2021
Sustainability
Materiality
ReportFEBRUARY 2022

Overview

Our assessment

Strategic framework

Next steps

Appendix

With the transformation of our businessprogressing at a rapid pace towards asmoke-free future, and with stakeholder
priorities constantly evolving, our sustainability
work unveils both new challenges and newopportunities. This requires a regular updateof our sustainability materiality assessment.
Our sustainability work only has meaning and impact if it focuses on addressing the issues thatmatter most. To remain successful in the long term, it is key for us to better understand andaccount for: the impacts we have on society and the environment; the risks and opportunities
that environmental, social, and governance (ESG) issues may have on our business; and the viewsof our stakeholders around those ESG issues and where they expect our company to focus.
A robust sustainability materiality assessment, conducted periodically, allows us to do that.
This report summarizes the approach and findings of the sustainability materiality assessment
we conducted during the second half of 2021. The insights gathered helped refine oursustainability blueprint by redefining our goals, recalibrating our priorities, and restructuring
our strategic framework, which then informs our key performance indicators, targets, reporting,and communications.

What is a sustainability materiality assessment?
A sustainability materiality assessment is a formal
process through which a company identifies,
assesses, and prioritizes ESG topics.
In the last couple of years, various standard settersand regulatory bodies have begun to refine theconcept of sustainability materiality. In particular, theEuropean Union Corporate Sustainability Reporting
Directive (CSRD) proposal and the International
Sustainability Standards Board (ISSB) recently set upby the International Financial Reporting Standards(IFRS) Foundation Trustees both distinguishbetween “single materiality” and “double materiality.”
Double materiality acknowledges that businesses
should assess both the risk and opportunities
linked to ESG topics that can influence enterprisevalue creation (“inward impacts”) and the ESG
impacts that a company can have on the planetand society (“outward impacts”). Further, theconcept of “dynamic materiality” recognizes thatthe financial materiality of an ESG impact canevolve over time.

Note: In this report and in related communications, the terms “materiality,” “material” and similar terms,
when used in the context of economic, environmental, and social topics, are defined in the referenced
sustainability standards and are not meant to correspond to the concept of materiality under the U.S.
securities laws and/or disclosures required by the U.S. Securities and Exchange Commission.

Philip Morris International Sustainability Materiality Report 2021

01

Overview

Our assessment

Strategic framework

Next steps

Appendix

Overview
Our sustainability materiality assessment
is the foundation of our sustainability
strategy. It helps to ensure that ourefforts remain focused on thoseareas where we can have the greatest
impact and that we continue to deliver
relevant reporting to our stakeholders.
Further, with every assessment completed, we
strengthen the understanding of our impacts, further
integrate sustainability within our company, reinforce ourapproach to stakeholder engagement, and improve thequality of our reporting. We conducted our last holistic
materiality assessment in 2018, and a refresh in 2019.
The 2021 process allowed us to account for internal
developments related to the rapid advancement ofour business transformation, our recently announced
ambition to venture beyond tobacco and nicotine
products, and the progress we have made on achieving
the sustainability goals presented in our 2025 Roadmap.

Our sustainability materiality assessment also
allowed us to remain at the forefront of corporate
sustainability, better positioning us to anticipate
the most demanding trends, and to demonstrate
to investors and other stakeholders the coherence
and seriousness of our sustainability strategy. Ourassessment considered external indices, new academic
research on sustainability practices, ESG policy andregulatory developments, and emerging best practices
in the sustainability materiality field. Moreover, asa company operating on a global scale in a fastpaced world, our long-term success requires that we
continuously monitor and adapt to significant social,environmental, economic, political, and technologicalchanges. Our 2021 sustainability materiality analysis
accounted for the latest megatrends, including
political events, climate disruption, far-reachinghealth-crises, and technological developments. It
also supported us in anticipating emerging trends
and accounting for ESG topics that are likely to
become more relevant in the coming years.

Informing our efforts
Further align our efforts
with societal expectations,market developments, andbusiness needs

Integrating
sustainability at PMI
Further embed sustainable
practices in our organizationand operations

Sustainability
materiality
assessment

Shaping
our reporting
Structure and prioritize
our sustainability reportingand communications

Strengthening
stakeholder engagement
Enhance dialogue andcoordination withkey stakeholders

Philip Morris International Sustainability Materiality Report 2021

02Overview

Our assessment

Strategic framework

Next steps

Global society is striving for social justice andenvironmental conditions that support the longterm well-being of humanity. In this context, a global
company the size of PMI can significantly createor erode value for society and the environment.
Hence, PMI’s stakeholders are interested inunderstanding the manifold interconnectionsof PMI with sustainability: Investors and thecompany itself need to know about the risks andopportunities emerging from ESG topics; business
partners, NGOs or customers want to know how
PMI’s business activities and products affect the
stakeholders’ interests; and finally, the company andsociety want to understand its actual and potential
impacts on society and the environment along thevalue chain to make the most meaningful decisions.
PMI’s 2021 materiality assessment is based ona sound analysis combining in-depth qualitative
data with additional quantitative informationthat allows not only to account for but toreally understand the three dimensions.

Appendix

PMI thus meets all relevant current
and upcoming standards:• the concept of double materiality promoted by
the EU and other legislators around the globe• the outward-looking and due diligence-driven
view of the Global Reporting Initiative (GRI)
Standards 2021 corresponding to the United
Nations (UN) guiding principles on business andhuman rights and the Organisation for Economic
Co-operation and Development (OECD)
guidance on responsible business conduct• the inward-looking perspective of Sustainability
Accounting Standards Board (SASB), upcoming
ISSB/IFRS and other investor-driven frameworks.
In addition, PMI gained deep insights that go
far beyond generic sectoral or geographicalapproaches to match the company’s businessmodel and dynamic transformation path. By
considering emerging topics and aligning theprocess with internal risk management, PMI
paved the way for pragmatic interim reviews andadjustments. In this way, the chosen approachallows the company to identify topics with mediumto long-term strategic relevance for PMI and its
business model, as well as to dynamically adapt
them to external or internal developments.
BSD Consulting (an ELEVATE company)

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Overview

Our assessment

Strategic framework

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Appendix

Our assessment
We are committed to regularly
conducting sustainability materiality
assessments, and to strengthening andadjusting our process with each exercise.

