2023 allowed us to reflect on the strides we have made. It was a year marked by unity, determination, and a continued commitment to our vision of a smoke-free future—evident in every endeavor we undertook and each challenge we transformed into an opportunity for growth.
Our persistent dedication to accelerating the end of smoking resulted in a 27.9 percent cumulative decline in the shipment volume of combustible tobacco products (versus 2015, before we began our company’s transformation).
Through consistent strategic investment in our business transformation—four consecutive years of 99 percent of our R&D and approximately 74 percent of commercial expenditure dedicated to smoke-free products—we have seen smoke-free products grow to represent 36.4 percent of our adjusted net revenues. Present in 84 markets, of which 39 are low- and middle-income, and empowered by approximately 33 million users of our smoke-free products, including 20.8 million adults who have switched to IQOS and successfully stopped smoking, our smoke-free products continue to prove the most powerful opportunity to make cigarettes obsolete.
Importantly, we continued to deploy responsible commercialization practices guarding against the use of our products by unintended audiences such as underage. In particular, during 2023 we continued strengthening governance for youth access prevention activities in our indirect retail programs.
In preparation for the launch of IQOS in the U.S., in 2023 we submitted to the U.S. Food and Drug Administration (FDA) Premarket Tobacco Product Applications (PMTAs) and Modified Risk Tobacco Product Applications (MRTPAs) for IQOS ILUMA. In addition to strengthening our intellectual capital, we also devoted the year to building robust social and human capital in the region. Our efforts emphasized nurturing a workforce capable of delivering our innovative products with the excellence our consumers expect of us. This report mentions some of the challenges and opportunities ahead in the section “Foster an empowered and inclusive workforce.”
The acquisition of Swedish Match positions us well to seize the substantial smoke-free opportunity in the U.S., which we approach with the rigor and innovative spirit that have become the hallmarks of our company. By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free ambitions, switching more adults who would otherwise continue to smoke to better alternatives faster than either company could achieve separately. Our journey toward integrating Swedish Match into PMI includes, of course, integrating it into our sustainability strategy. I am pleased to see it has commenced with fervor. In 2023, we completed a combined carbon footprint analysis, which allows us to know and report accurately on PMI’s scope 1+2+3 emissions, inclusive of Swedish Match.
While Swedish Match’s sustainability performance is not yet fully integrated into the remainder of the report, our transparent approach maintains that we will diligently update and incorporate relevant nonfinancial data as our integration processes mature over the coming years, and will be ready to respond to regulatory reporting requirements.
Our journey toward addressing the impacts of both our products and operations continued to gain momentum in 2023. We strengthened our product stewardship with comprehensive retail safeguards and take-back initiatives—crucial efforts improving circularity of our electronics by extending the life of approximately 320,000 smoke-free devices. This success is a testament to our leadership in advancing circular economy practices within the industry as we pave the way toward our ambitious 2025 objective to embed ecodesign and circularity principles in all our smoke-free electronic devices. We also published our first Human Rights Report and completed our eighth human rights impact assessment since 2018, on track to achieving 10 by 2025. This most recent assessment applied a gender lens to our human rights impact, focusing on risks specific to women’s rights.
Despite this progress, we continue to face challenges— driven mostly by our inability to fully control outcomes, and importantly, impacts of our programs. For example, ensuring a sustainable supply chain is not an easy task, especially when it comes to environmental and social issues. As a result, many of the challenges we face are not unique to our company, but rather pervasive in all multinational companies with complex and diverse supply chains. Part of this is driven by the lack of visibility and transparency that currently exists on some of our lower-tier suppliers, who operate in different countries and regions with varying regulations and standards related to greenhouse gas (GHG) emissions or human rights, for example.
In addition to that, pursuing sustainability goals may require trade-offs between economic, environmental, and social objectives, such as balancing efficiency, quality, and innovation with environmental protection, human rights, and social justice. It also entails additional costs for monitoring, auditing, training, and improving supplier performance. Last but not least, we continue to face challenges related to coordination and collaboration: Achieving a sustainable supply chain requires us to work with various stakeholders, such as suppliers, customers, competitors, industry associations, governments, NGOs, and international organizations. As we continue to lead an industry transformation and to expand our electronics supply chain, building an ecosystem to maximize the circularity of our devices remains a big challenge to overcome.
Two years ago, eager to expand our company’s purpose and evolve into a broader lifestyle, consumer wellness, and healthcare business, we announced the extension of our value proposition and innovative capability to commercialize products that go beyond tobacco and nicotine. While the reaction of some vocal individuals and organizations in the external environment has delayed our ability to fully harness the potential of the assets and capabilities we have built over our transformation journey, we remain convinced that this business can provide a very sizable, yet long-term, potential.
We remain eager and fully committed to making cigarettes obsolete. Our progress could be even bolder if we were not confronted in some geographies with some governments refusing to develop policy and regulate in the interest of public health, rejecting harm reduction principles and thereby depriving millions of smokers from access to smoke-free products and information about their benefits compared with continued smoking. These policies can result in severely slowing down the decline of smoking prevalence: there is overwhelming evidence that regulatory acceptance and the creation of an environment in which adult smokers can learn about smoke-free products can lead to significant acceleration of the decline in smoking. Moreover, the rigorous implementation of responsible practices across our value chain—from product design, development, and commercialization—limits to a great extent any access and use of tobacco- and nicotine-containing products by unintended audiences.
Our business imperative is clear: We are dedicated to maximizing the benefits and capitalizing on our smoke-free product growth and are proactive seeking opportunities that can drive positive change.
As we continue to encounter fast-evolving scenarios, our people’s enduring resilience, exceptional quality, and depth of purpose ensure we are well-equipped to emerge stronger and more adaptive. I ask that you consider the Integrated Report 2023 an open invitation for you to observe our ongoing transformation and partake in the dialogue that will shape the course of our future. Together, let us continue this journey—pursuing progress, embracing innovation, and fostering sustainability—as we transform for good and advance ever closer to a smoke-free future.
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This letter is an excerpt from PMI’s Integrated Report 2023
This online content about our Integrated Report should be read in conjunction with PMI’s Integrated Report 2023. Unless otherwise indicated, the data contained herein cover our operations worldwide for the full calendar year 2023 or reflect the status as of December 31, 2023. Where not specified, data comes from PMI financials, nonfinancials, or estimates. Unless explicitly stated, the data, information, and aspirations referenced in online content do not incorporate PMI’s wellness and healthcare business, Vectura Fertin Pharma. Regarding the Swedish Match acquisition, completed late 2022, unless otherwise indicated, online content does not include information pertaining to their sustainability performance. Please also refer to “This report at a glance” on page 2 of the Integrated Report 2023 for more information. Aspirational targets and goals do not constitute financial projections, and achievement of future results is subject to risks, uncertainties and inaccurate assumptions, as outlined in our forward-looking and cautionary statements on page 214. In the Integrated Report 2023 and in related communications, the terms “materiality,” “material,” and similar terms are defined in the referenced sustainability standards and are not meant to correspond to the concept of materiality under the U.S. securities laws and/or disclosures required by the U.S. Securities and Exchange Commission.