SUSTAINABILITY REPORT 2017 GROWING OUR BUSINESS …It’s their passion, commitment and focus on doing things the right way that keeps our business moving. Our people recognise the

GROWING OUR BUSINESS RESPONSIBLY

SUSTAINABILITY REPORT 2017

As our name implies, Imperial Brands is a company dedicated to providing consumers with great brand experiences. But it’s not just brands that have been key to our success over the years, it’s also down to the contribution of our people.

It’s their passion, commitment and focus on doing things the right way that keeps our business moving. Our people recognise the importance of operating responsibly and encourage each other to live our values and follow our Code of Conduct at all times.

Find out more in this report and see how we are growing our business responsibly.

REPORTING APPROACHThis report covers our management approach and economic, social and environmental performance for the financial year 1 October 2016 to 30 September 2017 (FY17).

In our sustainability reporting, we seek to be in general alignment with the Global Reporting Initiative (GRI) Standards. The GRI is a global, multi-stakeholder organisation that has developed guidelines for sustainability reporting. Whilst we have not sought specific GRI assurance, we provide an Index of disclosures in Appendix 1.

The report also contains additional indicators, based on our most recent materiality assessment.

We define our approach to reporting in our Reporting Criteria Document, which provides further information on our reporting principles, how indicators have been selected for reporting, scope of reporting, reporting period and whether they have been independently assured.

Our environmental performance is measured against the amount of tobacco net revenue we generate, and we report one year in arrears to allow for data collection, validation and external assurance. 2016 data has been assured by Pricewaterhouse Coopers LLP (PwC). We track our progress against our 2009 baseline year which was restated in FY17 to incorporate our Greensboro site in the US and following improvements to our internal reporting system.

Selected additional indicators have also been independently assured and further details are provided in the 2017 Assurance Report and Approach Document from PwC.

We also report the progress we have made with our Corporate Responsibility (CR) strategy in our Annual Report and Accounts 2017 and in the Responsibility section of our corporate website, www.imperialbrandsplc.com/Responsibility

Any queries related to this report can be emailed to [email protected]

For progress against our 2017 Responsibility objectives click here. www.imperialbrandsplc.com

INTRODUCTION 1

Chief Executive’s Introduction 2

At a glance 3

Performance highlights 4

Material issues 6

Stakeholder engagement 7

Our strategy 8

RESPONSIBLE WITH PRODUCTS 11

Product science 12

Illicit trade 14

Adult choice 17

Innovation and portfolio 19

Product quality 21

REWARDING WORKPLACE 22

Health, safety and wellbeing 23

Development and reward 27

Recruitment and retention 29

Diversity 30

Employee voice 32

RESPECTING NATURAL RESOURCES 33

Forestry 34

Water 36

Climate and energy 37

Emissions and waste 39

Biodiversity 41

REINVESTING IN SOCIETY 42

Shared wealth 43

Regulation 46

Farmer livelihoods 48

Human rights 50

Business conduct 53

ABOUT THE REPORTAppendix 1: GRI content index 55

Appendix 2: CR Performance Indicators 59

Appendix 3: Environmental Performance Tables 61

Explore our Responsibility website: www.imperialbrandsplc.com/Responsibility

CONTENTS

Sustainability Report 2017 1

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/CorporateReporting%20Criteria_171211.pdf

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/2017_PWC_ASSURANCE_STATEMENT.PDF

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

http://www.imperialbrandsplc.com/Responsibility

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/IMP090_Progress-against-our-2017-objectives_FINAL_171214.pdf

http://www.imperialbrandsplc.com

http://www.imperialbrandsplc.com/Responsibility

CHIEF EXECUTIVE’S INTRODUCTION

“ Operating responsibly matters to our long-term success; how we act today impacts our business tomorrow.”

ALISON COOPERChief Executive

MESSAGE FROM THE CHIEF EXECUTIVE

Welcome to our 2017 Sustainability Report. This was a year of important progress for Imperial Brands, one in which we delivered share gains in many of our priority markets following our decision to significantly increase investments in our Growth and Specialist Brands.

Behaving responsibly and running the business the right way are key to achieving these market share gains. Our tobacco products are controversial but the way we behave is not. We take great pride in operating responsibly, not just because it’s the right thing to do, but because it matters to our long-term success: how we act today impacts our business tomorrow.

There is global demand for our products and this demand is best met by responsible companies like Imperial, which is focused on maintaining momentum in tobacco while driving significant growth in e-vapour. We apply high and internationally recognised standards for the manufacture, sale and marketing of our products, and adhere to legislation and our own stringent International Marketing Standard at all times.

We also respect the natural resources we use and are focused on reducing our environmental impact. This year we achieved our highest ever rating from the CDP Climate Change Programme in recognition of the action we’ve taken to manage climate change.

The responsible approach we take is integral to the success of our sales growth strategy and is underpinned by our values and Code of Conduct. Our policies, internal controls and risk management processes further govern the way we operate.

We track our Corporate Responsibility (CR) performance against our progress in four key areas: being responsible with products, providing a rewarding workplace, respecting natural resources and reinvesting in society. These form the basis of our Responsibility Framework and are the priorities for our business, our people and our stakeholders.

In 2017 we reviewed and re-focused our framework to drive even closer alignment with our strategy. And as always, we continued to focus on improving our performance in all areas of the framework to further strengthen our sustainability.

I’m proud of the many positive contributions we make to society, not just in terms of wealth creation and employment, but by being an active and responsible member of the communities in which we operate.

Our employees are incredibly supportive of our responsibility agenda and I’ve been delighted to see a growing number getting involved in projects linked to our Responsibility Framework. Through our global volunteering drive, Mobilise for May, employees supported more than 86 projects in 38 locations worldwide this year.

My thanks to all our people for their continued support and I hope you enjoy finding out more about our CR credentials in this report.

ALISON COOPERChief Executive

We can

Work out why and try again

We surprise

new and better solutions

I engage

Share ideas

I am

saying what I think

I own

make it happen quickly

OUR VALUES AND OUR PEOPLEOUR VALUESWe take pride in what we do and how we do it. Acting responsibly and with integrity has helped us create and sustain a successful business. Underpinning this are our values. These are the essence of what Imperial is about and define who we are. They provide us with a common bond, guiding the way we do business and influencing the way we behave. Our values are about working together, continually improving, taking ownership and making the most of every opportunity.

Our values and Code of Conduct are an essential part of our Responsibility Framework. Our values reflect the behaviours we expect from everyone who works for us and with us.

We enjoy

thrive on challenge, make it fun


RESPECTING NATURAL RESOURCES

REINVESTING IN SOCIETY

ABOUT THE REPORT

INTRODUCTION

RESPONSIBLE WITH PRODUCTS

REWARDING WORKPLACE

AT A GLANCE

RESPONSIBLE BUSINESS

Responsibility is central to our sustainable growth strategy – how we behave today impacts our business tomorrow.In 2016, the Board and the senior leadership team conducted a review of our business strategy to refine our priorities for growth over the next decade in tobacco and other consumer offerings, including e-vapour products.

Similarly, following on from the 2016 revised CR materiality assessment, in 2017 we reviewed and re-focused our Responsibility Framework to better align with and support our business strategy. Based on materiality and mapping against the UN Sustainable Development Goals, we have six focus areas that we will target towards the year 2025.

The six focus areas are:

– Portfolio and Innovation

– Health, Safety and Wellbeing

– Diversity

– Environment and Forestry

– Human Rights

– Farmer Livelihoods

OUR CORPORATE BRANDSOur business is built around powerful corporate brands: Imperial Tobacco, home to most of our tobacco subsidiaries around the world, manufacturing a range of cigarettes, fine cut and smokeless tobacco products, mass market cigars and papers and tubes; Tabacalera, our international premium cigar business; ITG Brands, the third largest tobacco company in the USA; Fontem Ventures, focused on developing a portfolio of next generation products including the blu e-vapour franchise; and Logista, which is one of the largest logistics businesses in Europe.

PEOPLE GLOBALLY

33,800NET TOBACCO REVENUE

£7.8 billionMARKETS WORLDWIDE

Our tobacco brands are sold in

160markets worldwide.

DESCRIPTION OF EACH STEP IN OUR SUPPLY CHAIN

GLOBAL PROCUREMENT OF

TOBACCO LEAF AND NON-TOBACCO

MATERIALS

STORAGE AND DISTRIBUTION OF PRODUCTS

GLOBALLY

SALE OF PRODUCTS TO RETAILERS

IN 160 MARKETS WORLDWIDE

CONSUMER PURCHASES IN

DOMESTIC AND TRAVEL RETAIL CHANNELS

MANUFACTURE OF IMPERIAL

BRANDS PRODUCTS GLOBALLY




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

PERFORMANCE HIGHLIGHTS

CREATING SHARED VALUE

Creating shared value is not only about how we contribute economically, it’s also about adding value to other areas of stakeholder interest by raising standards, sharing knowledge, protecting the environment and enabling individual and community wellbeing.

• 28 formal Memoranda of Understanding and co-operation agreements in place with governments worldwide

ILLICIT CIGARETTES SEIZED BY LAW ENFORCEMENT ACTIONS IN 17 COUNTRIES

1 billion


“ We make and sell our products to the highest standards with a strict focus on adult consumers. We recognise the health concerns associated with smoking and are focusing our efforts on next generation products which we believe can deliver safer alternatives to smoking.”

“ Our success is driven by our people. We provide a safe working environment and focus on promoting diversity and developing and rewarding our people to empower them to achieve the extraordinary.”

Turn to page 11 for more information


REWARDING WORKPLACE

• 70% of senior managers hired from the local communities in which we operate

• 30% of our Board are female • 45% of vacancies were filled by internal candidates in FY17

REDUCTION IN LOST TIME ACCIDENTS SINCE 2009

69%




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

• Some £17 billion paid in taxes annually

• £3 million allocated to community investment, partnership projects and charitable donations

• 220,000 beneficiaries from community investment and partnership projects in FY17

SCORE ACHIEVED IN THE ROBECOSAM ASSESSMENT FOR THE DOW JONES SUSTAINABILITY INDEX

84%


“ As an international business we make many positive contributions. We support livelihoods and community participation. We partner with our leaf suppliers, Non-Governmental Organisations and charities, support fundraising and encourage volunteering. In our supply chain we promote responsible labour practices that respect human rights.”

“ Our goal is to minimise our environmental impact and seek a sustainable approach which helps to protect the finite limited resources available to us.”




• 1.7 million trees planted in FY17 • 92% of our manufacturing sites and main offices have ISO 14001 certification

• 27% reduction in energy consumption since 2009

• 30% reduction in CO2 equivalent emissions since 2009

• 36% reduction in water consumption since 2009

REDUCTION IN WASTE TO LANDFILL SINCE 2009

55%

PERFORMANCE HIGHLIGHTScontinued




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

MATERIAL ISSUES

MATERIALITY

We conducted our first independent materiality assessment in 2013. In 2016 we commissioned an independent review and update of this materiality assessment given the changing nature of our business and stakeholder priorities. The results of this assessment are illustrated in the matrix below and have been used to update and develop our Responsibility Framework.

3. VALIDATE1. IDENTIFY 2. ASSESS

All locations were assessed for economic, social and environmental risks. We appointed a risk consultancy which conducted a geographical risk assessment of some 950 locations. These included all of our operations and sites, as well as the sites of all of our leaf suppliers and our tier one non-tobacco material suppliers.

To inform the assessment further, key policy documents and reports, including our 2015 External Stakeholder Panel report, were reviewed. Further guidance was taken from international standards and bodies including the UN Global Compact and the UN Sustainable Development Goals.

Following the assessment, the top 20 material CR issues were identified. These were presented to key internal and external stakeholders and each person was asked to score the relative importance of each issue. Scores were then consolidated and the final score determined where on the matrix above each issue landed.

2017 MATERIALITY ASSESSMENT

APPROACH TO MATERIALITY

Impo

rtan

ce to

sta

keho

lder

s

Risk and Opportunity for Imperial Brands PLC

Employee voice

Development and reward

Diversity

Farmer livelihoods

Shared wealth

Adult choice

Business conduct

Human rights

Biodiversity Water Forestry

Climate and energy

Emissions and waste

Product Science

Illicit trade

Innovation and Portfolio

Product quality

Regulation

Recruitment and retention

Health, safety and wellbeing

Responsible with Products

Rewarding Workplace

Respecting Natural Resources

Reinvesting in Society




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

We understand that building and maintaining trust with our stakeholders is vital for business success. We take an integrated approach to stakeholder management at the strategic and operational level as part of our normal work activities. Periodically we convene an external Stakeholder Panel to gain further insight and views from our key stakeholders. Stakeholder views informed our revised materiality assessment in 2016 which re-focused our CR strategy going forward. Read the latest Stakeholder Panel report here.

STAKEHOLDER ENGAGEMENT

EMPLOYEE PERSPECTIVE“ I wasn’t sure if working for a tobacco company would be right for me but I was reassured when I found out about the company’s positive contributions and Code of Conduct.”

Turn to pages 48 and 53 for more information

INVESTOR PERSPECTIVE“We want to know that we’re

investing our money in a responsible business that is well

governed and mitigates social and environmental risks.”


CUSTOMER PERSPECTIVE“ We wanted to know that Imperial as our supplier is actively addressing climate change and wood sustainability.”


CONSUMER PERSPECTIVE“ I want to know the products I smoke have not been tested on animals and are of a high quality.”


NON-TOBACCO MATERIAL SUPPLIER PERSPECTIVE“ Being subject to Imperial’s supplier monitoring programme has enabled us to benchmark our operations. This has provided the impetus to make further improvements and to seek an additional environmental accreditation.”


TOBACCO LEAF SUPPLIER PERSPECTIVE“ We’re pleased to be able to partner with Imperial to jointly tackle sustainability challenges facing the agricultural communities where tobacco is grown.”


RETAILER PERSPECTIVE“We’ve appreciated the support

provided by Imperial in terms of better understanding regulatory

requirements and preventing underage sales.”


NGO PERSPECTIVE“ We’re concerned about child labour and have asked for more disclosure around Imperial’s supply chain standards and performance.”





ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

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

OUR STRATEGY

OUR STRATEGY

Strategically our focus is on strengthening our portfolio and developing our footprint. In FY17, our investments were focused on the markets that offer us the best growth opportunities.

Next Generation Products (NGPs) offer enormous potential for the business and society at large. So as well as maintaining the momentum in tobacco, we are driving transformational growth in e-vapour. We are very excited to have recently acquired the innovation business Nerudia to help us develop a dynamic pipeline of products. Further details are available in our 2017 Annual Report and Accounts.

Our Responsibility Framework is articulated under four well-established pillars and is at the heart of our CR Strategy.

1. Responsible with Products

2. Rewarding Workplace

3. Respecting Natural Resources

4. Reinvesting in Society

Informed by the revised 2016 materiality assessment, in FY17 we reviewed and re-focused our Responsibility Framework.

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

We have been participating in the RobecoSAM Corporate Sustainability Assessment for the Dow Jones Sustainability Index for many years. This year we were awarded a score of 84%, above last year’s score of 76% and the industry average of 63%. Each year companies are assessed against a range of economic, environmental and social sustainability issues. Our success gives us external recognition that we are addressing sustainability matters.

OUR VALUES

FOCUS AREAS

CODE OF CONDUCT

We can I engage I own

We surprise I am We enjoy

AIMS

REW

ARDIN

G WORKPLACE RESPONSIBLE W

ITH PRODUCTS

REINVESTING IN SOCIETY RESPECTING NATURAL R

ESOU

RCES

To make and sell our

products to the highest

standards

To empower our people to

achieve

To add value as a good corporate

citizen

To be environmentally

sustainable

OUR RESPONSIBILITY FRAMEWORK




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

http://nerudia.com/


DELIVERING THE STRATEGY

High standards of governance are fundamental to our business operating responsibly, and legally and with integrity. Strong governance underpins our business practices and the conduct of our people and helps us to deliver our CR strategy.

Through our governance framework, we seek to effectively manage risks, and enable the right behaviours, controls and actions across our global organisation. This is in the interests of our shareholders and other stakeholders.

Our Board of Directors is responsible for the delivery of our strategies, activities and the financial performance of the company; together with the efficient use of resources, and social, environmental and ethical matters.

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

We have functional and cross-functional networks of specialists, who deal with CR and sustainability issues within their areas of specialism. These include our International Corporate Affairs Network, Occupational Health, Safety

and Environment (OHSE) professionals, Human Resource Managers, Product Science experts and Market Coordinators. Executive oversight includes an annual review of the whole CR strategy by the OPEX, followed by an annual review by the Board.

We account for social and environmental issues in our approach to risk mitigation, understanding that our business activities have the potential to impact people and the environment. In our manufacturing operations we use environmental management systems independently certified to the international standard ISO 14001 to drive environmental performance improvements in waste, water and energy.

Mitigation activities are issue specific and include having: appropriate standards and requirements, internal controls and approvals, stakeholder dialogue, due diligence work, assessment criteria, and, ongoing monitoring. Such mitigation activities are particularly evident for our most material issues. Our requirements for risk mitigation are also reflected in our Code of Conduct, which is applicable Group-wide.

To help embed our CR strategy across the business, we have a global network of more than 90 CR Champions located throughout our manufacturing sites and offices.

Our Champions are essential for enabling Group activities, such as volunteering and our global step challenge. They also raise awareness of our Responsibility Framework and achievements locally.

Overall, we have made positive progress in the majority of our objectives and CR performance indicators, and we continue to make progress in our long-term trends and targets. For further information please see our CR Performance Indicator Table in Appendix 2.

For progress against our 2017 Responsibility objectives click here.

As part of the FY17 review we took into consideration the UN Sustainable Development Goals. We have identified six focus areas which we will set targets against towards 2025 to better align with and support business strategy. We have captured this in the objectives we have set for financial year 2018 (FY18). This is in addition to five other priority areas. In this way we aim to drive societal and business benefits.

