Integrating financial and nonfinancial performance

18 May 2021
Message from PMI's Chief Financial Officer Emmanuel Babeau
Chief Financial Officer PMI

There is currently an expectation by both companies and investors that material environmental, social, and governance (ESG) factors should be completely integrated into a company’s business strategy. 

Historically, finance professionals have spoken one language for shareholders while sustainability professionals have spoken another language for ESG stakeholders. To maximize the benefits of sustainability for financial performance, each profession needs to learn the language of the other. And both must be able to explain (to both audiences) how sustainability and financial performance are mutually reinforcing. 

A major barrier to this integration is that the Finance and Sustainability functions have been— and largely remain—wholly separate parts of organizations. With Sustainability reporting to the CFO, thereby integrating Sustainability into the Finance function, PMI’s organizational structure has taken yet another necessary step toward delivering on its purpose: a smoke-free future that will benefit both shareholders and other stakeholders. 

This move underscores that ESG is core to PMI’s performance and success, and further demonstrates the company’s leadership in sustainability and corporate purpose. It is our firm belief that sustainability and business performance do not follow separate paths and narratives. They are fully interrelated and mutually reinforcing and should be organized and presented to all stakeholders, including shareholders, in an integrated way. 

The biggest remaining challenge is ensuring that ESG information and data are managed and reported with appropriate rigor. Unlike financial accounting standards, and despite evolving practices, there are no industry norms or globally recognized established practices for measuring and evaluating a company’s performance on ESG factors, sometimes referred to as nonfinancial performance. 

External engagement is critical to progress in this area, and I am proud to have joined others on the World Business Council for Sustainable Development’s CFO Network to encourage the standardization and mainstreaming of ESG disclosure; incentivize investor engagement; sponsor, support, and drive business practice toward stakeholder capitalism; and continue leading in the implementation of ESG into business management and decision-making processes. 

We are also hopeful that the Trustees of the IFRS Foundation will create their proposed Sustainability Standards Board (SSB). This will provide the basis for measuring and reporting on sustainability performance in a way that is as robust, relevant, and reliable as reporting on financial performance. PMI plans to be an early adopter of these standards as they are produced. 

At PMI, we are committed to continuously improving the way we track and report on our company’s performance, taking a holistic approach that not only covers our inputs and activities but also focuses on where we can have the greatest impact: our products. 

These remarks are an excerpt from PMI's Integrated Report 2020

PMI Integrated Report 2020

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At PMI, we are committed to continuously improving the way we track and report on our company’s performance, taking a holistic approach that not only covers our inputs and activities but also focuses on where we can have the greatest impact: our products.

Emmanuel Babeau, Chief Financial Officer

Looking forward, we will continue to operate responsibly while striving to deliver value, not only for our shareholders, employees, and consumers but for society and the planet. PMI is committed to serving as an agent of change and an advocate of positive values. We understand that our business must become a provider of effective solutions. Innovation and inclusiveness are key to solving our challenges, whether related to tobacco harm reduction, environmental sustainability, or equity. To accelerate our progress, we must position ourselves at the forefront of consumer-centricity, technology, science, and innovation. As part of that vision, we will build on PMI’s unique scientific capabilities to develop products and services that go beyond nicotine. We aspire to achieve at least USD 1 billion in revenues from such sources by 2025. 

We will always have critics and value their constructive challenges. We are committed to engaging with them in a frank and transparent two-way dialogue, pointing out the actions we are taking to address their concerns and soliciting feedback on how we can do better to achieve our goals. Data and facts are the foundation of constructive dialogue and engagement. 

We will allow our actions to speak louder than our words. It is equally important that we address our stakeholders’ legitimate concerns as we implement our transformation strategy. We cannot make cigarettes obsolete without building coalitions of support for a smoke-free future. 

As PMI’s new Chief Executive Officer, I present this report with pride in what we have already achieved, yet with a deep recognition of the immense work ahead. Transforming our value chain means venturing into uncharted territories, each bringing fresh challenges. 

Five years ago, we set out to create a new future for PMI—a future in which cigarettes would be replaced by less harmful, science-based alternatives—with a focus on reducing the negative impacts of our products on the health of our consumers. Beyond this, we understand the necessity of addressing the environmental and social implications of our products, including through principles of circularity and eco-design, as well as a commitment to diversity, equity, and inclusion. 

Sustainability strategy is corporate strategy. ESG issues are business issues. This is what we want to emphasize through our integrated report. We hope it provides a window into our present, as well as the better future that we envision. We hope, too, that it will spark a dialogue with those who can help to accelerate the pace of change. 

I cordially invite you to share your feedback, to question, to challenge, and, above all, to engage with us as we remain focused on making our company one that is centered on sustainability and a higher purpose. 

This online content about our Integrated Report should be read in conjunction with PMI’s 2020 Integrated Report. The information and data presented here cover the 2020 calendar year or reflect status at December 31, 2020, worldwide, unless otherwise indicated. Where not specified, data come from PMI estimates. Please also refer to 'About this report' on page 3 of the 2020 Integrated Report for more information. Aspirational targets and goals do not constitute financial projections, and achievement of future results is subject to risks, uncertainties and inaccurate assumptions, as outlined in our forward-looking and cautionary statements on page 145. In the 2020 Integrated 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.

 

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