gri sustainability report 2016 - imperial brands · we are a ftse 100 company headquartered in...

Our values Our respOnsibility

GRI SuStaInabIlIty RepoRt 2016

Our values Our respOnsibility

table of contents

GRI Reporting Approach 1

CEO Introduction 1

Organisational Profile 2

Our Strategy and Business Model 6

Governance, Ethics and Integrity 8

Reporting Approach and Assurance 10

External References and Risk Mitigation 11

Materiality and Stakeholder Engagement 12

Stakeholder Engagement 13

Responsible with Products 15

Illicit Trade 16

Product Standards 17

Responsible Marketing 19

Adult Choice 20

Rewarding Workplace 21

Employee Health and Safety 22

Development and Reward 25

Employee Voice 27

Employee Wellbeing 29

Respecting Natural Resources 31

Climate and Energy 32

Resource Efficiency 39

Deforestation 41

Water 43

Reinvesting in Society 45

Economic Contribution and Livelihoods 46

Supplier Standards 48

Child Labour 51

Appendix 1 – GRI Index 53

Appendix 2 – 2016 Responsibility Performance Indicators 60

Our values Our respOnsibility1

Ceo IntroductionResponsibility is central to our sustainable growth strategy – how we behave today impacts our business tomorrow.

Millions of people around the world choose to enjoy our tobacco products every day. We make, market and sell our brands and products in a way that is financially, socially and environmentally responsible. We also actively support our consumers and proactively tackle important issues such as the smuggling and counterfeiting of tobacco products.

We respect the natural resources we use, whether they are tobacco leaves, wood for paper and packaging, or water to grow and then process our tobacco. Our manufacturing processes use energy and water and create waste, and we focus on reducing our

environmental impact.

The welfare of our people is very important to us. We’re focused on creating a rewarding workplace, with our values guiding the way we work with each other, our business partners and other stakeholders.

We operate on an international scale and make many positive contributions to society, not just in terms of wealth creation and employment, but by being an active member of the communities to which we belong.

For us, being responsible is not only about understanding our business impacts but also acting with integrity and living our values.

Our strategy enables us to deliver sustainable growth and sustainable returns to shareholders, and our business model shows how we create value. We support growth through strong governance, acting responsibly, managing risk and rewarding success.

The responsible way we manage our business is crucial to our long-term sustainability, and we continue to focus on improving our performance in the four key areas of our corporate responsibility framework.

alison Cooper, Ceo

GRI Reporting approachThe Global Reporting Initiative (GRI) is a global, multi-stakeholder organisation that has developed guidelines for sustainability reporting. The guidelines provide an international reference for the disclosure of an organisation’s governance approach and of the environmental, social and economic performance and impacts.

We have detailed our GRI Index in Appendix 1 of this report. This lists the GRI G4 indicators that we are seeking to report against. We endeavoured to report as guided by the general standard disclosures and against additional indicators, which have been deemed most relevant based on our materiality assessment completed in 2013.

These additional indicators are known as the specific standard disclosures. We have sought to be in general alignment with the core set of GRI indicators and have not sought specific assurance against the GRI guidelines or indicators.

We have provided an overview of our approach to Corporate Responsibility (CR) and an update on our activities in the areas of most interest to our stakeholders and of importance to our business for the financial year 1 October 2015 to 30 September 2016 (financial year 2016). Further details are provided in our Annual Report and Accounts 2016 and may be found on our corporate website www.imperialbrandsplc.com.

Any queries on our reporting approach can be directed to the CR Contact identified on our website or emailed to [email protected]

http://www.imperialbrandsplc.com

mailto:cr%40impbrands.com?subject=


organisational profileWe are an international fast-moving consumer goods company. At our Annual General Meeting in February 2016, our shareholders voted overwhelmingly in favour of changing the name of our parent company from Imperial Tobacco Group PLC to Imperial Brands PLC. The rationale for the change was simple: Imperial Brands better reflects the dynamic brand-focused business we are now. While our name may have changed, our strategy and values remain the same.

We are a FTSE 100 company headquartered in Bristol in the UK. Imperial Brands PLC is the parent company of an international business specialising in tobacco and non-tobacco brands. The new PLC name reflects the breadth of our brands' focus across five distinct entities:

• Imperial Tobacco (home to most of our international tobacco operations);

• ITG Brands (our US business); • Tabacalera (our premium cigar

business); • Fontem Ventures (our non-tobacco

business focused on new consumer experiences); and

• Logista (our European distribution business).

Further details on each entity are available by clicking on the logos below.

Financial year 2016 was another year of strong value creation. We have consistently delivered against our strategy in recent years, which has enabled us to build a stronger, higher

quality business with greater capacity for generating and maintaining economic value for shareholders and other financial stakeholders.

Our tobacco brands are sold in 160 markets worldwide, including the USA, where we have a significant presence through ITG Brands. Our operations are predominantly factories along with sales and support offices. We employ around 34,000 people globally and in financial year 2016 generated £7.2bn in net tobacco revenue. We returned over £17bn to governments in taxes and duties in financial year 2016.

The integration of the USA operations was completed as planned during the year, and ITG Brands continued to perform strongly, delivering approximately 20% of total reported Group tobacco net revenue.

Fontem Ventures is developing new opportunities for sustainable revenue growth, and is well placed to capitalise on the growing e-vapour sector through the blu brand. Sales of blu are concentrated in the USA, the UK, France and Italy – the four core

e-vapour markets that together account for around 70% of global e-vapour sales. blu is the established number two brand in the UK and USA and has a growing presence in France and Italy.

We believe the next five years or so are going to be a critical time for next generation products, and how this category evolves. We have a disciplined and measured investment approach that allows us to have a lean and scalable model. We are focusing on pursuing the best consumer experience through the technology we use. Fontem Ventures has enhanced revenues by licensing its first generation technology to other e-vapour companies.

Logista is one of the largest distribution businesses in Europe, servicing tobacco and non-tobacco customers, and making more than 35 million deliveries a year to 300,000 outlets across Spain, France, Italy, Portugal and Poland. Logista has a history of delivering strong results, and in 2016 distribution fees were up 2.8% to £809 million and adjusted operating profit increased by 7.8% to £174 million.

We purchase the majority of our tobacco leaf from third-party suppliers, mainly through the leading international leaf supplying companies. Our tobacco is sourced from various countries, including Brazil, China, India, EU member states and Africa. A small amount of our tobacco is purchased through direct involvement in the cultivation of tobacco leaf, principally in Madagascar, Morocco and Laos.

“Imperial Brands PLC is the parent company

of an international business specialising in tobacco and non-

tobacco brands”

http://www.imperialbrandsplc.com/About-us/Our-companies/Imperial-Tobacco.html

http://www.imperialbrandsplc.com/About-us/Our-companies/ITG-Brands.html

http://www.imperialbrandsplc.com/About-us/Our-companies/Tabacalera.html

http://www.imperialbrandsplc.com/About-us/Our-companies/Fontem-Ventures.html

http://www.imperialbrandsplc.com/About-us/Our-companies/Logista.html


Our Values and Our PeopleThe driving force behind our success is our people. At Imperial, we have a very strong culture and a strong set of values. Our values express who we are and what we stand for, and capture the individual and collective behaviours we expect from everyone who works for us. These values are illustrated below and further information is available by clicking on each icon.

We believe in the business benefits brought about by diversity and equal opportunity. We therefore support collective bargaining for our own employees and through our supplier standards. We actively support employee engagement, representation, dialogue and the ability of an employee to raise potential concerns or grievances. Freedom of association and the right to collective bargaining is a core labour standard that we respect as guided by the International Labour Organization (ILO). We apply our employment practices in line with, and in certain aspects exceeding the requirements of, local legislation.

We do not currently collate the total percentage of employees covered by collective bargaining agreements centrally; however we estimate that the Imperial Tobacco European Works Council (EWC) covers around 44% of our employee population. This is further supported by trade union and works council engagement at a country level. We have also worked towards new collective bargaining agreements outside of the EU, for example in the Central African Republic.

We support success based on merit, and report on gender diversity. At the end of financial year 2016, 39% of our general workforce was female, as was 30% of the PLC Board and 22% of the operating executive (OPEX).

Transitioning the BusinessOur strategic transition is focused on evolving our ways of working to strengthen the business and improve our quality of sales growth.

This transition began in 2010 following the appointment of Alison Cooper as the CEO.

Following a long period of mergers and acquisitions, we had inherited multiple

different ways of working, lots of different inconsistent organisation structures and many different IT systems and lots of different business processes.

We identified a big opportunity for us to build a better business by really integrating our processes, our organisation structures and a lot of systems to build a better performing business; one that’s agile, better at execution, less labour intensive and significantly more efficient and streamlined.

To enable us to make all these changes, we needed to clarify our operating model. An operating model defines the business framework that we use to execute our strategy. It includes people, structures, processes and technology, and organising all of these things to better execute our strategy.

Opportunities to enhance our ways of working are identified through the continual refinement of our operating model. For example the operating model has been central to the change we have made in how we manage markets; with clarity on roles and responsibilities. We have approximately 160 markets worldwide, and we organised these into 20 clusters. We then placed these clusters into three divisions: Growth, Returns and ITG Brands in the USA.

The Group and the division shape the strategy and the investment prioritisations. The clusters plan and ➤

We can

We surprise

I am

I engage

I own

new and better solutions

saying what I think

work out why and try again

share ideas

make it happen quickly

“We believe in the business benefits brought about by

diversity and equal opportunity”

http://www.imperialbrandsplc.com/About-us/Our-Values.html


support the markets, leaving the markets to focus solely on executing the Group strategy.

We also saw an opportunity to create global shared services and centres of expertise with a view to provide better support services for Procurement, Information Systems (IS), Human Resources (HR) and Finance, and at a lower cost to our business.

We sought to underpin these changes with new global technology and processes, and therefore implemented a series of global technology platforms. For example, we rolled out Workday, our HR platform, to some 23,000 people across 64 countries, in less than 12 months.

We developed an academy programme and training to teach people to work in the new ways and to use the new technology. In the coming years, we will see the return on investment from the changes we are making now.

In order to make the right choices going forward, we put the consumer at the centre of our thinking, and introduced and embedded the consumer needs wheel into the business.

Consumer understanding has been really important for us and for evaluating our portfolio. The customer needs wheel has helped us understand which of our brands are key and should be invested in going forward. It has also helped us understand where we should back new consumer experiences.

We also did extensive work to decide how to excel at driving our sales growth. The four sales growth drivers for our business are:

(1) Portfolio management: we focus on connecting our brands with the needs of the consumer to enhance brand

equity and build sales.

(2) Innovation: creating a drumbeat of initiatives that keep our brands fresh and relevant.

(3) Pricing and excise: we take excise structures into account when making pricing decisions and focus on driving revenue growth while continuing to give consumers value for money.

(4) Customer engagement: this requires strong partnership with our retailers that support their business and maximise the impact of our brands at the point of sale.

These sales growth drivers are very relevant to our business today. Wherever we are operating, we leverage our sales growth drivers consistently, and combined with effective cost management, we deliver high operating margins. This generates the strong cash flows that are a recognised strength of our business.

We have also been focusing on driving improvements in the Manufacturing part of the business. Approximately four years ago, we embarked upon a programme to transform the whole of our operations into a world-class lean organisation.

We call this programme Operational Excellence. We started rolling this programme out factory by factory, and at present the vast majority of our footprint are working in the lean environment. To date, the Operational Excellence Programme has delivered £25 million of savings per annum.

The lean way of working is about changing the mindset and behaviours, as well as more efficient operating systems, tools and methodologies. We want to empower our people to seek continuous improvement, and we believe this approach will strengthen our competitive position.

The lean way of working is not only driving agility within the business but it is also helping us to create safer working environments in our factories.

As we progress with our business transformation, we aim to be stronger than ever and to make the most of targeted opportunities such as waste reduction achieved by reduced operational complexity and inefficiencies. Despite year-on-year challenges, we are pleased our long-term sustainability performance trends remain on target.

Our Brands and MarketsThe steps we are taking to optimise our brand portfolio are at the heart of our change agenda.

We have clustered our markets based on the strategic roles they played rather than on their geographical location. We did this to drive synergistic thinking around the growth strategies and also to focus our investment behind the real opportunities in the business.

In Returns Markets (including selected markets in the EU, Africa and Australia), we have a larger market share, with ➤

Customer engagem

ent

portfolio Managem

ent

pricing

Innovation


the average market share being around 25%. In these markets, we are focusing on generating sustainable economic return, while actively managing our strong market share positions.

Growth Markets (including markets in Eastern Europe, the Middle East and the USA) have large profit and/or volume pools but we tend to have a relatively small market share, typically <15%. We are investing in Growth Markets to drive long-term economic strength.

We have around 160 markets worldwide and we have to be selective and prioritise the markets in which we wish to invest. We do this by evaluating the macro-economic environment, the market size, profit pool, affordability, pricing dynamic and the market environment. In addition, we also assess our ability to succeed by reviewing the strength of the portfolio in market, and the distribution and customer relationships we have. We look at the current situation and how these elements are likely to develop over the next three to five years.

Our portfolio consists of Growth, Specialist and Portfolio Brands. Growth Brands have strong equity and broad consumer appeal and are managed to drive quality and sustainable growth.

Specialist Brands also have strong equity but typically appeal to more specific consumer groups and have a track record of generating strong returns.

Portfolio Brands are a mix of local and regional offerings. Some have a role to play in supporting our volume and revenue progression, others have weaker brand equity and are therefore delisted or migrated into stronger, higher quality Growth Brands.

Our priority is to build the contribution these brands make to our results. We have a simple portfolio strategy – we want a small number of big brands rather than a large number of small brands.

We operate in a rapidly changing world. Refocusing and optimising is continually occurring within our business, with the primary focus being on quality, agility and discipline – all of which are critical in a changing environment.

Quality for us is about backing the right brands in the right markets and backing the right new consumer experiences. By strengthening and simplifying the portfolio, we will have quality and sustainable growth.

Agility is a focus on simplification and reducing the complexity we have in the business. For consumer goods companies to succeed, they need to be able to change, and change successfully by making continuous improvements. We are leveraging our sales growth drivers across our footprint, and we are driving this via our new operating model.

Discipline is about making clear choices and making clear prioritisations to support the business as a whole.

Our Challenges The responsible way we run our business is integral to our long-term sustainability. As a tobacco business, we recognise there are societal concerns about the health risks of smoking and acknowledge that smoking is a cause of serious disease in smokers.

Global Procurement of Tobacco Leaf and Non-Tobacco Materials

Manufacture of Tobacco Products at factories globally

Storage and Distribution of Products

Sale of Products to Retailers in 160 markets worldwide

Consumer purchases in domestic and travel retail channels

our Value Chain“The steps we are taking to optimise our brand portfolio

are at the heart of our change agenda”

➤


We agree that governments and public health authorities should provide clear, consistent messages about the health risks of smoking. Adults should be guided by those messages when deciding whether or not to smoke. Children should never smoke.

We believe that we have a positive role to play in meeting the global demand for legitimate tobacco products by taking a responsible approach to sales and marketing, and throughout all our business operations.

Like other businesses, we have faced a number of external challenges, including: shifts in the global economy, the impact of Brexit and continuing civil unrest in several markets. Despite such challenges, we have been pleased to maintain a strong benchmark position for our sustainability performance, as measured by the RobecoSAM assessment for the Dow Jones Sustainability Index (2016: 76%).

our Strategy and business ModelOur strategy is focused on maximising sales, cost and cash opportunities to deliver sustainable shareholder returns.

Towards the end of 2016, we completed an extensive strategic review of the Imperial Brands business and its operating environment. The review reinforced the strength of our strategy and also highlighted opportunities for us to drive even greater focus on our strategic priorities. The four key drivers of value creation and providing returns to our economic stakeholders are:

• Strengthening our portfolio• Developing our footprint• Cost optimisation• Capital discipline

We are strengthening our portfolio by building the contribution of our Growth and Specialist Brands, which is improving our quality of sales growth. Prioritising share and profit delivery in markets is also key to driving performance across our geographic footprint.

Cost optimisation continues to enhance efficiencies, and by embedding stronger capital discipline we are more effectively managing working capital and achieving high cash conversion.

Our business model illustrates how we create value. Consistently applying our Sales Growth Drivers to our Growth and Specialist Brands, combined with effective cost management, delivers quality sales with high operating margins. This generates the strong cash flows that are a recognised strength of our business. We use this cash to reinvest to support growth, pay down debt or return to shareholders through dividends.

During 2016, we continued with our business transformation programme, which is focused on streamlining global business process, enabling with IS investment and standardising with outsourced shared services where appropriate. We are well on the way to creating a stronger, more agile organisation that’s better equipped to respond to changing market and consumer dynamics.

Our current cost optimisation programme remains on track to save £300 million per annum from September 2018. A range of initiatives have been successfully deployed to optimise our cost base, realising £65 million in the year, and bringing the total annualised savings to £240 million.

To support the delivery of further quality revenue growth in 2017 and subsequent years, we will invest an additional

“The responsible way we run our business is integral to our long-term sustainability”

MaxIMISInG ShaReholdeR RetuRnS

StRenGthenpoRtfolIo

deVelopfootpRInt

CoStoptIMISatIon

CapItaldISCIplIne

➤


“Towards the end of 2016, we completed

and extensive strategic review of the Imperial

Brands business”

£300 million in our Growth and Specialist Brands in the key markets that offer the best opportunities for quality sales growth.

