity and inclusion

Target in tobacco business: Employer of choice

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

KPI
progress

The JT Group human resources management philosophy
We believe that highly skilled and talented people form thefoundation of a company’s success and contribute to realsustainable growth. In light of this, the JT Group proactively
takes steps to secure long-term engagement and employee
satisfaction.

TREAT ALLEMPLOYEES FAIRLYAND RESPECTFULLYENSURE
TRANSPARENCY OF
RULES AND
STANDARDSPROVIDE ALL JT
GROUP EMPLOYEESWITH GROWTHOPPORTUNITIESWe have implemented various global and regional learning
programs. Many of our courses are offered online, enabling
employees to develop new skills even when working from

Establishing a diverse and inclusive workplace is a top priority for us, so that all our employees can enjoy their work andperform to the best of their abilities. We respect different
backgrounds and values, such as age, gender, self-identification, sexual orientation, disability, ethnicity, religion, and nationality, as well as experience and expertise. We believe thisbrings a rich mix of viewpoints and perspectives, which caninspire new ideas, lead to solutions to complex issues, anddrive our business forward. These efforts have also been recognized outside the company.

Race & Ethnicity

4Read more about our external recognition on P. 126.

Recognizing that different people have different working
styles and needs, we promote a flexible workplace environment that allows all employees to fulfill their potential. In July
2021, our international tobacco business launched its global
N-WOW policy, adopting a hybrid way of working that focuses on outcomes rather than time spent in the workplace.

Gender equality – women in leadership
One of our commitments is to promote gender equality inthe workplace. To further empower women, we hold workshops for top management and line managers, as well as
training and seminars for women employees. Our new
Group-wide target for women’s representation in leadershipis to reach 25% by 2030. We find it desirable that this should
be more than 40% over time.

LGBT+ inclusion

Developing and retaining talent
Today’s business environment is evolving rapidly, and
COVID-19 adds additional pressures. To attract, develop,
and retain the best talent, we need to remain flexible, forexample by adapting to remote ways of working.

home. We constantly invest in our employees, including at a
managerial level, to ensure they flourish in their careers.
We believe that engaged employees lead to long-term
employee retention, increased productivity, and improved
quality of work. The high level of employee engagement

Supporting our LGBT+ employees is vital for us to create amore equal JT Group, in which everyone is empowered tobe themselves and do their best. In 2021, JT and JTI cosigned the UN Standards of Conduct for Business Tackling
Discrimination against the LGBTI community.

across our Group helps us to minimize employee turnover.
4Read more about our Human Resources on JT.com.

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of eligible JTI employees took part in the survey. Overall,
employees reported being clear about our Company visionand how they are contributing to it, with 81% saying they
are confident in our leadership team. 87% also responded
favorably to the question “How happy are you working at
JTI?” (the main metric of employee engagement). The variations between different business units highlighted the needto develop tailor-made action plans with local relevance.

Our international tobacco business is committed to breaking down barriers and creating a safe environment which allows people of all races and ethnicities to thrive in the workplace, diversifying all levels of the business, including leadership. We are working with a group of volunteers who makeup embRACE, an employee resource group focused on raceand ethnicity.

New Ways of Working (N-WOW)

Wellbeing
In light of COVID-19, well-being has become more important and relevant than ever before. In 2020, we launched a
global well-being program to support the physical, mental,
emotional, and financial well-being of our people and thecommunities in which we operate.

MyGeneration
We value the diverse perspectives that each generation
brings to the workplace. Our vision is to support age-diverse
teams, creating optimum conditions for collaboration,knowledge exchange, and mutual respect. To support thismission, we created two MyGeneration working groups at
the headquarters of our international tobacco business in
2020.

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Investing in people

Health and safety
Our employees have the right to be protected from work-related injuries and illnesses. It is our responsibility to

Supporting employee well-being

provide them with a safe working environment and to promote a culture that prioritizes health and safety.
Our global health and safety mission reflects our vision of zero workplace injuries. We aim to provide leadership in the development and implementation of global standards and programs to properly manage and mitigate health and safety risks arising from our business activities. It’s also important to us to build awareness anddevelop a sustainable safety culture across the business.

