The tobacco industry is beginning to take decisive steps toward reducing the harms associated with combustible tobacco use, not by engineering a "safer cigarette" but by transforming their businesses to reduced-risk products such as vaping, oral tobacco, and heat-not-burn. In today's interview, we discuss the Tobacco Transformation Index, a tool that measures tobacco companies' progress toward a smoke-free world.
Int. Co-President, Foundation for Smoke-Free World
Program Officer, Tobacco Transformation Index
Hi, I'm Brent Stafford and welcome to another edition of Reg Watch on GFN.TV.
If you listen only to establishment voices within tobacco control, you naturally would
be suspicious of Big Tobacco and its promises of reduced risk products.
After all, so the story goes, Big Tobacco was less than truthful about nicotine and
its addictive nature.
They fooled the public with so-called light or low-tar cigarettes, and the industry's
decades-long quest for a safer cigarette proved nothing more than a smokescreen.
For these reasons and others, tobacco control feels burned by the past promises of the tobacco
Yet here we are in 2023, and many of the world's largest tobacco companies are in a race to
reduce the harm caused by tobacco use via new safer nicotine products like vaping, oral
tobacco, and heat not burn.
Joining us today to discuss the progress tobacco companies may or may not be making towards
risk-reduced products is David Janazzo, interim co-president at the Foundation for a Smoke-Free
World and program officer for the Tobacco Transformation Index.
David, thanks for coming on the show.
So here on RegWatch and GFN.TV
we talk an awful lot all the time about tobacco harm reduction, but your work with the Tobacco
Transformation Index actually measures it.
Tell us about the index, how did it start, and what's its purpose?
The Tobacco Transformation Index aims to accelerate the reduction of harm caused by tobacco use,
and it does so by ranking the relative progress or the lack thereof of the 15 largest tobacco
companies in the world.
It's conducted in two-year cycles.
The most recent index was published last fall, the 2022 version of the Tobacco Transformation
We did not invent the concept of an index, the benchmark, a league table.
These are concepts that have been around for a while and, indeed, have been implied with
some effectiveness to other industries and sectors, including some controversial ones.
We're taking these learnings, we're taking these best practices and attempting to apply
them to the tobacco industry with the objective of monitoring and tracking tobacco company
commitments and performance over time.
Let me ask you, David, about the theory of change and measuring the horse race.
What does that mean?
We're assuming that the companies, really the managers and the owners of the companies,
will operate in their self-interest.
We don't perceive that they'll operate for the public good, although we think in this
case that the reduction of harm caused by tobacco is in the benefit of public health.
We assume the companies will operate in their self-interest.
With that, there are some levers that can be encouraged through research like the index,
one being competition, to incentivize competition across the companies to perform better than
a peer or what we often hear from folks that we dialogue with is not good versus bad as
it pertains to tobacco, but bad versus less bad, but competition, comparing one to the
Two is differentiation.
Your opening remarks went back to a time of a tobacco industry that was viewed as a monolithic
entity moving in lockstep for harmful purposes and well-documented and known and understood,
but I think what the index is showing is differentiation is forming.
Companies have different strategies, different levels of execution, different levels of transparency,
and that's coming forth in the index.
And finally, the concept of constructive engagement.
I personally don't believe, and the foundation's view as well, is that divesting and bans are
not part of the solution.
The smoking epidemic, the problem is too large, too vast, too ingrained in a billion-plus
smokers and wishing it away is not a feasible solution.
So data analysis in the hands of any and all investors, researchers, media who have some
influence ultimately over the companies and their managers and the owners through some
level of engagement is preferable to, in essence, ignoring the problem.
Is that objective, then, the complete elimination of combustible tobacco use?
Well, I think in that case we get to the foundation, the foundation for a smoke-free world.
Its mission is to end smoking in this generation.
The index is one of three areas in which the foundation allocates its funds, and roughly
in rank order of doing so.
Health and science research is what we allocate most of our funds toward.
Agriculture diversification, helping smallholder tobacco farmers diversify transition away
from tobacco, and we're doing this work in Malawi.
And then industry transformation as executed through the Tobacco Transformation Index.
I also happen to be the CFO of the foundation, and you can expect to see our financial report,
what we've accomplished in 2022 and how we allocated our funds, as well as some plans
for going forward.
That information will be made publicly available in the coming months, specifically in May.