This increased investment will be supported by a new phase of cost optimisation, which will deliver additional savings of £300 million per annum by 2020, at a cost of £750 million. These savings will be

generated by implementing further initiatives to reduce complexity and drive operational efficiencies.

Further details are available in our 2016 Annual Report and Accounts.

We disclose our sustainability performance annually and set targets and objectives. These are placed in the public domain in the ‘Responsibility’ section of our website: www.imperialbrandsplc.com

We conducted our first CR materiality assessment in 2013. This year, we commissioned a new independent materiality assessment recognising that our business and operating environment have changed over the past three years. This exercise was constructed to identify and prioritise the

most important sustainability issues for our business today. The assessment involved input from a range of external stakeholders and will help to further develop our Sustainability strategy. Our initial revised materiality matrix is presented in this report under the section ‘Materiality and Stakeholder Engagement’. More details will be reported in 2017.

Our materiality analysis has accounted for impacts in the context of our global supply chain and informed the prioritisation of our objectives and targets. Our long-term goals are to support legitimate markets and consumers, to create a great place to work, to reduce our environmental impacts and to make positive societal contributions.

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http://www.imperialbrandsplc.com/Investors/Annual-report-accounts.html





Governance, ethics and IntegrityHigh standards of governance are fundamental to our business operating properly, responsibly, legally and with integrity. Strong governance underpins our business practices and the conduct of our people. Through our governance framework, we seek to effectively manage risks, and enable the right behaviours, controls and actions across our global organisation. This is in the interests of our shareholders and other stakeholders.

Our Board of Directors is responsible for the strategy, activities and financial performance of the company, together with the efficient use of its resources, as well as social, environmental and ethical matters.

The Board delegates responsibility for developing and implementing strategy and for day-to-day management to the Chief Executive who is supported by the Operating Executive (OPEX). The OPEX comprises the Executive Board of Directors and members of our senior management team.

Performance and progress plans are reported to and monitored by the PLC Board and OPEX through business reviews, functional/departmental progress reports and briefings from the relevant subject specialists, expert steering groups and departments.

We have functional and cross-functional networks of specialists, who deal with CR and Sustainability issues within their areas of specialism. These include our International Corporate Affairs Network, Occupational Health, Safety and Environment (OHSE) professionals, Human Resource Managers and Market Coordinators.

We have a central Sustainability (OHSE & CR) team who are responsible for developing and implementing the Group’s sustainability strategy. The governance of our sustainability strategy is undertaken by embedded reporting, OPEX and Board review in addition to two separate meetings of an OHSE Steering Committee and a Responsibility Steering Committee (RSC) in financial year 2016.

Our Company Secretary, who is a direct report to the Chief Executive, is a member of the RSC and provides a further link to the PLC Board. Other steering committees such as the Product Stewardship and Health Group (PHSG) exist for more specialist topics.

The standards of behaviour the Board expects from employees worldwide, together with our embedded governance framework, demand our people act honestly and with integrity. The standards of behaviour we require from our employees are often more stringent than those required by local regulations and are laid out in Our Code of Conduct.

In 2016, following a comprehensive review, we refreshed and enhanced our

Code of Conduct, which now focuses on four key stakeholder groups:

• Our People • Our Company • Our Customers and Suppliers • Our Communities.

We also introduced a new section on the responsible use of social media, a communication channel that has grown significantly since the Code was last published. Our Code now covers key issues such as acceptable business practices, ethical and legal compliance matters, physical and data security, as well as regulatory, governance, and occupational health, safety and environmental issues.

Our corporate values have also been clearly integrated into our refreshed Code; this is intended to better align our governance priorities with the behaviour we expect from our employees.

We view our Values as the essence of what Imperial is about and define who we are. They provide us with a common bond, guiding the way we do business and influencing the way we behave. Our values are about working together, continually improving, taking ownership and making the most of every opportunity. They utilise a combination of ‘We’ and ‘I’ to reflect the way we operate, encouraging both collaborative and individual contributions. These values are used to help evaluate people’s performance in terms of how they fulfil their role and conduct themselves.

Our Code of Conduct applies to all of our employees including all five operating entities – Imperial Tobacco, ITG Brands, Logista, Tabacalera

“High standards of governance are

fundamental to our business operating

properly, responsibly, legally and with

integrity”

➤


and Fontem Ventures. The Code is available on both the intranet and the internet.

We expect all our employees and business partners to act in accordance with the standards of behaviour described in our Code of Conduct, which is now available in 30 languages.

Our Code of Conduct also outlines the avenues that are available for our employees to speak up if they suspect that a breach of the law or of the Code has taken place. In addition to this, concerns can be raised independently using our Speaking Up service.

This is managed for us by Expolink, who can be reached by phone, email and via the internet. Each country has its own phone number and the service is provided in 42 languages. The Expolink Hotline operates 24 hours a day, 7 days a week (except 25 December).

Risk is an inherent part of our operating environment. The VUCA (volatile, uncertain, complex, and ambiguous) world in which we operate requires effective management and monitoring of known risks, along with the identification and assessment of emerging risks, to achieve our strategic objectives.

The Group’s risk management framework, aligned with the operating model, is an integrated approach based upon the three lines of defence, which are detailed in our Annual Report and Accounts. The Board has ultimate responsibility for the Group’s strategy and related risk appetite, and is also responsible for ensuring the effectiveness of the risk management

and internal control systems, with the Audit Committee assisting in the discharging of these responsibilities.

A key enabler of our risk management approach is the deployment of 'Centres of Expertise' (second line of defence). These are central functions employing technical experts with the knowledge and practical skills to develop and provide appropriate policy, process, control structures, and support to local management (first line of defence) within our global business to enable the consistent application of policy. The third line of defence is our Internal Audit (IA) team, who audit the effectiveness of the risk management and control framework.

We have a role to play in addressing human rights issues, including slavery and human trafficking. This respect for human rights is reflected in our Code of Conduct.

In order to better understand our respect of human rights and in a context of new and emerging legislation, such as the UK Modern Slavery Act (2015), we commissioned a leading global risk consultancy, to conduct a corporate Human Rights Impact Assessment (HRIA).

The HRIA was guided by the United Nations Guiding Principles on

Business and Human Rights Reporting Framework. It was designed to help us systematically assess, evaluate and prioritise areas within our global operations and in our supply chains for tobacco leaf and non-tobacco materials (NTM: tier 1 suppliers only) for a stronger respect of Human Rights. The results of the HRIA will help us to identify areas for improvement and action and have been made available on our website.

We have also made a statement in response to the requirements of the UK’s Modern Slavery Act 2015, which is also available on our website.

“We have a role to play in addressing human

rights issues, including slavery and human

trafficking”



http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/human-rights/Human_rights_impact_assessment_for_Imperial_Brands.pdf

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/footer/Modern%20Slavery%20Act%202015%20Statement.pdf


Reporting approach and assuranceWe define our approach to reporting in our ‘Reporting and Criteria Document’, which is available for download on our corporate website.

In our reporting, we aim to: report our activities honestly and give a fair impression of business conduct; provide key stakeholders with appropriate information, as guided by leading frameworks and standards, such as the Global Reporting Initiative; and inform relevant investor evaluations and indices.

Our Reporting and Criteria Document provides further information specifically on our commitment to reporting, how issues have been selected for reporting, and the scope of reporting, our general reporting principles, reporting boundaries and the level of assurance.

Our indicators are also explained in terms of a definition, scope, reporting period, unit of measurement, method of reporting and whether they have been independently assured.

Our business is managed and reported on a functional basis. We therefore manage, gather and report data either as a whole or by function. We do not report on a legal entity basis. The logistics part of our Group business operates under the legal entity of Logista. Due to commercial sensitivities, this entity is managed remotely and does not report wholly into Group data and therefore remains out of scope with the exception of mandatory greenhouse gas emissions reporting in the Annual Report and Accounts. In addition, Fontem Ventures

currently remains out of our reporting scope. Our Reporting and Criteria Document details the scope of reporting for each of our performance indicators.

Selected data presented in our CR performance reporting has been assured by the third party assurance providers, PricewaterhouseCoopers LLP (PwC).

The latest disclosures on our website and in our 2016 Annual Report and Accounts relate to information available at the end of financial year 2016. In this latest reporting cycle, there has not been any restatements of information previously provided, or significant changes to the reporting boundaries.

For further details please see the Assurance Report and Approach Document from PwC.

We use our CR framework to align performance indicators, monitor

progress, set improvement objectives and structure reporting. It is reviewed annually to ensure it continues to be aligned with risk management, emerging issues and changes in the business environment and stakeholder expectations.

Towards the end of financial year 2016, we commissioned an independent materiality assessment to identify and prioritise the most important sustainability issues for our business. The assessment involved input from a range of external stakeholders and will help to further develop our CR strategy. More details will be reported in 2017, however, preliminary information is provided in the section ‘Materiality and Stakeholder Engagement’.

Overall, we have made positive progress in the majority of our public objectives and responsibility performance indicators, and we continue to make progress in our long-term trends and targets; please see our 2016 Responsibility Performance Indicator table for more details.

For progress against our 2016 Responsibility objectives click here.

“Overall, we have made positive progress in the majority of our public objectives

and responsibility performance

indicators, and we continue to make

progress in our long-term trends

and targets”

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/approach-and-performance/Reporting_Criteria_2016.pdf

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/approach-and-performance/Imperial_Brands_CR_Assurance_2016.pdf


http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/approach-and-performance/2016_Objectives_for_Responsibility_Progress.pdf


external References and Risk MitigationTo help drive consistent good practice across our global operations, we follow and reference international standards, where practical. This enables us to enhance the way we operate, over and above regulatory requirements. We are guided and seek to apply requirements as specified within:

• ILO core conventions for human rights and employment practices

• SA8000 for social accountability• AA1000 for stakeholder engagement and

social reporting• ISO 9001 for quality management• ISO 14001 for environmental

management• OHSAS 18001 for occupational health and

safety management.

We develop and maintain partnerships with other organisations that share the same objectives; have complementary skills, knowledge and experience; and have appropriate capability, networks or geographical reach.

Working with various trade associations, partner organisations, consultants, specialists, information-sharing forums, research projects and academic studies enables us to remain informed on current issues and share good practice.

At a corporate level, this includes membership of the following:

• Associate Parliamentary Corporate Responsibility Group (UK)

• International Chamber of Commerce Committee for Business in Society

• The Institute of Corporate Responsibility and Sustainability (ICRS)

• Cooperation Centre for Scientific Research Relative to Tobacco (CORESTA)

• CDP Climate Change Programme

• Eliminating Child Labour in Tobacco Foundation (ECLT)

• Charities Aid Foundation.

We account for social and environmental issues in our approach to risk mitigation, understanding that our business activities have the potential to impact both people within society and the environment.

Mitigation activities are issue specific and include having: appropriate standards and requirements; internal controls and approvals; stakeholder dialogue; due diligence work; assessment criteria; and, on-going monitoring. Such mitigation activities are particularly evident for our most material issues. Our requirements for risk mitigation are also reflected in our Code of Conduct, which is applicable Group-wide. We continue to strengthen our risk management approach with the PLC Board and the Audit Committee.

We review the material risks to ensure a consistent top-down approach in how we identify, assess and prioritise, as well as assessing our existing management and mitigation. This is complemented by an annual bottom-up review. We have built a Group Risk Register, which covers strategic, operational, financial, legal and the most material social and environmental risks.

The Group’s Risk Register is supplemented by our Sustainability Risk Register. This specifically details our CR issues and, in alignment with the Risk Register, overtly links: the relevant operational and strategic risks; our governance framework; management accountabilities; and specific measures.

Our Sustainability Risk Register helps to reaffirm that our approach to CR and sustainability is appropriately embedded throughout our business Group-wide.

As a tobacco company, we have a specific responsibility to deliver products of the quality and content that consumers are entitled to expect. Smoking is a cause of serious diseases in smokers and therefore there are real societal concerns about the health risks of our tobacco products. In this context, tobacco products are highly regulated. We also apply our own high standards to both meet and exceed regulatory requirements.

To meet our responsibilities as a manufacturer of tobacco products, we employ a number of experts and scientists to support our product developments, research programmes and testing, ingredients assessment, product content submissions and product quality. We stipulate that for all products containing tobacco, they must carry a pack-level health warning.

“We account for social and environmental

issues in our approach to risk mitigation”


Materiality and Stakeholder engagementTo frame our sustainability agenda, we have our CR Framework with four key areas of focus. These are:

• Being responsible with products• Creating a rewarding workplace• Respecting natural resources• Reinvesting in society

Materiality is determining the relevance and significance of an issue to an organisation and its stakeholders. We conducted our first materiality assessment in 2013. This was conducted by the leading risk consultancy, Verisk Maplecroft (Maplecroft).

Twenty countries of interest were referenced, based on our operational footprint, a general assessment of leaf sourcing activity, number of employees, production capabilities, percentage of market share and revenue generation.

Business relevance was informed by an external assessment of the country’s exposure to related risks and a consideration of the potential business impact i.e. relevance to commercial strategy, significance of the related risks from a total Group perspective (considered in terms of reputation and our principle risks and uncertainties) and resource allocation.

Stakeholder impact was evaluated through a consolidated external assessment of stakeholders’ interests and influence.

We define our stakeholders as those with whom we have a financial relationship or who are directly affected by, or have a direct interest in, our business operations. These stakeholders include investors, employees, customers, consumers, suppliers and retailers.

Other stakeholders include supply chain communities, competitors, non-governmental organisations and the media.

The 2013 materiality assessment identified 20 issues, five for each of the four focus areas of the responsibility framework.

Based on their relative importance, from both a stakeholder and business perspective, these issues were further categorised into issues of primary, secondary or tertiary relative importance. Primary responsibility

issues are those that have the potential to impact our business the most and are of the greatest interest to our stakeholders.

Using this materiality assessment as our guide, the primary and secondary responsibility issues are discussed and disclosed in the 2016 Annual Report and Accounts, with supplementary information on the corporate website for all of the issues.

The illustration above shows the results of the 2013 materiality assessment.

Behaviourand Respect

EmployeeWellbeing

Employee Voice

Developmentand Reward

EmployeeHealth and Safety

SupplierStandards

Child Labour

Food Security

LivelihoodsResource Efficiency

Climate and Energy

Deforestation

Water

Biodiversity

CommunityWellbeing

Adult Choice

Illicit Trade

Product Standards

ResponsibleMarketing

Product use and Disposal

Tertiary Secondary Primary Primary Secondary Tertiary

Te

rtia

ry

S

econ

dary

Pri

mar

y

P

rim

ary

S

econ

dary

Tert

iary

Responsible with products

Rew

ardi

ng

workplace

Reinvesting in societyRespecti

ng nat

ural

reso

urce

s

2013 Materiality Assessment

➤



http://www.imperialbrandsplc.com/index.html


To reflect best practice – and taking into account that the business priorities and footprint have changed over the last three years – towards the end of financial year 2016, we commissioned Maplecroft to revisit the materiality assessment for our current business, taking into consideration the view of a range of external stakeholders.

For the initial assessment, the following were taken into consideration:

• Imperial Brands operational footprint;• Output from the External Stakeholder

Panel conducted in 2015;• Imperial’s management systems and

Code of Conduct;• Results of the HRIA conducted in 2016,• International standards and guidance

on corporate responsibility;• Material issues identified by peers;• Media analysis; and• Maplecroft’s risk indices

Following this initial assessment, the 20 material issues identified for Imperial Brands were discussed with 25 key internal stakeholders who ranged from subject matter experts to senior management. These discussions helped to prioritise these issues in terms of importance to the business based on the risks and opportunities they presented, and were drawn up into a materiality matrix. This type of internal engagement is essential for consensus-building.

Once the issues had been prioritised, key external stakeholders were interviewed. These included representatives from customers, suppliers, investors, NGOs and employees. Stakeholders were asked to review the materiality matrix and comment. Feedback was then integrated into the final materiality matrix, which is illustrated in the figure above. This type of external engagement

is essential to validate the results of the assessment.

We have focused on the top 10 material issues identified by the assessment and set objectives for them to be actioned during financial year 2017. Please see the table below for details. Progress against these objectives will be reported at the end of 2017.

The 2016 materiality assessment will inform our sustainability strategy going forward and more details will be reported in 2017.

Stakeholder engagement We believe that building and maintaining trust with our stakeholders is vital for business success. In 2015, we invited representatives from our key stakeholder groups to participate in discussions on our approach to CR. The panel highlighted many positive aspects of our CR approach and gave constructive feedback on areas where we can drive improvement. Our thanks to all participants for their time and comments. You can read our 2015 Stakeholder Panel Report online.

Overall, we take an integrated approach to stakeholder management. Stakeholder engagement takes place at Group and market level as part of our normal work activities.

This includes activities undertaken by personnel in: Investor Relations, Corporate Affairs, Marketing and Customer Relationships, Supply Chain and Procurement, Environmental Management and Human Resources.