OUR STRATEGYcontinued

Responsibility Framework Pillar


REWARDING WORKPLACE



Focus Area

Portfolio and Innovation Health, Safety and WellbeingDiversity

Environment and Forestry Human RightsFarmer Livelihoods

Additional Priority Areas

Product ScienceAnti-Illicit TradeAdult Choice

Shared WealthRegulation





CR STRATEGY FOR 2025




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE


OBJECTIVES FOR 2018

OUR STRATEGYcontinued

For FY18 we have determined the following objectives, for our Focus Areas:

Focus Area towards 2025 FY18 Objective

Portfolio and Innovation To enhance the consumer offering in terms of next generation products particularly under the leading brand blu

Health, Safety and Wellbeing

To establish a core set of Leading Safety Indicators to better track and further improve the level of safety achieved across our global operations; whilst making continued progress in implementing our Health and Safety strategy and improving our performance.

Diversity To progress our diversity programme and establish indicators to demonstrate enhanced diversity performance over the coming years.

Environment and Forestry To make continued progress in our environmental performance towards our targets for energy/CO2e emissions, water and waste.

To investigate science-based targets for greenhouse gas emissions for our operations and supply chain in relation to climate change.

To investigate a new water sustainability strategy for our operations and supply chain.

To develop a new waste to landfill reduction target.

To make further progress towards our target of achieving wood sustainability in our African supply chain.

Human Rights To establish a target for improvement in leaf supplier performance in the Sustainable Tobacco Programme, including improved disclosure in relation to child labour.

To launch new e-learning provision for relevant personnel; thereby further strengthening operational practices and individual behaviours in the respect of Human Rights

Farmer Livelihoods To further progress our Leaf Partnership projects and establish a target for overall programme impact.

For FY18 we have determined the following objectives, for our Other Priority Work Areas:

Priority Work Area FY18 Objective

Product Science To undertake and monitor scientific research to continually improve our knowledge of tobacco and the diseases caused by smoking, and to use this knowledge to develop and assess new and potentially safer products, including e-vapour.

Anti-Illicit Trade To effectively counter the threat posed by Illicit Trade: by maintaining and building upon working relationships with international law enforcement agencies and regulatory bodies to protect legitimate trade in key markets; and, further contribute to the disruption and cessation of criminal activity.

Adult Choice To continue to apply and adhere to, in all markets, our International Marketing Standard, our Brand Tool Kits, and the regulatory requirements that govern brand and product communications.

Shared Wealth To review and re-focus our community partnership programme; and, further develop the economic value of the business for stakeholders including shareholders, employees, suppliers, tax authorities and community beneficiaries.

Regulation To inform, respond to and work with external stakeholders on the evolving horizon of regulatory and excise issues regarding our products; with special attention to developments at European Union level as we implement the European Union Tobacco Products Directive, and the tracking and tracing of our tobacco products through the supply chain.




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

Being responsible with products is about meeting consumer needs and demonstrating that we have an important and legitimate role in meeting the demand for tobacco and next generation products.

RESPONSIBLE WITH

PRODUCTS

1.

11Sustainability Report 2017



ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

INTRODUCTION RESPECTING NATURAL RESOURCES

RESPONSIBLE WITH PRODUCTS REINVESTING IN SOCIETY

REWARDING WORKPLACE ABOUT THE REPORT

PRODUCT SCIENCE


Millions of people around the world purchase and consume our products every day and we make sure that these brands are manufactured, marketed and sold responsibly. In meeting demand for tobacco products we recognise society’s concerns about the health risks of smoking and agree that smoking is a cause of serious disease in smokers.

OUR PRODUCTS Our core business relates to the manufacture and sale of tobacco products. Smoking is a cause of serious diseases in smokers, including lung cancer, heart disease and emphysema. Adults should be guided by the public messages about the health risks of smoking when deciding whether to smoke or not. Children should never smoke.

Governments and public health authorities around the world provide the public with clear and consistent messages about the health risks of smoking. We support this and do not challenge these messages.

We do not add anything to our products to make it more difficult for smokers to stop smoking, to make our products attractive to children or to increase the level or change the chemical form of nicotine in tobacco smoke.

Ingredients may be added to tobacco products during manufacture. Ingredients (for example, flavourings typically used in food) are used in very small quantities in some brands to enhance their overall flavour characteristics and aroma, giving brand variants their own distinctive style, in line with consumer preferences.

The term "ingredient" also applies to the components of non-tobacco materials that are used to make our products, such as the cigarette paper, the filter, the adhesive that seals the paper and the ink that colours the tipping.

We assess the appropriateness and acceptability of the ingredients we use. We employ a panel of experienced toxicologists to carry out risk assessments on ingredients and to judge the suitability of these ingredients for inclusion in our products.

We also investigate next generation products (NGPs) that may have the potential to be less harmful alternatives to smoking. Innovation, research and development are important to ensure that we continue to meet consumer needs for tobacco and NGPs, which includes e-vapour products (EVPs).

For further information on NGPs please see the section ‘Innovation and Portfolio’.

OUR APPROACH We have a Group-wide Product Stewardship and Health Policy which includes Fontem Ventures and is owned by the Chief Executive of Imperial Brands.

The aim of the policy is to ensure that appropriate scientific and regulatory assessments are made, that reasonable decisions are taken and that appropriate controls are exercised in order to discharge our manufacturer’s responsibilities with respect to the product.

“We recognise society’s concerns about the health risks of smoking and agree that smoking is a cause of serious disease in smokers.”

The Product Stewardship and Health Group (PSHG) is the governing body responsible for upholding this policy. In addition, its remit also includes identifying, considering and addressing issues relevant to product stewardship and health and recommending appropriate actions and responses, including anticipated or actual developments in innovation, regulation and stakeholder views.

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

The AGP reports to the PSHG which in turn reports directly to the Imperial Brands Board.

In addition, we also have a Risk Assessment Panel (RAP) which is an internal team of senior specialists with the appropriate expertise to conduct assessments of products following a health related consumer complaint or suspected product contamination. Further information related to RAP can be found under the section on ‘Product Quality’.

RESEARCH Commitment to Scientific Research Our views on the health effects of smoking and vaping are based on evaluation of the science, including the advice of external and internal scientific experts. Those external experts are generally professorial academics and practising physicians.

We also undertake and monitor scientific research to continually improve our knowledge of tobacco and the diseases associated with tobacco and nicotine consumption. We use this to inform the stewardship of new products, including NGPs.

We conduct scientific research on all of our products through our specialists in chemistry, toxicology, biology, physical assessment, plant science, statistical modelling and product health assessment.


PRODUCT SCIENCE




continued


Sometimes we fund research by independent third parties; but, we never seek to influence the results. We do not commission or conduct research involving animals and would only do so if required by governments or recognised authorities.

In line with our position on animal testing, in FY17 we did not conduct any research involving animals.

Our Toxicology Testing programme provides alternative assays and research tools to assess product safety without using animals. This will allow us to assess products in relation to a number of diseases caused by smoking, including cancer and chronic obstructive pulmonary disease (COPD).

The wide range of assessment tools can also be applied for the testing of NGPs.

We believe scientific research will underpin and support the credibility and legitimacy of NGPs.

Our subsidiary Fontem Ventures is committed to scientific research into NGPs including vaping. Our scientists regularly publish scientific papers and research findings in peer-reviewed journals; these can also be found on our Fontem Science website.

Tobacco Plant Research The tobacco used in our products comes from tobacco plants which are grown all over the world, typically in tropical and sub-tropical climates. Our facility in Bergerac, France, has a history of tobacco plant research.

We are proud to work in all areas of tobacco leaf research, aiming to improve resistance to plant disease and leaf quality, amongst other areas. We continue to partner with our major leaf suppliers. For example, to research and develop varieties of tobacco containing lower levels of constituents, that regulatory authorities see as priorities to reduce.

KEY RESEARCH FINDINGS Our clinical evidence shows that EVPs are well tolerated amongst smokers and that biomarker levels of harmful and potentially harmful constituents (HPHCs) are substantially reduced compared to smoking.

Our Toxicology Testing programme shows a marked reduction in toxicity for EVPs compared to cigarette smoking.

Taking this together with our chemistry and air quality studies on EVPs, which demonstrate that the vast majority of tobacco smoke constituents are not present in aerosol, we believe EVPs have potential as a reduced risk product relative to cigarettes.

We share our findings with regulators and other key stakeholders and intend to continue to take an active role in the ongoing debates about EVPs.

OUR SCIENTIFIC ASSESSMENT FRAMEWORK We have developed our own Scientific Assessment Framework (SAF) for evaluating all of our product categories.

Our framework is based on:

1. Product assessment;

2. In-vitro assessment (laboratory-based cell studies) and clinical studies; and

3. Pre-and post-marketing assessment.

For more information on our scientific approach and findings please visit our Science website.

FY18 OBJECTIVES To undertake and monitor scientific research to continually improve our knowledge of tobacco and the diseases caused by smoking, and to use this knowledge to develop and assess new and potentially safer products, including e-vapour.


http://www.fontemscience.com/

http://www.imperialbrandsscience.com/en/index.html




ILLICIT TRADE


The illegal market in tobacco undermines society’s efforts to ensure that tobacco products are sold responsibly, protecting children and government revenues.

PERFORMANCE SUMMARY

MEMORANDUM OF UNDERSTANDING AND CO-OPERATION AGREEMENTS IN PLACE WITH GOVERNMENTS WORLDWIDE

28 NUMBER OF ILLICIT CIGARETTES SEIZED BY LAW ENFORCEMENT ACTIONS IN FY17

1 billion

ILLICIT TRADE Every year around 600 billion illegal cigarettes are consumed, depriving governments of around £30 billion in taxes.

The smuggling and counterfeiting of tobacco has considerably wider impacts:

– Children can more easily obtain tobacco

– Consumers are deprived of the quality they associate with their favourite brands

– The livelihoods of independent retailers are threatened

Illicit trade is fuelled by regulation such as display bans, plain packaging and excise increases.

We are totally opposed to illicit trade. The only ones who benefit from illicit trade are the criminals involved.

Supply Chain Controls Our Product Supply Compliance Policy makes it clear that we only conduct business with approved direct customers, logistics providers, contractors and licensed manufacturers based on firm principles.

We only enter into a business relationship with third parties once they have passed our rigorous ‘know your customer’ screening process and we are satisfied they are committed to meeting our anti-illicit trade objectives.

We only supply tobacco products in quantities which are commensurate with the legitimate demand for the market and the permissible requirements of the travelling consumer.

It is our policy to comply with all laws and regulations including economic and trade restrictions in all countries where we do business. This is detailed in our Sanctions Compliance Policy.

In addition, we ensure the effective disposal of tobacco, non-tobacco materials and obsolete manufacturing equipment that are no longer required. This is to avoid the risk that they can be used for illicit trade purposes.

The Group Product Supply Compliance Committee (PSCC) is the accountable body responsible for the governance of the Product Supply Compliance Policy; whilst the Group Head of Security is responsible for overseeing operational compliance with this policy.

The Group Financial Controller and the Senior Commercial Integrity Counsel are responsible for ensuring that the business complies with the Sanctions Compliance Policy.

We work with customers to ensure that they are aware of our policies and their responsibilities.

A Partnership Approach We promote a partnership approach to combatting illicit trade and have a dedicated team of specialists who work with governments and customs and law enforcement agencies around the globe to tackle tobacco smuggling and counterfeiting.

We also talk to governments to highlight the scale of the problem and encourage them to recognise how high tobacco taxes and extreme regulation can fuel the growth of illicit trade.

“We are totally opposed to illicit trade in all forms. The only ones who benefit from illicit trade are the criminals involved.”

In 2010 we signed a co-operation agreement with the European Commission and the Member States of the European Union to jointly combat illicit trade in tobacco. We are investing US$300 million in this partnership.

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

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


ILLICIT TRADE




continued


Counterfeit Products and Illicit Whites The success of our operations has considerably reduced the smuggling of genuine Imperial Tobacco brands and our focus is now increasingly directed at halting the flow of counterfeit products and illicit whites.

Illicit whites are cigarettes that are legally produced by some smaller manufacturers for the sole purpose of being smuggled into another market and sold illegally.

In most cases illicit whites are produced outside the European Union and smuggled into countries where cigarette prices are much higher, such as the UK and Australia. Last year over a third of all illicit cigarettes sold in Europe were illicit whites.

Counterfeit tobacco products poses greater quality concerns than genuine products because they are not manufactured to high standards and don’t comply with regulatory requirements. Tests have found them to contain a range of hazardous and highly concerning ingredients including asbestos, plastic, sawdust and even rat droppings.

PROGRESS AND COMMITMENTS To date we have 28 MoUs in place and we will continue to invest in these long-term anti-illicit trade partnership agreements.

In FY17, sharing our intelligence resulted in a number of successful law enforcement operations across 17 countries during the year, resulting in the seizure of more than a billion illicit cigarettes. Further detail is illustrated in the infographic.

CASE STUDY A pain-staking Group Security Anti Illicit Trade project running from November 2016 to March 2017, successfully halted the activities of an established and sophisticated counterfeiting operation in the Middle East.

Read the case study online:

Targeting illegal factories in the Middle East

FY18 OBJECTIVES To effectively counter the threat posed by illicit trade: by maintaining and building upon working relationships with international law enforcement agencies and regulatory bodies to protect legitimate trade in key markets; and, further contribute to the disruption and cessation of criminal activity. .

ILLICIT TRADEcontinued


http://www.imperialbrandsplc.com/responsibility/case-studies/responsible-with-products/targeting-illegal-factories-in-the-middle-east.html

COMBATTING ILLICIT TRADE: AN ONGOING COMMITMENT

The scale and breath of illicit trade is mirrored in Group Security’s intelligence projects which have affected seizures in excess of 1 billion illicit cigarettes in 17 countries spanning four continents in FY17, including:

Our intelligence programmes in Vietnam generate vital information on the production and export of illicit product destined for Europe, Australia and the Middle East. This followed the success of our work supporting the Australia Border Force in closing down an illegal shipping route from the Philippines into Australia. Our global activities also led to the seizure of containers of counterfeit Gauloises in the UAE, illicit whites in Israel and counterfeit Rizla+ in South Africa.

Information we provided in Jordan enabled the authorities to intercept a truck containing more than three tonnes of counterfeit Gitanes packaging and seven printing plates. This seizure led to a successful follow-up operation in which the Jordanian authorities raided a large illegal factory, making multiple arrests and impounding a range of tobacco manufacturing equipment, together with more than 200 tonnes of tobacco.

JORDAN

UK

VIETNAM

CHINA

A considerable amount of counterfeit tobacco products originate from China. Our efforts this year have led to 10 raids against Golden Virginia counterfeiters in China and the seizure of more than 1.5 million fake 50g pouches, together with associated printing cylinders each capable of replicating millions of further pouches. These actions alone have denied the criminal networks of millions of pounds in revenue and helped keep significant volumes of illicit product out of the marketplace.

The culmination of a three month investigation by Imperial led to HMRC and Trading Standards raiding an illegal cigarette factory in Birmingham. The raid resulted in 10 arrests and the seizure of an entire cigarette production line. Significant quantities of counterfeit Regal and Superkings brands were recovered, alongside a wide variety of illicit whites. The factory was capable of producing 35 million cigarettes a month, potentially depriving the government of around £140 million a year in lost duty and taxes.

FRANCE

We also worked with UK and French authorities to disrupt the flow of counterfeit Golden Virginia tobacco across the English Channel. Several tonnes of counterfeit product with a street value of £2.5 million were seized in the UK and more than 400,000 fake pouches were captured in France. Numerous arrests were made and huge quantities of packaging, holograms and fake tax stamps from China were also recovered.

In the past few years our investigations in Poland have contributed to the disruption of organised criminal networks and numerous raids on illegal printing and manufacturing sites. One of the operations we thwarted was producing well over a billion counterfeit cigarettes a year. These cigarettes were destined for EU markets and netting the criminals involved around €3 million every month.

POLAND

ILLICIT TRADEcontinued




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE




ADULT CHOICE


Tobacco products are for adults and should never be sold to, or used by, children. We make sure that our brands are manufactured, marketed and sold responsibly.

RESPONSIBLE MARKETING We work with retailers to reinforce the message that tobacco products are for adults only and encourage responsible selling. In the majority of markets, legislation exists to prevent the sale of tobacco products to minors.

Preventing children from using tobacco products is an issue for society as a whole to resolve. We play our part by not directing the marketing of our products to anyone under the age of 18, or higher minimum age where specified locally, or to non-smokers.

“We market and sell our products responsibly and our tobacco marketing is only ever aimed at existing adult smokers.”

For us responsible marketing is about ensuring that our product and brand communications are not aimed at, or made appealing to, people under the age of 18 or non-smokers and that we operate in accordance with local laws.

To support this we have our own International Marketing Standard (IMS) which provides guidance on all aspects of marketing, health warnings, product placement, advertising and sponsorship.

We sell our brands in markets where there’s a legitimate and existing demand for tobacco products and take the same responsible approach in places like Africa and Asia as we do in any other territory. We comply with local country regulations and adhere to our IMS consistently and globally.

As part of our responsible approach to marketing, we now only have one global marketing agency and have developed a more stringent brand communication approach, which is part of our internal compliance controls.

OUR INTERNATIONAL MARKETING STANDARD We market and sell our products responsibly and adhere to regulation at all times, wherever we do business. Our International Marketing Standard (IMS) sets out clear rules and principles to ensure our advertising and marketing are only ever aimed at adult smokers.

We insist that all Imperial Brands companies and employees, as well as the agencies who work with us, stringently adhere to our IMS and local legislation. The IMS is published in full on our corporate website www.imperialbrandsplc.com

In the absence of stricter legal or voluntary country legislation, our IMS sets out clear rules and principles to ensure that our advertising and promotional activities are directed to adult smokers only, regardless of geographical location.