We expanded our assessment in 2021, recognizingthat there is value in integrating different perspectives
into our analysis to deepen our understanding. We
prepared a list of potentially relevant ESG topics, andthen evaluated them according to three different lenses:

An essential starting point is to identify and partner withan independent and external third party to facilitate
the assessment. We partnered with BSD Consulting(an ELEVATE company) to assist us in carrying out our
2021 sustainability materiality assessment by providing
independent expertise and guidance on how to bestalign with relevant standards and best practices.

• Stakeholder perspective: The likelihood of impacting
the judgment and decisions of key stakeholder groups.
• Outward impact: The impact on society and theplanet at different stages of PMI’s value chain.
• Inward impact: The impact on PMI’s overall
performance and business in terms of risks andopportunities that have or will have an impact on
corporate value.
We combined the results of those three perspectives
to build our sustainability materiality matrix and identify
the topics we should focus on to have the greatest impact.

Our five step process2

Gathering stakeholder
perspectives

1

Identifying ESG topics

3

Assessing outward
impacts

5

Identifying our mostmaterial ESG topics

4

Assessing inward
impacts

Philip Morris International Sustainability Materiality Report 202104Overview

Our assessment

Strategic framework

Next steps

Appendix

Identifying ESG topics
It is key that our sustainability materiality
assessment be based on an exhaustive
list of ESG topics covering all areasthat are potentially relevant to PMI.
The starting point for our materiality analysis
corresponds to the identification of the sustainability
topics that are potentially relevant to PMI.
We conducted desktop research to define an
initial list of topics covering ESG aspects.
Our list of sustainability topics was derived from a
review of PMI’s disclosures and external sources,
including the list of topics defined during our 2019sustainability materiality exercise, local analyses
conducted by various PMI affiliates worldwide,
consumer insights, public health debates, ESG
investor topics and ratings requirements (e.g., MSCIand Dow Jones Sustainability Indices (DJSI)), media
reports, sustainability standards and frameworks(e.g., the GRI and the SASB), the UN Sustainable
Development Goals (SDGs), a benchmark ofsustainability practices of other multinationals,
and global sustainability and megatrends.

STEP 1

To ensure a stronger connection with ourcompany’s broader risk management processes,
we also took into consideration the results ofour most recent integrated risk assessment.
We sought to achieve balance and completenessby developing a list of topics covering all ESG areas
likely to be relevant across our value chain. To avoid
potential bias, we strived to label and describe thedifferent topics in an objective and factual way,
and, for comparability purposes, we sought tofocus on impact, rather than on activity or input.
This thorough research resulted in the list of
22 ESG topics summarized on the next page.

What changed?
A comparison between the list of topics in 2019 and 2021
While our 2021 list of topics accounted for
those assessed during our 2019 sustainability
materiality analysis, it underwent significant
changes. Most topics were renamed as
we sought to define them in a neutral way,accounting for both their potential positive
and negative impacts. We also: introduced
new topics (e.g., “innovation in wellness andhealthcare” or “laws and regulations”) to reflectchanges in our business and value proposition,and the rapid evolution of the regulatory
landscape; bundled topics that were deeply

Philip Morris International Sustainability Materiality Report 2021

connected (e.g., consolidating under “economic
contribution” aspects related to fiscal practices
or illicit tobacco trade prevention); and split some
topics that merited a more granular assessment(e.g., decoupling “health and safety at work”
and “employee well-being”). Lastly, reflecting
the maturity of sustainability at PMI, we did notconsider “human rights” as a standalone topic,
but rather as an ever-present topic pervasive
across our company and all ESG issues. All thesechanges impact the comparability of results
between the 2019 and 2021 assessments.

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Appendix

STEP 1Long list of ESG topics (alphabetical order)

ENVIRONMENTAL

SOCIAL

GOVERNANCE

Animal welfare

Diversity and inclusion

Business integrity

Biodiversity

Economic contribution

Engagement with
policymakers

ClimateEmployee well-being

Operational discharge

Health and safety
at work

Laws and regulations
Privacy

Post-consumer waste
Materials andproduct eco-design
Water

Human capitaldevelopment
Innovation in wellness
and healthcare1
Labor standards
Philanthropy
Product health impact
Sales, marketing, andconsumer communications
Socioeconomic well-beingof tobacco-farming
communities

For more information, the full list of topics
and sub-topics, along with respective descriptions,is available at the end of this report.

1 This topic was referred to as “innovation beyond nicotine” throughout the assessment
process and updated to “innovation in wellness and healthcare” per the request of theexecutive-level Sustainability Committee as explained in step five.

Philip Morris International Sustainability Materiality Report 202106

Overview

Our assessment

Strategic framework

Next steps

Appendix

Gathering stakeholder perspectives

STEP 2Engaging our stakeholders in theprocess of identifying our priorities
is essential. By incorporating their
input as feedback into our strategy,
we are best able to jointly address
those issues that are important forthem, where we have an impact, andcan develop long-lasting solutions.

