Advancing Industry Transformation
The purpose of the Foundation for a Smoke-Free World is to improve global health by ending smoking in this generation. Ending smoking means eliminating the use of cigarettes and other forms of combustible tobacco worldwide. Our task is urgent. More than a billion people still smoke worldwide, and more than seven million smokers die each year.
Our goal is to attain a transformation of the entire global tobacco industry and nicotine ecosystem. We define the nicotine ecosystem as the major players in the business of nicotine delivery through (1) tobacco products, including cigarettes, cigars and cigarillos, smoking tobacco, and smokeless tobacco; (2) vapor products, including open and closed vaping systems, as well as heated tobacco products; and (3) nicotine replacement therapy (NRT) smoking-cessation aids.
To accomplish this successfully, we must and will engage all players – including the Foundation’s critics – with the material ability to impact change for good. We will report all who impede progress in fair, verifiable, and systematic ways. We will encourage the development of metrics that investors and policy makers understand, value, and utilize. Impact on industry is a core pillar of the Foundation’s strategic framework, as illustrated by chart 1 on page 2, which comprises the Foundation’s Strategic Framework.
We believe now is the time to complement WHO FCTC efforts by further examining the necessary future transformation of the tobacco industry and nicotine ecosystem, as well as by considering ways to change the core products that are responsible for preventable premature deaths and numerous diseases.
We believe the investor community to be a powerful, yet underutilized, lever. Public company management has a fiduciary responsibility to maximize shareholder value. Therefore, investors have significant influence on management. A growing segment of the investor community is developing and applying Environmental, Social, and Governance (ESG) criteria in the investment process. In addition, some investors are moving away from the divestment approach, and they are opting to engage and influence controversial industries, companies, and stocks, rather than exit ownership. Reflecting the trend, the Sustainability Accounting Standards Board (SASB) has produced a provisional standard and proposed changes for sustainability accounting and disclosure for the tobacco industry. The SASB develops and maintains sustainability accounting standards for more than 80 industries in 10 sectors, including the tobacco industry.
By creating a direct relationship between a company’s transformation and shareholder value, while quantifying transformation through clear and transparent metrics, we can envision using a market-driven approach to incentivize sustainable change and to meet consumer demand for reduced-risk nicotine delivery products. Admittedly, the state-controlled and privately held manufacturers around the world are not responsive to investor pressure in ways that the publicly traded firms are. Our approach, in this regard, is to identify the major players and their significance. The Foundation will publicly highlight comparable data from all key players – publicly traded, privately held, and state-controlled – on whether or not they are making progress toward enabling a smoke-free world. The Foundation will specifically identify FCTC guideline violations by companies and support such reported violations by documented evidence. We intend for our program to facilitate serious discussions and actions by policy makers, particularly for the state-controlled entities that operate outside the bounds of investor influence.
The tobacco industry sells a deadly product. Some consumers are rejecting that product, while others are not, but the transformation of the tobacco industry can provide an enormous and crucial accelerant to the process of eliminating combustible tobacco. The large publicly traded tobacco companies, smaller privately held entities, and state monopolies around the world have combined revenues of nearly $800 billion dollars per year. They sell more than five trillion cigarettes annually, excluding illicit trade and locally manufactured combustible tobacco products, such as bidis in India. They deliver almost $400 billion dollars in tax revenue to governments. Tens of millions of farmers, and millions of factory workers, distributors, and retailers are involved in the supply chain. The global tobacco industry and nicotine ecosystem are massive.
We acknowledge that the tobacco industry’s track record makes engagement with it problematic. Rules of engagement with the tobacco industry are codified through WHO FCTC Article 5.3 and the associated guidelines. Unfortunately, progress in implementation of FCTC rules has, to a large degree, been unrealized. We agree that engaging with the tobacco industry requires utmost transparency and scrutiny. That being said, the Foundation has been criticized for accepting industry funding by way of a pledge agreement, although the agreement guarantees financial independence. We firmly believe that meaningful change cannot happen without the engagement of all stakeholders. Further, we believe that the industry itself can be impacted to deliver substantial progress toward harm reduction.
Given this background, the Foundation is calling for proposals to develop and implement the means to:
- Critically evaluate industry progress
- Assess actions taken to undermine progress toward a smoke-free world
Findings of such evaluations and assessments will be reported in an annually published Smoke-Free Index© report. The awarded grantee(s) of the Request for Proposal (RFP) will provide quantifiable evidence of how companies are addressing industry transformation. As part of this process, we anticipate the collection and compilation of verifiable metrics on research and development (R&D) of reduced-harm products, shifts in companies’ capital expenditures and marketing spending in support of reduced-harm products, investments aimed at phasing out cigarette production – and much more. The awarded grantee(s) will also deploy a systematic approach in collecting verifiable data and specific examples of illegal actions or those incompatible with good corporate practices. The grantee(s) will report unacceptable behavior demonstrated by clearly identified actors in a specific and quantifiable manner. The Foundation will provide open access to the finalized product of the grantee(s).