“Towards the end of financial year

2016, we revisited our materiality

assessment”

2016 Materiality Assessment

Impo

rtan

ce to

sta

keho

lder

s

Risk and Opportunity for Imperial Brands PLC

Shared Wealth

Farmer Livelihoods

Regulation

Business Conduct

Human Rights

Health, Safety and Wellbeing

Employee

Voice

Diversity

Recruitment and

retention

Development and

Reward

Pollution

and Waste

Climate and

Energy

Biodiversity

Water

Forestry

Adult Choice

Illicit Trade

Next Generation

Products

Product Quality

Responsible with Product Rewarding Workplace Respecting Natural Resources Reinvesting in Society

Consumer

Health

VeRyIMpoRtant

IMpoRtant

➤

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/approach-and-performance/Stakeholder%20Panel%202015.pdf






We have various communication methods with stakeholders, including face-to-face meetings, written communications, formal submissions and publications, as well as conducting a more formal stakeholder panel.

Further details on the mechanisms we use to engage and respond to our stakeholders are detailed in

our document ‘Responding to our Stakeholders’. “The 2016 materiality

assessment will inform our

sustainability strategy going forward”

Rank CR Focus Area Issue Identified by 2016 Materiality Assessment

Objective for 2017

1 Reinvesting in Society

Shared Wealth To continue to strengthen the economic value of the business for stakeholders and to provide further transparency on our Group tax policy and the taxes paid.

2 Responsible with Products

Consumer Health To further our research into products with the potential to reduce the risks of smoking, including our development of an e-vapour product suitable to license as a medicinal product.


Illicit Trade To counter the threat posed by Illicit Trade. Maintain and build upon key relationships with international law enforcement agencies and regulatory bodies to protect legitimate trade in key markets; consolidate Imperial’s status a responsible corporate citizen and partner by rigorous adherence to our supply agreements and policies.


Adult Choice To continue to apply our International Marketing Standard (IMS) and adhere to regulatory requirements with relevant training as defined within our Code of Conduct IMS e-learning and the guidance provided by the Brand and Product Regulation Team (particularly to personnel involved with brand development and communication activities).


Next Generation Products Through our non-tobacco standalone subsidiary Fontem Ventures we will continue to invest in new consumer experiences, including through the e-vapour brand blu.


Regulation To inform and respond to an evolving horizon of regulation and taxation, particularly in the areas of plain packaging and the tracking and tracing of our tobacco products through the supply chain. We have a special focus in the European Union, as we work with the implementation, and continuation, of the European Union Tobacco Products Directive.

7 Rewarding Workplace

Health Safety and Wellbeing

To improve the quantity and quality of Near Miss and Safety Observation Reporting; expand our Total Safety Leadership training programme; and further progress our initiatives on working at height (‘HeightSafe’), road safety (‘DriveSafe’) and the management of stress / resilience.


Farmer Livelihoods To improve the livelihoods of farmers in priority African origins by investing in water projects, barns, labour-saving technologies, alternative crops and soil fertility.


Human Rights To follow up on our Human Rights Impact Assessment in the areas of training, risk area insights, grievance mechanism awareness and enhanced reporting.

10 Respecting Natural Resources

Forestry To progress towards our target for Wood Sustainability in Africa by 2022, with the planting of more than an additional two million trees, within the financial year 2017.

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/approach-and-performance/Responding_to_our_Stakeholders_2016_update.pdf



ReSponSIble WIth pRoduCtS


We recognise there are societal concerns about the health risks of smoking and ensure we manufacture, market and sell our products responsibly. We take great pride in the fact that millions of adult consumers around the world purchase our brands every day.

Our consumers are of paramount importance to us and we will continue to respond to their evolving needs and excise our duty of care.

“ OuR GOAL IS TO SuPPORT LEGITIMATE MARkETS AND CONSuMERS.”

performance summary• 46 countries for which cigarette ingredients are published on our corporate website

• 5.8% improvement in the Global Quality Index since last year

• 27 formal Memoranda of Understanding and cooperation agreements with governments around the world

Illicit tradeEvery year around 500 billion illegal cigarettes are consumed, depriving governments of around £30 billion in taxes. The smuggling and counterfeiting of tobacco has considerably wider impacts: children can more easily obtain cigarettes, consumers are deprived of the quality they associate with their favourite brands and the livelihoods of independent retailers are threatened.

We advocate a partnership approach to fighting illicit trade, and seek to work with governments, customs and law enforcement agencies to combat the problem of tobacco smuggling and counterfeiting.

Some six years ago, we signed a co-operation agreement with the European Commission and the Member States of the European Union to jointly combat illicit trade in tobacco.

We continue to progress anti-illicit trade activities aligned with this commitment, and provide annual funding so that governmental authorities may also build further capabilities against the illicit trade of

tobacco products. We have Memoranda of Understanding (MoU) with numerous countries around the globe and we will continue to invest in such partnership agreements in the future.

In 2016, we renewed our MoU in Vietnam and signed new MoUs in Spain and Chad. In total, we now have 27 MoUs in place.

We apply stringent controls to our global network of distributors and have a dedicated team of specialists who work with governments and law enforcement agencies around the world to tackle illicit trade.

We also invest in systems and processes to improve the security of our products and share intelligence to help disrupt the supply of illegal cigarettes.

Our policy is to only supply our products to approved customers and markets. We work with customers to ensure that they are aware of our policy and their responsibilities to have control in their supply chain. We have a product supply policy, a market risk-management process and a ‘Know Your

Customer’ process to further minimise commercial, personal and reputational risks. This includes specific data requirements for automatic screening of new markets, customers and changes to existing trading arrangements against sanction lists.

In 2016 we launched a new software program designed to make the process of customer checking more robust. This Business Integrity Software is now fully operational in all duty free markets (106) and partially implemented in 157 domestic markets. We will continue with the remaining roll-out in accordance with our Group transformation programme

To ensure we respect sanctions or trade restrictions, customers and other business partners are screened on a daily basis.

“We advocate a partnership approach to fighting illicit trade”

➤


Additional risk-based research is conducted to ensure that the business is not exposed, or indirectly linked, to sanctioned countries, entities or individuals.

We use our Track and Trace system, developed with a number of specialised suppliers, which helps us keep track of our product movements throughout the supply chain. This technology also helps to ensure we comply with both our Code of Conduct and regulatory agreements.

Without the Track and Trace technology, it is difficult to prove who the end purchaser of any of our seized product was and subsequently we are faced with high penalties. For example in recent years, our Golden Virginia product was seized and using the technology we were successfully able to trace the product back to the wholesaler and retail purchasers. This particular incident led to us to the decision to terminate sales to six retailers via our direct wholesalers in a specific market.

In addition to investing in systems and processes to improve the security of our products, we share intelligence with enforcement agencies worldwide to

help disrupt the supply of illicit tobacco products.

In 2016, approximately 280 million sticks of counterfeit products imitating our brands and illicit white cigarettes were seized as a result. Significant enforcement action has also taken place in the protection of the Golden Virginia and Rizla Brands.

On 1 June 2016, the Digital Coding and Tracking Association (DCTA) consisting of the four major international tobacco manufacturers, including us, divested its technical intellectual property to a third party called Impala Group.

This decision was taken primarily to ensure that the track-and-trace solutions could be properly developed, since technology development is not our core business.

Impala has created a new company called Inexto that will continue to progress this track-and-trace technology. Inexto will continue to support the current technology suite as it currently stands.

The DCTA still exists but its focus is on engagement around technical standards.

To further raise awareness of the issue of illicit trade within the business and to provide guidance material to our employees, we provide an anti-illicit trade (AIT) e-learning course to key personnel across the business. In 2016, this course had been completed by approximately 4,000 employees across 204 locations in 84 countries.

product StandardsSmoking is a cause of serious diseases in smokers, and therefore there are societal concerns about the health risks of tobacco products. We recognise that it is the role of governments to provide the general public and smokers with clear and consistent messages about the health risks associated with smoking. We do not challenge those messages.

In this context of societal concern, tobacco products are highly regulated.

We apply our own high standards to meet regulatory requirements, and to ensure that we apply those standards for markets where regulatory controls are weaker. Tobacco regulation applies to product development, contents, manufacture, packaging, labelling, testing, data reporting, sale, distribution, display, marketing, advertising, taxation and restrictions on product use.

We support appropriate ingredients disclosure and agree that all tobacco

products should display written health warnings that are consistent with public health messages. We comply with all regulations and requirements concerning health warnings and other labelling requirements set out in national laws, local/national countries’ codes of practice and/or voluntary agreements which govern our products.

It is our policy that a clearly visible health warning will appear on packs and advertising of all tobacco ➤

CoMbatInG IllICIt tRadeWe are firmly opposed to illicit trade in all of its forms and cooperate with authorities globally to help prevent illegal tobacco products from reaching the legitimate market.

Click here to read the case study

CaSe Study

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/approach-and-performance/CR_Case_Studies_2016.pdf


products manufactured and/or marketed by us, including on any outer packaging intended to be presented to the consumer. Where there is no regulation or requirement, we apply a health warning in accordance with our International Marketing Standard (IMS). In addition, we also include (a) recycling information on the majority of our tobacco products’ packaging; and (b) “dispose responsibly” on pack and/or communication tools for those of our products that contain biodegradable filters.

We consider the science relevant to tobacco, materials, manufacturing processes and product properties. We ensure materials and products are fit for their intended purpose, meet relevant specifications and comply with legislation, and voluntary agreements.

In line with our own standards, we have an Assessment, Guidance and Permissions Group (AGP). The AGP experts are toxicologists and other qualified specialists. The role of the AGP is to assess prior to product manufacture the suitability and regulatory compliance of the materials and specifications to be used.

The AGP also assesses the materials intended for use in primary packaging, as well as materials to be used in the production process where direct contact with the product is involved or a potential for accidental contamination exists. The AGP reports to the Product Stewardship and Health Group (PSHG), which reports directly to the PLC Board.

We have procedures that are in place to ensure we manufacture quality products and to prevent accidental contamination. In the event of suspected contamination, we call upon our Risk Assessment Panel (RAP) whose role is to assess whether the defective product poses a potential risk to consumer safety and to recommend

what action should be taken. The RAP can enact crisis management and product recall procedures if required and has the responsibility to ensure regulatory authorities are appropriately notified. The aim of the RAP is to enable us to fulfil our legal obligations by placing responsibility for the assessment and decision making on those with the appropriate expertise.

We are rightly expected to adhere to high product standards. In rigorously testing and analysing our products, we ensure that we continually build our knowledge and are able to fulfil our responsibilities to consumers as well as meet legal requirements for providing technical and scientific information to regulators.

We undertake research programmes to improve our knowledge of tobacco and product consumption. Our specialists review scientific literature on tobacco and associated diseases and we also commission some independent academic research. Our views on the health effects of smoking are based upon our own evaluation of the science, including the advice of external scientific experts. Those experts are generally professorial academics and practising physicians. We do not commission or conduct research involving animals and would do so only if formally instructed by governments or recognised authorities.

We can confirm we did not undertake or commission any animal based studies in financial year 2016.

We invest in research and development to innovate and improve our products and production techniques. We evaluate the commercial and regulatory impact of new concepts and product types by ensuring that products and processes receive appropriate assessment, patenting and testing before any commercial application. Prior to sale, potential new products are checked for regulatory compliance, and product specifications must be approved by the AGP group prior to manufacture.

We see e-vapour as a key future growth opportunity for the business and continue to invest in the next generation of e-vapour products, focusing on Fontem Ventures blu brand.

Our research shows that the vast majority of tobacco smoke constituents are not present in e-vapour products, which means e-vapour has potential as a

pRoduCt deVelopMent and RISKFrom time to time, our stakeholders ask us about “harm reduction”. Given the health concerns associated with tobacco products, we have a responsibility to investigate how to modify the product to address those concerns.


CaSe Study

➤

“We invest in research and development to

innovate and improve our products and

production techniques”

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/responsible-with-products/2014_International_Marketing_Standard.pdf




Responsible MarketingOur views on smoking and health are clear and can be viewed on our website at the following location: 'Our Views'. Smoking is a cause of serious diseases in smokers, including lung cancer, heart disease and emphysema. We agree that governments and public health authorities around the world should provide clear and consistent messages about the health risks of smoking.

Adults should be guided by the public health messages when deciding whether or not to smoke. Children should never smoke.

We only market our products in consumer advertising/promotional materials and activities which are aimed at adult consumers and support penalties for retailers who sell tobacco to children.

For us, responsible marketing is about ensuring that our product and brand communications are not aimed at, or made appealing to, people under the age of 18 or non-smokers, and that we operate in accordance with local laws. We consider this important in protecting not only our brand but also our corporate reputation.

Selling our products in a responsible way is simply part of how we do business. We require all of our markets to firstly comply with legislation,

voluntary agreements and, in the absence of stricter constraints, our own International Marketing Standard (IMS).

The IMS is a very important document that all markets must adhere to. It sets out rules and principles to ensure that advertising and promotional activities are directed only at adult smokers. The IMS covers aspects of marketing, such as style and content, health warnings, product placement, advertising media and sponsorship. The IMS is available on our website.

To support awareness and understanding of our IMS we have developed an IMS e-learning module which has been translated into 12 languages. It has been rolled out targeting key employees across the Group as well as our key external business partners such as agencies, distributors and service providers. To date, approximately 4,900 people have completed the course with a completion rate of 93%.

Material related to the IMS has also been integrated into our Commerce Academy,

which provides training for employees in sales and marketing and those employees located in our markets dealing with commercial and marketing issues.

Our sales and marketing personnel ➤

reduced risk product relative to tobacco. We share our findings with regulators and other key stakeholders and intend to continue to take an active role in the ongoing debates about e-vapour.

The long-term development of the e-vapour category depends on clear and consistent regulation. We support regulation that will drive high consumer

safety and product quality standards and believe that e-vapour products that make smoking cessation claims should be covered by pharmaceutical legislation.

We continue to make progress towards our goal to obtain a medicinal licence for an e-vapour product and have had constructive meetings on our approach with regulatory bodies, including the

UK Medicines & Healthcare products Regulatory Agency.

We continue to partner with our major leaf suppliers to conduct research into the tobacco plants and develop varieties that contain lower levels of constituents that regulatory authorities see as priorities to reduce, and grow these varieties on a commercial scale.

InteRnatIonal MaRKetInG StandaRdWe believe that our Products are for adults and we communicate in a responsible manner with adult consumers about our Products.

We are committed to the marketing and advertising of our Products responsibly within the laws, codes of practice and voluntary agreements of those countries within which we operate.

We apply this International Marketing Standard (IMS) to consumer advertising/promotional materials and activities.

Click here to find out more

“Selling our products in a responsible way is simply part of how we

do business”

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/responsible-with-products/Our%20Views.pdf



are in turn responsible for promoting further awareness and understanding with relevant partners, such as design agencies. As part of our strategic brand strategy, we now only have one global marketing agency and have developed a more stringent brand communication approach, which is part of our internal compliance controls.

An important element of our internal control system is our Brand Activation tool kits, which must undergo approval from our ‘Brand and Product Regulation’ team and provide markets with a set of communication materials. These may then be used, subject to further local approvals, ensuring compliance with any additional local legislation.

We continue to review and respond to any alleged breaches of marketing-related regulations, voluntary codes and agreements. If a material breach were to arise, this would be reported in the Annual Report and Accounts. There were no material breaches during the financial year.

adult ChoiceTobacco products are for adults and should never be sold to, or used by, children. We work with retailers to reinforce this message and encourage responsible selling. In the majority of markets, legislation exists to prevent the sale of tobacco products to minors.

We support reasonable and proportionate regulation that is underpinned by sound evidence, including regulation that will reduce illicit trade and youth smoking. We recognise that it is the role of governments to provide the general public with clear and consistent messages about the health risks to smokers that are associated with their smoking. We do not challenge those messages.

Preventing children from using tobacco products is an issue for society as a whole to resolve. We play our part by not directing the marketing of our products to anyone under the age of 18, or higher minimum age where specified locally, or to non-smokers. This is part of our responsible marketing approach and we have our own International Marketing Standard (IMS) which all markets must comply with as a minimum standard.

We consider that having strong relationships with retailers is a key part of enabling responsible sales activities. Youth access prevention initiatives, such as retailer engagement programmes, are designed to discourage the sale of tobacco products to minors, which helps to ensure retailers remain aware of the issue and our position to only support adult sales. Our preferred involvement is through government-approved identity programmes, such as proof of age schemes, working in conjunction with independent bodies and trade associations.

In the UK, we have joined forces with other industry partners to deliver a compliance programme called ‘Responsible Tobacco Retailing’, which provides training to independent retailers to improve their awareness of and compliance with age of sale laws. To date, over 600 retail premises have received direct training and support.

An independent report we commissioned on smoking trends last year has helped us prioritise markets for initiatives aimed at preventing

children from getting access to tobacco. We produced a guide to support these markets to implement their initiatives and engage with key stakeholders.

In Ireland, we work with other organisations to support ‘Show Me I.D.’, a youth access prevention programme to provide Irish retailers with advice, support and leading practice on how to avoid the sale of age-restricted products to minors. Many similar schemes are also in place in other countries where we operate.

In markets such as New Zealand, Laos and Slovakia, our salesforce provides retailers with training materials and advice in the form of posters, stickers and other items, such as refusal registers for shop staff to record people who have been refused sale. These items remind the public and retailers of the minimum legal age of sale, as well as the laws around proof of age identification.

adult ChoICe and alteRnatIVe pRoduCtSWe understand that smoking causes disease and therefore as a responsible manufacturer we have a duty to investigate alternatives with the potential to reduce the risks for adult consumers wanting another choice.