For our 2021 sustainability materiality assessment,
we focused on reaching out to constructive, informed,
and critical voices rather than opening our stakeholder
outreach in a broader yet unrestrained manner, seeking
objective and representative views. With guidancefrom our consultant and our PMI subject matter
experts, we identified individuals from all relevant
stakeholder groups with whom we should engage toachieve a fair representation of our key stakeholder
groups across the geographies where we operate.

Gathering the feedback of our key stakeholders isan essential step of our sustainability materiality
assessment. It helps us understand their expectations
and prioritize sustainability topics effectively,
informing our overall sustainability approach and ourability to deliver against shared sustainability goals.

Our consultant then held in-depth qualitativeinterviews and conducted an online survey
to gather our stakeholder perspectives on
the list of ESG topics we had identified.

As we continue to transform our products, company,
business model, and value proposition, we must
rely on the cooperation of multiple stakeholders,from supply chain partners to regulators andpublic health authorities. This requires that wework continuously to build trust and legitimacy,
earning the license to operate in a highly scrutinizedenvironment. Engaging with stakeholders in an
open and transparent way offers the opportunity
to understand their expectations and concerns,
while allowing us to explain the context and thechallenges related to our transformation.

We collected quantitative inputs through an
online survey, in which close to 150 stakeholders
participated (45% internal stakeholders
and 55% external stakeholders).
The core of the survey was asking stakeholders
to select the 10 sustainability topics they
deemed most important for PMI to focus on,
and to rank them by order of priority.
We also embedded the concept of “double”
materiality in the questionnaire, to gather
insights on our stakeholders’ perception of ourcompany’s outward and inward impacts. Further,
we asked our stakeholders open questions,to generate the sustainability topics that firstcame to their mind in the context of PMI, or the
topics they deemed likely to gain importancein the period ahead to 2030, for instance.

Including the views of our consumers
Adult consumers are at the heart of our business
transformation, and we strive to drive consumer
centricity in all we do. Adult consumers constitutea key yet heterogeneous stakeholder group,
and we acknowledged early on the challengeof reaching out to them in the context of oursustainability materiality assessment throughstandard channels of interviews and surveys.

Philip Morris International Sustainability Materiality Report 2021

To ensure that the consumer perspective wasadequately integrated into our materiality
assessment, we built on consumer understanding
acquired over time (e.g., through studies on
consumer perception of sustainability issues
associated with our industry). While limited, thoseinsights were incorporated by our consultant andtreated as a specific stakeholder interview.

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Appendix

STEP 2: Gathering stakeholder perspectives
STEP 2

In addition, to reach a deeper understanding(beyond what a survey could provide), ourconsultant interviewed 31 stakeholders: 15 internal
stakeholders (PMI employees) who consisted
mainly of members of our company’s Sustainability
Committee, which comprises representativesof PMI’s Company Management team; and 16
external stakeholders, including representativesof the financial community, sustainability leaders,business partners, and other relevant groups.

These in-depth conversations generated detailed
insights into the ESG topics that interviewees deemedmost relevant, as well as those seen as likely toincrease in importance in the short to medium term.
We also gathered insights into stakeholders’ views on
sustainability, and their expectations and priorities
for PMI’s future performance and related disclosure.

Breakdown of stakeholder inputs>140 survey participants>30 interview participants

Quantitative feedback

Qualitative feedback

Sustainability experts1

Investors

Suppliers

Suppliers

Regulators

TE

R

55 N
%

Sustainability experts1

AL

Business community

L

IN

IN

4 TE

5%
R
NA

PMI employees

4 TE

AL

PMI’s management

7%

Regulators
Consumers2

PMI’s management

RN

EX

RN

5

3%

Scientific community
Business community
Distribution partners
Media
ESG rating, indicesand rankings
Other

EX

L

TE

Investors

A

PMI employees

1 Including non-profit organizations, academia, consultants, assurors,
standard setters, and social. and environmental specialists.
2 As noted in the feature box on the previous page, we integrated the views of ourconsumers through market research insights and treated results as a single interview.

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Appendix

STEP 2

Results overview
Overall, both the interviews and thesurvey confirmed that sustainability
continues to increase in importance, andthat ESG factors play an increasingly
important role for all stakeholders,irrespective of the group they represent.
Two topics were universally mentioned
during the discussions and clearly ranked thehighest in the survey:

Product health impact,which is specific to our industry,
its activities, and products
Climate,which is industry-agnostic
and on top of the global
societal agenda

Beyond these two topics, a set of ESG issues– including “materials and product eco-design”,“post-consumer waste”, “socioeconomic wellbeing of tobacco-farming communities”, “businessintegrity”, “innovation in wellness and healthcare”,“laws and regulations”, “sales, marketing, andconsumer communications”, and “diversity andinclusion” – were all deemed very important.

For instance, governance-related topics(e.g., “laws and regulations” or “businessintegrity”) were more dominant among external
stakeholders, while internal stakeholders
underlined the need to focus on our company’s
newly introduced topic of “innovation in wellness
and healthcare” more strongly and considered“sales, marketing, and consumer communications”
a higher priority than external voices.
Generally, interviewees and survey respondents
highlighted that PMI’s overall sustainability efforts
were clearly perceived and well communicated.
During the interviews, most external stakeholders
recognized PMI’s unique value proposition, putting
sustainability at the core of its strategy, andmentioned the potential for PMI to act as a rolemodel for other companies in similar industries
under public scrutiny and undergoing (or expected
to undergo) transformation. The discussions also
helped unveil areas for improvement, as stakeholders
highlighted the need to continue pushing for greatertransparency and demonstrably increased efforts
in areas such as access to smoke-free products,
eco-design of devices, stakeholder engagement,
and labor conditions in the supply chain.
When asked about ESG topics gaining momentum,
the answers provided largely confirmed theimportance of continuing to work on producthealth impact and climate, while collectively
demonstrating an increasing awareness aroundthe topic of human capital development.