Let me ask you, then, about the foundation for a smoke-free world.
The index is a project of the foundation, as you said, and some in tobacco control have
concerns regarding the foundation's funding.
What can you say about that?
We've heard time and again through our stakeholder consultation that the credibility of an index
is based in large part on the avoidance of perception of undue industry influence, including
We understand that, and we've been very clear and transparent, and anybody who knows us
knows that the foundation is funded through Philip Morris International.
We take that head on, and in our view, and shared by many of our dialogue participants,
while industry funding in connection with the Tobacco Transformation Index is not ideal,
we believe it's preferable to the alternative of no action, of doing nothing in this case,
because the scale, the urgency, and the persistence of the harm caused by tobacco requires new
approaches, and the index is one vehicle, complementary to many others, to accelerate
the material progress toward the reduction of harm.
Isn't the big issue here is that some people just don't believe that the tobacco industry
has any place in the future?
They want to see the industry gone, and any kind of involvement with safer nicotine products,
reduced risk products is seen to be very suspect, and so how do we get over that?
That's a tough one.
I think you're correct in your observation.
I think there is a point of view that the tobacco industry, because of their past bad
deeds, well-documented, does need to be eliminated, is not part of the solution, that the programs,
technologies, products that they're bringing to a market now are yet just another ploy
to continue to addict users on nicotine so that they can sell their products over time.
I think it's a lot more complex than that.
We're familiar with the statistics, a billion-plus smokers and users of tobacco worldwide, eight
million-plus deaths per year, some 80% in low- and middle-income countries.
Unfortunately, the problem won't solve itself, and so we're attempting to bring new tools,
new solutions toward solving that problem.
Now, we last discussed the Tobacco Transformation Index on this show back in 2020, and at that
time the index showed marginal progress by tobacco companies in reducing the harm of
Now, two years later, has there been any change?
Still early stages.
I would say there's been incremental, incremental move.
This problem will take a long time, a long time to find adequate solutions to, but now
we have two indexes.
We have the 2022 version, which actually measures results over the period of 2019 through 2021,
and we can compare that to the set two years prior, which was released in 2020.
Still early stages.
You know, I think we're seeing some factors form in the areas of differentiation and early
momentum toward harm reduction.
Overall, you know, I would say marginal, incremental movement, so comparing the scores of the companies
from 2022 versus 2020, and there were some slight changes to the methodology in 2022
that we disclosed, and so we restated the prior results to make that apples and apples
Ten companies increased score from one to the other.
Five companies decreased.
Let me make a point here.
The index is a relative measure on a scale of zero to five, so it's really not a value
call on good versus bad.
It may be bad versus less bad, but it is a tool to compare, you know, on a relative basis
companies' level of commitment, performance, and transparency, and then observe changes
So we're the second round in.
We can compare that to number one, and we're actually in the early stages of planning the
third index, which we will release later in 2024.
Yeah, and I've just got some of the slides up that we're seeing of the index, and over
here to the key findings, and just to reiterate that the tobacco industry has not phased out
high-risk products or transitioned smokers to reduced-risk products quickly enough to
achieve the goal of ending smoking in this generation.
So, I mean, that's pretty strong.
I mean, it's not happening yet.
It's not happening fast enough.
I think the data and the analysis shows that.
For example, in 2021, across the index companies, still at that point, 95% of what they sold
by volume is in the category of the highest-risk tobacco products, basically combustible tobacco
and other toxic forms of smokeless as well, but 95%, which means that only 5% of what
the largest tobacco companies sold in 2021 was among the reduced-risk products.
Now, some did more, some did less, but you're still 95% selling the most harmful of the
products at this point.
I think one of the most illustrative slides that you have is the ranking by product sales,
as you were just talking about, and you do really see, actually, though, that there are
some companies that are making the move.
So Swedish Match, which divested its cigarette business a couple of decades ago, has been
the leader due to its smokeless variety of tobacco and nicotine products.
Swedish Match, of course, was recently acquired by Philip Morris International.
We published the index before that acquisition happened.
To your point, you see some other moves among the multinationals.
Some are a little more aggressive with it than others.
Others have had missteps, move forward, move back, and then, to the right half of this
slide, so to speak, very little, and in some cases, no action toward tobacco harm reduction.
