Supply chain management

The nature of our industry means that our supply chain has two distinct supplier categories: tobacco leaf agricultural and non-agricultural materials, goods and services.

For both areas, sustainability is integrated into our supply chain management strategies through our supplier programmes and risk assessments, which include environmental criteria, as well as other social issues, such as human rights and labour practices, and governance issues, such as suppliers’ policies, procedures and management systems and exposure to risks like financial crime, and illicit trade through the Coupa platform  .

Any contract with a value of over £150,000 requires suppliers to be evaluated against ESG criteria which has the weighting of  at least 10% of the total evaluation points.   Examples of the types of information we request include:

•  ESG policies
•  Climate Change mitigation targets and reporting maturity
•  Waste to landfill performance and reduction plans
•  Policies and procedures to ensure their activities meet minimum social standards e.g. labour standards
   

In 2022, we identified 841 significant  tier-1 suppliers representing around 40% of spend on tier-1 suppliers in our tobacco, direct and indirect supply chain. We also identified 232,821 significant non-tier 1 suppliers. We supported 176587 farmers in capacity building programmes, on child labour.

Tobacco supply chain

Tobacco leaf remains at the core of our products, so ensuring we have a secure and sustainable agricultural supply chain for the long term is absolutely crucial to the success of our business.

We have traceability down to the farm level and centralised management of our tobacco leaf supply chain. This enables an agile, efficient and reliable supply of high-quality tobacco leaf to meet consumer demand, while also enhancing the sustainability of rural communities and agriculture.

The majority of our tobacco is sourced by our own BAT leaf operations through direct contracts with over 80,000+ farmers. The remainder is from third-party suppliers that, in turn, contract with an estimated 190,000+ farmers.

The vast majority of tobacco farms in our supply chain are smallholder family farms of just two hectares on average. Our long-term sourcing model provides our farmers and strategic suppliers with stability and security, enabling them to invest for the future, as well as securing a sustainable, efficient and reliable supply chain for our business.

We set out our requirements for our leaf suppliers in our Leaf Supplier Manual (LSM). This includes a requirement for suppliers to take part in the Sustainable Tobacco Programme (STP), an industry-wide initiative that helps drive standards in agricultural practices, environmental management and key social and human rights areas. You can read more about these areas and our targets in this LSM 2024.

The LSM also addresses the use of agrochemicals (including an approved list of insecticides), and genetically modified tobacco compliance. We require all leaf suppliers to submit a risk assessment to help us identify the type and level of agrochemicals used, and to ensure there is no contamination of the crops by any genetically modified organisms (GMOs). This process helps us to identify the level of risk and determine how often a supplier should be reviewed to ensure compliance.

We also have a Standard for Organic Tobacco Production, which sets strict requirements for organic tobacco growing. Although we do not currently source organic tobacco outside the US, this standard would apply to any of our leaf operations and suppliers worldwide. It requires a crop to be independently certified, such as to the EU Organic standard or the US National Organic Program standard, to be classed as 'organic'. In the US, our subsidiary Reynolds American Inc. has an organic tobacco growing programme which requires growers to be inspected and certified annually by a US Department of Agriculture-accredited organisation.

Please see Sustainable agriculture and farmer livelihoods for detailed information on how we manage our tobacco leaf supply chain, including supplier assessments, farm monitoring, Extension Services and community programmes covering a range of economic, social and environmental issues.

Beyond the tobacco supply chain

Beyond tobacco, we source product materials like paper and filters for cigarettes and, for our New Category products, we have a growing supply chain in consumer electronics and e-liquids. We also have a vast number of suppliers of indirect goods and services that are not related to our products, such as for IT services and facilities management.

In 2022, we had 1,500+ direct materials suppliers, based in over 70 countries, managed by our global, regional and local Procurement teams. In addition, we have some 30,000+ indirect suppliers worldwide of other goods and services, such as machinery, IT and professional services, based in more than 150 countries worldwide.

We have a defined approach to identifying strategic suppliers, based on a range of factors including critical product components, supplier partnerships (such as for developing product innovations), and suppliers which represent a high volume or spend. Over 90% of our Direct Procurement spend is on strategic direct materials suppliers, and they all undergo an independent on-site audit, conducted by the global audit firm, Intertek, in order to be appointed as a supplier to BAT and then are re-audited every three years. The Intertek audit includes criteria covering forced labour, child labour, wages and hours, health and safety, environment and management systems.

We also use our integrated supply chain due diligence (SCDD) programme to assess supplier’s inherent risks, using a series of independent indices developed by Verisk Maplecroft, a highly respected risk analytics consultancy. We then prioritise those suppliers identified as being exposed to the highest risks for either a self-assessment or an Intertek on-site audit.

Additionally, in 2022, we partnered with external provider EcoVadis to expand our due diligence programme. This means that direct materials suppliers identified as higher risk continue to be audited by Intertek, while all suppliers outside Intertek's scope are assessed through EcoVadis.

Finally, we upskill relevant employees on our supply chain programmes by providing mandatory ESG training, including supplier facing roles. The training includes how we apply our circular economy principles to our value chain. In 2022, ESG-role requirements were included in our supplier facing roles’ skills matrix. We are analysing the data and will offer tailored training sessions to upskill where appropriate We work with external companies to deliver best practice training.

Please see Human rights and Modern Slavery for further details on our SCDD programme.