Product eco-design and circularity

We standardized our global guidelines, setting consistent criteria and procedures across all markets where our smoke-free products are commercialized. These guidelines norm our verified returns procedures, as well as the conditions which grant a replacement under warranty or specific loyalty programs. We trained our retail and call center teams on how to assess potential product issues faced by the consumer. We strived to ensure a diagnosis is made before replacing a device, as some issues may be resolved without a replacement and hindering the consumer experience—for instance, by deep cleaning the device or ensuring the software is up to date directly at our brand retail store. We also launched in certain markets a mobile application for IQOS users, which provides tips on how to use and clean the device, as well as basic troubleshooting instructions.

As a pilot effort in the last quarter of 2020, we started installing firmware upgrade capabilities across our consumer touch points, in several core markets. In 2021, we will continue to expand these capabilities across geographies, channels, and touch points leveraging our ever-evolving digital ecosystem.

Inspection, disassembly, recycling, and repair

When IQOS users return broken or end-of-service products, our reverse-logistics program helps to cycle materials back into the economy. Our CIRCLE program provides centralized hubs that inspect, process, and separate materials from our electronic devices for recycling. Our recycling partners are certified R2, a stringent certification governed by Sustainable Electronics Recycling International (SERI). This standard covers all aspects of the electronics recycling value chain—including on-site environment, health, and safety (EHS) practices, waste disposal hierarchy, and traceability of raw materials—and helps to ensure our recycling processes meet the highest possible requirements.

In addition, our CIRCLE hub in the European Union obtained WEEELabex certification in 2020, reflecting our commitment to due diligence practices and advanced recycling. Through our CIRCLE program, we recover and recycle significantly more materials than if the devices were to follow traditional electronic waste streams. Moreover, the inspection and recycling of returned products allows us to improve quality and design by feeding back into our development processes. In addition, the hubs contribute to our fight against illicit trade and counterfeiting—as they reduce opportunities for product diversion—and benefit the regional economies in which they are located.

In 2020, we continued the rollout of our CIRCLE program, achieving 48 percent market volume coverage up from 39 percent the previous year, by adding two new markets to the program (Bulgaria and Ukraine). CIRCLE processed over 191 tons of end-of-life devices and materials (of which, around 160 tons were recycled, with the remainder going to incineration for energy recovery). We significantly improved our recycling rates in 2020 by working with our recycling partners to identify additional technologies, improved disassembly methodologies, and material applications, resulting in an increase to 84 percent in 2020, up from 74 percent in 2019. With the aim of expanding our current footprint, we also established plans to launch a third centralized facility, located in Russia, in 2021.

Since the introduction of our CIRCLE hubs in 2018, with recycling rates of 45 percent we have made tremendous progress in improving our performance. Our aggressive goals lead to top performance levels of our existing products at over 80 percent. The next step for us is to maintain these results and recycle our materials to higher quality standards, while expanding coverage of our product returns and recollection. With regular introduction of new products and versions to the IQOS portfolio, we recognize the continued challenge to maintain performance levels. We are now focusing on quality of material output and efficiency through improved disassembly techniques and enhanced automation, in addition to our efforts in repair and refurbishment. Moving forward while maintaining superior recycling performance of over 80 percent, our aim is to expand our geographic and volume coverage, and repair capabilities to amplify the positive impact of these programs.

Our preference is to roll out CIRCLE globally; however, it is not possible to implement the service in all markets at this time due to legislative restrictions related to e-waste transportation. In markets where CIRCLE has not yet been implemented, IQOS users can still return their devices to specified locations. We aim to recycle these devices via local partners with similarly high standards of electronics recycling; for example, our affiliate in the United Arab Emirates uses an R2-certified recycler.

We strive to establish commercially viable repair-and-refurbish programs to offer a second life to devices and cycle them back into the economy. We are also leveraging on digital infrastructure to ensure upgrade capabilities for all our devices. In 2020, we worked with our reverse logistics partners to leverage and expand our existing CIRCLE infrastructure for the future possibility of repair and refurbishment. We will continue to expand these initiatives in 2021.

IQOS currently has a higher carbon footprint than combusted cigarettes. Primarily, this is due to the use of an electronic device, which involves new components and requires electricity to charge. This element accounts for 13 percent of the total carbon footprint of the IQOS 3 system. Additionally, the process to manufacture heated tobacco units is more energy intensive than for cigarettes, due to the production of cast leaf tobacco.

