Consumer Behavior Change

A Sustainable Tobacco Company? Philip Morris International Thinks It’s Possible

In its 2018 Sustainability Report, the tobacco giant explains how it is finding success by transforming its business, and allowing stakeholders to see concretely how the company is shifting its resources to achieve a smoke-free future.

Sponsored Content | / This article is sponsored by Philip Morris International | By Philip Morris International | Published 5 years ago | About a 5 minute read

Image: PMI is banking on e-cigarettes, a less harmful alternative to smoking, to transform its business | IQOS

Earlier this year, Philip Morris International (PMI) became the first company to be accepted into Sustainable Brands’ new SB Voyager program. This new partnership is yet another sign of PMI’s goal to further sustainability across the business.

The new program enables companies that have a publicly stated commitment to transform controversial business models for the better to actively engage with SB Corporate Members in regular meetings and online. The expectation is that access to a leadership network of this caliber will provide them with support and guidance to help accelerate ambitious change as the company pursues qualifications for full membership.

PMI and future SB Voyagers will receive access to the SB Brand Transformation Roadmap℠ — a proprietary assessment tool designed to help companies identify where they sit along a continuum of sustainable business practices. The highest level of attainment is emerging as a truly "sustainable brand" — a company operating a profitable, net-positive business model that seeks system-wide solutions through deep external collaboration, actively tries to shift unsustainable societal norms and intentionally cultivates breakthrough leaders.

SB Voyagers annually assess their coordinates on this journey using the roadmap and receive peer assessments from SB Corporate Members, as well. According to criteria defined by the SB Membership Advisory Council, SB Voyagers must progress to the next level of maturity in one or more areas of the roadmap within two years in order to satisfy a main condition for becoming an SB Corporate Member.

PMI outlines these achievements, as well as its many challenges, in its fourth Sustainability Report, released on Wednesday.

As PMI CEO André Calantzopoulos notes in the report’s introduction: “Society’s expectations of businesses are changing, and we must play our part in addressing global challenges.”

For PMI to genuinely address sustainability, it first had to acknowledge — and tackle — the elephant in the room: that its cigarettes negatively affect the health of more than 150 million consumers. As a result, PMI declared that its primary sustainability effort would be to get its adults consumers who would otherwise continue to smoke, to change from combustible cigarettes to smoke-free products — which, while not risk-free, are a better choice than continuing to smoke.

“The shift the company has taken by replacing cigarettes with less harmful alternatives is at the core of addressing our main sustainability impact,” said Huub Savelkouls, PMI’s Chief Sustainability Officer.

The 2018 Sustainability Report opens by highlighting the progress PMI has made in this area to date. Since the debut of its main smoke-free product, IQOS, in 2014, more than 7.3 million people have stopped smoking PMI cigarettes and switched to its heat-not-burn products, which are available for sale in 47 markets, as of March 31, 2019.

“For PMI — or indeed, any tobacco company — to credibly speak about sustainability, the purpose can be none other than to replace cigarettes with better alternatives for smokers, society and the environment,” said Jennifer Motles, Sustainability Manager at PMI. “This is an essential step to becoming a more sustainable business — the first of many steps ahead in our ambition to become a ‘sustainable brand.’”

For this, transparency and disclosure are key; PMI’s new sustainability report is testament to these principles. Most importantly, PMI’s business transformation metrics, included in the report, are one example of relevant disclosure — they allow stakeholders to see concretely how the company is shifting its resources to achieve a smoke-free future.

Two years ago, PMI introduced a set of metrics to make the actions the company is taking to pursue its smoke-free vision measurable and verifiable. This year, PMI has added two metrics to better illustrate the speed of its progress at individual market level — these new metrics show the number of its markets in which net revenues of smoke-free products exceeded 10 percent or 50 percent of its total net revenues. In three markets to date, smoke-free products have become the biggest part of PMI’s business.

Image credit: PMI (view larger version in report [p. 118])

“We will continue engaging with external stakeholders to build support for the opportunity that a smoke-free future provides for consumers and society more broadly,” Savelkouls said. “We recognize that societal support is an essential step to enable the introduction of regulatory frameworks that can end cigarette smoking rapidly by encouraging smokers to consider smoke-free products.”

PMI makes it clear that its business transformation is built on phasing out cigarettes in favor of a smoke-free future. To that end, the report notes in its next steps that the company will continue to execute its strategy to provide all smokers with access to the best smoke-free products. But the transformation of PMI’s business is just the beginning of its sustainability efforts, Savelkouls said. The company is also addressing, as part of its sustainability strategy, the way it operates, manages its social impact and reduces its environmental footprint. The four pillars of PMI’s sustainability strategy are: (1) Transforming Our Business, (2) Driving Operational Excellence, (3) Managing Our Social Impact, and (4) Reducing Our Environmental Footprint.

In each of these pillars, PMI reassessed its most relevant sustainability challenges, with insights provided by a broad group of external and internal stakeholders, to prioritize areas where its work can have the greatest impact, thereby contributing towards the UN Sustainable Development Goals. The 2018 Sustainability Report was developed in accordance with the Global Reporting Initiative (GRI) reporting standards and the Sustainability Accounting Standards Board (SASB) standards, and provides extensive data inviting readers to assess PMI’s sustainability performance across a wide set of metrics.

“We need to be coherent, which means excelling in all four pillars of our sustainability strategy,” Savelkouls added. “This is even more important as the transformation brings about its own challenges from a social and environmental perspective.”