As we continue to transform and discover better ways to develop impactful solutions, we hope our transparency and ambitious targets will spark dialogue with those who can help accelerate the pace of change — to question, challenge and engage with us as we work on making PMI better.
Progress of any kind requires clearly articulated priorities and targets, as well as transparency and accountability for meeting them. I am proud to say that Philip Morris International (PMI) is committed to all of the above. Since embarking on an ambitious business transformation in 2016, PMI has remained steadfast in its purpose of delivering a smoke-free future. It is now also looking into building a lifestyle, wellness and healthcare businesses that would seek to have a net-positive impact on society. For the last three years, our Integrated Report has demonstrated improving environmental, social and governance (ESG) performance and progress toward delivering that smoke-free future.
PMI recently released its third annual Integrated Report which includes an updated Statement of Purpose and a new sustainability strategy, as well as detailed information about forward-looking roadmap, performance, and metrics. The Report is guided by our formal sustainability materiality assessment — which helped us identify, calibrate, and define the ESG topics to focus on and prioritize our resources.
As part of our 2021 assessment, we redesigned our strategy to reflect the areas in which our company can make the most significant difference. We recognized two distinct forms of impact: those that derive from our products and those generated by our operations. We subsequently classified each issue based on its environmental, social or governance-related nature. These and other material ESG topics form the basis of PMI’s updated roadmap, organized into 11 headline goals running through the end of 2025.
2021 was a year when we also focused on developing a clear and accepted process for establishing concrete definitions, documentation and controls for sustainability with the aim of standardizing how we measure ESG performance. Taken together, these standards compose our new ESG KPI Protocol — which brings formality to the process of defining success, specific measures of progress, and governance and accountability structures.
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Finally, we carefully considered the best way to maximize the alignment of incentives with sustainability-related results, in order to meet the evolving expectations of investors and other key stakeholders. We are proud to have answered this demand by introducing a Sustainability Index that lets PMI formally integrate ESG performance into long-term executive compensation in a clear, strategic, comprehensive and credible manner.
Our new Sustainability Index consists of 19 key performance indicators (KPIs) that measure progress toward the 11 goals in our 2025 roadmap. We sought to select KPIs that were meaningful — enabling stakeholders to assess our company’s progress towards its priority sustainability topics, and well-defined — allowing for accurate, reliable and consistent measurement of progress over time. As with our roadmap, we have split the 19 KPIs according to two drivers: product sustainability (11 KPIs) and operational sustainability (8 KPIs).
In addition, we have defined annual targets for each KPI in our Sustainability Index. We will assess and award a score to each KPI on an annual basis using a weight assigned to each. Our total Sustainability Index score will then be calculated on a scale from 0 to 150 percent, with a target between 90 and 110 percent every year. The weighting applied to each KPI was informed by the results of our sustainability materiality assessment, with the highest weight attributed to the social impacts of our products — where we believe our company can have the greatest impact over time.
We understand that the value of embedding sustainability into corporate strategy lies in being able to think long-term and disclose forward-looking ambitions, plans, and progress. Setting clear targets allows us to define our direction, align on definitions and measures of success, and follow and report on our progress. By relying on a bespoke index, as opposed to external indices, we believe PMI will be able to allocate its resources and align its efforts more consistently and strategically with our most important ESG topics.
We also aim to continuously improve our performance and drive measurable progress — all communicated through open and clear reporting. As we continue to transform, learn and discover better ways to develop solutions that have meaningful impact, we hope our transparency and ambitious targets will spark dialogue with those who can help accelerate the pace of change — to question, to challenge and to engage with us as we work on making PMI better, focused on sustainability and committed to our purpose.