Where local legislation is stricter than our IMS, this takes precedence for compliance.

Fontem Ventures has its own stringent marketing standards for e-vapour products and ensures that all marketing activity is only ever aimed at adults.

Strong Relationships with Retailers We consider that having strong relationships with retailers is a key part of enabling responsible sales activities.

Youth access prevention initiatives, such as retailer engagement programmes, are designed to discourage the sale of tobacco products to minors, which helps to ensure retailers remain aware of the issue and our position to only support adult sales.

Our preferred involvement is through government approved identity programmes, such as proof of age schemes, working in conjunction with independent bodies and trade associations. Read the case study on page 18.

PROGRESS AND COMMITMENTS To support awareness, application and understanding of our IMS we have developed an IMS e-learning module which has been translated into 12 languages. This has been assigned to relevant employees through our Governance and Compliance e-learning system.

At the end of FY17, approximately 4,200 people in key relevant positions (marketing, product development, sales etc.) had completed the course with a completion rate of 98%.

In addition, we support markets and functions in the interpretation and understanding of the IMS and provide training as required. This includes the provision of Brand Tool Kits which are highly prescriptive to avoid any misinterpretation of the guidelines.

All of our Brand Tool Kits are signed off by our Brand and Product Regulation Team and by the Group Legal Team. Local Corporate Affairs then approve or reject for in-market application depending on local tobacco control legislation.

In FY17 we did not have any reported material incidents of non-compliance with either our IMS or existing regulations and voluntary codes.

We have a six-monthly regular training programme for our global marketing agency representatives to ensure they remain fully compliant with our IMS.


http://www.imperialbrandsplc.com/

ADULT CHOICE




continued


CASE STUDY In the United Kingdom, we are working with two other major tobacco manufacturers and have partnered with Under Age Sales Ltd to deliver the Responsible Tobacco Retailing (RTR) programme.


UK Responsible Tobacco Retailing Programme

FY18 OBJECTIVES To continue to apply and adhere to, in all markets, our International Marketing Standard, our Brand Tool Kits, and the regulatory requirements that govern brand and product communications.


http://www.imperialbrandsplc.com/responsibility/case-studies/responsible-with-products/uk-responsible-retailing-programme.html




INNOVATION AND PORTFOLIO


Smoking causes disease and therefore as a responsible manufacturer we investigate alternative products that may have the potential to reduce the health risks of smoking.

NEXT GENERATION PRODUCTS As a leading tobacco company, we understand smokers and their interest in Next Generation Products (NGPs).

Our strategy is all about delivering them choice. Using our considerable resources in research, product development and quality manufacturing, we believe we can deliver a range of products that are safer alternatives to smoking.

Providing less harmful alternatives to adult smokers who are unable or unwilling to quit smoking and would otherwise continue smoking tobacco is the basis of ‘tobacco harm reduction’.

We continue to develop different product categories that may be regarded by regulators as potentially reduced exposure or reduced risk products, most notably our e-vapour product portfolio.

NGPs seek to offer adult smokers an alternative to traditional tobacco products and can broadly be split into two categories, e-vapour products (EVPs) and heated tobacco products. E-vapour is by far the largest and most developed category within NGP and this is the area we are predominantly focused on. However, we have also developed options in heated tobacco which can be deployed if we see sustainable growth developing in a broad spread of markets.

It's important that governments appropriately regulate these products, and that manufacturers ensure high standards of product safety and quality.

ELECTRONIC VAPING PRODUCTS Meeting Consumer Needs EVPs have established themselves as a tobacco-free alternative to conventional tobacco cigarettes, and thus have a prominent tobacco harm reduction modality, with growing popularity amongst smokers worldwide.

The global market for EVPs continues to evolve. There is growing consensus that these products are likely to be less harmful alternatives to smoking cigarettes and our own research shows that the vast majority of tobacco smoke constituents are not present in EVPs.

We have one of the leading EVP brands in the industry with blu, and have strong positions in the USA and UK – the world’s two largest e-vapour markets. blu is managed by our subsidiary Fontem Ventures and has significant growth potential.

We continue to focus on improving the vaping experience and substantially enhanced our technical capabilities with the acquisition of the EVP innovation business Nerudia in October 2017.

Commitment to Scientific Research We believe that comprehensive, peer-reviewed independent scientific research should be conducted to review all new NGPs.

“A growing number of regulators and public health bodies have concluded that EVPs are less harmful than cigarettes and therefore have a role to play in reducing smoking-related diseases.”

Through Fontem Ventures we are committed to making a significant contribution to the growing body of research around vaping products. This includes assessing their safety and seeking to demonstrate their potential to reduce the risk of diseases associated with smoking when adult smokers switch to our EVPs.

It is important that companies developing NGPs devise scientifically relevant frameworks and generate substantial scientific evidence around the safety of their products. We have developed our own Scientific Assessment Framework (SAF) which is applicable to all of our product categories including NGPs.

For more information relating to our views on the science and research relating to EVPs, please visit our Science website.and the Fontem Ventures website.

Growing Public Health Consensus Increasingly, regulators and public health bodies are concluding that EVPs are less harmful than cigarettes and therefore have a role to play in reducing tobacco related disease.

In 2015, the UK Government agency Public Health England (PHE) concluded that “the current best estimate is that e-cigarettes are around 95 per cent less harmful than smoking” – a view supported by numerous other public health and tobacco-control groups in the UK including the Royal College of Physicians, Action on Smoking and Health and Cancer Research UK; for more detailed information please visit the UK Government website.

A concern has been raised that EVPs may act as a ‘gateway’ to smoking for people who have never smoked. However, PHE has stated that “there is no evidence so far that e-cigarettes are acting as a route into smoking for children or non-smokers”, and our own research has confirmed this.

Public health experts worldwide have concluded it is the toxicants in cigarette smoke, not the nicotine, that cause the majority of smoking-related diseases.

The UK Medicines and Healthcare products Regulatory Agency (MHRA) and the National Institute for Health and Care Excellence (NICE) have also indicated that nicotine-containing EVPs have a role to play in tobacco harm reduction.

Evolving Regulation We support evidence-based regulation which protects consumers. We believe that EVPs which have been approved as medicinal devices by the relevant health authorities should be subject to pharmaceutical regulation. All other EVPs are consumer products, and should be regulated as such.

The UK MHRA has developed a pathway for licensing nicotine-containing products, which would enable an e-vapour product to be indicated as “a safer alternative to smoking” if it meets MHRA criteria and gains their approval.




https://www.gov.uk/government/news/e-cigarettes-around-95-less-harmful-than-tobacco-estimates-landmark-review

INNOVATION AND PORTFOLIO




continued


The MHRA licensing process is extremely stringent and requires good manufacturing standards, consistency across all devices and robust clinical evidence (compared to an established reference product).

In addition, the US Food and Drug Administration (FDA) has published draft guidance on the criteria that must be met before a tobacco product can be marketed as being a Modified Risk Tobacco product (in the USA, e-vapour products are deemed a tobacco product).

Our view on EVP flavours is that they play an important role in adult EVP use, ensuring smokers find products acceptable and therefore easier to switch to. We believe that flavoured e-liquids should be permitted for use in EVPs, provided they meet high product quality standards and are not marketed or presented in a way that directly appeals to children.

We strongly advocate against wide restrictions or blanket bans that would undermine EVPs as a tobacco alternative and not lead to any clear public health benefits – specifically because EVPs are overwhelmingly used by smokers and former smokers.

PROGRESS AND COMMITMENTS Fontem Ventures is committed to continuing scientific research into vaping.

Its clinical research has shown that the levels of harmful and potential harmful constituents (HPHCs) – chemicals reported by the US FDA to be significant contributors to smoking-associated disease risks – are significantly reduced when smokers completely or partially use blu EVPs over five days.

For further details of some key vaping science issues, and to view our published research papers, infographics and videos, please visit our Fontem Ventures website.

Our EVP labelling and packaging only targets adult smokers and we avoid using features or designs that are primarily appealing to children, and we do not make any unsupported or therapeutic health claims.

We believe it is the role of governments to provide EVP users with the appropriate health warnings and risk communication to make an informed choice when compared to continued smoking.

NGPs offer considerable potential for the business and society at large. In FY18 we will be stepping up our level of activity in e-vapour to generate significant growth through new product launches in new and existing markets.

NGP CATEGORY DEVELOPMENTOur goal is to deliver high quality NGPs to as many smokers across the world as possible.

We will achieve this by:

1. Continued innovation to create a suite of high-performing, high quality products that deliver to smokers the same perceived satisfaction of traditional cigarettes;

2. Focused stakeholder engagement programmes across key markets that ensure regulators, politicians and tobacco control stakeholders have a good understanding of the potential of vaping as an alternative to smoking cigarettes; and

3. Continuing with our scientific research which we believe will underpin and support the credibility and legitimacy of the category.

CASE STUDY With evolving technologies and scientific views it can be difficult for consumers to have confidence in e-cigarettes. This is why Fontem Ventures decided to develop a specific engagement campaign aimed at stimulating the debate around e-cigarettes amongst adult smokers and policymakers.


The Science of Vaping Tour in the UK

FY18 OBJECTIVES To enhance the consumer offering in terms of next generation products particularly under the leading brand blu.



http://www.imperialbrandsplc.com/responsibility/case-studies/responsible-with-products/the-science-of-vaping-tour-in-the-uk.html





PRODUCT QUALITY


As a responsible tobacco manufacturer we believe that how we fulfil our obligations to consumers is important. Our investment in furthering our scientific understanding and expertise is a key element for us to deliver quality products, now and in the future.

PRODUCT QUALITY Quality and Regulatory Compliance We uphold high standards, rigorously testing and analysing our products to ensure we continually build our knowledge and are able to fulfil our duty of care to consumers, as well as meet legal requirements for scientific disclosures and submissions.

Our Quality Compliance Team works with a range of internal and external stakeholders, including Product Development, Global Procurement, Factories, Markets, Research Laboratories, Consumer Panels and Suppliers. This is to ensure that we deliver globally consistent, legally compliant and consumer relevant quality for all of our products.

We have a Group-wide Product Content Regulatory Compliance Policy to ensure that all our products are manufactured to comply with the national legislation, regulation and any voluntary agreements applicable to the markets in which the products are sold.

Our quality performance monitoring system, which we have in place at each of our manufacturing sites as well as at our third party contract manufacturers, ensures we make continuous improvements to our systems, processes and products to deliver the high quality our consumers expect.

Our goal is to ensure uniform standards of full regulatory compliance are maintained worldwide.

“We set high standards to meet the ever evolving needs of consumers and regulators and to enable the development of new, high quality and potentially safer products.”

Complaints Information System We have a Complaints Information System (CIS) in place, as well as a recall of goods process if required.

The CIS records consumer complaints and enables us to see changes in trends and helps us resolve these issues.

We also have a Risk Assessment Panel (RAP) which is an internal team of specialists with the appropriate expertise to conduct risk assessments of health-related consumer complaints and product contamination complaints.

Following the identification of a potential product contamination or health-related consumer complaint, the RAP assesses whether the defective product poses a potential risk to consumer safety and recommends what action should be taken.

The RAP conducts a rapid assessment with all available information to ensure that advice on corrective action plans can be given as quickly as possible.

We react quickly to resolve quality incidents as well as putting measures in place to avoid them happening again.

COMMITMENTS AND PROGRESS We conducted a detailed audit of our CIS system across the business and we are now in the process of updating the system and rolling this out globally.

Consumer complaints information will be collected at the local market level and transferred to the CIS. It is the responsibility of markets to escalate any health-related concerns to RAP.

The main drivers for our CIS update is to ensure we can monitor complaints and improve our quality as a result of consumer feedback.

In FY17 0.3% of the consumer complaints we received were of a health-related nature and so these were accelerated to RAP. Following RAP assessments there were no product recalls or product modifications required.

We want to create a safe and inspiring workplace for our employees, supporting their career aspirations and building their capabilities so that their talents and skills flourish.

2.

REWARDING

WORKPLACE




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE




HEALTH, SAFETY AND WELLBEING


The welfare of our people is of paramount importance to us. A strong focus on health and safety standards and our safety culture is essential: to reduce accidents, keep employees safe, protect assets and maintain a productive workplace.

PERFORMANCE SUMMARY

REDUCTION IN LOST TIME ACCIDENTS SINCE 2009

69% REDUCTION IN SICKNESS ABSENCE RATE SINCE 2009

31% CERTIFICATION OF FACTORIES TO THE INTERNATIONAL STANDARD OHSAS 18001

87%

HEALTH, SAFETY AND WELLBEING Following an independent health and safety review undertaken in 2015, we developed and embarked upon an ambitious new health and safety strategy in 2016.

Our vision is to create a working environment where we all take care of each other, everywhere, every day. We can only achieve this if each and every one of us takes personal responsibility for safety and therefore our strategy identity is ‘I own safety’.

There are four key pillars to our health and safety strategy:

1. Leadership Clearly communicating to all of our people our agreed expectations on health and safety standards and behaviours. We expect our leaders at every level in the business to demonstrate these behaviours, take ownership of safety and empower others to do the same in their daily work activities.

2. Capabilities and Development To ensure the technical and behavioural capabilities and skills are in place to create the safe working environment we strive for with transparency around rewards and consequences.

3. Performance and Recognition We have a dedicated Occupational Health, Safety and Environment (OHSE) team at Group level and in our operations across the Company to support the business in achieving its goals safely. We share examples of good practice across the Group and celebrate the successes achieved.

4. Systems, Processes, Technology In line with our strategic aim of creating a stream-lined and efficient organisation, we adopt systems, processes and technologies to ensure high operational standards and to drive continuous improvement in performance.

We reduce the risk of work-related injuries and ill health through behavioural training, risk management, accident investigation with root-cause analysis, reporting, audits and improvement programmes.

We develop our local Occupational Health and Safety (OHS) management processes in line with the international standard OHSAS 18001.

We have a Group Occupational Health, Safety and Environment Policy which applies to all employees and makes clear our commitments and approach to health and safety management.

We also have a Group-wide Health Protection and Wellbeing Policy.

Our overall goal is to achieve a great occupational health, safety and wellbeing performance.

WELLBEING We look to support and protect employee wellbeing through a range of provisions and offerings that fall under three main areas:

1. Mental wellbeing;

2. Physical wellbeing; and

3. Social wellbeing.

Given the size of our business and cultural differences there is not a one-size-fits-all approach and many of our employee wellbeing programmes are enabled locally in partnership with healthcare providers.

“Our vision is to create a working environment where we all take care of each other, everywhere, every day.”

These include support and promotional events for physical fitness activities such as walking and cycling; general health screening; subsidised membership of fitness centres; resilience training; targeted health and wellbeing campaigns; and Employee Assistance Programmes.

We are continuing to develop our approach to wellbeing in terms of personal resilience training and support flexible working, family-friendly policies and facilities and workplace celebrations and social events.


HEALTH, SAFETY AND WELLBEING




continued


We also undertake initiatives such as participation by employees across the Group in an annual external 100-day global activity challenge and Group-wide volunteering.

We view our volunteering programme as a positive way for our people to engage with local communities, broaden their perspectives and support a good work-life balance.

We recognise that health, safety and wellbeing are strongly linked to employee engagement, which is something that we see as important across the Group.

PROGRESS AND COMMITMENTS Health and Safety Performance We measure our health and safety performance using independently verified data.

Since our 2009 baseline year we have reduced our Lost Time Accident (LTA) rate by 69%.

We continue to focus on improving health and safety standards across the business, which included for example in 2016 a programme to raise awareness of the importance of reporting all near misses and accidents.

We believe this drove the increase in our LTA rate in 2016, however provisional data for 2017 shows that the LTA rate has since come back down and then improved further as a result of our stronger safety culture.

LOST TIME ACCIDENT FREQUENCY RATE (PER 200,000 HOURS) 1

1. Lost Time Accident data is reported 12 months

in arrears to allow for data collection, validation and external assurance. The monetary value ‘£million’ is for tobacco net revenue. 2016 data has been independently assured by PwC; see www.imperialbrandsplc.com/responsibility for more information.

* Unverified 2017 data is estimated based on data from the last six months of FY16 and the first six months of FY17. Verified data for 2017 will be published next year.

We also monitor the sickness absence rate which includes non-work-related and work-related absence. We are pleased to have seen a steady continual reduction in sickness absence rate; it has reduced by 31% since our 2009 baseline year.

SICKNESS ABSENCE RATE (% OF DAYS WORKED)

In our manufacturing operations we use health and safety management systems independently certified to the international standard OHSAS 18001 to drive performance improvement. 87% of our factories were certified as of end September 2017.

Near Miss and Safety Observation Reporting We have significantly expanded the coverage of our Near Miss and Safety Observation Reporting programmes in FY17, particularly across our Sales and Support functions; with an overall increase of 45% in the number of reports received.

We use these programmes to encourage safety awareness and safe behaviour, which is important in further strengthening our safety culture.

Our Safety Leadership Programme During FY17 we expanded our ‘Total Safety Leadership’ programme to cover senior and middle managers across the organisation, running 11 workshops in eight countries for more than 130 managers; further equipping them to deliver safety leadership.

Our Drive Safe Programme Our ‘Drive Safe’ programme addresses the safety of employees and business partners whilst travelling in vehicles. More detailed information is provided in the infographic.

Our Working at Heights Programme Our ‘Working at Heights’ programme addresses the physical and procedural control arrangements for safely working at height. More detailed information is provided in the infographic.

Wellbeing We have provided face-to-face and online (e-learning) training on managing stress and being resilient during FY17. We also provide an online ‘Resilience Toolkit’ which allows employees to generate a personalised ‘i-resilience’ report that highlights strengths and potential areas of risk; enabling them to be better informed and equipped in terms of being resilient to and avoiding stress.

We encourage volunteering as part of wellbeing as the activities generate positive feelings and support a sense of perspective.

