PMI reveals sustainability goals

PMI’s redesigned ESG framework recognizes two distinct forms of issues: Those that relate to the products, which are part of the “Product Impact” pillar, and those related to business operations, which are part of the “Operational Impact” pillar. 

Product Impact 

Addressing the social impacts generated by its products is the core of PMI’s strategy. These are the areas on which resources are focused, to innovate and develop solutions that can contribute to solving some of society’s most pressing challenges. This also represents an opportunity for growth and a strong competitive advantage. Confronting the health impacts of cigarette smoking is the cornerstone of PMI’s purpose and business strategy.

Operational Impact 

PMI manages the impacts of the company’s operations throughout the value chain. From a social standpoint, this includes ensuring fair treatment and empowerment of employees and improving the lives of people across the supply chain. On the environmental front, this means tackling climate change and preserving natural ecosystems.

The company’s current product portfolio primarily consists of cigarettes and smoke-free products. Since 2008, PMI has invested more than USD 10.5 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.

This includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioural research, as well as post-market studies.

In November 2022, PMI acquired Swedish Match – a leader in oral nicotine delivery creating a global smoke-free champion led by the companies’ IQOS and ZYN brands. The U.S. Food and Drug Administration (FDA) has authorized versions of PMI’s IQOS Platform 1 devices and consumables and Swedish Match’s General snus as Modified Risk Tobacco Products (MRTPs).

As of December 31, 2022, PMI’s smoke-free products were available for sale in 73 markets, and PMI estimates that approximately 17.8 million adults around the world had
already switched to IQOS and stopped smoking. Smokefree products accounted for approximately 32% of PMI’s total full-year 2022 net revenues.

With a strong foundation and significant expertise in life sciences, PMI announced in February 2021 its ambition to expand into wellness and healthcare areas and, through its Vectura Fertin Pharma subsidiary, aims to enhance life through the delivery of seamless health experiences.

PMI aims to completely replace cigarettes as soon as possible with smoke-free products that are scientifically substantiated to be less harmful than smoking and to evolve in the longer term into a broader lifestyle, consumer wellness, and healthcare company.

“Our company continued to transform at a pace and scale unprecedented compared to analogous transitions. Almost seven years since we announced our vision of a smoke-free future, the volume of combustible tobacco products made and sold by our company has decreased by 27 percent,” said Jacek Olczak, CEO of Philip Morris International (PMI).

“This past year, we kept our relentless focus on that ambition, dedicating 99 percent of our research and development and 74 percent of our commercial expenditure to smoke-free products. I can proudly report that, in 2022, smoke-free products represented 32.1 percent of our net revenues, and we estimate that, by year-end, almost 25 million adults were using our main smoke-free product, IQOS,” Olczak added.

“Sustainability is a cornerstone of our corporate strategy, and we work hard to address ESG issues that are material to PMI. We acknowledge, however, that there is a limit to how much we can do or influence on our own,” said Emmanuel Babeau, Chief Financial Officer at Philip Morris International (PMI).

In recent years, the development, commercialization, and subsequent adoption of various smoke-free products have led to rapid growth of the category. Within the nicotine industry, smoke-free products are beginning to replace combustible tobacco products. Overall, it is estimated that this segment share has grown 4 points since 2019 and currently accounts for over 8 percent of the estimated international nicotine industry volume (which excludes China and the U.S.).

In particular, the heated tobacco segment volume grew in the international market (which excludes China and the U.S.) at a compound annual growth rate (CAGR) of 25 percent over the past three years, driven both by increased adoption in the initial launch markets and geographic expansion. This is the largest smoke-free category by both retail value and volume in the international market (which excludes China and the U.S.)

PMI aims to base success on a future in which it no longer makes or sells cigarettes, the most harmful form of nicotine consumption. In stark contrast with our competitors, PMI’s value proposition is not to expand its portfolio of both combustible and smoke-free products to offer more choices to consumers. Rather, our goal is to lead an industry-wide transformation whereby cigarettes are phased out completely

PMI’s 2022 acquisition of Swedish Match will allow it to incorporate a leading oral nicotine portfolio into the PMI family to create a global smoke-free champion, cement the foundation of our future in the U.S. marketplace, and accelerate the pace at which the company becomes smoke-free.

By 2025, the company targets that less than 50 percent of adjusted net revenues will be derived from combustible tobacco product sales. As of year-end 2022, PMI smoke-free products represented 32.1 percent of annual net revenues and 15.1 percent of total shipment volume.