Philip root of the problem 2) Beneficial for

Philip Morris International Inc. (PMI) is a multinational corporation in
the cigarette and tobacco manufacturing industry, and the parent company of
well-recognized cigarette brand, Marlboro. Headquartered in New York, USA, the
company’s products are sold in over 180 countries around the world. With the
addictive and conceivably deadly effects of tobacco use, the company is highly
controversial and thus meticulously scrutinized using corporate social responsibility
standards under the public eye.


As our society evolves in recognizing the importance of creating a sustainable
future, this report serves to analyze three negative externalities that are a
result of the industry and evaluate PMI’s ability to form goals that encapsulate
shared value to ease the tension between traditional business operations and
societal interest.

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In analyzing the effectiveness of PMI’s goals for sustainability, the
following criteria along with a SMART (Specific, Measureable, Achievable,
Relevant, Time-Bound) analysis will be used:

the root of the problem

for all stakeholders (investors, management, society, etc.)



Under the UN sustainable development goals that represent idealistic
future goals, PMI has committed to adopting these objectives as an integral
part of their business model. For the purposes of this report, respective to
the order of presented externalities,  the three goals of focus are:

Good health
and well-being

consumption and production

justice, and strong institutions


Externality #1: Effects
of Second-Hand Smoke on Bystanders


The most apparent externality of a tobacco manufacturer is the health
risk associate with smoking cigarettes – both for the individual user and victims
to second hand smoke. According to an article published by HealthLink British
Columbia, two thirds of burning cigarette smoke in an open area can be inhaled
by bystanders, and exposure for 8-20 minutes can trigger reactions linked to
heart disease and stroke.


In recognizing the fatality of smoking cigarettes, PMI has set targets
to directly tackle the root of the problem and strive for a smoke-free future
by replacing their products with less harmful alternatives. In evaluating the efficiency
of this goal, the company has been explicit in setting an attainable target. By
2025, PMI hopes to reduce tobacco usage by 30% in relation to statistics from
2010 meaning there will still be roughly 950 million smokers (adjusted for
population growth). The population projection breakdown and business
transformation metric can be shown through the charts below.




            PMI has invested over USD$3 billion
since 2008 and plan to invest another $1.7 billion on research and development to
innovate their two smoke-free product lines. The heated tobacco products heat
tobacco instead of burning it thereby emitting a nicotine vapour less the
toxins that result from cigarette smoke, and the sans tobacco product line uses
an electronic chemical process to create a nicotine vapour. By 2025, they want
30% of their volume to come from smoke-free products.


At the rapid rate of the company’s research and development efforts
combined with their 10-year projection, the company has been specific and has
addressed the relevance of their project. Their objectives are loosely
time-bound with attainable and measureable metrics. While their ultimate vision
is to replace cigarettes and harmful product entirely, the leading cigarette
company has set realistic incremental targets to achieve a tobacco-free utopia.

If PMI is serious about continuing involvement in this initiative, they would
be engaging in multi-stakeholder engagement to benefit all stakeholders for the
greater good of society. The company could generate new profit from their innovative
product lines or move towards becoming a research and development institution.


Externality #2: Water Usage
in Production of Cigarettes


            To evaluate a corporation’s
financial, social, and environmental sustainability, companies today must
establish a triple bottom line approach to meet the demands of their
stakeholders. In 2010, PMI was responsible for emitting 7.4 million tonnage of greenhouse
gases in contributing to deforestation, water scarcity, climate change, and waste


The company recognizes that global tobacco crops are rain fed, so there
is an alignment of interest to contribute to water stewardship. The company was
able to reduce manufacturing water consumption by 24% between 2010-2015. While
PMI has historically made impressive progress, the company has not explicitly set
any measurable goals or timeline to quantify their anticipated progress. It is
stated in their sustainability report of 2016 “we PMI seek continual
reduction in our water use across manufacturing facilities and focus on
achieving improvements in water efficiency, conservation, and reusing or
recycling water where possible”.


In relation to other industries, water does not play an integral role in
tobacco product manufacturing, therefore PMI’s water usage has the potential to
be reduced to net zero if the company commits to this initiative. PMI’s goals
to conserve and reuse water lack specificity and structure. While the company
is on the right track in tackling a major issue that would be beneficial for
everyone, this idealism cannot be achievable unless outspokenly pursued.


Externality #3:
Illicit Tobacco Trade


            The production, exchange, and possession
of tobacco that fail to comply with legislation contribute to organized crime and
is referred to as the illicit tobacco trade. Illegal cigarettes are one of the
most profitable and frequently traded goods for organized crime groups and can
be connected to cases of corruption, terrorism, and related crime. These global
trades undermine governments by decreasing tax revenues by USD$50 billion
annually and disturbing the efficacy of taxes to reduce smoking.


            This externality is unique to the
two previously discussed because of the economic and social alignment that
incentivizes all stakeholders involved. PMI has funded a project called PMI IMPACT to combat global illicit
trade. The company has vowed to fund the initiative with USD$100 million for
three rounds. Supported by an independent council of seasoned corporate
executives, the organization selects 32 university research projects that aim
to combat illegal trade and related crimes in the European Union.


            On the front end, PMI has invested more
than USD$100 million in over 700 tracking centres spread over 130 countries to
trace their products