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Evaluating a company's impact (the case of Philip Morris)

A deep dive into Philip Morris' environmental and social impact

Today’s newsletter is brought to you by ESG for In-house - right-sized ESG solutions to meet client and investor expectations.

This week’s read time: 3 minutes

You are reading Green Digest Impact, a weekly newsletter that provides in-depth analyses of companies’ environmental and social impact.

OUR APPROACH

Central to our narrative is the principle of double-materiality, which recognizes that a company's impact is twofold: it affects both the environment and society at large, and in turn, these external factors influence the company's financial and operational performance.

While traditional ESG assessments focus on the latter, we aim to examine companies' direct impacts on these factors. In pursuit of this, we introduce a unique scoring system that quantifies a company's impact.

The insights and analyses presented in Green Digest Impact are brought to you by a partnership between Green Digest and Impaakt, a Swiss-based impact data provider. Contact Impaakt here to explore how they can assist you.

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THIS WEEK’S COMPANY

Philip Morris International

This week we dive deep into Philip Morris’ environmental and social impact.

Philip Morris International (PMI) is the world's leading tobacco company by market cap. PMI markets products under Marlboro, L&M, Chesterfield, Bond Street, Lark, Sentia, Terea, Muratti, Next, Philip Morris, and Parliament brand names.

Some interesting facts:

  • PMI is heavily investing in replacing cigarettes with smoke-free products, having spent over $12.5 billion on the development and scientific substantiation of smoke-free products since 2008.

  • The Marlboro brand has been the world’s best-selling cigarette brand since 1972.

COMPANY’S IMPACT

Philip Morris’ overall impact score

Philip Morris has a general impact score of -1.48 (on a scale from -5 to +5). Its impact is spread across 10 UN Sustainable Development Goals (SDGs) and 10 topics, split between positive and negative analyses.

In the socio-economic sphere,

Philip Morris holds 28.7% of the total international market share of cigarettes and heated tobacco products (HTPs). The company ships 738.2 billion units of cigarettes and HTPs annually (2023). As of 2024, it employs 82,700 people and provides salaries above the industry and country average. When it comes to gender equality, PMI has achieved balance in the total workforce and management level, but not at the other levels. The company also has a significant economic and social impact through its supply chain, which includes 30,000 suppliers and over 223,000 contracted farmers.

Conversely, Philip Morris has a huge negative impact on people’s health. The tobacco epidemic is one of the biggest public health threats the world has ever faced, killing over 8 million people a year around the world. Being the largest tobacco company, Philip Morris increases the number of nicotine-addicted people and contributes to global tobacco-related deaths and diseases. Several of the company’s suppliers were also found to have poor labor practices, including the use of child labor.

Environmentally,

Philip Morris emits over 6.5 million tonnes of CO2 equivalent annually (2023), equal to the emissions of over 1.2 million homes’ electricity use for a year. The company uses approximately 108 million m3 of water annually, 64% in high or extremely high water-stressed areas. It also reports that 77% of its tobacco-growing areas are in medium-high, high, or extremely high water-risk regions. Additionally, it generates approximately 127,000 tonnes of waste (recycles 84.9% of it) and an estimated 1 million tonnes of product waste, the majority of which is not recycled. It also sources about 1.2 million tonnes of raw materials (timber, tobacco, etc.), which require hundreds of thousands of hectares of land for cultivation, thus contributing to land degradation.

*The impact score is current as of July 2024 and may be subject to changes as it is continuously updated.
**You can find details about the scoring methodology here and the information sources here.

ESG VS IMPACT SCORE

What is Philip Morris’ ESG rating?

For comparison, Philip Morris has a BBB rating in MSCI's ESG evaluation.

However, ESG Ratings from MSCI ESG Research are designed to measure a company’s resilience to financially material ESG risks and they provide a window into one facet of risk to financial performance. They measure how effectively companies manage ESG risks, not their impact on these factors.

SCORES BY SDG

Philip Morris’ impact scores by SDG

Now, back to Philip Morris’ impact score:

Positively (and by weight), the company scores the highest in No Poverty SDG (+2.45), and Partnership for the Goals (+2.50).

Negatively, the company scores the worst in Good Health and Well-being SDG (-2.60), followed by Responsible Consumption and Production (-3.05), and Life on Land (-3.26).

*the analysis takes into account the weight of the SDGs

Philip Morris also positively and negatively influences two SDGs (3 - Good Health and Well-being and 8 - Decent Work and Economic Growth). For example, it positively impacts Good Health and Well-being by providing enjoyment and instant gratification through its products; the high from the nicotine triggers “feel-good” neurochemicals that create a feeling of pleasure. Negatively, because its tobacco products contribute to the tobacco epidemic and are known to cause many diseases.

CONCLUSION

Final words

So, Philip Morris’ key social and environmental impact lies in …

its role in supplying billions of units of cigarettes and HTPs that provide enjoyment and instant gratification. The company holds a 28.7% market share and is present in over 180 countries, providing thousands of jobs and supporting thousands more in its supply chain.

On the flip side, Philip Morris is one of the main contributors to the tobacco epidemic, which kills an estimated 8 million people per year. The company also has a negative environmental impact through its emissions, water use, and waste production. Additionally, some of its suppliers engage in poor labor practices, including child labor.

Its negative -1.48 score is a balance of all of these factors and topics.

If you’d like to delve deeper into Philip Morris’ impact, you can explore it here.

Next week, we will analyze the impact of one of the largest European banks, BNP Paribas. 🏦

If you'd like to learn more about the scoring methodology, you can do so here.

Do you have a specific company you'd like us to cover? Send your suggestions to [email protected]

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