CaSe Study

“Tobacco products are for adults and should

never be sold to, or used by, children”



ReWaRdInG WoRKplaCe


performance summary• 72% reduction in lost time accidents since 2009

• 29% improvement in sickness absence since 2009

• 59% is the employee engagement score for 2016

• 39% of the total employee population is female

• 30% of the PLC Board is female

• 22% of the executive management team is female

Region At 30 Sept 2012 At 30 Sept 2013 At 30 Sept 2014 At 30 Sept 2015 At 30 Sept 2016

European Union 17,000 16,100 16,649 16,496 15,781

USA 8,600 8,200 7,578 9,821 8,542

Rest of the World 11,600 11,000 9,594 10,129 9,586

Total 37,200 35,300 33,821 36,446 33,909

The following table shows the number of people employed by the Group by region as at the end of the financial year

The following table shows our Group Employee Turnover rate. This is not broken down by age, gender or region. Our 2014 data covers our main offices and manufacturing sites. At present, we are unable to provide global data for 2015 or 2016 as our business is currently undergoing a transformation and a new global system, called Workday, is being rolled out to all markets. We hope to be able to provide this information in future. In general, employee turnover varies by country and operating company, driven in part by conditions in the local labour market. However, we continue to attract and retain high quality individuals, which is reflected in our low employee turnover rate for previous years.

Financial Year 2012 Financial Year 2013 Financial Year 2014

Employee Turnover Rate (%) 3.8 2.11 1.31

employee health and SafetyThe welfare and safety of our people is of utmost importance to us. A strong focus on health and safety standards and behavioural training is essential; to reduce accidents, keep employees safe, protect assets and maintain a productive workplace.

Following an independent review of Occupational Health and Safety (OHS) procedures and compliance we have now

developed a dual approach to ensure OHS compliance.

Technically based OHS inspections are performed by our dedicated OHS department staff. OHS inspections are conducted to:

• assess compliance with detailed technical work procedures and legislation;

• evolve new safety standards;

• perform post-incident reviews; and • review new facilities and activities.

Management compliance audits of our internal OHS standards and management systems are undertaken by our IA department as part of their global audit activities. A risk based approach is adopted including OHS within the scope of appropriate audits.

The IA team work closely with the

We strive to provide a safe and pleasant working environment that inspires employees to do their best. We want to see skills and talent flourish and are proud of the diversity and collaborative spirit of our workforce.

“ OuR GOAL IS TO CREATE A GREAT WORkPLACE FOR OuR EMPLOyEES.”

➤


OHS team to collaboratively develop recommendations and responses where areas of underperformance are identified. OHS findings are reported to the Audit Committee and Senior Management, and recommendations are tracked alongside all other findings from the internal audit assignment.

The findings of the independent health and safety review undertaken in financial year 2015 (FY15) also formed the basis of an action plan for improving our health and safety focus.

The plan is being implemented across the business, and includes initiatives aimed at enhancing our performance in three key areas: working from heights, driving safely and managing stress and resilience.

The Height Safe programme has initially been aimed at our people in our manufacturing sites. In Phase 1 of the programme, 51 sites were audited and training provided to create a pool of local Work at Height Champions. We are now developing Phase 2 of the programme,

which will extend the audit and training processes to other sites in order of materiality and risk, and also introduce common processes to address some of the main issues identified during Phase 1.

The Drive Safe programme has initially been aimed at our Global Sales community. This programme focuses on driver risk assessment and training, together with the close-out of the main gaps identified in local fleet management systems. At present, over 96% of our sales operations have developed local improvement action plans to address these issues.

Details of the Stress and Resilience Management programme is described under the ‘Employee Wellbeing’ section on page 29.

We use our internal Non-Financial Reporting (NFR) system for collecting health and safety data. Data is entered into the system at local site level by contributors and is then validated on the system by a senior manager or

one of their direct reports, who take full accountability for timeliness and accuracy of the data. The system calculates performance indicators from the data entered and can generate reports at any level of the organisation, including at local, Function and/or Group level. These reports also inform our performance management processes..

We measure our health and safety performance by comparing our results with our 2009 baseline year, using independently verified FY15 data. Data is verified one year in arrears to allow for data collection, validation and assurance.

For further details, please see the Reporting and Criteria Document available on our website.

We are pleased to see a continual reduction in our sickness absence rate (which includes non-work related and work related absence) over the last six years. Since our 2009 baseline year the rate has declined by 29% as illustrated in the graph below. ➤

Lost Time Accident Frequency Rate (per 200,000 hrs) Sickness Absence Rate (% of days worked)

Verified accident data for FY15 has been assured by PwC. *Provisional unverified FY16 data – comprising verified data for the last 6 months of FY15 and unverified data for the first 6 months of FY16 – is provided in this report. Verified data for FY16 will be published next year.

1.57

1.30

1.08

0.86

0.73

0.520.44 0.40*

3.73

2.972.76

2.552.72

2.422.65 2.62*

2015 2016 2015 20162014 20142011 20112013 20132010 20102012 20122009

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.02009



dRIVInG Safety Into SaleSWe aspire to achieve a world-class safety performance throughout our organisation. To achieve this aim, we recognised that accidents occurring in the Sales function would be better addressed with a specific training programme.


CaSe Study

We have reduced our lost time accident frequency rate by 72% over the last six years as illustrated in the graph on the previous page. In addition, at the end of financial year 2016, we had 71 sites from 36 countries that reported zero lost time accidents for the whole year.

The accidents and injuries sustained in financial year 2016 (FY16) can be broken down in the following way:

• 15% were machinery-related accidents;• 27% were slips, trips and falls;• 6% were struck by a falling object;• 15% were employee road traffic

accidents while at work;• 0% were a fall from height;• 17% involved manual handling; and• 20% were miscellaneous accidents.

We made further progress in installing world-class management systems aligned with the international occupational health and safety management standard OHSAS 18001 across our manufacturing operations. Seventy-nine per cent of our operations are now certified to this standard.

We were saddened that a contract driver died in a road accident in the Central African Republic. We assisted the authorities and also carried out our own investigation. The findings have been used to further improve our employee Drive Safe programme.

We use thorough accident investigation to understand the underlying cause of accidents, and learn and share the insight across the Group. Our Group Occupational Health and Safety (OHS) advisers are trained in the Kelvin TOP-SET® accident investigation and problem-solving methodology as used by the oil industry. The methodology ensures that investigations are planned, managed and completed in a timely

fashion, with recommendations and reports that address the root causes.

We focus additional improvement efforts through a support programme, which prioritises the sites where intervention will have the greatest Group-wide impact. Targeted sites receive more frequent support from our Group OHS team, including training in accident investigation, risk assessment and OHS management review.

In 2016, we continued with extending behavioural safety training programmes throughout the Group. For example, the Rapid Results College online safety training, which is available in six languages, targets relevant employees so that they can understand what a world safety programme looks like and learn principles such as risk assessment, hazard identification and control measures.

We also continue to see great results with our S Factor programme, a global safety programme that has been specifically designed to improve safety culture by encouraging employees in sales to follow good safety behaviours. These were framed by the Keil Centre, a leading group of occupational psychologists, based in Edinburgh.

Markets that run the S Factor workshop gain an understanding on where they rank on our ‘Imperial Tobacco Safety Culture Ladder’. The process also helps them develop local improvement plans.

Benefits of this approach include:

• Having a common set of best practice; safety behaviours globally;

• Having common market-focused key; performance indicators (KPIs);

• Improved engagement with employees;

• Reduction in sickness absence;• Improving the safety culture; and• Reducing translation costs.

In 2016, we continued to globally benchmark our road-risk management arrangements by again using the Network of Employers of Transport Safety (NETS) to quantify our year-on-year performance.

This year, we once again conducted our Safety Pin Competition. It was originally initiated in Poland in 2011, as a fun way to raise awareness and engage employees in health, safety and the environment. The games have developed and advanced to become the now ➤

“The welfare and safety of our people

is of utmost importance to us”



called 'Global Safety Pin Lean (SPL)' games. While the ethos of the games remains the same, the competition has evolved to also include championing best practice and continuous improvements at our operational sites. This is achieved by encouraging the application of lean knowledge.

The games started in March 2014 with 495 teams of six participating in the competition first at the local level, then at the regional level and then with the global final. The global finals were held in October 2016 in the Dominican Republic at our cigar factory. In addition to knowledge tests, each of the finalists had to present an ‘improvement project’ to the judges to demonstrate the success of implementing their ideas regionally, as well as the potential for rolling the project out across the whole business. The winners of the competition were the team from our Nottingham factory in the UK.

development and RewardPeople who are appropriately trained and developed will be better enabled to deliver our commercial strategy. We pay and reward people fairly using benchmarks and job groups.

This contributes to productivity, strong customer service, retention rates and talent attraction. Effective recruitment, retention and succession planning are important to our on-going business success.

Our “learning for all” philosophy supports our people in fulfilling their potential by having the opportunity to develop.

The continuous development of our employees is encouraged through skills enhancement and training

programmes. We use Integrated Performance Management (IPM) as a continuous process of performance planning, assessment, development planning and review.

Our IPM system is a continuous process of performance planning, assessment, development planning and review. It enables employees to take more control of their own development. IPM consists of annual appraisals and salary reviews.

Our Employee Performance Reviews (annual appraisals) take into account how achievements were made, whether or not our values were displayed, as well as what was achieved.

In financial year 2016, we continued with with the development of our core learning offering, our Functional Academies and succession planning across the whole organisation.

Various local training and development programmes and initiatives take place in our operations. These are managed locally in line with business and employee needs and range widely from machine operations, health and safety training, and customer complaint management to developing sale force expertise, among others.

In financial year 2016, we continued to to invest in our on-going leadership development programme with external partner, the Ashridge Business School. To date we have had approximately 150 leaders from across the organisation complete one or more of the leadership development programmes designed specifically for us:

• Breakthrough Leadership;• Our Leaders; and• Transformational Leaders

We are investing in leadership development using online tools, enabling all of our leaders from aspiring and first line leaders, to our most senior leaders to access development for learning through a world-class business school.

This open-access approach, sits alongside our more formal programmes, where investment is targeted at those who need development at particular stages of their leadership journey. We offer virtual and residential programmes for leaders at particular times of the business calendar and as they transition.

Our Leadership Alumni programme enables ways to build the network of learning beyond formal programmes, through online communities, events, and thought provocation to promote continuous development and user generated content.

We have a global development programme for our entry level talent, including graduates and MBAs, to create managers and future leaders for our organisation. This includes working across the global organisation and delivering successful business and corporate responsibility ➤

“The continuous development of

our employees is encouraged through skills enhancement

and training programmes”


projects, in addition to skills and career development.

Feedback from the delegates on the Ashridge series is consistently good. We have seen that engagement increases in those individuals who have attended the programmes.

We have expanded our core learning offering with new products such as Skillsoft and getAbstract, enabling our learners to choose when and where to learn. We have seen a month-on-month increase in the use of our products, including the use of personal phones to access the learning available. We believe our people are recognising the value of learning as part of their broader development and not just as a training task to complete.

We have also started to design internal products differently too. We now have Digi books (e Magazines) with integrated links to other core learning content. This year, we also designed our first virtual facilitator-led classroom sessions.

This year, we launched a further three new academies to support our on-going commitment to driving technical capabilities; these are in the areas of procurement, product development and information services.

All the academies are built on technical capabilities that have been identified for the function. We are mapping all roles that exist in our structures so that every person has a clear capability profile detailing what is required for their role.

We are also ensuring that learning is aligned with our business agenda supporting key strategic initiatives such as enhancing our Stress and

Resilience programme, as part of the employee health, safety and wellbeing strategy.

We completed a talent and succession planning review for all of our functions. This will help us to develop the right people for the right roles

We share success with our employees through competitive pay and benefit packages. Through formal performance management processes, we link the Group’s goals and objectives to those of individual managers.

Performance management ensures a shared understanding of what employees are expected to achieve. Our reward strategies are linked to Group, market and individual performance. We also encourage employees to build a stake in the Company through share-based employee benefit schemes, where possible.

Our Global Corporate Management Group (CMG) is coordinated centrally to enable consistency, effective succession planning and ease of mobility.

Our remuneration policy is designed to ensure a high quality pool of talented employees at all levels who are engaged and incentivised to deliver our strategy through clear links between reward and performance, without encouraging them to take undue risks. Our policy is, therefore, significantly weighted towards performance-based elements.

The Group also operates three types of share-based incentive programme, designed to incentivise staff and to encourage them to build a stake in the Group. In 2016, eligible employees in 26 countries were invited to participate in the scheme.

We continued to review our approach to reward ensuring alignment with the external market and planned certain revisions to reward structures. We also undertook an internal analysis with a view to better target retention and talent. We planned a new weighting to the bonus structure which will better reflect the top-line business growth drivers, growing forward.

To better retain talent we piloted an enhanced and extended reward offer, including company shares, to more junior personnel. We sought to better inform the diversity agenda by analysing pay by gender and management levels.

We continued to positively engage and agree pay increases with Trade Unions and Works Councils where applicable.

We have calculated the return on the investment we make in our people using methodology referenced by the Dow Jones Sustainability Index (DJSI). This methodology used to calculate the human capital return on investment (HC ROI), is illustrated in the table above.

In 2016, our sales team in Greece received external recognition from the National Greek Sales Institute and were awarded the silver prize in the category of ‘Field Force Training and Development’. This award marks the fifth consecutive year that Imperial Tobacco Hellas has gained recognition in the Sales Excellence Awards, and the second consecutive training and development award for the Field Force Academy.

Imperial Tobacco Polska (ITP) and Imperial Tobacco Polska Manufacturing (ITPM) were also awarded with Top Employer awards ➤


in Poland, having once again been named among the best companies to work for by the Top Employers Institute. This is the sixth time that ITP have been recognised, and the third time for ITPM.

Such awards are widely recognised as representing a benchmark for best practice in HR, especially when it comes to recruiting new people.

employee VoiceEmployee voice is about employee engagement, representation, dialogue and the ability of an employee to raise potential concerns or grievances.

We recognise the importance of giving employees the opportunity to have their say and provide us with feedback. This can aid us to improve the business, drive employee engagement and help ensure that human rights are being appropriately respected by enabling employees to raise potential concerns or grievances.

We encourage efficient, open and honest communication to foster good working relationships with employees and their representatives. We seek to inform and involve employees in understanding our business objectives and local developments.

To ensure that we respect human

rights, we use risk assessments and management mechanisms. We are guided by the Universal Declaration of Human Rights, OECD Guidelines and the International Labour Organization (ILO).

Freedom of association and the right to collective bargaining is a core labour standard as guided by the ILO. The establishment of effective feedback and dialogue mechanisms are important for addressing workplace issues and improving the working environment.

Protection against retaliation is essential to successfully empower employees to voice their thoughts, opinions and questions. This is important to mitigate potential behavioural risks, reinforce a respectful working environment and aid our compliance with relevant legislation, such as the UK’s Bribery Act 2010.

We have a Speaking Up (Whistleblowing) policy that is available internally and on our corporate website for our employees and business partners. Our Code of Conduct

InVeStInG In ouR futuRe leadeRSThe continuous development of our people is encouraged through skills enhancement and training programmes. We view talent management, leadership and succession planning as essential for future business success.


CaSe Study

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

(a) Total Tobacco Revenue [£m] 7,005 7,007 6,576 6,251 7,167

Adjusted Operating Profit (tobacco) [£m] 2,989 3,003 2,850 2,895 3,360

(b) Total Operating Expenses (tobacco) [£m] 4,016 4,004 3,726 3,356 3,807

(c) Total Employee-Related Expenses (salaries+benefits) [£m] 1,185 1,195 1,079 1,072 1,061

Resulting HC ROI: [a – (b-c)] / c 3.52 3.51 3.64 3.7 4.17

Human Capital Return on Investment

➤



outlines the avenues that are available for our employees to speak up if they suspect that a breach of the law or of the code has taken place. These are via:

• Their people manager;• The Human Resources department;• The Governance Team;• Group Legal; and• The Company Secretary.

Individuals are able to voice their concerns in strict confidence without fear of victimisation or recrimination.

We also provide a Group-wide confidential helpline, email and web service through an independent specialist agency, Expolink, for employees to raise their concerns.

This is managed for us by Expolink and each country has its own Hotline phone number with the service being provided in 42 languages. The Expolink Hotline operates 24 hours a day, 7 days a week (except on 25 December). Reports and web-based reports can also be submitted directly through the Expolink website.

We ensure the identity of the person raising the concern remains confidential, and do not report on statistics or details to ensure we respect the privacy of any complaint.

In 2016, we launched an e-learning module to all of our people managers (almost 4,000) entitled ‘Valuing and Responding to Employee Concerns’. This is aimed at providing information and suggestions on how to respond to employees’ concerns in a timely and effective way, how to anticipate and prevent retaliation in the workplace and how to address complaints of retaliation effectively when they occur.

We use engagement surveys to gain an understanding of employee views. More formal engagement is undertaken through local and regional works councils, trade unions, staff councils and local health and safety committees.

We understand that the Imperial Tobacco European Works Council (EWC) covers around 44% of our employee population. In December 2015, we held an Ordinary meeting with all 35 employee representatives of the EWC to provide them with a general business update and to discuss future projects and plans.

