Philip Morris International Releases 2021 Integrated Report, Introducing New Sustainability Strategy and Sustainability Index
Today, Philip Morris International Inc. (PMI) (NYSE: PM) released its third annual Integrated Report, which includes an updated Statement of Purpose, a new environmental, social, and governance (ESG) framework, as well as detailed information about PMI’s strategic vision, performance, governance, and value creation model. The content was informed by a formal sustainability materiality assessment conducted in 2021.
“Sustainability and business performance are fully interrelated and mutually reinforcing. 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. 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,” said Jacek Olczak, Chief Executive Officer of PMI.
PMI has expanded its social, human, intellectual, and manufactured capital in ways that allow it to go a step further, shifting focus to its long-term goal from doing less harm to having a net positive impact on society. The changes to the company’s Statement of Purpose ensure it remains a current and fair representation of the company’s strategy, expanding the last horizon from achieving a smoke-free future to also encompassing PMI’s long-term strategic efforts to become a lifestyle, wellness, and healthcare company.
The company’s 2021 sustainability materiality assessment helped identify the ESG issues on which PMI should prioritize and focus its resources. PMI subsequently redesigned our 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 material ESG topics. These eight strategies—four aimed to address the impact of PMI’s products and four aimed to address the company’s operational impact—are accompanied by a robust framework of nine governance-related factors.
PMI’s 2025 Roadmap was revamped accordingly, and it now consists of 11 goals directly linked to these eight strategies, clearly explaining the social and environmental impacts PMI aims to achieve. Further, to clearly assess progress toward achieving these goals, PMI introduced 19 concrete KPIs to transparently showcase how the company defines success and evaluates progress, making its improvement both measurable and verifiable. Altogether, these KPIs make up the company’s new Sustainability Index, which explicitly links 30% of the company’s long-term compensation program to ESG performance.
Said Emmanuel Babeau, Chief Financial Officer of PMI, “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. 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.”
In its 2021 Integrated Report and aligned with its new strategy, PMI organized its description of progress into two categories: the impact of its products and the impact of its operations. Highlights include the following:
- 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 13.0 million*, respectively, in 2020.
- 29.1%* 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%* and 64, respectively, in 2020.
- 99% of adjusted R&D expenditure on smoke-free products totaling USD 566 million, consistent in proportion but 14% higher in dollar terms than the USD 495 million spent in 2020.
- 86% recycling rate of IQOS devices returned to our centralized recycling hubs, weighted-average percentage of each device that is recycled, vs. 84% in 2020.
- 39.7% of management positions held by women, on track to achieve 2022 target of 40%.
- Five human rights impact assessments conducted since 2018 in highest-risk countries and action plans being implemented, up from four in 2020.
- 67% of contracted farmers supplying tobacco to PMI who make a living income, up from 48% in 2020.
- Reduced total value chain CO2e emissions (scope 1+2+3) by 18% and emissions from direct operations (scope 1+2) by 33% vs. 2019 baseline.
- 100% of tobacco purchased at no risk of deforestation of primary and protected forests.
“Our 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, Chief Sustainability Officer at PMI. “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 international standards and frameworks, including: the Global Reporting Initiative (GRI); the UN Global Compact (UNGC); the UN Sustainable Development Goals; the Value Reporting Foundation (VRF), including use of its SASB Standards, Integrated Thinking Principles, and Integrated Reporting Framework; and some of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).
Philip Morris International: Delivering a Smoke-Free Future
Philip Morris International (PMI) is a leading international tobacco company working to deliver a smoke-free future and evolving its portfolio for the long term to include products outside of the tobacco and nicotine sector. The company’s current product portfolio primarily consists of cigarettes and smoke-free products, including heat not-burn, vapor, and oral nicotine products, which are sold in markets outside the U.S. Since 2008, PMI has invested more than USD 9 billion to develop, scientifically substantiate, and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. This includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. The U.S. Food and Drug Administration (FDA) has authorized the marketing of versions of PMI’s IQOS Platform 1 devices and consumables as Modified Risk Tobacco Products (MRTPs), finding that exposure modification orders for these products are appropriate to promote the public health. As of March 31, 2022, PMI’s smoke-free products were available for sale in 71 markets. With a strong foundation and significant expertise in life sciences, in February 2021PMI announced its ambition to expand into wellness and healthcare areas and deliver innovative products and solutions that aim to address unmet consumer and patient needs. For more information, please visit www.pmi.com and www.pmiscience.com.
*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.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and other forward-looking statements. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties materialize, or underlying assumptions prove inaccurate, actual results could vary materially from those contained in such forward-looking statements. Pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, PMI is identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by PMI.
PMI's business risks include: excise tax increases and discriminatory tax structures; increasing marketing and regulatory restrictions that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or ban certain of our products in certain markets or countries; health concerns relating to the use of tobacco and other nicotine-containing products and exposure to environmental tobacco smoke; litigation related to tobacco use and intellectual property; intense competition; the effects of global and individual country economic, regulatory and political developments, natural disasters and conflicts; the impact and consequences of Russia's invasion of Ukraine; changes in adult smoker behavior; lost revenues as a result of counterfeiting, contraband and cross-border purchases; governmental investigations; unfavorable currency exchange rates and currency devaluations, and limitations on the ability to repatriate funds; adverse changes in applicable corporate tax laws; adverse changes in the cost, availability, and quality of tobacco and other agricultural products and raw materials, as well as components and materials for our electronic devices; and the integrity of its information systems and effectiveness of its data privacy policies. PMI's future profitability may also be adversely affected should it be unsuccessful in its attempts to produce and commercialize reduced-risk products or if regulation or taxation do not differentiate between such products and cigarettes; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; or if it is unable to attract and retain the best global talent, including women or diverse candidates. Future results are also subject to the lower predictability of our reduced-risk product category's performance.
In addition, PMI’s business risks also include risks and uncertainties related to PMI’s acquisitions of Fertin Pharma A/S (“Fertin”), OtiTopic, Inc. (“OtiTopic”) and Vectura Group plc (“Vectura”), including, amongst other things: (1) the possibility that the integration of the operations of Fertin and Vectura with those of PMI may be more difficult and/or take longer than anticipated, and may not accelerate PMI’s desired entry into additional smoke-free and beyond nicotine platforms as quickly as anticipated; (2) the possibility that the respective integrations of Fertin and Vectura into PMI may be more costly than anticipated and may have unanticipated adverse results relating to Fertin, Vectura or PMI’s existing businesses; (3) the inability to gain access to or acquire differentiated proprietary assets, technology and/or pharmaceutical development expertise as anticipated by these acquisitions; (4) risks associated with third-party contracts containing consent and/or other contractual provisions that may be triggered by the acquisitions; (5) the success of the research and development efforts of Fertin, OtiTopic and Vectura, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products; (6) any unanticipated safety, quality or efficacy concerns and the impact of identified concerns associated with the products developed by Fertin, OtiTopic and Vectura; and (7) the ability of PMI to retain key personnel of Fertin and Vectura, or hire key talent to work in the Fertin and Vectura businesses due to their affiliation with PMI.
PMI is further subject to other risks detailed from time to time in its publicly filed documents, including PMI's Annual Report on Form 10-K for the fourth quarter and year ended December 31, 2021, and the Form 10-Q for the quarter ended March 31, 2022. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligation.
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