We care deeply about employee well-being because we

In our Japanese operations, in addition to occupational safe-

want our employees to feel comfortable and motivatedty and health activities, we are building a comprehensive

every day. We run a variety of well-being programs acrosshealth support system under the leadership of our CEO. For

the Group, such as ergonomic assessments and ensuring

example, we have recruited on-site health staff at 11 key

general occupational hygiene.

locations across the country, to help employees take care of

To design these programs, we gather well-being data fromTarget in tobacco business: Zero injuries

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

our local offices. In 2018, we expanded our data scope bySince the onset of COVID-19, we have continued to offer

introducing new rules requiring all local offices to report

employees one-to-one interviews with our health staff

their occupational health cases to our headquarters. This

via video calls. We also continued to run online programs

allows us to understand our global risks and develop a con-focusing on sleep, diet, and exercise.

sistent approach to them, while strengthening our existing
KPI
progress

protection measures.
Local managers are responsible for investigating reported
issues and identifying the causes. If the issues are attributed
to the work or workplace, we take appropriate measures

Our Health & Safety Policy
Our Health & Safety Policy is driven by the following guiding
principles:nPeople come first	The health, safety, and well-being of our employees,
their families and the communities in which we operate
are at the heart of everything we do.
nNothing is worth an injury

	We aim to create an injury- and illness-free workplace
where everyone goes home safe and healthy after each
day’s work. Business results must never conflict withsafety performance.
n

Safety is everyone’s responsibility	Everyone shares the responsibility for a safe and healthy
workplace, and we each have a role to play to make thisa reality.
n

We do the right thing	All our offices, sales operations, and factories shall always
comply with all national and local laws and regulations.

immediately to protect employees’ well-being and prevent
recurrences.
guidelines across our international tobacco business.
Considering the growing number of female employees, thepolicy also includes maternity protection for female drivers.
Focusing on driver behavior, the new guidelines require
local offices to conduct a risk assessment to identify highrisk drivers. They must also send periodic progress reports
and action plans. In 2020, we completed a Driver Safety
Compliance Assessment. The results showed that our markets comply with 80% of our global guidelines on average.
In 2021, this figure increased to 85%.

We trained 1,380 employees in driver safety in 2020 and
2,361 in 2021. Due to the pandemic, some of the training
was carried out remotely (online driver risk assessment
and coaching sessions), but we also organized ‘on the road’
training for high-risk drivers, where possible. Our plan is totrain a further 4,000 drivers in 2022.

These programs have had a positive impact on employee
productivity and the absenteeism rate in Japan, which has
recently been below 1%.
We are pleased to announce that JT was named as a “White
500” company for the sixth year running. This award is presented by Japan’s Ministry of Economy, Trade, and Industry.
It recognizes large enterprises that are making outstanding
progress towards better well-being among their employees.

Our response to COVID-19
In 2020 and 2021, responding quickly and effectively to the

Vaccination program

COVID-19 pandemic was a priority. We have taken consid-

In 2021, at all 20 of our sites in Japan, we offered COVID-19
vaccinations to all JT Group employees and their families,
business partners, etc. In total, we vaccinated around 20,000
people.

erable measures to ensure the safety of all employees andtheir families, and all of our other stakeholders. The qualityof our response allowed us to maintain operations even at
the peak of the pandemic while reducing the impact on our

Driver safety training

their physical and mental health.

employees.

In our international operations, we also offered workplacevaccinations where possible, in line with local government
guidelines and regulations. We actively encouraged
employees to get vaccinated if possible, and produced an
employee information booklet about the vaccine.
By the end of 2021, 80% of JTI employees (over 36,000) had
been vaccinated: well above the average national vaccination rate in most locations. This is a significant achievement,
which highlights the success of our vaccination campaigns.

Efforts to reduce the risk of traffic accidents
In some countries with poor infrastructure and traffic
management, our people are more at risk of being involved
in road traffic accidents. With this in mind, in 2019, werolled out a new driver safety policy and implementation

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4Read more about our health and safety on JT.com.

