Carbon Disclosure Project

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1 Carbon Disclosure Project CDP 2013 Investor CDP 2013 Information Request Philip Morris International Module: Introduction Page: Introduction 0.1 Introduction Please give a general description and introduction to your organization Philip Morris International Inc. (PMI) is the leading international tobacco company, with its headquarters in New York City, New York, U.S.A. and Operations Center in Lausanne, Switzerland. On 31 December 2012 PMI owned and operated 53 manufacturing facilities and sold products in more than 180 markets. In 2012, PMI recorded total cigarette shipment volume of 927 billion units, had revenues, including excise taxes billed to customers, of US$ billion, and held 28.8% of the international cigarette market excluding the People's Republic of China and the U.S. PMI s 2012 adjusted operating company income (OCI) was US$ 14.2 billion. PMI has an unequalled brand portfolio led by Marlboro, the world s number one international selling cigarette brand, and L&M, the third most popular brand. Along with Marlboro and L&M, seven of our brands rank in the top 15 international cigarette brands in the world. We have a strong mix of international and local products that appeal to a wide range of adult smokers. PMI s global workforce of more than 87,000 employees is extremely diverse. We have historically expanded our business through a mixture of organic growth, geographic expansion and acquisitions, and have a successful track record of acquiring and integrating companies. PMI is driven by four key goals that guide us as we grow our business in a responsible manner. Those goals are: to meet the expectations of adult smokers by offering innovative tobacco products of the highest quality available in their preferred price category; to generate superior returns to our stockholders through revenue, volume, income, and cash flow growth and a balanced program of dividends and share repurchases; to reduce the harm caused by tobacco products by supporting comprehensive and effective regulation and by developing products with the potential to reduce the risk of tobacco-related diseases; and to be a responsible corporate citizen and to conduct our business with the highest degree of integrity, at both a local and global level. We are committed to responsibly delivering long-term, sustainable growth and apply high standards everywhere we operate. As the leading international cigarette

2 company, we also aim to be an industry leader in environmental sustainability and have set clear and measurable targets to improve our environmental performance. In 2010, we set ourselves the goal of reducing CO2 emissions, energy consumption and water usage in our manufacturing facilities by 20% by 2015, and reducing the carbon footprint of our value chain by 30% by Reporting Year Please state the start and end date of the year for which you are reporting data. The current reporting year is the latest/most recent 12-month period for which data is reported. Enter the dates of this year first. We request data for more than one reporting period for some emission accounting questions. Please provide data for the three years prior to the current reporting year if you have not provided this information before, or if this is the first time you have answered a CDP information request. (This does not apply if you have been offered and selected the option of answering the shorter questionnaire). If you are going to provide additional years of data, please give the dates of those reporting periods here. Work backwards from the most recent reporting year. Please enter dates in following format: day(dd)/month(mm)/year(yyyy) (i.e. 31/01/2001). Enter Periods that will be disclosed Sun 01 Jan Mon 31 Dec Country list configuration Please select the countries for which you will be supplying data. This selection will be carried forward to assist you in completing your response Argentina Australia Brazil Canada Select country

3 Select country Colombia Costa Rica Czech Republic Dominican Republic Ecuador Germany Greece Guatemala Indonesia Italy Jordan Kazakhstan South Korea Lithuania Malaysia Mexico Netherlands Pakistan Philippines Poland Portugal Romania Russia Senegal Serbia South Africa Switzerland Turkey Ukraine Uruguay Venezuela Rest of world

4 0.4 Currency selection Please select the currency in which you would like to submit your response. All financial information contained in the response should be in this currency. USD($) 0.6 Modules As part of the request for information on behalf of investors, electric utilities, companies with electric utility activities or assets, companies in the automobile or auto component manufacture sectors, companies in the oil and gas industry and companies in the information technology and telecommunications sectors should complete supplementary questions in addition to the main questionnaire. If you are in these sectors (according to the Global Industry Classification Standard (GICS)), the corresponding sector modules will not appear below but will automatically appear in the navigation bar when you save this page. If you want to query your classification, please If you have not been presented with a sector module that you consider would be appropriate for your company to answer, please select the module below. If you wish to view the questions first, please see Further Information Caribbean Curacao (not in country list). Rest of World includes our vehicle fleet, office and aircraft emissions. During 2012 we expanded our scope of reporting and changed the normalization factors for our intensity KPIs and targets from per million cigarettes to per million cigarettes equivalent to take into account semi-finished products and non-cigarette products. Based on this work we have restated the baseline for our targets (2010) and also our 2011 performance data. As part of this restatement process we upgraded the third party verification of our scope 1 and 2 data to ISO Reasonable Assurance instead of Limited Assurance.

5 Module: Management [Investor] Page: 1. Governance 1.1 Where is the highest level of direct responsibility for climate change within your company? Senior Manager/Officer 1.1a Please identify the position of the individual or name of the committee with this responsibility The highest level of direct responsibility for climate change within PMI lies with the Senior Vice-President (SVP) Operations who is a member of the Senior Management Team and reports to PMI s Chief Executive Officer (CEO). The SVP Operations delegates day to day responsibility for climate change issues to the Vice-President Environment, Health, Safety & Security (VP EHS&S). The Product Innovation and Regulatory Affairs Committee of the Board of Directors periodically reviews PMI s objectives, strategies and action plans related to environmental sustainability with the Senior Vice-President Operations. 1.2 Do you provide incentives for the management of climate change issues, including the attainment of targets? Yes 1.2a Please complete the table Who is entitled to benefit from these incentives? The type of incentives Incentivized performance indicator

6 Who is entitled to benefit from these incentives? The type of incentives Incentivized performance indicator Executive officer Management group All employees Energy managers Environment/Sustainability managers All employees Other: - employees in certain facilities such as our Operations Center All employees Other: - employees in our Operations group (over 50,000 employees) Monetary reward Monetary reward Monetary reward Monetary reward Monetary reward Monetary reward Monetary reward Recognition (non-monetary) Recognition (non-monetary) The assessment of Environment, Health and Safety (EHS) results (including greenhouse gas (GHG) reductions) influences the annual performance rating of our SVP Operations and VP EHS&S. This directly affects the annual cash incentive compensation and long term restricted stock incentive compensation elements for those roles. Our CEO specifically covers EHS results (including GHG reductions) in the assessment of our annual company-wide performance that is reviewed by the Compensation and Leadership Development Committee of the Board of Directors. Accordingly, these results are included in our overall performance rating which determines the bonus pool for all eligible employees. Specific company awards such as the Chairman s Award and Excellence Awards are available for Energy Managers, EHS Managers, project teams and other employees who are responsible for climate change related initiatives and improvements. Managers, team members and others have energy efficiency and GHG reduction targets set out in their annual performance objectives and are assessed against those targets in their annual performance appraisal. Energy efficiency and CO2 emissions reduction targets are set annually for at least three years for all of our manufacturing facilities. Managers, team members and others have energy efficiency and GHG reduction targets set out in their annual performance objectives and are assessed against those targets in their annual performance appraisal. Energy efficiency and CO2 emissions reduction targets are set annually for at least three years for all of our manufacturing facilities. Specific company awards such as Above and Beyond the Call of Duty (ABCD) awards for best practice initiatives in the areas of climate change, energy and carbon reduction. Employees from the Operations Center are encouraged to use public transportation. The annual fee for half-price railway subscription as well as a monthly public transport allowance is paid by the company for those employees who choose to use public transportation rather than commute in their private cars to work. In 2012, many affiliates continued to perform voluntary awareness and promotion campaigns/ programs in order to increase employees active participation in EHS programs and to make GHG reduction part of the company's culture. Awards and recognition for best practices form a core element of such campaigns. Operations employees also have the opportunity to earn awards for best practice initiatives in the areas of climate change, energy and carbon reduction. This forms part of our Operations Lead, Lean and Learn (3L) program which encourages innovation, continuous improvement and employee engagement.

7 Page: 2. Strategy 2.1 Please select the option that best describes your risk management procedures with regard to climate change risks and opportunities Integrated into multi-disciplinary company wide risk management processes 2.1a Please provide further details Scope Our climate change risk management process covers our company s entire value chain from growing tobacco to the use of lighter fuel when our products are used. It addresses regulatory, physical climate and market risks and opportunities, which can include company reputation and changing customer demands. Risks and Opportunities Assessment Company Level At a company level we have identified and addressed risks/opportunities in 2 main areas: 1. Minimizing our impact on the environment through carbon footprint reduction initiatives. As an environmentally responsible company, we have corporate programs to reduce our energy consumption and CO2 emissions which help to manage our regulatory, reputational, and financial risk exposure in this area. These programs include energy and CO2 reductions from our manufacturing operations (some of which are regulated under emissions trading regulations such as the EU Emissions Trading Scheme (EU ETS)), vehicle fleet, agricultural base (including tobacco curing) and supply chain/logistics operations. The carbon footprint that we prepared in 2009 highlights the main risk/opportunity exposures for us in terms of priority areas for reduction. We update our carbon footprint every 2 years starting this year based on our 2012 data to ensure our risk/opportunity actions remain appropriate. We also have a regulatory radar screen to track changes in climate change related legislation that could impact us, and which also enables us to take the necessary steps to ensure compliance or seek opportunities from the changing regulatory landscape such as regulated energy tariffs or incentives. This work enables action at both the company and asset level. With respect to our products, potential significant developments in cigarette and packaging components or potential new products are assessed by a Lifecycle Assessment (LCA) process for risks and opportunities in relation to our carbon footprint. 2. Minimizing future environmental impact on our business through a climate change risk assessment process. We completed a comprehensive climate change risk assessment process in 2011 which addressed both our corporate and asset level risks and opportunities. The risk assessment process included our key internal assets such as factories and warehouses, supplier assets (including port facilities, warehouses, tobacco leaf growing regions and other strategic suppliers). This risk management process covered material physical and regulatory risks impacting those key assets (internal / external), regions and our company as a whole. It used a current risk state assessment against projected changes in the time horizon. Whilst the initial results of the risk assessment process were not definitive, the broad themes of change in risk profile are deemed valid and will be reviewed every 5 years to take advantage of new scientific knowledge and technical ability to forecast the impact of climate change. This information is and will be used to develop specific action plans at the company level. Risks and Opportunities Assessment Asset Level At the asset level we can analyze the results of our 2011 climate change risk assessment process down to the specifics of, for example, potential increased flood, drought and cyclone risk for individual company assets, and we have assessed those risks in terms of potential financial and raw material volume impacts. As stated