We were delighted to see so many employees take part in our global volunteering event, Mobilise for May, in FY17, which benefitted more than 86 projects in 38 locations worldwide.

Global Wellbeing Challenge The Global Challenge is an international wellbeing initiative run by Virgin Pulse, in which hundreds of different businesses and organisations participate worldwide. During the event, teams of seven track their activity levels to try and get as many steps as they can over 100 days. The Global Challenge online portal also provides participants with advice on sleep, nutrition and mental wellbeing.

CASE STUDY Business success is achieved when employees are enabled to do their best and that includes being in good spirit, energised and well. To encourage employees to be more focused on their wellbeing and to promote a sense of team spirit across the Group we invited our locations globally to participate in the Virgin Pulse Global Step Challenge.


Promoting Employee Interest inWellbeing Globally

FY18 OBJECTIVES To establish a core set of Leading Safety Indicators to better track and further improve the level of safety achieved across our global operations; whilst making continued progress in implementing our Health and Safety strategy and improving our performance.

0.52

1.57

0.44

0.49

0.40 2017*

2016

2015

2014

2009Baseline

2.42

3.73

2.65

2.62

2.59 2017*

2016

2015

2014

2009Baseline


http://www.imperialbrandsplc.com/responsibility/case-studies/rewarding-workplace/promoting-employee-interest-in-wellbeing-globally.html

1. DRIVE SAFE 2. WORKING AT HEIGHTS

Drive Safe is a company-wide programme designed to improve our road safety performance. We operate in over 100 countries globally including in areas such as India, China and African countries where there is a high risk of road collisions.We have a fleet size of over 6,000 vehicles and it is estimated that we drive approximately 100 million miles per year on business.

For some time now we have participated in the global benchmarking survey, Network for Employers for Traffic Safety (NETS), which identifies for example the countries where our sales fleet have above average collision rates.

“ Our goal is to reduce collision rates, which will not only reduce the number of employee and non-employee injuries but will also result in reduced cost to the business and help protect our corporate reputation.”

In FY17 we measured the collision rates for our vehicles in over 50 countries. Our goal is to reduce collision rates, which will not only reduce the number of employee and non-employee injuries and fatalities, but it will also result in reduced cost to the business and help protect our corporate reputation.

To facilitate this change, global best practice guidance was developed by our OHSE team and Champions were assigned across the business to roll out this guidance.

The Drive Safe Champions were asked to conduct a gap-analysis against the seven areas of the guidance document, which were then reviewed by an independent safety expert, and guidance on how to close the gaps was provided.

We will continue with the NETS benchmarking in FY18 and hope to see further improvement in collision rates.

OUR GLOBAL VEHICLE FLEET SIZE

6,000ESTIMATED NUMBER OF MILES OUR PEOPLE DRIVE EVERY YEAR

100 million

ROAD SAFETY GUIDANCE

Our road safety guidance covers the following seven areas which are fundamental to improving road safety:

Safe usage of mobile phones

Managers’ responsibilities for road safety

Collision reporting process

Reporting of Drive Safe metrics to management

Vehicles which meet minimum safety

requirements

High risk driver

identification

Drivers who are trained regularly

HEALTH, SAFETY AND WELLBEINGcontinued




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE

1. DRIVE SAFE 2. WORKING AT HEIGHTS

IMPROVEMENT ACTIONS GENERATED

2,350LANGUAGES INTO WHICH OUR NEW GLOBAL PERMIT TO WORK HAS BEEN TRANSLATED

12AUDITED LOCATIONS

68

This programme has been aimed at our people in our manufacturing sites and warehouses. All locations have the potential for falls from height to occur. However, the risk will vary based on the type of location and the nature of activities undertaken.Even a fall from a relatively low height has the potential to cause life-changing injuries or fatality. An added risk factor is that third-party contractors are often employed to conduct maintenance work at heights.

Following a detailed audit of all of our manufacturing sites and key warehouses, a three-phased programme, ‘Working at Heights’, was initiated under the sponsorship of the Group Manufacturing, Supply and Research & Development Director.

“ Our aim is to ensure that risks have been assessed and that the controls necessary for managing work at height risk have been appropriately applied throughout Imperial Brands.”

PHASE 1

PHASE 2

PHASE 3

A total of 68 locations, including all of our manufacturing sites and key warehouses, were audited and training was delivered at each location. In-depth audits focusing on physical safety, capability and processes were conducted. A total of 2,350 improvement actions were generated.

Our aim is to ensure that risks have been assessed and that the tools necessary for managing work at height risk have been appropriately applied throughout Imperial Brands. In FY18 we are rolling out lead indicators for working at height to confirm that the necessary controls are being maintained in all factories and warehouses.

The audits conducted in Phase 1 indicated that the capability of our people should be further developed. In addition, it was clear that working at height safety is linked to control of contractors and Permit to Work.

In FY17 we developed a global Permit to Work process which will be applied in all factories from the start of FY18 and which has been translated into 12 languages.

This work has been supplemented by the delivery of our ‘Contractor Academy’ training events to ensure that contractor management is consistent and that the highest standards are applied globally. Webinars, on-site training, e-learning, a digibook and a toolkit have all been rolled out to ensure successful implementation of this initiative.

HEALTH, SAFETY AND WELLBEINGcontinued




ABOUT THE REPORT

INTRODUCTION


REWARDING WORKPLACE




DEVELOPMENT AND REWARD


Our success is driven by our people continuously helping us to improve our results, learning from experience and striving for more.

PERFORMANCE SUMMARY

THE NUMBER OF PARTICIPANTS FROM 29 COUNTRIES RECRUITED TO OUR GLOBAL GRADUATE PROGRAMME SINCE 2010

242 THE NUMBER OF MONTHLY USERS WHO REGULARLY ACCESS OUR LEARNING AND DEVELOPMENT PORTAL

1,000

DEVELOPMENT AND REWARD Our People Being part of a FTSE 100 company in a highly regulated and competitive industry doesn’t just happen. We thrive on the challenges and our people are the cornerstone of meeting these head on. Our aim is to build organisational resilience in order to deliver sustainable long-term growth through our brands, markets and people.

People who are appropriately trained, developed and rewarded will be better enabled to deliver our commercial strategy. This in turn contributes to increased employee engagement, productivity, strong customer service, high employee retention rates and new talent attraction.

We have reviewed and updated our People Strategy, to clearly connect our business strategy with the people who need to deliver it.

The People Strategy is about unlocking potential, aspiration and enabling our people. It’s also intrinsically linked to delivery and growth, both for our business and for everyone who works in it.

“Our vision is to empower our people to achieve the extraordinary.”

Our Group-wide Employment Policy is designed to ensure employees are professionally recruited, effectively rewarded and encouraged to develop both personally and professionally, to better support the objectives of the business.

The aim of the policy is to attract, motivate, reward, develop and retain high calibre employees to deliver business success.

Up-Weighting Capabilities Our evolved business strategy sets out a clear and sustainable future for Imperial Brands – both in where we compete and how we will win.

Our drive to maintain momentum in tobacco and deliver significant growth in E-vapour, defines the capabilities that we need and the critical areas in which we need them.

Whilst we have significant talent in-house, we also need to attract new people with capabilities that will enhance our performance delivery.

We want to ensure that we have the right people in the right positions, with the right skills, the right motivation and a clear understanding of delivery expectation.

We have developed a Learning and Development Portal to house all the available learning and development content. This includes the online portals, inspirational learning stories, stress and resilience support as well as an easy to use search option.

Training is also provided locally to drive the specific skills required in markets and factories, as well as enabling career progression locally.

EMPOWERING OUR PEOPLE In order to empower our people to achieve the extraordinary, we will:

1. Grow the capabilities of our people and invest in the talent we already have in the business.

2. Enable our people to respond to an ever changing external environment.

3. Have team and individual accountability and reward performance outcomes.

Rewarding Success We have reviewed and updated our reward structure, focused on three key areas:

1. Ensuring our ability to attract, retain and motivate the people with the capabilities we need to deliver the business strategy;

2. Supporting a more flexible and agile organisation, better able to react quickly to seize new opportunities and to address issues; and

3. Further aligning actual rewards with the performance delivery of the business.

The new reward structure provides a simple and consistent global framework within which markets and functions must operate. It also provides greater flexibility to localise or tailor rewards to specific needs or priorities.

The framework provides the basis for governance and equitable treatment of our employees globally as well as supporting our ability to move talent across the organisation.

The new reward structure also forms a core part of delivering our Employee Value Proposition, ensuring we deliver on one of its promises, providing “attractive rewards that you value and recognise the contribution you make”.


DEVELOPMENT AND REWARD




continued


We pay and reward people fairly with reference to external market pay data, ensuring the company remains attractive in the external competitive market. In addition, pay reviews are held annually in consultation with local unions.

PROGRESS AND COMMITMENTS Performance Management All of our Corporate Management Group of employees, managed through a calibrated process in our global HR system, ‘Workday’ have performance and career development reviews.

All remaining employees have their performance and career development managed locally. They are all provided with a set of global guidance documents and suggested processes which they can adopt or adapt as required. We encourage that each employee has an appropriate performance and development review.

Learning and Development Our Learning and Development Portal drives users to relevant content and is regularly accessed by more than 1,000 users per month.

We continue to see success with using the online ‘GetAbstract’ tool which delivers learning and development support whenever our employees need it.

In the first six months of 2017, over 38,000 abstracts were downloaded. The top two categories of interest were ‘Leadership and Management’ and ‘Career and Self-Development’.

Our Mentor Match programme is facilitated via an online portal which enables mentees and mentors to find support and work together across the business. At present we have more than 390 active users with over 100 matches. The portal enables people to connect across the globe, compared to the traditional approach which was limited to colleagues in the local vicinity.

The table below illustrates the average hours of training undertaken by a full-time employee (FTE) at the end of FY17. The figures are based on just Group-led activities and do not include local initiatives in markets.

AVERAGE HOURS OF TRAINING AND DEVELOPMENT PROVIDED

Indicator

At the end of

FY17

At the end of

FY16

Average hours per FTE of training and development

2.28 hours

1.17 hours

Global Graduate Development Our Global Graduate Development Programme is a two-year development programme which looks to accelerate high-potential commercial, functional and technical graduate talent.

Graduates are assigned roles with real responsibility and business led projects. The objective is to support participants to reach a management level within 5 to 10 years. To date, 242 participants across 29 countries have been recruited to the programme since 2010.

A key objective within our People Strategy is ‘Growing our own talent’ and this programme forms a key part of supporting that objective.

Awards and Recognition Our business in Spain, Altadis, has been recognised as one of the best companies to work for in Spain according to the influential magazine Actualidad Económica.

In its prestigious annual rankings, Actualidad Económica moved Altadis up two places to 16th place overall, making it the third highest consumer goods business in the country. This was largely in recognition of Altadis's Gestion Talento Senor (GTS) programme for Senior Talent Management which provides structured career paths and succession planning.

The programme has helped make an important cultural change in the generational mix of our talented people.





RECRUITMENT AND RETENTION


A highly skilled and motivated workforce is the cornerstone of business competitiveness. We want to attract a diverse pool of talent and empower our employees to achieve the extraordinary.

PERFORMANCE SUMMARY

VACANCIES FILLED BY INTERNAL CANDIDATES IN FY17

45% EMPLOYEE TURNOVER RATE

15%

RECRUITMENT AND RETENTION The tobacco market is becoming more complex, with growing pressure on our core industry. This makes it harder for us to attract and retain talent.

However, we have consistently demonstrated our ability to grow our business in difficult conditions.

We will continue to improve our ways of working and develop our people and capabilities in order to adapt in an increasingly challenging environment.

We provide valued benefits that meet the needs of each employee, ensuring that we are attractive to the most diverse cross-section of the workforce.

Where appropriate, some degree of flexibility or choice of benefits are offered in order to maximise an employee’s ability to create a package that is relevant and valued.

We work to ensure that we have the right people with the right skills and behaviours working for the business, today and tomorrow.

Our focus is two-fold; firstly, we upskill our existing talent so that we can retain home-grown knowledge, skills and experience; and secondly, we attract new talent to meet business needs.

This is achieved through a number of key activities involving the identification of workforce talent needs, marketing and attraction to promote careers through a wide range of channels, assessment and selection, succession planning and promoting our Employer Value Proposition.

PROGRESS AND COMMITMENTS Our values set out what we believe in and guide the way we do business. However, in order to step up and deliver the business strategy, we considered it important to provide greater clarity about what good looks like across every level of the organisation.

We developed our six Leadership Expectations (LEs) which set out the specific actions and behaviours we expect from everyone.

The six LEs are:

– Drive Performance

– Take accountability

– Lead by Example

– Improve and Learn

– Build Capability

– Create Great Teams

We believe we are all leaders; whether leading our own work, leading a project, leading a team, a function or the whole organisation.

We also expect our LEs to help us attract and select our talent. They are replacing our previous core capabilities, to aid us in clearer career development and performance discussions for everyone.

VACANCIES FILLED BY INTERNAL CANDIDATES

Indicator

At the end of

FY17

At the end of

FY16

Percentage of vacancies filled by internal candidates 44.7 47.3

We completed the talent and succession planning for FY17 and have now started the process for FY18. This is an ongoing process where we work closely with People Managers to understand how individual employee development is progressing.

We continued with the roll-out of our online HR system ‘Workday’ in FY17. We now have a more complete view of the employee turnover figures.

Based on 62% of the global employee population, excluding ITG Brands and Logista, the employee turnover rate for FY17 was 15.3%. This reflects the considerable amount of restructuring and change our organisation is still undergoing.

“We continue to improve our ways of working and develop our people and capabilities to adapt to an increasingly challenging environment.”

We offer both Group-wide and local benefits. Group-wide benefits include items such as annual bonus, pensions and long-term incentive plans. Local benefits include items such as holiday entitlement, sick pay, medical insurance and flexible working.

In 2017, the Group operated three types of share-based incentive programmes, designed to incentivise staff and to encourage them to build a stake in the Group.

In 2017, eligible employees in 24 countries were invited to participate in the Group’s International Sharesave Plan, which is a three-year savings contract that gives employees the option to buy ordinary shares in Imperial Brands PLC at the end of the three-year savings period at a discounted price.





DIVERSITY


Our people come from different backgrounds and cultures, creating a vibrant working environment that thrives on new ideas and fresh thinking.

PERFORMANCE SUMMARY

FEMALE EMPLOYEES OF IMPERIAL BRANDS

40% FEMALE MEMBERS OF THE BOARD

30% FEMALE MEMBERS OF THE OPERATING EXECUTIVE

11% LOCAL SENIOR MANAGERS HIRED FROM THE LOCAL COMMUNITIES IN WHICH WE OPERATE

70%

ENHANCED FOCUS ON DIVERSITY We benefit enormously from our diverse workforce. Our people come from different backgrounds and cultures, creating a vibrant working environment that thrives on new ideas and fresh thinking.

The importance of diversity, equality and non-discrimination is highlighted in our Code of Conduct and underpinned by our values.

We have enhanced our focus on diversity in the year, appointing a director from the Operating Executive (OPEX) as the champion and sponsor for diversity across the Group,

and developing a new strategic approach built around three pillars: inspire, strengthen and empower.

Inspire is about raising awareness of diversity and showing how it can help us achieve our business aims.

Strengthen looks at the way we recruit, retain and develop people to help us embed diversity and develop a diverse pool of talent.

And empower is about finding new ways to support flexible working and greater collaboration so everyone feels they can fully contribute to our success.

When we talk about equal opportunity, we mean assessing capabilities irrespective of gender, race, disability, age, sexual orientation, religious beliefs or any other aspect which is not related to performance.

“We’re proud of the diverse nature of our international workforce and recognise the enormous benefits that it brings to the business.”

We have a Group-wide Fairness at Work Policy which applies to all employees.

The policy sets out our commitment to ensure we have a working environment where all employees are treated with dignity and respect; are free from harassment and bullying; where principles of equal opportunities are adhered to, and where employees’ grievances are addressed consistently, fairly and in a timely manner.

PROGRESS AND COMMITMENTS Our diverse business employs 33,800 people, including 13,400 women, which represents 40% of our total workforce. At a senior leadership level, 11% of the OPEX and 30% of the Board are female, as of 30 September 2017.

Approximately 70% of our local senior managers have been hired from the local communities in which we operate.Aligned with our enhanced focus on diversity we have increased the level of education in the business, providing a range of diversity tools in our online learning portal.

We have also made relevant TED talks and articles available to our employees.

Diversity Champions have been appointed across the business, enabling us to firmly embed our new approach in the organisation. As part of this process, we have developed a diversity guide for them to ensure that we promote a clear and consistent message.

We remain committed to training People Managers to understand what diversity and unconscious bias are, and to help them understand and appreciate the benefits of a diverse workforce. We are incorporating diversity into our employee induction programmes to enable us to engage with new employees on diversity as soon as they join the business.

We are taking action to improve the diversity of candidates for senior leadership positions, ensuring that Graduate and MBA programmes maintain a diverse mix. We are also re-aligning our Employee Value Proposition to reflect a more inclusive culture.

We are incorporating diversity into succession planning for senior positions, continuing to run career talks from a range of speakers and offering specific development opportunities and awards.

In addition we are reviewing our policies to assess how we could improve the flexible working opportunities provided to our employees.

In June we activated our ‘inspire’ diversity pillar under the banner ‘Diversity of thinking: Helping to grow the business.’ Our aim was to energise our people to embrace diverse thinking and appreciate how different perspectives and new ideas can support the development of the business.

There were a number of Group-wide activities, as well as a host of local events in our factories and markets, including career talks, training sessions, workshops and cultural celebrations. France was one of the focal markets and you can find out what they did in our case study.


DIVERSITY




continued


UK Gender Pay Gap Reporting The UK Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires UK employers with 250 or more UK employees to disclose information on their UK Gender Pay Gap.

