Stakeholder Panel's statement

Panel members

Philippa Foster Back CBE, Director of the Institute of Business Ethics  (Panel chair) – an education charity whose purpose is to promote high standards of business behaviour based on ethical values.

Scott Ballin, Health Policy Adviser – Scott has spent more than 40 years involved in issues related to tobacco and health and is a key opinion leader on tobacco harm reduction.

Prof John Boardman, Emeritus Fellow, Environmental Change Institute, University of Oxford  – John has published over 150 papers primarily focused on soil management and land degradation.

Peder Michael Pruzan-Jorgensen, Senior VP of Business for Social Responsibility  – a global non-profit organisation that works with its network of more than 250 member companies and other partners to build a just and sustainable world.

Process

This is the second year of the Panel’s existence. Its aim is to understand the context BAT’s business operates within, identify how it is meeting the various sustainability challenges, and offer  comment on the materiality of the Report  and a collective opinion on reporting performance. The Panel is independent of BAT and the comments which follow are based on the professional expertise and experiences of its members.

In this reporting cycle, the Panel held three meetings with BAT. The first, in October 2017, considered the process and outputs from the Company’s materiality assessment . The second meeting, in November 2017, was specifically requested by the Panel following its review of the 2016 Sustainability Report, to provide an opportunity to engage earlier in the reporting process. The meeting included a presentation from BAT on key business developments in 2017 and a discussion on the proposed structure and content of the Report .

The third meeting, in February 2018, centred on a detailed scrutiny of a draft of the Report, for which:

  • The Panel reviewed a draft in advance of the meeting;
  • BAT presented details on how the Company had responded to the Panel’s recommendations and feedback made in its statement in the 2016 Report , as well as those made during its November meeting;
  • The Panel privately discussed the Report as a group to formulate their views and identify questions to ask BAT;
  • The Panel met with senior BAT representatives to ask questions and provide initial feedback on the Report, including with Jerry Abelman, Group Legal and External Affairs Director, as well as senior experts from key areas of the business;
  • The Panel made suggestions as to how the Report could be improved to best serve the needs of BAT’s stakeholders – a number of these comments were addressed in the Report prior to publication; and
  • Drafted this statement independently of BAT and presented it to the Company’s representatives.

Throughout the three meetings, the Panel appreciated BAT’s willingness to share information and discuss the issues and challenges it faces as a business openly and constructively. The Panel’s comments on the Report, together with recommendations as to how future reports could be improved, are summarised below. The Panel acknowledges the progress made from last year’s Report which reflects many of the recommendations made by the Panel. The specific details of how these recommendations have been addressed are included below.

Materiality and performance

As in previous years, the BAT Sustainability Report 2017  reads well, covers the Group’s most material issues in a meaningful and balanced way, and strikes a good balance between narrative reporting and performance reporting, not least when read in context of the rich information – qualitative and quantitative – accessible on BAT’s websites and in other, thematically more focused reports .

The Company’s commitment to reporting is underpinned by the annual materiality refresh and a more thorough review every three years. Nonetheless, and surprisingly, we call out the opportunity for defining meaningful and measurable objectives, including long-term targets for Harm Reduction and Sustainable Agriculture and Farmer Livelihoods. As mentioned in last year’s Statement, we believe that it would be useful to define outcome indicators for the most material issues noting, as a positive development, that the recently commenced Thrive programme  may yield a stronger evidence base for outcomes related to Sustainable Agriculture and Farmer Livelihoods.

In line with our recommendation for improved clarity on objectives and targets in key performance areas, the Report would benefit from greater clarity on what the Company considers the priorities for transforming tobacco, including milestones and key performance indicators for successful transformation. Moreover, as the BAT business model evolves with greater focus on Next Generation Products  (NGPs), we expect that the broader sustainability profile of BAT will evolve, including what constitutes material issues, something we would expect to see covered in future reporting.

Harm Reduction

BAT continues to show progress in advancing its NGP portfolio and harm reduction strategies on multiple fronts. It responded to a number of the Panel’s recommendations made in last year’s Statement, including providing more detail on what a regulatory framework for NGPs might entail. The Panel notes that BAT recognises the serious harm caused by the use of cigarettes and the need to provide smokers with consumer acceptable, affordable alternative products, something that the Panel believes should be given the highest of priorities.

Even as BAT continues its efforts in the NGP area, we strongly encourage it to step-up efforts to provide existing, more affordable harm reduction products (such as snus, vapour and other nicotine products) to the one billion smokers living in low- to middle-income countries. The existing ‘smoking’ marketplace, made up of many of BAT’s consumers, provides the Company with significant opportunities to demonstrate its commitment to harm reduction as part of its Transforming Tobacco strategy.

