UPM Annual Report 2016

Stakeholders

In brief

Strategy

Businesses

Governance

Accounts

Sustainable forestry

Responsible sourcing throughout the entire supply chain

Renewable wood is UPM’s most important raw material. UPM is committed to sustainable forestry, and the company uses third-party-verified chains of custody to ensure that the wood it receives is legally sourced from sustainably managed forests.

Sourcing operations play a significant role in ensuring the efficiency and profitability of UPM.

UPM aims to have to have a supplier base that is capable of delivering responsibly produced, cost competitive and innovative materials and services to its businesses globally. As a customer, UPM strives to be a trustworthy business partner and that responsible and ethical practices create long-term value for both the company and its stakeholders. Products and services are a significant cost element for UPM and therefore the cost efficiency is the leading principle in UPM’s sourcing. UPM also sets requirements for the reliability of deliveries in the long term as well as for the quality of the products and services. Furthermore, UPM requires financial stability, environmental and social responsibility, safe products and professional occupational health and safety practices from its suppliers. Wide range of suppliers – targeted co-operation Suppliers and third party intermediaries are an important stakeholder group for UPM. The company’s sourcing network consists of suppliers ranging from private forest owners and local companies and operators to large international corporations. Over 30,000 suppliers deliver a variety of rawmaterials, products and services to UPM globally. UPM continuously evaluates the performance of its supplier base and seeks to develop its relationship with the key suppliers. The company has established long-term relationships with some 300 suppliers in order to ensure systematic performance and quality development. UPM’s businesses annually evaluate satisfaction with the key suppliers’ responsibility. UPM Supplier Code revised UPM requires its suppliers and third party intermediaries such as agents, consultants, advisers and joint venture partners to apply the same principles as in the UPMCode of Conduct and to fulfil the criteria concerning social and environmental responsibility. These supplier requirements are defined in the UPM Supplier and Third Party Code. UPMCode of Conduct was revised in 2016 and in connection with that UPM also revised its Supplier Code. Furthermore, UPM expects its suppliers to promote the same requirements in their upstream supply chain. In 2016, 80% (79%) of UPM supplier spend was qualified against the Supplier Code, i.e. they commit themselves to UPM responsibility requirements including occupational health and safety. All suppliers working on site go through UPM’s safety requirements and a web-based safety induction training. A number of additional requirements are in place for sourcing of wood, chemicals, pulp and packaging materials as well as for safety and logistics. All suppliers who deliver UPMwood, pulp and recycled paper are evaluated based on special criteria on environmental and labour practices, human rights and impacts on society. In practice, this means that those commodities are either certified (FSC® & PEFC™) or subject to due diligence system as required by FSC ControlledWood standard and PEFC Chain of Custody standard.

At the end of 2016, UPM owned 640,000 hectares of forest in Finland and 75,000 hectares of forest in the United States. Additionally, the company has 254,000 hectares of forest plantations in Uruguay. Forests owned by UPMhouse around 48,000 protected sites with a total area of 147,000 hectares. The company is also responsible for managing almost 900,000 hectares of forests and forest plantations owned by private forest owners. Forest certification is an excellent tool for promoting sustainable forestry. Certification is based on standards that have been defined in an open stakeholder process, and compliance with these standards is monitored by an independent third party. All UPM owned forests are certified. To promote the certification of privately owned forests in Finland, UPMhas established FSC® and PEFC TM group certification schemes. In 2016, UPM’s Finnish FSC group certification scheme grew to cover nearly 250,000 hectares of forest. UPMworked together with FSC Finland to promote certification of small privately owner forests. UPM also expanded its electronic services for forest owners during the year. The digital applications provided by the company facilitate the systematic management of forest property. The target is to increase the use of certified wood so that all wood used by the company will be certified by 2030. UPM is a responsible forest owner and wood user The growing need for food production and wood, particularly in the tropics, causes deforestation, which is an important concern for the entire forest industry. UPM recognises this challenge and has reacted by taking action in its own operations and by actively participating in international co-operation networks. UPM does not use wood from tropical rainforests as rawmaterial, or accept wood from forest plantations that have been established by destroying rainforests. UPM does not operate in areas where the rights of indigenous peoples are threatened or endangered.

In 2016, the CDP Forest Program listed UPM as one of the global leaders on the 2016 Forest A List for timber and timber-based products. Companies on the A List are responding to market demand for environ­ mental accountability and taking action to prevent deforestation. Active forestry-related research and development in UPM forests Forest biodiversity has been one of the key factors in UPM’s operations for over 20 years. The aim of UPM’s global biodiversity programme is to maintain biodiversity in forests, to promote best practice in sustainable forestry and to emphasise the role of ecosystem services. The company is involved in several biodiversity projects in collaboration with various stakeholders. The UPM biodiversity programme received an honourable mention in the 2016 corporate biodiversity awards by Finland’s leading corporate responsibility network FIBS. FIBS also gave UPM an award for its biodiversity reporting. The Finnish government’s bioeconomy strategy, the increasing demand for rawmaterials resulting from the strategy and the impacts will have on biodiversity raise conflicting opinions. This year, UPM actively participated in a roundtable process coordinated by two Finnish ministries: the Ministry of the Environment and the Ministry of Agriculture and Forestry. The process involves forest owners, forest and environmental organisations and representatives from industry, research and public administration. The common goal is to find ways to safeguard forest biodiversity. One example of a concrete action carried out to safeguard forest biodiversity is controlled burning. In 2016, UPMperformed controlled burning of felling sites located in company forests around Finland. Fire is an essential part of the natural life cycle in boreal forests. After a fire, deadwood and a new generation of trees develop in a couple of years. Controlled burning helps to maintain the habitats of rare and endangered fire-dependent species. UPM and the FinnishMinistry of the Environment have agreed on the establishment of several private conservation areas on UPM land in 2016. The areas are located in different parts of Finland.

Share of certified fibre

84%

TARGETS 2030

CONTENTS

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UPM Annual Report 2016

UPM Annual Report 2016