Ladies and gentlemen, thank you for standing by, and welcome to the Imperial Brands ESG webinar. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and one on your telephone. I must advise you that this conference is being recorded today. I will now like to hand the conference over to your speaker today, Peter Durman. Please go ahead, sir.
Thank you. Good afternoon, everyone, and thank you for joining us. I'm Peter Durman, Director of Investor Relations. This event is being recorded and the slides and transcripts will be made available on our website. The presentation will last about half an hour and be followed by a Q&A session. We recognize that investors and other stakeholders are increasingly scrutinizing the way corporates manage their environmental, social, and governance responsibilities. It provides them with additional insights into a company's purpose, strategy, and future growth potential. For us, managing our ESG agenda is not just a nice to do, it's a business imperative inextricably linked to our commercial growth strategy. ESG factors are not just a matter of ethics, they have a clear impact on the financial performance of the business.
In a moment, I'll hand over to Chief Executive, Alison Cooper, to explain our sustainability strategy and the approach we take to addressing our ESG responsibilities. This will include an overview of our top five ESG focus areas before we do a deep dive into one of them, Farmer Livelihoods and Welfare. This section will be hosted by Alex Parsons, Director of Group Communications. Group Sustainability is part of Alex's team, and he'll be joined by Surinder Sond, Group Head of Sustainability, and Warwick Evans, Senior Manager of Leaf Agronomy and Sustainability. All three were recently in Africa for an update on the work we're doing to support farming communities. Farmer Livelihoods and Welfare and the issue of children working on farms is the most important ESG topic we're asked about, which is why we've chosen to address it today.
In defining child labor, we're guided by the International Labour Organization, which describes it as work that is mentally, physically, socially, or morally dangerous and harmful to children. That it also interferes with their schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely, or requiring them to attempt to combine school attendance with excessively long and heavy work. Maintaining a sustainable supply of tobacco is vital for our combustible business as well as our NGP operations, as all the nicotine we use in NGP is sourced from tobacco. To give you some perspective, tobacco leaf represents about a third of the cost of producing a cigarette, so it's an important part of our cost base. The four other ESG priorities for Imperial are consumer health, climate and energy, waste, and human rights.
We plan to cover each of these topics in detail in future webinars. That concludes my introduction. I'll quickly draw your attention to the disclaimer on slide two. I'll now hand over to Alison.
Thank you, Peter, and good afternoon, everyone. Our group strategy is about generating long-term growth and maximizing sustainable returns to shareholders. It's aligned to our purpose of creating something better for the world's smokers and focuses on three key areas, tobacco, NGP, and cost and cash. We recognize the public health consequences of smoking and are focused on providing adult smokers with potentially less harmful alternatives to cigarettes. We understand the ongoing debate around investing in tobacco and welcome this opportunity to provide a closer look at what we're doing with our sustainability agenda. We're serious about sustainability. The tobacco products we sell may be controversial, but the way we run our business is not. As you can see from the slide, our sustainability strategy is central to our growth ambitions. It's fully aligned with our commercial ambitions and supports the business by enabling growth and creating value.
The strategy is also aligned with the UN Sustainable Development Goals and the Task Force on Climate Related Financial Disclosure, or TCFD. The UN 17 goals aim to positively transform the world over the next decade. The five you see on the slide are the most relevant goals for Imperial, and I will show you how they are addressed by our ESG focus areas later. In terms of the TCFD, we recognize this is an organization that is of growing importance to investors and other stakeholders. We already provide detailed climate and energy information on our website to complement what's disclosed in our annual report and within our CDP climate submission. We're committed to increasing disclosure and implementing the recommendations of the TCFD. We're very pleased with our 2019 CDP submission.
It captures the good progress we're making, and we look forward to the publication of the CDP scores next week. Let's now take a more detailed look at our sustainability strategy. The strategy focuses on three key areas. Firstly, a sustainable tobacco supply, maintaining sustainable agricultural practices to ensure a consistent quality supply of tobacco. Reduced harm next-generation products, which is about developing alternative products that are potentially less harmful to health. It's about responsible operations and people. This means behaving responsibly at all times and providing a safe and rewarding work environment for our employees. These three pillars define the approach we take to managing our ESG responsibilities. We take these responsibilities seriously and ensure that ESG considerations are integrated into business decisions. We're also more effectively embedding ESG matters into our risk management framework.