We are working to close the gap between combustible and smoke-free products through improved manufacturing processes, extending the usable life of our electronic devices, and decreasing the total CO₂ footprint through smart material selection and sustainable design practices.

Over the past two years, we have reduced the overall CO₂ impact of our smoke-free products through improvements in manufacturing processes and in our tobacco supply chain. One of these initiatives has been to look at the density of tobacco within the product, to reduce both CO₂ impact and provide a better consumer experience. By modifying the design of the heated tobacco plug slightly, we were able to reduce the CO₂ impact per stick (considering the raw materials and manufacturing impact) by 4 percent while enabling a smoother insertion of the heated tobacco unit (HTU) in the holder and generating a more consistent aerosol delivery, addressing one of our more common consumer pain points. We continue to explore additional material optimizations for our HTUs including material replacement to drive down CO₂ impact per stick.

Product certifications

Product certification can help drive performance by raising the standards to pursue and provide comprehensive information to consumers, enabling them to make more sustainable product choices. These certifications are also a way for us to transparently and consistently disclose the environmental performance of our products to all of our stakeholders.

Smoke-free products—and heated tobacco products, in particular—are a relatively new product category; as such, they typically are not covered by existing eco-standards. In order to achieve our objectives, we will ensure devices are designed per our sustainable design criteria and we will seek to develop and implement new category standards as necessary to achieve our certification goals.

In 2020, we launched a program to identify relevant certification schemes for our smoke-free product devices as part of our efforts to reach our target of having all electronic devices eco-design certified by end 2025. This exercise was conducted with third-party experts and informed by comprehensive benchmarking. The next step in our journey is to reach out to the prioritized agencies and evaluate the process for rule making for our heat-not-burn product portfolio. We will also, in the short term, work to identify other ways to publicly disclose performance of our products through structured disclosure programs. Establishing a robust roadmap is the foundation to achieve our aim of eco-certification for all PMI developed devices launched by end 2025.

We are clear that there is a risk that HTUs could be littered, but we have good indication that the littering rate for HTUs is lower than for cigarette butts. We want to make littering a thing of the past—along with cigarette smoking. In recent years, we conducted surveys in Italy and Japan, and counted littered HTUs compared with cigarette butts in Athens. Those surveys indicated that the new rituals introduced to legal-age smokers following their conversion to smoke-free products present an opportunity to help consumers change former habits of cigarette butt littering.

In 2020, we deepened our understanding of consumer behavior related to the disposal of used HTUs and consumers’ potential motivations and requirements for participating in a PMI-driven collection scheme. More specifically, we found that the statements that resonate most with consumers are those referring to anti-littering and streets cleanup as opposed to recycling applications, HTUs’ second life, or broader statements about corporate responsibility. Adult users believe that recycling initiatives require effort on their part; consequently, 60 percent of them believe that incentives (e.g., product discounts) could positively influence a program’s participation rate. Finally, participatory recycling initiatives were shown to have the potential to differentiate the brand and its attractiveness, and to reinforce adult smokers’ decision to switch from combustible cigarettes to IQOS. We explored ways to deploy an effective and economically viable end-of-life collection service for our IQOS products to further reduce littering.

We continue to work with waste management and recycling partners to explore the potential second life we could give to recycled HTUs. Our research to date shows that the properties of cellulose acetate would enable the material to be given a second life through a variety of applications such as spinning the fibers into fabrics or creating pellets that can be pressed/injection-molded into a variety of hard goods. Though these results are promising, recycling opportunities for cellulose acetate—unlike for many metals and plastics—are not widely available, and there is not yet a developed waste stream across the globe that we can leverage.

As HTUs and cartridges don’t burn, and the consumers don’t have to stub them out, we aim to offer effortless, convenient, and fully recyclable solutions for these consumables. We believe that this would allow us to support our consumers to adopt better behaviors from a sustainability perspective by giving them the practical, easy, and free tools they need. In 2020, we designed pilot programs to collect and recycle the consumables from our smoke-free products (including various generations of HTUs and cartridges), partnering with the best-in-class recycling companies all around the world to make sure the used consumables don’t end up in a landfill but are used for recycling or energy creating incineration. We plan to launch our first pilot in Switzerland in 2021 and will communicate progress in our next report.

