Assessing human rights risks in Brazil

Protecting and promoting the rights of the people in our value chain is a priority for Philip Morris International (PMI). As a global company, we strive to ensure that human rights are respected by our business partners, including our suppliers. To strengthen our due diligence framework, proactively identify risks, and mitigate potential adverse impacts in our operations and value chain, we have set the target to conduct 10 human rights impact assessments (HRIAs) in our highest-risk countries by 2025. In 2022, we conducted our 6th and 7th HRIAs, one of them being in Philip Morris Brazil (PMB), with the support of an external expert third party, Article One.

The assessment covered the Sao Paulo head office, factory and operations in Santa Cruz do Sul, the upstream leaf supply chain, as well as downstream direct and third-party sales and distribution. It included both remote and in-country engagement with internal management, employees, workers, and communities in our value chain, as well as engagement with external experts.

Building on previous country-level HRIAs and in alignment with our company’s Human Rights Commitment this assessment aimed to:

• surface social risks before they turn into impacts,
• assess the degree to which each risk is managed by existing processes,
• build an action plan on recommendations to mitigate human rights risks and
• maximize opportunities for positive impact.

The exercise commenced with desk research, stakeholder mapping, and raising awareness about the assessment and its objectives through engagement with management teams. To prepare for the in-country visit, Article One conducted remote interviews with key functional leaders at PMB and local leaf suppliers.

“During the in-country visit, the consultant engaged with 152 employees and contracted workers in PMB’s operations, including the headquarter, factory, suppliers, and Leaf farms. The engagement with Leaf suppliers was held both in-person and online,” said Anna Kletsidou, PMI’s Senior Manager Social Impact. “This approach was used to ensure full visibility within the tobacco supply chain in a large, heterogenous country such as Brazil. To reach stakeholders within our downstream activities, focus groups were conducted with employees from PMB’s commercial team, as well as third-party sales and distribution workers. As per HRIA assessment methodology, interviewed stakeholders represented a sample of women and men across seniority groups, roles, and functions.”

The assessment surfaced areas of strength, areas for close monitoring, and proposed heightened efforts aimed at improvement, which Article One summarized and shared them with local management. Following in depth discussions, the local team developed a rigorous action plan, identifying responsible stakeholders for implementation and progress measurement.

Overview of findings and corrective actions

The following are the five key strengths highlighted by Article One throughout PMB’s value chain:

• Flexible workforce management in PMB’s value chain: Many stakeholders in PMB’s value chain, including direct and third-party workers at HQ and the factory, praised PMB and their direct employer (in the case of the latter group) for the company’s flexible approach to workforce management, and ongoing hybrid working.
• Competitive remuneration: Within PMB’s direct operations, most felt that the company paid competitive wages and offered comprehensive benefit packages.
• Opportunities for professional development: A significant number of stakeholders (employees as well as third-party workers) felt that PMB offered noteworthy opportunities for growth, professional development, and continued learning.
• Strong ‘Speak Up’ culture: Employees highlighted a very strong ‘Speak Up’ culture within PMB’s direct operations both at factory and headquarter level, with PMB operating at high standards of integrity and commitment to responsible business conduct. All employees interviewed were aware of the anonymous grievance channel and indicated they would be comfortable reporting a concern.
• Commitment to sustainability: PMB stakeholders showed high levels of awareness of company’s commitments and performance on Environmental, Social and Governance (ESG) topics, particularly addressing environmental impacts. Numerous stakeholders recognized PMB’s high sustainability performance compared with other agricultural companies and noted the company’s rigorous environmental standards for suppliers.

The assessment also shed light on potential risks requiring further investigation. The following sections summarize these instances, as well as responses adopted by the local management team that are currently being implemented or for implementation in the coming months.

Upstream supply chain

The assessment included PMI’s tobacco Leaf supply chain in Brazil, which is composed of two production models:

(1) a large-scale agriculture farm in Northeast, where PMB has a partnership with a local supplier for continuous tobacco production; and

(2) a small family farming model in the South region where about 5,000 farmers supply tobacco to PMI through the Integrated Production System in alignment with Brazilian legislation (which regulates the relations across the industry), and over 35,000 farmers supply tobacco through tobacco suppliers (also included under this assessment)

In both tobacco growing regions, based on interviews with the third-party suppliers’ management and tobacco farmers, the consultant highlighted PMI’s commitment to the Agricultural Labor Practices (ALP) program and the progress that has been made in its implementation. This includes improvements in environmentally conscious agricultural practices and safe working conditions.

Northeast farms outcome and action plan

In the Northeast operations, the assessment highlighted some opportunities for improvements with regards to safety at work and living conditions. Based on the recommendations shared by the PMB team, the suppliers established an action plan involving short term actions and a long-term plan for improvements based on annual internal surveys from workers.

As an initial step, the supplier focused on reinforcement of safety at work, especially related to the usage of personal protective equipment (PPE) through continuous training and targeted initiatives and has started its implementation.

Workers also proposed the provision of better internet connection and availability of some personal consumer goods, given the remoteness of the location where the farms operate. Some of these improvements proposed by Article One, are already being implemented by the supplier. Recommendations to improve living conditions with regards to workers’ accommodation, such as adding more storage space for workers with different shifts sharing the same accommodation, are also being studied by the supplier.

Going forward, PMB will be monitoring closely and supporting the implementation of these actions and will have annual in-person assessment to monitor progress and identify the potential for new improvements.

South region outcome and action plan

In the South region, the assessment also surfaced some opportunities for improvement.