8 above, the initial results of the risk assessment are not definitive; however the broad themes of change in risk profile are considered valid and will be further refined in the future to inform specific action plans at the asset level. Other tools that we use in identifying significant risks and/or opportunities from climate change include: Environmental risk assessments are conducted at both the global company level and the individual affiliate level to identify material risks and opportunities. In manufacturing centers the process is formalized through our environmental management systems (to the international standard ISO 14001). These risk assessments include asset details such as the need for flood risk management plans which we discuss with our insurers and use to develop mitigation plans. In tobacco agriculture, the risk assessments form part of our Good Agricultural Practices (GAP) program and result in country specific actions plans to address risks and opportunities. Due diligence surveys are performed at least annually to identify material environmental risks. The results of these surveys are collected from affiliates and analyzed by the central PMI EHS team. Information is then assessed with relevant corporate departments, for example, operations, finance and legal. We conduct annual compliance risk assessments at all affiliates which take into account CO2 emissions, reporting and climate change. This includes forecasting of future changes in regulations such as tightening in emissions allowances (e.g. allowance changes in Phase 3 of EU ETS for 4 factories in the EU). Monitoring Frequency In addition to annual actions outlined above, we monitor our energy and CO2 emissions from our manufacturing centers on a monthly basis. Our risk/opportunity radar screen is reviewed every 6-12 months and our whole carbon footprint is reviewed every 2 years from Our climate change risk assessment will also be reviewed and refined, with a major review to be undertaken within 5 years. Materiality and Prioritization Material issues are identified in a multidisciplinary way and include those which: have the highest potential impact and a realistic probability of occurrence; are most relevant to our enterprises and geographic locations; and are most important to our stakeholders. We currently set a financial threshold of US$100K for materiality of risk/opportunity at the asset level. In risk forecasting terms, higher level risks are defined as those with a potential impact of in excess of US$2M or a raw material impact in excess of 1000 metric tonnes of tobacco leaf. In carbon footprint terms we have initially prioritized actions for those areas of our business which constitute more than 5% of our footprint. Reporting Issues and progress on risks and opportunities are reported through various means, including a formal annual and quarterly report on progress in all EHS areas, including climate change and carbon footprint. These reports are generated by the EHS team, and are reported through the VP EHS&S to the Senior Management Team and CEO. Asset level risks/opportunities are reported through Directors to country Managing Directors and key risks/opportunities are reviewed through Regional Management Teams, including our Regional Presidents. On an annual basis, key climate change risks and opportunities are reported to and reviewed by the Board of Directors as part of our long range planning and strategy process. External reports on progress are delivered on our Company website, through the PMI Annual Report, the CDP programs and through selected senior management presentations, including to our investors and stakeholders. 2.2 Is climate change integrated into your business strategy? Yes

9 2.2a Please describe the process and outcomes i ) Our Strategy Process Reducing our impact on the environment is fundamental to our business. We do this with a commitment to the highest ethical standards and business integrity, through systems and processes, to deliver compliance and conduct efficient and effective operations worldwide. Climate Change strategy is embedded in our overall business strategy as a key element of Doing What is Right which is at the core of our company Code of Conduct. It is integrated in our business strategy through normal business practices and a Long Range Planning process (LRP). LRP is an annual business cycle that reviews and sets direction for 3 years and beyond. The corporate EHS team undertakes annual strategy development sessions with regional/business representatives, which are based on review of previous year performance, regulatory/external developments, risk/opportunity assessments, stakeholder interest and operational/other business changes. The draft strategy is presented to the company Operations Management Team, which includes the VP EHS&S and the Senior VP Operations. Following initial approval, the strategy is discussed with the Senior Management Team including the CEO and when finally approved, the Climate Change strategy is communicated to functional departments, regions and affiliates for integration into specific country strategies and implementation. Climate Change strategy reviews are held during the year, including with the Product Innovation and Regulatory Affairs Committee of PMI s Board of Directors. ii) Climate Change Aspects Our strategy is split into two main areas: 1) Minimizing our impact on the environment through carbon footprint reduction initiatives. 2) Minimizing future environmental impact on our business through a climate change risk assessment process. For 1) in 2009, we undertook a Life Cycle Assessment to establish our carbon footprint, and found that the majority of our footprint comes from our scope 3 emissions, in particular the tobacco agriculture part of our value chain (40+% of our emissions). The size and importance of the impact from each element of our business is a key input to our strategy development. For 2) in 2011, we completed a climate change risk assessment across our value chain and main focus areas were identified. Our business depends on agriculture for key raw materials and therefore current and future changes in climate impacting sensitive crops such as tobacco and clove are important for our business strategy. iii) Short-term Strategy In order to address climate change risks and carbon footprint priorities, our short term strategy components include: 1) Developing a methodology to understand, benchmark and address the use of wood in tobacco curing operations, starting with a pilot study with nature conservation experts to identify issues and best practices in Brazil. Recommendations were made in 2012 for implementation from 2013, including reducing wood use in tobacco curing, promoting sustainable consumption of wood and alternative fuels. This study is key to enabling refinement and update of our carbon footprint to focus on future actions. 2) Continuing investment in reforestation and Good Agricultural Practices, which includes the development of country specific action plans in to reduce impacts in the short-medium term. 3) Procuring over 97% of our paper and boards from sustainable sources (e.g. as certified by organizations such as PEFC, FSC). 4) Reducing our energy and CO2 from manufacturing operations by 20% by 2015 against our 2010 baseline. 5) Implementing a comprehensive Energy Management Program, including worldwide factory metering and targeting, energy assessments, key Energy Saving Projects (best practice cascading) and identifying emerging technologies including renewable energy opportunities. 6) Reducing emissions and sharing best practices in Logistics and Distribution through a carbon footprinting tool. 7) Revising our direct materials supplier program covering sustainability topics and related criteria which included in 2012 a review of the costs and benefits of the CDP Supply Chain program. 8) Managing supply/demand and pricing fluctuations for key raw materials.

10 9) Undertaking life cycle assessments of potential significant developments in cigarette and packaging components or potential new products. 10) Review/update of our carbon footprint every 2 years from 2012, continuing to measure the impact of developments in our business. 11) Review and refinement of our climate change risk assessment. iv) Long-term strategy Our long term commitment is to reduce our value chain carbon footprint by 30% by This will be supported by sustained implementation and development of many of the short term actions described above including reducing the need for wood for curing tobacco and increasing the proportion of sustainable wood used to 100 %. The results of our climate change risk assessment are a starting point to inform future management decisions in terms of climate-related agricultural impacts and forecasted physical changes in business environments that may occur in certain climates and countries. At this time the specificity and accuracy of the risk assessment is insufficient to inform definitive action and therefore one element of our strategy is to continue to refine and review this risk assessment to ensure that we are ready to take action when the information fully supports such action from a business risk perspective. Our agricultural supply chain is widely spread around the world, which helps to mitigate against climate related risks; tobacco crops can also be relatively easy to relocate if some growing areas become more favorable than others. In the long term we will also integrate our customer and supplier strategies for sustainability and climate change to ensure that our entire value chain is aligned with our objectives. v) How this strategy gains us strategic advantage As the leading international cigarette company, our climate change strategy has a key role in enabling our business efficiency which keeps us ahead of our competitors and drives our long term sustainability. Specifically, we have taken steps to align with our customer expectations on climate change including the development of our carbon footprint and our target to reduce that footprint by 30% by We will continue to work with trade customers, such as Tesco, to ensure that we exceed their expectations and are viewed advantageously in this area when doing business with them. In terms of our products, we make sure that we have the right information to take future decisions on potential strategic advantage by considering the environmental impacts of new products or product developments through Lifecycle Assessment (LCA). vi) Substantial business decisions influenced by climate change a) In 2012 we decided to engage and communicate more extensively on our climate change strategy and this has already included the development of new Sustainability and Climate Change pages on our website (pmi.com) in a project undertaken in 2012 and launched in Q b) Developing an Energy Management Program which allows for a longer term return on investment approach when there are additional justified benefits such as climate change impact reduction. This program includes US$82M investment in improvement projects planned between 2010 and c) Integrating our climate change strategy (through LCA) as part of our product development process and also including assessment of our portfolio of innovative Next Generation Products to help ensure that their environmental impact is understood and managed in the early stages of product development. d) We have sophisticated capacity and footprint planning which mitigate against local or regional operations disturbances. 2.2b Please explain why not

11 2.3 Do you engage in activities that could either directly or indirectly influence policy on climate change through any of the following? (tick all that apply) Trade associations Other 2.3a On what issues have you been engaging directly? Focus of legislation Corporate Position Details of engagement Proposed solution 2.3b Are you on the Board of any trade associations or provide funding beyond membership? No 2.3c Please enter the details of those trade associations that are likely to take a position on climate change legislation Is your position on climate change Trade association consistent with theirs? Please explain the trade association's position How have you, or are you attempting to influence the postion? 2.3d Do you publically disclose a list of all the research organizations that you fund?

12 2.3e Do you fund any research organizations to produce public work on climate change? 2.3f Please describe the work and how it aligns with your own strategy on climate change 2.3g Please provide details of the other engagement activities that you undertake We work with NGOs and governments to support communities on environmental sustainability topics including sustainable forestry, reforestation, sustainable rural living conditions and education; all of which can have an influence on climate change improvement, adaptation and mitigation. Some examples include: In the Czech Republic - Community Development Fund: Organizing 16 community-based projects focused on environment and rural development, to benefit more than 15,000 people in the country, including the Kutna Hora region, where PMI s factory is located. In the Dominican Republic - Recycled City Program: A project that aims to raise environmental awareness of the importance of recycling among students living in the city of Santiago de los Caballeros, with the involvement of 175 students and 60 teachers. In Costa Rica - Construction of a Technological Information Centre for Environmental Education: Construction of a building to operate an environmental education program for students at public and private schools of the Belen Municipality community, benefiting approximately 3,500 students. In Pakistan - Reforestation in Tobacco Growing Areas through the Sarhad Rural Support Program: Planting approximately 450,000 saplings to benefit underprivileged tobacco growing communities. In Switzerland, we negotiated energy reduction objectives for our manufacturing centers through the association Agency of Energy for the Economy, an agency that campaigns on climate change/energy issues with energy experts and local policy makers. In the Philippines - developed a reforestation project involving local government units, suppliers and NGOs (non-governmental organizations) as well as schools. Around 2.5 million trees have been planted over the last 10 years. In Malawi, Mozambique, Kenya and Tanzania - funding a multi-year Enhancing Rural Livelihoods program, to preserve forests, build schools and provide villages with clean water, improved sanitation and fuel-efficient stoves. Part of the project consists of planting tens of millions of trees for household fuel consumption. The

13 program is expected to benefit around 75,000 households. In Indonesia - we have partnered with the local government in Surabaya on a program to conserve more than 1,500 hectares of mangrove forest, thereby protecting biodiversity, ensuring employment for mangrove farmers and fishermen and creating eco-tourism opportunities for surrounding villages, including the planting of 100,000 trees to benefit about 55,000 people. 2.3h What processes do you have in place to ensure that all of your direct and indirect activities that influence policy are consistent with your overall climate change strategy? PMI operates within an overarching Code of Conduct to a set of internal policies - our Principles and Practices. These policies cover our mandatory requirements and processes in relation to Environment, Health and Safety (EHS), corporate contributions, and interactions with government officials, amongst other subjects. 2.3i Please explain why you do not engage with policy makers Page: 3. Targets and Initiatives 3.1 Did you have an emissions reduction target that was active (ongoing or reached completion) in the reporting year? Intensity target 3.1a Please provide details of your absolute target

14 ID Scope % of emissions in scope % reduction from base year Base year Base year emissions (metric tonnes CO2e) Target year Comment 3.1b Please provide details of your intensity target ID Scope % of emissions in scope % reduction from base year Metric Base year Normalized base year emissions Target year Comment I1 I2 I3 14 Scope 1+2 Scope Scope 1+2 Scope % 20% 100% 30% 81% 5% 81% 10% Other: kg CO2 - equivalent / million cigarettes Other: kg CO2 - equivalent / million cigarettes Other: kg CO2 - equivalent / million cigarettes Other: kg CO2 - equivalent / million cigarettes This is a publicly declared target to reduce our emissions from our manufacturing facilities by 20% per million cigarettes equivalent by 2015 against our 2010 baseline. This is a publicly declared target to reduce our emissions from the entire value chain (Scope 1+2+3) against our 2010 baseline by 30% per million cigarettes equivalent by This is a target to reduce our emissions from our manufacturing facilities by 5% per million cigarettes equivalent in 2012 against our 2010 baseline. This is a target to reduce our emissions from our manufacturing facilities by 10% per million cigarettes equivalent in 2013 against our 2010 baseline. 3.1c Please also indicate what change in absolute emissions this intensity target reflects

