UPM Annual Report 2016

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Stakeholders

In brief

Strategy

Businesses

Governance

Accounts

Co-operation on responsibility issues improves prerequisites for operations For environmental and responsibility issues, UPM’s stakeholder engagement activity was aimed at maintaining consistent quality in operations and products, along with securing the prerequisites for future activities. Globally, UPM continued its active co-operation with local permit authorities. UPMparticipated in the UN Global Compact LEAD group, which represents the world’s leading companies to promote sustainability through innovation and actions. Co-operation also continued on a voluntary basis with a wide range of stakeholders relating to ecolabels, standards and standardisation frameworks, as well as nature conservation. With regard to ecolabels and standardisation issues, UPM collaborated with FSC®, PEFC™, the German Blue Angel, the Swan label, The Finnish Key Flag symbol, ISCC and the EU Ecolabel. Co-operation was particularly active with FSC® and UPM significantly increased the share of FSC® certified wood. The company also engaged in several joint initiatives with different parties. On environmental issues, co-operation continued with BirdLife Finland and Vida Silvestre in Uruguay. In China, UPMparticipated in the China Sustainable Paper Alliance (CSPA). The purpose of the alliance is to promote responsible sourcing and sustainable forestry in the Chinese forest industry.

WORDS MATTER The aim of the “Sanat haltuun” (Words matter) project, supported by UPM and organised by the Finnish Reading Centre, is to inspire students from technical vocational schools to read and improve their reading skills. The Finnish Reading Centre will organise 100 functional literacy workshops all around Finland by the end of 2017. “Literacy is closely linked to mathematical skills as well as success in further studies and working life in general. Slow readers also find it difficult to improve their other professional competencies,” says Ilmi Villacís, Executive Director of the Finnish Reading Centre. Fluent reading skills are required in all professions. UPM is concerned about young people’s reading skills, and wants to increase awareness of the importance of reading and lifelong learning. The feedback from the students has been encouraging. The project is a combined effort between the Finnish Reading Centre, Finnish teachers working in vocational schools, authors, as well as researchers. It will also involve collaboration with libraries. Promoting literacy and learning among children and young people is a focus area of UPM’s Biofore Share and Care programme.

Activity in 2016 The 2016 materiality analysis highlighted issues such as compliance and ethics, competitiveness, occupational health and safety, employee engagement, sustainable forest management, product stewardship and climate change as the most important issues for UPM’s stakeholders. The Code of Conduct was revised during the year and the Board of Directors approved the new Code of Conduct in February 2016. The revised Code of Conduct includes new sections on trade sanctions, data privacy, responsible sourcing and interaction with stakeholders. Implementation of the Code was the most important internal group-wide initiative. The Code was discussed in management teams on all levels. Targeted training sessions were organised for special groups. By the end of the year, 97% of active UPM employees had completed a Code training. Sustainable forestry issues were highlighted during the year and intense discussions were had with environmental organisations, certification bodies and authorities. Customer enquiries focused on topics such as product safety, ecolabels and the origin of rawmaterials. The majority of direct feedback from stakeholders focused on the local effects of UPM’s operations, such as noise or odour. UPM provided further information in each situation and the potential disturbances connected to the mill stand-stills were communicated to the communities in advance. Through public affairs work, the company aimed to foster the necessary prerequisites for operations, particularly in Finland, Uruguay and China. UPM co-operated with a number of trade associations on these topics, the most important being the Finnish Forest Industries Federation (FFIF) and the Confederation of European Paper Industries (CEPI). During the year, FFIF resigned from the Confederation of Finnish Industries. Within the EU, UPMpromoted competitive and consistent energy and climate policy regulation. Influencing the future prerequisites and markets within the advanced renewable fuels sector was one of the key themes of the year. In November, the European Commission submitted a proposal for the renewable energy directive for 2021–2030. The proposal favours biofuels, such as UPMBioverno, which significantly reduce CO 2 emissions and are based on non-food rawmaterials as well as waste and residues. In Finland, UPM continued to discuss topic areas within the Finnish operating environment that impact the competitiveness of the forest industry in Finland. The same consistent messages were also delivered to local decision makers. The topics are transparently presented on UPM’s web page www.kilpailukyky.upm.fi (in Finnish). UPMwas actively involved in the stakeholder processes related to sustainable forestry. The round table forum initiated by the Ministry of Agriculture and Environment and FFIF’s Forest Environment programme focuses on maintaining the biodiversity of forests as part of sustainable forestry practices. For its part, UPMpromoted means to increase the amount of wood on the Finnish markets. The forest gift deduction on the wood income tax will be implemented in 2017 and will make the transition of forest properties to the younger generation smoother, prevent fragmentation of forest estates and activate the wood market. In Uruguay, UPM started discussions with the Government of Uruguay regarding the development of logistics infrastructure in the country. Railroad and road connections are a critical challenge for establishing a large scale industrial operation in the Uruguayan inland and connecting it to a deep sea port. Competitiveness at the forefront of public affairs

