UPM Annual Report 2016

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

UPM RESPONSIBILITY FOCUS AREA

2030 TARGET

2030 FOLLOW-UP / 2016 RESULTS

ECONOMIC Profit Creating value to shareholders

Guided by the Biofore strategy UPM’s Biofore strategy guides the company in achieving its responsibility targets for 2030 and in contributing to UN Sustainability Development Goals (SDG). In order to guide its responsibility activities, UPMhas established a set of responsibility focus areas with targets and key performance indicators. They are analysed every year based on a materiality analysis (page 14). The focus areas cover economic, social and environmental responsibility. Having successfully transformed its business model and improved its business performance, UPM has renewed its long-term financial targets in January 2017. Targets related to diversity and inclusion as well as community engagement were changed from launching to implementation. Climate-related focus area was strengthened with two new targets for energy efficiency and share of renewable fuels. The scope of ecolabelled products was widened to cover also UPMRaflatac's products. In the area of economic responsibility, UPM’s focus areas are economic performance, good governance and responsible sourcing. By economic performance the company creates value to the entire surrounding community. Good governance helps UPM to avoid risks and enables growth and new business opportunities. Responsible sourcing not only minimises risks, but also creates extensive direct and indirect added value. In the area of social responsibility the focus is on the fulfilment of human rights, occupational health and safety, local stakeholder engagement and UPM’s role as a responsible employer. UPM is committed to respecting human rights. Being a responsible employer improves employee performance, engages people and creates a safe working environment. As a result of its significant local presence, UPM adds value to society. The company also strives to increase this value through stakeholder engagement. Environmental responsibility covers sustainable products, the climate, the use of forests and water, and waste reduction. Some of the targets are continuous and some have been extended to 2030. Long-term targets are also monitored on an annual basis. For environmental targets, the reference year is 2008.

• Comparable EBIT increased by 25% to EUR 1,143 million (916 million). • Comparable ROE was 10.9%. • Net debt/EBITDA was 0.73 times.

• Comparable EBIT growth through focused top-line growth and margin expansion • Comparable ROE: 10% • Net debt/EBITDA: around 2 times or less • 100% coverage of participation to UPM Code of Conduct training (continuous) • 80% of UPM spend qualified against UPM Supplier Code (continuous) • 100% of UPM raw material spend qualified against UPM Supplier Code by 2030 1) • Continuous supplier auditing based on systematic risk assessment practices • All UPM's employees are treated as individuals regardless of gender, age, race, nationality etc. 100% favourable responses in Employee Engagement Survey by 2030 • Diversity and inclusion initiative in place • Target setting and development plan for all employees, completion rate 100% by 2030 • Employees experience the opportunity for learning and development, 80% favourable in Employee Engagement Survey by 2030 • Employee engagement index overall favourable score in global top quarter by 2030 • No fatalities or serious accidents in UPM operations • Continuous improvement in safety: Lost time accident frequency (LTAF) <1 and Total recordable injury frequency (TRIF) <2 levels permanently reached including contractors • All operations have certified OHS system by 2030 • Health Promotion Programme is in use at all UPM sites and businesses by 2030 • Absenteeism rate < 2 % in all organisations by 2030 • Continuous development of strategic sustainability initiatives with leading NGOs • Continuous sharing of best practices of stakeholder initiatives • UPM’s Biofore Share and Care programme brings significant added value

Governance Ensuring accountability and compliance

• 97% of active employees completed the renewed Code of Conduct training.

Responsible sourcing Adding value through responsible business practices

• 80% of supplier spend qualified against UPM Supplier Code. (+1pp compared with 2015). • 94% of raw material spend qualified against UPM Suppler Code. • Since 2013, the number of risk assessment-based supplier audits has been doubled, with a much wider geographical area than earlier. • Responses to Employee Engagement Survey’s diversity question were 79% favourable (+2 ppt). • Diversity initiative was started. • 87% of all permanent employees had a personal performance review with their managers. • Responses to Employee Engagement Survey’s question regarding learning and development were 64% favourable. • Employee engagement index overall favourable score increased to 69% (66%). This is 8 percentage points below global top quarter. • Two fatal accidents in 2016, one involving an UPM employee and one contractor accident. • LTAF was 3.7 for own employees and 6.2 for contractors. TRIF was 9.3 for own employees and 7.5 for contractors. • All production sites have an OHS management system in place. 38% of

SOCIAL Diversity and inclusion

Developing organisational culture and local conditions to ensure inclusive and diverse working environment for business success

Continuous learning and development Ensuring high performance for business success and continuous professional development for future employability Responsible leadership Emphasising value-based and inspiring leadership and integrity Continuous development of working environment

Working conditions Ensuring safe and healthy working environment and wellbeing of employees

United Nations Sustainable Development Goals guiding UPM Targets

the sites got external certification of their OHS system. • A majority of the sites implemented their programme. • The absenteeism rate was 3.4% (3.7%) in 2016.

Community involvement Ensuring local commitment

• Co-operation with BirdLife and Vida Silvestre continued. • Sharing of best practices ensured through well-established operational stakeholder forums, for example. • Programme with four focus areas was launched.

ENVIRONMENTAL 2) Product stewardship Taking care of the entire lifecycle

• Environmental Management Systems in 100% use (continuous) • Environmental Product Declarations for all products (continuous) 3) • All applicable products ecolabelled by 2030

• 96% of production sites have a certified environmental management system in place, remaining have implementation underway. • Environmental declarations are available for all relevant UPM products. • The share of ecolabelled products was 69% (70%). (Scope widened)

Waste Promoting material efficiency and circular economy – reduce, reuse and recycle

• No process waste to landfills or to incineration without energy recovery by 2030

• 89% of UPM’s total process waste was recycled or recovered.

Climate Creating climate solutions and working towards carbon neutrality

• Fossil CO 2

emissions from own combustion and purchased electricity (Scope

• Despite improvements, actions have not compensated for the increased level caused by the Myllykoski acquisition in 2011 and increased CO 2 factors for purchased power. • UPM sold greenhouse gas claims worth of 480,000 CO 2 tonnes. Without sales UPM’s reported emissions (Scope 1 and 2) would have been over 7% lower. • Energy efficiency target was not achieved. • Level of 69% (67%) reached in the use of renewable fuels. • 24% reduction achieved since 2008 for the UPM average product. • 27% reduction in effluent load achieved since 2008 for the UPM average product. • 13% reduction in wastewater volume achieved since 2008 for the UPM average product. • Project was started in 2016, one site almost reached the level already.

1 and 2) reduced 30% by 2030 • Maximise the business benefits of greenhouse gas claims (continuous) • Improve energy efficiency annually by 1% (continuous) • 70% share of renewable fuels (continuous) • Acidifying flue gases (NOx/SO 2 ) reduced 20% by 2030 4)

Water Using water responsibly

• Effluent load (COD) reduced 40% by 2030 4) • Wastewater volume reduced 30% by 2030 4) • 100% of nutrients used at effluent treatment from recycled sources by 2030

Forests and biodiversity Ensuring sustainable land use and keeping forests full of life

• 100% coverage of chains of custody (continuous) • All fibre certified by 2030

• Coverage is 100%. • The share of certified fibre remained at 84%.

1) Covers all UPM raw material spend including wood and wood-based biomass sourcing and excluding energy 2) Environmental targets: from 2008 levels 3) Includes paper, timber, plywood, pulp and label 4) Numerical targets relevant for pulp and paper production

CONTENTS

18 UPM Annual Report 2016

UPM Annual Report 2016 19