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Three absolute requirements for sustainability
Respect for human rights
The JT Group’s three absolute requirements for sustainability

1. Respect for human rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. 73
2. An improved social and environmental impact . . . . . . . . . . . . . . . . . . . . P. 75
3. Good governance and business standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. 88

Respecting human rights is one of the three absolute requirements that drive our sustainability strategy. We
respect human rights across our value chain and recognize the International Bill of Human Rights and theInternational Labour Organization’s Declaration on Fundamental Principles and Rights at Work. The JT Group
Human Rights Policy follows the framework provided by the UN Guiding Principles on Business and Human
Rights. Our human rights strategy is based on five pillars; Embed, Identify and prioritize, Respond, Measure, andReport. This circular approach provides a systematic way of conducting ongoing due diligence and is in line with
the UN Guiding Principles, the OECD-FAO Guidance for Responsible Agricultural Supply Chains.

JT Group Human Rights Report
To coincide with the 10th anniversary of the UN Guiding
Principles, we published our first standalone Human Rights
Report which examines the potential human rights risks
arising from our worldwide operations. The report identifies
nine salient human rights issues. It sets out how we aregoing about improving our performance. Read more on the
JT Group Human Rights Report.

Making our ambitions a reality
We have committed to assess 100% of high-risk countries* by 2025.
In 2021, we assessed five new markets: Cambodia, Jordan,
Nigeria, Angola and Romania. In total, we completed 10
Human Rights Impact Assessments and 17 self-assessment
questionnaires across our entire value chain. We also
conducted one Supply Chain Impact Assessment (SCIA),
one Grower Livelihoods Assessment and used our leverage
to conduct a supplier human rights workshop. By the endof the year, 30 out of 67 (45%) high-risk countries had beenassessed.

2015
Countries

2021

45%
30

2025

67

Read more on ‘Human Rights Impact Assessments: key findings’ on JT.com
We believe this demonstrates our approach to prioritizing,
which involves considering where our greatest risks topeople lie. It also shows our willingness to go into countries
with histories of human rights allegations and assess theon-the-ground reality.
We will continue to prioritize countries based on a set ofrisk-based criteria; we are committed to assessing actual and
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potential human rights risks in at least six countries eachyear.
* In addition to the high-risk countries identified, we completed the assessment
in Japan, home to our HQ and many subsidiary companies, given its scale ofbusinesses; tobacco, pharmaceuticals, and processed food.
We also conducted the assessment in Switzerland (HQ of tobacco business),
China and Thailand (processed food).

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Three absolute requirements for sustainability

Respect for human rights

Improving our social impact

Key progress in 2021

For our Group to grow sustainably, it is vital for us to contribute to the sustainable development of society. Ourcommunity investment policy determines a common goal across the JT Group: “To contribute to the development

In 2021, we published our first standalone Human Rights
Report. This gave us the opportunity to look back on ourachievements, and recognize the path to take in our future
human rights journey. We also identified nine salient
human rights issues. These will be the core of our humanrights due diligence from now on. Other milestones

included upgrading our self-assessment questionnaire,and launching this tool in five new countries. Designed tofocus on the newly established salient issues, the updated
questionnaire also covers the response to new COVID-19
related guidelines and controls.

of inclusive and sustainable communities.” We believe that everyone should have the opportunity to participate insociety, and that inclusive societies are better for business. In line with our community investment policy, and as a
responsible local community member, we recognize the value of nature, society, and human diversity. This is why
we work with a wide range of stakeholders to resolve social issues.

Salient issues
In 2021, we identified nine salient issues:
n
n
n
n
n
n
n
n
n

Child labor
Environmental impacts
Fair wage
Forced labor
Harassment and gender impacts
Health and safety
Health risk
Non-discrimination and equality
Working hours

Identifying salient issues
To identify the salient human rights issues for the JT Group,
the assessment analyzed them for severity and likelihood,in line with the UN Guiding Principles. We identified the fullrange of human rights that could potentially be negatively
impacted by our activities, before prioritizing potential
negative impacts by severity and likelihood.