From a governance perspective, the implementation of our sustainability strategy is overseen by the board, the operating executive, and a recently established cross-functional ESG steering committee chaired by Imperial's Chairman, Thérèse Esperdy. At a group level, we have a central team that works with the board and other key stakeholders to set strategy and support its implementation by the business. The team is also responsible for monitoring and reporting on performance, which involves regular engagement with designated contacts in all main functions. We communicate regularly with employees to ensure they're kept updated on the development of our sustainability strategy and our core ESG focus areas. Our people are actively engaged, and I'm continually impressed by the contribution they make. They're passionate about doing things the right way and take great pride in supporting local sustainability initiatives.
This slide shows our material ESG focus areas mapped across the three pillars. These have been identified by Imperial and our stakeholders as being the most important for us to manage and represent the biggest risks or opportunities for the business. As you can see, some are specific to particular areas of operations, such as deforestation, which sits under the tobacco pillar, whereas others like climate and energy, health and safety and human rights extend across all three pillars. Last year, we convened an independently facilitated panel of stakeholders to discuss the approach we take to managing our ESG responsibilities. The panel included 14 stakeholder representatives from investors, employees, consumers, media, retailers, and suppliers.
The report you see on the slide is available on our website and provides an overview of the panel's feedback on the key discussion points, which were our sustainability strategy and ESG focus areas, the actions we're taking to support the UN Sustainable Development Goals, and the effectiveness of our sustainability communications. Overall, the panel felt we're making good progress and didn't identify any additional ESG topics we should be addressing. However, the panel did suggest removing three from the original list presented to them: regulation, illicit trade, and recruitment and development. Although important, these were seen as initiatives that didn't need to be explicitly managed within our ESG framework. Removing them supports a greater focus on our top five ESG priorities to reflect the panel's feedback. Going forward, we'll provide more information on how we're fulfilling our responsibilities in each area.
These are the five focus areas, and here you can see how we've mapped them to the specific UN goals they support. First is consumer health. This was considered critical to the sustainability of Imperial as a successful commercial business, and the panel felt every effort must be made to produce products that are potentially less harmful to health than combustible tobacco. We fully endorse this and are focused on delivering against our purpose by investing in R&D and science to develop a portfolio of high-quality next-generation products. As you know, we adopted a multi-category approach with vapor, heated tobacco, and modern oral products, and we have clear plans to deliver a stronger performance in 2020. Climate and energy was something the panel felt impacted Imperial across its value chain, from crop production to manufacturing and distribution.
At the time of the panel session, we were finalizing new long-term environmental targets for the next 10 to 30 years. These have since been disclosed on our website and in our recently published annual report. With our carbon reduction targets validated and approved by the Science Based Targets initiative. We'll come on to farmer livelihoods and welfare shortly. In terms of human rights, tackling child labor and strengthening our processes for mitigating modern slavery were seen as the key priorities. We're proud to be a founding member of the Slave-Free Alliance, or SFA. The SFA is part of the anti-slavery charity Hope for Justice, and works with businesses to help them achieve slave-free supply chains. Following the panel's feedback, we invited the SFA to review all the policies that underpin our modern slavery statement.
The SFA endorsed the good practices within our supply chain and also highlighted opportunities for improvement, which are being actioned in 2020. In facilities management, which can include security work and cleaning staff, was identified as an area where the potential for modern slavery is high. With the SFA's support, we're currently reviewing our procurement processes to ensure a consistent approach is taken to procuring facilities management globally. This will be supported by ongoing due diligence through a modern slavery audit module that we're developing this year. Finally, waste. With the rise of NGP, this was seen as an issue of growing importance. The panel challenged Imperial to explore ways of reducing packaging and to encourage consumers to recycle, particularly in relation to NGP.
