PMI’s 2021 Integrated Report introduces new sustainability strategy to accelerate its smoke-free and ESG ambitions17 May 2022 · 5 min read
Philip Morris International (PMI) has released its third annual Integrated Report, showcasing the company’s 2021 performance and redesigned sustainability strategy.
The report includes an updated Statement of Purpose, a new environmental, social, and governance (ESG) framework, a new strategy, and in-depth information about PMI’s aspirations, performance, governance, and value-creation model. The content was informed by a robust sustainability materiality assessment carried out in 2021.
“Sustainability and business performance are fully interrelated and mutually reinforcing,” said Jacek Olczak, Chief Executive Officer of PMI.
“Our actions—grounded in data, science, and facts—speak louder than words.
“PMI is committed to serving as an agent of change and advocate of positive values.
“We understand that our business must become a provider of effective alternatives to continued smoking for adult smokers who don’t quit,” he added.
“To achieve this, we are positioning ourselves at the forefront of consumer-centricity, technology, science, and innovation.
“With an eye to the long-term, we are also expanding our business into areas beyond tobacco and nicotine, such as wellness and healthcare.”
PMI has expanded its social, human, intellectual, and manufactured capital in ways that have allowed the company to be even bolder in its ambitions—shifting its long-term goal from doing less harm toward seeking to have a net positive impact on society.
This includes achieving a smoke-free future, but also encompasses its long-term strategic efforts to become a lifestyle, wellness, and healthcare company.
Defining its direction
PMI’s 2021 sustainability materiality assessment helped identify the ESG issues on which the company should prioritize and focus its resources.
Following this, PMI redesigned its ESG framework, recognizing two distinct topic areas: Those related to PMI’s products, and those related to its business operations.
This distinction forms the basis of PMI’s new approach to sustainability, which consists of eight clear impact-driven strategies that aim to address its most important ESG topics.
These eight strategies—four focused on products and four on business operations—are accompanied by a robust framework of nine governance-related factors.
Related to this, PMI’s 2025 Roadmap was revamped accordingly, and now consists of 11 goals directly linked to these eight strategies—clearly explaining the social and environmental impacts PMI aims to achieve.
Furthermore, to clearly assess progress toward these goals, PMI has introduced 19 concrete key performance indicators (KPIs) to transparently showcase how the company defines success and evaluates progress. This will enable PMI to make its advances both measurable and verifiable.
Altogether, these 19 KPIs comprise the company’s new Sustainability Index, which explicitly links 30 percent of its long-term compensation program to ESG performance.
“I’m proud to be able to say that our executive compensation program now reflects our commitment to put sustainability at the core of our corporate strategy,” said Emmanuel Babeau, PMI’s Chief Financial Officer.
“PMI’s Sustainability Index aligns us even further with the interests of shareholders and other stakeholders, forming a strong link between our executive compensation practices and the company’s short- and long-term ESG performance.”
Progress toward achieving PMI’s purpose
Aligning with its new strategy as presented in the 2021 Integrated Report, PMI has organized its description of progress into product and operational impacts.
- 21.7 million* total adult users of PMI’s smoke-free products as of December 31, 2021, of whom 15.3 million* have switched and stopped smoking (up from 18.3 million* and 13 million*, respectively, in 2020).
- 29.1 percent* of adjusted net revenues derived from smoke-free products, which were available for sale in 71 markets worldwide by year-end (up from 23.8* percent and 64 markets, respectively, in 2020).
- 99 percent of adjusted research and development (R&D) expenditure on smoke-free products, totaling USD 566 million, consistent in proportion but 14 percent higher in dollars than the USD 495 million spent in 2020.
- 86 percent recycling rate of IQOS devices returned to our centralized recycling hubs (up from 84 percent in 2020). This figure relates to the weighted-average percentage of each device that is recycled.
- Reduced CO2e emissions from total value chain (scope 1+2+3) by 18 percent, and from direct operations (scope 1+2) by 33 percent vs. 2019 baseline.
- Five human rights impact assessments conducted since 2018 in highest-risk countries and action plans being implemented (up from four in 2020).
- 67 percent of contracted farmers supplying tobacco to PMI who make a living income (up from 48 percent in 2020).
- 100 percent of tobacco purchased at no risk of deforestation of primary and protected forests
“The 2021 Integrated Report aims to address demands for more robust, comparable, and reliable information on our ESG risks and performance, including data related to our company’s transformation, offering our stakeholders visibility into the future we are working toward,” said Jennifer Motles, PMI’s Chief Sustainability Officer.
“2021 was a year full of achievements, but challenges remain. As we continue to transform, learn, and discover better ways to develop solutions that have meaningful impact, we hope our transparency and willingness to engage will spark dialogue with those who can help accelerate the pace of change.”
The preparation of the 2021 Integrated Report considers guidance of sustainability reporting standards and frameworks, including Global Reporting Initiative (GRI) UN Global Compact (UNGC) UN Sustainable Development Goals The Value Reporting Foundation (VRF), including use of its SASB Standards, Integrated Thinking Principles, and Integrated Reporting Framework some of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) (which our complemented with the company’s CDP submission). Please see individual indices here.
*Figures presented for 2021 and 2020 include Russia and Ukraine. Given the uncertainty and volatility regarding the company’s operations in Russia and Ukraine, in PMI’s Q1 2022 earnings release on April 21, 2022, PMI also provided figures and comparisons on a pro forma basis, which exclude the company’s operations in these two markets for all periods and provide a more comparable view of PMI's business performance.