From ambition to action: How PMI is embedding sustainability into its business

This article is sponsored by PMI.

This article is sponsored by PMI.

Author: Scott Coutts, senior vice-president of operations, Philip Morris International

Scott Coutts profile pic
Scott Coutts

Climate change is among society’s greatest threats, and the need for decisive climate action is clearer now than ever.

In response, companies have been ramping up efforts to address the climate crisis. Research shows that the number of corporate net-zero targets has risen by more than 40 percent (from 700 in June 2022 to 1,003 in November 2023). Moreover, the Science-Based Targets initiative (SBTi) reported a sharp rise in companies setting science-based targets, with 87 percent more having validated targets in 2022 compared with 2021. That’s more than the previous seven years combined.

Philip Morris International (PMI) stands by its science-based climate ambitions on our path to decarbonisation, as we strive to reach net-zero emissions by 2040. And while setting ambitious, science-based targets on climate is an important milestone on the road to reaching net zero, what’s equally important is transforming ambitions into tangible actions.

I oversee PMI’s Operations, including more than 20,000 employees in 75 countries: from upstream to downstream, from agricultural sourcing to manufacturing. Sustainability is at the core of what we do, and addressing the climate challenge is a top priority.

My team is responsible for setting climate ambitions and building the action plans to deliver on them. Within Operations, and across our company, we systematically work to assess climate risks and opportunities, putting our focus on monitoring, managing and integrating sustainability into our business decisions.

As we become more experienced, three actions have been helpful in driving progress toward decarbonisation: defining a clear statement of purpose; embedding sustainability into the business; and enabling and executing strong governance processes.

A clear statement of purpose

To create change, a company should first define and commit to its “why” – a clear purpose that will then power “how” they achieve their goals. Having a clear purpose enables the laser focus that’s required when working to achieve sustainability ambitions.

In 2016, PMI announced a new purpose to deliver a smoke-free future – a future where cigarettes are obsolete. In 2022, we refreshed our Statement of Purpose, ensuring it remains a current and fair representation of our strategy, expanding the last horizon from achieving a smoke-free future to encompass our evolving portfolio for the long term to include products outside of the tobacco and nicotine sector.

This is part of a larger transformation that puts science, technology and sustainability at the heart of PMI’s future. We will continue to engage and collaborate with relevant stakeholders to speed the transformation while mitigating negative consequences, including our impact on climate, nature and society more broadly.

This purpose focuses each of our business and sustainability efforts in the same direction.

Embedding sustainability

For us, prioritising climate action isn’t just the right thing to do, it’s a clear business imperative. Climate change presents an increasing range of risks to all of PMI’s operations. As a result, we have worked to prioritise decarbonising our direct and indirect operations in line with the path set by the Paris Agreement. We understand that it is essential, for the planet and for our business, that we manage, mitigate and adapt to climate change.

In 2021, we published our Low-Carbon Transition Plan (LCTP), a transparent and detailed view on how we plan to achieve our climate ambitions that aim for carbon neutrality in our direct operations (Scopes 1 and 2) by 2025, and net zero across our entire value chain (Scopes 1, 2 and 3) by 2040.

Our 2040 net-zero target is validated by the Science-Based Targets initiative (SBTi) and is aligned with a 1.5-degree scenario, in step with leading target setters across business industries.

However, in our view, targets are only as good as the actions and delivery behind them. With our sustainability strategy embedded into our daily operations, we are making measurable progress by applying a three-pronged approach to decarbonisation. Firstly, to reduce energy use and optimise efficiency as much as possible; secondly to switch to renewable energy; and thirdly to compensate for unavoidable emissions as a last resort. For these unavoidable emissions, PMI’s approach to carbon pricing includes a shadow price of $105 per tonne of CO2e and a carbon levy of 11 per ton of CO2e.

Across our value chain, we focus on engaging with suppliers, encouraging them to adopt science-based targets in line with our own and holding them to account through our Responsible Sourcing Principles.

As of year-end 2022, with a 39 percent absolute GHG emission reduction versus 2019, we are well on our way to achieving a 50 percent reduction by 2030. This kind of progress is made possible by cross-functional collaboration and a shared vision of the decarbonisation goals we are working to deliver.

Strong governance

Integrating sustainability requires a formal structure with clear accountabilities at different levels of the organisation. PMI’s governance and management systems help ensure that climate-related risks and opportunities are considered in relevant decision-making processes. Reporting directly to the CEO, my role is positioned within PMI’s structure to be able to effectively engage our board of directors and specific departments on climate issues.

Anchoring our sustainability priorities within executive responsibilities and accountabilities also helps to embed our strategy. Members of our senior management team are responsible for driving progress and delivering on our sustainability targets within their respective functions and regions.

To further drive this integration, we created a bespoke Sustainability Index, which we use to measure and communicate our progress, including our targets on Scope 1, 2 and 3. The performance of this index accounts for 30 percent of our executives’ long-term compensation – providing an explicit link between our sustainability performance and how we renumerate our management team.

This brings sustainability performance to the highest level of accountability and helps drive action internally and externally on our sustainability targets.

Keeping the momentum

For us, the challenges linked to our transformation and to addressing the climate challenge have underscored the importance of researching and developing innovative solutions, exploring new technologies, investing with impact to foster better outcomes, and inspiring our employees, suppliers and business partners to join our company on its journey.