Philip Morris International Inc. (PMI) is transforming its business to deliver a smoke-free and sustainable future. Today, the company announced that S&P Global Ratings’ ESG Evaluation report has assessed PMI’s approach to environmental, social, and governance (ESG) topics and confirmed that PMI has positively differentiated itself within the tobacco sector.
The S&P Global Ratings ESG evaluation assesses a company’s ESG strategy and ability to prepare for potential future risks and opportunities, and provides a forward-looking, long-term opinion of a company’s readiness for disruptive ESG risks and opportunities. It provides an overall score that allows comparison with other entities globally, including sector peers, and consists of a combined sector/region score, an entity-specific score, and a preparedness score. Based on entity-specific scores — designed to indicate how a company is actively and effectively managing its exposure to ESG risks and opportunities compared with its industry peers—PMI is placed third in the E-entity specific score, 8th in the S-entity specific score, and 15th in the G-entity specific score among all 25 current publicly available ESG evaluations.
“I am proud that our dedication to sustainability, which is fundamental to the transformation of our company, has been recognized externally by S&P Global Ratings,” said Emmanuel Babeau, Chief Financial Officer, PMI. “It is our firm belief that sustainability and business performance do not follow separate paths—they are fully interrelated and mutually reinforcing, and should be organized and presented to all stakeholders, including shareholders, in an integrated way.”
In February 2021, PMI announced an increased ambition for the contribution of its smoke-free products to total net revenues to more than 50 percent in 2025, meaning that in five years, cigarettes would account for less than half of PMI’s total net revenues. The company also stated its aspiration to commercialize its smoke-free products in a total of 100 markets by the end of 2025, from 64 at the end of 2020. Additionally, PMI announced an aspirational target of at least USD 1 billion in annual net revenues from “beyond nicotine” products by 2025. This new aspiration reflects additional growth potential and further acceleration of the company’s transformation, leveraging PMI’s significant capabilities within life sciences, device technology, consumer expertise and more.
Recognizing PMI’s work in delivering a smoke-free future, S&P Global Ratings notes: “The company has made significant R&D investments, by sector standards, and is upskilling its management team to prepare for this transition. In our view, the company is well placed to meet its ambitions.” Adding: “We believe PMI is adequately prepared for future disruptions, reflecting its significant investments in [reduced-risk products (RRPs)], which smokers seem to accept as an alternative to cigarettes, and its solid track record of strategic execution despite headwinds.” S&P also recognized PMI’s “approach to customer engagement—unique among its peers—which educates consumers directly about the health consequences of sustained tobacco use and supports low-income customers in making the transition from cigarettes to reduced-risk products.”
To make its progress both measurable and comprehensive, PMI developed a set of bespoke key performance indicators (KPIs) that it calls Business Transformation Metrics (BTM), which PMI reports on periodically, allowing stakeholders to better assess both the pace and the scale of its transformation. Many of the data indicators showcase how PMI is reallocating resources from its traditional cigarette business, basing its success on a future in which it no longer makes or sells cigarettes. Additionally, in 2020, PMI integrated its sustainability and finance functions, so that the sustainability function now reports to the CFO. That year, the company’s Board of Directors also issued and signed a Statement of Purpose, published in PMI’s Proxy Statement, reaffirming its commitment to delivering on a future away from cigarettes.
On preparedness for the future, the S&P ESG Evaluation states: “Management strongly believes in embedding a new culture across the board and in PMI’s leadership team, with the same mindset and behaviors trickling down the organization. It has made significant organizational changes in the past three years with 45 percent of senior management being new. The senior team has been upskilled on topics such as sustainability, technology, and pharmacology. The company aims for at least 40 million adults [to have switched to PMI’s smoke-free products and stopped smoking by 2025. The target is backed by a remuneration structure that links executives’ performances to the progression of the RRPs.”
“Aligned with our purpose and commitment to put sustainability at the core of our corporate strategy, we are working to seamlessly integrate ESG into our culture, business strategy, and executive-compensation determinations. We aim to continuously improve our performance and drive significant and measurable progress toward our targets and aspirations—all communicated through open and clear reporting,” said Jennifer Motles, Chief Sustainability Officer, PMI. “Our upcoming Integrated Report will provide a comprehensive overview of our main challenges and explain how we approach them. The product—and its impact on health—remains at the core of PMI’s strategy.”
Later this month, PMI will release its 2020 Integrated Report, which details how the organization’s strategy, governance, performance, and prospects create value over the short, medium, and long term. For more information, visit www.PMI.com/Sustainability.
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