At the end of 2021, we commissioned our expert human rights advisers, Article One, to carry out our sixth country-level human rights impact assessment (HRIA), marking progress toward our ambition to cover our 10 highest-risk countries by 2025.
The exercise focused on Malaysia, based on our company’s important footprint in the country, and Malaysia’s mixed human rights record according to various international indices1—partially driven by recent political instability—despite its above-regional average development and economic strength.
Our local affiliate Philip Morris Malaysia (PMM) employs around 500 people at its head office in Selangor and at the cast tobacco leaf factory in Seremban. PMI has been operating in the Malaysian market for over 50 years and started the commercialization of its leading smoke-free product, IQOS, in 2018.
1 We refer to a range of independent, credible international indices, such as the Freedom in the World Index and the International Trade Union Confederation (ITUC) Global Rights Index on Labour Rights.
This most recent HRIA built on previous assessments conducted in other countries deemed as highest risk based on inherent human rights risks and PMI’s footprint in the country, with the objective of surfacing relevant risks and opportunities across our local affiliate’s value chain to help us uphold our company’s Human Rights Commitment and drive positive change for the people whom our activities may affect.
To this end, we expanded the scope of our HRIA to include not only upstream activities (covering our tier 1 supplier of electronic manufacturing services, which produces electronic smoke-free devices that PMI commercializes), our affiliate’s direct operations (including PMM’s local plant and head office), and some of our downstream activities (covering IQOS retail stores).
Due to public health restrictions limiting travel and in person engagement during 2021, Article One conducted the assessment on a fully remote basis, leveraging on learnings gained during a similar exercise conducted in Russia in 2020 (read more here).
“The assessment combined desk research as well as remote internal and external stakeholder engagement to identify and prioritize potential human right risks, impacts, and opportunities,” said Anna Kletsidou, PMI's Senior Manager, Social Impact. “In total, over 90 stakeholders (including the affiliate’s management team, office-based and factory-based employees, contractors, and third-party workers, supply chain workers, IQOS retailers’ staff, etc.) participated in individual interviews and focus groups. These stakeholders provided valuable insights, enabling us to identify opportunities to mitigate risks and maximize actions for positive impact.”
After completion of the HRIA in May 2022, Article One provided us with an assessment report, which included their key findings and recommendations. The report was shared with PMM’s local management, and our local team then developed a country-specific, time-bound corrective action plan, with responsibility for implementation and progress measurement at the local level. In addition, a stand-alone report was shared with the participating tier 1 electronic supplier who also established a relevant plan to address identified risks.
Scope of the assessment in Malaysia
Overview of findings and corrective actions
The assessment allowed us to surface both areas of strength and areas for close monitoring and heightened efforts aimed at improvement.
Among the positive findings, most stakeholders recognized PMM for its swift response to and effective management of the COVID-19 pandemic, with many describing measures taken as robust, including appreciating free access to sufficient protective equipment—including for family members—and the flexibility of working arrangements. Also, interviewees reported feeling proud to work for PMM, recognizing the company as an employer of choice offering significant benefits and citing its equal salary certification as an example of leading practice. Many stakeholders also mentioned their feeling of pride in contributing to PMI’s business transformation. In the area of talent management, stakeholders commended the company for offering them fair access to opportunities, strong onboarding and training processes, as well as clear channels for progression and professional growth. Female workers as well as older workers reported feeling that they were not subject to discrimination in their ability to work and advance within the company. Stakeholders involved in the assessment, including contractors and third-party workers across the value chain, described PMM’s workplace culture as a strength, noting that colleagues treat each other with respect and are supportive, welcoming, and warm.
The assessment also shed light on potential risks requiring further investigation and heightened efforts to ensure human rights are upheld and promoted along PMM’s value chain. The following sections summarize those instances, as well as responses adopted by the local management team for implementation in the coming months.
Upstream supply chain
The HRIA at our electronics supplier confirmed that progress had been made since our first labor practices assessment conducted in 2018 with a leading NGO. This initial assessment revealed potential risks centered on migrant-worker practices, working conditions, accommodation, and safety, and oversight of external recruiters, resulting in a corrective action plan (see PMI Sustainability Report 2018 for further details). This was followed up in a second assessment in 2019 which found major improvements across all the above-mentioned concerns (see PMI Integrated Report 2019 for further details).
While the HRIA conducted in 2022 confirmed that overall safety, productivity, accommodation, recruitment procedures, and labor conditions were improved, it surfaced some areas of potential risk.
In particular, in the focus groups, some migrant workers reported that they had paid labor agents recruitment fees. After reporting the issue to the supplier, internal records were thoroughly checked and these confirmed that all workers had been reimbursed, in accordance with the company’s strict “no recruitment fees” policy, implemented since 2019.