Now looking at the right side of that slide, it's pretty clear that there are some commonalities
between the companies that are not really participating at all.
They seem to be from certain areas of the globe and from companies that are owned by
What can you say about that?
It's a rather complex issue, right?
So you would look at the data, you would look at the analysis, and say, for the most part,
the publicly traded multinational companies are at the upper half of the ranking, if you
They're obviously responsible to shareholders and other stakeholders.
They have fiduciary responsibilities and such.
As you do get to the lower portion of the index scoring and ranking, you see a number
of the state-owned players.
You see a number of the privately held companies around the world.
It's a more complex theory of change.
We have not cracked that code yet, and actually we'll be looking to a dialogue with stakeholders
on it, but it's a clear observation.
Are these products, these reduced risk products, for those companies, say, in the West that
are really participating in this transformation, could we actually assume that they might actually
replace combustible cigarettes in terms of actual product sales, revenue, and profit?
Over the long term, I do think it's possible, and so even to the extent the index is putting
forth this data, investors, I've seen some conduct analysis that say investors are willing
to pay more on evaluation measures such as price-to-earnings or a so-called P-to-E ratio.
What is an investor willing to pay for a dollar of earnings?
We see investors willing to pay a little more for companies that are a little more aggressive,
more advanced in their development and application of tobacco harm reduction in their products
versus those that are not.
Investors at this point are making that bet, look, it's a long haul, and in some cases
we're looking at leading indicators on the part of the companies in terms of capital
investment, research and development, M&A.
Some are more aggressive, others more hesitant, and no doubt it'll be a long haul.
You've got a great slide here for the 2022 index versus 2020.
These companies, we don't see how much they're investing, but we're seeing them in relation
to each other.
What can you say about the relation, and are we talking billions of dollars here?
You are talking billions of dollars, so on a relative basis, again, consistent with the
ranking and scoring as developed by the Tobacco Transformation Index.
It's the publicly traded multinationals at the top, and there is some differentiation
We look at the capital allocation category, research and development, capital expenditures,
M&A as a potential leading indicator, necessary but not sufficient.
It's possible that some of these investments may not bring returns that the companies hope
that it's possible that companies could change their strategies or tactics down the road,
but we look at it as a leading indicator such that product development and product sales
will follow, and as part of the Tobacco Transformation Index, which is actually much more than that
rating and ranking.
There's a whole series of research and reports that go with it.
Within the main index report are a series of company scorecards, one per 15, which do
bring forth some of the statistics that you're referencing on product sales and capital investment.
Do the tobacco companies participate in the gathering of data and so forth for the index?
The 15 companies are invited to participate.
We do this for obvious reasons.
We do this in a very carefully controlled and documented manner.
It's conducted by the foundation's index research partner, Euromonitor International, and Euromonitor
invites the 15 companies to participate.
We've conducted this cycle very similarly, index one and index two.
They're invited to participate, but only in a particular way, and that is to provide input
on the methodology, the design of the index, and to provide comments on the data compiled
by Euromonitor as it pertains to that company, no others.
In the second cycle, six of the 15 participated to some degree, which means nine did not participate
That is documented, the nature, the content, the timing of those interactions is documented.
As well as some of the content, we grouped together some of the key comments, feedback
that were received from the companies and how the index dealt with it.
We feel that having the index informed through the knowledge and the expertise of the companies
done correctly, done properly, done transparently, is a benefit to the process and the product.
David, I'd like to turn now to a discussion about the bans that have been going on worldwide.
You look at the ranking of product sales, the 2021 ban on reduced risk products across
the 36 countries in the index scope, and it is something that we should be talking about
here because there's plenty of countries that have been moved to either ban e-cigarettes
or ban heat not burn, and I mean, boy, that seems to be they're completely opting out
of this transformation.
The foundation for a smoke-free world does not believe that bans are the answer, and
to your point, you can see right there, in fact, through the index itself, the scoring
and the ranking from the 1 through 15 is done at a consolidated level.
Some of these companies operate in dozens of markets, others in just one.
There is a series of research on the Tobacco Transformation Index website called Company-Country Analysis
that drills down into a number of countries for which the reduced risk products
are available and demonstrate what the companies are doing there.
Of course, in some companies, they are offering the products, in others not, and there's also
a range of performance there as well.
So I think the point of the index is to hold the companies accountable for contributing
to harm reduction where it's legal, where it's not, that's another issue.