15 ID Direction of change anticipated in absolute Scope 1+2 emissions at target completion? % change anticipated in absolute Scope 1+2 emissions Direction of change anticipated in absolute Scope 3 emissions at target completion? % change anticipated in absolute Scope 3 emissions Comment I1 Decrease 20 No change Based on constant production volumes I2 Decrease 25 Decrease 32 Based on constant production volumes I3 Decrease 3 No change This is the actual absolute percentage reduction in emissions from 2010 to 2012 I4 Decrease 10 No change Based on constant production volumes 3.1d Please provide details on your progress against this target made in the reporting year ID % complete (time) % complete (emissions) Comment I1 40% 40% We had an 8% reduction in our manufacturing facilities against the 2010 baseline. I2 20% 5% Based on Scope reduction of 1.5% mainly due to manufacturing improvements. We are substantiating further improvements but will only update the % complete (emissions) number every 2 years when we recalculate our carbon footprint. I3 100% 100% We had an 8% reduction in our manufacturing facilities against the 2010 baseline, beating our 5% target for I4 67% 80% We had an 8% reduction in our manufacturing facilities against the 2010 baseline. 3.1e Please explain (i) why not; and (ii) forecast how your emissions will change over the next five years

16 3.2 Does the use of your goods and/or services directly enable GHG emissions to be avoided by a third party? No 3.2a Please provide details (see guidance) 3.3 Did you have emissions reduction initiatives that were active within the reporting year (this can include those in the planning and implementation phases) Yes 3.3a Please identify the total number of projects at each stage of development, and for those in the implementation stages, the estimated CO2e savings Stage of development Number of projects Total estimated annual CO2e savings in metric tonnes CO2e (only for rows marked *) Under investigation 418 To be implemented* Implementation commenced* Implemented* Not to be implemented 190

17 3.3b For those initiatives implemented in the reporting year, please provide details in the table below Activity type Description of activity Estimated annual CO2e savings (metric tonnes CO2e) Annual monetary savings (unit currency - as specified in Q0.4) Investment required (unit currency - as specified in Q0.4) Payback period Energy efficiency: Processes Energy efficiency: Building services Energy efficiency: Building services Energy efficiency: Processes Central Cooling For Filter Making Equipment (Top 5 projects) Scope 2, targets I1, I3 & I4, worldwide roll-out period: , on a voluntary basis. This project is one of the Top 5 projects selected for global roll-out as part of our Energy Management Program (for more information, please see Further information for this section). The implementation of this project is ongoing from 2010 to The project consists of the replacement of the individual cooling device at each filter maker by a central system producing cooling outside of the production area. The realization timeframe of the project for each facility is 2-3 months. This project was implemented in 6 affiliates. Heating Ventilation Air Conditioning Flow Rate Optimization (Top 5 projects, see Further information ), Scope 2, targets I1, I3 & I4, worldwide roll-out period: , on a voluntary basis. This project involves installation of variable speed drives on the fan motors of air handling units in order to adapt the flow rate of air supplied (and returned) from the production areas according to production needs. The realization timeframe of the project for each facility is 4-6 months. This project was implemented in 17 affiliates. Dust Collection System Flow Rate Optimization (Top 5 projects, see Further information ), Scope 2, targets I1, I3 & I4, worldwide roll-out period: , on a voluntary basis. The optimization is brought by the installation of variable speed drives on the fan motors of dust collection systems to be able to vary the flow according to the production needs. The realization timeframe of the project for each facility is 4-6 months. This project was implemented in 4 affiliates. Steam Traps Monitoring System (Top 5 projects, see Further information ), Scope 1, targets I1, I3 & I4, worldwide roll-out period: , on a voluntary basis. Steam production and distribution is one of the largest contributors to the years <1 year years years

18 Activity type Description of activity Estimated annual CO2e savings (metric tonnes CO2e) Annual monetary savings (unit currency - as specified in Q0.4) Investment required (unit currency - as specified in Q0.4) Payback period Energy efficiency: Building services Process emissions reductions Process emissions reductions Energy efficiency: Processes Energy efficiency: Building services energy consumption and carbon footprint of our facilities. Steam Traps (ST) are critical devices of the steam distribution systems. Malfunctioning STs may cause significant increases in energy consumption. The project consists of installing an on-line monitoring system of the STs to replace regularly scheduled manual checks. This allows immediate identification and corrective actions on failing STs. The realization timeframe of the project for each facility is 2-4 months. This project was implemented in 10 affiliates. Chilled Water System Upgrade (Top 5 projects, see Further information ), on a voluntary basis. Scope 2, targets I1, I3 & I4, worldwide roll-out period: The project involves the optimization of the production of chilled water used for cooling through the installation of more efficient chillers and the installation of Variable Speed Drives to modulate the flow rate of air conditioning supplied to the production floor. The realization timeframe of the project for each facility is 4-6 months. This project was implemented in 13 affiliates. Process equipment optimization Scope 1&2, targets I1 and I3. Optimization of PMI s process equipment is an area of focus in our Energy Management Program. Examples of such projects implemented in 2012: installation of variable speed drives in the Primary process and other process efficiency improvements; tobacco processing and boiler optimization. The estimated CO2 and financial savings, estimated investment requirements and payback period is based on the sum of the three process optimization projects listed above. Heat recovery scope 1, targets I1, I3 & I4. Heat recovery is investigated when energy consumption cannot be avoided or losses minimized. For instance, in Serbia we implemented heat recovery for a compressor station and the numbers provided are based on that example. Installation of high efficiency chillers scope 2, targets I1, I3 & I4. Numbers are based on a project implemented in the Philippines (chiller modernization). Lighting optimization scope 2 targets I1, I3 & I4, on a voluntary basis. We have reduced our electricity consumption by installing more efficient lighting (e.g.: LED), reviewing the lighting layout, installing daylight systems, motion and light sensors for automatic switch on-off in our manufacturing facilities. The numbers are based on an example from a manufacturing facility in Russia years years years 4-10 years years

19 Activity type Description of activity Estimated annual CO2e savings (metric tonnes CO2e) Annual monetary savings (unit currency - as specified in Q0.4) Investment required (unit currency - as specified in Q0.4) Payback period Energy efficiency: Building services Low carbon energy purchase Energy efficiency: Building fabric Transportation: use Other Free cooling and changes in temperature set point scope1 & 2, targets I1, I3 & I4, on a voluntary basis. In Lithuania we have reduced our energy consumption for air conditioning in the tobacco processing area, by changing the temperature set point. Initially set at 22 ºC temperature, it now ranges from 18 to 26 ºC, based on production needs. We also implemented the use of ambient air temperature to prepare chilled water to reduce the energy consumption for the HVAC in the tobacco processing area (free cooling). We have also used ambient temperature adjustments in one of our print shops in Indonesia. Savings from these projects are estimated and given as an example. Purchase of electricity from renewable sources in Germany scope 2 targets I1, I3 & I4, on a voluntary basis. In our German manufacturing facilities, we started sourcing electricity with a higher share of renewable energy. As a result, we have benefited from a CO2 emission factor reduction by 100% for electricity in In Russia we implemented heating modernization in our warehouse; in Germany, we replaced single-glazed with double-glazed windows and building fabric damage and gaps were repaired to minimize heat losses. Logistics, including the transport of raw materials and finished goods accounts for 16% of our total carbon footprint (scope 3, target I2). The voluntary program for systematic and central management of initiatives in this area includes the following examples: load optimization for tobacco transportation in Ukraine, increasing the load per shipment and reducing the number of shipments. inbound and outbound synchronization projects in Indonesia, using empty backhaul to transport cardboard, raw materials and finished goods between factories and warehouses. increasing the shipment utilization percentage for our transported finished goods in Mexico. The numbers are based on the above examples. Scope 3 - In 2012, In Africa (in Kenya, Tanzania, Malawi and Mozambique) 7,607 hectares of trees were planted by smallholder farmers and a further 634 hectares through specific reforestation projects in Mozambique and Malawi. These initiatives are coordinated by our tobacco suppliers and are supported financially by PMI years years Other Scope 3 - Curing Barn conversion in Africa: 6,786 traditional barns converted to

20 Activity type Description of activity Estimated annual CO2e savings (metric tonnes CO2e) Annual monetary savings (unit currency - as specified in Q0.4) Investment required (unit currency - as specified in Q0.4) Payback period Other Other Other standard barns (over 25% more efficient) and 789 standard barns upgraded to rocket barns (a further 25% more efficient), generating an estimated saving of nearly 300,000 trees in Kenya, Tanzania, Malawi and Mozambique. These initiatives are coordinated by our tobacco suppliers and are supported financially by PMI. The CO2 emissions savings are a conservative estimate. Scope 3 - In Latin America, PMI have provided 2,985,000 tree seedlings to smallholder farmers and our tobacco suppliers have distributed a further 6,783,000 tree seedlings to help enable the future sustainable use of wood. Scope 3 - In Brazil, 400 Automatic Controllers were supplied to tobacco farmers (financial support of US$ 90K from PMI against a total cost of the automatic controllers of approximately US$ 460K) to improve the fuel efficiency of curing barns. The CO2 emissions savings are a conservative estimate. Scope 3 - In Ecuador, 23 curing barns were converted to use palm nutshell instead of kerosene. The conversion includes pipes, furnaces and equipment such as temperature controlling systems years 3.3c What methods do you use to drive investment in emissions reduction activities? Method Comment Dedicated budget for energy efficiency Employee engagement Through our Energy Management Program (US$82M budget estimated from ) which has been developed to achieve the energy reduction and related greenhouse gas emissions targets of 20% by 2015 compared to our 2010 baseline for our manufacturing affiliates (scope 1 & 2, target I1, I3 and I4). Additionally, we have targeted a 30% reduction in our carbon footprint by 2020 compared to our 2010 baseline across our entire value chain (scope 1, 2 & 3, target I2). Through our objective setting, Long-Range Planning process and through employee communications, sharing of tools,

21 Method Comment Compliance with regulatory requirements/standards Lower return on investment (ROI) specification guidance and best practices. We take the opportunity of regulatory developments to achieve energy/emissions reductions (e.g. Switzerland - carbon tax exemption following a process upgrade) and in particular when investing in new processes/facilities (e.g. requirements for renewable energy or energy efficiency) for new facilities in Germany, Mexico and our UK offices. We consider a longer rate of return (4 years or more) for certain energy savings and renewable energy projects. 3.3d If you do not have any emissions reduction initiatives, please explain why not Further Information During 2012 we expanded our scope of reporting and changed the normalization factors for our intensity KPIs and targets from per million cigarettes to per million cigarettes equivalent to take into account semi-finished products and non-cigarette products. Based on this work we have restated the baseline for our targets (2010) and also our 2011 performance data. As part of this restatement process we upgraded the third party verification of our scope 1 and 2 data to ISO Reasonable Assurance instead of Limited Assurance. Our Energy Management Program (EMP) has been developed to achieve the energy reduction and related greenhouse gas emissions targets of 20% by 2015 compared to our 2010 baseline for our manufacturing affiliates (scope 1 & 2, target I1, I3 and I4). Additionally, we have targeted a 30% reduction in our carbon footprint by 2020 compared to our 2010 baseline across our entire value chain (scope 1, 2 & 3, target I2). The EMP consists of over 1000 energy reduction initiatives with a planned investment of around US$ 82M between 2010 and 2015 which will result in savings of over 1,000MJ per million cigarette equivalent (over 1 million GJ of energy) and approximately 100kg CO2 per million cigarette equivalent (approximately 100,000 metric tonnes of CO2). The program is managed through an organizational structure of regional and sub-regional energy leaders. The energy coordinators, supported by the central Energy Management team with representatives from affiliates together with regional managers, are responsible for coordination of the development and alignment of local Long Range Plan targets as well as implementation of the initiatives. The scope of the EMP includes the following: Implementation of a global energy metering & targeting system in all manufacturing affiliates. The combination of automatic-reading meters with software will provide all manufacturing facilities with the tools to better understand and monitor their energy consumption. We have initiated pilot studies in 3 manufacturing