While the comparison of internal and externalviews did not highlight major discrepancies,
we observed some differences.

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09Overview

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Appendix

STEP 2The sentiment and insights gathered
were consolidated into one overall
ranking of sustainability topics, toprovide a comprehensive overview
of stakeholder perspectives.

To ensure that the uneven stakeholder representationin the interviews and online survey did not impact
outcomes, we analyzed and compared the results,
attributing them different weights. However, as
no major discrepancy was identified, we decided
to allocate an equal weight to the results of boththe interviews and the online survey, to generate
the ranking of sustainability topics, which arelisted corresponding to their relevance.
This is reflected in our sustainability materiality
matrix where the size of the bubbles represents
the importance of the topic to stakeholders.

Categorizing stakeholder perspectives• Climate• Product health impact• Materials and product eco-design• Post-consumer waste• Socioeconomic well-being of tobacco-farming communities• Business integrity• Innovation in wellness and healthcare• Laws and regulations• Sales, marketing, and consumer communications• Diversity and inclusion• Labor standards• Water• Biodiversity• Employee well-being• Engagement with policymakers• Human capital development• Operational discharge• Economic contribution• Health and safety at work
• Privacy• Philanthropy• Animal welfare
LOW

Philip Morris International Sustainability Materiality Report 2021

VERY HIGH

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Appendix

Assessing outward impacts
As a third step, we conducted ananalysis to understand the topics
on which PMI can have the greatest
impact externally.

STEP 3To perform their analysis, our consultant useddifferent sources, including, for instance, the insightsfrom PMI’s pilots of the Value Balancing Alliance(VBA) impact valuation methodologies or ourcompany’s most recent human rights risks saliency
mapping. Subject matter experts from PMI werealso consulted during the analysis to complement
and calibrate the expert desktop-based research.

Our consultant analyzed the significanceof ESG impacts on society at the different
stages of our simplified value chain.

Upstream

PMI operations

Downstream(e.g., tobacco growers, suppliers)(e.g., offices, manufacturing sites)(e.g., consumers, retailers)

Evaluation criteria
The evaluation was performed taking into consideration the following criteria:

Severity
How grave is the impact?

Scope
How widespread is the impact?

TopicsLikelihood
How likely is it that the impact will occur,and how frequently?

Outcomes

Irremediable character
How hard is it to counteract the negative impact,
restore the original state, or improve it?

Leverage
How high is the contribution and influence ofthe company to the impact?

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Appendix

STEP 3Results overview
The assessment highlighted the predominantly
large outward impact linked to the topic of“product health impact.”

Unquestionably, this topic is linked to severe impacts –with the harmfulness of cigarette smoking widely known –that must be addressed with a short- and long-term view
(today, an estimated 1.1 billion people worldwide smoke
cigarettes or other combustible tobacco products2).
Further, in terms of leverage, PMI is considered to
be well positioned to drive change on this topic.

Impact in our value chain
Upstream

PMI operations

Downstream

ENVIRONMENT

Animal welfare
ClimateBiodiversity
Materials and product eco-design
Operational discharge
Post-consumer waste
Water
Diversity and inclusion
Economic contribution
Employee well-being

SOCIAL

Health and safety at work
Human capital development
Innovation in wellness and healthcare
Labor standards
Philanthropy
Product health impact
Sales, marketing, and consumer communications

GOVERNANCE

Socioeconomic well-being of tobacco-farming communities
Business integrity
Engagement with policymakers
Laws and regulations
Privacy

2 WHO Global Report on Trends in Prevalence of Tobacco Use 2000–2025, third edition (December 2019).

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Appendix

STEP 3

Based on their severity, scope, likelihood, irremediablecharacter, and PMI’s leverage, the following
topics were attributed a high outward impact:“climate”; “innovation in wellness and healthcare”;“diversity and inclusion”; “sales, marketing, andconsumer communications”; “biodiversity”;“engagement with policymakers”; and “water”.

Overall, among the highest ranked sustainability
topics, there was a balanced mix of ESG issues.
The ranking below presents the level of relevance ofeach topic according to our assessment and is reflectedin the “X” axis of our sustainability materiality matrix.

Categorizing outward impacts• Product health impact• Climate• Innovation in wellness and healthcare• Diversity and inclusion• Sales, marketing, and consumer communications• Biodiversity• Engagement with policymakers• Water• Health and safety at work
• Socioeconomic well-being of
tobacco-farming communities• Economic contribution• Business integrity• Materials and product eco-design• Post-consumer waste• Labor standards• Employee well-being• Human capital development• Operational discharge• Animal welfare• Laws and regulations• Privacy• Philanthropy
LOW

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VERY HIGH

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Overview

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Appendix

Assessing inward impacts
As a fourth step, in line with theprinciples of double materiality, we
also assessed the potential impact
of sustainability topics on PMI’s
performance and business overall,in terms of risks and opportunities
which could have an impact on
our ability to create value.

STEP 4

Our consultant conducted the assessment,leveraging on ESG ratings, frameworks, and investor
communications. They also accounted for international
policy and related regulatory developments onsustainability, media controversies, and sectorrisks analytics. Further, the results of PMI’s mostrecent integrated risk assessment were used asa source, along with qualitative insights gathered
through the interviews with internal and external
stakeholders. Finally, subject matter experts from
PMI were consulted during the assessment process.
Both the risks and opportunities were evaluatedfor each ESG topic of our long list, attributing
them a score ranging from low to very high.