The meeting included contributions from and participation of the Chief Executive, Senior Operating Executive (OPEX) members and senior HR executives. In this current time of organisational change, such meetings are essential. A further four such consultation meetings were held during the year focusing on specific areas of the business, particularly in relation to required closures of factories and sites.

Our business is undergoing transformation as we further modernise our operating model, which regrettably results in job losses and the implementation of social plans. During such events, we seek to manage

organisational change in a fair and responsible manner and are committed to supporting our employees.

We provide regular updates on our strategic priorities and performance through a broad range of communication channels including meetings, emails, videos, intranet, social media, webinars, conferences and employee magazines.

In our social plans, we incorporate measures and approaches to support voluntary severance, internal and external redeployment and, if appropriate and desired, retirement.

Where appropriate, we work with the local communities affected to identify opportunities for recreating other roles in the area to replace those lost, due to restructuring. In the event of such organisational changes, we ensure local mechanisms are in place to inform and consult with employees and their representatives. Support arrangements for affected employees include assistance in pursuing alternative employment, retraining and further study, and severance packages.

We have deployed a global engagement survey to give employees the opportunity to tell us what it’s like to work for Imperial Brands. We respond to their feedback and use it to shape action plans at both a local and global level. In May 2016 we launched the latest Global Engagement Survey.

It is recognised that employee engagement impacts on individual performance and business success. The data from the Global Engagement Survey gives us all an opportunity to analyse and reflect on what actions need to be taken at various levels, from senior leaders, people managers and

“We have a Speaking Up (Whistleblowing)

policy that is available internally and on our corporate website for our employees and business partners”

➤


as individuals, to achieve higher levels of engagement.

We are pleased to see an overall increase in the employee engagement score to 59% compared with 53% in 2014, with a response rate of 87%, especially in a context of business transformation. While all areas within the survey moved in a positive direction, two areas moved forward significantly more than others. First, how we lead and manage change, and second, how we manage individual performance.

Areas for further improvement were also identified, including how we better enable our employees to make the most of opportunities to grow their careers.

employee WellbeingSupporting employees in being healthy and well, and ensuring that they have sufficient time for leisure and family commitments, encourages productivity and employee retention.

We recognise that there are many factors that contribute to a person’s wellbeing, and that wellbeing is specific and unique to every individual. A person’s wellbeing can be affected by things that are part of the work environment and external to the workplace.

We have developed a Stress and Resilience programme to raise awareness of the main causative factors of stress and to provide training, education and a resilience toolkit. This is to help managers and their teams build personal resilience and to better manage stress in the workplace.

A suite of face-to-face and e-learning training and support materials have been developed. These are currently available in six languages, to support the resilience programme. Roll-out commenced across the business in June 2016.

In 2016, a Graduate Project on Enabling Employee Wellbeing Globally included the development of communication materials for global deployment, a Head-Office pilot including a Wellbeing day and a proposal for a global wellbeing initiative that may be enabled through our global CR Champions.

To further support employee wellbeing we provide and support a range of benefits. These include:

• parental leave;• compassionate leave;

• sick pay;• share schemes;• health care schemes;• child care assistance;• flexible working; and• pension schemes.

Benefits and employee wellbeing is managed at a local level in line with local legislation and employment practices. We see a range of initiatives enabled at the local level that include things like resilience training, employee assistance programmes, health checks and awareness programmes, flexible working, family-friendly policies and facilities, and workplace celebrations and social events.

We currently do not collect central information on the detailed provision or uptake of benefits across the Group.

Given cultural differences and that one size does not fit all, many of our employee wellbeing offerings are enabled locally with a few initiatives, such as our previous global step challenge and our Group-wide volunteering initiative (Mobilise for May), being driven from the centre.

For us, employee wellbeing is also about helping employees take more positive lifestyle choices and this is why we support employee volunteering. We believe there are both business and personal benefits to volunteering. For the business, it raises employee morale, strengthens teamwork, enables us to engage with local communities, and strengthens our reputation. For our employees, it can support employee pride and engagement as well as helping them broaden their perspectives and support a work-life balance.

Global enGaGeMent SuRVeyOur engagement focus is about taking the time to listen and to respond to what our people say; it’s about building trust-based relationships, ensuring people are treated with respect, have access to all the information they need, can share their views, receive recognition and are given opportunities to learn and grow.


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➤



In 2015, we launched the first ever Group-wide volunteering initiative, called Mobilise for May. Over 147 different projects were supported globally and together, our efforts exceeded our global target of 50,000 hours volunteered.

In financial year 2016, we set out to make our global volunteering initiative, bigger and better – increasing our target hours to 55,000 and where possible increase the number of activities aligned with the Corporate Responsibility Framework.

Over 7,000 employees from around the globe participated, supporting over 160

projects making a real difference in the communities in which we operate.

Together, our efforts in 2016 exceeded our global target and 56,000 hours were volunteered.

For example in the Middle East, over 70 employees from 11 different countries took part in one event to support refugees and less-privileged families located in the United Arab Emirates.

Colleagues in Joure supported their local community in the Netherlands with various activities, including the renovation of the garden area at a homeless shelter and providing ‘high tea’ at a local residential home for the elderly.

VolunteeRInG WIth MobIlISe foR MayOur second global volunteering initiative, Mobilise for May, supported over 160 projects globally.


CaSe Study“We have developed a Stress and Resilience

programme”



ReSpeCtInG natuRal ReSouRCeS


performance summary• 93% of our manufacturing sites and main offices

have ISO 14001 certification

• 15% reduction in energy consumption since 2009

• 24% reduction in water consumption since 2009

• 40% reduction in waste to landfill since 2009

• 9% reduction in CO2 emissions since 2009

• Achieved a ‘B’ score in the CDP Climate Change

Climate and energyWe have a long-standing commitment to addressing Climate Change and are original members of the CDP Climate Change Programme in the UK.

We recognise that energy use is a cause of greenhouse gas emissions. We reduce our direct impacts through energy efficiency and carbon emission management. We reduce our indirect impacts by collaborating with our suppliers. In factories, we have achieved energy savings in lighting and heating by investing in technical improvements and modifying processes and procedures.

Climate change can impact the supply and cost of raw materials. We have

identified our most significant risks, and integrated them into the Group’s risk-management processes. Through our multiple sourcing approach, business continuity plans, supplier partnerships and effective stock control, we consider ourselves to be well placed to mitigate these risks.

Climate change can also present opportunities.

We have a long-standing commitment to managing our carbon emissions in relation to climate change.

Where appropriate, we have invested in renewable energy, understanding that solar, wind and geothermal generated energy can provide benefits in terms of

reducing our greenhouse gas emissions, energy security, cost stabilisation and protection against energy price volatilities.

We have a ground source heat system at our Joure factory in the Netherlands, and solar installations at Reidsville in the USA and at St Pierre on the island of Réunion. We continue to seek out renewable energy opportunities where factories are being upgraded or new buildings developed.

The CDP Climate Change Programme, works with organisations to measure and reduce their emissions and climate change impacts. Each year, we submit information to the CDP on our climate change strategy, carbon

We respect natural resources and are committed to further reducing our environmental impact by minimising waste, improving energy efficiency and reducing emissions.

Our management systems help us limit our waste, energy use and water consumption. Good environmental management strongly aligns with our focus on cost optimisation and operational excellence.

We set long-term targets for our key environmental performance indicators, energy, waste and water use. We track our progress against our 2009 baseline year.

In line with other larger companies, we measure our performance against the amount of tobacco net revenue we generate.

We continue to change our factory footprint to align with market demands and to drive operational efficiencies. This means that our environmental data year-on-year is not linear. We therefore consider the overarching trend, comparing our performance with our 2009 baseline year, using the latest independently verified data. Our environmental data is independently verified one year in arrears to allow for data collection, consolidation and assurance.

“ OuR GOAL IS TO REDuCE OuR ENVIRONMENTAL IMPACT.”

➤


accounting and the associated risks and opportunities.

We continue to make improvements in this area, achieving a ‘B’ score from the CDP in 2016. This indicates we have a high level of environmental stewardship and are proactively managing climate change matters related to our business.

Based on independently verified data, we have reduced our energy consumption per net revenue by 15% and our CO2 emissions per net revenue by 9% over the last six years since our 2009 baseline year.

In 2015, a number of potential projects were proposed during our internal Safety Pin Lean competition. In 2016, we were able to implement a project put forward by our team representing the Langenhagen factory site in Germany. A combined heat and power plant has been successfully installed at the site and contributes to the site's electricity demand, as well as helping to heat the site and produce hot water.

It’s estimated that the power plant can supply around 1.6 billion kWh per year for the local grid – a level that could provide more than 200 families with electrical power and heat for a whole year. The plant will also result in saving approximately 644 tonnes of CO2 emissions per year.

In 2016, we made further progress with our Operational Excellence Programme (OEP). The OEP is aimed at improving and embedding a leaner way of working across all of our manufacturing sites and continues to be rolled out across the Group.

The OEP builds on the various approaches of continuous improvement

and good practice that already exist within our Group. It is a holistic programme including new tools, standard key performance indicators (KPIs), processes, training, reporting and governance, all designed to help us deliver operational excellence across all operations. The 19 factories from the first and second wave of the programme continue to show improvements in overall equipment effectiveness, averaging 20%; and financial improvement opportunities, averaging 15%. And we have now also developed 194 OEP practitioners across the Group.

In 2016, we progressed with the third wave of the programme, which brought an additional nine factories into scope, and we are preparing for the fourth wave, which will predominately focus on factories in Africa.

As OEP progresses, we see employees in the respective factories taking ownership for improvements in the workplace and business performance. We also see the programme contributing to reductions in energy and water consumption as well as in waste production at participating sites.

As well as addressing such

environmental issues as far as possible within our operations, we also seek to positively influence our suppliers. We are working with the CDP to capture more information about the approach our major suppliers take to climate change, through the CDP Supply Chain Programme. CDP approach supports suppliers in understanding related issues with the CDP questionnaire and hence helping to ultimately improve performance.

This year, our Global Procurement Team worked to help ensure that all suppliers with whom we have at least 80% purchasing spend have been invited to participate in the CDP Supply Chain project.

Different procurement departments engaged directly with suppliers. Online sessions were provided to assist suppliers to understand why we want them to participate and that participation was very much appreciated. CDP supply chain specific information has also been incorporated into the criteria of suppliers assessment / rating. As a result of these engagement efforts, we have seen supplier participation rise from 65% to 71% in the climate change response.

“We have a long-standing commitment to addressing Climate

Change and are original members of the CDP Climate

Change Programme in the UK”


Direct energy consumption by primary energy source

Fuel Source Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016

Natural gasGWh 381 405 400 428 424 383 366 389

(GJ) 1,371,600 1,458,000 1,440,000 1,540,796 1,525,035 1,379,228 1,317,683 1,401,200

Diesel oilGWh 111 113 114 111 112 105 101 100

(GJ) 397,942 405,152 408,742 397,942 403,046 376,787 363,670 359,109

Heavy fuel oil

GWh 150 130 113 48 18 17 17 16

(GJ) 540,000 468,000 406,800 173,996 63,889 62,717 60,650 58,427

LPGGWh 2 2 4 15 15 15 11 11

(GJ) 7,726 7,726 14,926 54,526 54,071 52,818 39,275 39,061

Wood or sawdust

GWh 0 0 0 0 0 0 0

(GJ) 0 0 0 0 0 0 0

Gasoline/ Petrol

GWh 68 68 68 68 70 70 68 68

(GJ) 246,256 246,256 246,256 246,256 252,339 252,188 244,114 244,038

Other fossil fuels

GWh 1 2 2 2 0 0.05 0.01 0.04

(GJ) 3,600 7200 7200 6420 220 197 52 142

TotalGWh 713 720 701 672 639 590 563 584

(GJ) 2,567,124 2,592,324 2,523,924 2,419,936 2,298,600 2,123,936 2,025,443 2,101,977

direct energy consumption by primary energy source (%)800

700

600

500

400

300

200

100

02009

Natural gas Wood or sawdust Other fossil fuelsGasoline/ PetrolDiesel oil LPGHeavy fuel oil

2011 20132010 2012 2014 2015 2016

GW

h


Indirect energy consumption by source

Source Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016

Grid electricity(non-green)

GWh 407 404 404 388 369 345 311 332

(GJ) 1,465,200 1,454,400 1,454,400 1,396,891 1,329,054 1,242,208 1,119,335 1,194,888

Grid electricity(green)

GWh 0 4 7 6 1 17 26 33

(GJ) 0 14,400 25,200 22,130 5,235 61,624 94,475 118,064

Hot steamGWh 16 15 19 19 13 18 20 19

(GJ) 57,600 54,000 68,400 68,823 47,861 65,048 73,462 68,183

On-siterenewableenergy

GWh 0.004 0.004 0.037 0.004 0.004 0.24 0.244 0.235

(GJ) 14 14 133 14 16 872 877 846

TotalGWh 424 423 430 413 384 334 358 384

(GJ) 1,526,400 1,522,800 1,548,000 1,487,858 1,382,166 1,202,000 1,288,150 1,381,960

Indirect energy consumption by primary energy source (%)

440

420

400

380

360

340

320

300

280

2602009 2011 20142010 20132012 2015 2016

On-site renewable energy Grid electricity (green) Grid electricity (non-green)Hot steam

GW

h


We measure and monitor our energy consumption and CO2 emissions in the pursuit of meeting our carbon reduction targets and in support of cost optimisation.

We have established a greenhouse gas inventory of our Group-wide manufacturing direct (Scope 1) and indirect (Scope 2) CO2 emissions, in accordance with the Greenhouse Gas (GHG) Protocol.

We report Scope 1 (direct) and Scope 2 (indirect) emissions for which we are responsible, using a methodology in line with the Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard (revised edition).

The scope of our GHG reporting is detailed in the 2016 non-financial Reporting & Criteria Document available on our website (link to the document) and our data trends from our 2009 baseline year are published in our Annual Report and Accounts.

We report on the seven main greenhouse gases and report in terms of tonnes of CO2 equivalent (CO2e). Our relative emissions are expressed against tobacco net revenue.

Our Scope 1 emissions comprise:

emissions from stationary fuel combustion at our sites; emissions from mobile fuel combustion in our fleet of company vehicles; leakage of refrigerant gases; and process emissions from the Dry Ice Expanded Tobacco process at our tobacco expansion plant.

Our Scope 2 emissions comprise the indirect emissions resulting from the use of purchased electricity, heat and steam at our sites. We report according to the GHG Scope 2 Guidance (2015), using location-based emission factors.

We use the CO2e factors and calculation methodology for fossil fuels and electricity set out in the UK Department for Environment, Food and Rural Affairs (DEFRA) document ‘2014 Government GHG Conversion Factors for Company Reporting’.

Emissions for financial year 2016 (2016) as reported here comprise unverified data for the first six months of 2016 and verified data for the last six months of financial year 2015 (2015); except for mobile fuel consumption by our fleet vehicles, which comprises complete verified data for 2015. Verified data for 2015 is reported 12 months in arrears to allow for collation, validation and external assurance.

loGISta and CaRbon ManaGeMentOur subsidiary, Logista, is one of the largest logistics and distribution businesses in Europe, with operations in Spain, France, Italy, Portugal and Poland. For this kind of business, fuel and energy consumption, and therefore emissions, are key to minimising main environmental impacts. This aligns with our focus on operational excellence, and seeks to implement the most effective and efficient distribution routes with the minimal number of loads and kilometres, while meeting and exceeding customer expectations.


CaSe Study




CO2 equivalent emissions from manufacturing processes and fleet fuel

Emission Type Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016* 2020

Target

Scope 1 (direct) CO2 emissions Tonnes 136,813 161,506 158,290 148,595 140,646 125,377 127,730 132,451

256,356Scope 2 (indirect) CO2 emissions Tonnes 183,632 182,321 188,939 176,577 162,146 155,129 149,914 160,274

Total Absolute CO2 emissions Tonnes 320,445 343,827 347,229 325,315 302,792 280,506 276,925 292,724

Relative CO2 equivalent emissions

Tonnes/£mrevenue

49 51 50 46 43 43 44 44 39

: Verified total direct and indirect energy source data for 2015 has been assured by PwC; see website for more information.* Unverified data for 2016 has been estimated based on data from the last six months of financial year 2015 and the first six months of financial year 2016. Verified data for 2016 will be published next year.

Co2 equivalent emissions from manufacturing processes and fleet fuel (tonnes)

400000

350000

300000

250000

200000

150000

100000

50000

0

Scope 1 Scope 2 2020 Target

2009 2011 20142010 20132012 2015 2016 2020 Target

Co2 em

issi

ons

(Ton

nes)


We report separately below externally verified information for financial year 2015 provided by Logista, the Group’s subsidiary transport and logistics business, which is managed remotely due to commercial sensitivities. Logista has provided verified data since financial year 2014 for absolute Scope 1, 2 and 3 emissions.

CO2 equivalent emissions for Logista for Financial year 2014/15

Scope 1 Scope 2 Scope 3

CO2 equivalent emissions (Tonnes)FY15 35,065 4,378 199,953

FY14 35,731 4,455 213,081

Logista’s Scope 1 emissions comprise stationary and mobile fuel combustion from transport operations for which Logista has operational control, and from the leakage of refrigerant gases at those operations. Scope 2 emissions comprise indirect emissions resulting from the use of purchased electricity at sites under Logista’s operational control. Scope 3 emissions comprise transport activities for which Logista does not have operational control.

