On 17 May 2022, Philip Morris International (PMI) announced
its Integrated Report for 2021 which describes how the company is delivering on
its purpose and provides detailed information about its strategic vision,
performance, governance, and value creation. The content of the report is
shaped by a formal sustainability materiality assessment conducted during 2021.
This is the third annual integrated report of PMI, and as a PMI employee with
interest in sustainability, this report is exciting read for me.
About PMI
For those who are not familiar with the company, report
starts with general information about the company. Accordingly Philip Morris
International 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.
With a strong foundation and significant expertise in life
sciences, in February 2021, PMI announced its ambition to expand into wellness
and healthcare areas and deliver innovative products and solutions that aim to
address unmet patient and consumer needs.
CEO’s Message
As a finance professional, I am focused on seeing numbers and
PMI’s CEO Jacek Olczak clearly states the numbers while sharing the company’s
objectives:
"Our ambition is that by 2025, at least USD 1 billion of our
net revenues will derive from these adjacent avenues of growth, marking an
initial milestone for a business with potential to grow much further over the
longer term. In 2021, we kept our relentless focus on that ambition, dedicating
99 percent of our research and development and 73 percent of our commercial
expenditure to smoke-free products. Moreover, smoke-free products represented
over 29 percent of our adjusted net revenues and, by year-end, we estimate that
more than 15 million adults in total had switched to IQOS and stopped smoking.
The strong position of our smoke-free business has allowed us to accelerate our
timeline; early in 2021, we announced our ambition that by 2025 our smoke-free
products would be sold in 100 markets and at least 50 percent of our net
revenues would derive from smoke-free products."
CFO’s Message
What I notice in PMI is that our CFO Emmanuel Babeau shows
an ownership on sustainability. The level of importance he gives is also clear
from the message he shares within the report:
"Strategy, Finance, and Sustainability—the three teams I
lead—play a critical role within today’s PMI and have the capacity to establish
a roadmap for success that not only responds to short-term needs but also
accounts for medium- and long-term impacts. To achieve our ambitions, it has
been of paramount importance for our entire organization to recognize that
sustainability and financial performance are mutually reinforcing and part of
the same strategy. That is why integrated reporting is a top priority: It
allows all our employees, including management, as well as the company’s Board,
our shareholders, and other stakeholders to understand how our financial and
nonfinancial performance are interrelated."
And Chief Sustainability Officer’s Message
Our CSO Jennifer Motles highlights that PMI dedicated much
of 2021 to strengthening its governance and better integrating sustainability
into its corporate strategy.
Jennifer also states that "PMI’s Sustainability Index
consists of 19 KPIs, which measure progress toward the 11 goals in our 2025
Roadmap. We aim to continuously improve our performance and drive material and
measurable progress—all communicated through open and clear reporting and
disclosure."
Transforming for Good
Transforming the company is not only about substituting one
product with a new one. It is described in a holistic way:
Sustainability stands at the core of PMI’s transformation
and helps address some of the challenges resulting from the transition, while
spurring innovation and better positioning the company for success over the
long haul. The complexity of our strategy comes from simultaneously managing
the impacts of two value chains—the one we are aiming to move away from (our
cigarette portfolio) and the one we are moving towards (our smoke-free
portfolio)— while also managing the impacts of the transition itself.
Anchoring Sustainability at the core of Strategy
For PMI, sustainability is more than just a means to
minimize negative externalities and mitigate risks while maximizing operational
efficiency and resource optimization. It is stated in bold:
"We can only achieve our purpose by embedding sustainability
in all we do."
The biggest and most pressing negative externality PMI’s
strategy aims to address is the health impacts of cigarette smoking. This is
the most important contribution we can make to public health and is the
cornerstone of PMI’s purpose and business strategy. Addressing this critical
issue requires a three-part approach:
1. Develop better alternatives to smoking
Research, develop,
and commercialize scientifically substantiated nicotine-containing products
that are less harmful than cigarettes
2. Accelerate smoking decline
Provide broad access to adult
smokers, who otherwise would not quit smoking, to ensure these products
accelerate the decline of smoking prevalence
3. Make cigarettes obsolete
Purposefully work to ensure
these products ultimately replace cigarettes, driving their obsolescence
Despite its critical importance, achieving a smoke-free
future is not PMI’s final horizon. PMI is simultaneously exploring adjacent
opportunities for growth in wellness and healthcare, leveraging the
capabilities we have accrued and developed while transforming our business. It
is through these avenues of growth that we will achieve our ultimate goal:
becoming a business that has a net positive impact on society and the
environment.