Inward impacts
ESG-related risks andopportunities which could havean impact on corporate value

Corporate
value

Doublemateriality

Planet andsociety

Outward impacts
ESG-related topics for which
PMI can have the greatest
impact externallyPhilip Morris International Sustainability Materiality Report 2021

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Appendix

STEP 4

Results overview
As a result of the assessment, thetopic of “product health impact”
was deemed the one carrying boththe biggest risks and the greatest
opportunities linked to reputation,
regulation, and revenue growth.

In addition, the topics of “climate,” “sales, marketing, andconsumer communications,” “business integrity,” and“innovation in wellness and healthcare” were attributed
a high inward impact, with risks and opportunities
tending to balance each other. Meanwhile, more
traditional ESG topics, like “labor standards”, “postconsumer waste”, and “biodiversity” were perceived
as areas with higher risks than opportunities,
based on the sources used for this assessment.
The results of the inward impact assessment informed
the “Y” axis of our sustainability materiality matrix.

Categorizing inwards impacts• Product health impact• Climate• Sales, marketing, and consumer communications• Business integrity• Innovation in wellness and healthcare• Economic contribution• Laws and regulations• Human capital development• Engagement with policymakers• Water• Materials and product eco-design• Labor standards• Post-consumer waste• Diversity and inclusion• Socioeconomic well-being of

tobacco-farming communities• Operational discharge• Health and safety at work
• Biodiversity• Privacy• Employee well-being• Philanthropy• Animal welfare
LOW

Philip Morris International Sustainability Materiality Report 2021

VERY HIGH

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Appendix

Identifying our most material ESG topics
Our sustainability materiality matrix
was generated using all inputs gathered
through the materiality assessment.
We applied the results of the inward impact assessment– displaying those topics that carry the most significant
risks and opportunities for PMI’s value creation – toinform the “Y” axis of the matrix. We used the insightsof the outward impact assessment – highlighting
where PMI can have the most significant impact on
the planet and society – to build the “X” axis of thematrix. Finally, we reflected the perspectives of our
stakeholders by assigning different sizes to each topic
bubble, depending on the importance attributed by
the respondents to our survey and our interviewees.
The topic “product health impact” ranked significantly
higher than all other ESG topics on both the outward
and inward impact assessments. We therefore
slightly adjusted its placement to bring it closer
to other topics on the matrix chart for readability
purposes. We identified the six topics located on the
top-right part of the matrix (as those cumulatively
having received the highest score in both theinward and the outward impact assessments) as
the most material, as well as three additional topics
that were of very high importance according to ourstakeholders but of medium importance according
to the inward and outward impact assessments.
Finally, we identified three topics that were notincluded in the list of most material topics, but that
we expect to gain momentum in the future: “humancapital development”, “biodiversity”, and “water”. Their
selection relied on the identification of major trends inthe sustainability arena, coupled with insights gathered
throughout the various steps of the materiality process.
Results of the materiality assessment were presented
to our executive-level Sustainability Committee. The
Committee requested that the topic originally named“Innovation beyond nicotine” be renamed “Innovation inwellness and healthcare” to best describe the directionof our company. This more specific nomenclaturereflects the evolution and sophistication of our strategy,
including the products and categories in adjacentavenues of growth that our company plans to explore.
The Committee also formally approved the outcomesof the assessment, which were subsequently presented
to PMI’s Board of Directors at the end of 2021.
Philip Morris International Sustainability Materiality Report 2021

STEP 5

Understanding the assessment results
We want our corporate strategy to remain at
the forefront of evolving trends. For this reason,
we consider both our most material topics andthose emerging topics to be our top priority.
Those topics pertaining to the social impacts
generated by our products – including “producthealth impacts,” “sales, marketing, and consumer
communications” and “innovation in wellness
and healthcare” – are a clear priority for ourcompany and represent those areas with thegreatest transformative potential for us. Further,
the results of our sustainability materiality
assessment also highlight the importance of our
products’ environmental impact, with “materials
and product eco-design” and “post-consumer
waste” included in our most material topics.
Meanwhile, we acknowledge the prerequisite
for our company to drive excellence in the way it
operates. In particular, the materiality assessment
results showcase the importance for us to focus
on our climate, biodiversity, and water actions
from an environmental standpoint, and advancethe agenda on human capital development andsocioeconomic well-being of tobacco-farming
communities from a social standpoint.
Furthermore, our sustainability materiality
assessment demonstrates the need for our company
to drive business integrity in everything we do.
When analyzing ESG topics, the importance ofgovernance-related topics cannot be overlooked, as
those factors indicate our company’s existing rules
and procedures that showcase our preparedness
and ability to address environmental and social issues
that are or may become material in the future.
Our materiality assessment also further
demonstrates that sustainability topics do not exist ina vacuum. They are often linked to one another, andtheir interdependencies – including the direction of
causality and magnitude – must be considered as wecraft appropriate solutions. A robust sustainability
materiality assessment helps guide our work, identify
synergies, and anticipate potential trade-offs.

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Appendix

STEP 5

HIGH

Sustainability materiality matrix

Product health impact

Sales, marketing, andconsumer communications

ClimateBusiness integrity
Signiﬁcance of ESG impacts on PMI

Innovation in wellness
and healthcare
Laws andregulations
Human capital development
Engagement with policymakers

Diversity and inclusion

Economic contribution
Materials and product eco-design

Water

Labor standards
Post-consumer waste
Operational discharge
Privacy

Health and safety at work
Socioeconomic well-being of
tobacco-farming communities

Employee well-being

LOW

Biodiversity
Philanthropy
LOW

Animal welfare
HIGH

Signiﬁcance of PMI’s impacts on society

Key

Relevance to our stakeholders
ENVIRONMENTAL

Very high

SOCIAL
GOVERNANCEHigh

Our most material topics

MediumEmerging topics

Philip Morris International Sustainability Materiality Report 2021

Low

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Appendix

Mapping our most material topics
to the UN SDGs
The 2030 Agenda for Sustainable
Development is a universal call for
action to address global challenges.
We accounted for the SDGs at the very first step ofour sustainability materiality assessment, considering
them when building our long list of topics and subtopics. At the end of the assessment, we reconnected
our most material topics with the potential contribution
we could have as a company in helping society reach
the SDG targets. We did that through an extensive
mapping of all the 169 SDG targets, and attributed thehighest potential contribution of PMI to those targets
connected with our most material topics where asignificant potential outward impact was identified.