With that in mind, we've commissioned an independent lifecycle assessment of our vapor product, myblu, which will examine all stages of the device's life from raw material to production, distribution, use, and disposal. The results will help us better understand and manage the environmental impact of NGP. In conclusion, we have a clear and compelling sustainability strategy that's aligned with our commercial ambitions and is embraced by the business. It's integral to the long-term success of Imperial and underpins our drive to create shared value for our stakeholders. I'd now like to hand over to Alex to host the session on farmer livelihoods and welfare.
Thanks, Alison, and good afternoon, everyone. As Peter said, this is an important ESG topic that we're regularly asked about, and it was a key focus area for discussion at the stakeholder panel session. At that session, there was unanimous agreement that farmer livelihoods and welfare were of paramount importance to sustainable tobacco production. The work being done to support farmers was, in the panel's view, vital for providing local communities with better incomes and higher standards of living, thereby reducing the risk of poverty and child labor. At this point, I'd like to bring in Surinder and Warwick.
Good afternoon.
Hi, good afternoon.
Hi, both. As our group head of sustainability, Surinder has played an instrumental role in developing our sustainability strategy, and she leads the team that monitors and reports on our performance. Warwick is our senior manager of leaf agronomy and sustainability based in Durban in South Africa. Warwick is a former tobacco farmer himself and spends the bulk of his time traveling the globe, meeting suppliers and farmers with a particular focus on Africa. We'll be concentrating on Africa today, but it's important to stress that the approach we take to supporting farmers is consistently applied around the world. Surinder, Warwick, welcome. Good to have you here. Warwick, let's start with you, if we may. Perhaps you could begin by giving us an overview of Imperial's tobacco sourcing.
Sure. We have a global sourcing footprint, which covers Africa, Americas, Asia, and Europe. Of these, our major tobacco sourcing countries include Mozambique, Brazil, India, and Spain. The vast majority of our tobacco, 97%, is sourced from third-party suppliers, with the balance coming from our own small vertical operations in Madagascar and Laos. Most supplier sourced tobacco comes from two international companies, Universal and Alliance One, with whom we have longstanding relationships built very much on a partnership approach. Our relationships with farmers is largely based through our major suppliers who we regularly visit. These visits include field trips to meet and greet the farmers, to observe their practices and operating environment, as well as to catch up with them in a transparent, open manner to discuss successes they're having and challenges they're facing.
We also recognize our role in working with suppliers to improve the livelihoods and welfare of our farmers.
Okay, we buy very little tobacco direct from farmers. That lack of vertical integration must create issues on the ground, Warwick, specifically, for example, when it comes to ensuring fair pay for farmers. How do you know farmers are not being exploited?
As I said, Imperial's relationship with suppliers is very much a partnership, and that extends to the farmers they have contracts with. We're committed to ensuring fair pay and working conditions that prevent exploitation. Farmers are businessmen and women in their own right, and I think that sometimes gets overlooked. They employ people, provide housing for their workers, negotiate with suppliers, and so on. They are running a business. As a result, the contracted farmers clearly understand their cost of production and the potential yields of crops and prices they're going to be paid. Based on that, they make decisions on whether to grow or not, and realize what they can achieve. Tobacco production is technically and physically demanding. Compared to many other cash crops, for example, cotton, tobacco is one of the most attractive crops for farmers to grow.
If tobacco was not worthwhile from a viability and profitability perspective, I'm not sure the farmer would be motivated to grow. Suppliers and contracted farmers with the support of local relevant national tobacco authorities agree a price matrix by grade for leaf to be purchased before setting out the crop for that season. We ensure we are aware of the farmer's cost of production and the logic behind setting prices by grade, so we can make sure the prices we're paying contribute to fair returns and margins. Farmers are then paid as per the agreed matrix by determination of the grades they deliver to the supplier for sale, with all grades and prices subject to arbitration.
As I understand it, there's also an integrated production system, IPS, that's there to support contracted farmers in maximizing their yields. Can you tell us a bit more about that, Warwick?