Following the outcome of the HRIA, the supplier also strengthened a number of preventive actions to further mitigate the risk of this practice reoccurring in the future, including:
- Pre-departure and post-arrival briefings for workers to reinforce the “no recruitment fees” policy. If any worker is found to have paid any fee, the supplier will reimburse them within 30 days.
- Confirmation from workers that no costs were incurred to apply for or be hired for the job.
- All workers must attend compulsory security training (made available in local languages through translators).
- Awareness raising trainings and audits to local recruitment agents about the “no recruitment fees” policy.
Also, some workers reported occasional excessive working time, especially driven by increased production to catch up with the demand after the lifting of various public health measures taken in response to the COVID-19 pandemic by the government. As an immediate step, our supplier took action to change the working hours pattern. It also committed to increasing resources to hire more workers and implementing an “Engagement Program” to collect feedback from workers on a regular basis. Additionally, after the HRIA, the number of workers dedicated to PMI’s production-line increased by 37%, including recruitment of migrant workers post-COVID-19. Further, all overtime is now subject to strict monitoring, including internal senior approval process on the supplier side to avoid excessive working hours.
At PMM’s factory, some health and safety risks were raised by employees and contractors, and in particular an expectation for better lighting at night for security guards, improved air conditioning in one part of the factory, and more efficient dust extraction systems. In this respect, PMM has promptly implemented the following action plan:
- Doubling the cooling and air extraction system in the affected rooms to improve working conditions for those workers, including installation of sliding doors to minimize heat transfers.
- Improved extraction systems to reduce dust emission and bi-yearly tests scheduled with local authorities for consistent monitoring.
Lights were installed in areas where poor lighting was reported by security guards, and yearly checks to ensure continuous improvement of working conditions. Also, factory workers noted the need for wages and benefits to account for the rising cost of living. This is a concern we take seriously, especially against the inflationary context experienced in 2022. To account for the rapid increase in inflation and to address the concerns of workers, PMM adjusted salaries for all workers, across all salary grades, in the second half of the year and advanced portions of incentive packages.
At the head office, some stakeholders reported heightened stress related to competing priorities, or challenges of disconnecting from work in a work-from-home setting for instance, but also uncertainty due to PMI’s business transformation. PMM is conducting a study to assess the workload of employees in order to identify and prioritize targeted action plans. In addition, to improve the overall wellbeing of the employees, the leadership teams will cascade and model a better culture of “switching off”, to ensure respect of non-work hours and improve work-life balance.
The assessment also surfaced gender related risks at PMM’s factory and head office, with some working mothers highlighting difficulties to balance childcare responsibilities with working hours, overtime, or on-site presence. Fostering an environment of openness and continued feedback, a monthly focus group for working moms has been scheduled to listen to concerns and find best practices or targeted action plans to solve arising issues.
At the IQOS retail stores, COVID-19 exacerbated the concerns of workers related to stress and well-being, with additional safety protocols coupled with long shift times, as well as heightened anxieties of getting contaminated due to close contact with consumers, despite the protection measures in place. As per Article One’s recommendation, PMM has investigated opportunities to reduce shift times by returning to a two-shift schedule per store, as well as setting up a listening tool through feedback surveys to respond to issues if they arise.
Due to consumers wearing masks, retail workers raised the concern that age verification could not be done through face check at the moment of purchase due to COVID-19 in most instances, and had to be done through ID checks also. Although this finding was specific to the COVID-19 pandemic, PMM confirmed its standard process to ensure that no minor accesses our products: when a staff member is in doubt (including due to a customer not wanting to lower their mask), they will request an alternative identity document. Requesting two documents will provide a double verification and will equip the staff member with more information to verify the customer’s age.
Malaysia is the sixth country we have assessed with our Human Rights Impact Assessments but also the first we did with an expanded scope to include, in the same exercise, our upstream electronics supplier and downstream retail outlets.
The learnings from this exercise demonstrated the importance of listening to our rightsholders in all the steps of our operations, in an end-to-end approach. We were able to engage with the workers and understand what they appreciate in the work environment but also listen to their concerns. This gave us a better understanding of their working and living conditions, and Article One’s recommendations supported our supplier to put in place targeted solutions to identified risks.
This was the first exercise where we assessed our IQOS retail stores. Given that this exercise took place during the pandemic, the findings were mainly related to health and safety risks resulting from COVID-19. These risks were immediately addressed by the local team. We will continue exploring the possibility of having end-to-end HRIA in other markets.
We continue working towards our 2025 commitment of 10 highest risk markets covered by HRIA by 2025. In the next Integrated Report, we will report progress on our seventh HRIA, in Brazil.