GREATESTIMPAC T

PRIMARY
SDGS

Considering interdependencies between different
ESG topics and their connection to multiple
SDG targets, we distinguished between “primary
SDGs” directly linked to a significant outward
impact connected with an ESG topic, and“secondary SDGs” with a more limited impact.
The SDG with the greatest impact directly relating toour most material topic – “product health impact” – isSDG 3: Good health and well-being. Primary SDGs
directly related to our other material topics include
SDG 8: Decent work and economic growth, SDG 12:
Responsible consumption and production, SDG 13:
Climate action, and SDG 15: Life on land. Five other
SDGs directly related to one material topic each.
We also found that SDG 17: Partnerships for theGoals enables progress against the broader agenda.

SECONDARYSDGSALLENCOMPASSINGHUMAN
RIGHTS

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Overview

Our assessment

Strategic framework

Next steps

Appendix

Revamping our strategic framework
The results of the 2021 materiality
assessment provided the basis forthe definition of PMI’s revamped
strategic framework for sustainability.

I M PAC T
I M PAC TO P E R AT I O N A L

PRODUC T

Our sustainability materiality matrix clearly shows two
distinct forms of social and environmental impacts:
those that derive from our products (or from what
we produce) and those that derive from our businessactivities (or from how we operate). Accordingly, our
new strategic framework separates these two kinds ofimpacts and highlights their corresponding ESG factors.
While they are clearly connected and interdependent,
framing these different impacts and their origin in thisway crystallizes both our inputs and desired outcomes,
and brings clarity to our organization in terms of how
best to allocate resources and incorporate sustainability
into our ways of working. It also brings clarity to ourexternal stakeholders, who can better understand ourapproach to sustainability from an impact perspective.
In line with this new framing, we expanded governancefactors when including them in our revamped
framework. We tied the topics of “responsible R&D,”“product reliability,” and “nicotine science” (which wereconsidered under the broader topic of “product healthimpact” in our long list of topics) to the impacts createdby our products from a governance perspective, as
we see them as fundamental prerequisites to making
progress on both social and environmental aspects.
We also included the topic of “sustainable supply chain
management” in our governance factors linked to theimpacts created by our business activities because
we consider it a catalyst for progress on various
environmental and social factors. Moreover, given its
universal importance across all we do, we elevatedthe umbrella topic of “respect for human rights” asa key topic with impacts along our value chain.

E

S

G

ENVIRONMENTAL

SOCIAL

GOVERNANCE

Materials andproduct eco-design–
Post-consumer
waste

Product healthimpact–Sales, marketing,and consumer
communications–
Innovation inwellness and healthcare

Responsible R&D–
Product reliability–
Nicotine science

Climate–
Water–
Biodiversity

Diversity and inclusion–
Socioeconomic wellbeing of tobacco-farming
communities–
Human capitaldevelopment

Business integrity–
Respect forhuman rights–
Sustainable supply
chain management

Operational discharge–
Animal welfare

Labor standards–
Health and safety at work–
Employee well-being–
Philanthropy

Stakeholder engagement–
Data privacy–
Fair fiscal practices

Overview

Our assessment

Strategic framework

Next steps

Appendix

Next steps

We plan to conduct acomprehensive sustainability
materiality assessment
every three to four years.

This allows an adequate timeframe for topics
to evolve and provides us with a sufficient period
over which to implement actions based on the
results identified. Between these comprehensive
assessments, we plan to conduct reviewsin the form of a ‘light update,’ as needed.
To complement our global sustainability materiality
assessment, we will continue conducting
local assessments across various markets andwill embed findings in our global assessment
updates. We will also continue to strengthen the
integration of ESG-related risks into our annual
integrated enterprise risk assessment, to further
embed sustainability into corporate strategy.

Jennifer Motles
PMI Chief Sustainability Officer

Overview

Our assessment

Strategic framework

Next steps

Appendix

Appendix I: List of ESG topics

Note: The below list of potentially relevant topics, subtopics, and their description is broadly derived fromexternal sources (e.g., sustainability standards andframeworks). The descriptions aim to define the topics,
and do not reflect PMI’s activities or aspirations.

Environment

Subtopics

Descriptions

Climate• Greenhouse gas emissions• Climate change• Energy use• Energy efficiency• Renewable energy

The emission of greenhouse gases (GHG) such as carbon dioxideor methane caused by human-related activities leads to an increasein the natural “greenhouse effect” of the atmosphere. This causes
temperatures on earth to rise, resulting in global warming causing
in turn climate disasters and environmental impacts such as floods,
droughts, storms, etc. with significant damage and costs to societies
and economies. Energy accounts for over two-thirds of global GHG
emissions. A green energy strategy and the sourcing of own renewableenergy greatly contributes to a reduction in GHG emissions.

Water• Water withdrawal and usage• Water scarcity• Groundwater level

Availability and good water quality are essential to human health, socialand economic development, and the ecosystem. Water is withdrawn
through industrial use, but also in agriculture, which can have aparticularly strong impact in areas with high water stress. Water
should be carefully managed during every part of the water cycle:
from freshwater abstraction, use and post-treatment, to the use oftreated wastewater and its ultimate return to the environment.