The IPS supports contracted farmers with inputs and technical advice to give them every opportunity to carry out sustainable agricultural practices, not only to ensure financial viability, but also to husband and protect the environment for future crops and generations. Every farmer in an IPS environment has a contract, and they're also required to have contracts with each of their workers. Our suppliers also have leaf technicians who work with farmers to encourage good agricultural practices, improve yields and quality, and ensure ESG compliance. I should add that the leaf technician's advice and support is not only limited to contracted farmers. Training is often carried out in groups, so uncontracted farmers in the area can also take part. They're encouraged to attend these sessions to enhance their understanding of good agricultural practices and compliance.
Surinder, turning to you now. One of the big issues facing these farmers is their ability to run a sustainable business against a backdrop of declining tobacco consumption. What are we doing to help this situation?
Sure. For many years now, we've worked with our suppliers to support tobacco farmers to grow alternative crops. Some of these crops include vegetables, sunflowers, nuts, maize, honey, and beans. In fact, we saw some of the peanut and beekeeping operations on farms in Africa last summer. Truly wonderful tasting honey, I should add there. In almost all regions, farmers will not monocrop, and this means that tobacco will not be the only crop they grow. Farmers will grow other food or cash crops alongside or in rotation with tobacco, which are often agriculturally complementary to each other. These crops are either consumed by the farmer and his family or the local community, or sold for extra income.
Through our supplier support, the farmers and their crops, where they support these crops through the various purchasing agreements, offering a route to market, which then supplements their income as tobacco volumes decline.
Okay, thanks for that. Let's now move on and talk about child labor. Critics say tobacco companies don't care about the plight of children working on these farms. Surinder, what do you say to that?
Nothing could be further from the truth. In fact, I think you'd be hard pushed to find any agricultural industry, be that cotton, cocoa, or tobacco, where child labor is accepted. We are totally opposed to child labor. As Alison said, human rights is one of our five ESG focus areas. Our respect for human rights extends throughout our operation, and tackling child labor is a key priority.
Okay, what are we doing about it? Give us some examples.
Well, as you'll know, child labor is an incredibly complex issue with deep-rooted systemic issues such as poverty, inability to access infrastructure, and labor requirements. As such, we have three main avenues we use to address child labor. Firstly, we have the industry-wide Sustainable Tobacco Program or STP. Here we insist on higher supply chain standards and require all of our tobacco suppliers and associated farmers to participate in this program. Secondly, there's our Leaf Partnership investments. Here we seek to understand some of the root causes that can lead to child labor and invest in programs that positively support farmer livelihoods. Thirdly, there's our funding and participation in Eliminating Child Labor in Tobacco Growing Foundation or the ECLT.
Okay. Let's get into a bit more detail on each of these, starting with the STP. What specific areas does this program look at?
Sure. The STP aims to drive consistently high agricultural practices in a number of areas, such as environmental management, governance, labor practices, and human rights issues, which of course includes child labor. The labor practice pillar is based on the International Labour Organization's declaration on the fundamental principles and rights at work, as well as other relevant ILO conventions. The STP is an industry-wide framework for continuous improvement and involves self-assessment questionnaires, improvement plans, and independent reviews. We use the information provided through STP to inform our supplier ratings, focus interventions, and support dialogue with suppliers. If a supplier fails to meet the minimum performance requirements, our preference is to work with them to raise supply chain standards.
Can you give us an example of where supplier standards have fallen and the action that Imperial has subsequently taken?
Sure. In 2017, during an STP audit, we were disappointed to find instances of child labor at the farm belonging to one of our premium cigar leaf suppliers in Nicaragua. Since then, we've been working with the supplier company to improve processes through corrective action plans. This includes things such as introducing contracts for temporary staff, better signage around the farm to make it clear that child labor is not acceptable, and maintaining better documentation of farm workers. Our Leaf Sustainability team revisited the supplier in 2018 and 2019, we're pleased that no repeat signs of child labor have been found, but importantly, that the supplier continues to enact all of the areas of the corrective action plan.
Great. The STP has been in place for some time now, and while it's been a very effective tool, I wonder if there are any areas where you think it could be improved.