Assessing severity
The severity of human rights impacts was assessed by theirscale, scope, and irremediability. Based on this, we identified
the severity of each human rights issue with a scoring
system for risk mapping.

Assessing likelihood
After assessing the likelihood of human rights issues in the
JT Group, we analyzed our five key business categories: Leaf
sourcing, Processing, Manufacturing, Office, and Sales andMarketing, across 130+ countries. We also determined themagnitude of risk for operational categories in each country,
by quantifying each risk using environmental and social
country indices published by Verisk Maplecroft and country
indices published by international organizations.

Mapping riskThis mapping exercise was done for our three businesses;
tobacco, pharmaceuticals, and processed food. In the
consolidated map of those businesses, the issues of highseverity and high likelihood were finally identified as salientin the JT Group.

JT Group Target : Community investment

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

KPI
progress

Our focus areas
Through long-term partnerships with local and internationalorganizations, we have around 400 community investment
programs in 60 countries. Based on global and local needs,
these programs help communities to become more inclusive, sustainable, and resilient. We focus on three specificissues:
1. Reducing inequalities, e.g., helping underprivileged
people gain access to food and education.

2. Improving community resilience in disaster-prone
areas, e.g., providing access to clean water.
3. Protecting the environment, e.g., replanting trees
with the help of our employees.
In 2021, in spite of COVID-19 restrictions, we implemented
328 programs to reduce inequalities, 22 programs to improve community resilience, and 32 programs to protect theenvironment globally.

Measurement and management
To measure the social impact of our efforts, we use theBusiness for Societal Impact (B4SI)* Framework provided
by Corporate Citizenship. In 2021, we invested around 50
million U.S. dollars in corporate community investment incountries where we operate. We encourage more accurate

reporting and measurement to ensure all of our programs
deliver social impact according to our policy.
* B4SI is the global standard in measuring and managing a company’s social
impact.

Volunteering opportunities
Volunteering brings mutual benefits for employees, ourbusiness, and the community. It also enables our teams to
make a positive impact in the communities where they live
and work by sharing their skills and knowledge.
We actively encourage our employees to take part in074Japan Tobacco Inc.

volunteering activities. We do this by organizing programsand events, or by providing the necessary resources (funds
through corporate matching, employee time, in kind, or
employee donations).
4Read more about our community investment activities on JT.com.

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Three absolute requirements for sustainability

Improving our environmental impact
Climate change and other environmental issues are of increasing societal concern. Our operations impact the environment through resource usage, emissions, and waste generation, as do most industries. The environment also hasa direct impact on our business. As a global organization, we recognize that we have a key role to play in reducing
our impacts in own operations and across our value chain. Our sustainable business practices allow us to conserve
resources, reduce waste, manage costs, and meet the growing consumer demand for eco-friendly products.
4 Read more about our approach in the JT Group Environment Policy.

The JT Group Environment Plan 2030
Our JT Group Environment Plan 2030 sets objectives andtargets to address our key environmental risks and opportunities across three focus areas: Energy and Emissions,
Natural Resources, and Waste. The revised targets for GHG
emission reduction by 2030 are in line with science-based
thinking and the JT Group is currently preparing to obtainvalidation of its targets from the Science Based Targets
initiative. The JT Group Environment Plan 2030 includes
qualitative and quantitative targets. We regularly disclose
our progress toward targets and our environment-related
activities on JT.com.

10 years of climate action

Achieving net zero in our entire value chain by 2050
We have now set new targets to help de-carbonise our business operations.
Objective

TargetJT Group will transition all of its energy use to zero carbon
energy by 2050.

We will increase the proportion of renewable electricity that we use to 50% by 2030 and 100% by 2050.

Emissions
JT Group will reduce its emissions and commits to be
Carbon Neutral for its own operations by 2030 andachieve Net-Zero Greenhouse Gas emissions across its
entire value chain by 2050.