Operational
discharge• Waste reduction• Hazardous waste• Waste treatment and disposal• Wastewater treatments• Water discharge• Water pollution• Air pollution• Non-GHG emissions

Operational discharge includes all materials generated as byproducts of production and other operational activities, which
require treatment, repurposing, or disposal, and can cause
environmental pollution. It includes both hazardous and nonhazardous manufacturing materials, as well as non-production waste(e.g., generated in office settings). Pollutants in the wastewater canaccumulate in soils and enter groundwater or be taken up by plants
and become as a result a hazard to the environment and humanhealth. Air emissions other than greenhouse gas (such as NOX,
SOX, particulate matter, VOCs, or ozone-depleting substances)arise, among others, from the combustion of fossil fuels (transport,
production processes) as part of the production processes.

Post-consumer
waste• Waste reduction• Waste treatment and disposal• Littering• Recycling

Post-consumer waste is generated by products and their packaging
at the end of their lifecycle. Its treatment and disposal can be acause of environmental pollution, for instance if products are
littered on the ground or in marine environments. Appropriate
consumer and end-of-life waste management (e.g., recovery,
recycling, refurbishment, etc.) can contribute to reducing
environmental impacts and resource use.

Biodiversity• Forest conservation• Land use• Endangered species• Monocultures• Pesticides• Ecosystems

Biodiversity includes the diversity of ecosystems, species within
ecosystems, and genetic diversity. Biodiversity provides theexistential basis for humans: the diversity of plants, fungi andmicroorganisms is necessary for the preservation of fertile soils,
clean water, pleasant climate, and fresh air. Land use involves the
management and modification of the natural environment, forinstance through the use of soils, trees, plants, etc. Activities oforganizations and their supply chain, especially in the agricultural
sector, can lead to land use changes associated with deforestation,
biodiversity loss, and land degradation.

Materials
and producteco-design• Selection of materials andresources• Renewable materials• Non-renewable materials• Material and resource efficiency• Conflict minerals• Plastic• Recyclability• Circularity• Traceability

The materials used in the manufacture of products and their packaging
have an impact on the environment. Renewable materials are derived
from plentiful resources that are quickly replenished by ecologicalcycles and agricultural processes and come from forestry andagriculture as well as animal husbandry and fisheries. Non-renewable
natural resources are non-regenerative and are only available in aconstant total stock on earth. These include fossil resources, sand,metals, and minerals. Eco-considerations in product design (e.g.,materials minimization, choice of materials, design for easy disassembly
and recycling, use of recycled content, etc.) can minimize the negativeenvironmental impact.

Animal welfare• Animal testing• Use of animal resources

Animal testing in scientific research should be restricted to situations
where no alternatives are available, and animals should be treatedhumanely and responsibly. Animal resources may be used byorganizations in the manufacturing of products, for instance inmaterials such as glue or leather, in which case living and slaughter
conditions of animals should be upheld.

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Overview

Our assessment

Strategic framework

Next steps

Appendix

Appendix I: List of ESG topics continued
SocialSubtopics

Descriptions

Health and safety
at work• Workplace accidents and injuries• Noise exposure• Physical integrity• Security

Safety in the workplace covers protection from factors that cause
harm and refers to the right to be safe at work. It entails ensuringthat as few accidents as possible occur in the workplace and thatthe health of employees is not impaired. Some hazards cannot
be completely eliminated, in which case every precaution should
be taken to reduce the chances of injury. This also refers to thefundamental right of physical integrity.

Diversity andinclusion• Anti-discrimination andharassment• Equal opportunities• Equality and equity• Minorities• Fairness• Freedom of thought and expression

For all people to be able to develop and participate in society in thebest possible way, an appreciative and prejudice-free environment isessential - regardless of gender, nationality, religion, ethnic origin, age,ideology, disability, sexual orientation, and identity. Inclusion, equality,
a culture of open dialogue, and equal opportunities promote diversity
among employees.

Product healthimpact• Smoking-related diseases• Scientifically substantiatedalternatives to smoking• Risk reduction of smoke-free
products• Nicotine• Tobacco and nicotine productinnovation• Product reliability and quality

Cigarette smoking is the most dangerous form of tobacco use; it is
the leading cause of some preventable diseases (i.e., cardiovasculardisease, lung cancer, and chronic obstructive pulmonary disease).
The best way to avoid the harm of smoking is never to start, orfor those who do smoke, to quit. In complement to efforts aimed
at encouraging cessation and discouraging initiation, productinnovation can enable adult smokers who wouldn’t otherwise
quit smoking to switch to less harmful alternatives. To benefit
adult smokers and have a positive impact on public health, the risk
reduction profile of these alternatives (also referred to as “reducedrisk products” or “smoke-free products”) should be scientifically
substantiated, adult smokers who wouldn’t otherwise quit smoking
should have access to them, and these alternatives should
ultimately replace cigarettes.

Employeewell-being• Employee engagement• Mental health and well-being• Company culture• Job satisfaction

Employee well-being includes protecting and improving the physicaland mental health levels of employees. Beyond physical and mental
health issues, employee well-being extends into happiness as well as
job satisfaction.

Human capitaldevelopment• Employee development• Employability and future of work
• Talent attraction and retention• Continuous education

The quality of employees that companies are able to attract
and retain is an important source of competitive advantage.
Investments in employee development and training lead toincreased productivity, quality, and employee retention andsatisfaction. Furthermore, in the backdrop of digitization, atechnological leap is expected that will place new demands on theskills and abilities of employees, and companies are expected topromote and develop the skills of their employees.