We have been addressing this important issue and will be supplying the UK Government with the relevant information in 2018. At the same time, we will also publish a UK gender pay gap statement on our corporate website.

CASE STUDY In France the spotlight was firmly on diversity throughout the month of June.

The Parisian team set up their very own programme of activities that were open to everyone, in a bid to highlight the importance of diversity as a business driver and a workplace integration tool.


Diversity Spotlight in France

FY18 OBJECTIVES To progress our Diversity programme and establish indicators to demonstrate enhanced diversity performance over the coming years..

GENDER DIVERSITY BY REGION

Region No. of employees

at the end of FY17 Female (%) Male (%)

European Union 15,518 37 63

USA 8,619 54 46

Rest of the World 9,670 34 66

TOTAL 33,807 40 60

GENDER DIVERSITY OF GOVERNANCE BODIES Governance Body Female (%) Male (%)

The Board 30 70

The Operating Executive 11 89

Succession and Nominations Committee 25 75

Audit Committee 40 60

Remuneration Committee 20 80


http://www.imperialbrandsplc.com/responsibility/case-studies/rewarding-workplace/diversity-spotlight-in-france.html




EMPLOYEE VOICE


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

EMPLOYEE VOICE We encourage efficient, open and honest communication to foster good working relationships with employees and their representatives.

We actively support employee engagement, representation, dialogue and the ability of an employee to raise potential concerns or grievances.

Freedom of association and the right to collective bargaining is a core labour standard that we respect, as guided by the International Labour Organization (ILO).

We seek to inform and involve employees in understanding our business objectives and local developments and provide an update on future projects and plans.

Speaking Up (Whistleblowing) We expect all our employees and business partners to act with integrity in accordance with the standards of behaviour described in our Code of Conduct. Concerns can be raised independently by employees or our Business Partners using our Speaking Up service.

The Expolink Hotline operates 24 hours a day, 7 days a week (except 25 December). Each country will have its own dedicated number – details can be found on the www.expolink.co.uk website as well as at www.imperialbrandsplc.com or the Group intranet site.

SPEAKING UP Our Code of Conduct outlines the avenues that are available for our employees to speak up if they suspect that a breach of the law or of the code has taken place. There are several avenues by which concerns can be raised:

1. Speaking up locally Concerns can be raised with your people manager or with the local Human Resources (HR) team.

2. Speaking up to Senior Executives Concerns can be raised with the Company Secretary, the Group Financial Controller or the Group Human Resources Director.

3. Speaking up by using the Expolink External Hotline Any type of concern can also be raised via an independent service provided by Expolink who will ensure that all concerns are quickly passed to the right people.

PROGRESS AND COMMITMENTS We use engagement surveys to gain an understanding of employee views. More formal engagement is undertaken through local and regional works councils, trade unions, staff councils and local Health and Safety Committees. We also have joint bargaining arrangements in various regions and countries.

“Employees can raise any concerns they may have independently using our Speaking Up service as well as through internal channels.”

We do not currently collate the total percentage of employees covered by collective bargaining agreements centrally, however, approximately 42% of our employee population is part of the Imperial Tobacco European Works Council (EWC). In December 2016, we held an Ordinary meeting with all 35 employee representatives of the EWC to provide them with a general business update and to discuss future projects and plans, particularly in relation to required factory and site closures.

We will maintain the confidentiality of all concerns raised and we do not tolerate retaliation against an individual who discloses an actual or suspected breach of the Code of Conduct or helps with an investigation.


http://www.expolink.co.uk


We respect the natural resources we use and focus on reducing our environmental impact. This is important in terms of agricultural supplies, business operations, climate change and community wellbeing.

RESPECTINGNATURAL RESOURCES

3.


INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT




FORESTRY


We take a partnership approach with our tobacco suppliers and communities to encourage that the forest products used are obtained from a sustainable source.

PERFORMANCE SUMMARY

NUMBER OF TREES PLANTED IN FY17

1.7 million SCORE ACHIEVED IN THE CDP FORESTS DISCLOSURE

B TOBACCO CURING BARNS CONSTRUCTED FOR ENERGY EFFICIENCY SINCE 2012

5,000

FORESTRY Crucially for our business, forests provide key materials such as timber. In certain geographic regions, tobacco production may include wood either as a fuel for curing tobacco or as construction material for the drying and grading barns.

We take a partnership approach with our tobacco suppliers and communities to encourage that the forest products used are obtained from a sustainable source.

We also have dedicated reforestation projects. In Africa, we are actively involved in providing a sustainable alternative to indigenous woodlands.

We are investing in projects to increase the number of fuel-efficient curing barns to reduce the level of wood consumption.

PROGRESS AND COMMITMENTS We are particularly focused on farmers having a sustainable source of wood in Africa, where the deforestation issue is most relevant.

Working with our suppliers, we are operating a programme that has planted 1.7 million trees in 2017 and aims to achieve wood sustainability for our farmers in Africa by 2022.

Our wood sustainability programme covers every one of our leaf suppliers in Africa and it is intended that by 2022 every tobacco leaf that we purchase will be with the knowledge that it has been cured using a sustainable and responsible source of wood.

“We want to help protect forests and their associated biodiversity as they support our access to natural resources.”

In addition to this we are financially supporting national forestry programmes in Tanzania, Mozambique, Zimbabwe and Malawi. These national programmes promote trees with farmers by educating the growers on the value of trees. Where possible, indigenous trees are planted to support biodiversity.

In addition to the environmental benefits of our forestry programme, there are also economic benefits for farmers in labour-savings and the reduced cost of wood and transport.

For further information please read the case study.

Since 2012, we have funded the construction of 5,000 energy efficient tobacco-curing barns. These barns can use up to 30% less wood fuel compared to standard curing barns.

This year for the first time we participated in the CDP Forests benchmark submission. We are pleased to have achieved a ‘B’ score for our disclosure. This indicates that we have assessed the risks related to deforestation and are measuring and managing the impacts. We will continue to respond to this benchmark with a goal to improve our score in following years.

In September 2017, we undertook a field visit to Africa with our suppliers to review our wood sustainability programme.

The review included:

– visiting plantations with trees at different levels of maturity;

– visiting nurseries for the propagation of seedlings;

– learning how the programme is evolving to include verification of tree survival rates and the move to more indigenous plantations; and

– discussing ideas and innovation for improvement.


FORESTRY




continued


With a sustainable wood supply, farmers are able to use wood in the tobacco curing process without damaging the local environment.

Tree seedlings are supplied to tobacco farmers to help improve wood sustainability. Farmers from burley tobacco origins are given seedlings to grow into live barns. Live barns use living trees as part of the structure, removing the need to deplete forests for their construction. Burley farmers are also given bamboo from which to hang tobacco during the curing process, further eliminating the need to cut down trees.

Farmers from flue-cured Virginia origins are provided with seedlings to grow into trees for use as fuel in the tobacco curing process.

CASE STUDY Our wood sustainability programme covers every one of our leaf suppliers in Africa and it is intended that by 2022 every tobacco leaf that we purchase will be with the knowledge that it has been cured using a sustainable and responsible source of wood.


Learning in Wood Sustainability in Mozambique

FY18 OBJECTIVES To make further progress towards our target of achieving wood sustainability in our African supply chain.


http://www.imperialbrandsplc.com/responsibility/case-studies/respecting-natural-resources/learning-in-wood-sustainability-in-mozambique.html




WATER


Water is important in our operations and to the tobacco farmers and communities in our supply chain.

PERFORMANCE SUMMARY

REDUCTION IN WATER CONSUMPTION SINCE THE 2009 BASELINE YEAR

36% SCORE ACHIEVED IN THE CDP WATER DISCLOSURE

B

WATER Water is important in our operations and to the tobacco farmers and communities in our supply chain. With an adequate, sustainable water supply, smallholder tobacco farmers are able to produce high yielding, high quality tobacco often with a lower labour burden.

Water scarcity and seasonal shortages may impact our factories and the surrounding communities.

Waste water quality is strictly controlled to meet local regulations and consent limits. We apply a standard for bulk fuel containment, spillage control and emergency action.

We have a Group-wide target to reduce water use and also set local site-specific targets for locations in countries that have been identified as at risk from water scarcity.

PROGRESS AND COMMITMENTS Our factories generally use mains water from local suppliers, however some extract and filter groundwater from wells, for production purposes, in accordance with local authority permits and extraction limits.

At a local level improvements made include new waste water discharge systems, better water metering, water recycling from air conditioning, cooling tower processes and rainwater use for sanitary facilities.

We have a strong track record of effectively managing water use and based on independently verified data, we have reduced water consumption by 36% since the 2009 baseline year.

WATER CONSUMPTION (M3/£MILLION) 1, 2

For a number of years now we have participated in the CDP Water benchmark. We are pleased to report a score of ‘B’ this year which indicates that we are managing and measuring our impacts and trying to reduce them with company-wide targets and goals.

“In our supply chain we work with our leaf suppliers on water conservation projects and addressing water scarcity.”

For many years now we have worked with our leaf suppliers in Mozambique, Tanzania, Malawi and India and also within our direct operations in Madagascar on water conservation projects and to address water scarcity, which includes providing ponds, bore-holes, dams and weirs.

In 2017 we have concentrated on providing tobacco farmers in Mozambique with access to water and storage of water. This has been enacted through the building of small dams, weirs and ponds. These sites improve access to water for the most water-stressed tobacco farmers, increasing the production of healthy seedlings through the use of treadle pumps. This helps to keep water in the watercourse throughout the year, benefitting the environment and local community.

Access to stored water also has benefits for farmers’ food security, as they can water vegetables during the dry season and supplement their income. In addition, these measures improve biodiversity and help to support aquatic life through long, dry periods.

1. Environmental data is reported 12 months in arrears to allow for data collection, validation and external assurance. The monetary value ‘£ million’ is for tobacco net revenue. 2016 data has been independently assured by PwC; see www.imperialbrandsplc.com/Responsibility for more information.

2. We have restated our 2009 baseline and subsequent years’ data to incorporate our Greensboro site in the US and improvements in our internal reporting system. 2016 data shows the impact of ITG Brands on tobacco net revenue in terms of relative environmental performance per £million.


CASE STUDY Working through partnership with our suppliers, in 2017 we have concentrated on providing tobacco farmers in Malawi with access to water and storage of water.

Benefits of Water Access for Communities in Malawi

FY18 OBJECTIVES To investigate a new water sustainability strategy for our operations and supply chain.

288

357

282

230

200 2017*

2016

2015

2014

2009Baseline


http://www.imperialbrandsplc.com/responsibility/case-studies/respecting-natural-resources/benefits-of-water-access-for-communities-in-malawi.html




CLIMATE AND ENERGY


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

PERFORMANCE SUMMARY

FACTORIES CERTIFIED TO ISO 14001

92% RATING ACHIEVED IN THE CDP CLIMATE CHANGE PROGRAMME

A- REDUCTION IN ENERGY CONSUMPTION SINCE THE 2009 BASELINE YEAR

27% REDUCTION IN CO2 EQUIVALENT EMISSIONS SINCE THE 2009 BASELINE YEAR

30%

CLIMATE AND ENERGY We all have a role to play in reducing our impact on the environment and minimising our contribution to climate change.

We recognise that energy use is a cause of greenhouse gas emissions. We reduce our direct impacts through energy efficiency and carbon emission management.

We reduce our indirect impacts by working with the CDP Supply Chain Programme to gather information about how our major suppliers are managing climate change and water matters.

“We work with our major suppliers to address the impact of climate change in our supply chain.”

Where appropriate, we have invested in renewable energy, understanding that solar, wind and geothermal generated energy can provide benefits in terms of reducing our greenhouse gas emissions, energy security, cost stabilisation and protection against energy price volatilities.

PROGRESS AND COMMITMENTS At the end of FY17, 92% of our factories were certified to ISO 14001.

Some of our sites including our Head Office are certified to the energy management standard, ISO 50001.

The direct and indirect energy consumed by our business is illustrated below and the data tables are provided in Appendix 3.

CDP Climate Change Programme Each year we participate in the CDP Climate Change Programme, which works with organisations to measure and reduce their emissions and climate change impacts. In 2017 we achieved an A minus rating, which indicates that we have a high level of climate change management and stewardship both in our own operations and beyond.

We are also pleased to report that the Logista Group scored an A rating in the 2017 benchmark which places them at a Leadership level in their peer group and indicates that they have implemented a range of actions to manage climate change, both in their own operations and beyond.

DIRECT ENERGY CONSUMPTION BY PRIMARY ENERGY SOURCE (%)

INDIRECT ENERGY CONSUMPTION BY SOURCE (%)

2017*

2016

2015

2014

2009Baseline

Natural gas GWh

Diesel oil GWh

LPG GWh

Heavy fuel oil GWh

Gasoline/Petrol GWh

Other fossil fuels GWh

0 10 20 30 40 50 60 70 80 90 100

75 80 85 90 95 100

2017*

2016

2015

2014

2009Baseline

Grid electricty (non green) GWh

Grid electricity GWh

On-site renewable energy GWh

Hot steam GWh


CLIMATE AND ENERGY




continued


CDP Supply Chain Programme We have participated in the CDP Supply Chain Programme since 2014. We are working with the CDP to capture more information about the approach our major suppliers take to climate change. The CDP supports suppliers in understanding related issues, with the CDP questionnaire helping them to improve performance.

Those suppliers with whom we have at least 80% purchasing spend participate in the CDP Supply Chain Programme.

We started a programme of energy saving projects in 2011 for our high-energy consuming manufacturing sites. This initiative has resulted in a reduction in energy use, GHG emissions and energy costs across those sites, including in Germany, Morocco, Poland, Russia and Spain.

We also have renewable energy sources at our factories in Germany, the USA (solar panels), Laos (hydropower) and the Netherlands (ground source heating).

Based on independently verified data we have reduced our energy consumption by 27% and our CO2 equivalent emissions by 30% since our 2009 baseline year.

ENERGY CONSUMPTION (KWH/£MILLION)1, 2

CO2 EQUIVALENT EMISSIONS (TONNES/£MILLION)1, 2

ABSOLUTE CO2 EQUIVALENT EMISSIONS (TONNES)1, 2

Greenhouse Gas Emissions Reporting We report on greenhouse gas emissions resulting from operations which fall within our consolidated financial statements using the operational control reporting approach.

We report Scope 1 (direct) and Scope 2 (indirect) emissions for which we are responsible, using a methodology in line with the Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard. We report on the seven main greenhouse gases and report in terms of tonnes of CO2 equivalent (CO2e).

The scope of our GHG reporting is detailed in the 2017 Reporting Criteria document available on our website: www.imperialbrandsplc.com/Responsibility

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

LOGISTA CO2 EQUIVALENT EMISSIONS Scope 1 Scope 2 Scope 3

CO2 equivalent emissions (Tonnes)

FY16 36,735 1,441 187,572

FY15 35,065 4,378 199,953

FY14 35,731 4,455 213,081

Logista’s FY16 relative Scope 1 and 2 emissions comprise 47.2 tonnes (FY15: 52.7) of CO2 equivalents per £million of FY16 distribution fees (our non-GAAP revenue measure for Logista). Further information on the scope of Logista’s GHG reporting is available at www.grupologista.com

Ozone-Depleting Substances At local level, our site improvement plans include monitoring, remedial action and the phasing out of refrigerants in line with national legislation and the Montreal Protocol. We continue to make progress with replacing ozone-depleting substances ahead of the Montreal Protocol, and are committed to eliminate use of these substances by 2020. For data table, please see Appendix 3.

1. Environmental data is reported 12 months in arrears to allow for data collection, validation and external assurance. The monetary value ‘£ million’ is for tobacco net revenue. 2016 data has been independently assured by PwC; see www.imperialbrandsplc.com/responsibility for more information.



CASE STUDY

We have a programme of Energy Saving Company Projects (ESCO) and in 2016 we installed a new Gas-Fired Combined Heat & Power (CHP) energy system at our manufacturing site in Langenhagen, Germany.


Investing for Energy Efficiency in Germany

FY18 OBJECTIVES

To investigate science-based targets for greenhouse gas emissions for our operations and supply chain in relation to climate change.

182,896141,380

178,537 211,399

142,882 176,961

168,164130,468

156,312

324,276

389,936

319,843

298,632

277,146120,834 2017*

2016

2015

2014

2009Baseline

CO2e Scope 1

CO2e Scope 2

49.3

59.2

51.2

41.7

35.7 2017*

2016

2015

2014

2009Baseline

166,288

189,220

167,730

137,644

115,960 2017*

2016

2015

2014

2009Baseline


http://www.imperialbrandsplc.com/responsibility

http://www.grupologista.com/

http://www.imperialbrandsplc.com/responsibility/case-studies/respecting-natural-resources/investing-for-energy-efficiency-in-germany.html




EMISSIONS AND WASTE


We seek to minimise waste and waste to landfill through a combined approach of reduce, reuse and recycle.

PERFORMANCE SUMMARY

REDUCTION IN WASTE SINCE THE 2009 BASELINE YEAR

20% REDUCTION IN WASTE TO LANDFILL SINCE THE 2009 BASELINE YEAR

55%

EMISSIONS AND WASTE We are committed to reducing our environmental impact by minimising waste, improving energy efficiency and reducing emissions.

We recognise that we have a duty to protect the natural environment and must work to minimise our actual and potential environmental impacts. This relates to the storage of hazardous substances, water management, emissions to air, noise and waste management.

We work to minimise our impacts and avoid polluting by the application of good environmental management practices, environmental risk assessments, mitigation measures, emergency plans and by obtaining the correct permits to operate.

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

PROGRESS AND COMMITMENTS Based on independently verified data we are pleased to report a 20% reduction in waste and a 55% reduction in waste to landfill since our 2009 baseline year. The data table is provided in Appendix 3.

Some of our operations are associated with small amounts of hazardous waste, for example from fluorescent lamps, paint and lubricant oils. We require sites to hold any hazardous waste in secure storage, using suitable controls such as secondary containment, restricted access and appropriate ventilation, until suitable approved disposal is organised. The data tables for the disposal of hazardous and non-hazardous waste are provided in Appendix 3.

