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