The Panel also encourages BAT to continue to expand its efforts to engage with regulators, the scientific and research community, policy makers, public health NGOs, consumers and the media, and to participate in meetings and conferences where productive engagement between stakeholders can be achieved. Transparency remains a key element in the transformation of the tobacco and nicotine space.

Finally, in this area as elsewhere, the Panel hopes that BAT will in future reports provide more measurable, detailed and articulated performance objectives. We note that this year’s draft Report was critically lacking in this area, even when compared to the 2016 Report. It was noted, for example, that BAT has invested US$2.5 billion since 2012 on NGPs, but how does that compare to other activities of BAT including its annual revenue? One way to highlight and provide these details would be through one of its prominently featured websites, such as bat-science.com .

Sustainable Agriculture and Farmer Livelihoods (SAFL)

The Panel welcomed the presentation of data on BAT’s Extension Services to farmers and information on how the Thrive programme  is developing. We look forward to seeing more output next year in this area. Similarly, we would welcome more disclosure on the use of short-term hired labour by BAT’s directly contracted farmers. We accept that there are practical difficulties related to the frequent and rigorous monitoring of these types of employment relationships, especially in less developed countries. However, we believe it is important that sufficient information is available for us to form a view as to whether this is a material issue. We note that the Sustainable Tobacco Programme  deals only with tier one suppliers.

In the area of climate change, we encourage BAT to develop a robust analysis of the risks of climate change in their major tobacco growing regions. As a first step, this could be done by use of Intergovernmental Panel on Climate Change  predictions for specific regions in terms of temperature and precipitation changes. Uncertainties should be acknowledged. Following from this, an analysis of the risks to production (particularly to smallholder farmers) is needed. Finally, the resilience to these risks should be assessed. We encourage BAT to produce something along the lines of a Focus Report on climate change. It may well be that the risks are minimal but, at present, except for some mention of extreme events and water scarcity, we feel they are not being given sufficient prominence.

Corporate Behaviour

The Panel commends the approach taken by BAT in response to comments made in last year’s Statement. The approach is clear and we were pleased to see in the sections of Delivery with Integrity, Protecting Human Rights and Marketing Responsibly some detail of how BAT’s approach is delivering tangible benefits through the highlighted case studies.

An omission is a description of the Company’s values, seen as a commitment to stakeholders, and how they are integrated in Corporate Behaviour – it is implicit but the Panel feels they should be more explicit. Likewise, providing more detail on the Standards of Business Conduct  would be beneficial to the reader.

The detail given on Speak Up  channels was welcome as this is a key area for all organisations. It is suggested that next year’s reporting on these matters follows best practice being developed by comparable-sized companies.

In discussion, the Panel learnt of BAT’s global approach to Corporate Behaviour, yet we are aware it operates in countries with weaker enforcement and governance mechanisms. This might be an area to develop in this section, so the reader might understand how BAT’s overall approach is applied within the context of different national regulatory regimes.

Other observations

The Panel welcomes the Report’s inclusion of information on occupational health and safety. In addition to the increase in the number of fatalities, which is well covered, we note with concern that overall health and safety performance seems to be on a negative trajectory. During interviews with senior BAT representatives we took comfort from the attention given to the topic, and we encourage continued attention to reversing the trend, as well as to report in greater detail in the future on steps taken to improving performance.

In addition to our observations on climate change stated earlier, we welcome BAT’s commitment to expand its understanding and measurement of its Scope 3 CO2e emissions with a view to improve its overall performance. However, we note that while BAT’s Scope 1 and 2 CO2e emissions  have reduced, the rate of progress seems to have stalled, raising questions about the trajectory to meeting its existing 2025 targets, an issue not fully clarified in the Report. We also note that as the Company’s business model evolves with greater sales coming from NGPs, emissions may increase. In future reporting, we expect BAT to clarify how the evolving business model may influence its carbon footprint, including Scope 3 emissions.

Concluding remarks


As a general comment, the 2017 Report  takes BAT forward and again helps the reader to get a picture of BAT’s approach to sustainability and its most significant issues identified by its materiality process.

Transforming Tobacco is a key development for BAT and the Panel is interested to learn how this will be integrated into the 2018 Report. This is made more complex given the multiple audiences of BAT’s sustainability reporting. Given the difficulty of providing clarity to all audiences the Panel suggests the nature of this Report is revisited, particularly in the light of the Performance Summary data feeling disconnected from what is said in the Report on some matters.

The Panel is grateful for the cooperation of BAT’s Group Sustainability team and senior management involvement.

March 2018

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