Risk Management
PMI’s Global Head of Risk & Controls, Marie-Pauline
Lauret mentions that they have various risk evaluation mechanisms in place to
support the development of tailored strategies and responses for their priority
ESG issues along our value chain. Focused on environmental and social issues,
some of these assessments include human rights risks saliency mapping, periodic
climate risk and opportunities assessments, product life cycle assessments, and
deforestation and water risk assessments.
Product Impact
PMI’s CEO Jacek Olczak clearly states that:
“We can make an important contribution to accelerating the
end of smoking. To achieve this objective, we are dedicating the vast majority
of our resources to commercializing our smoke-free products. Everyone within
our organization—regardless of business function—plays a crucial role in
delivering on this purpose. We recognize that PMI alone cannot achieve a
smoke-free future. Such systemic change requires a collaborative
multistakeholder approach. In particular, we actively advocate for others in
the industry to follow our lead by transforming their businesses, phasing out
cigarettes, and reporting transparently on progress.”
Pre-transformation (in 2015), PMI’s combustible product
volume totaled 881 billion units, or 99.9 percent of our shipment volume ratio,
and, since then, in only seven years, it has declined by more than 26 percent.
Over the same period, PMI’s smoke-free shipment increased to 95 billion units,
representing 12.8 percent of our shipment volume in 2021.
What about the goal? Intentionally work toward phasing out
cigarettes by ensuring that smoke-free products represent at least 30 percent
of its shipment volumes and more than half of its net revenues by 2025 while
continuing to reduce its combustible shipment volume.
In short, a future where PMI’s success is no longer based on
cigarettes is targeted.
Appropriate Regulation and Taxation to Drive Cigarette Obsolescence
To speed up the process, regulators and public health
authorities can ensure that adult smokers have access to accurate information
about smoke-free products. They can introduce product standards to ensure that
only scientifically substantiated smoke-free products are commercialized. And,
through riskproportionate regulation and taxation, they can provide the right
incentives to encourage adults who smoke to switch from cigarettes to less
harmful, scientifically substantiated alternatives and incentivize
manufacturers to direct their investments and R&D toward these better
products. The acceptability of smoke-free products for adult smokers must
always be balanced against the objective of minimizing use by unintended
audiences such as never smokers, former smokers, and youth.
What about Countries that do not Permit Smoke-Free
Products Sale?
There is a position state for those countries which do not
permit smoke-free products sale:
Currently, some countries do not permit the sale of
smoke-free products. We nevertheless continue to engage with stakeholders in
these markets to advocate for regulatory frameworks that support tobacco harm
reduction. We do not believe that banning smoke-free products is a rational
policy, especially considering that these countries permit the sale of the most
harmful forms of tobacco and nicotine consumption: cigarettes and other
combustible tobacco products. Banning smoke-free alternatives runs counter to
the aim of ending cigarette use.
Informing the World about the Smoke-free Category
Smoke-free alternatives are a new product category and are
still relatively unfamiliar to most people. In 2019, PMI launched “Unsmoke”—a
global corporate campaign deployed across various online and offline
communications channels to address widespread misconceptions about the
smokefree category and the concepts that underpin it.
The campaign’s core message is simple:
“If you don’t smoke, don’t start. If you smoke, quit. If you
don’t quit, change.”
Currently, the campaign encompasses two distinct strands:
• Unsmoke Your World (UYW): Calls for positive change by
reinforcing that quitting tobacco and nicotine altogether is the best choice
and informing the adult general public that better, smokefree alternatives
exist for those adult smokers who would otherwise continue smoking. It also
encourages the public to get involved and calls for regulation that would allow
adult smokers access to—and information about—better alternatives.
• Unsmoke Your Mind (UYM): Speaks to the regulatory and
scientific community and other stakeholders with an interest in tobacco harm
reduction policy. UYM challenges misconceptions around the smoke-free category
and calls for an open and transparent conversation to support
risk-proportionate regulation that differentiates smoke-free products from
cigarettes. It also urges policymakers to put science and evidence at the
center of decision-making
Operational Impact
PMI’s vision of a smoke-free future helps to attract and
retain talent. The opportunity to contribute to achieving the company’s purpose
is compelling to many, as is the chance to make a positive societal impact.
For more about PMI and its integrated report 2021, please
visit:
https://pmidotcom3-prd.s3.amazonaws.com/docs/default-source/pmi-sustainability/pmi-integrated-report-2021.pdf