Absolutely. We're currently working with others in the industry to redefine our requirements for the STP framework. The STP 2.0 is being developed at the moment, focused on material sustainability aspects within tobacco growing. Through using a risk-based approach, the industry-wide steering committee is working with subject matter experts, as well as our suppliers, to ensure positive impact and continuous improvement on the ground. Through these developments, our aim is to further enhance the transparency and reporting of our sustainability impacts, and we'll be working hard with the industry steering committee to make the necessary improvements in 2020.
That's STP. If we may, let's now move on to talk about the Leaf Partnership program. What sort of projects does this program support?
Working with our suppliers, these investments are typically allocated to farming communities identified as having the most need. Here we seek to enhance farmer livelihoods by addressing some of the root causes affecting farming communities, including those associated with child labor. To give you an example, in recent years, we've been working with our suppliers to provide tobacco farming communities with access to clean water and water storage facilities. Through the construction of boreholes, dams, weirs, and ponds in water-scarce regions, we're providing tobacco farming communities with access to water all year round, regardless of drought and other climate-related impacts. This means that the farmers are able to produce healthy seedlings, have food security, that they can water their vegetables during the dry season, and continue to supplement their income.
Local biodiversity is also encouraged, and very importantly, it means that we're reducing labor requirements, as children are often involved in the fetching of water.
These projects are having a really positive impact on local communities. Warwick, you've been involved in many of them. Can you give us an example of the Leaf Partnership program in action?
Yes. I can think of a recent one in Malawi. These investments are largely focused on farmer viability and welfare. In my experience in rural communities, I see nothing as more important than clean drinking water and water sources supporting agricultural production. We identify the communities and the need, and in this case, the village we visited in Malawi had no access to clean drinking water. Fortunately, underground water was found in the village, and we financed the drilling and dressing of the borehole. The borehole was handed over to the community, who are required to take responsibility and manage it on behalf of the village. Generally, small committees are formed to do this, and our continual monitoring of the investments through our suppliers demonstrate they appreciate the value and take good care of the installation.
To reiterate Surinder's point, this not only secured the village a constant supply of clean, fresh water, it also means their children now don't have to walk four miles twice a day to fetch it, therefore reducing child labor and enabling the children to go to school.
Thank you. That's STP and Leaf Partnership. There's also the ECLT, the Eliminating Child Labor in Tobacco-Growing Foundation. Surinder, Imperial is a longstanding member of this organization. We continue to fund it. Is it money well spent?
In a word, yes, it is money well spent. As well as projects on the ground, the ECLT plays an important role in convening broader stakeholders, including governments, the wider industry, farm workers, and the International Labour Organization, to really come together to ensure sustainable solutions to address child labor. As I have stressed before, child labor is a complex issue that no one single player is going to solve in isolation. Advocacy and stakeholder engagement are key here, and this is something the ECLT team do well.
It's an important organization that's going through an interesting transition, building on their vision to, and I quote, "Combat the root causes of child labor in tobacco-growing communities." They also recognize their broader remit in creating, and again, I'm quoting here the ECLT directly, but "Creating thriving agricultural communities where tobacco is grown." This links back to my earlier point on alternative crops. These farming communities don't just grow tobacco, and child labor isn't just found on tobacco farms. We see this as a positive development, and it further evidences ECLT wanting to broaden its remit to generate wider debate and action on the issue of child labor. This issue is not unique to the tobacco industry.
Warwick, it's clear we're totally against child labor, and there's a lot going on to address it. The stark reality is it's still happening. What action does Imperial take when children are discovered working on farms?
You're right to call that out, Alex. Child labor is a reality of life within rural farming communities, no matter what the crop. In Africa, the average family size is seven, mom, dad, and five children, some of those children will inevitably end up working on the farm to support the family business. The key question is, how do we deal with it? Through STP and other programs, suppliers monitor contract farmers to educate them on labor practices and the need to avoid child labor. If incidences of any non-conforming practice are observed, they are immediately reported. The technician and the supplier then work with the farmer to put in place remedial action to prevent any further incidences, with the whole exercise driven by awareness and education.
Imperial or its suppliers wouldn't automatically cease trading with a farmer who allowed children to work on his farm.
No. We think education and understanding are better approaches. We try to find solutions together with our suppliers to help the farmer avoid relying on children. After that, if there are further incidences of child labor, then yes, we would have to consider our position. As I said, our preference is always to work with the farmers to find remedial action and solutions.