22 centers. Roll-out is planned to be completed in 2013, and it is expected to identify an additional 5% CO2 and Energy reduction by Management of global energy saving initiatives: The major initiatives are managed systematically and centrally, which allows leveraging of existing knowledge and economies of scale through central procurement opportunities, which can help reduce the payback period of projects. For selected projects, it includes a feasibility assessment at some selected facilities, the compilation of results and the creation of standard procedures for global rollout. The selection of the major initiatives for global roll-out is done by agreement between the energy leaders and Operations Center during specific workshops. For , 5 major energy saving initiatives were chosen and their implementation recommended to all of our manufacturing facilities. We also identified the next top-12 projects mainly focusing on utility equipment for global roll-out during the 2013 to 2015 period. We also short-listed 13 of the most promising initiatives focusing more specifically on production process optimization. All short-listed initiatives will go through feasibility assessment and standardization procedure including implementation guidelines. Energy factory assessment: a tool for local initiatives identification. We have developed a factory energy assessment tool which is used to regularly evaluate new opportunities in utilities, process equipment, and manufacturing lay-out. This assessment contains checklists for behavioral as well as technical aspects. The assessment results in a set of recommendations which range from initiating a whole new project (which may require investment) to implementing very simple actions, where no investment is required (e.g.: stopping ventilation outside production hours). Review of new technologies, including renewable energy. As part of our review of new technologies, in 2012, we assessed the applicability of renewable energy technologies in our different production locations with an external partner. The study is complemented by a tool to assess the feasibility of renewable energy initiatives and we undertook these feasibility studies at 3 different production sites, solar energy pilot equipment has been installed in several locations, for example at our Portuguese manufacturing facility. Engagement of our equipment suppliers. We are looking at improving our process equipment performance and are engaged in an industry colloquium with other members of our industry and equipment suppliers to help improve the energy consumption of our equipment. Page: 4. Communication 4.1 Have you published information about your company s response to climate change and GHG emissions performance for this reporting year in places other than in your CDP response? If so, please attach the publication(s) Publication Page/Section reference Attach the document In mainstream financial reports (complete) In voluntary communications (complete) On page 3: CEO on Environmental Performance for On page 17: Contributions. On our website, PMI.com - Sustainability section including Environmental Performance and Climate Change pages CDP 2013/Shared Documents/Attachments/Investor-4.1-C3- IdentifytAttachment/PMI2012_Complete_Annual_Report.pdf CDP 2013/Shared Documents/Attachments/Investor-4.1-C3-IdentifytAttachment/PMI Sustainability Internet Pages.pdf

23 Further Information In our website Sustainability pages, we describe our 20% reduction targets for CO2 and Energy by 2015 against our 2010 baseline and our commitment to reducing our overall value chain carbon footprint by 30% by Improvement examples, data and case studies are also provided and specific activities related to tobacco agriculture are described in the Good Agricultural Practices pages. Module: Risks and Opportunities [Investor] Page: 5. Climate Change Risks 5.1 Have you identified any climate change risks (current or future) that have the potential to generate a substantive change in your business operations, revenue or expenditure? Tick all that apply Risks driven by changes in regulation Risks driven by changes in physical climate parameters Risks driven by changes in other climate-related developments 5.1a Please describe your risks driven by changes in regulation ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact RR 1 Fuel/energy taxes and regulations In various countries around the world, there are electricity and fuel-related levies or taxes and also CO2 related taxes such as the climate change levy in the UK and the CO2 tax in Switzerland. We can expect such initiatives to increase. Increased operational cost 1-5 years Direct Likely Low

24 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact RR 2 Cap and trade schemes CO2 related schemes such as the EU Emission Trading Scheme (EU ETS) are regulatory frameworks that pose risk of increased operating cost to PMI. PMI currently owns and operates 4 manufacturing centers (in Germany, Netherlands, Poland and Portugal with total verified emissions of over 50,000 metric tonnes of CO2 in 2012) that are covered by the EU ETS. We have other factories in the EU and EU accession countries which could also become subject to EU ETS following site developments or country accession to the EU in the future. In 2012, which was the end of Phase 2 of EU ETS, PMI purchased about 13,000 metrics tonnes of CO2 allowances (total of 108,000 euros). During the third trading period (Phase 3), which starts in 2013, PMI could expect reduced caps which would increase the number of allowances required to be purchased for its emissions. Although the cost of EU ETS carbon credits have been lower in the past several years due to a large surplus of allowances, the cost of allowances is expected to increase due to stricter regulations and more significant long-term reforms to reduce oversupply. This could result in an increase in the operating cost of purchasing allowances in the future. There is a clear international trend towards stricter climate regulations. In addition to EU ETS, other countries and regions are considering and, in some cases, developing similar programs, compatible with EU ETS, in an effort to form a global carbon market. For example, Australia's trading scheme, which is currently under development, is planned to be linked with the EU ETS from PMI, having a manufacturing center in Australia, would comply with this future cap and trading scheme. We can therefore expect an increase in our operating costs for emissions from our Australian affiliate for meeting CO2 emissions limits and potentially purchasing allowances. EU ETS includes significant changes during Phase 3, such as the inclusion of other greenhouse gases (nitrous oxide and perfluorocarbons), stricter rules around allocation of allowances, and extending the coverage to other industries. These tighter regulations could indirectly influence our supply Increased operational cost 1-5 years Direct Likely Low

25 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact RR 3 RR 4 RR 5 RR 6 Product labeling regulations and standards Product labeling regulations and standards General environmental regulations, including planning Emission reporting obligations chain with regard to energy supply, and increase in electricity prices. Regulations requiring carbon labelling on products could impact PMI for both its conventional cigarettes and its future Next Generation Products (NGPs), which may include electronic components. The business effect could be in two categories a) increased operating cost and b) product differentiation (which could be an opportunity for PMI). Linked to RR3, currently there are no global, climate changerelated, labeling standards that could coherently be applied to tobacco products. If such requirements were introduced then uneven or inconsistent implementation by regulators could result in some adverse impacts on PMI. Many of our factories are subject to general environmental regulations, including emissions limits and permitting. Any new factories and other facilities will need to ensure that environmental considerations are fully addressed at the design stage. For example, the Energy Efficiency Directive in the EU will have an impact on the design of new facilities that we are currently considering in several EU countries. In various countries around the world we are subject to electricity and fuel related reporting obligations such as the National Greenhouse and Energy Reporting requirement in Australia and new tax code related regulations in the Ukraine and Germany. Increased operational cost Reduced demand for goods/services Increased capital cost Increased operational cost 1-5 years Direct Unlikely Low 1-5 years Direct Unlikely Low 1-5 years Direct Likely Low 1-5 years Direct Likely Low 5.1b Please describe (i) the potential financial implications of the risk before taking action; (ii) the methods you are using to manage this risk and (iii) the costs associated with these actions

26 i) RR1 for our global operations, such levies and taxes are estimated at around US$2M. RR2 based on our current 4 EU ETS factories, the annual cost of emissions allowance is expected to increase by approximately $100K in the next five years. The current cost is approximately $ K per year. RR3 and RR4 should product labeling be required for our future products we estimate a cost of over $250K excluding any additional manufacturing costs associated with labeling. RR5 tighter environmental regulation in the future could cost over $1M per year across our global facilities. RR6 - more environmental reporting obligations in the future could cost approximately $1M per year across our global facilities. ii) RR1-RR6. We are managing these risks by having a comprehensive Energy Management Program (energy and CO2 reduction program), including ambitious internal energy and CO2 reduction targets (20% by 2015 for our manufacturing facilities). This program can provide the basis for carbon tax exemptions (e.g. our Swiss affiliate is already exempted due to its energy reduction results) and reductions in the cost to comply with the EU ETS. Standards for the design of new facilities which include low carbon building design (e.g. low carbon building materials and energy efficient lighting) help minimize our risk exposure. As an example, in 2011 we specified energy efficiency measures as a prerequisite for the development of our new London office which was realized in Drivers like EU ETS and the Energy Efficiency Directive have led us to consider process changes in our factories, for example replacement of older combustion equipment to newer more efficient plant that can potentially reduce our energy load to beneath the 20MW regulatory threshold for our factory in Portugal. For a factory in Russia, following our internal energy and CO2 reduction targets means that the factory will already meet or exceed new state regulations such as the Energy conservation and improving energy efficiency in the period up to 2020 law. With respect to RR3, we have purchased a lifecycle assessment tool and have trained our staff in its use so that we can undertake these assessments in-house. With respect to our products, potential significant developments in cigarette and packaging components or potential new products are assessed through a life cycle assessment process for risks and opportunities in relation to our carbon footprint. iii) RR1-RR6. The costs associated are generally embedded in our Energy Management Program, with US$9M already committed specifically in monitoring and targeting for The wider best practice sharing approach and individual energy/co2 saving projects are estimated to cost up to $20M per year. With respect to RR3, the cost and use of the lifecycle assessment software is less than $100K per year. 5.1c Please describe your risks that are driven by change in physical climate parameters ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact PR 1 Change in precipitation extremes and droughts Supply Chain-Tobacco Leaf: Tobacco leaf growing is strongly influenced by physical climate change such as changes in temperature, precipitation and cyclones (hurricanes and typhoons). PMI sources tobacco from more than 30 countries across the world. Increased drought / flooding could disturb the tobacco leaf life cycle stages (seedling, transplanting, growing, harvesting). The yield, quality and availability of the tobacco crop could be influenced by the seasonal frequency and the intensity of such extreme rainfall events. This could change our crop buying pattern and result in increased operational cost. Extreme rainfall may require pumping of excess water, Reduction/disruption in production capacity 6-10 years Direct About as likely as not Lowmedium

27 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact PR 2 Change in precipitation extremes and droughts similarly, extreme droughts could require long-term irrigation, both of which increase energy consumption, and the tobacco production cost. With respect to our supply chain, the transportation of raw materials and finished goods, as well as availability of ports could be interrupted; similarly damage to stocks in storage facilities such as warehouses would have knock-on impacts on the productivity of our manufacturing centers. Extreme rainfall could cause damage to buildings including our manufacturing centers which would increase our cost both in management and insurance fees. The risk of damaged goods and impacts on manufacturing centers and our supply chain could weaken our ability to efficiently supply products to our customers. Overall, the well-being of societies, for example farmers in tobacco growing areas, would be impacted as the frequency of extreme climatic conditions (flood or drought) would force people to move to less risky locations resulting in less employment opportunities in such areas. PMI s operations are widely spread mitigating the effects of severe catastrophic climatic disruption. Furthermore, PMI s business continuity management plans are designed to mitigate the consequence of supply chain interruption and disruption caused by building damage, and or stock/material damage. Supply Chain- Acetate Tow and Pulp: The acetate tow market is tight with a capacity utilization of over 90%, and acetate facilities (several based in S.E. USA) face risks from cyclones, floods, and drought. If anything were to disrupt activities in acetate tow plants, acetate tow supply would be impacted, and disruptions to supply over several months would present challenges for PMI. Cyclones S.E. USA is subject to cyclones which could disrupt acetate facilities and delay supply. Floods S.E. USA area has suffered a number of flooding events in the past, and if the sites are vulnerable to flooding (i.e. low-lying, or near a body of water) they could face disruption. Drought S.E. USA is more likely to be at risk of severe droughts by Reduction/disruption in production capacity >10 years Direct About as likely as not Medium