Again, I think the index over time will bring light to these issues and allow you and others
to make assessments on it.
Let's get back to measuring the race, I guess, is the best way to put it, and you spoke about
Are investors adopting the index?
Are they using the index robustly?
Some investors are.
I think there's a range of behavior.
Some investors, and I've seen research on it, have opted for divestment, in other words,
selling or not playing, not investing in tobacco stocks at all.
And there is a school of thought, and there are other efforts out there that say, well,
tobacco is just so bad that no one should invest in it.
I think that's short-sighted and cannot be effective because there ultimately will be
some investors that will opt to invest.
I think another factor is the evolution of ESG, environmental, social, and governance-based
It's in flux.
A lot is happening in that area, and it has its own controversies.
But I do think, with some investment background in my past, investors do value data, and they
do value objective analysis.
And I think for those investors who opt to invest in tobacco, they're really looking
for a framework to invest in tobacco responsibly, to be able to invest in that way, and to be
able for institutional investors to communicate to their investors that it's doing such.
So I would put forth the Tobacco Transformation Index as a framework to think about how investors
could conceivably invest in tobacco stocks in a socially responsible manner.
I see ESG as kind of like some form of measurement of virtue that gets attached to a company.
And it's that kind of process.
So ESG investing is kind of investing in companies that have virtue, at least in whatever you
frame that as.
And so tobacco companies, they're virtue-less.
And as they've been moving towards risk-reduced products, the index, in a way, provides some
measure to be able to see that.
I agree with that.
I'll repeat what I said earlier.
The index provides a formal framework, a methodology.
We understand the history of tobacco.
We understand that up to 95% of the products they sell today are the most deadly.
But if we do want to achieve a socially improved outcome, how do we go about it?
Do we leave the table, or do we attempt to assess, understand, and influence, perhaps,
And I think some investors will opt out, will opt to divest.
Others will opt to constructively engage.
But they'll need a framework to do so for themselves and for explaining it to others.
And I think this is a step in that direction.
And really, the main objective of the index is to inform through data, objective analysis,
connecting the dots on a rather complex topic, and putting that in the hands of others for
their purposes and their objectives, but ultimately, to engage, to get the industry and companies
at the table, and to change the behavior relative to the past.
David, what has the response from tobacco control been to the index overall?
Not surprisingly, there's been criticism.
There's been opposition.
Even going back to our initial stakeholder dialogue in 2019, there was some serious opposition
In some cases, it's been ignored.
Look, we'll keep plugging away.
And we strive for transparency.
So from design, methodology, external advisory, industry engagement, reports and publications,
we strive to do that in an open way to make that information available for any and all
to evaluate what we're doing.
And I would ask and I would hope that the index is evaluated for the research that it
produces, the findings that it makes, and not necessarily that it's conducted by the
Foundation for a Smoke-Free World, which has funding from Philip Morris International.
David, I know you're familiar with the Global Forum on Nicotine and its annual conference
on safer nicotine products and tobacco harm reduction.
GFN is coming up again this June, from June 21st to the 24th.
Let me ask you, why is an event like GFN important?
It's very important.
The Foundation will participate.
I will participate.
It's important to collaborate.
It's important to share ideas.
It's important to understand the research gaps.
It's important to understand the challenges that we face.
Ultimately, it's important to reach out of our own like-minded view and communicate with
others who may not share that view, difficult to do.
But it is a good opportunity to collaborate, share best practices, and understand what's
in front of us and how we best go about it.
Last question, David.
Is there one thing that the tobacco industry could do to quicken the transformation to
reduced harm products?
And what would that be?
I would put out this invitation to the companies and, in fact, to tobacco control supporters
and critics alike: participate in the Tobacco Transformation Index.
We do have a place for industry engagement.
It is controlled, it is documented, it is transparent.
The companies know their businesses, the technologies, their customers better than anybody else.
So the expertise really is within those companies.
We invite input, as I said, supporters and critics alike.
We can't guarantee that we'll always reach agreement.
We certainly invite input and feedback.
I can tell you that we will accept it.
We will evaluate it, and we will document it.
We may or may not agree on the output, but to the extent any party is concerned or may
feel that the Tobacco Transformation Index is not adequate, I would say become a part
of the solution in making it better, and we welcome that.