“Getting the most out of the materials and natural resources we use is good for our business and good for environmental sustainability.”

In FY17 we did not have any material spills or environmental fines.

Our business in Australia has been a signatory to The Australian Packaging Covenant (APC) which helps businesses to work proactively to address the environmental impacts of their packaging on society. Read more in the case study.

CASE STUDY Imperial Tobacco Australia is committed to sustainable packaging and has supported the co-regulatory Australian Packaging Covenant since becoming a signatory in 2002.


Reducing Packaging Impacts in Australia

FY18 OBJECTIVES To develop a new waste to landfill reduction target.


http://www.imperialbrandsplc.com/responsibility/case-studies/respecting-natural-resources/reducing-packaging-impacts-in-australia.html

EMISSIONS AND WASTE




continued


FY16 TOTAL WASTE AND WASTE TO LANDFILL1, 2

1. We have restated our 2009 baseline and subsequent

years’ data to incorporate our Greensboro site in the US and improvements in our internal reporting system. 2016 data shows the impact of ITG Brands on tobacco net revenue in terms of relative environmental performance per £million.

2. 2016 waste data for our Dominican Republic site is based on 2015 data due to underreporting by an interim waste contractor.

DISPOSAL OF HAZARDOUS WASTE

DISPOSAL OF NON-HAZARDOUS WASTE

Reused – 3%

Recycled – 36%

Incinerated and energy recovered – 30%

Incinerated – 16%

Sent to landfill – 15%

Reused – 14%

Recycled – 46%

Incinerated and energy recovered – 14%

Incinerated – 1%

Sent to landfill – 14%

Composted – 11%

Waste – 86%

Waste to landfill – 14%





BIODIVERSITY


Biodiversity is part of supply chain sustainability and maintaining access to good quality tobacco. We partner with suppliers and communities to help address this issue.

BIODIVERSITY Biodiversity is important in securing access to natural resources including timber and other agricultural products.

Integrating a focus on biodiversity within tobacco production is important as it links environmental conservation with the agronomy of crop production. In this way biodiversity is highly relevant for the entire supply chain from the farmers to the manufacturers.

We understand from our environmental footprint study that was conducted in 2014 that our main environmental impacts including those that pose a risk to biodiversity are most relevant in the agricultural part of our supply chain.

“The application of good agricultural practices and the sharing of knowledge with farmers is a critical element of biodiversity protection.”

Biodiversity is part of supply chain sustainability, as it is an indicator of how healthy an ecosystem is. It is part of the delivery of ecosystem services which are important in the growing of good quality tobacco and other crops including food. We partner with suppliers and communities to help protect and promote biodiversity.

Our afforestation and tree management programme takes into account biodiversity issues. Where possible, we encourage the planting of trees which encourage the development of local insect and bird populations, such as Acacia polycantha, Albizia procera and Albizia lebbeck. These projects improve wildlife habitats and food sources for a number of animal species.

PROGRESS AND COMMITMENTS We adhere to the CORESTA (Cooperation Centre for Scientific Research Relative to Tobacco) guidelines for biodiversity through the planting of buffer areas between farmland and environmentally sensitive areas, such as water sources. Grasses such as vetiver are planted to reduce the movement of sediment, nutrients and agrochemicals from farmers’ fields. This allows farm work to be carried out in an environmentally sustainable way and protects biodiversity

We also adhere to CORESTA guidelines on Integrated Pest Management. Responsible pest management involves using agrochemicals only in appropriate circumstances to defend crops against pests and diseases which cannot be controlled at acceptable levels using other alternatives. This strict control of Crop Protection Agents (CPAs) helps to protect biodiversity by limiting the prevalence of agrochemicals in the ecosystem.

We work with suppliers to provide farmers and local communities with water sources for agriculture and general use, which helps to improve biodiversity. The construction of sumps, weirs and dams provides a constant source of water, attracting local fauna and flora.

Our participation in the industry-wide Sustainable Tobacco Programme (STP) demonstrates our commitment to biodiversity throughout our supply chain. STP encourages all of our suppliers to “gather and collate internal and external data on areas of biodiversity value in and around the tobacco growing areas to create and implement a biodiversity management programme”. This involves the mapping of areas of high biodiversity value, such as ponds, watercourses and woodland that may be affected by tobacco production.

Our leaf sustainability team work with our leaf suppliers on agronomy and good agricultural practices. Knowledge is shared throughout the farmer base by suppliers’ leaf technicians and through specific farmer training. The application of good agricultural practices and the sharing of knowledge with farmers is a critical element of biodiversity protection.

Our goal is for suppliers to form a comprehensive biodiversity management programme, to protect and enhance biodiversity and to continue to evolve the development and application of good agricultural practices.

PROMOTING BIODIVERSITY In FY17, we planted some 1.7 million trees to enhance wood sustainability as part of our afforestation and tree management programme.

Other biodiversity initiatives include beehive distribution in tobacco-growing areas in Africa to encourage responsible management and accountability within indigenous Miombo woodlands.


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

REINVESTING IN

SOCIETY

4.


INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT




SHARED WEALTH


We recognise that many direct and indirect livelihoods are impacted by the economic success of our business, particularly those stakeholders who have a shared financial interest.

SHARED WEALTH Despite the health risks of smoking, demand remains for tobacco products. Whilst noting society’s concerns, in meeting that demand we make many positive contributions.

We support livelihoods through our economic activities and community participation. We partner, support fundraising and encourage volunteering.

We use select socio-economic impact assessments to better understand our direct and indirect impacts and the contributions that we make to stakeholders. Over the years we have conducted a number of different country-specific and region-specific assessments including in Morocco, in West Africa, and the latest one conducted in Australia in 2016/2017.

Taxes Our Tax Policy is to ensure compliance with tobacco taxation and product supply legislation and to engage constructively with revenue authorities worldwide to help combat illicit trade.

We also engage with revenue authorities and governments more widely on policy issues and potential impacts of regulation and excessively high tobacco taxation that are likely to increase illicit trade to the detriment of governments and society. In pursuing our Tax Policy it is of paramount importance that the Group’s actions comply with all national and international laws on corporate and tobacco taxation and that there is full disclosure and transparency in the Group’s dealings with all revenue authorities.

Community Investment and Donations As part of our responsible approach and commitment to reinvesting in society, we make community investments and charitable donations to non-governmental organisations, registered charities and other not-for-profit organisations, which is aimed at community development.

We choose to have a central community investment budget, to support the communities with the greatest need connected to our business footprint. Our community support is prioritised towards the most disadvantaged around our factories, offices and tobacco-sourcing activities. We focus on projects aligned to employability, basic needs, improving farmer livelihoods and the elimination of child labour in tobacco growing communities.

“We provide jobs, pay salaries and work with local retailers, suppliers and distributors where we can. We also create shared wealth for governments, shareholders and the communities in which we operate.”

Making a positive contribution within communities is good for employee engagement, business relationships and our Company reputation. It’s part of our wider role within society. In addition to our economic contributions, our charitable donations and activities reflect our values.

PROGRESS AND COMMITMENTS The types of community investment projects funded in FY17 are detailed in the chart on page 44.

Our global tax contribution through both corporate and tobacco taxation exceeds £17 billion annually.

The economic shared value we created in FY17 is illustrated in the infographic on page 44.

To provide further transparency and information on the economic value generated and shared with our stakeholders, we commissioned an independent consultancy to conduct a socio-economic impact assessment for our business in Australia, Imperial Tobacco Australia. (ITA).

ITA is one of Australia’s largest established tobacco companies. ITA is at the centre of a complex value chain through which the Company has a very broad impact, creating jobs and significant economic opportunities through the sale and distribution of its products, as well as sourcing from Australian suppliers. ITA also makes a significant contribution to the local community as well as making a commitment to minimise the environmental impact of its operations, which has been recognised and acknowledged.

An overview of the socio-economic impact of ITA is provided in the infographic on page 45.

FY18 OBJECTIVES To review and re-focus our community partnership programme; and, further develop the economic value of the business for stakeholders including shareholders, employees, suppliers, tax authorities and community beneficiaries.


http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/about-us/governance/UK%20Tax%20Strategy.pdf

ECONOMIC SHARED VALUE FOR IMPERIAL BRANDS

£30,247m £1,414m

Economic value generated by

Imperial Brands

Economic value retained by

Imperial Brands6

Manufacturing costs1

£22,979m

Payments to capital providers

£450m

Supporting communities5

£3m

Operating costs2

£3,931m

Payments to employees3

£1,056m

Payments to governments4

£414m1. Excluding employment costs.2. Excluding employment costs and community investments.3. Providing direct employment to 33,800 people globally.4. Tax paid globally, excluding duty.5. Funding for community investment projects and charitable donations made.6. Excluding our share of profit of investments accounted for using the equity method (£33m).

KEY Type of project funded in FY17

Adult Assistance Programmes

Eliminating Child Labour

Water and Sanitation

Farmer Training and Community Development

Anti-Slavery and Human Trafficking

THE TYPES OF COMMUNITY INVESTMENT PROJECTS FUNDED IN FY17

38.7%Africa, Latin

America, Asia, India and

Europe

3.5% Africa and Latin

America

44.6% Africa, Latin

America, Asia and India

1.8% Europe 11.4%

Africa, Asia, India and

Europe

SHARED WEALTHcontinued


INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT

COMBATTING ILLICIT TRADEITA is helping to combat the illicit trade of tobacco products through a number of channels. These include contributing to industry-wide research and reports with government and other businesses, public

communications on the topic, alignment with the industry-wide “stop supply” memorandum

of understanding, and covert operations – engaging with retailers where possible and

penalising those involved in illicit trade.

ENVIRONMENT (APC)ITA is committed to minimising the

environmental impact of its operations in Australia. As a signatory to the Australian Packaging Covenant (APC), a sustainable

packaging initiative which “aims to change the culture of business to design more sustainable packaging, increase recycling rates and reduce

packaging litter”, ITA has publicly demonstrated and been recognised through multiple awards for

its commitment to reducing its environmental impact through contributing to APC goals.

COMMUNITY PROJECTSITA and its staff work hard to support their local communities and employees are involved in a

number of initiatives across Australia. Recently, as part of the ‘Mobilise for May’ global initiative

by Imperial Brands, over 50 staff from ITA’s Regional Sales teams got involved with preparing,

delivering and serving food to homeless and disadvantaged people in both Perth and Adelaide. This initiative was carried out in conjunction with

National Volunteers Week in Australia.

PURCHASING FROM LOCAL SUPPLIERS

From the time ITA first entered the market, it has shown a commitment to sourcing locally.

Many of ITA’s earliest business relationships are still active today, and these mutual relationships

have helped to support the growth of both ITA and its suppliers.

Australian suppliers provide everything from logistics, accountancy and marketing

services to customer support and environmental consultancy.

SHARED WEALTHcontinued

IMPERIAL TOBACCO AUSTRALIAAn independent socio-economic impact assessment of ITA’s operations was undertaken. It focuses on the company’s direct economic impact, including the direct employment of 348 personnel, together with some of the wider impacts related to the economic benefits created for suppliers and retailers.


INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT




REGULATION


Millions of people around the world choose to purchase and consume our tobacco products every day. We support reasonable, proportionate and evidence-based regulation that respects adult freedom of choice.

REGULATION Our goal is to effectively operate in a rapidly evolving regulatory landscape and build trust in our products not only with consumers but also with regulators.

Tobacco Products Regulation of tobacco products continues to increase and is largely driven by the World Health Organization (WHO, through the Framework Convention on Tobacco Control, the FCTC), the USA’s Food and Drug Administration (FDA) and the European Union, for instance through its Tobacco Products Directive, the EUTPD.

“Regulation continues to increase but we have consistently shown that we can successfully develop our business in this environment.”

We comply with all laws and regulations and where none exist our International Marketing Standard (IMS) sets our clear rules and principles that all our employees worldwide must observe both in letter and in spirit.

The visible aspects of tobacco product regulation are well known, such as the requirement for health warnings, bans on smoking in public places and advertising restrictions, whereas the complexity of technical product regulation is less commonly understood. It is likely that technical product regulation will increase further in the future, which is something that we understand and are preparing for.

The WHO continues to expand guidelines on tobacco product regulation and the three main areas covered by the FCTC are described below:

1. Ingredients Restrictions Applying restrictions to (e.g. maximum levels) or prohibiting the use of ingredients in tobacco products.

2. Technical Compliance Applying restrictions on technical design features or product performance (emissions) from the tobacco products, for example: applying maximum levels of tar, nicotine and carbon monoxide.

3. Product Information Reporting The confidential disclosure to authorities of information related to ingredients and tobacco composition, technical design features and performance (emissions data).

Our portfolio includes many different types and formats of tobacco and non-tobacco products. A range of specialised analytical techniques are used for their assessment to meet regulatory requirements.

We encourage regulators to draw on our expertise when they are considering new regulation and strongly oppose attempts to exclude us from the ongoing debates about our products and their use.

Next Generation Products With the rapid growth of Next Generation Products (NGPs), in particular e-vapour products (EVP), more and more governments seek to regulate these products.

We are able to draw upon our extensive experience and expertise to engage with key stakeholders and to inform governments for their development of fair and effective legislation.

We believe evidence-based and proportionate regulation for NGPs is essential for the development of this category as a reduced-risk alternative to smoking and to support adult consumer choice.

PROGRESS AND COMMITMENTS Our Group-wide Product Content Regulatory Compliance Policy is designed to ensure uniform standards of full regulatory compliance are maintained worldwide.

We will comply with any legislation or agreement that is applicable in any market in which our products are sold and/or manufactured.

We support regulations that seek to prevent and reduce illicit trade and youth smoking, but will continue to challenge disproportionate and unnecessary regulation, in the interest of our business, the connected livelihoods and for the freedom of consumer choice.

We oppose attempts to exclude us from regulatory debates and continue to raise concerns about the impact of extreme and unproven measures, such as plain packaging or excessive excise increases, which have been shown to fuel the growth of illicit trade.

We proactively manage all regulatory risks and opportunities to ensure our business is well positioned to meet future challenges.

We conduct thousands of analytical tests every year to make sure our products are compliant with regulatory requirements and our own high standards, which are central to how we work.

Regular ingredients submissions including toxicological information are made to Competent Authorities based on the jurisdictions where products are sold.

We ensure all materials and products are fit for their intended purpose, meet relevant specifications and comply with legislation and voluntary agreements.

This duty of care is fully aligned with our sales growth strategy, enabling the business to deliver compliant consumer products to market.


REGULATION




continued


As part of our Duty of Care and to ensure we operate to the highest level, we have developed best practice in laboratory testing worldwide.

We actively participate in international method standards bodies, such as the International Standards Organisation (ISO), the European Committee for Standardization (CEN), and CORESTA (Cooperation Centre for Scientific Research Relative to Tobacco).

The robust, reproducible and repeatable testing methodology that we achieve in these forums underpins our commitment to regulatory compliance for governments, and product quality for our consumers.

Samples of the tobacco that we purchase are tested regularly for residues of plant protection products in order to ensure that our tobacco blends meet our technical requirements, and the standards expected by our consumers.

We agree that all tobacco products should display written health warnings that are consistent with global public health messages and comply with all relevant rules and regulations. Likewise, where advertising is permitted, all materials carry a clearly legible health warning in line with local legislation.

A small number of countries in Africa and South America do not legally require health warnings. Whenever we sell our brands in these markets, we always add a written warning to the pack, in line with our own IMS. Further details on the IMS are available in the section on Adult Choice.

SUPPORTING OUR STAKEHOLDERS Where governments introduce legislation that has implications beyond the manufacturer or importer, we work closely with relevant stakeholders to prepare them for the changes. For instance, when the revised EU Tobacco Products Directive was introduced, we worked closely with distributors, wholesalers andretailers throughout the process to ensure they understood the forthcoming changes and guided them through the transition.

Likewise, we have worked closely with retailers to help them prepare for product display bans (e.g. in the UK and Ireland) or plain packaging (e.g. in Australia, the UK and France).

FY18 OBJECTIVES To inform, respond to and work with external stakeholders on the evolving horizon of regulatory and excise issues regarding our products; with special attention to developments at European Union level as we implement the European Union Tobacco Products Directive, and the tracking and tracing of our tobacco products through the supply chain.





FARMER LIVELIHOODS


We are supporting projects and partnerships in the farming communities from where we source tobacco to enhance farmer livelihoods.

PERFORMANCE SUMMARY

NUMBER OF PEOPLE THAT ONE BOREHOLE CAN PROVIDE DRINKING WATER FOR

10,000 NUMBER OF BENEFICIARIES FROM OUR LEAF PARTNERSHIP PROJECTS IN FY17

18,900

FARMER LIVELIHOODS In 2013, we entered into specific leaf partnerships projects to achieve mutual sustainability goals for the tobacco farmer and the business.

Our projects and partnerships are targeted in tobacco-growing countries, identified as having the most need and focused on enhancing tobacco farmer productivity, income, reducing labour requirements and improving farming inputs.

We see this as important in securing quality tobacco supplies for our business and at the same time providing farmers with better incomes, higher standards of living and also mitigating the potential risk of child labour.

We also help address food security with farmers through the application of good agricultural practices and specific interventions to better enable people to afford food, make land more productive and encourage farmers to grow a range of food crops.

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

“Our Leaf Partnership Programme funds projects that enhance the livelihoods of farmers and the environmental sustainability of their activities, including reducing their overall labour requirements and improving their operational and resource-use efficiency.”

PROGRESS AND COMMITMENTS In FY17, our leaf partnership projects supported some 18,900 beneficiaries.

In September 2017, we conducted a review in Africa to see the important work being done in partnership with our suppliers to improve farmer livelihoods and prevent child labour.