• Child labor

Despite not identifying child labor in the PMB supply chain, the risk of its occurrence persists. Therefore, PMB and the suppliers are committed to remain alert and maintain continuous monitoring of the implementation of the ALP program with a particular focus on child labor, while promoting and supporting initiatives such as EFAs (Agriculture Family Schools) and Instituto Crescer Legal. These initiatives provide educational alternatives for teenagers by promoting access to technical courses focused on entrepreneurship, farm management and support to local communities. Linked to the ALP program, is the field team training on labor legislation, to prepare the field technicians to provide support and to identify any potential risk in the field. Two training sessions were performed in March by our legal department.

• Responsible Leaf program

PMB has initiated the Responsible Leaf Program, which is based on the implementation of a socio-environmental protocol that aims to draw up individual action plans based on farmer’s needs. This program is conducted in partnership with a third party, Produzindo Certo. In addition, PMB will keep improving their support to farmers by offering training on appropriate PPE usage, farm management (including labor practices for daily laborers) and others as needed.

• Disposal of chemical packaging

Article One also recommended changes to the collection of empty Crop Protection Agents (CPA) containers, aiming to improve logistics and increase the number of collection points, which will be explored as an industry-wide approach initiative. PMB will leverage on its collaboration with Tobacco Growers Association (Afubra) and National Tobacco Union (SindiTabaco) to foster working conditions through targeted initiatives with farmers. The objective is to develop sectorial activities, such as the collection of empty CPA container, or a program for the reverse logistic of pesticides. In this respect, PMB has joined a working group to develop strategies for the further enhancement of the initiative. Through these working groups, it is also discussed ways to promote diversification activities on the farm, for a better farm optimization.

• Working conditions

The first identified opportunity for improvement was related to working hours and conditions. Although the working scheme is compliant with local labor regulations, workers pointed out some concerns such as shift schedule changes, overtime, equipment maintenance delays and lunch breaks in the middle of the shift. To address these concerns, the responsible departments (namely Operations, People & Culture and Legal) undertook a series of initiatives to further understand the root cause of the issue. Following the assessment, the shift schedule was revised with the aim to improve work-life balance, a periodic working calendar was implemented, and the lunch break was reduced (as recommended by workers), while staying in compliance with local legislation.

Workers also requested better access to resting areas and beverage stations to be located throughout the factory. PMB is planning to build and renovate break areas which are currently under construction and will be opening them for the workers later in the year.

• Health and safety

During the assessment, though many focus group participants praised the company’s approach to health and safety (H&S) some shed light on areas with opportunity for improvements. In the factory, concerns regarding acclimatization in certain areas were raised. The operations team immediately mapped a plan and is currently implementing the installation of portable air conditioning in the concerning areas.

• Remuneration

Factory third-party workers interviewed during the assessment, raised concerns regarding their wages. Despite full compliance with Brazilian labor legislation, the opportunity was analyzed and the third-party company introduced a program to increase wages to employees working at Philip Morris Brazil as third-party workers, to be implemented annually in accordance to the length of their employment at that company.

• Diversity, equity, and inclusion

Diversity and Inclusion (D&I) was recognized as a strength internally and externally during the assessment in both the factory and the headquarters. However, some employees felt there was a space to improve gender and racial diversity, as well as disability access in some parts of the factory. To address these, PMB implemented KPIs focused on D&I, including improving minority representation in leadership positions, while raising awareness on relevant actions across the organization. The progress will be measured through internal assessments and employee research.

• Grievance mechanisms

The assessment pointed Speak Up culture as a strength at PMB. However, despite Speak Up channels being available to anyone in PMB, the assessment showed an opportunity to increase awareness about them. The Ethics & Compliance (E&C) team will address this issue by deploying a global initiative to enhance awareness of E&C channels which is planned to go-live on the second half of 2023.

Downstream activities

Reaching over 140,000 points of sales, PMB is present in every region of the country. To support this market distribution, PMB works with two different sales and distribution models: Direct Sales and Distribution (DSD) and Exclusive Zone Distribution (EZD). In this assessment Article One had the opportunity to assess the two biggest operations of each model.

• Direct Sales and Distribution (DSD)

Within sales and distribution, concerns were raised related to the high-value cargo, and the security and well-being of fleet workers and contractors. To this end, all fleet workers receive security training bi-annually (also available on-demand), vehicles are equipped with special security features that notify the security team if something wrong happens. The distribution team is instructed to fully cooperate in case of an incident. Following the assessment, contracts with third parties were reviewed and relevant security protocols for drivers were further strengthened.

Concerns regarding the overall culture in the workplace with regards to leadership not being consistently engaged with employees to fully resolve some work-related issues were also raised. To address this, Ethics & Compliance and People & Culture (P&C) teams repeated awareness raising sessions to further promote an inclusive culture that is respectful of all individuals.

Although a recent internal survey on employee Net Promote Score (eNPS) score of 68%, workers reported there is opportunity to improve their work-life balance. Considering this, the P&C local team put in place an action plan to raise awareness on work-life balance and flexible work models while also implementing programs encouraging the “switching off” culture.

• Exclusive Zone Distribution (EZD)

Under the EZD assessment, workers generally shared that management is responsive to concerns raised by them and the training is adequate, however personal security was identified as a concern. The PMB team discussed with the third-party companies and noted that measures had been taken to address security concerns, including installing cameras and trackers in the fleet vehicles.

Adequate wages and performance targets were also raised, presenting opportunities for PMB to engage with the third-party distribution network to encourage improvements.