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Product, Service & Design Innovation
Philip Morris International Continues Shift Toward Smoke-Free Future

On Tuesday, Philip Morris International Inc. (PMI) published its Sustainability Report 2017, outlining the concrete steps being taken to fundamentally transform its business, by putting smoke-free products at the core of its sustainability efforts to address wider societal challenges, drive operational excellence, manage its social impact and reduce its environmental footprint. PMI says it is committed to replace cigarettes as soon as possible with better alternatives to smoking for the millions of men and women who would otherwise continue to smoke.

“In my mind, sustainability encompasses four aspects: First, companies need to reduce to the largest extent possible any harm associated with their products. Being respectful of people throughout the value chain and preserving the environment are the next two pillars. Last, but not least, sustainability requires operational excellence,” CEO André Calantzopoulos says in the report. “My ambition is to make PMI a true leader in sustainable business practices. We therefore need to excel in all of these four areas, starting first and foremost with our products.”

In 2016, PMI boldly announced a new business vision to replace cigarettes with less harmful, smoke-free products as soon as possible. As the company states in the new report, it has since made several attempts to develop healthier alternatives to smoking, but drawbacks in the technological capability of these products and a lack of consumer acceptance rendered them unsuccessful.

Then in January, PMI launched an aggressive anti-smoking campaign in the UK — urging consumers to give up cigarettes as the company had itself committed to doing, along with a bold ambition to “stop selling cigarettes in the UK.”

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Recent advances in science and technology have enabled PMI to develop new products that are less harmful alternatives to continued smoking, and that consumers accept — its portfolio of smoke-free products includes heated tobacco products such as IQOS, which heats the tobacco enough to release a nicotine-containing vapor but without burning the tobacco, already available in markets around the world; and nicotine-containing e-vapor products that the company says have the potential to significantly reduce individual risk and population harm compared to cigarettes.

In the new report, PMI also provides a more comprehensive picture of its sustainability activities. With the aim of achieving greater transparency and facilitating the assessment of its progress, PMI has included a fuller set of metrics and data trends. In addition, the company has provided more contextual information on its business and how sustainability is managed, taking into account feedback received on its 2016 report.

Last year, PMI introduced a set of Business Transformation Metrics to track progress against its goal of a smoke-free future. Key 2017 milestones included:

  • PMI’s resource allocation continues to shift to smoke-free products, which accounted for 74 percent of global R&D expenditure and 39 percent of global commercial spend.
  • Smoke-free products represented approximately 4.4 percent of PMI’s shipment volume and around 13 percent of net revenues, excluding excise taxes.
  • PMI estimates that, by the end of 2017, over 4.7 million adult smokers had stopped smoking cigarettes and made the change to IQOS (PMI’s main smoke-free product), while approximately 10,000 more consumers are switching every day.

The report also provides an overview of PMI’s wider sustainability efforts to create long-term value, from how it is addressing social and environmental impacts to managing the impact of transformation on PMI’s value chain and excelling in how it operates. Key progress in 2017 included:

  • More than one-third, 34.4 percent, of the management positions at PMI held by women, showing progress against the company’s goal of reaching 40 percent by 2022.
  • PMI’s rollout of Responsible Sourcing Principles to help identify and manage labor issues in its non-agricultural supply chain.
  • Environmental milestones include being recognized for the fourth consecutive year on CDP’s Climate A-List, and for the first time its water programs achieved the CDP Water A-list ranking.

As for operational excellence, PMI remains focused on securing the integrity of its supply chain through its efforts to tackle illicit trade in tobacco products, while also pushing transparency further by publishing its approach to corporate tax and data privacy, as well as an overview of its Marketing Principles and Principles for Engagement with third parties.

PMI says the progress it has made is an indication of its sustainability ambitions. PMI is on course with its business transformation, delivering on its CO₂-reduction targets, improving in the area of inclusion and diversity to meet key goals, and strengthening the governance of its sustainability management.

The report also highlights how, going forward, reducing the environmental footprint of the smoke-free products’ manufacturing process, promoting crop diversification among tobacco farmers and equipping PMI employees to successfully transform the company are essential.

Feedback on the report can be provided by emailing the company at [email protected].

1Status at the end of December 2017, reflecting new PMI methodology. For markets where IQOS is the only heated tobacco product, daily individual consumption of PMI heated tobacco units represents the totality of their daily tobacco consumption. For markets where IQOS is one among other heated tobacco products, daily individual consumption of heated tobacco units represents the totality of their daily tobacco consumption, of which at least 70 percent are PMI heated tobacco units.