The review, facilitated by our leaf suppliers, focused on Tanzania, Mozambique and Malawi, where we support a range of different projects aimed at improving the long-term sustainability of tobacco farming and farmer incomes.

In Tanzania, progress of our forestry programme was observed, where thousands of trees are planted and maintained each year to counteract the spread of deforestation. With a sustainable wood supply, farmers are able to use wood in the tobacco curing process, hence saving labour and improving quality and therefore income.

The positive impacts that water projects have on the local communities were also witnessed. One borehole can provide drinking water to over 10,000 people. The construction of sumps and ponds gives farmers access to water for tobacco and other crops, as well as water for general household use.

In Mozambique, seed farms were visited. These provide seedlings to burley tobacco farmers so they can grow live barns used for curing the tobacco. Live barns use living trees as part of their structure thus removing the labour need to obtain wood and construct by hand.

The construction of dams and weirs is also supported to maintain a source of water all year round for farmers and local communities. Without these, some communities have to travel very far every day to find water during the dry season.

These reviews are a great opportunity for learning more about farmers in our supply chain and to see the work being done in collaboration with our suppliers.

For further information please read the case study and see the infographic on page 49, highlighting the progress we have made with projects in FY17.

CASE STUDY We are dedicated to improving the livelihoods of tobacco farmers who grow and cure our tobacco leaf. Through our leaf partnership projects with suppliers we are working to provide farmers with labour-saving machinery, new water sources, and training on good agricultural and environmental practices.


Strengthening Farmer Livelihoods in Laos

FY18 OBJECTIVES To further progress our leaf partnership projects and establish a target for overall programme impact.


http://www.imperialbrandsplc.com/responsibility/case-studies/reinvesting-in-society/strengthening-farmer-livelihoods-in-laos.html

IN FY17 WE UNDERTOOK PROJECTS TO DELIVER

LAOS

Alternative crops for farmers

MADAGASCAR

Alternative crops

Dams Drinking- water wells

Village infrastructure

TANZANIA

Curing barns

Gasifier units

MOZAMBIQUE

Treadle pumps

Weirs Dams

Ponds

MALAWI

Curing barns Drinking-water boreholes

Dams

INDIA

Toilets Drinking-water boreholes

Village infrastructure

FARMER LIVELIHOODScontinued


INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT




HUMAN RIGHTS


Our respect for human rights extends throughout our operations and supply chain and is embedded in our Code of Conduct which all of our employees, suppliers and business partners must adhere to.

HUMAN RIGHTS The UN Guiding Principles The respect of human rights is important in relation to our people, external reputation and supply chain sustainability. In our approach to respecting human rights, we refer to the United Nations Guiding Principles and support the International Labour Organization’s (ILO) core conventions for:

– Freedom from discrimination (convention 100 and C111)

– Freedom from forced labour (C29 and C105)

– Freedom of children from child labour (C138 and C182)

– Freedom of association and the right to collective bargaining (C87 and C98)

Human Rights Impact Assessment In 2016 we commissioned an independent corporate Human Rights Impact Assessment (HRIA) to better understand human rights in the context of our global supply chain. Over 900 entities were assessed across our operations, our tobacco leaf supply chain and across our first tier NTM supply chain. The results of this assessment are available on our website.

The respect of human rights is predominantly enabled through our employment practices, requirements for business conduct and our supplier standards.

Supplier Standards for Tobacco We take a responsible approach to sourcing tobacco and work with suppliers and farmers to address labour practices and protect the environment.

We address the respect of human rights through the cross-industry Sustainable Tobacco Programme (STP) and our own supplier partnership commitments.

The STP was introduced in 2016 following collaboration from across the industry to bring variations in supplier programmes closer together and to better align good practices.

The STP is a framework for continuous improvement and involves self-assessment questionnaires, improvement plans and independent reviews.

This is across the areas of governance, crop management, people issues, facilities and environmental issues.

“We take a responsible approach to sourcing tobacco and work with suppliers and farmers to address labour practices.”

The STP is periodically reviewed to better ensure that it continues to raise standards and covers important emerging issues.

We will consider ceasing to purchase from tobacco suppliers who persistently fail to operate to our minimum standards within the STP.

The people pillar of STP is a critical element for the respect of human rights and is aligned with relevant ILO conventions and the UN Guiding Principles.

Further details of the STP can be found on our website.

Supplier Standards for other Materials We operate a Supplier Qualification Programme for key suppliers of non-tobacco materials (NTM), such as paper, board and filters.

All of our first tier NTM suppliers (those with whom we have a direct relationship) are asked to complete a supplier compliance check.

This includes questions on business conduct, environmental management, and labour practices including discrimination, child and forced labour, freedom of association, remuneration, working hours and health and safety.

We further ask our NTM suppliers if they evaluate their suppliers and sub-contractors against the requirements of our Group policy.

The process also involves a phased cycle of onsite audits by our Internal Audit team, to check against the supplier’s self-assessment. We prioritise site audits on the basis of risk assessment, quality and performance.

MODERN SLAVERY ACT TRANSPARENCY STATEMENT Slavery and human trafficking are abuses of a person’s freedoms and rights. We are totally opposed to such abuses and take steps to prevent this issue occurring in our operations and supply chain.

A statement, available on our website, identifies the risk management and mitigation measures which we undertake in our supply chain in relation to slavery and human trafficking.

CHILD LABOUR We define child labour as work that can harm children’s wellbeing and hinder their education and development.

We understand that child labour is a particular risk on family farms in less developed rural communities. We work to alleviate child labour through the application of STP, leaf partnership projects (to enhance farmer livelihoods and address key sustainability challenges) and through our active support of the Eliminating Child Labour in Tobacco Growing (ECLT) Foundation.

We buy most of our tobacco from international leaf supplying companies. A small amount is bought direct from farmers.



http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/Reinvesting-In-Society-STP_171211.pdf


HUMAN RIGHTS




continued


The ECLT Foundation The ECLT is a specific foundation working to address the root causes of child labour through an approach of:

– Act – progressing community based programmes;

– Accompany – working collaboratively to raise standards;

– Engage – helping to inform key stakeholders; and

– Build Knowledge – collating and sharing good practices.

The ECLT helps communities understand child labour issues and works hard to provide better access to education and improve children's wellbeing.

In 2014 along with all other ECLT members we signed a Pledge of Commitment on combatting child labour. Further information is available on the ECLT website.

PROGRESS AND COMMITMENTS This is the first year of the new STP disclosure and supplier participation has been independently verified to be 92%. This is lower than 100% due to the delisting of a number of suppliers and changes in the coverage of some reporting entities.

This is also the first year of enhanced disclosure on a regional and pillar basis. Details are provided in the infographic on page 52.

In 2017, we continued our support of the ECLT Foundation with funding towards their programmes and projects in Guatemala, Indonesia, Kyrgyzstan, Malawi, Mozambique, Tanzania and Uganda. Reporting on the previous year’s performance, the ECLT highlighted impacts including the removal of some 16,000 children out of child labour, reaching 24,300 community leaders and financial training of some 5,300 families.

Separately to ECLT, we work directly with our suppliers to tackle the issue of child labour by progressing a range of projects in tobacco-growing countries. For further details please see the section on ‘Farmer Livelihoods’.

Our case study highlights an example of how we have directly addressed the issue of child labour in our supply chain.

“Child labour is unacceptable and we make every effort to stop it happening in our supply chain.”

We continue to engage with the NGO, Human Rights Watch, on child labour. In 2017 we responded to their requests for further information about our sourcing activities in Zimbabwe and the enhanced supplier programme STP. Following their continued investigative work we have invited Human Rights Watch to undertake a supplier visit with our leaf sustainability team.

In 2017 we progressed the actions identified following the 2016 HRIA. We report on this in more detail on our website.

We recognise that business and human rights is an ongoing commitment and we will continue to address the prioritised issues in FY18.

Hope for Justice Since 2014, we have been supporting the charity Hope for Justice in pursuing its vision of a world free from slavery. In that time, Hope for Justice has rescued around 350 victims of modern day slavery in the UK, and in Cambodia has been supporting survivors of sex trafficking at its world-class aftercare facilities. Hope for Justice now has eight locations across three continents.

You can find out more about Hope for Justice on their website http://hopeforjustice.org/

CASE STUDY In June 2017, our leaf personnel made a disappointing child labour finding at one of our leaf suppliers, during a supplier audit in Nicaragua, conducted as part of the Sustainable Tobacco Programme (STP).


Child Labour Finding in Nicaragua

FY18 OBJECTIVES To establish a target for improvement in leaf supplier performance in the Sustainable Tobacco Programme, including improved disclosure in relation to child labour.

To launch a new e-learning provision for relevant personnel, thereby further strengthening operational practices and individual behaviours in the respect of Human Rights.


http://www.eclt.org/


http://www.imperialbrandsplc.com/responsibility/case-studies/reinvesting-in-society/child-labour-finding-in-nicaragua.html

http://hopeforjustice.org/

SUSTAINABLE TOBACCO PROGRAMME PERFORMANCE SCORES

AGRONOMY PROCESSING

SUPPLIER ENGAGEMENT

SUPPLIER ASSESSMENT RESULTS

SELF-ASSESSMENT SCORE BY PILLAR

AGRONOMY

PROCESSING

SELF-ASSESSMENT SCORE BY REGION

100%

(2016: 26% subject to annual review) (2016: 20% subject to annual review)

Europe

89%82%

Africa

82%49% Asia

82%54%

92%82%

America (excl. DAC)2

78%69%

America (DAC)2

1. Annual reviews conducted on a 3-year cycle by 3rd party AB Sustain.2. DAC – Dark Air Cured is a specific tobacco type. We have separated DAC performance due to significant processing differences with the other tobacco types. In addition DAC is

mainly linked to family businesses while Flue Cured Virginia and Burley tobaccos are produced by international suppliers.

Performance ScoresWe are pleased with the high percentage returns from suppliers for both agronomy and processing. The percentages are lower than 100% due to the delisting of a number of suppliers and changes in the coverage of some reporting entities. We are pleased to see an increase in the number of annual reviews conducted by AB Sustain which helps to calibrate the suppliers’ scores and facilitates the sharing of good practice. As this is the first year of the new STP there are no previous comparative scores for the supplier returns. As expected the standards are reported more highly for processing operations compared to agronomy.

71%

47%

68%

78% GovernanceCropEnvironmentPeople

87%

68%

87%

86% GovernanceFacilitiesEnvironmentPeople

93%

30%

61%

49%

Subject to annual

review1

Supplier participation

91%

38%

Subject to annual

review1

Supplier participation

Average annual review score

83%

66%

Average self-

assessment score

HUMAN RIGHTScontinued


INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT




BUSINESS CONDUCT


Our Code of Conduct is essential to our long-term sustainability and sets out the standards of responsible behaviours expected.

OUR VALUES AND CODE OF CONDUCT How we conduct ourselves and our business can have wider impacts for society. Doing business in the right way, having integrity and not tolerating poor behaviour, fraud or bribery means we contribute positively.

Our values and Code of Conduct are embedded throughout Imperial Brands and drive our responsible approach.

Our values and Code of Conduct are an essential part of our Responsibility Framework.

Our values reflect the behaviours we expect from everyone who works for us and our Code of Conduct is aligned with policies, internal controls and risk management processes that underpin our strategy.

CODE OF CONDUCT Our Code of Conduct sets out the standards of responsible behaviours we expect from employees in their dealings with colleagues, customers, consumers, suppliers, agents, intermediaries, advisers, governments and competitors.

In addition, all of our business partners including all third party agents, contractors, consultants and distributors who are employed by us are expected to work within the standards and behaviours outlined in the Code when conducting business on our behalf.

Our success depends on establishing open, honest and fair partnerships with trusted suppliers.

We expect our suppliers to conduct their business in an ethical and responsible manner and comply with applicable laws and regulations.

We only select and do business with suppliers who can demonstrate that they operate in a manner consistent with our standards and Code. We also expect our suppliers to ensure that their own business partners meet similar standards.

ANTI-BRIBERY AND CORRUPTION Our employees, whether directly or indirectly, must not offer, promise or give cash or anything of value or any kind of advantage to another individual in the public or private sector to influence that person to act improperly or to reward that improper performance.

“The tobacco products we sell are controversial but the way we run our business isn’t.”

Bribery does not have to involve cash or an actual payment being made and can take many forms such as a gift, lavish treatment during a business trip or tickets to an event. For further information see the anti-bribery and corruption section of the Code of Conduct.

Gifts and Entertainment When giving or receiving gifts or entertainment, we must ensure that doing so cannot distort our business relationship, create a conflict of interest or be construed as a bribe.

The Imperial Brands Gifts and Entertainment Policy can be found in the Code of Conduct. Gifts and entertainment in excess of £50 must be recorded and approved.

Political Engagement and Donations Our policy is not to make donations to political parties. We seek to engage with governments and regulators across the political spectrum, but we remain politically neutral.

Further information is available in the Code of Conduct: Engaging with Governments and Political Bodies.

EFFECTIVE RISK MANAGEMENT An Integrated Approach Our Governance and Risk Management framework has been designed around four simple foundations that form the core of our approach to risk management:

“Clear roles, clear rules, clear authority and clear values.”

This framework is implemented through an integrated approach to governance, aligned to the ‘three lines of defence’ model. Further information is available in our 2017 Annual Report and Accounts.

The management of operational risk and compliance to the Group’s key control requirements including the Code of Conduct is the responsibility of Business Units and Operational Management.

Policies, standards, processes and related training are developed by our subject matter experts (SMEs) in the Group’s Centres of Excellence (CoEs) that assist in ensuring the business remains compliant with Group requirements.

Operational management are held accountable for the compliance of their business units to Group policies and standards through the completion of the Group Control Matrix (GCM) assessment process, and certification of compliance to Group policies and standards.

Through these requirements management formally confirm the status of their unit’s compliance with key controls, including anti-bribery and corruption. The results of this are shared with relevant CoEs for expert insights and to help further enhance controls and the guidance they provide to the business. Additionally, the information is provided to our Internal Audit department for reference during their audit testing.

This multi-pronged approach not only ensures a strong internal control framework but also embeds the assessment of risk into the Group’s ongoing performance and business planning cycle.


http://www.imperialbrandsplc.com/Responsibility/Code-of-Conduct.html



BUSINESS CONDUCT




continued


RAISING CONCERNS We encourage employees and our business partners to raise any concerns they may have.

“We have a zero tolerance approach to bribery and corruption. We will not offer, give or accept bribes in any form.”

We have mechanisms in place to enable this and a Group-wide Speaking Up (Whistleblowing) Policy, which has been translated into 40 languages.

Further details are discussed under the section ‘Employee Voice’.

Any allegations of misconduct, fraud and irregularity are thoroughly investigated and implications for our control environment are considered.

We have processes to ensure that concerns are handled consistently across the business.

All investigations are conducted in accordance with our legal obligations, and, where possible, we will protect confidentiality.

PROGRESS AND COMMITMENTS Our Code of Conduct is available in full on our website and has been translated into 30 languages.

We have a rolling training programme to ensure ongoing engagement with the Code throughout the business, including e-learning courses and face-to-face sessions.

The training provided in all aspects of our Code of Conduct and our training materials are fully aligned with the provisions of the UK Bribery Act 2010.

We are developing a Supplier Code, based on our Code of Conduct, which describes the behaviours we expect our suppliers to demonstrate.

Individuals involved in breaches of the Code of Conduct may be disciplined up to and including dismissal. Breaches of the law may also be subject to penalties determined by a court or other government entity.

In FY17 the following specific training was provided to the relevant employee populations.

We only make charitable donations to registered charities or not-for-profit organisations following appropriate due diligence procedures.

For further information see the Code of Conduct: Contributing within our Communities.

No political donations were made to EU political parties, organisations or candidates (2016: Nil). This approach is aligned with our Group Policy and Code of Conduct.

In FY17, all locations across the Group certified their compliance with the Group’s key bribery and corruption controls.

Any material issue identified is reported in the Annual Report and Accounts for that fiscal year. In FY17 no material issues were reported.

A number of competition law investigations by national competition authorities in respect of the tobacco sector are ongoing in EU member states.

In this regard, we were subject to an on-site inspection without notice conducted by the Spanish competition authority in February/March 2017 and which publicly opened a formal investigation on 16 June 2017.

In so far as we are aware, we have not been found to have infringed relevant provisions of competition law in any of these ongoing investigations and have complied fully with any requests for information made by relevant EU national competition authorities.

E-Learning Course Title Target Audience

Global Competition Law All CMG and new starters

ITUK Working with Competition Law ITUK sales force

Avoiding Bribery and Corruption in the Global Business Environment All CMG and new starters

Give and Get Bribe: An Antibribery Vignette All online employees and new starters



APPENDIX 1

INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT

GRI Disclosures

2017 Sustainability Report

2017 Annual Report and Accounts Corporate website

GENERAL DISCLOSURES102-1 Name of the organisation 1 See our website

102-2 Activities, brands, products and services 3 See our website

102-3 Location of headquarters Bristol, UK See our website

102-4 Location of operations 130-143 2017 Annual Report and Accounts

102-5 Ownership and legal form We are a public limited company (PLC). Follow the link to see our share register analysis

102-6 Markets served See our website

102-7 Scale of the organisation See our website

102-8 Information on employees and other workers 31

102-9 Supply chain 3

102-10 Significant changes to the organisation and its supply chain 8 See our website

102-11 Whether and how the organization applies the Precautionary Principle or approach

See our Reporting and Criteria Document

102-12 External initiatives: A list of externally-developed economic, environmental and social charters, principles, or other initiatives to which the organization subscribes, or which it endorses

3, 24, 37, 47, 50

102-13 Membership of associations 47 See our website

102-14 Statement from senior decision maker 2

102-15 Key impacts, risks and opportunities: a description of significant economic, environmental and social impacts, and associated challenges and opportunities. This includes the effects on stakeholders and their rights as defined by national laws and relevant internationally-recognized standards

6, 9 See our 2016 Human Rights Impact Assessment Report

102-16 A description of the organization’s values, principles, standards, and norms of behaviour

2, 53 See our website

102-18 Governance structure 9, 53

102-19 Delegating authority 9 See our Governance and Leadership table

102-20 Executive level responsibility for economic, environmental and social topics

9 See our Governance and Leadership table

102-21 Consulting stakeholders on economic, environmental and social topics

7 See our Stakeholder Panel Report 2015 and Responding to our Stakeholders document

102-22 Composition of the highest governance body and its committees 34 See our website

102-23 Chair of the highest governing body 9

102-24 Nominating and selecting the highest governance body 36-38 See our website

102-25 Conflicts of interest 46

102-26 Role of the highest governance body in setting purpose, values and strategy

9

102-29 Identifying and managing economic, environmental and social impacts

6, 8, 9, 10 24

102-30 Effectiveness of risk management processes 33

102-31 Frequency of the highest governance body’s review of economic, environmental, and social topics and their impacts, risks, and opportunities

9

102-32 Highest governance body’s role in sustainability reporting 9

102-33 Process for communicating critical concerns to the highest governance body.