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Addressing climate change is not new for JT Group; wehave achieved a lot during the last 10 years. However, we
recognize that there is much more to do. Our dedication to

Sustainable Tobacco Program 2.0. and
Sustainability Program Team launched;
Endorsement of TCFD recommendations;
Country-level CSA piloted;
Green Mobility Program launched;First Power Purchase Agreements;
Net-zero target established2015-2017

We commit to reduce absolute Scope 3 GHG emissions
associated with purchased goods and services by 28%
by 2030 from a 2019 base year.

disclosures and ratings agencies, such as CDP, to review
our approach and performance. We have been conducting climate scenario analysis since 2019, and we endorsed
the Task Force on Climate-related Financial Disclosures(TCFD) recommendations in 2020. Read the results of our
first round of analysis result on P. 78.

stronger science-based targets and to our net-zero commitment, provide a clear pathway for the years ahead.

2020-2021

We commit to reduce absolute Scope 1 & 2 GHG emissions by 47% in line with a 1.5 degree reduction pathway by 2030 from a 2019 base year.

Environmental management system and reporting
In our more complex operations, we align our approach toenvironmental management with internationallyrecognized standards – ISO 14001 and ISO 50001. In oursmaller and less complex operations in Japan, we have
implemented our own “JT Green System”. We use external

Ensuring a sustainable wood supply and further contributing to forest
conservation and rehabilitation are key objectives set out in the JT Group
Environment Plan 2030.
Our Agroforestry Programs address sustainable forestry, wood use, andmanagement. In Malawi and Zambia, we encourage growers to build ‘live
barns’ by planting trees that will form the main structure of a Burley curingbarn within three years. This helps conserve vital wood resources and reduces grower’s barn maintenance effort and costs. In Brazil, Tanzania, andZambia, where we contract growers that require wood as a fuel source forcuring, we promote best forestry practices, validated through dedicatedforestry R&D, to achieve 100% renewable wood supply by 2030.
We are using a remote-sensing, high-resolution satellite imagery monitoring platform to help us monitor the effectiveness of woodlots, to estimate wood production on small-scale farms, and to verify progress of forestry targets both for ourselves and our growers. Data are captured at fieldlevel by our Agronomy Technicians via the AgroMobility mobile application and then uploaded to the monitoring platform.

4 Read more about our target and progress in the JT Group
Environment Plan 2030.

EnergyAgroforestry contributes to forest conservation

2014
First emissions
reductions JTG
global targets
launched

2010-2013
First JTG carbon footprint, firstreporting to Carbon Disclosure Project(later CDP), Scope 3 Materiality Matrix,
and JTI suppliers invited to respond to
CDP Supply Chain for first timeFirst LCAs, green tariffs andcertificates;
Energy Opportunities
Scheme and Renewable
Energy Task Teamestablished2018-2019
SBT validation and launch;
JTG Environment Plan 2030;
Group level Climate
Scenario Analysis
conducted

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CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Three absolute requirements for sustainability

Improving our environmental impact
Climate change
Climate change is the biggest environmental challenge facing society and our business. The effects of climate change,such as global warming and modified weather patterns, will have serious implications for our supply chain, given our
products are mainly agriculture-based, but also for our own operations based in various locations around the world.
We are committed to tackling this issue. That’s why we are reducing our greenhouse gas (GHG) emissions to support the global action to address climate change, with the longer-term aim of achieving net zero carbon emissions
from our operations. In February 2022, we committed to be carbon neutral for our own operations by 2030. We also
aim to achieve net-zero GHG emissions for our entire value chain by 2050. In support of this, we have set more ambitious 2030 science-based reduction targets, for which we will seek SBTi (Science-Based Targets initiative) validation.
We also aim to obtain validation for our longer-term net-zero target.