Thanks, Warwick. Surinder, if we may, let's cover one more topic before going to Q&A. How do we keep farmers safe? By that, I mean safe from the chemicals used for pesticides and safe from the potential exposure to Green Tobacco Sickness.
Through the Sustainable Tobacco Program, we promote a safe working environment for suppliers and farmers. Crop protection agents, or CPAs, are chemicals needed to ensure healthy crops and minimize the risk of spreading pests. Our suppliers provide a small amount of CPA to farmers based on the size and type of crop they're growing. Farmers are then supported with training on how to apply CPA, how to safely store the litter that they've been provided, and then how to safely dispose of it. In fact, farmers producing tobacco for our cigarettes only use the very essential chemicals, and the crops purchased from our suppliers have very few and low chemical residue levels. In terms of Green Tobacco Sickness, our suppliers ensure that workers understand this risk and apply measures to prevent it.
This can include communication and training on safe working practices on farm, staying hydrated, and using the provided protective wear. Through engagement with our suppliers and the STP, we influence the high supply chain standards we expect and take the welfare of our farmers very seriously.
I wonder if you could give us some examples here. What does this engagement look like? How do we ensure that we effectively communicate these important topics to farmers?
Sure. In our experience, farmers are very receptive to working with us and our suppliers. One example I've seen working really well is the use of drama groups to help communicate the importance of adult-only labor and safe farm working. This involves actors using humor and interaction to bring these topics to life and help support educating farmers. Engaging farmers in this way overcomes any language or literacy barriers that may exist, and it is essential in ensuring that key messages around health and safety and labor practices are genuinely understood and can be effectively implemented. Ultimately, health and safety is incredibly important to us. It's not an optional extra. It's an absolute business imperative. Success for the tobacco farmer is integral to the long-term sustainability of our business.
Surinder, Warwick, thank you very much.
Thank you.
Thank you.
As you've heard today, our sustainability strategy is central to our growth aspirations. It's fully aligned with our commercial ambitions, and it supports the business by enabling growth and creating value. I hope this has been a useful insight into the work we're doing to support farmer livelihoods and welfare. There's further information on our corporate website if you'd like to find out more. I'll now hand back to Peter to chair the Q&A.
Thanks, Alex. We'll be happy to take questions now. I now hand back to the operator to facilitate.
Thank you. Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, if you wish to ask a question, please press star and one. The first one is coming from the line of Nico von Stackelberg from Liberum. Please go ahead.
Hi there. That's Nico von Stackelberg from Liberum. Thanks for your time. I'm not sure if this is the place to be asking about waste and consumer health, folks, but just want to ask a quick one on extended producer responsibility schemes in Europe and single-use plastics issues relating to regulation in Europe, and it could be affecting some of your main markets like Germany. Could you help quantify the rough financial impact of these sorts of bits of legislation? Maybe could you just take a step back as well and tell us how we got here in terms of extended producer responsibility schemes being imposed on the business? Then I have a second one as well. Thanks.
Sure. If I begin with the EPR schemes currently in Europe. You may be aware that many of our markets are already subjected to EPR schemes around packaging, and that's something we've done for a number of years. In terms of the single-use plastics directive that's coming in, and then particularly the EPR schemes related to that, of course, we can't quantify that measure yet as we're still waiting on guidance from the European Commission on what that will look like. This is a topic that we're following closely, and as more information is available to us, of course, we'll be communicating on that.
Okay. The next one's on consumer health and offering something better to smokers. I'm quite interested in the modern oral category, and you have a wonderful brand there with Skruf, and I was wondering, do you expect to file PMTA for Skruf in the U.S.? If not, why not?
Yeah, I think modern oral is an area where we've had some very successful launches over the past year or so. It's an area that we're looking at. I can't comment specifically on future plans for market launches of today. We're not likely to comment on those until we do them. I won't comment specifically on that one. We haven't submitted a PMTA process at the moment in the U.S., as you'll be aware. Clearly, we are looking at that space more broadly, and as you know, as we said earlier in the presentation, we've adopted a multi-category approach, and modern oral is part of that portfolio product. I think that's all I can comment on that today, I'm afraid.