28 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact PR 3 PR 4 PR 5 Change in precipitation extremes and droughts Change in mean (average) temperature Sea level rise Water use in our supply chain may come under pressure if local water use is restricted to maintain reserves. Supply Chain: Clove is an important raw material for PMI to use in our local kretek brands. Indonesia produces over 70% of the world s cloves. It takes at least 5-7 years for clove trees to become productive and years before they reach peak production. Yields are complex; harvests can vary by up to 60% over a 4 year harvest cycle. Clove production is weather sensitive, and climate changes such as intensification of the wet season would impact clove growing areas (such as damages to bud development; more pest problems from increased rainfall, and oscillation between drought / flooding presenting difficulties to small scale farmers and clove trees). This would reduce the supply and increase the price of cloves. A change in the mean (average) temperature could affect our own operations and those of our suppliers globally (manufacturing, agriculture and other business operations). In terms of agricultural impact, the quality and yield of tobacco crop and other raw materials we use could be affected. While a slight increase in average temperature can lengthen the growing season in some regions, it can adversely impact the yield and quality of the crop where summers are long and already hot. An increase of average temperature may cause drought, which in turn resulting crops to require water irrigation. This would impact our energy consumption, and the tobacco production cost. Overall, change in mean (average) temperatures from climate change would also increase the use of air conditioning or heating systems, leading to increases in demand for energy. Rising sea levels in leaf growing areas, as well as near to manufacturing and warehouse centers (e.g. the Netherlands, and some Asian manufacturing centers), could impact our leaf sourcing (yields and quality) and disrupt our supply chain distribution. This could cause sourcing delays and manufacturing impacts which would Reduction/disruption in production capacity Increased operational cost Reduction/disruption in production capacity 6-10 years Direct 6-10 years Direct >10 years Direct About as likely as not Virtually certain About as likely as not Lowmedium Lowmedium Low

29 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact PR 6 Induced changes in natural resources result in reduction/disruption to production volumes. Rising sea levels could also impact ground water, which is used for consumption and irrigation. Water treatment processes (chemical/physical) for consumption, irrigation and for manufacturing use could be costly and increase our energy consumption. Rising sea levels could also leave people (farmers, manufacturing employees, and others) who live in low lying areas in danger of being flooded, resulting in people movement. Change in climatic variability and extreme events such as changes in the frequency and severity of heat waves, drought, floods and hurricanes could affect the distribution of pests and crop predators. These could affect the yield and quality of tobacco crops and of other raw materials we use. Areas at increased risk may include China, the Philippines, some African countries and the Eastern USA where we source tobacco. Reduction/disruption in production capacity 6-10 years Direct About as likely as not Low 5.1d Please describe (i) the potential financial implications of the risk before taking action; (ii) the methods you are using to manage this risk; and (iii) the costs associated with these actions While we do not grow tobacco, PMI sources tobacco from more than 30 countries across the world. We directly contract farmers for 32% - 36% of our worldwide tobacco needs depending on the pattern of our leaf purchases. (i) The financial implications of the risk before taking action: identification of the potential risks and their financial implications that are driven by the change in physical climate parameters is carried out through a specific climate change risk assessment process in 2011 which is appropriate to both our corporate and asset level risk/opportunity management. As a result of the process, we have developed a risk impact matrix for our key internal assets such as factories and warehouses, supplier assets (including port facilities, warehouses, tobacco leaf growing regions and some other strategic suppliers). The financial implications of these risks vary depending on the asset that is impacted. For example, in relation to PR1 and PR4, the threat of flooding in the Netherlands and cyclones in the Philippines could cause damage in our manufacturing and warehouse sites (estimate US$10-20M for each location). Similarly, for PR1, PR3, and PR5, severe droughts or changes in temperature extremes in leaf growing regions, could result in poor/reduced crop yields (this could also be the case for clove yields), loss of revenue from

30 decreased supply volumes, increased supply cost, and decreased quality of tobacco. Depending on the size of the area impacted, the financial implications would vary significantly, however the incremental financial implications from these risks are currently assessed to be low (under several million US$). (ii) The methods to manage the risk: PMI is committed to the sustainable use of natural resources and to the identification of significant environmental risks throughout the business. Our climate change risk management process which we completed in 2011 covers all of our company value chain from growing tobacco to the management of waste from our products and is strongly linked to the risks and opportunities of physical climate change both at the corporate and asset level. We completed a specific climate change risk management process in 2011, which is useful for both our corporate and asset level risk/opportunity management. The risk assessment process includes our key internal assets such as factories and warehouses, supplier assets (including port facilities, warehouses, tobacco leaf growing regions and some other strategic suppliers). This risk management process uses a current-state risk assessment against projected changes in the time horizon and covers material physical and regulatory risk impacts for the defined key assets (internal / external), regions and our company as a whole. The outcome of the process, incorporated into our business strategy, drives our strategic initiatives at the corporate and local levels. At the local asset level we can analyze the results of our 2011 climate change risk assessment process down to the specifics of, for example, potential increased flood, drought and cyclone risk for individual company assets and we have assessed that risk in terms of potential financial and raw material volume impacts. Our agricultural supply chain is widely spread around the world, which helps to mitigate against climate related risks; tobacco crops can also be relatively easy to relocate if some growing areas become more favorable than others. In addition, our substantial inventories of tobacco leaf can help to mitigate against short term impacts. Other tools that we use in identifying significant risks and/or opportunities from climate change include the following: Environmental risk assessments are conducted at both global company level and individual affiliate level to identify material risks and opportunities. In manufacturing centers the process is formalized through our environmental management systems (to the international standard ISO 14001). These risk assessments include asset details such as the need for flood risk management plans which we discuss with our insurers. Due diligence surveys are performed at least annually to identify material environmental risks. The results of these surveys are collected from affiliates and analyzed by the central PMI EHS team. Information is then assessed with relevant corporate departments, for example, finance and legal. We conduct annual compliance risk assessments at all affiliates which take into account CO2 emissions, reporting and climate change. With respect to PR1, PR2, PR3, PR4, since 2002, we have trained farmers on Good Agricultural Practices (GAP) and the sustainable use of resources. This training is undertaken by agronomy technicians employed by our suppliers and/or PMI who provide the farmers with technical advice. We have established GAP guidelines, and the implementation of the guidelines is compulsory for all our tobacco suppliers. Moreover, we regularly perform direct GAP assessments wherever we source our tobacco. In addition, we ask all of our tobacco suppliers to perform yearly GAP self-assessments and identify improvement plans. See attached GAP description at the end of this section. We promote and implement programs supporting reforestation which also help manage water and soil quality. These programs are in place in various locations around the world including Africa, Asia Pacific and Latin America, for example a current program in Argentina involved the distribution of 4.6 million tree seedlings (representing 4380 hectares) to 6600 farmers. (iii) The costs associated with these actions: In regards to PR1-PR9 (all physical changes from climate impacts). The data from our risk assessment identified key areas which could be the base of longer term actions. We have already identified our key assets at risk of climate change impacts (both PMI owned and in our entire value chain). We invested around US$200,000 in this global risk assessment but the main costs in 2012 were limited to internal time and resources. In terms of reforestation activities, we have invested around $20M to date and in an average year expect to invest $2-5M. 5.1e Please describe your risks that are driven by changes in other climate-related developments

31 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact CR 1 Changing consumer behaviour Today s consumers expect to see more sustainable products with a lower environmental impact. Ever increasing environmental awareness of consumers influences their product selection and buying decisions. According to the 2012 survey of future packaging trends, (a study by Packaging World magazine and DuPont), sustainability concerns, ranked immediately behind cost and food safety/security as today s driving trends and are expected to play an increasingly role. It is widely believed that consumers will continue to place increased value on recyclability and the perceived environmental credentials of packaging at the same time, demand for proof of sustainability claims could grow, for instance in the demand for life cycle analysis data. Practices that impact climate change could be seen as a brand differentiator for consumers and the environmental reputation of companies and brands could play an increasing role in product demand. Litter from cigarette butts and packaging is an issue that comes under regular public scrutiny. In many of our markets, such as the Philippines, Japan and Switzerland, PMI actively supports programs and campaigns to encourage smokers to behave responsibly by raising awareness and providing receptacles for cigarette butts in public areas. In PMI, we are also looking at initiatives including strengthening our product life cycle assessment that can help us build closer cooperation within our value chain to help our stakeholders understand environmental impacts of different packaging alternatives. For example, the worldwide application of the EU directive on packaging and packaging waste s principles (also note Australia s Packaging Covenant), could contribute to an overall carbon footprint reduction, both upstream and downstream of our activities. These principles include prevention at source / weight reduction, enabling material recycling, energy recovery, composting or reuse. Reduced demand for goods/services 6-10 years Direct Unlikely CR Changing Consumers increased awareness and demands for Reduced demand for 6-10 years Direct Unlikely Low- Lowmedium

32 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact 2 consumer behaviour CR 3 CR 4 CR 5 Reputation Fluctuating socio-economic conditions Increasing humanitarian demands environmental sustainability claims on the products they buy could drive more manufacturers to display their environmental performance on their packaged products. While this is an opportunity for manufacturers to develop more sustainable products and communicate to their consumers, it could be a challenge for PMI and in general for the tobacco industry due to packaging labeling restrictions on tobacco products. While this risk is not yet materialized, examples of packaging labelling restrictions are discussed or in some cases already in practice in Australia, EU and Canada. There is a risk that society does not view our company positively with respect to our environment and climate change credentials. The investor and consumer perceptions about PMI's climate change actions could affect the reputation and consumer demand for our products and may limit investment opportunities. While we consider this risk to be low-medium, PMI focuses on mitigating this risk by continously reducing our Scope 1, 2 and 3 emissions and focusing on other areas of environmental sustainability. Physical changes in climate such as global warming are projected to result in decreased water availability and crop productivity in many parts of the world. There is also a risk that the exacerbation of the current economic crisis due to climate change could disrupt tobacco growing / production capacity and also further impact consumer s disposable income. For example, Africa s vulnerability to climate change is linked to the strength of the agricultural industry in many African countries; PMI sources 15% - 20% of its tobacco from Africa. Climate change could impact land and resource availability (due to migration to cities) as well as resulting in lower crop yields and quality. This in turn could impact PMI s tobacco sourcing strategy. The risk that climate change related issues cause agricultural prioritization for food crops over non-food crops. Extreme weather conditions such as droughts and goods/services Reduced demand for goods/services Reduction/disruption in production capacity Reduction/disruption in production capacity medium 6-10 years Direct Unlikely Low 6-10 years Direct 6-10 years Direct About as likely as not About as likely as not Low Lowmedium