Labor standards• Working hours• Wages and benefits• Living income• Social security• Freedom of association andcollective bargaining• Legal and physical protection• Working conditions in the
supply chain• Forced labor and modern formsof slavery

Labor conditions refer to the working environment and aspects of
employee’s terms and conditions of employment. Working time (i.e.,hours of work, rest periods, and work schedule), remuneration (i.e.,
wages and benefits), job security, social security, and dismissals areimportant factors in providing responsible and fair working conditions.

Socioeconomic
well-being of
tobacco-farming
communities• Child labor• Land rights of smallholder farmers• Forced labor, human trafficking,and modern forms of slavery• Housing/accommodation• Access to water, hygiene andsanitation and health (WASH)
services• Food security• Migrant workers• Local communities’ development

Tobacco is cultivated in many regions of the world, including low- andmedium-income countries, where it is typically grown on smallholder
farms of less than two hectares. The socioeconomic well-being of
tobacco-farming communities depends on many factors, including theworking conditions, nation’s socioeconomic development, health andeducational services, political stability, resilience to climate shocks,
access to markets, and public infrastructure, as well as regulatory
frameworks and their enforcement. Poverty prevents farming
communities from achieving acceptable levels of socioeconomic
well-being and hinders their economic development. It leads to laborabuses and exacerbates the risk of child labor on tobacco farms.

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Overview

Our assessment

Strategic framework

Next steps

Appendix

Appendix I: List of ESG topics continued
SocialSubtopics

Descriptions

Philanthropy• Donations• Charitable giving• Volunteering• Corporate citizenshipPhilanthropy refers to additional contributions (usually outside of thegeneral business context) to society. These can include charitable
donations, social engagement, or corporate volunteering for example.
Examples range from individual employee engagement to broadly
organized social company engagement.

Economic
contribution• Contribution to GDP• Tax contribution• Employment (direct and indirect)• Social prosperity• Local economic growth• Illicit tobacco trade prevention

The economic contribution of companies to governments,
communities, business partners and employees is important forbuilding and maintaining a sustainable infrastructure, economic
system, and society. This includes the local value added by thegroup and local business locations, benefits to employees, business
partners and suppliers, tax compliance, proper payment of importand export duties, and prevention of smuggling. A company’s
economic effects in a certain area can have a large local impact due
to infrastructure improvements.

Sales, marketing,and consumer
communications• Youth access prevention• Consumer information/labeling• Brand equity• Consumer behavior• Product-related regulation

Principles of ethical customer communication are observed, forexample, through fact-based and non-misleading information
about the product or service (including information about risks),
efforts to minimize the reach of marketing activities to sensitive
target groups (e.g., children and young people), responsible useof personal information for marketing activities, consideration ofcontroversial topics in marketing activities (e.g., ideals of beauty,
images of women), and raising consumers’ awareness of conscious
consumption.

Innovation inwellness andhealthcare• Growth beyond nicotine products• Adjacent areas (e.g., self-carewellness, inhaled therapeutics)• Repurposed capabilities

This pertains to business model innovation beyond nicotine
products, reflecting a change in how the company can deliver value
to its customers. Leveraging capabilities in life sciences, productinnovation, and clinical expertise allows the organization to expand
its value proposition to scientifically substantiated products andsolutions that go beyond nicotine and can contribute positively topeople’s lives. It includes the development of net-positive strategies
related to opportunities in adjacent areas, e.g., wellness andhealthcare operations.

Governance

Subtopics

Descriptions

Privacy• Data security• Data management• Cybersecurity

This includes safeguarding the data protection and privacy rightsof employees, customers, and other third parties, e.g., obtaining
data in a lawful and fair manner, protecting employees, customers
and third parties’ personal data through appropriate information
security measures, responsible handling of data in consideration of
new technologies and security risks/ liability, cybersecurity.

Engagement with
policymakers• Transparent advocacy• Responsible engagement• Donations• Representation of interests• Memberships• Anti-bribery

While an organization may engage with the legislative and regulatory
process to promote the development of policies, create new business
opportunities, and improve the regulatory landscape that benefit
society as a whole, this may also be associated with risks related
to corruption, bribery, undue influence, and others. Responsible
advocacy is about conducting engagement in a way that respects thelaw, observes professional standards and ethical principles, and isconsistent with a company’s vision and internal policies.

Business integrity• Governance and management
structures• Board effectiveness• Policies and guidelines• Risk management• Stakeholder engagement• Business relations and partnerships• Conflicts of interest• Code of business conduct• Grievance mechanisms

A well and responsibly managed corporate organization is of central
importance to almost all internal and external stakeholders and isultimately geared to their interests. It ensures rule-based decisions,clear checks and balances, and goals that are aligned with the social,
regulatory, and market environment. Further, organization’s behavior
is expected to abide to certain values and principles, ensuring they act
consistently with respect and integrity.

Laws andregulations• Compliance with laws andregulations• Anti-corruption• Competitive behavior

Compliance with legal and regulatory requirements is expected. This
includes all laws and regulations at local, national, and international
level (public and private law). Corruption includes operations suchas bribery, accelerated payments, fraud, extortion, collusion, andmoney laundering. Anti-competitive behavior includes actions by anorganization or its employees that may result in fraudulent collusion
with potential competitors, with the intent to limit market competition.

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Overview

Our assessment

Strategic framework

Next steps

Appendix

Appendix II: SDG Mapping
Environment

Primary SDGs

Secondary SDGs

Primary SDGs

Secondary SDGs

Primary SDGs

Secondary SDGs

All-encompassing

Materials andproduct
eco-design
Post-consumer
waste

Climate

Water

Biodiversity

Social
Product healthimpactSales, marketing,and consumer
communications
Innovation in wellness
and healthcare

Diversity andinclusion

Socioeconomic
well-being of tobaccofarming communities
Human capitaldevelopment

GovernanceBusiness integrity

Philip Morris International Sustainability Materiality Report 2021

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