Okay. I guess just a final one, just from my notes here. In terms of contributing and staying on top of the Imperial Brands stakeholder panel statement, I know you included some banks. I imagine you didn't include all of the banks that were included in the engagement. What's the best way to stay tuned to this in the future?
Well, we had a couple of banks that came along to the stakeholder panel session. I think the easiest thing is to take this offline and have a conversation to make sure that we properly understand your requirements and make sure that we can meet those. Very happy to do that.
Excellent. Thank you.
Next question is coming from the line of Thomas Grillenberger from Allianz. Please go ahead.
Yeah. Good afternoon. Thanks for taking my questions. I have two on the supply chain, the topic of this webcast. I'm wondering if you're planning to disclose statistics about the discovered child labor incidents, probably via the data you get from the STP. If so, by when? Related to this question would be whether we can expect some more specific targets, actually, how you want to reduce child labor or the failure to provide PPE, for example, so that we can track actually how you proceed with regard to achieving these targets.
Sure. If I begin with STP more broadly, I think through the developments that we're currently undertaking through STP 2.0, that's absolutely the ambition, is to be able to be more transparent in terms of some of the impacts we're seeing on the ground. Of course, child labor will be one of those issues. That is work in development. We're hoping to have that towards the end of 2020. Of course, once the data's in, we'll have to take a view on whether that falls into this year's reporting or next, but it's absolutely something we're working to. Warwick, do you want to add anything on the KPIs?
Well, I think you've covered it very well, but obviously, an outcome of the new STP 2.0 will be the KPIs that we're going to set.
Yeah.
Okay. Thank you.
Next question is coming from the line of Blaine Abraham from Allianz. Please go ahead.
Hi there, team. Thanks for having this podcast, I mean, webinar. One thing I just wanted to build on what was saying was, what other metrics do you measure as part of all of these schemes that you do? Will you release these sort of numbers in a broader sense, not just child labor incidences, but all of the metrics that you look at?
If we're talking broader KPIs in terms of our ESG agenda, yes, we're absolutely looking at that at the moment. We've got our five focus ESG priority areas that Alison mentioned in that presentation today. Absolutely, the ambition is to have meaningful KPIs behind all of them. In terms of environmental KPIs, you'll see that we've reported many of those for a number of years. Yeah, absolutely, that's work in progress.
Do those kind of KPIs include recidivist rates? For example, if you know a child labor, and then you intervene, whether they repeat those offenses in future?
Sorry, I missed the first bit of that. Could you just repeat your question?
Do those metrics include recidivism rates?
Well, the metrics that we're developing, that's something that we do look at. Of course, we track where we've had instances of child labor and obviously the corrective actions plans we've done. As I mentioned in that example of Nicaragua, once we've gone back to a supplier to see that the corrective action plans have been implemented, of course, that metric then demonstrates that whether we're a repeat offender or not. Of course, because that then features into our purchasing agreement, if that supplier continually fails to meet the requirements, as Warwick mentioned, obviously it then has an impact on whether we choose to purchase with them or not. Yes, the KPIs do look at that, but again, that's something we use internally. What we're trying to do with STP moving forward is really look at KPIs that we can be more transparent with publicly.
Warwick, perhaps is it worth you just talk a little bit about what actually happens on the ground, with the technicians that are out in the field, when they see evidence, what the process is for managing that?
Yeah. Well, a big part of the technician's role is not only supporting the farmer technically, but actually ensuring the farmer meets the compliancy requirements that the supplier expects and that we expect from the supplier. When a technician visits a farmer, he looks at everything, like example, like the child labor, like water, what the farmer's practices are. For example, the construction he's using to cure the tobacco. I'll give you an example, if you're talking specifically about child labor. There's a number of observations that a technician will make.
