Sustainability > Social Responsibility > Sustainability in the Supply Chain

Supply Chain Management Policy

KT&G manages the supply chain because it is a core task for creating a sustainable industrial ecosystem and an essential requirement for mid-to long-term business strategies. We are therefore making active efforts at the enterprise level to strengthen sustainability competitiveness and manage partners systematically within the supply chain of the global tobacco industry as well as the domestic tobacco industry. We have established the Supplier Code of Conduct for the management of a supply chain sustainability and encourages partner companies to participate in ethical management by establishing special terms and conditions for partners to conduct ethical business practices. The Supplier Code of Conduct includes the purpose of establishment, scope of application, responsibility, and role, and presents compliance standards for human rights and labor, health and safety, environment, and ethics as major areas of ESG.

Supplier ISO14001 Certification Supplier Code of Conduct

ESG Management Area within the Supplier Code of Conduct

Human rights and labor

Prohibition of forced labor
Prohibition of child labor
Prohibition of discrimination and harassment
Humane treatment
Freedom of association and collective bargaining

Environment

Establishment of environmental management structure
Environmental permit and report
Hazardous substance control
Less use of resources
Waste and air pollutants management
Water resource management
Energy consumption and GHG emissions

Health and safety

Establishment of a safety and health management system
Safety management
Emergency response
Incident and injury management

Ethics

Business integrity
Compliance with the Special Agreement on Ethics Commitment
Protection of intellectual property rights and trade secrets
Protection of whistleblower
Information security
Responsible procurement of raw materials

Supply Chain ESG Joint Growth

KT&G proactively identifies and mitigates potential ESG (Environmental, Social, and Governance) risks within its partner companies. This is achieved through a meticulous pre-screening process that evaluates factors such as human rights, labor conditions, environmental impact, and management. Following this, KT&G conducts thorough ESG assessments, scrutinizing these companies for any ESG-related risks while verifying the presence and implementation of relevant policies and programs across various domains. Utilizing the insights gained from these evaluations, KT&G actively bolsters the ESG competencies of its partners, providing tailored on-site consulting support. In its pursuit to foster collaborative and sustainable growth, KT&G has, since 2021, been orchestrating workshops for partner companies. These workshops are centered around cultivating shared objectives and their tangible execution, aiming to generate collective positive impact. In the short term, this initiative includes establishing and advising on greenhouse gas reduction targets, roadmaps, and providing guidance for ISO certification processes. Over the medium to long term, KT&G is focused on driving forward collaborations that concentrate on diminishing environmental footprints and amplifying sustainability at the product level.

Major Consulting on Supporting Partner’s Improvements

Area

Consulting contents

Labor and human rights

• Supporting establishment and revision of employment rules

• Providing samples to establish grievance handling regulations

Safety and health

• Supporting the establishment of safety and health management regulations

• Guiding risk assessment process

Environment

• Supporting energy and greenhouse gas control plans

• Supporting waste control implementation plans

Ethics

• Advising establishment of processes related to raw and subsidiary materials

• Guiding establishment of corporate code of ethics and policies

Building “Green Impact Alliance” – Partner Collaboration System

Sustainable Agriculture

KT&G is also a committed participant in the Sustainable Tobacco Program (STP), a collaborative evaluation platform designed to enhance social and environmental impacts in the tobacco industry. This initiative, supported by leading global tobacco manufacturers, concentrates on the responsible sourcing of premium tobacco, grown through sustainable agricultural practices. Building on this global structure, KT&G is actively involved in implementing the STP framework within South Korea, furthering its commitment to sustainable practices in the tobacco sector.

SUSTAINABLE
PARTNERSHIP

As social demands and expectations for ESG management have increased, ESG has become an essential consideration in corporate management. Particularly, the adoption of regulatory frameworks mandating the disclosure of ESG information is spreading globally, with a focus on Europe and the U.S. In Korea, there are plans to introduce mandatory ESG disclosure for companies starting from 2025. KT&G is expanding its efforts to enhance sustainability not only in its operational practices but across its entire business operations. Moreover, we joined the global Sustainable Tobacco Program (STP) initiative to ensure the sustainable cultivation of tobacco leaves, a crucial ingredient in the tobacco business. We are also establishing a domestic STP based on global standards and practices, aiming to strengthen the sustainable production foundation for domestic tobacco leaf farms.

Plan to Implement STP for Leaf Tobacco in Korea

CORP

Growing only distributed varieties, using designated crop protection products, using designated fertilizers, avoiding self-composting, and applying lime
Analyzing soil and recommending fertilization, securing appropriate dryers, removing tobacco plant residues, recording the use of crop protection products, etc.

ENVIRONMENT

Prevention of NTRM¹⁾, and collection, disposal, and recycling of plastic agricultural materials (mulching film, etc.)
GHG emissions reduction (by expanding exhaust heat, etc.), safe handling of crop protection agents (establishing buffer zones near waterways), etc.

HUMAN & LABOR RIGHTS

Working hours, labor contracts, prohibition of child labor, prohibition of unlawful confinement, and guaranteed minimum wage
Installation of crop protection agent storage (worker safety), etc.

GOVERNANCE

Establishment of related manuals and STP evaluation indicators, revision of standard tillage methods, etc.

¹⁾ Non Tobacco Related Material

Leaf Tobacco Farm Support Activities in 2022

Increased purchase of box packaging: KT&G is trying to change the packaging method of leaf tobacco to relieve the environmental burden and simplify the packaging method for growers. KT&G purchased 514 tons in 2022, and the purchase amount will be expanded to 2,600 tons in 2023.

Supplying of fuel reduction devices on leaf tobacco driers: In 2022, KT&G supplied 84 fuel reduction devices (support amount of about KRW 76 million) to the growers to improve farm household income and reduce GHG emissions by reducing fuel cost. KT&G plans to increase the scale of support to 100 units (support amount of about KRW 116 million) in 2023.

Support for farmer health checkups and scholarships: KT&G provided a total of KRW 3 billion and 333.6 million for farmer health check-up fees and scholarships for their children to leaf tobacco farmers from 2013 to the present, to improve the welfare of leaf tobacco farmers.

Farming season labor service: KT&G employees have been conducting volunteer activities for leaf tobacco farmhouses every year for 16 years since 2007 during the grown seedling transplanting season and the leaf tobacco harvesting season which requires a lot of labor, in order to support stable farming activities by helping farmhouses suffering from labor shortages.