Manage our supply chain sustainably

Our approach to sustainable supply chain management is based on:

• Leveraging the reach and understanding of our supply base to proactively engage our suppliers to implement impactful programs, such as tackling climate change, preserving nature, and improving the quality of life of people in our supply chain
• Assessing risk linked to the nature of materials or services we purchase and the location they are sourced from
• Conducting supplier due diligence and assessing their sustainability performance and reporting capabilities
• Driving continuous improvement towards compliance with sustainability requirements through supplier capability building
• Embedding sustainability criteria in strategic sourcing decisions and supplier selection process

As part of our procurement practices, we identify and screen suppliers for business relevance and potential environmental, social, and governance-related risks before engaging with them.

Our screening methodology includes country-specific, sector-specific, and commodity-specific risks to determine a list of significant suppliers through a sustainability lens. In 2024, we engaged with approximately 1,000 significant suppliers. Significant suppliers are those identified as having a substantial risk of negative sustainability-related impact, significant relevance to the business, or a combination of both.

However, not all significant suppliers are critical to our business. Critical suppliers are linked to the nature of materials or services they provide to the business (e.g., pulp and paper and electronic components). In 2024, we had 209 critical suppliers. Significant and critical suppliers go through a rigorous assessment process.

Our supply chain sustainability due diligence is guided by our RSP, which aligns with the UN Guiding Principles on Business and Human Rights (UNGPs), the 10 principles of the UN Global Compact, and the International Labour Organization (ILO) Conventions. It also helps us build preparedness for anticipated and pending legislation such as the EU Corporate Sustainability Due Diligence Directive (CSDDD) and EU Deforestation Regulation, among others.

The RSP details our expectations and sets process and performance requirements for our suppliers. We expect all our suppliers to adhere to the mandatory section of our RSP requirements and address identified gaps to continuously improve their sustainability performance.

To monitor RSP adherence, we apply tailored due diligence mechanisms within specific segments of our supply chain. In our tobacco supply chain, our work is governed by our Good Agricultural Practices (GAP) and Agricultural Labor Practices (ALP) Code, which are operationalized at the farm level by field technicians working year-round with the farmers contracted by PMI and our suppliers. In our electronics supply chain, we leverage the work of the Responsible Business Alliance (RBA) and its adjacent programs. For monitoring of direct materials, indirect materials and services, and third-party leaf suppliers, we collaborate through our preferred partner, EcoVadis.

Adherence to our RSP—and to GAP for our tobacco supply chain—is being built into our contractual agreements with suppliers. We use a suite of tools, including self-assessment questionnaires, third-party assessments, on-site audits, and field visits to monitor performance.

The RSP has been published in 27 languages to facilitate supplier understanding and its deployment. As originally planned with the revamp of the RSP, all contractual commitments will include an adherence requirement by 2025.

PMI employees who have regular interaction with suppliers have been requested to complete RSP training. Internal capability building on RSP has been split into sections specifically dedicated to RSP: Fundamentals and Advanced, as well as other non-related sessions that explain RSP.

In 2024, we held several face-to-face events that facilitated cross-industry collaborations. To maximize our outreach, we held numerous webinars, building capability and supporting our suppliers. Procurement takes every opportunity when interacting with suppliers to engage in meaningful conversations on sustainability.

During the year, we also continued and expanded our Sustainability Accelerator program, which aims to leverage our learnings, and best practices to build supplier capability. The Accelerator’s integrated approach is developed to expedite the sustainability progress of our suppliers in relation to their performance and reporting in order to comply with a fast-moving regulatory landscape.

A team of PMI experts collaborates with each supplier team individually to build capabilities and share PMI’s sustainability progress, learnings, and methodologies. By investing in our suppliers’ learning, we not only enhance our supply chain’s resilience but also ensure sustainability performance and reporting on impacts for both our own operations and our broader supply chain in the context of evolving regulatory requirements.

All insights and learnings gained through the program are then used to further enhance and optimize the offering for our diverse value chain. Following a successful pilot with five suppliers across our broader supply chain in 2023, the program expanded to include 18 additional suppliers in 2024, selected based on relevance for PMI and maturity.

Initially, the program focused on climate change and sustainability fundamentals, such as strategy development and deployment systems. We plan to expand the program in 2025 to reach more suppliers while broadening the scope to include nature-related topics such as biodiversity, forests, and water. Additionally, in the medium term, we expect to expand to social and human rights-related matters, with a roll out on these topics planned for 2026.

Currently, our global supply chain supports our two main finished product categories: smoke-free products that are increasing in resource allocation in line with our growth strategy, and cigarettes.

The majority of our supply chain spend for smoke-free products derives from our direct spend on electronics. During 2024, as we purchased more tobacco than in past years to replenish inventory, the overall proportion of supply chain spend attributable to electronics dropped relative to our overall spend on tobacco, which serves both our cigarettes and smoke-free products. As a result, smoke-free product supply chain spend decreased slightly to 40 percent (2023: 41 percent).

Our supply chains are long and complex. Our procurement teams have a robust engagement plan with significant suppliers to drive impact. 

Depending on the type of risk and in line with our supplier segmentation, we request suppliers to disclose their sustainability-related performance through EcoVadis or RBA. Disclosures can be made via desk-based assessments or on-site audits. They are followed by a review touchpoint performed by our sustainability procurement team, which may indicate a need for a corrective action plan. Procurement teams address supplier performance through annual meetings, quarterly performance reviews, or more frequently if needed depending on assessment outcome and the criticality of issues identified.

While our procurement teams monitor supplier improvement, it is the suppliers’ responsibility to put in place a corrective action plan (CAP) and drive improvements in their supply chain. These CAPs are reviewed and additional support to suppliers is offered through internal experts or dedicated external tools.