For example, if there's a child walking home from school and he happens to be walking through the field of tobacco, the technician will note this as a non-conformance, and then he will go onto the farm, and if the child is perhaps carrying some tobacco or perhaps helping out or something, then he will also note this as well. Those will be, if you want to use the word, graded, and you will determine, okay, what. There may well be 15 or 16 or 20 notifications from that visit. What the technician will do is that he will get his agronomy support to come to the field, and they will look at the notifications, and if you consider, yes, the child was just walking home from school. Really, a child walking home from school through a field of tobacco is not child labor.
If he is involved in the other production, they will make the notification. They will effect a prompt action, which will be immediately discussing with the farmer what they've seen and what to do about it, and what's allowed or not allowed. Also what we need to keep in mind is that technicians and the farmers are also aware of what work the children of certain ages are allowed to do. That also needs to be taken into account when you are investigating this. It's not just a case of looking and seeing a child of a certain age either walking through the field or doing something in the field. It's taking everything into the account. What was that actual child doing there? How old is the child, and what is going on in the field? It's a very thorough investigation.
You can determine, yes, this is something that we needn't be concerned about, or yes, this is something we should really be concerned about, and it's something we need to do about it.
If there were repeat offenders in that case, you would obviously take action, potentially.
Yeah, you would. I think our suppliers are really good at not only taking the prompt action, but to follow it up.
Yeah.
Like I said in the conversation that we had before the Q&A. It really is the best opportunity, work with the farmer to find a solution. For me, and I do encourage with our suppliers, last resort is taking contracts away from these farmers. If they are serial offenders, then quite frankly, you have to make a call. What we are finding is that the farmers are generally receptive to being approached, educated, and being made aware of these non-conformances.
Thanks.
I understand. There's quite a qualitative aspect to it as well. Knowing all of that, how many farmers or suppliers have you dropped in the last, say, three years?
Off the top of my head, I do know, and I can tell you that we have rationalized our supplier footprint. Off the top of my head, a number, I'm afraid I can't give that right now.
We can come back.
We can come back with that.
Come back with that then.
Okay. Thanks.
I would also like to follow that up that we have also taken on suppliers.
Understood.
Next question is coming from the line of Peter Silver for Evercore ISI. Please go ahead.
Hi. Yeah, I just wanted to know, how does this sustainability strategy tie back directly to your executive remuneration?
Well, that's something that we're actually looking at at the moment actively. There are discussions going on within the business. That's not in play at the moment, but we are actively working towards it being in play.
Are you able to give an idea of which kind of areas you'd be focusing on as well?
I think it'd be premature to go into detail on this call. As I say, it is actively being looked at. The whole NGP piece is already, which links with consumer health in terms of our ESG focus areas. That's already part of the KPI structure. As I say, we're looking at it, and as soon as we're able to give more information on it, we will.
Okay, thanks.
Next question is coming from the line of Thomas Grillenberger from Allianz. Please go ahead.
Yeah, I would like to get back to the STP for a moment. I've read that on average, the visit or the audits takes place every three years, and that sounds quite low to me. First of all, I was wondering whether these visits are actually unannounced. Secondly, whether you think that this level of frequency is sufficient to really discover the prevalence of child labor on the farms.
You are correct. Now, just to give you a full picture of the STP. We are reviewing it now, but what has been the case in the past three years was that every year, each supplier was required to do a self-assessment, and then there was a three-year cycle of reviews. You're correct there. A lot of these, most of the review was desk-based, but if the auditors went to visit farmers, the visits were unannounced. One of the reasons why we are reviewing the STP program is that we want to improve the impact and the frequency of the reviews. Actually, to make it less important about the self-assessment, but more important how we use the information from the self-assessment, assess the risk on the ground, do the audits, and then define the impact we can affect.
There are no more questions at this time. Please continue.
Sorry. There are no more questions, you're saying?
Yes, there is no more questions.
Great. Okay, well, I'd like to thank everyone for joining today and the time that today's presenters have given. Please do not hesitate to contact us if you have any follow-up questions. We do plan, as we said earlier, to cover other aspects of our ESG agenda in future webinars. We'll keep you posted on these. To help us with that, we will be sending out a brief survey after this webinar concludes, just to seek your feedback on that and what other particular areas you'd like us to explore in future. Thanks for everyone for their time today, and look forward to catching up again soon. Thank you. Goodbye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.