33 ID Risk driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact CR 6 Increasing humanitarian demands heavy precipitation, linked to the population size of communities could be disrupting factors to non-food production capacity, as the growing demand for food crops could be prioritized over non-food crops. Specifically in Africa there is a risk in some areas that shortages of wood could lead to prioritized consumption for other purposes and thereby restrict the use of wood as a fuel for curing tobacco. Growing consumer demand for organic products is a risk in some areas because despite greater environmental performance, organic growing typically requires more land use to achieve the same quantities of production. In countries where land space is limited, the ability to grow products organically may be reduced at a time when demand for organic produce is increasing. Reduction/disruption in production capacity 6-10 years Direct Unlikely Low 5.1f Please describe (i) the potential financial implications of the risk before taking action; (ii) the methods you are using to manage this risk; (iii) the costs associated with these actions i) CR1 and 2 - PMI is aware that there is a general regulatory and reputational risk from not responding responsibly to climate change issues. Environmental reputation may become a more significant factor in our customers purchasing decisions in the future, but at this time, we do not see this risk as significant. We are also aware that regulatory and reputational risk may impact the decisions of our stakeholders, specifically our consumers and shareholders. If these risks were to materialize then they could impact our business by several millions of dollars. CR4 Fluctuating socio-economic conditions exacerbated by climate change related issues could increase price sensitivity and lead to the need to adjust product portfolios. If these risks were to materialize then they could impact our business by several millions of dollars. CR5-6 It is possible that future regulatory initiatives could seek to prioritize agricultural food crops (in terms of water supply, land availability etc.) over non-food crops, thereby impacting the security of our supply chain. If this risk were to materialize then it could impact our business by many millions of dollars. ii) CR1 and 2 Corporate Sustainability and climate change strategy, programs and transparent communications including our website, this CDP, carbon footprint of new product and packaging developments. CR4 General business risk management and forecasting

34 CR5-6 PMI has developed a Good Agricultural Practices (GAP) program to specifically address and minimize the impacts of tobacco farming and protect our supply chain in the long term. See attached GAP description at the end of this section. iii) CR1 and 2 - The internal costs associated with these actions are estimated at in excess of US $1M. CR3 as an example we will invest US$82M in our Energy Management Program from CR4 This is an internal cost within the general running of our business and is not separately quantifiable CR5-6 This is largely an internal cost which is estimated at over US$1M per year. 5.1g Please explain why you do not consider your company to be exposed to risks driven by changes in regulation that have the potential to generate a substantive change in your business operations, revenue or expenditure 5.1h Please explain why you do not consider your company to be exposed to risks driven by physical climate parameters that have the potential to generate a substantive change in your business operations, revenue or expenditure 5.1i Please explain why you do not consider your company to be exposed to risks driven by changes in other climate-related developments that have the potential to generate a substantive change in your business operations, revenue or expenditure Further Information Good Agricultural Practices information attached.

35 Attachments CDP 2013/Shared Documents/Attachments/InvestorCDP2013/5.ClimateChangeRisks/PMI com Good Agricultural Practices.pdf Page: 6. Climate Change Opportunities 6.1 Have you identified any climate change opportunities (current or future) that have the potential to generate a substantive change in your business operations, revenue or expenditure? Tick all that apply Opportunities driven by changes in regulation Opportunities driven by changes in physical climate parameters Opportunities driven by changes in other climate-related developments 6.1a Please describe your opportunities that are driven by changes in regulation ID Opportunity driver Description Potential impact Timeframe Direct/Indirect Likelihood Magnitude of impact RO1 RO2 Cap and trade schemes Fuel/energy taxes and Expansion of EU Emissions Trading Scheme or similar schemes to other countries and regions (e.g. Australia, Mexico) or in the growth of other PMI factories in the EU or EU accession countries. There is the potential to use our experience of these schemes to enable performance ahead of allocated emissions and thereby generate carbon credits. Starting from 4 EU affiliates (Netherlands, Germany, Poland, and Portugal) which are currently in the EU ETS, there could be the potential to trade internally with other PMI affiliates and generate Energy and CO2 savings. Subsidies for renewable Energy generation have been developed in many different countries and we factor in Reduced operational costs Other: Reduced 1-5 years Direct 1-5 years Direct More likely than not More likely than not Low Low

36 ID Opportunity driver Description Potential impact Timeframe Direct/Indirect Likelihood Magnitude of impact RO3 regulations Fuel/energy taxes and regulations these subsidy plans to our cost-benefit analyses for pertinent projects so that improved return on investment can potentially be delivered. Cost-Benefit analyses and renewable energy assessments have been performed in Turkey, Philippines, Portugal and Poland. Compliance with country specific legislation provides PMI with the opportunity to reduce energy consumption and lower our CO2 emissions, and therefore reduce our operational cost. Such opportunities exist in the form of: a) Energy taxes, such as in Germany, which encouraged PMI to implement an Energy Management Program to ISO that will allow us to reduce energy tax costs. b) EU ETS - 4 EU affiliates (Netherlands, Germany, Poland, and Portugal) and the potential to trade internally with other PMI affiliates that could generate Energy savings. Opportunities are linked to widening markets and EU ETS carbon trading processes to include EU accession countries where PMI has facilities. Also, in Switzerland our affiliate has obtained CO2 tax exemptions due to energy saving objectives and programs that are in place within PMI. c) Energy Efficiency Directive promoting energy reduction at source (all EU factories) and reviewing the potential for combined heat and power. d) Incentives & Infrastructure/Buildings upgrade for renewable energy and buildings upgrade e) Energy Labelling Directive for PMI s conventional products and potential future next generation products (which can have related electronic components). operational costs and Energy security Other: Reduced operational costs and Energy security 1-5 years Direct More likely than not Low 6.1b Please describe (i) the potential financial implications of the opportunity; (ii) the methods you are using to manage this opportunity and (iii) the costs associated with these actions

37 RO1 i) Estimated at up to US$1M based on current financial exposure in the EU and potential future inclusion of larger manufacturing centers such as in Russia. ii) We track this through our Energy Management Program and regulatory radar screen. iii) There is no additional cost associated with this as we are already implementing our Energy Management Program and radar screen. RO2 i) Estimated at up to US$1M. ii) We track this through our Energy Management Program and regulatory radar screen. iii) There is no additional cost associated with this as we are already implementing our Energy Management Program and radar screen. RO3 i) Estimated at up to US$800,000 energy tax reduction in Germany based on ISO certification (this is planned in 2013) ii) We track this through our Energy Management Program and regulatory radar screen. iii) The cost for ISO development and certification is estimated to be no more than US$50, c Please describe the opportunities that are driven by changes in physical climate parameters ID Opportunity driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact PO1 PO2 PO3 Change in mean (average) temperature Change in mean (average) precipitation Change in mean (average) precipitation Tobacco curing is an important step in tobacco processing. Around 8 metric tonnes of wood can be used per tonne of cured tobacco. Due to potential physical climate changes, such as an increase in temperature, PMI may have a reduced need for energy (tonnes of wood), or other energy sources (such as renewable technologies) could become more cost effective. While this is an opportunity for the future, we already have focused programs to increase the efficiency of our curing barns. In 2012, we helped our tobacco suppliers finance efficiency improvements for over 7000 curing barns, generating an estimated saving of approximately 300,000 trees equivalent. Supply Chain-Tobacco Leaf: Tobacco leaf growing is strongly influenced by physical climate change such as changes in precipitation. PMI sources tobacco from over 30 countries across the world. Increased precipitation could impact the tobacco leaf life cycle stages (seedling, transplanting, growing, harvesting). Water-short leaf growing areas could benefit from increases in precipitation (i.e. level, timing and variability) due to increases in soil moisture. This could positively impact the tobacco crop patterns; crop production capacity and quality. Supply Chain-Clove production: Clove is an essential raw material for PMI to use in our local kretek brands. Indonesia produces over 70% of the world s cloves. It takes at least 5-7 years for clove trees to become productive and years Increased production capacity Increased production capacity Increased production capacity 6-10 years 6-10 years 6-10 years Indirect (Supply chain) Indirect (Supply chain) Indirect (Supply chain) About as likely as not About as likely as not About as likely as not Low Low Low

38 ID Opportunity driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact before they reach peak production. Yields are complex; harvests can vary by up to 60% over a 4 year harvest cycle. Clove production is weather sensitive, and climate changes such as steady rainfall could provide steady wet season for clove growing areas increasing the clove production volume and improving the crop quality. 6.1d Please describe (i) the potential financial implications of the opportunity; (ii) the methods you are using to manage this opportunity and (iii) the costs associated with these actions i) PO1 the financial benefit is in terms of reduced fuel wood costs for tobacco farmers. Regarding to PO2-PO3, the potential financial implications are not quantifiable in the short-term but increased tobacco and clove yields can provide benefits running to several millions of dollars. ii) We continually assess promising tobacco leaf and clove growing areas and assess if climate change elements could favor increased yield. iii) Regarding PO1, in 2012, barn conversion costs in Africa were approximately US$1M. PO2-3 - The cost of this work is mainly internal time and resources, and is estimated at up to US$1M per year. 6.1e Please describe the opportunities that are driven by changes in other climate-related developments ID Opportunity driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact CO1 Reputation We expect that by tackling sustainability and climate change issues appropriately, our company reputation could be enhanced. Opportunities for PMI include the following: Increased demand for existing products/services 1-5 years Direct About as likely as not Low

39 ID Opportunity driver Description Potential impact Timeframe Direct/ Indirect Likelihood Magnitude of impact CO2 Changing consumer behaviour Appropriate product labeling of sustainability performance for PMI s customers and consumers. This could be an outcome of a rigorous verified product life cycle assessment of PMI s products to identify their lifecycle CO2 emissions performance. Displaying such sustainability performance on our products could enhance the differentiation of PMI s brands and increase the company s competitive advantage. Environmental information for our key accounts/ retailers - to meet the growing interest of our key accounts/ retailers in sustainability practices, we continue to increase our emphasis on our products life cycle assessment within our value chain and provide company information on our sustainability performance. Supply Chain engagement - we are working towards strengthening our product life cycle assessment to help us build closer cooperation within our supply chain and help our partners to understand the upstream environmental impacts of different material alternatives (e.g. for packaging components) and the direction PMI is taking in product developments. In PMI, we closely follow consumer and market sustainability trends and engage with our suppliers on the development of new materials to be in line with these growing trends. Consumers are increasingly interested in climate change and sustainability aspects of products and many of our trade customers reflect that interest. By working with our customers, sharing company performance strategies and assessing changes due to product developments, we could provide more detailed information on our environmental performance. Specifically, environmental performance information relating to individual product/packaging components could improve the differentiation of PMI s brands and increase our competitive advantage. Furthermore, trends in eco products increase the demand for, and availability of, new environmentally sustainable materials, or new usage of existing materials. An example of this in PMI includes the use of rice husk briquettes as fuel in the Philippines, and the potential use of flax as a raw material for cigarette paper. New products/business services 1-5 years Direct More likely than not Low

40 6.1f Please describe (i) the potential financial implications of the opportunity; (ii) the methods you are using to manage this opportunity; (iii) the costs associated with these actions CO1 i) We cannot quantify the financial implications of this opportunity at this time. ii) Corporate Sustainability and climate change strategy, programs and communications including this CDP. iii) The internal costs associated with these actions are estimated at US$1-2M. CO2 i) We cannot quantify the financial implications of this opportunity at this time but successful product developments could provide benefits running to several millions of dollars. ii) Corporate Sustainability and climate change strategy, programs and communications including this CDP, carbon footprint of new product and packaging developments. iii) The internal costs associated with these actions are estimated at in excess of US$1M. 6.1g Please explain why you do not consider your company to be exposed to opportunities driven by changes in regulation that have the potential to generate a substantive change in your business operations, revenue or expenditure 6.1h Please explain why you do not consider your company to be exposed to opportunities driven by physical climate parameters that have the potential to generate a substantive change in your business operations, revenue or expenditure

41 6.1i Please explain why you do not consider your company to be exposed to opportunities driven by changes in other climate-related developments that have the potential to generate a substantive change in your business operations, revenue or expenditure Module: GHG Emissions Accounting, Energy and Fuel Use, and Trading [Investor] Page: 7. Emissions Methodology 7.1 Please provide your base year and base year emissions (Scopes 1 and 2) Base year Scope 1 Base year emissions (metric tonnes CO2e) Scope 2 Base year emissions (metric tonnes CO2e) Fri 01 Jan Fri 31 Dec Please give the name of the standard, protocol or methodology you have used to collect activity data and calculate Scope 1 and Scope 2 emissions Please select the published methodologies that you use Defra Voluntary Reporting Guidelines Other