We aspire to 100 percent of spend with critical suppliers from whom PMI sources be done sustainably by 2025. In 2024, we made continued progress, reaching 94 percent (2023: 91 percent).

¹ For definition of critical and significant suppliers, see the Glossary.
² Sustainable sourcing is determined based on a minimum threshold score of 45 out of 100 in EcoVadis (direct materials) or 125 out of 200 in RBA with no open priority issues (electronics). All traceable tobacco purchased from monitored farmers is considered sustainable.

During 2024, 135 suppliers representing 92 percent of our total direct material spend were assessed. Of these, 92 percent were determined to be sourced sustainably by PMI, based on the score provided by the assessment platform. Only 8 percent were below the minimum threshold required. Suppliers with a low score were mandated to develop and implement a CAP, and report progress.

CAPs are segmented by theme, indicator (policy, action or reporting), and priority level. Depending on priority, suppliers of direct materials are requested to close identified gaps in an agreed timeframe, and to conduct a reassessment. Our procurement team engages directly with suppliers to provide necessary support and capability building. We actively support suppliers’ CAP reviews to drive performance improvement. For direct materials alone, 6 suppliers (representing approximately 0.3 percent of our critical direct materials suppliers) were reassessed in 2024 (2023: 13 suppliers representing 10 percent). On average, the EcoVadis score of suppliers that underwent reassessment increased by 18 points, which signals a strong commitment and investment made by our suppliers.

We also continued to participate in RBA’s Validated Assessment Program (VAP)—the standard for on-site compliance verification and effective, shareable audits. Under this program, independent external auditors review our electronics suppliers’ sustainability performance against the RBA Code of Conduct, which is aligned with PMI’s RSP requirements. To gather additional audit data, we leverage customer managed audits (CMAs), a comparable audit standard recognized by RBA.

In 2024, 100 percent of our spend with critical electronics suppliers covered by VAP or CMA audits and the average RBA score of our suppliers was 174 (out of a maximum of 200), compared with an RBA average for our suppliers of 170 in 2023. Audit reports revealed several common issues across suppliers on social issues, including working hours, emergency preparedness, and wages and benefits.

To drive improvement in these areas, we continued to leverage two key RBA programs: the Responsible Factory Initiative (RFI), which provided support to supplier factories to implement the RBA code, and the Responsible Labor Initiative (RLI), which equipped suppliers with tools to address potential forced labor issues associated with migrant workers.

We successfully completed the pilot of the RFI in two factories in China, and the RLI with eight recruitment agencies in Nepal in 2024. We continued rolling out the RFI program to an additional 10 factories in 2024, with a plan to further expand the program in 2025.

Our 2024 conflict minerals submission to the U.S. Securities and Exchange Commission (SEC) covering the year ended December 31, 2023 showed that approximately 92 percent of the smelters or refiners (SORs) in our conflict mineral supply chain are engaged with Responsible Minerals Assurance Process (RMAP) or RMAP-Active. The remaining approximately 8 percent were contacted and requested to conduct due diligence to verify whether they sourced 3TGs from the Covered Countries (as defined by the U.S. SEC) during 2023.

In 2024, we updated our Responsible Sourcing of Minerals Policy for better alignment with our RSPs and the OECD Due Diligence Guidance. Our Policy effectively articulates PMI’s existing due diligence efforts, including requirements for suppliers, and demonstrates a stronger commitment to minerals supply chain due diligence. It provides details on our approach to consequence management and also establishes a foundation for PMI to expand due diligence to other minerals and geographies beyond those in scope of the U.S. SEC Ruling.

Following a pilot in 2023 where we increased the frequency of the conflict minerals data collection to twice a year, in 2024 we rolled it out to all PMI suppliers. This increased monitoring improved the quality of the data collected.

Cobalt, which is used in the batteries that power our smoke-free devices, is also linked to unethical mining practices. While the quantities required for our products are minor relative to the global market size, we are leveraging the RMI approach for due diligence in our cobalt supply chain to identify and address potential human rights risks.

In 2024, all our battery suppliers responded to a PMI request. Subsequent due diligence indicated that, as of December 31, 2024, each of the 40 smelters from which PMI battery suppliers source cobalt were on RMI’s conformant list. We continue to engage with our suppliers to improve visibility into this complex supply chain and enhance our due diligence framework.

The IPS is vital to providing traceability and visibility in our supply base; it enables the deployment of our GAP and ALP monitoring and remediation system down to the farm level. At the center of this system are field technicians, employed by PMI or our third-party suppliers. These technicians visit each farm on average five times during the crop season and monitor the implementation of our GAP and ALP codes. They also provide agronomic assistance, deliver training to farmers (e.g., on our GAP and ALP codes), identify and address labor issues, and monitor the implementation of improvement plans.

In 2024, field technicians enabled us to monitor compliance with GAP by all farmers supplying tobacco to PMI under the IPS.

Due to varying local realities, partnering with third parties that can provide tailored support and respond to local needs is crucial. Where possible, we partner with local NGOs that can support and monitor GAP and ALP implementation

IM&S spend is complex and involves a large number of small suppliers that serve the specific needs of different markets. It requires a significant effort to engage these suppliers and ensure they perform due diligence on their supply chains.

Over 500 of our IM&S suppliers (representing 61 percent of our IM&S supplier base) have been engaged in the due diligence program through EcoVadis assessments. Central, regional and local procurement teams actively reach out to suppliers to increase engagement. Prior to supplier outreach, internal onboarding sessions are conducted for the procurement community.

Over 58 percent of PMI IM&S suppliers disclosed their environmental and social efforts through EcoVadis in 2024, of which over 82.5 percent reached PMI’s minimum performance requirements