Tobacco Transformation Index Builds on SASB Standard

The Tobacco Transformation Index is a tool to accelerate the transformation of the global tobacco industry and the reduction of harm caused by tobacco use. The Index is a complementary action sponsored by the Foundation for a Smoke-Free World. Specifically, the Index monitors tobacco companies’ activities with respect to transforming the industry through:

  • Phasing out high-risk tobacco products.
  • Developing and responsibly offering reduced-risk alternatives to support current users in moving away from high-risk products.
  • Preventing access and marketing of such alternatives to all non-smokers and non-users of high-risk products, especially youth.
  • Ensuring consistency of harm reduction activities across markets.

The Index draws upon ideas developed by the Sustainability Accounting Standards Board (SASB) and other environmental, social, and governance (ESG) methodologies that have been applied to a diverse range of sectors. 

SASB has developed a set of 77 industry-specific sustainability accounting standards, one of which was designed for the tobacco industry. SASB defines the tobacco industry as comprised of companies that manufacture tobacco products including cigarettes, cigars, and smokeless tobacco. SASB standards are designed to identify a minimum set of sustainability issues most likely to impact the operating performance or financial condition of the typical company in an industry. Michael Bloomberg supports SASB in the role of Chair Emeritus. In his annual letter to CEOs, BlackRock CEO Larry Fink states, “While no framework is perfect, BlackRock believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues”.

With an exclusive focus on the transformation of the tobacco industry, the Tobacco Transformation Index goes further than the SASB tobacco standard. Specifically, the Index incorporates a broader and deeper set of metrics, drills into key performance areas, and offers the ability to objectively differentiate tobacco companies in a manner that will incentivize progressively more rapid change over time. The Index takes the added step of scoring target companies, regardless of their level of participation.

The SASB tobacco standard is built around several indicators covering:

  • Sustainability disclosure topics and accounting metrics: revenue, risk assessment, and marketing practices (policy and financial).
  • Activity metrics: volume of combustible and non-combustible tobacco product sales.

The Tobacco Transformation Index’s preliminary design is built around 7 technical categories and 12 subcategories, which include more than 40 indicators.

  • The technical categories used to organize the indicators are: Strategy and Management, Product Sales, Product Strategy, Capital Allocation, Marketing Code, Public Policy and Compliance, and Supply Chain Transition.
  • Indicators are incorporated based on relevance, feasibility, and materiality to transformation. They offer insight into company performance, commitment, and transparency. Performance indicators consist of measures of absolute value, relative value of high-risk tobacco products compared to reduced-risk alternative products, and rates of change over a multi-year period.
  • Each category, subcategory, and indicator is assigned a relative weighting, which represents an indicator’s significance to tobacco company transformation. Performance measures are assigned the highest weighting values. Relative and rates-of-change measures are assigned higher weighting values than absolute measures; this partly normalizes the impact of size. Performance categories, such as Product Sales and Product Strategy, represent historical performance. The Capital Allocation category is considered a potential leading indicator of future performance.
  • An important function of the Index is monitoring companies’ activities and performance across different markets to determine whether the companies are pursuing a consistent approach toward harm reduction within regulatory guidelines, or whether they are only transitioning within select (e.g., high-income) markets.
  • The Index covers the 15 largest tobacco companies, to be scored on a relative basis. Each company’s score per category is based on the score per indicator within that category and the assigned relative weighting; category scores are then summed up to the total score.
  • Following a period of consultation and review, final design details will be presented in a Methodology Report to be published in conjunction with the first Index release in September 2020.

Of course, a complete assessment of any company cannot be captured by a single score, and this is not the intent of the Index. The Tobacco Transformation Index will also include discussion of company performance — quantitative and qualitative — based on verified data and other observable evidence. The Index strives for objective balance, given there is no single infallible indicator. The aim is a set of indicators that together give the most objectively balanced view possible.

In summary, the Foundation views the Tobacco Transformation Index as supporting and building upon the SASB and other standards. The Index and the SASB tobacco standard share common metrics — sales volume, revenue, and marketing practices. The Index goes further in scope, assessment of relative measures, rates of change over time, and leading indicators; therefore, achieving greater insight and enabling stakeholders to more effectively evaluate the behavior of and differentiate between the tobacco companies.

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