42 7.2a If you have selected "Other", please provide details below For Scope 2, we used International Energy Agency's CO2 emissions per kwh from electricity generation per country (2010 factors). 7.3 Please give the source for the global warming potentials you have used Gas Reference CO2 CH4 N2O IPCC Second Assessment Report (SAR year) IPCC Second Assessment Report (SAR year) IPCC Second Assessment Report (SAR year) 7.4 Please give the emissions factors you have applied and their origin; alternatively, please attach an Excel spreadsheet with this data Fuel/Material/Energy Emission Factor Unit Reference Other: see attached Excel spreadsheet see "Further information" below Further Information During 2012 we expanded our scope of reporting and changed the normalization factors for our intensity KPIs and targets from per million cigarettes to per million cigarettes equivalent to take into account semi-finished products and non-cigarette products. Based on this work we have restated the baseline for our targets

43 (2010) and also our 2011 performance data. As part of this restatement process we upgraded the third party verification of our scope 1 and 2 data to ISO Reasonable Assurance instead of Limited Assurance. Attachments CDP 2013/Shared Documents/Attachments/InvestorCDP2013/7.EmissionsMethodology/FuelconversionfactorsCDP 2013.xlsx Page: 8. Emissions Data - (1 Jan Dec 2012) 8.1 Please select the boundary you are using for your Scope 1 and 2 greenhouse gas inventory Operational control 8.2 Please provide your gross global Scope 1 emissions figures in metric tonnes CO2e Please provide your gross global Scope 2 emissions figures in metric tonnes CO2e

44 Are there are any sources (e.g. facilities, specific GHGs, activities, geographies, etc.) of Scope 1 and Scope 2 emissions which are not included in your disclosure? No 8.4a Please complete the table Source Scope Explain why the source is excluded 8.5 Please estimate the level of uncertainty of the total gross global Scope 1 and 2 emissions figures that you have supplied and specify the sources of uncertainty in your data gathering, handling and calculations Scope 1 emissions: Uncertainty range Scope 1 emissions: Main sources of uncertainty Scope 1 emissions: Please expand on the uncertainty in your data Scope 2 emissions: Uncertainty range Scope 2 emissions: Main sources of uncertainty Scope 2 emissions: Please expand on the uncertainty in your data More than 2% but less than or equal to 5% Other: Offices, warehouses and non-core facilities Majority are not primary data More than 2% but less than or equal to 5% Other: Offices, warehouses and non-core facilities Majority are not primary data 8.6 Please indicate the verification/assurance status that applies to your Scope 1 emissions

45 Third party verification or assurance complete 8.6a Please indicate the proportion of your Scope 1 emissions that are verified/assured More than 90% but less than or equal to 100% 8.6b Please provide further details of the verification/assurance undertaken, and attach the relevant statements Type of verification or assurance Relevant standard Attach the document Reasonable assurance ISO CDP 2013/Shared Documents/Attachments/Investor- 8.6b-C3-RelevantStatement/PMI 2012 Scope 1 and Scope 2 GHG Verification Statement.pdf 8.6c Please provide further details of the regulatory regime to which you are complying that specifies the use of Continuous Emissions Monitoring Systems (CEMS) Regulation % of emissions covered by the system Compliance period Evidence of submission 8.7 Please indicate the verification/assurance status that applies to your Scope 2 emissions

46 Third party verification or assurance complete 8.7a Please indicate the proportion of your Scope 2 emissions that are verified/assured More than 90% but less than or equal to 100% 8.7b Please provide further details of the verification/assurance undertaken, and attach the relevant statements Type of verification or assurance Relevant standard Attach the document Reasonable assurance ISO CDP 2013/Shared Documents/Attachments/Investor- 8.7b-C3-RelevantStatement/PMI 2012 Scope 1 and Scope 2 GHG Verification Statement.pdf 8.8 Are carbon dioxide emissions from biologically sequestered carbon relevant to your organization? No 8.8a Please provide the emissions in metric tonnes CO2

47 Further Information During 2012 we expanded our scope of reporting and changed the normalization factors for our intensity KPIs and targets from per million cigarettes to per million cigarettes equivalent to take into account semi-finished products and non-cigarette products. Based on this work we have restated the baseline for our targets (2010) and also our 2011 performance data. As part of this restatement process we upgraded the third party verification of our scope 1 and 2 data to ISO Reasonable Assurance instead of Limited Assurance. In addition to the 2012 verification statement which is attached in 8.6b and 8.7b, the 2011 verification statement is also attached below. Attachments CDP 2013/Shared Documents/Attachments/InvestorCDP2013/8.EmissionsData(1Jan Dec2012)/PMI 2011 Scope 1 and Scope 2 GHG Verification Statement.pdf Page: 9. Scope 1 Emissions Breakdown - (1 Jan Dec 2012) 9.1 Do you have Scope 1 emissions sources in more than one country? Yes 9.1a Please complete the table below Country/Region Scope 1 metric tonnes CO2e Argentina Australia Brazil Canada

48 Country/Region Scope 1 metric tonnes CO2e Colombia Costa Rica Caribbean 0.00 Czech Republic Dominican Republic Ecuador Germany Greece Guatemala Indonesia Italy Jordan Kazakhstan South Korea Lithuania Malaysia Mexico Netherlands Pakistan Philippines Poland Portugal Romania Russia Senegal Serbia South Africa Switzerland Turkey Ukraine Uruguay 0.00 Venezuela 0.00 Rest of world

49 9.2 Please indicate which other Scope 1 emissions breakdowns you are able to provide (tick all that apply) By activity 9.2a Please break down your total gross global Scope 1 emissions by business division Business division Scope 1 emissions (metric tonnes CO2e) 9.2b Please break down your total gross global Scope 1 emissions by facility Facility Scope 1 emissions (metric tonnes CO2e) Latitude Longitude 9.2c Please break down your total gross global Scope 1 emissions by GHG type

50 GHG type Scope 1 emissions (metric tonnes CO2e) 9.2d Please break down your total gross global Scope 1 emissions by activity Activity Scope 1 emissions (metric tonnes CO2e) Manufacturing Vehicle Fleet Aircraft 3000 Offices e Please break down your total gross global Scope 1 emissions by legal structure Legal structure Scope 1 emissions (metric tonnes CO2e) Page: 10. Scope 2 Emissions Breakdown - (1 Jan Dec 2012) 10.1 Do you have Scope 2 emissions sources in more than one country? Yes

51 10.1a Please complete the table below Country/Region Scope 2 metric tonnes CO2e Purchased and consumed electricity, heat, steam or cooling (MWh) Purchased and consumed low carbon electricity, heat, steam or cooling (MWh) Argentina Australia Brazil Canada Colombia Costa Rica Caribbean Czech Republic Dominican Republic Ecuador Germany Greece Guatemala Indonesia Italy Jordan Kazakhstan South Korea Lithuania Malaysia Mexico Netherlands Pakistan Philippines Poland Portugal Romania Russia

52 Country/Region Scope 2 metric tonnes CO2e Purchased and consumed electricity, heat, steam or cooling (MWh) Purchased and consumed low carbon electricity, heat, steam or cooling (MWh) Senegal Serbia South Africa Switzerland Turkey Ukraine Uruguay Venezuela Rest of world Please indicate which other Scope 2 emissions breakdowns you are able to provide (tick all that apply) By activity 10.2a Please break down your total gross global Scope 2 emissions by business division Business division Scope 2 emissions (metric tonnes CO2e) 10.2b Please break down your total gross global Scope 2 emissions by facility

53 Facility Scope 2 emissions (metric tonnes CO2e) 10.2c Please break down your total gross global Scope 2 emissions by activity Activity Scope 2 emissions (metric tonnes CO2e) Manufacturing Offices and datacenters d Please break down your total gross global Scope 2 emissions by legal structure Legal structure Scope 2 emissions (metric tonnes CO2e) Page: 11. Energy 11.1 What percentage of your total operational spend in the reporting year was on energy? More than 0% but less than or equal to 5% 11.2

54 Please state how much fuel, electricity, heat, steam, and cooling in MWh your organization has purchased and consumed during the reporting year Energy type MWh Fuel Electricity Heat 0 Steam Cooling Please complete the table by breaking down the total "Fuel" figure entered above by fuel type Fuels MWh Natural gas Diesel/Gas oil Brown coal Biodiesels Butane Distillate fuel oil No Coking coal Liquefied petroleum gas (LPG) Motor gasoline Propane Please provide details of the electricity, heat, steam or cooling amounts that were accounted at a low carbon emission factor

55 Basis for applying a low carbon emission factor MWh associated with low carbon electricity, heat, steam or cooling Comments Supplier specific, backed by instruments Germany and Switzerland Attachments CDP 2013/Shared Documents/Attachments/InvestorCDP2013/11.Energy/SwissHydroCertificate.jpg Page: 12. Emissions Performance 12.1 How do your absolute emissions (Scope 1 and 2 combined) for the reporting year compare to the previous year? Decreased 12.1a Please complete the table Reason Emissions value (percentage) Direction of change Comment Emissions reduction activities Divestment Acquisitions Mergers 4.6 Decrease Change in output 4.3 Increase We had a 4.6% decrease in our absolute CO2 due to emission reduction initiatives - the driving force behind this was a 6% reduction in manufacturing scope 2 emissions. We had a 5.6% relative reduction of CO2 in our Manufacturing facilities overall from 2011 to 2012 whilst we have seen organic growth in our output (see below). We had organic growth of 4.3% in our manufacturing centers (in cigarette equivalent volumes). Other elements (offices and PMI aircraft emissions) are largely unchanged. There were small output changes

56 Reason Emissions value (percentage) Direction of change Comment Change in methodology Change in boundary Change in physical operating conditions Unidentified Other due to manufacturing footprint adjustment, development of new processes and change in the size of our vehicle fleet Please describe your gross combined Scope 1 and 2 emissions for the reporting year in metric tonnes CO2e per unit currency total revenue Intensity figure Metric numerator Metric denominator % change from previous year Direction of change from previous year Reason for change metric tonnes CO2e unit total revenue 1.6 Decrease Decrease in absolute CO2 emissions while increasing net total revenues by 1.4% (including excise taxes). Since our baseline year in 2010, our emissions of CO2 per unit of revenue have decreased by 16% Please describe your gross combined Scope 1 and 2 emissions for the reporting year in metric tonnes CO2e per full time equivalent (FTE) employee

57 Intensity figure Metric numerator Metric denominator % change from previous year Direction of change from previous year Reason for change metric tonnes CO2e FTE employee 10.6 Decrease Decrease in absolute CO2 emissions while increasing the total number of employees from 78,100 to 87,100 (11.5%). Since our baseline year in 2010, our emissions of CO2 per FTE employee have decreased by 14% Please provide an additional intensity (normalized) metric that is appropriate to your business operations Intensity figure Metric numerator Metric denominator % change from previous year Direction of change from previous year Reason for change metric tonnes CO2e Other: Million cigarettes equivalent 5.6 Decrease We decreased our CO2 intensity from 774kg CO2 per million cigarettes equivalent in 2011 to 731kg CO2 per million cigarettes equivalent. This was driven by our Energy Management Program activities combined with green electricity procurement in Germany delivering absolute CO2 reduction, along with an increase in production (cigarettes equivalent) by 4.3%. Since our baseline year in 2010, our emissions of CO2 per million cigarettes equivalent have decreased by 8%. Further Information During 2012 we expanded our scope of reporting and changed the normalization factors for our intensity KPIs and targets from per million cigarettes to per million cigarettes equivalent to take into account semi-finished products and non-cigarette products. Based on this work we have restated the baseline for our targets (2010) and also our 2011 performance data. As part of this restatement process we upgraded the third party verification of our scope 1 and 2 data to ISO Reasonable Assurance instead of Limited Assurance. Page: 13. Emissions Trading

58 13.1 Do you participate in any emissions trading schemes? Yes 13.1a Please complete the following table for each of the emission trading schemes in which you participate Scheme name Period for which data is supplied Allowances allocated Allowances purchased Verified emissions in metric tonnes CO2e Details of ownership European Union ETS European Union ETS European Union ETS European Union ETS Sun 01 Jan Mon 31 Dec Sun 01 Jan Mon 31 Dec Sun 01 Jan Mon 31 Dec Sun 01 Jan Mon 31 Dec Facilities we own and operate Facilities we own and operate Facilities we own and operate Facilities we own and operate 13.1b What is your strategy for complying with the schemes in which you participate or anticipate participating? Through our Global Energy Management Program, paired with local reduction initiatives, we have targeted Energy and CO2 savings that will reduce the need for purchasing allowances.