Our approach to addressing climate-related risks is aligned with the recommendations of the Task Force on Climate-Related
Financial Disclosures.
Indicator

GovernancePhysical risk: leaf sourcing
Changes in environmental conditions for leaf growing
include the CO2 level in the atmosphere, as well as shifts
in the presence and prevalence of tobacco crop pests anddiseases related to climate change. Other factors include
water scarcity and higher-than-average temperatures andunusual precipitation pattern. All of these could impact the

We assume that, based on a 2°C rise, the potential financial impact would be at least 32 billion JPY.
If temperatures rise by 4°C, we could see a financial impact of up to 37 billion JPY.

Mitigation plan

We manage this risk by implementing action plans to reduce the financial impact on our business. Thesemay include shifting leaf growing regions based on the climate-related impacts we identified and implementing climate change adaptation measures (e.g. smart agriculture and breeding). We may also introduce
measures to improve yield in growing regions, and to mitigate increased costs and a potential decrease inprocurement volumes.
Primarily, to date, we have managed this risk by building strong relationships with our suppliers and having
a geographically diversified supply chain (for example, the JT Group sources tobacco leaf from more than
30 countries).

Climate-related issues are of strategic importance to our business. Through our business-wide
Enterprise Risk Management (ERM) process, we have identified climate-related risk as one of ourEnterprise Level Risks (ELR) for our tobacco business. This risk also needs to be considered in local
risk inventories and assessment processes. Board oversight is critical and climate-related issues
4Governance report

Transition risk: carbon pricing

Through climate scenario analysis performed in 2019, we identified two main risks: ‘potential
cost increases due to governments raising carbon taxes to further reduce GHG emissions’ and‘the impact on leaf tobacco growing due to changes in environmental conditions’. Our plan is
to mitigate these risks by continuing to implement climate-related initiatives across our value

Increased carbon tax may also increase procurement costsof tobacco leaf and other materials, and impact Company
expenditure in our direct operations. For example, a carbon
tax may be imposed on raw or secondary materials, or forservices used in each phase of the agricultural value chain

chain and address areas for improvement.

availability and quality of key natural resources for the JT
Group, including tobacco leaf. This could occur in one ormore of our tobacco sourcing countries. As a result, the costof sourcing tobacco leaf would increase.

ImpactDescription

and potential impacts on business strategy are discussed in quarterly Board-level meetings.

Strategy

Scenario analysis(e.g. agricultural chemicals, agricultural machineries, processing machineries, storage and distribution). As a result,
the JT Group will bear the additional costs and/or these willbe transferred onto the raw material price.

4Risk factors (P. 80)

Risk management

We consider climate-related risks and identify risk mitigation and management approaches
through our ERM process. We also include these risks in local risk inventories, assessment processes, and action plans, which are partly based on our ongoing country-level climate scenario
analysis. We will compare business-wide risks from local assessments and identify the most criticalones.

ImpactOur Group Environment Plan 2030 includes absolute reduction of GHG emissions from our own
operations by 47% (2030 versus 2019). We have also set a longer-term GHG emission reduction

Metrics and targets

target, as well as targets for renewable electricity. These are backed by our Group-wide climate
scenario analysis.
4Read more about JT Group Environment Plan 2030 and Environmental data/External verification on JT.com.

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Japan Tobacco Inc.

Mitigation planIn our climate scenario analysis, we assumed that under a 4°C scenario, carbon tax will increase to 3,884- 4,640 JPY/ton of GHG emissions. Based on 2°C scenario, it would rise to 13,488 - 15,106 JPY/ton of GHG
emissions in 2050, based on the IEA World Energy Outlook 2018. In real terms, the potential financial impact
would be at least 700,000,000 JPY based on a 4°C rise and at least 7,500,000,000 JPY based on a 2°C rise. We
calculate financial impact by multiplying forecast GHG emissions in 2050 in regions where carbon taxes may
exist, by the carbon tax level in those locations. GHG emissions in 2050 are predicted based on our expected
reduction in emissions and the Company’s sales growth.
We manage this risk by reducing our energy consumption through capital investment and energy saving
programs, as well as renewable energy programs (onsite generation of renewable energy, purchasing green
energy). We are also decarbonizing our fleet and engaging with suppliers to understand their climaterelated risks and develop appropriate mitigation measures, following the new JT Group Environment Plan
2030.

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