We aim to develop solutions that minimize the use of packaging materials and improve their circularity without compromising protection and convenience. We are driving our approach through ambitious commitments. By 2025, we aim to achieve:

• 100 percent of packaging made with recyclable materials

• 95 percent of packaging materials from renewable sources

To deliver on these commitments, we employ a twofold strategy: First, we aim to eliminate unnecessary packaging, and in particular plastic packaging, and to implement solutions allowing us to minimize materials used. Second, to prevent the depletion of finite resources, we seek to increase the recyclability of our packaging and to reduce the use of materials made from nonrenewable sources. We are working to eliminate the use of aluminum inner liners by end of 2022 and of non-recyclable plastics by end of 2025.

Fundamental to our work is integrating circularity considerations covering the sourcing of renewable materials, the minimization of packaging, and the reduction of end-of-life implications. In the design stage, for instance, we prioritize the use of recyclable mono-materials and reducing the void inside packaging to optimize transportation, both of which reduce the product’s CO₂ footprint. To ensure circularity, the packaging should be easily recycled by consumers; this requires that a recycling infrastructure be available for the materials selected in markets across the globe.

Our teams in the Consumer, Product, and Procurement departments work hand-in-hand to promote the various elements of circular package design. We leverage our in-house R&D and product development capabilities, for instance, to formulate the appropriate chemistry to produce new materials and to develop packaging concepts and packing technologies. It is equally important that we engage with our materials and equipment suppliers, as they must implement at industrial scale any solution we develop. Such engagement also allows us to benefit from their expertise and technological developments.

Reducing packaging

Key to our work in 2020 were our efforts to reduce the volume of board required in our HTU and cigarette packaging. Working with our key suppliers, we began replacing the packaging board across all brands portfolio with a 10 percent lighter alternative that offers the same pack strength and, thus, a similar consumer experience. The shift to this alternative will allow us to save approximately 25 thousand tons of board over a four years period. We expect to complete a full rollout of this initiative across all our consumables—both combustible cigarettes and heated tobacco units—by 2024.

We also achieved significant progress in the packaging of the devices and accessories for our smoke-free products. We developed a new IQOS mobility kit (which contains the device and necessary accessories) and accessories packaging, which we plan to launch in 2021. The removal of shrink film in the mobility kit and plastic windows in the accessories packaging will allow us to meet our target of having 95 percent of packaging materials made from renewable sources by 2025. In addition, we were able to reduce the packaging weight of our new mobility kit by 17 percent and our accessories packaging by approximately 35 percent, which will contribute significantly to reaching our target of a 15 percent reduction in material used in our packaging by 2025. As a next step, we aim to replace plastic laminated board in our packaging by mid-2022 to achieve full recyclability of the packaging of our devices and accessories in the paper stream.

We are also exploring further improvements, including the potential replacement of rigid boxes by lighter packaging designs. This would further reduce the use of packaging materials and optimize our transportation CO₂ footprint.

Increasing recyclability

Acting on our commitment to eliminate nonrecyclable materials and increase renewable material use to 95 percent by 2025, we set up a program to replace aluminum inner liners with paper versions, and we are exploring alternatives to plastic overwraps.

Eliminating aluminum

Our combustible cigarettes and HTUs are encased in an inner liner inside the pack. These liners typically are made of non-recyclable aluminum foil or recyclable alternatives such as metalized paper or white paper.

Already, around 74 percent of the inner liners in our packaging are recyclable in paper stream. In 2020, the proportion of packs sold with aluminum inner liners was 26 percent, down from 34 percent in 2019.

We aim to eliminate the use of nonrecyclable aluminum foil by the end of 2022, by deploying substitution programs.

In a few markets, we will have to continue using recyclable metalized inner liner to comply with local regulatory requirements. In order to contain the environmental and social impact it may represent, we aim to source certified aluminum from our tier 1 suppliers. In 2020, 84.2 percent of the aluminum used in our packaging was Aluminum Stewardship Initiative (ASI) certified, either under the Performance Standard or the Chain of Custody.

Replacing non-recyclable plastic packaging

Currently, the polypropylene wrap around our packs of consumables is recyclable but is not made from renewable sources and requires consumers to separate plastic wraps from the pack for recycling. We are exploring the use of alternative bio-based materials to make overwraps easier to recycle. We have received positive feedback from consumer panels and plan to pilot the new packaging solution in selected markets in 2022.