59 13.2 Has your company originated any project-based carbon credits or purchased any within the reporting period? Yes 13.2a Please complete the table Credit origination or credit purchase Project type Project identification Verified to which standard Number of credits (metric tonnes of CO2e) Number of credits (metric tonnes CO2e): Risk adjusted volume Credits retired Purpose, e.g. compliance Credit Purchase Wind CDM for renewable power plants and other projects. CDM (Clean Development Mechanism) Not relevant Voluntary Offsetting Further Information DHL certificate attached. Attachments CDP 2013/Shared Documents/Attachments/InvestorCDP2013/13.EmissionsTrading/2012_GoGreen_Philip Morris (Europe).pdf Page: 14. Scope 3 Emissions 14.1

60 Please account for your organization s Scope 3 emissions, disclosing and explaining any exclusions Sources of Scope 3 emissions Evaluation status metric tonnes CO2e Methodology Percentage of emissions calculated using primary data Explanation Purchased goods and services Capital goods Fuel-and-energyrelated activities (not included in Scope 1 or 2) Upstream transportation and distribution Relevant, calculated Relevant, not yet calculated Relevant, not yet calculated Relevant, calculated Includes Tobacco (including curing) and direct materials composing the cigarette, the pack and transport packaging (packaging, cigarette papers, acetate tow for filters, etc.). Our carbon footprint is based on actual data (primary data) and average industry data (secondary data), including a number of estimates and assumptions based on expert opinion. Elements of our carbon footprint, have been modeled using the Life Cycle Assessment (LCA) tool, Simapro and have involved LCA expert inputs. In 2010, our value chain data underwent a 3rd party review against ISO series of standards and the draft Scope 3 Accounting and Reporting Standard as released by the WBCSD / WRI GHG Protocol Initiative. Estimates for tobacco and direct materials transport. Our carbon footprint is based on actual data (primary data) and average industry data (secondary 10% Based on our current Life Cycle assessment hypothesis. We continue our engagement process with direct materials and other suppliers in order to get more primary data. Existing infrastructure emissions were calculated during our original carbon footprint calculation but we do not currently assess the carbon emissions related to the manufacture and transport of capital goods (equipment, machinery, buildings, facilities, and vehicles) purchased by PMI in the reporting year. At this time we are focusing on the reduction of our fuel related scope 1 and 2 emissions. We will review the inclusion of scope 3 related emissions for fuel and energy in our carbon footprint. 30% Based on estimated distances.

61 Sources of Scope 3 emissions Evaluation status metric tonnes CO2e Methodology Percentage of emissions calculated using primary data Explanation Waste generated in operations Business travel Employee commuting Upstream leased assets Relevant, not yet calculated Relevant, calculated Relevant, not yet calculated Not relevant, explanation provided data), including a number of estimates and assumptions based on expert opinion. Elements of our carbon footprint, have been modeled using the Life Cycle Assessment (LCA) tool, Simapro and have involved LCA expert inputs. In 2010, our value chain data underwent a 3rd party review against ISO series of standards and the draft Scope 3 Accounting and Reporting Standard as released by the WBCSD / WRI GHG Protocol Initiative. Through air miles accounting, using the Guideline to DEFRA / DECC s GHG Conversion Factors for Company Reporting, Annex 6: average Air Passenger Transport Conversion Factors for Premium Economy class 90% Not modeled currently. Our objective to improve our recycling rate from 80% in 2010 to 85% in 2015 in production operations will contribute to scope 3 emissions reductions. In 2012, we reached 82% recycling rate. We will review the inclusion of scope 3 related emissions for waste in our carbon footprint. Covered in 76 countries through PMI air miles accounting. Only some sites have undertaken mobility surveys of employees (commuting). At this stage it is not practical to extrapolate emissions at the PMI level for 87,100 employees from the limited data available. Our upstream leased assets are not considered significant. It is currently not our intention to calculate emissions of any such leased assets due to the impracticality of calculation. Investments Relevant, not It is not currently our intention to calculate

62 Sources of Scope 3 emissions Evaluation status metric tonnes CO2e Methodology Percentage of emissions calculated using primary data Explanation Downstream transportation and distribution Processing of sold products Use of sold products End of life treatment of sold products yet calculated Relevant, calculated Not relevant, explanation provided Relevant, calculated Relevant, calculated Distribution of finished goods; estimate based on 8 key markets extrapolated for the whole of PMI. Our carbon footprint is based on actual data (primary data) and average industry data (secondary data), including a number of estimates and assumptions based on expert opinion. Elements of our carbon footprint, have been modeled using the Life Cycle Assessment (LCA) tool, Simapro and have involved LCA expert inputs. In 2010, our value chain data underwent a 3rd party review against ISO series of standards and the draft Scope 3 Accounting and Reporting Standard as released by the WBCSD / WRI GHG Protocol Initiative. This includes mainly the use of lighters. Our carbon footprint is based on actual data (primary data) and average industry data (secondary data), including a number of estimates and assumptions based on expert opinion. Elements of our carbon footprint, have been modeled using the Life Cycle Assessment (LCA) tool, Simapro and have involved LCA expert inputs. In 2010, our value chain data underwent a 3rd party review against ISO series of standards and the draft Scope 3 Accounting and Reporting Standard as released by the WBCSD / WRI GHG Protocol Initiative. Downstream wastes treatment and street cleaning related to cigarette butts and waste packaging. Our carbon footprint is based on actual data (primary data) and average industry data (secondary data), 30% 30% emissions related to investments due to the impracticality of calculation. Based on estimated distances for defined transport means in 8 key markets. Not relevant since our sold products are not processed. Based on estimated usage of lighter fuel per cigarette. 30% Based on Swiss market assumptions.

63 Sources of Scope 3 emissions Evaluation status metric tonnes CO2e Methodology Percentage of emissions calculated using primary data Explanation Downstream leased assets Franchises Other (upstream) Other (downstream) Not relevant, explanation provided Not relevant, explanation provided including a number of estimates and assumptions based on expert opinion. Elements of our carbon footprint, have been modeled using the Life Cycle Assessment (LCA) tool, Simapro and have involved LCA expert inputs. In 2010, our value chain data underwent a 3rd party review against ISO series of standards and the draft Scope 3 Accounting and Reporting Standard as released by the WBCSD / WRI GHG Protocol Initiative. Our downstream leased assets are not considered significant. It is currently not our intention to calculate emissions of any such leased assets due to the impracticality of calculation. No existing franchise business Please indicate the verification/assurance status that applies to your Scope 3 emissions No third party verification or assurance 14.2a

64 Please indicate the proportion of your Scope 3 emissions that are verified/assured 14.2b Please provide further details of the verification/assurance undertaken, and attach the relevant statements Type of verification or assurance Relevant standard Attach the document 14.3 Are you able to compare your Scope 3 emissions for the reporting year with those for the previous year for any sources? Yes 14.3a Please complete the table Sources of Scope 3 emissions Reason for change Emissions value (percentage) Direction of change Comment

65 Sources of Scope 3 emissions Reason for change Emissions value (percentage) Direction of change Comment Downstream transportation and distribution Upstream transportation & distribution Business travel Purchased goods & services Emissions reduction activities Emissions reduction activities Change in output Emissions reduction activities 0.1 Decrease 0.6 Decrease 12.9 Increase Initiative in Mexico since 2009 to increase shipment utilization - delivering more volume per shipment. Projects in Ukraine and Indonesia: optimization of tobacco, raw material and packaging transport, including inbound-outbound load synchronization. Following expansion of our reporting scope from 66 to 76 countries for business travel reporting we improved the quality of reporting and there was an increase in kilometers travelled. This offsets reductions made by the use of Green IT tools (Telepresence, WebEx etc.). Note that our restated 2011 CO2 emissions from Business travel was 62,381 metric tonnes Decrease Curing barn efficiency improvement projects as outlined in Section 3.3b 14.4 Do you engage with any of the elements of your value chain on GHG emissions and climate change strategies? (Tick all that apply) Yes, our suppliers Yes, our customers 14.4a Please give details of methods of engagement, your strategy for prioritizing engagements and measures of success Our suppliers: We have used our carbon footprint calculation to identify the main climate change impacts of our purchased materials. In our direct materials (non-tobacco) area we identified acetate tow and consumer board & paper as significant contributors from a raw materials perspective to our carbon footprint. We engaged with key suppliers in these two areas through direct discussions and a questionnaire to ascertain carbon related strategies and performance and as a means of assessing the

66 value of joining CDP Supply Chain. As a measure of success, 90% of the suppliers surveyed engaged with us on this subject. We also engage with our suppliers regularly in the following main areas: Tobacco leaf suppliers through Good Agricultural Practices (GAP) collaboration. Direct Materials suppliers through procurement and product development activities which include the definition of parameters of environmental performance for different raw material components. Equipment manufacturers through an industry colloquium which helps target energy efficiency developments for our manufacturing equipment. Our customers: We have engaged with Tesco to support their 30% carbon footprint reduction target in their supply chain by We also regularly share information with other key accounts and stakeholders through questionnaire responses and presentations. 14.4b To give a sense of scale of this engagement, please give the number of suppliers with whom you are engaging and the proportion of your total spend that they represent Number of suppliers % of total spend Comment 10 37% 10 Direct Material suppliers (Acetate Tow and consumer board & paper suppliers) representing 37% of Direct Materials total spend. 14.4c If you have data on your suppliers GHG emissions and climate change strategies, please explain how you make use of that data How you make use of the Please give details data Identifying GHG sources to prioritize for reduction actions We will include their primary data in our future Carbon footprint restatements (improve accuracy of estimated data) We will consider supplier/customer data and climate change strategies in our road-map for our 30% reduction target by 2020 for our entire supply chain / value chain. 14.4d

67 Please explain why not and any plans you have to develop an engagement strategy in the future Further Information During 2012 we expanded our scope of reporting and changed the normalization factors for our intensity KPIs and targets from per million cigarettes to per million cigarettes equivalent to take into account semi-finished products and non-cigarette products. Based on this work we have restated the baseline for our targets (2010) and also our 2011 performance data. As part of this restatement process we upgraded the third party verification of our scope 1 and 2 data to ISO Reasonable Assurance instead of Limited Assurance. Module: Sign Off Page: Sign Off Please enter the name of the individual that has signed off (approved) the response and their job title Andy Harrop Director EHS&S Sustainability and Performance CDP 2013 Investor CDP 2013 Information Request