Logista’s financial year 2015 relative Scope 1 and 2 emissions comprise 52.7 tonnes (financial year 2014: 47.4) of CO2 equivalents per million pounds of financial year 2015 distribution fees (our non-GAAP revenue measure for Logista). Further information on the scope of Logista’s GHG reporting is available at www.grupologista.com

Ozone-depleting substances

2012 2013 2014 2015 2016*

R11 – Loss to atmosphere [kg] 0 14 0 0 0



R401a – Loss to atmosphere [kg] 1 0 0 0 0

R401b – Loss to atmosphere [kg] 0 2 0 0 0



At local level, our site improvement plans include monitoring, remedial action and the phasing out of refrigerants in line with national legislation and the Montreal Protocol. We continue to make progress with replacing ozone-depleting substances ahead of the Montreal Protocol, and are committed to eliminate use of these substances by 2020.

http://www.grupologista.com


Resource efficiencyGetting the most out of the materials and natural resources we use is good for our business and good for the environment.

We seek to minimise waste and waste to landfill through a combined approach of reduce, reuse and recycling, as key elements of our environmental programme. This is in relation to waste associated with our product, packaging and the production process.

In our manufacturing operations, we continuously seek to improve and drive efficiency. We aim to achieve the highest output on the basis of a lean way of working.

We are pleased that, overall, we have steadily reduced environmental waste and waste to landfill in recent years. We are pleased to report a 6% decrease in verified environmental waste and a 40% decrease in verified waste to landfill since 2009, our baseline year as measured against £ million tobacco net revenue. We remain focused on further building on this positive trend

As already mentioned, reducing complexity and the roll-out of our Operational Excellence Programme (OEP)

continues to move us further towards better ways of working and more efficient and streamlined processes.

We understand that legal standards, work culture and understanding of the environment vary greatly across our operations worldwide. We address this by ensuring that we have global standards and progressing the development of environmental management systems and thinking as defined within the international standard ISO 14001.

We widely apply ISO 14001, across our factory footprint. This helps to focus our environmental approach and seek continuous improvement. In 2016, 93% of our manufacturing sites were independently certified to the ISO 14001 standard.

Total waste and waste to landfill

Type of Waste Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016*

Absolute environmental waste Tonnes 54,343 54,331 51,658 55,020 50,759 50,143 48,315 49,261

Relative environmental waste Tonnes/£m revenue 8.25 8.00 7.47 7.85 7.24 7.63 7.73 7.35

Absolute waste sent to landfill Tonnes 13,731 12,924 11,741 11,274 10,836 10,351 7,742 7,440

Relative waste sent to landfill Tonnes/£m revenue 2.08 1.90 1.70 1.61 1.55 1.57 1.24 1.11

: Verified total direct and indirect energy source data for 2015 has been assured by PwC; see website for more information.*Unverified data for financial year 2016 has been estimated based on data from the last six months of financial year 2015 and the first six months of financial year 2016. Verified data for 2016 will be published next year.

2015 Relative environmental waste and waste to landfill (tonnes/£m revenue)

Relative environmental

waste

Relative waste

to landfill

“We seek to minimise waste and waste to landfill through a

combined approach of reduce, reuse and

recycling”


Disposal of hazardous waste

Disposal Method Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016

Reused Tonnes 10 17 14 13 19 10 9 7

Recycled Tonnes 275 884 272 150 137 159 121 111

Incinerated and energy recovered Tonnes 124 154 151 165 165 136 205 171

Incinerated Tonnes 82 55 47 48 48 10 26 50

Sent to landfill Tonnes 245 111 142 81 73 96 78 67

Total Tonnes 735 1,222 626 457 442 401 440 406

Some of our operations are associated with small amounts of hazardous waste, for example from fluorescent lamps, paint and lubricant oils. We require sites to hold any hazardous waste in secure storage, using suitable controls such as secondary containment, restricted access and appropriate ventilation, until suitable approved disposal is organised.

2016 disposal of hazardous waste (tonnes)

IncineratedReusedSent to landfill

RecycledIncinerated and energy recovered

2016 disposal of non-hazardous waste (tonnes)

IncineratedCompostedIncinerated and energy recovered

Sent to landfillReusedRecycled

Disposal of non-hazardous waste

Disposal Method Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016

Reused Tonnes 6,678 8,230 8,139 8,810 10,094 9,280 8,429 7,909

Recycled Tonnes 23,931 26,900 27,165 30,506 32,033 27,700 25,303 26,003

Composted Tonnes 8,021 4,247 3,388 0 0 4,447 5,793 6,009

Incinerated and energy recovered Tonnes 7,569 8,455 8,195 8,504 7,081 6,957 6,721 6,952

Incinerated Tonnes 611 711 700 439 459 383 426 381

Sent to landfill Tonnes 13,486 12,813 11,598 11,193 10,763 10,255 7,619 7,337

Total Tonnes 60,296 61,357 59,185 59,452 60,430 59,022 54,291 54,591


Employee training is an important element in helping to lower waste in our operations. We use a combination of communication, face-to-face training and distance learning tools to achieve continuous improvement. For example, we have developed an interactive online environmental awareness tool. This has been designed to help employees understand the environmental impacts associated with the different steps within our tobacco supply chain. This ranges from the growing of tobacco to the distribution of our products. The tool gives examples of the actions our people can undertake to help minimise our environmental impacts and has a knowledge test.

Our business in Australia has won external recognition for the second year in a row for our approach to sustainable packaging. The Australian Packaging Covenant (APC) awards recognise those businesses working proactively to

address the environmental impacts of their packaging on society.

Imperial Tobacco Australia has been a signatory to the pioneering initiative since 2002 and, for the last two years, has beaten off our competitors to claim the APC award in the tobacco category.

Four key areas are assessed and include: the use of new packaging opportunities against a set of sustainable packaging guidelines; implementation of systems to maximise overall and packaging recycling rates; use of recycled products; and working collectively as an industry to address product and packaging litter in society.

Winning the award demonstrates our ongoing commitment to reduce packaging and to reuse and recycle where we can.

deforestationWe are contributing to the protection of natural forests and their associated biodiversity through our dedicated reforestation projects. Forests and woodlands play an important role in stabilising soil nutrients and movement, preventing erosion, enhancing the land’s capacity to store water and moderating air and soil temperatures.

Crucially for our business, they also provide key materials such as timber and wood used as fuel.

With this in mind, our biggest deforestation risks manifest in our tobacco supply chain. In some areas of tobacco production, wood is used as fuel for curing tobacco and as construction material for the drying and grading barns. We are taking a partnership approach with our tobacco suppliers

and associated communities to ensure that any forest products used under our purchasing footprint has been obtained from a responsible source.

We source the majority of our tobacco from third-party suppliers as we don’t have the economies of scale to manage this on our own. This also allows us greater flexibly in sourcing our global leaf requirements from the countries and suppliers that best meet our standards for quality, cost, sustainability and responsibility. This approach requires close partnering relationships between our buyers and leaf sustainability managers with suppliers and farmers, to ensure that shared project plans meet all the stakeholder requirements.

In Africa, where wood is the primary source of fuel and the majority of tobacco farmers are smallholders, we are actively involved in providing a sustainable alternative to indigenous woodlands. Following an agreement between our suppliers in Malawi, Tanzania, Mozambique and Zimbabwe, ➤

SuStaInable paCKaGInG CoMMItMentSImperial Tobacco Australia Limited distributes and sells tobacco products. It has been a voluntary signatory of the Australian Packaging Covenant since 2002, and has won external recognition for the second year.


CaSe Study

“We are taking a partnership approach

with our tobacco suppliers and associated

communities to ensure that any forest

products used under our purchasing footprint has

been obtained from a responsible source”



our African reforestation project is supported through the cost of leaf. Our suppliers have recognised our long-term sustainability objectives and they are successfully managing our dedicated forestry projects on the ground. Project reimbursements are then determined by survival rates, which are verified annually through an independent audit completed by service providers SGS.

We are pleased to report that we have met our publically reported objective of planting 1.7 million trees in 2016 in Africa. This contributes to our goal of enabling our African farmers to source sustainable wood by 2022. We are also encouraged to see improving survival rates which is attributed to a number of factors: raising standards of forestry management, identifying robust planting species, weed and pest control, site selection and improvements to irrigation practices.

Positive progress has been achieved by working with our suppliers on a range of projects, including commercial plantations, communal trees and trees on farmers' land. We are involved with the selection of species to be planted to ensure site-specific selection and to also take into account local biodiversity considerations. To assist in the progress of our initiatives we will be holding a forestry review in December 2016, at which all regional forestry management are required to attend. This seminar will address any issues and strategies moving forward.

In March 2016, the Leaf Sustainability Team completed a trip to Africa to review progress on both Leaf Partnerships and our Reforestation Programme in Malawi, Mozambique and Tanzania. This involved visiting a number of project plantations, and reviewing progress and sharing knowledge across regions. The reviews focused on successes and key learnings

in relation to tree species, management practices, irrigation, pest and weed control, nursery management and ongoing maintenance.

We have a dedicated Leaf Sustainability Manager in Africa responsible for the reforestation programme. He is active in the field, reviewing progress on the programme with our suppliers and sharing examples of best practice.

We have dedicated agronomists and field technicians in all of the origins from which we directly source a small proportion of our global tobacco leaf requirements. These locations include Madagascar, Vietnam and Laos, where we provide support and training to the local farmers.

We also promote energy conservation techniques to improve curing efficiency, and the planting of woodlots for tobacco farmers to become self-sufficient in fuel, as well as farmer training in safety and environmental management. We have made improvements to flue-curing barns through converting existing barns. These activities include retrofitting with a new furnace design to improve fuel efficiency and reduce wood consumption. We are also investing in new construction projects to increase the number of fuel-efficient barns.

This is evident in one of our purchasing regions where we have provided funding for 1,598 barn conversions. These barns run a faster curing process that uses significantly less wood than conventional barns. Initial estimates in this particular area suggested a 35% reduction in wood usage and a projected annual saving of up to $USD160 for the farmer. These savings are due to a reduction of labour days, quality improvements and fuel wood levies.

We also seek to improve our supply chain sustainability through our newly

implemented Sustainable Tobacco Programme (STP). This programme is an industry-wide standard that was rolled out in May 2016 to replace the Social Responsibility in Tobacco Production Programme (SRiTP). Natural resource protection and biodiversity management are part of the core elements of STP. Our suppliers and growers are encouraged to establish responsible agricultural and post-harvest practices.

We saw an improvement in our average score for the SRiTP programme for the seventh consecutive year in December 2015. The latest verified score is 80%. All of our leaf suppliers participated in the SRiTP programme for a fourth consecutive year and the number of non-conformances have reduced year-on-year. Breaking this down further, overall SRiTP performance across our four tobacco regions, with the percentage volumes we purchase indicated in brackets, are as follows: Asia – 78% (31%); America – 81% (26%); Africa - 77% (22%); and in Europe 86% (21%).

Wood SuStaInabIlItyOur wood sustainability programme in partnership with our suppliers is a key element of our wider leaf sustainability strategy.


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WaterWater is relevant within our operations and our supply chain. Water scarcity and seasonal shortages have the potential to impact our factories, our supply chain and surrounding communities.

In our factories, we have environmental management systems in line with the international standard ISO 14001. This structured approach has helped focus activities to reduce our water use and minimise wastewater discharge. At the end of financial year 2016, 93% of our factories were independently certified to ISO 14001.

Across our factories, we have water-management targets, reduction projects and programmes. Recent initiatives have included new wastewater treatment systems, improved water metering, water recycling (from air conditioning systems and cooling tower processes) and rainwater harvesting for

sanitary use.

Wastewater quality is closely monitored and tightly controlled to meet local regulations and limits. We apply a range of operational control standards to prevent and to control any spillages should they occur.

Our factories largely use mains water from local suppliers, although there is also some use of groundwater from wells. These operate in accordance with local authority permits and extraction limits.

During 2013, as part of our wider environmental impact analysis, we completed a water footprint study of our operations and value chain. The study highlighted that our operations only account for 3% of the overall water impact compared to 79% in tobacco growing, 4% in transport and distribution and 14% in the non-tobacco

materials supply chain which includes the manufacture of paper-based materials such as cigarette papers and cardboard.

Water consumption by withdrawal source

Withdrawal source Unit 2009 base year 2010 2011 2012 2013 2014 2015 2016*

Mains m3 1,816,640 1,537,390 1,497,525 1,490,714 1,326,910 1,354,470 1,244,897 1,336,528

Surface water including wetland, lakes, oceans and rivers

m3 - - - 27,284 3,393 1,520 755 370

Ground water m3 - - - 407,877 316,522 292,396 271,893 259,491

Rain water m3 - - - 115 671 2,642 3,754 4,139

Abstracted m3 299,592 498,797 503,797 - - - - -

Total m3 2,116,232 2,036,187 2,001,322 1,925,991 1,647,49 1,650,848 1,521,300 1,500,527

Relative water consumption

m3/£mrevenue 321 300 290 274 235 251 243 239

Verified relative water consumption data for financial year 2015 has been assured by PwC; see website for more information.* Unverified data for financial year 2016 has been estimated based on data from the last six months of financial year 2015 and the first six months of financial year 2016. Verified data for 2016 will be published next year.

➤

2015 Water consumption by withdrawal source (m3)

Surface water incl.wetlands, lakes, oceans and rivers

Mains

Rain waterGround water


Our main water risks are that: 4% of our operations are located in water-stressed regions; 8% of our operations are in regions with generally inadequate access to water and sanitation; and 5% are located in regions with potential flooding risks.

We have a strong track record of effectively managing water use and based on independently verified data, we have reduced water consumption by 24% since the 2009 baseline year.

Our Operational Excellence Programme, which is being rolled out across our operating sites, continues to contribute to reducing water consumption, including the replacement of old equipment with new.

Energy-saving programmes that we have implemented in six of our key factories have also indirectly influenced or supported water reduction. For example at our Tarnowo factory in Poland in FY15, we were able to reduce water use per unit production by 22%. Measures taken included using reverse osmosis to purify out boiler water and thereby make steam production more efficient.

Since 2013, we have increased the number of projects we have in our tobacco-sourcing footprint related to water preservation and addressing water scarcity. For example in Malawi, we supported the creation of three irrigation dams and six boreholes, which is expected to provide 900 farmers with access to irrigation water and 1,500 people with access to clean water.

One of the most significant water projects we have supported in recent years has been to provide tobacco growers and the general public with a sustainable source of water in southern Brazil. The project started in 2011 in partnership with one of our tobacco leaf suppliers (Universal Leaf) and the University of Santa Cruz do Sul. The overall aim of the project was to improve the volume and quality of water supplied, which would ultimately become the main water source. This pioneering Water Guardian project has proved so successful that the local authority announced plans to take over the project and offer tax incentives to participants to ensure the scheme has a long-term future.

We are also focusing on managing the water risks with our suppliers through participation in the CDP Supply Chain Programme.

We encourage our strategic suppliers to report their water consumption data and how they manage water risks by

completing and submitting the Water Disclosure Project (WDP) questionnaire, which is part of the CDP Supply Chain Programme. We want our suppliers to manage and minimise our shared water risks, to managing water scarcity issues and to contribute to general sustainability supply chain.

We also partner and influence good environmental practices with our leaf suppliers through our Social Responsibility in Tobacco Production (SRiTP) programme, which includes a focus on water conservation and pollution prevention. Further details of this programme can be found under ‘Supplier Standards’ section in Reinvesting in Society.

IMpRoVInG WateR QualIty In MoRoCCoWe have made a large investment to significantly improve the quality of water discharged into the local sewerage network from our factory in Aïn Harrouda, Morocco.


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“Since 2013, we have increased the number of projects we have in our tobacco-sourcing

footprint related to water preservation

and addressing water scarcity”



ReInVeStInG InSoCIety


performance summary• £3.06 million allocated to community and partnership work around the globe

• 80% is our leaf supplier score in the Social Responsibility in Tobacco Production (SRiTP) programme and 100% of our leaf suppliers participated in this programme

• 76% score achieved in the RobecoSAM Dow Jones Sustainability Index (DJSI)

economic Contribution and livelihoodsReinvesting in society strengthens our corporate reputation and helps to make us a business partner and employer of choice. Working with partners, particularly suppliers, enables us to safeguard future supplies, standards and costs.

The table on the following page illustrates the direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments. For further details on the Group’s financial performance, please see our website and our Annual Report and Accounts 2016.

As a responsible business, we pay our taxes in the countries in which we operate. Our global tax contribution through both indirect and direct taxation exceeds £17bn annually (excluding Logistics). Our policy is to ensure compliance with tobacco taxation and product supply legislation and to engage constructively with revenue authorities worldwide to help combat illicit trade.

We have a Board Policy on Taxation, which details our approach to tax planning, tax risk, tax reporting, compliance and audits. The Board is kept informed of all material developments relating to our taxation position with updates on tax matters regularly provided to the Audit Committee.

In addition to normal taxation on our profits, a significant proportion of our revenue as a tobacco company is also paid in duty and excise.

We also engage with revenue authorities worldwide to combat illicit trade. We ensure that there is disclosure and transparency in our dealings with all revenue authorities.

While we have direct positive economic impacts, we also choose to support a variety of community-based activities. These are largely focused on supporting the most disadvantaged communities around our factories, offices and tobacco-sourcing activities.

