UPM Annual Report 2016

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Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

Responsibility is good business

of UPM active employees completed the Code of Conduct training (continuous target)

97%

TARGETS 2030

Global Compact LEAD

Corporate responsibility is an integral part of all our operations and seen as a source of competitive advantage. UPM is strongly committed to continuous improvement in economic, social and environmental performance.

Code of Conduct to be made visible in everyday operations The company’s Biofore strategy and the revised UPMCode of Conduct, approved by the Board in February 2016, lay the foundation for responsible business operations and continuous improvement. The UPMCode of Conduct covers good business conduct, human rights, occupational safety and environmental practices. During 2016, discussions concerning the UPMCode of Conduct took place throughout the organisation and almost all employees attended a mandatory UPMCode of Conduct training. An assessment of the detailed policies, rules and guidelines that complement the UPMCode of Conduct is currently under way. The revision of the UPMCode of Conduct resulted, for example, to an update of UPM Supplier Code. The extended content of the UPM Supplier and Third Party Code complies with the UPMCode of Conduct and covers suppliers as well as agents and joint venture partners. The practical implementation of the Supplier and Third Party Code will begin in 2017. Managing corporate responsibility The Board of Directors, assisted by the Board’s Audit Committee, is responsible for monitoring compliance with the UPMCode of Conduct and other corporate policies (read more p. 73–74). The Group Executive Team, headed by the President and CEO, is in charge of the daily management of corporate responsibility, determining the course of action and guiding development work. In practice, corporate responsibility efforts take place in businesses and functions, and in the Group’s Environment & Responsibility team, which coordinates the projects carried out by businesses and functions. UPM continually strives to improve its performance by using various tools, such as certified management systems. Several focus areas The main focus in 2016 was on the internal UPMCode of Conduct trainings. In addition, the effects of UPMCode of Conduct was extended to cover UPM’s suppliers and third party intermediaries. The safety of employees and contractors remained an important focus area. In 2016, UPM introduced a global reporting tool, One Safety, for all UPMers and contractors. The tool covers environment, health and safety, product and process safety as well as security. In 2016, UPM’s pulp business developed a joint integrated management system for its four pulp mills. A similar project has started for UPM’s paper mills in Finland. UPM conducted a high-level human rights assessment in 2013. An action plan for developing responsible sourcing was created after the assessment and it has been systematically applied throughout the supply chain. In addition, UPMhas continuously focused on improving occupational health and safety and has conducted programmes related to improving employee health, reducing environmental impact and enhancing product safety. UPM considers its salient human rights issues to include child labour, forced labour, environmental pollution, product safety, occupational health and safety, working conditions, discrimination and corruption. In assessing human rights, the rights of the following vulnerable groups are especially taken into account: children, minorities, migrant workers and indigenous people. In 2016, UPM initiated a global assessment of human rights focusing on activities at UPM sites, community relations and local sourcing. This assessment will be completed in 2017 and action plans determined for all sites where improvement is required.

Examples: • Goal 3 (Good Health andWellbeing): UPM’s management and safety practices • Goal 13 (Climate Action): wood-based renewable diesel UPMBioVerno. The UN Global Compact LEAD forum has made UPMBioVerno an example case for this goal. • Goal 15 (Life on Land): wood-based products and the company’s global biodiversity programme, which has been part of its sustainable forest management for over 20 years. In addition to participating in global projects, UPM also works with several local expert organisations in order to promote the SDGs. The materiality analysis (below) of the company’s responsibility issues covers topics that directly or indirectly influence the ability to create, maintain or acquire econom ic, environmental or social value for UPM, its stakeholders and society. Analysis is performed annually, based on follow-up of interests and concerns of different stakeholder groups, including communities, employees, NGOs, customers, suppliers, investors and media. For example, all the customer questions and stakeholder concerns received during the year are taken into consideration. Specific external stakeholder interviews for materiality purposes are conducted every second year by independent third party. Most material economic, environmental and social responsibility topics identified in this process are presented on the right. UPM’s responsibility focus areas and targets (p. 18) reflect these material aspects. UPM does not distinguish topics within the section from each other but considers all equally material.

UPMpromotes responsible practices throughout the value chain and is active in finding sustainable solutions in co-operation with its customers, suppliers and partners. Creating value for society both as a company and through our products is an essential part of the Biofore strategy. UPM follows local laws and regulations. The company respects international human rights agreements and agreements concerning labour rights, including the UNDeclaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises. Our operations are also guided by our own basic principles: e.g. we do not use wood or fibre from tropical rainforests or produce or use elemental chlorine- bleached pulp. The company is also one of the participants in the UN Global Compact initiative whose ten universal principles are derived from international agreements in the areas of human rights, labour standards, the environment and anti-corruption. In 2016, UPM joined the UN Global Compact LEAD forum as the first representative of the forest industry and the first Finnish participant. UPMpromotes the Sustainable Development Goals (SDG) of the 2030 Agenda for Sustainable Development published by the UN.

CLIMATE

INDUSTRY LEADER

Our consistent efforts regarding responsibility issues have received recognition from several third parties and have made us one of the industry leaders in several fields. UN Global Compact LEAD: UPM is the first forest industry company and the first Finnish company to ever receive an invitation to join LEAD. Dow Jones Sustainability Index: UPM has been listed as the industry leader in the forest and paper sector in the Dow Jones Sustainability Europe Index (DJSI) for 2016–2017 for the fifth time in a row. Corporate Knights: UPM has been ranked 25th within the list of the 100 most sustainable corporations in the World (Global 100) in 2016. RobecoSAM’s annual Sustainability Yearbook: UPM has been ranked as an industry leader with gold-class distinction in 2016. CDP’s Forest Program: UPM has been recognised with a global leadership position in the 2016 Forest A List for timber and timber-based products. CDP’s Climate Change Program: UPM has been included in the CDP Climate A List for climate actions and transparent climate reporting. CDP’s Water Program: UPM has received an A- score, granting it a leadership position within CDP’s ranking system. PPI Awards: UPM has received the PPI Bio Strategy Award 2016 for its biofuels business. Below50 coalition: UPM Biofuels joined the below50 coalition to increase sustainable fuel usage for a low-carbon world.

UPM’s materiality analysis 2016

BIOFORE STRATEGY Performance (economic, social, environmental) Growth Portfolio development and value creation (direct/indirect) Innovation

ECONOMIC Compliance, ethics and values Competitiveness Responsible sourcing and selling

Importance to stakeholders MEDIUM HIGH MEDIUM

ECONOMIC Anti-corruption Risk and opportunity management Taxation Regulatory environment ENVIRONMENTAL

ENVIRONMENTAL Sustainable forest management (incl. biodiversity) Product stewardship Resource efficiency and environmental performance Climate change

ECONOMIC Value offering and collaboration with customers Security (IT, data)

Sustainable land use Third-party verified management systems

SOCIAL Health and safety Employee engagement Human rights Diversity

SOCIAL People development & talent attraction Responsible restructuring Local engagement

ENVIRONMENTAL Logistics’ emissions Packaging materials GMO positioning

SOCIAL Rewarding

Significance of current or potential impacts on UPM