32

102-35 Remuneration policies for the highest governance body and senior executives

53

102-36 Process for determining remuneration 53

102-40 List of stakeholder groups 7

GRI CONTENT INDEX


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

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

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

http://www.imperialbrandsplc.com/Investors/Shareholder-centre/Share-register-analysis.html

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

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

http://www.imperialbrandsplc.com/Media2/Key-announcements.html?tab1=key-announcements



http://www.imperialbrandsplc.com/responsibility/reinvesting-in-society.html

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


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

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/Leadership_and_Goverance.pdf






http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/Responding_to_our_stakeholders.pdf


http://www.imperialbrandsplc.com/About-us/Leadership-team.html

http://www.imperialbrandsplc.com/About-us/Governance.html

GRI Disclosures



102-41 Collective bargaining agreements 32

102-42 Identifying and selecting stakeholders 7 See our Responding to our Stakeholders document

102-43 Approach to stakeholder engagement 7 See our Responding to our Stakeholders document

102-44 Key topics and concerns raised by stakeholders 7 See our Stakeholder Panel Report 2015

102-45 Entities included in the consolidated financial statements See our 2017 Annual Report and Accounts

102-46 Defining report content and topic boundaries 1 See our 2017 Reporting and Criteria Document

102-47 List of material topics 6 See our 2017 Reporting and Criteria Document

102-48 Restatements of information Link to 2017 Annual Report and Accounts

102-49 Changes in reporting 6 See our 2017 Reporting and Criteria Document

102-50 Reporting period 1 See our 2017 Reporting and Criteria Document

102-51 Date of most recent report

102-52 Reporting cycle 1 See our 2017 Reporting and Criteria Document

102-53 Contact point for questions regarding the report 1 See our website

102-54 Claims of reporting in accordance with the GRI Standards 1

102-55 GRI Content Index 56

102-56 External assurance 1 See PwC’s Assurance Report for 2017

ECONOMIC PERFORMANCE103 Management approach 43

201-1 Direct economic value generated and distributed 44

MARKET PRESENCE202-2 Proportion of senior management hired from the local community 30

ANTI-CORRUPTION103 Management approach 53

205-1 Operations assessed for risks related to corruption See our 2016 Human Rights Impact Assessment Report

205-2 Communication and training about anti-corruption policies and procedures

53

ANTI-COMPETITIVE BEHAVIOUR 103 Management approach 53

206-1 Legal actions for anti-competitive behaviour, anti-trust, and monopoly practices

53

MATERIALS103 Management approach 39 See our case study, Reducing

Packaging Impacts in Australia

301-2 Recycled input materials used 62 See our 2017 Reporting and Criteria Document

301-3 Packaging materials reclaimed 62 See our 2017 Reporting and Criteria Document

ENERGY302-1 Energy consumption within the organization 37

302-2 Energy consumption outside of the organization 38

302-3 Energy intensity 38

WATER103 Management approach 36 See our case study: Benfits of Water

access for Communities in Malawi

303-1 Water withdrawal by source 62

BIODIVERSITY103 Management approach 41 See our case study: Learning in Wood

Sustainability in Mozambique

APPENDIX 1continued

INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT



















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

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/2017_PWC_ASSURANCE_STATEMENT.PDF













APPENDIX 1continued

INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT

GRI Disclosures



EMISSIONS103 Management approach 37 See our case study: Investing for

Energy Efficiency in Germany

305-1 Direct (Scope 1) GHG Emissions 38 See our 2017 Reporting and Criteria Document

305-2 Energy Indirect (Scope 2) GHG emissions 38 See our 2017 Reporting and Criteria Document

305-3 Other Indirect (Scope 3) GHG emissions 38 (Scope 3 reported only for Logista)

305-4 GHG emissions intensity 38

305-5 Reduction of GHG emissions 38

305-6 Emissions of ozone-depleting substances (ODS) 38, 61

EFFLUENTS AND WASTE103 Management approach 39

306-2 Waste by type and disposal method 61 See our 2017 Reporting and Criteria Document

306-3 Significant spills (effluents and waste) 39

ENVIRONMENTAL COMPLIANCE307-1 Non-compliance with environmental laws and regulations 39

EMPLOYMENT103 Management approach 29

401-1 New employee hires and employee turnover 29

401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees

29

OCCUPATIONAL HEALTH AND SAFETY103 Management approach 23, 25, 26 See our case study: Promoting

Employee Interest in Wellbeing Globally

403-2 Types of injury and rates of injury, occupational diseases, lost days and absenteeism, and number of work-related fatalities.

23

TRAINING AND EDUCATION103 Management approach 27 See our website

404-1 Average hours of training per year per employee 28

404-2 Programs for upgrading employee skills and transition assistance programs

28

404-3 Percentage of employees receiving regular performance and career development reviews

28

DIVERSITY AND EQUAL OPPORTUNITY103 Management approach 30 See our case study: Diversity

Spotlight in France

405-1 Diversity of governance bodies and employees 31 See our website

CHILD LABOUR103 Management approach 50 See our Modern Slavery Act Statement

408-1 Operations and suppliers at significant risk for incidents of child labour

See our 2016 Human Rights Impact Assessment Report

FORCED OR COMPULSORY LABOUR103 Management approach 50 See our Modern Slavery Act Statement

409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour

See our 2016 Human Rights Impact Assessment Report

RIGHTS OF INDIGENOUS PEOPLES103 Management approach 50 See our case study: Strengthening

Farmer Livelihoods in Laos

411-1 Rights of indigenous people See our 2016 Human Rights Impact Assessment Report












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



http://www.imperialbrandsplc.com/About-us/Governance.html

http://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/responsibility/Sustainability_policies/Modern_Slavery_Act_Transparency_Statement.pdf










APPENDIX 1continued

INTRODUCTION


REWARDING WORKPLACE



ABOUT THE REPORT

GRI Disclosures



HUMAN RIGHTS ASSESSMENTS103 Management approach 50 See our Modern Slavery Act

Transparency Statement

412-1 Operations that have been subject to human rights reviews or impact assessments

50 See our 2016 Human Rights Impact Assessment Report

412-2 Employee training on human rights policies or procedures 50 See our 2016 Human Rights Impact Assessment Report and 2017 Progress Report on Human Rights

412-3 Significant investment agreements and contracts that include human rights clauses or that underwent human rights screening

51

LOCAL COMMUNITIES103 Management approach 43 See our Modern Slavery Act

Transparency Statement

413-1 Operations with local engagement, impact assessments and development programs

43, 45

SUPPLIER SOCIAL ASSESSMENTS414-2 Negative social impacts in the supply chain and actions taken 50 See our case study: Child Labour

Finding in Nicaragua

PUBLIC POLICY103 Management approach 53

415-1 Political contributions 52 See our Code of Conduct

CUSTOMER HEALTH AND SAFETY103 Management approach 12, 21 See our case study: The Science of

Vaping Tour

416-1 Assessment of the health and safety impacts of products 12, 21 See our Imperial Brands Science website

416-1 Assessment of the health and safety impacts of product and service categories

12, 19

416-2 Incidents of non-compliance concerning the health and safety impacts of products

21

MARKETING AND LABELLING103 Management approach 17 See our case study: The UK

Responsbible Retailing Programme

417-1 Requirements for product and service information and labelling (marketing and labelling)

17, 46

417-2 Incidents of non-compliance concerning product information and labelling

18

417-3 Incidents of non-compliance concerning marketing communications 18

SOCIOECONOMIC COMPLIANCE419-1 Non-compliance with laws and regulations in the social and

economic area46





















APPENDIX 2




CR PERFORMANCE INDICATORS


This table details our Corporate Responsibility (CR) Performance Indicators. We have provided a year-on-year report of progress for the last four years against our 2009 baseline year. Where applicable we have indicated the latest independently verified data by an

Our approach to reporting and the scope and criteria for each of our key indicators is detailed in our Reporting and Criteria Document 2017.

Focus Area Performance Indicator Unit FY 09 Baseline FY14 FY15 FY16 FY17 Progress


Product Science

Number of countries for which cigarette ingredients are published on the Imperial Tobacco Ingredients website.

Number 36 46 46 46 48

Illicit Trade Total number of Memoranda of understanding and cooperation agreements on combatting smuggling and counterfeit signed with governments

Number 16 23 24 27 28

Product Quality Percentage of consumer complaints accelerated to the Risk Assessment Panel

% – – – – 0.3 –


REWARDING WORKPLACE

Diversity Female Employees % 39 39 39 40

Female Operating Executive Members % 28 22 22 22 11

Female PLC Board Members % 14 30 22 30 30

Local senior managers hired from the local communities in which we operate

% – – – – 70 –

Health, Safety and Wellbeing

Operations with OHSAS 18001 at the end of the financial year

% – – 76 79 87

Lost time accident (LTA) frequency rate1 Per 200,000 hours 1.57 0.52 0.44 0.49 0.40

Sickness absence % of total days worked 3.73 2.42 2.65 2.62 2.59

Development and Reward

Average number of hours of training and development provided per full-time employee (FTE)

Number of hours per FTE

– – – 1.17 2.28

Recruitment and Retention

Number of open positions filled by internal candidates

% – – – – 45 –

Employee turnover rate % – – – – 15 –

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APPENDIX 2




continued




Environmental Management

Operations with ISO 14001 at the end of the financial year

% 66 89 90 93 92

Waste

Relative waste1,2,3 Tonnes per £million tobacco net revenue

8.65 8.08 8.21 6.94 6.27*

Absolute waste1,2,3 Tonnes 56,977 53,122 51,294 49,709 48,618*

Relative waste to landfill1,2,3 Tonnes per £million tobacco net revenue

2.45 1.97 1.65 1.10 0.93*

Absolute waste to landfill1,2,3 Tonnes 16,167 12,949 10,340 7,919 7,239*

Waste recycled (including composting) % per Tonnes 57 61 64 66 67

Climate and Energy

Relative energy consumption1,2 KWh/£million tobacco net revenue

189,220 166,288 167,730 137,644 115,960*

Absolute energy consumption1,2 GWh 1,105 952 908 830 744*

Relative CO2e emissions1,2 Tonnes/£million tobacco net revenue

59.2 49.3 51.2 41.7 35.7*

Absolute CO2e emissions1,2 Tonnes 389,936 324,276 319,843 298,632 277,146*

Score achieved in the CDP Climate Change Programme

Rating – 84 C 98 B B A-

Water Relative water consumption1,2 m3/£million tobacco net revenue

357 288 282 230 200*

Absolute water consumption1,2 m3 2,355,292 1,891,711 1,762,163 1,647,758 1,547,756*

Score achieved in the CDP Water Disclosure

Rating – – B B B

Forestry Number of trees planted to drive wood sustainability in Africa

Number – – – 1.7m 1.7m

Score achieved in the CDP Forests Disclosure

Rating – – – – B –



Shared Wealth Group community investment allocations £ million 3.0 3.28 2.55 3.06 2.66

Score achieved in the RobecoSAM Corporate Sustainability Assessment for the Dow Jones Sustainability Index

% 73 74 76 76 84

Farmer Livelihoods

Beneficiaries of our Leaf Partnership projects

Number – – – – 18,900 –

Human Rights Percentage of suppliers participating in the Sustainable Tobacco Programme (STP)

% – – – – 92 –

Footnotes

1. Environmental and LTA data is reported 12 months in arrears to allow for data collection, validation and external assurance.


3. 2016 waste data for our Dominican Republic site is based on 2015 data due to under-reporting by an interim waste contractor.


Data has been assured by PricewaterhouseCoopers LLP (PwC) under the limited assurance requirements of the ISAE 3000 standard. The Assurance Opinion is available on our website.

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http://www.imperialbrandsplc.com/

APPENDIX 3




ENVIRONMENTAL PERFORMANCE TABLES


DIRECT ENERGY CONSUMPTION BY PRIMARY ENERGY SOURCE

Fuel Source Unit 2009 base year 2014 2015 2016 2017*

Natural gas GWh 453 455 438 378 332 (GJ) 1,631,052 1,638,252 1,577,135 1,360,160 1,195,200 Diesel oil GWh 105 100 102 94 90 (GJ) 378,000 376,787 367,200 338,432 325,080 Heavy fuel oil GWh 143 17 17 16 14 (GJ) 540,000 62,717 60,650 59,349 51,840 LPG GWh 3 15 11 11 10 (GJ) 10,800 52,818 39,275 40,411 36,000 Gasoline/ Petrol GWh 68 70 68 88 88 (GJ) 244,800 252,188 244,800 318,434 317,016 Other fossil fuels GWh 0.1 0.05 0.01 0.05 0.06 (GJ) 3,600 197 52 176 216 Total GWh 772 657 636 588 535 (GJ) 2,808,252 2,382,959 2,289,112 2,116,963 1,925,352

INDIRECT ENERGY CONSUMPTION BY SOURCE

Fuel Source Unit 2009 base year 2014 2015 2016 2017*

Grid electricity (non green) GWh 403 354 352 312 297 (non-green) (GJ) 1,449,756 1,273,356 1,266,156 1,123,200 1,069,200 Grid electricity GWh 0.05 17 26 35 29 (green) (GJ) 0 61,200 93,600 126,000 104,400 Hot steam GWh 16 18 20 18 19 (GJ) 57,600 64,800 72,000 64,800 68,400 On-site renewable energy GWh 0.004 0.242 0.244 0.239 0.257 (GJ) 14 871 878 860 925 Total GWh 419 389 398 365 345 (GJ) 1,507,550 1,400,227 1,432,634 1,314,860 1,242,925

OZONE-DEPLETING SUBSTANCES

Unit 2014 2015 2016 2017*

R11 – Loss to atmosphere kg 0 0 0 0 R12 – Loss to atmosphere kg 0 0 0 0 R22 – Loss to atmosphere kg 275 512 203 233 R401a – Loss to atmosphere kg 0 0 0 0 R401b – Loss to atmosphere kg 0 0 0 0 R408a –- Loss to atmosphere kg 0 0 0 0 R409a –- Loss to atmosphere kg 0 0 0 0

DISPOSAL OF HAZARDOUS WASTE

Unit 2009 base year 2014 2015 2016 2017

Reused Tonnes 10 10 9 9 11Recycled Tonnes 275 159 121 117 124Incinerated and energy recovered Tonnes 124 136 205 99 95Incinerated Tonnes 111 39 56 51 80Sent to landfill Tonnes 245 96 78 49 46Total Tonnes 765 440 469 325 356


APPENDIX 3




continued


DISPOSAL OF NON-HAZARDOUS WASTE

Unit 2009 base year 2014 2015 2016 2017

Reused Tonnes 6,678 9,276 8,429 7,396 7,139Recycled Tonnes 24,279 25,826 25,655 25,142 25,112Incinerated and energy recovered Tonnes 7,569 6,397 6,721 7,686 7,501Incinerated Tonnes 611 383 426 332 370Sent to landfill Tonnes 15,923 12,824 10,217 7,840 7,131Composted Tonnes 7,842 4,447 5,793 5,912 5,178Total Tonnes 62,902 59,153 57,241 54,308 52,431

TOTAL WASTE AND WASTE TO LANDFILL1, 2, 3

Unit 2009 base year 2014 2015 2016 2017*

Environmental waste Tonnes 56,977 53,122 51,294 49,709 48,618 Waste to landfill Tonnes 16,167 12,949 10,340 7,919 7,239

Relative environmental waste t/£m rev 8.65 8.08 8.21 6.94 6.27 Relative waste to landfill t/£m rev 2.45 1.97 1.65 1.10 0.93

WATER CONSUMPTION BY WITHDRAWAL SOURCE

Unit 2009 base year 2014 2015 2016 2017*

Mains m3 2,355,292 1,595,333 1,485,760 1,382,674 1,271,820 Surface water including wetland, lakes, oceans and rivers m3 1,520 755 0.012 0.012 Ground water m3 292,396 271,894 260,768 265,429 Rain water m3 2,462 3,754 4,316 3,465 Abstracted m3

Total m3 2,355,292 1,891,711 1,762,163 1,647,758 1,540,714

Relative t/£m rev 357 288 282 230


2. 2016 waste data for our Dominican Republic site is based on 2015 data due to under-reporting by an interim waste contractor.

3. Environmental data is reported 12 months in arrears to allow for data collection, validation and external assurance. The monetary value ‘£ million’ is for tobacco net revenue.

2016 data has been independently assured by PwC; see www.imperialbrandsplc.com/Responsibility for more information.


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Registered Office Imperial Brands PLC 121 Winterstoke Road Bristol BS3 2LL UK

www.imperialbrandsplc.com


Documents

SUSTAINABILITY REPORT 2017 GROWING OUR BUSINESS …It’s their passion, commitment and focus on doing things the right way that keeps our business moving. Our people recognise the