In 2016, we had an annual central community investment budget of £3.06 million (2015: £2.55m) which we allocated to various projects and organisations to address employability, basic needs, farmer livelihoods and child labour risk.

This is in addition to in-kind activities including management time, volunteering, gifts-in-kind and localised activities.

Approximately 24% of this budget was allocated through the Altadis Foundation to address issues associated with ‘Livelihoods’ and was targeted towards the communities where we have a direct business presence. Priority geographies have been identified by considering the UN Human Development Index. Under our ‘Livelihoods’ approach, we focused our projects on the following:

• Employability – Helping people obtain work and generate income: adult literacy, adult training and education, work experience

• Basic Needs – Helping people be fit for work and generate income: food security, safe shelter, water access and sanitation, protection against infectious disease

We are supporting projects and partnerships that help to address vocation training in places like Madagascar, Laos and the Côte d’Ivoire.

As an international business, we make many positive contributions. We support livelihoods within our value chain creating wealth and supporting the communities in which we operate. We partner, support fundraising and encourage volunteering. In our supply chain, we promote responsible labour practices that respect human rights.

“ OuR GOAL IS TO MAkE POSITIVE SOCIETAL CONTRIBuTIONS.”

➤


We are actively addressing the issue of child labour in our supply chains. Approximately 30% of our central community investment budget is allocated to the Eliminating Child Labour in Tobacco (ECLT) Foundation. ECLT is a multi-stakeholder organisation whose primary aim is to tackle the root cause of child labour. Further information is available under the section on ‘Child Labour’.

In 2013, we entered into specific outcome-focused Leaf Partnerships to achieve mutual sustainability goals. Our Leaf Partnership Committee directs support in farming communities from where we source tobacco. In 2016, approximately 40% of our central community investment budget was

allocated to such projects. We review all our partnerships through a combination of report assessments and on-site visits.

Projects are primarily focused on wood sustainability, improving farmer incomes through the quality and yields of tobacco leaf and mitigating the risk of child labour. Through this programme, we have some 13 projects, across eight countries in Africa with three main suppliers. We are currently making a positive contribution to farmer livelihoods in Africa, India and the Philippines.

We also continued to support the work of Opportunity International, a global network of microfinance organisations with over 40 years’ experience of

delivering financial services and training to low-income individuals.

Opportunity International’s approach seeks to support smallholder farmers in growing tobacco more productively, increasing the production of a food security crop, and diversifying farmers’ income with other cash crops.

Malawi has been one of the target countries for such support as it is one of the world’s poorest nations, where approximately 51% of the population live below the national poverty line and life expectancy is just 55 years. The country also relies heavily on tobacco production as part of its GDP.

Over the past nine years, together ➤

Economic Value Generated

£ million unless otherwise stated 2014 2015 2016

Revenue 26,460 25,289 27,634

Adjusted operating profit 2,981* 3,053 3,541

Adjusted profit before tax 2,495* 2,615 3,045

Adjusted earnings per share 203.4p 212.5p 249.6p

Operating profit 2,019* 1,988 2,229

Profit before tax 1,525* 1,756 907

Logisitics distribution fees 838 749 809

Logistics adjusted operating profit 166 154 176

Basic earnings per share 148.5p 177.4p 66.1p

Diluted earnings per share 148.1p 176.9p 66.0p

Dividend per share 128.1p 141.0p 155.2p

Adjusted Taxation (excluding tax duty) 521* 541 609

Employee costs (salary & benefits) 1,065* 1,072 1,061

Raw materials and consumables used 1,265 1,012 899

Community investment donations 3.28 2.55 3.06

*Restated Figure


with Opportunity International, we have helped thousands of Malawian tobacco farmers to gain access to financial services. This has enabled them to benefit from improved agricultural inputs, such as seeds, fertiliser and agricultural protection agents. These inputs, together with a structured training programme in Good Agricultural Practices, have resulted in smallholder farmers increasing their yields up to five fold. This contributes to their household incomes as well as enabling them to producing a superior quality of tobacco leaf.

The loans provided to the tobacco farmers are structured to include inputs for additional crops such as maize, soya or groundnuts, providing farmers with an additional source of income, as well as food security to ensure households have sufficient food for the whole year. As a result of the loans, it is estimated that over 5,700 dependants benefited from increased access to good nutrition, education, health services and improved housing.

Further details are available in a case study on our website.

Over the past few years, we’ve also undertaken a number of socio-economic impact assessments. This is to better understand our business impacts, in a stakeholder context, and the contribution we make to livelihoods throughout the value chain.

Our most recent assessment focused on our operations in West Africa. We commissioned external consultants to conduct a socio-economic impact assessment focused on our operations in Burkina Faso, Côte d’Ivoire, Mali and Senegal.

The study found that in a single year (2012-2013), our subsidiaries in those four countries created more than £50m in terms of wealth generated, benefiting employees and their communities, governments and local shareholders, and paid around £95m in direct and indirect taxes.

Supplier StandardsWe expect all our suppliers to be aligned with our Code of Conduct. Our supplier standards and programmes address working conditions, fair remuneration, working hours, freedom from forced labour, child labour, respect, non-discrimination and health and safety.

Supplier standards are important in terms of our shared reputation, stakeholder interest and security of supply.

We’re committed to doing things the right way and that means acting with respect, fairness and integrity at all times. The governance of countries may vary but our respect for human rights extends

throughout our operations. It is implicit in our employment practices and within the high standards we expect from suppliers and other business partners.

We have influence with our suppliers, and we use this to improve conditions in our supply chain. We have a specific programme for our non-tobacco leaf suppliers, known as the ‘Supplier

Qualification Programme’, and for our tobacco leaf suppliers, known as our ‘Social Responsibility in Tobacco Production (SRiTP) programme’. In May 2016 SRiTP was superseded and enhanced and is now known as the ‘Sustainable Tobacco Programme (STP)’. We explain STP further within this section.

Tobacco Leaf SuppliersWe purchase the majority of our leaf tobacco from third-party suppliers who are mainly part of large international leaf supplying companies. Our tobacco is sourced globally from origins including Brazil, China, India, EU member states and in Sub-Saharan Africa. A small amount of our tobacco is purchased

IMpRoVInG faRMeRS' lIVelIhoodS In MalaWIFinancial services enable smallholder farmers to gain access to quality agricultural inputs and training resulting in improved yields and increased household income.


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“We expect all our suppliers to be aligned

with our Code of Conduct”

➤



directly, principally in Madagascar, Morocco and Laos.

One of the biggest challenges within the tobacco leaf supply chain is the initial production of the tobacco leaf. Good agricultural practices need to be adhered to, which necessitates the balancing of viable tobacco production with positive environmental management, soil and water conservation, and appropriate use of crop protection agents. Environmental and health and safety standards are also encompassed within our leaf supplier programme (i.e. the SRiTP programme and now in the STP). Our appointed independent consultants, AB Sustain, conducts reviews every third year as part of the SRiTP programme and moving forward will continue to do the same under the STP. This is in addition to the more frequent visits undertaken by our Leaf Sustainability Team.

Our leaf supplier programme delivers social and environmental benefits through a process of regular self-assessment and periodic on-site verification reviews, coupled with knowledge transfer throughout the industry.

The goal of the programme is continuous improvement. The on-site review element

is designed to verify a supplier’s position on the continuous improvement scale. The review team will ensure that all self-assessment scores are accurate and supported by sufficient evidence against a clear scoring scale that details required criteria. The review team record scores and comments against each topic within the programme to describe the evidence reviewed.

The review team also conduct field visits to verify records and policy documentation. Farmers in the area chosen are selected at random. The review team then verify documented evidence with on-farm observations and farmer and worker interviews. Findings related to agronomy field, agronomy natural resources and social development are recorded, and farm profiles and monitoring data cross-checked with the field visit findings.

All data collected throughout the review undergoes a quality control check back at the AB Sustain head office to ensure both accuracy and global consistency in the scoring before the final report is submitted.

All of our leaf suppliers have been participating in the SRiTP programme, which we have been running since 2009.

We are pleased that the latest overall average weighted score for our leaf suppliers in the SRiTP programme was 80% (made available in December 2015) and has been independently verified by service providers Pricewaterhouse Coopers (PwC).

This latest averaged verified score against all pillars of SRiTP is 80% and incorporates an average score of 87% for the pillar covering ‘Children on Farms’. Breaking this down further, overall SRiTP performance across our four tobacco regions, with the percentage volumes we purchase indicated in brackets, are as follows: Asia – 78% (31%); America – 81% (26%); Africa – 77% (22%); and in Europe – 86% (21%).

We attribute improved leaf supplier performance scores to a number of factors including: ➤

Social Responsibility in tobacco production progress: total Weighted Mean (%)

: Data for 2015 has been verified by PwC. We report 12 months in arrears to allow for the reporting and analysis of data.

60

2009 2010 2011 2012 2013 2014 2015

6368 71

7579 80

80

70

60

50

40

30

20

10

0

“Our leaf supplier programme

delivers social and environmental

benefits”


1. The continual review and upskill of our leaf sustainability managers so that they are better enabled to support improvements.

2. The application of our regional Supplier Rating Model on an annual basis to monitor the performance of our key suppliers. This model includes targets for performance and an incentive for suppliers to continually improve.

3. Partnering with our suppliers to develop corrective action plans. This allows suppliers to benchmark their performance and facilitates continuous improvement. All of the suppliers participating in the programme complete a corrective action plan.

Going forward, our leaf suppliers will now be reviewed using STP. For the past 12-18 months we have been working with other manufacturers on a common industry-wide programme for our leaf suppliers. This is called the Sustainable Tobacco programme (STP) and was launched online in May 2016.

The main reason for replacing the SRiTP programme was to better enable an industry-wide approach, with an improved evidence focus, accuracy and precision in scoring. For example, the STP will score the actual percentage of farmers trained with suppliers having to provide evidence to support this percentage.

All of our leaf suppliers will participate in the STP which will be scored on the completion of an online questionnaire (once a year) and with external consultants AB Sustain auditing and reviewing the responses every three years.

All areas previously covered by SRiTP – governance, facility, crop, environment and people – are still covered by STP

but with a greater depth of analysis. AB Sustain has trained all suppliers on how to complete the self-assessment. In addition to this, we have provided additional targeted training through AB Sustain to our suppliers in Central America, where previously the scores have been below average.

We expect our scores in the STP initially to be lower than our current SRiTP scores, largely due to the increased requirements in scoring. We will report on our first STP scores in 2017.

There has been collaboration and knowledge-sharing in the development of the new STP, which has been beneficial to all participants.

In March 2016, our Leaf Sustainability team participated in a four-day internal STP training course run by independent consultants AB Sustain in Malawi to better understand and prepare for the new programme.

Our Leaf Sustainability Team has representation in the Americas, Asia, Africa and Europe through dedicated Leaf Sustainability Managers. Supplier performance is reviewed at least once a year (depending on supplier performance and the number of non-conformances versus our minimum standards) through face-to-face meetings. In addition to this, our Leaf Sustainability Managers are active in the field reviewing the delivery of our supplier-led Leaf Partnerships. This involves discussing progress against objectives and sharing knowledge on best practice to help shape future initiatives and maximise positive farmer impacts.

Non-Tobacco SuppliersIn 2014, we began to follow an increasingly strategic approach for our non-tobacco material suppliers. This includes working with a better optimised supplier base and having increasingly

centralised control. In this way, we are able to improve alignment of supplier practices with our Code of Conduct.

Following a review of our global footprint, consolidation of our supplier base is in progress and subject to continuous review in light of volume trends and footprint revisions. In financial year 2016, we reduced our supplier base by 12%, making it easier to target higher standards.

We are also shaping a new supplier performance score for public disclosure going forward in relation to non-tobacco material suppliers.

As part of our Supplier Qualification Programme, all new supplier sites and suppliers have to be audited before starting any business relationship. For current suppliers, we conduct periodic onsite audits on a rolling basis every five years. In addition to this programme, we also conduct periodic audits prioritised on the basis of risk assessment, quality and performance.

Suppliers receive audit reports documenting the required actions and improvement opportunities. Within six weeks of receiving their report, suppliers are required to reply to us with an

“As part of our Supplier Qualification Programme, all new

supplier sites and suppliers have to be audited before

starting any business relationship”

➤


Action Plan detailing how they will address the points raised in the report. We require Action Plans to be implemented within six to nine months thereafter. At the end of the review period, we assess if the Action Plans have been implemented. In the vast majority of cases, the plans are implemented. However, in the rare case a plan has not been implemented, we advise our people to end the business relationship with the supplier.

We also ask our suppliers if they evaluate their suppliers and sub-contractors on the requirements of our Group policy. We do this to assess if the supplier has a Code of Conduct or a Social Responsibility Policy that they require the sub-supplier/sub-contractor to comply with in written form; similar to the requirement we have that our Code of Conduct principles are

reflected in supplier contracts.

As previously mentioned, we also participate in the CDP Climate Change Programme. This is an independent, not-for-profit organisation that encourages private and public sector organisations to measure and reduce carbon emissions and climate change impacts.

Having undertaken an environmental footprint analysis, we know that we may attribute our greatest climate impacts to our supply chain. This year, we mobilised our Global Procurement Team to ensure that all suppliers with whom we have at least 80% purchasing spend, have been invited to participate in the CDP Supply Chain project and encouraged to better address these impacts.

Child labourChild labour is defined as work that can harm children’s well-being, and hinders their education, development and future livelihood. We refer to the main international and legal instruments that are contained in the Conventions of the International Labour Organisation (ILO) and the Convention on the Rights of the Child (UNCRC).

Addressing child labour is a multi-stakeholder issue. We would like to see universal legislation aligned with ILO conventions 138 (minimum age for admission to employment and work) and 182 (the worst forms of child labour) and our own supplier standards.

The risk of child labour is high where there is weak governance and in countries that tend to be lower on the UN Human Development Index. It is also a risk in the agricultural supply chain, particularly where communities are subject to a greater prevalence of poverty, disease and lower levels of public infrastructure.

Given the issue of child labour and the global context, we find that child labour incidence is a risk in our supply chain, particularly in terms of tobacco supply.

We have a policy position on human rights and child labour. This is explicit in our Code of Conduct, which applies to all our employees and our business partners including suppliers.

We address the issue of child labour through our Supplier Standards, which relate to both the non-tobacco materials supply chain and to the tobacco leaf supply chain.

With regard to our leaf supply chain, we are tackling child labour through three main avenues:

1. Our leaf supplier programme (STP – previously SRiTP);

2. Our support of the Eliminating Child Labour in Tobacco Growing (ECLT) Foundation; and

3. Our Leaf Partnership projects.

All the supplier entities from whom we source tobacco must participate in our Leaf Supplier Programme (STP), which includes the monitoring of child labour and the assessment of the economic conditions that are linked to the risk of child labour, such

“We address the issue of child labour through our Supplier Standards,

which relate to both the non-tobacco

materials supply chain and to the tobacco leaf

supply chain”

MonItoRInG leaf SupplIeRS and faRMeRSAn industry-wide programme called Sustainable Tobacco Programme (STP) enables continuous improvement throughout a wide-ranging, extensive and global supply chain. STP allows specific areas to be monitored and creates a platform for constructive dialogue in order to focus improvements.


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as farmers’ standards of living and capacity building. Our suppliers have achieved a steady improvement in all three areas that better enable children to attend school and remain in full-time education.

The ECLT Foundation is a multi-stakeholder organisation with cross industry representation from the main Tobacco Manufacturers, Tobacco Merchants and the International Growers' Association. In addition the ECLT Board has Advisory Members.

We support ECLT in terms of an annual funding donation and through management time with active participation on the ECLT Board of Trustees. As an ECLT Board Member, we have signed a Pledge of Commitment and Minimum Requirements. The pledge affirms, “ECLT Foundation Board Members respect and recognize the principles and rights enshrined in the International Labour Organization (ILO) Conventions and Recommendations on child labour”. The Pledge further affirms a sector-wide commitment to uphold robust policy on child labour, minimum requirements on tackling child labour, and implementation consistent with the United Nations (UN) Guiding Principles on Business and Human Rights based on the Ruggie ‘Protect, Respect, and Remedy’ Framework.

ECLT works to address child labour through project implementation, global advocacy and disseminating good practices, influencing public policy on child labour, and knowledge-building through research and evidence.

ECLT projects focus on the withdrawal of children from child labour, education, poverty alleviation, raising awareness and strengthening communities. Project countries in 2016 included Kyrgyzstan,

Malawi, Tanzania, Guatemala, Mozambique, Philippines, Uganda and Zambia.

We allocate some £1.3 million into Leaf Partnership projects annually. In partnership with our leaf suppliers we support a range of projects that are targeted in tobacco-growing countries, identified as having the most need based on the UN Human Development Index.

The two essential criteria for leaf partnerships are projects which:

1. Enhance farmer livelihoods and income – typically through enabling the farmer to improve the yield and quality of his tobacco and/or food crops or by reducing labour requirement.

2. Improve natural resource management – typically through reducing the reliance on indigenous forests, improving water and soil management, and protecting biodiversity – thereby better securing long-term income security for the farmer.

By focusing on this criteria, we aim to mitigate the risk of child labour, deforestation and environmental pollution, and to improve food security.

We work predominately with suppliers as opposed to external parties such as NGOs, to better target the communities to whom we have a responsibility and those who are producing the tobacco that we purchase now and in future.