Read more: www.upm.com/responsibility, www.upmbiofore.com

Biofore Share and Care programme supports company strategy UPM’s Biofore Share and Care programme shows the company’s dedication to a sustainable and innovative future through sponsorships and donations. UPM shares its resources with causes that respect sustainable development as well as the company strategy. The company’s guidelines for sponsorships and donations are applied by all businesses. They direct support to reading and learning projects, water initiatives, bio-innovations and community engagement. UPM does not financially support political parties or individual candidates. The focus of the local sponsorship is to support the vitality of UPMproduction locations. UPM spent approximately EUR 1.4 million on local sponsorships and donations. For commercial sponsorships, UPM spent approximately EUR 800,000. UPM’s support for its Uruguayan UPMFoundation continued with USD 400,000. The foundation supports and encourages training, entrepreneurship, employment and healthy living and entertainment in local communities in the Uruguayan countryside. (Read more on the Technical University of Uruguay on page 47) EUR 232,500 was donated to charities or other non-profit causes, including a donation to Finnish Reading Centre for organising reading workshops for technical vocational schools and the Economic Information Bureau for developing digital business course modules for Finnish secondary-school students. Continuous development with corrective actions Should stakeholders have concerns or suspect misconduct, they are encouraged to contact UPM’s Stakeholder Relations function or local units or to use the UPMReport Misconduct channel accessible via the company website. A claim can be made confidentially and anonymously. The company has agreed internal procedures on how to address possible misconduct.

UPM does not tolerate any violations of the UPMCode of Conduct. Employees can ask for advice from appointed Code of Conduct contact persons or report misconduct anonymously through the UPMReport Misconduct channel. Misconduct reports are reviewed carefully and UPM takes corrective actions when necessary. In 2016, UPM’s stakeholder relations organisation, mills and wood sourcing organisation received approximately 200 inquiries and concerns expressed by stakeholders. The concerns related mainly to environment, forestry and biodiversity. Seventeen cases were reported through the UPMReport Misconduct channel or directly to internal audit. The complaints related mainly to suspected cases of fraud and suspected failures to adhere to the company’s HR Rules or compliance procedures. One case related to suspected discrimination is still being investigated. The investigation of four other cases is pending. None of the cases were related to local communities, environment, human rights violations, corruption or labour practices. Four cases led to disciplinary action including warnings or terminations of employment.

LOGGING OPERATIONS ON ÄRJÄNSAARI ISLAND CAUSED CONCERN Logging operations on the UPM-owned Ärjänsaari Island in northeastern Finland, caused concerns at the beginning of the year. The concerns were linked to the island’s recreational value, the potentially increasing storm damage and preserving the local history. UPM engaged local stakeholders throughout the planning process and modified the forest management plan, approved by the authorities in 2014, according to feedback. However, the concerns were only expressed at the start of the logging operations in January. Felling in the commercial forests in the inner parts of the island received a lot of attention in the local media, on social media and discussion forums. UPM organised briefings, discussions and media meetings locally and addressed all concerns. In February, UPM organised an event with guided tours to present the island and completed logging operations. Approximately 150 people participated in the event. UPM modified its felling plan according to feedback received at the public event. UPM sold Ärjänsaari Island to the State of Finland for protection area in February 2017.

Read more on Code of Conduct revision and

REPORTED CASES RELATED TO

2016

materiality analysis on p. 14. Concrete examples of our commitment to stake- holder engagement can be found in the cases throughout this report.

Fraud

3 2 4 1 7

IPR/Confidential data

Conflict of interest

General human resources