Message from our Chief Executive Officer

There are a number of reasons to believe that many of the current external barriers are temporary in nature, considering the growing scientific consensus supporting harm reduction approaches, the increasing number of countries recognizing the public health potential of smoke-free products, our demonstrated success in markets where regulatory frameworks are supportive, and a clear pathway to accelerated transformation once current barriers subside.

Our greatest strength lies in our people, whose talent and innovative spirit drive our smoke-free vision. In 2024, we launched the PMI DNA principles, built on three core values: We Care; We are Better Together; and We are Game Changers. These principles, crafted by our employees and for our employees, have become a guiding light for our company.

To catalyze progress and ensure company-wide alignment, we link our sustainability performance to executive compensation. We completed the first Performance Share Units (PSU) cycle of our 2022–24 Sustainability Index, which represents 30 percent of our performance-based long-term equity award. The Index had a total score of 89 percent, including a 76 percent score for product sustainability (“what” we produce).

The purpose of our Business Transformation Metrics (especially those included in the Index) is to measure and incentivize management’s commitment to transformation. Importantly, the number of adult smoke-free product users surpassed the expectations we had set for ourselves in 2022. That said, much like other companies pursuing radical transformations that require significant change, our organization operates within larger systems that can constrain the pace of progress despite our best efforts. While external factors beyond the company’s control have delayed the achievement of certain numeric targets, our employees have proven unwavering in their commitment and have acted to advance our purpose.

We are firmly committed and are taking decisive actions to prevent access by underage people to our products, and we have continued to expand the scope of our youth access prevention programs. We also made significant strides in our environmental initiatives, notably becoming the first company to publish an Environmental Product Declaration in the smoke-free category for IQOS ILUMA i versions, demonstrating our leadership in embedding eco-design principles into our product development.

The overall score of the Index was bolstered by particularly strong performance in operational sustainability (“how” we operate), at 115 percent. We made significant strides in our decarbonization journey, with 22 of our manufacturing facilities achieving carbon neutrality certification (up from 18 in 2023). However, reducing scope-3 emissions continued to be challenging, mainly due to external factors beyond our immediate control. After over a decade of implementation of our Agricultural Labor Practices program, we are proud that child labor in our tobacco supply chain is no longer a systemic issue. We also made strides in promoting a living income for farmers who supply tobacco to us. We also achieved our target of 10 human rights impact assessments ahead of time, conducting two new assessments in Indonesia and Kazakhstan.

While I am proud of our achievements, especially of the broader recognition of tobacco harm reduction as a complementary approach to reducing smoking rates, challenges remain. Some countries continue to pursue policies and introduce regulations that are not informed by facts or science, but rather by ideology. As a consequence, the absurdity of a more harmful product (cigarettes) being legal and less harmful alternatives to smoking being banned still remains in many countries.

Other challenges that remain top of mind include expanding access to our smoke-free products by improving availability, awareness, acceptability, and affordability. We are also seeking to build more sustainable supply chains, maximize end-of-life device take-back, reduce post-consumer waste, while navigating complex and rapidly evolving regulatory environments with agility. Readiness and preparedness to respond requires continued innovation and persistence from us all. It is my firm belief that these challenges should be understood as opportunities—catalysts for positive change and the potential to showcase true leadership.

Our business imperative remains clear: We are committed to driving long-term value creation by doing what’s right for business, society, and the environment. We believe that business excellence and positive societal impact are not just compatible—they are inseparable elements of our success. We continue to make significant strides toward our aspiration to become substantially smoke-free by 2030, supported by the exceptional quality and dedication of our global team.

This integrated report serves as both a testament to our progress and an invitation to engage in dialogue that will shape our future. To our employees, thank you for your unwavering dedication. To our stakeholders, thank you for your continued trust and engagement. Together, we are not just transforming our company, we are leading an industry-wide transformation—helping to create a better, more sustainable future for all.