In financial year 2016, our Leaf Partnerships supported 13 projects across eight countries including five in Africa. Our projects in Malawi, Tanzania, Zimbabwe, Madagascar, Mozambique and India have helped to develop local

infrastructure such as bridges and sanitation, water security especially for irrigation, soil quality through lime provision, solar power, food security, education and fuel-efficient curing barns.

We continued to engage with Human Rights Watch (HRW). We concur with HRW’s recommendation that agricultural workers’ legal rights should be aligned with other sectors, to better mitigate the risk of child labour.

HRW has produced reports focused on child labour in the USA (2014) and more recently in Indonesia (2016). We have engaged through letters, phone calls and face-to-face meetings. And we have also provided HRW with more detailed information in relation to our Leaf Supplier Programme (STP) and the work of our Leaf Sustainability team.

ReduCInG faRMeRS' labouR needSA considerable amount of the farmers’ time is spent on labour-related tasks in the preparation of seedlings, growing and harvesting of tobacco leaf. This can sometimes be a drain on resources and increase production costs.


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GRI G4 Index – General Standard Disclosures

GRI Indicator Description Cover ARA

page ARA Title Website Navigation

CEO Introduction

G4-1 CEO introduction F 3 Chairman’s Statement AR&As 2016

10-11 Chief Executive’s Statement AR&As 2016

Organisational Profile

G4-3 Name of organisation F Cover Imperial Brands About Us – Who we are

G4-4 Brands, products and services F 1, 4, 6, 8

Our Corporate Brands

Our Consumer Brands

Our Strategy and Business Model

Our Brands and Markets

About Us – Our Companies

Brand Portfolio

Market Footprint

G4-5Location of organisation’sheadquarters

F 134 Registered Office Contact

G4-6 Countries andoperating entities F 126-133 Related Undertakings AR&As 2016

G4-7 Nature of ownership F 33 Chairman’s Introduction – Governance About Us – Governance

G4-8 Markets F 8, 9, 10-11

Our Brands and Markets

Our Operating Environment

Chief Executive’s Statement

About Us – Market Footprint

G4-9 Scale of organisation F 13-16 Operating Review About Us – Our Companies

G4-10 Employee population P 3, 21

Chairman’s Statement

Corporate Responsibility

Rewarding Workplace

A Diverse Workforce

AR&As 2016

Corporate Responsibility Case Studies PDF: Rewarding Workplace

Celebrating and Welcoming Diversity

G4-11 Collective bargaining P (GRI Report only)

Case Studies PDF:

Rewarding Workplace

Employee Voice

Pioneering Employee Representation

appendix 1 – GRI Index

Key F - Fully Reported P - Partially Reported ARA - Annual Report and Accounts 2016



http://www.imperialbrandsplc.com/About-us/Who-we-are.html

http://www.imperialbrandsplc.com/About-us/Our-companies.html

http://www.imperialbrandsplc.com/About-us/Brand-portfolio.html

http://www.imperialbrandsplc.com/About-us/Market-footprint.html

http://www.imperialbrandsplc.com/Contacts.html


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Reporting Approach and Assurance

G4-17 Reporting scope F 20,23-25


Greenhouse Gas Emissions Reporting

AR&As 2016

The Reporting & Criteria Document PDF

G4-18 Reporting boundaries F 20,23-25



AR&As 2016

The Reporting & Criteria Document PDF

G4-21 Restatement ofinformation F 23-25



AR&As 2016

G4-22 Reporting scope changes F 23-25



AR&As 2016

Reporting and Criteria Document PDF

G4-28 Reporting period F Cover

Financial Year 2016

(Performance covers our financial year 1 October 2015 – 30 September 2016, unless otherwise stated)

AR&As 2016

G4-29 Date of most recentprevious report F

Financial Year 2015

(Performance covers our financial year 1 October 2014 – 30 September 2015, unless otherwise stated)

AR&As 2015

G4-30 Reporting cycle F 20 Annual AR&As 2016

G4-31 Reporting contact F Contacts

G4-12 Organisationalsupply chain F (GRI Report only)

G4-13 Business changes F 10-11 Chief Executive’s Statement AR&As 2016

Governance, Ethics and Integrity

G4-34 Governance F26-3233-3536-43

Risk Management

Chairman’s Introduction – Governance

The Board and its Committees

AR&As 2016

About Us – Governance

G4-56 Values and Code ofConduct F

Inside front cover20-21


Rewarding Workplace

A Diverse Workforce

About Us – Our Values

Code of Conduct Please see corporate website




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http://www.imperialbrandsplc.com/About-us/Our-Values.html

http://www.imperialbrandsplc.com/Responsibility/Rewarding-workplace.html


External References and Risk Mitigation

G4-14 Precautionary approach F 26 Risk Management AR&As 2016

G4-15 External referencesfor sustainability F (GRI Report only) Stakeholder Engagement

G4-16 Memberships andassociations F (GRI Report only)

Materiality and Stakeholder Engagement

G4-19 Materiality F 20-25 Corporate Responsibility AR&As 2016

G4-20 Materiality F 20-25 Corporate Responsibility AR&As 2016

G4-23 Stakeholders F 20-25 Corporate Responsibility

AR&As 2016

Stakeholder Engagement

Stakeholder Panel Report 2015

G4-24 Stakeholder relevance F 20-25 Corporate Responsibility

AR&As 2016


2015 Stakeholder Panel Report

G4-25 Stakeholder engagement F 20 Corporate Responsibility

AR&As 2016


Responding to Our Stakeholders

G4-26 Stakeholder interests F 20-25 Corporate Responsibility

AR&As 2016




G4-27 Stakeholderengagement topics F 20-25 Corporate Responsibility

AR&As 2016




G4-32 GRI Content Index F (GRI Report only)

G4-33 Assurance F 20Corporate Responsibility

PwC Statement

AR&As 2016

The PwC Assurance Report and Approach Document































Responsible with pRoducts

GRI G4 Index – Specific Standard Disclosures



G4-EC7 Infrastructure Investments P 28-32 Principal Risks

and Uncertainties

AR&As 2016

Illicit Trade

Responsible with Products:

Combating Illicit Trade

G4-PR3 Product Information and Labelling F 21

Responsible with Products

Adhering to High StandardsAR&As 2016

G4-PR1 Customer Health and Safety P 21


Adhering to High StandardsAR&As 2016

G4-PR6Marketing Communication – Adult Choice

F 21Responsible with Products

Marketing Responsibly

AR&As 2016


International Marketing Standard

G4-PR7

Marketing Communication– Responsible Marketing

P 21Responsible with Products

Working with Retailers

AR&As 2016

International Marketing Standard



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ReWaRdInG WoRKplaCe




G4-LA1 Employee Turnover P (GRI Report only)

G4-LA2 Employee Benefits – Employee Wellbeing P 21, 22

Rewarding Workplace

Workplace Health and Safety

Engaging with our people

AR&As 2016

Rewarding Workplace

Case Study: Rewarding Workplace: Volunteering with Mobilise for May

G4-LA6Occupational Health and Safety – Employee Health and Safety

P 21, 22Rewarding Workplace

Workplace Health and Safety

AR&As 2016

Rewarding Workplace

Employee Occupational Health and Safety

Case Study PDF: Driving Safety into Sales

G4-LA10Training Programmes –Development and Reward

P (GRI Report)

Rewarding Workplace

Development and Reward

Case Study PDF: Investing in our Future Leaders

G4-HR4

Freedom of Associationand Collective Bargaining – Employee Voice

P (GRI Report)

Rewarding Workplace

Employee Voice

Human Rights

Case Study PDF: Pioneering Employee Representation












www.imperialbrandsplc.com/Responsibility/Rewarding-workplace.html




www.imperialbrandsplc.com/Responsibility/Rewarding-workplace.html

http://www.imperialbrandsplc.com/Responsibility/Human-rights.html




Respecting natuRal ResouRces


GRI Indicator Description Cover ARA page ARA Title Website Navigation

G4-EN3 Energy Consumption F 23

Respecting Natural Resources

Climate Change and Energy

Energy consumption data trends

AR&As 2016


Climate and Energy

Case Study PDF: Logista and Carbon Management

G4-EC2

Climate Change Risks and Opportunities

P (GRI Report)

G4-EN15 Emissions Scope 1 F 24, 25



CO2 equivalent emissions data trends

Logista CO2 equivalent emissions

AR&As 2016

GRI Report

G4-EN16 Emissions Scope 2 F 24, 25





AR&As 2016

GRI Report

G4-EN19 Reduction of Emissions F 24, 25





AR&As 2016

GRI Report

G4-EN20

Emissions of Ozone – Depleting Substances

P GRI Report

G4-EN23 Weight of Waste F 23, 24


Resource Efficiency

Waste and waste to landfill data trends

AR&As 2016

GRI Report

G4-EN8Water Withdrawal by Source

F 24


Water Management

Water consumption data trends

Responsibility Performance Indicators

AR&As 2016

GRI Report

Case Study PDF: Improving Water Quality in Morocco

G4-EN13Habitats Protected and Restored

F 24Respecting Natural Resources

Reforestation Programmes

AR&As 2016


Forestry Preservation

Biodiversity


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ReInVeStInG In SoCIety


GRI Indicator Description Cover ARA page ARA Title Website Navigation

G4-EC1 Economic Value F 17-19 Financial Review

AR&As 2016

Reinvesting in Society

Livelihoods and Community

G4-EN32 Environmental Screening and Farmers F 22


Supplier Standards

AR&As 2016


Case Study PDF: Monitoring Leaf Suppliers and Farmers

G4-LA14 Labour Practice Screening F 22


Human Rights

Supplier Standards

AR&As 2016


Supplier Standards

Human Rights

Case Study PDF: Monitoring Leaf Suppliers and Farmers

G4-HR10 Human Rights Screening F 22


Human Rights

AR&As 2016

Human Rights

Human Rights Impact Assessment 2016 PDF

G4-HR5 Child Labour Risk F 23Reinvesting in Society

Farmer Livelihoods and Child Labour

AR&As 2016


Child Labour

Case Study PDF: Reducing Farmers’ Labour Needs


http://www.imperialbrandsplc.com/Responsibility/Reinvesting-in-society.html

www.imperialbrandsplc.com/Responsibility/Reinvesting-in-society.html





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OuR VALuES OuR RESPONSIBILITy

2016 ReSponSIbIlIty peRfoRManCe IndICatoRSThis table details our Responsibility Performance Indicators. We have also provided a year-on-year assessment of progress; where possible this is based on the latest verified data, which is indicated by an .

Please note that some of our verified data is reported 12 months in arrears to allow for the verification to complete. Information on the scope of the indicators, as well as our reporting methodology, can be found in our ‘Reporting and Criteria Document’, which is available on our website www.imperialbrandsplc.com

Focus Area Performance Indicator Unit FY 09 Baseline FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 Progress

Responsible with pRoducts To support legitimate markets and consumers

Products Number of countries for which cigarette ingredients are published on Imperial Tobacco’s corporate site Number 36 34 34 34 34 46 46 46

Quality1 % improvement of the Global Quality Index % - 0 8 3 6 8 6.8 5.8

Anti-illicit trade

Total number of Memoranda of Understanding and cooperation agreements on combating smuggling and counterfeit signed with governments

Number 16 18 19 21 22 23 24 27

1 Annual quality improvements started in 2010. Quality improvements are based on year-on-year improvements.

ReWaRdInG WoRKplaCeTo create a great workplace

Employment Practices Group Employee Engagement Score % 51 52 53 - 59

Diversity

Female employees % 30 41 39 39 39

Female PLC Board members % 14 20 22 18 18 30 22 30

Female Operating Executive members % 28 37 33 22 22 22 22 22

Absence2 Sickness absence rate incl. non-work-related and work-related absence

% of total days worked 3.73 2.97 2.76 2.55 2.72 2.42 2.65 2.62*

Safety3 Lost time accident frequency rate Per 200,000 hours 1.57 1.30 1.08 0.86 0.73 0.52 0.44 0.40*

2,3 Health and Safety data is reported 12 months in arrears to allow for data collection and verification. FY15 data has been assured by PricewaterhouseCoopers LLP. * Provisional unverified FY16 data – comprising verified data for the last 6 months of FY15 and unverified data for the first 6 months of FY16 – is provided in this report. Verified data forFY16 will be published next year.

Performance KeyProgress No Change Decline

Data has been assured by PricewaterhouseCoopers LLP under the limited assurance requirements of the ISAE 3000 standard. The Assurance Report and Approach Document for 2016 and our Reporting and Criteria Document, which details the scope and methodology employed for each of the indicators are available on our website at www.imperialbrandsplc.com




OuR VALuES OuR RESPONSIBILITyPerformance Key

Progress No Change Decline

4 Environmental data is reported 12 months in arrears to allow for data collection and verification. FY15 data has been assured by PricewaterhouseCoopers LLP. In line with other major companies, we measure our performance against the amount of tobacco net revenue we generate. Environmental data includes all manufacturing sites and main offices producing cigarettes, fine-cut and cigar products. Factories or offices relating to Logista or Sales and Marketing entities, are currently excluded. Our environmental reporting has been adapted to satisfy June 2013 guidelines for greenhouse gas (GHG) disclosures. Our data for energy consumption and CO2 emissions includes Scope 1 and Scope 2 emissions, leakage of refrigerant gases, process emissions from the Dry Ice Expanded Tobacco process at our tobacco expansion plant and our main offices in Bristol, Hamburg, Paris, Madrid and Casablanca.

*Unverified FY16 data is estimated based on data from the last six months of FY15 and the first six months of FY16. Verified data for FY16 will be published next year. Data has been assured by PricewaterhouseCoopers LLP under the limited assurance requirements of the ISAE 3000 standard. The Assurance Report and Approach Document for 2016 and our Reporting and Criteria Document, which details the scope and methodology employed for each of the indicators, are available on our website at www.imperialbrandsplc.com


Respecting natuRal ResouRces4

To reduce our environmental impact

Environmental Management Factories with ISO 14001 at the time of reporting % 66 69 72 71 72 89 90 93

WasteRelative environmental waste Tonnes/£million 8.25 8.00 7.47 7.84 7.24 7.63 7.73 7.35*

Absolute environmental waste Tonnes 54,343 54,331 51,658 55,020 50,759 50,143 48,315 49,261*

Waste to Landfill

Relative environmental waste to landfill Tonnes/£million 2.08 1.90 1.70 1.61 1.55 1.57 1.24 1.11*

Absolute environmental waste to landfill Tonnes 13,731 12,924 11,741 11,274 10,836 10,351 7,742 7,440*

Recycling Rate Waste recycling rate including composting % 64 63 60 63 63 63 68 68

Energy Consumption

Relative energy consumption – from manufacturing processes, offices and fleet fuel KWh/£Million 172,227 167,938 163,287 154,650 145,699 147,284 147,247 144,334*

Absolute energy consumption – from manufacturing processes, and offices GWh 990 996 984 939 876 824 781 828*

Absolute energy consumption – from fleet fuel GWh 145 145 145 145 145 145 140 140*

CO2 Emissions

Relative CO2 equivalent emissions – from manufacturing processes, offices and fleet fuel Tonnes/£million 48.6 50.6 50.2 46.4 43.2 42.7 44.3 43.7*

Total Absolute CO2 equivalent emissions – from manufacturing processes, offices and fleet fuel Tonnes 320,445 343,827 347,229 325,315 302,792 280,506 276,925 292,724*

Scope 1 (direct) CO2 equivalent emissions – from manufacturing processes, offices and fleet fuel Tonnes 136,813 161,506 158,290 148,595 140,646 125,377 127,730 132,451*

Scope 2 (indirect) CO2 equivalent emissions – from manufacturing processes, offices and fleet fuel Tonnes 183,632 182,321 188,939 176,577 162,146 155,129 149,194 160,274*

Water Consumption

Relative water consumption (mains and abstracted) m3/£million 321 300 290 274 235 251 243 239*

Absolute water consumption (mains and abstracted) m3 2,116,232 2,036,187 2,001,322 1,925,991 1,647,496 1 ,650,848 1,521,300 1,600,527*




OuR VALuES OuR RESPONSIBILITy


Reinvesting in societyTo make positive societal contributions

Sourcing5 Social Responsibility in Tobacco Production (SRiTP) progress – total weighted mean % 60 63 68 71 75 79 80

Partnership Investment6 Community Investment donations (allocations) £m 3.0 3.1 3.1 3.1 3.2 3.28 2.55 3.06

5 All of our tobacco suppliers participated in the SRiTP programme in 2015.6 Partnership investment donations excludes value of employee time, small additional donations made at country level outside of the strategic funding, in-kind contributions and management costs.

Data has been assured by PricewaterhouseCoopers LLP under the limited assurance requirements of the ISAE 3000 standard. The Assurance Report and Approach Document for 2016 and our Reporting and Criteria Document, which details the scope and methodology employed for each of the indicators, are available on our website at www.imperialbrandsplc.com

Performance KeyProgress No Change Decline

http://www.imperialbrandsplc.com/content/dam/imperialbrands/ corporate/responsibility/approach-andperformance/ Imperial%20Brands%20CR%20Assurance%202016.pdf

http://www.imperialbrandsplc.com/content/dam/imperialbrands/ corporate/responsibility/approach-andperformance/ Reporting_Criteria_2016.pdf


gri sustainability report 2016 - imperial brands · we are a ftse 100 company headquartered in...

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