british american tobacco p.l.c. sustainability report 2009 - Marketplace issues and how we manage them

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SUSTAINABILITY REPORT 2009

Managing marketplaceGlobally, over a billion adults consume tobacco products. We do not seek to increase the number of smokers in the world but to increase the size and value of our market share among adult tobacco consumers, to deliver value to our shareholders.

Given the health impacts of tobacco consumption, we agree that the manufacture, distribution, marketing and sale of tobacco products should be regulated appropriately. We recognise the need to demonstrate high standards of corporate conduct and to act in a responsible way within our marketplace.

Acting responsibly means addressing a number of areas including:

How our industry is regulated and engaging with regulators

We support effective, evidence-based regulation which helps reduce the public health impacts of tobacco consumption. We seek to be part of the debate that shapes the regulatory environment in which we operate, and to contribute our experience and expertise, particularly in areas such as illicit trade, product information and potentially reduced-risk products.

How our products are sold, our marketing practices and preventing underage access

While we agree that the tobacco industry should be regulated, we want to be able to communicate with adult tobacco consumers about our products in a responsible way. This means ensuring that our marketing is targeted at adult consumers and is not misleading about the health risks. One of the ways we address this is through our International Marketing Standards (IMS), which provide our companies with a framework for responsible tobacco marketing practices. They were developed in 2001, building on our previous Advertising Principles, and updated in 2007.

Tackling illicit trade in tobacco products

When cigarettes are smuggled across borders or counterfeited, governments and legitimate operators miss out on revenue and the market is destabilised. Since this trade is unregulated, cigarettes are also more easily available to the underage. Some stakeholders believe we encourage smuggling. We do not. It harms our business and we are committed to doing everything we reasonably can to tackle both smuggling and counterfeiting. The principal driver of illicit trade is economic – cheap cigarettes for consumers and profits for organised crime. Other contributory factors include weak border controls and ineffective sanctions. By providing information, intelligence and training, we believe we can support governments in establishing appropriate tax policies, strong regulation and effective enforcement to address these issues.

 

The cost of illicit trade

Illicit trade in cigarettes is a huge global problem, which is expected to grow as future excise increases encourage consumers to switch to cheaper products. It also provides greater rewards for criminals.
 
It is estimated that some 330 to 660 billion cigarettes consumed a year are illicit – either smuggled, counterfeit or locally tax-evaded. This is about 6 to 12 per cent of world consumption, losing governments some US$20–40 billion a year in tobacco taxes and losing legitimate tobacco companies some US$5–10 billion a year in revenue. Illicit product also poses greater health risks as cigarettes may be contaminated. They are also more easily accessible to the underage.

 
We have numerous policies and processes in place to help ensure we are meeting our stakeholders’ expectations of a responsible tobacco business. These include:

  • Ensuring that our engagement with regulators is consistent and transparent;
  • Adherence to our IMS, or local law if this is stricter;
  • Engaging with governments to encourage tobacco marketing standards at least as high as those in our IMS;
  • Youth smoking prevention campaigns; and
  • Supporting the introduction of minimum age laws of 18 for sales of tobacco products where no such laws currently exist.

Our approach to tackling illicit trade focuses on:

  • Effective internal governance;
  • Gathering commercial and business information relating to illicit trade;
  • Working with enforcement authorities to ensure that appropriate action is taken;
  • External stakeholder engagement;
  • Informing regulators about the impacts of illicit trade; and
  • Internal awareness raising.

It is Group policy that our companies and employees support only legitimate trade in our products. Our ‘Know your Customer’ guidelines and procedures are aimed at ensuring our companies’ supplies to markets are consistent with legitimate demand. We have provisions for ceasing to do business with customers or suppliers believed to have been complicit in illicit trade.

You can read more about our approach to managing marketplace issues on www.bat.com Opens in new window.