UPM Annual Report 2017

Accounts

In brief

Strategy

Businesses

Stakeholders

Governance

Material non-financial topics and key performance indicators:

KEY PERFORMANCE INDICATOR

diversity and inclusion in key management team self-assessments and integrated inclusion in leadership development programmes to improve performance and innovation. The proactive safety of employees and contractors remained an important focus area. UPM implemented a global reporting tool, One Safety, for all UPMers and contractors. Product stewardship UPM’s products are made from renewable and recyclable raw materials. Product stewardship covers the entire lifecycle for all UPM products from the development phase to the end-use and beyond. Ecodesign and product safety measures, such as Restricted Chemical Substance List, ensure that impacts on products and the environment are considered and minimised. UPM provides product declarations to grant customers easy access to information concerning the responsibility of products and the supply chain. UPM is the world’s largest producer of EU ecolabelled newsprint, graphic and office papers. In 2017, UPM introduced a new product WISA BioBond, a new lignin-based gluing technology where 50% of the fossil-based phenol can be replaced with lignin. UPM Biofuels received an RSB (The Roundtable on Sustainable Biomaterials) certificate which verifies the sustainability and reliability of feedstock sourcing and production. UPM Specialty Papers introduced UPM’s Responsible Fibre™ concept to Asian markets . Environmental matters UPM’s responsibility focus areas in environmental matters are forest, climate, water and waste. UPM uses raw materials, water, energy and other resources in a responsible manner and continuously improves its energy, resource and cost efficiency. UPM is committed to sustainable forestry, and the company uses third-party-verified FSC® and PEFC™ chain of custody certification to ensure that the wood it procures is legally sourced from sustainably managed forests. All UPM owned forests are certified. The aim of UPM’s global biodiversity programme is to maintain biodiversity in forests, to promote best practices in sustainable forestry and to emphasize the role of ecosystem services. UPM favours the use of renewable and other carbon-neutral energy sources. Biomass-based fuels make up 69% (69%) of those used by UPM worldwide. UPM is the second largest generator of

biomass-based electricity in Europe. If UPM would need to buy certificates to cover its whole fossil CO 2 emissions, and the price of CO 2 certificates would rise by EUR 5 per tonne, it would mean additional costs of approximately EUR 16 million annually. All UPM’s largest production plants are located in areas where there is sufficiently water available. The water used by UPM plants comes from rivers, lakes or groundwater resources. UPM uses water responsibly in terms of the company’s water consumption and effluent quality. If the price for raw water would increase by EUR 0.01 per cubic metre, it would mean additional water costs of approximately EUR 5 million annually. UPM has developed innovative ways to reduce its own waste and to recycle waste or residues in new products such as UPM BioVerno, UPM’s renewable diesel and UPM ProFi composite which utilises partly waste from the production of self-adhesive label materials. Furthermore, residues are used in external products, e.g. ash is used in applications ranging from landscaping to road building. Regulatory changes can have an impact on the use options for waste or residues, thus causing higher costs for alternative solutions. In 2017, UPM’s environmental investments totalled EUR 21 (22) million. The single largest investment was effluent treatment plant improvements at the UPM Fray Bentos pulp mill. UPM’s environmental costs, which were mainly attributable to effluent treatment and waste management, totalled EUR 125 million (120) million, including depreciation. There has been a significant decrease in the number of environmental non-conformances since UPM’s internal Clean Run programme was launched in 2012. No major environmental incidents occurred at UPM production plants in 2017. However, a total of 33 (33) temporary deviations from permit limits or major deviations from the environmental limits set by UPM occurred over the course of the year. Nearly 2,600 (2,300) preventive environmental observations were reported in 2017. The goal of the Clean Run programme is to improve UPM’s environmental performance, share best practices and promote environmental awareness. In 2017, UPM’s environmental performance improved compared to 2016 with a 6% reduction of fossil CO 2 emissions (scope 1 and 2) and 13% reduction of waste to landfills. Wastewater volume remained at a stable level compared to 2016, but is still in line with UPM’s 2030 target.

TOPIC

MANAGEMENT

2017 RESULTS

Governance/ Anti- Corruption

Corruption related risks are identified and assessed in connection with the company’s risk management process. These risks are managed and mitigated by training, communication, due diligence procedures, audits and practical guidelines specifically targeted at anti-corruption and anti-bribery. UPM Code of Conduct training is mandatory to all employees and anti-bribery training to all salaried employees.

100% coverage of participation in UPM Code of Conduct training (continuous)

98% (97%) of active employees completed UPM Code of Conduct training.

Human rights UPM is committed to respecting human rights based on its Code of Conduct. UPM has a process for assessing human rights at UPM site level, including community relations and local sourcing as well as for risk assessments and audits for suppliers.

Continuous supplier auditing based on systematic risk assessment practices

Approximately 130 supplier audits were conducted based on identified risks and including human rights topics. UPM conducted a human rights due diligence at all production sites. 82% (80%) of supplier spend qualified against UPM Supplier and Third Party Code. Employee engagement index 71% favourable. This is 2 percentage points below external high performing norm. Employee enablement index 73% favourable This is 1 percentage point above external high performing norm. 89% of employees had individual goal setting or annual discussion completed and 62% had a development plan documented.

Responsible sourcing

UPM requires its suppliers and third party intermediaries and joint venture partners to apply the same principles as in the UPM Code of Conduct. These supplier requirements are defined in the UPM Supplier and Third Party Code. UPM continuously develops leadership capabilities and management teams and develops the working environment. UPM measures the work environment, team work and leadership with annual engagement survey and has a leadership development programme portfolio covering topics such as self-leadership, leading people, coaching capabilities, innovation and leading complexity. UPM has a systematic process for goal setting and creating development plans for all employees globally to ensure high performance and continuous professional development.

80% of total supplier spend qualified against UPM Supplier Code (continuous)

Responsible leadership

Employee engagement and enablement indices overall favourable score above external high performance norm by 2030

Learning and development

Target setting discussions are held and development plans created for all employees, completion rate 100% by 2030 No fatalities or serious accidents in UPM operations. Total recordable injury frequency (TRIF) <2 levels

Safe working conditions

UPM has a comprehensive safety management system which promotes a proactive and engaging safety culture. UPM uses means such as safety audits and reporting on safety related near-misses and safety observations.

Three fatal contractor accidents (two fatal accidents).

permanently reached including contractors.

TRIF was 8.2 for UPM workforce and 8.5 including contractors. 67% favourable in Employee Engagement Survey’s Diversity and Inclusion Index.

Diversity

UPM wants to develop organisational culture and local conditions to ensure inclusive and diverse working environment. UPM has committed to and promotes diversity and inclusion in its policies. UPM reviews the diversity status of all its businesses and functions regularly. The composition of UPM key management teams and inclusiveness is discussed and development actions planned and implemented. Ecolabels help customers make responsible choices and provide stakeholders with important information. Third-party verified environmental certificates and labels tell customers about the environmental performance of our products. UPM favours the use of renewable and other carbon-neutral energy sources and strives to continuously improve its energy efficiency across all its operations. UPM's goal is to minimise the impact of its operations on water resources, safeguard the natural water cycle in forests, and maintain the functioning of aquatic ecosystems. Circular economy means both financial and environmental efficiency. UPM aims to reuse materials and products, reduce the amount of solid waste and increase recycling and recovery in its operations. UPM is committed to sustainable forestry, and uses third-party verified chains-of-custody to ensure that wood is legally sourced from sustainably managed forests.

95% favorable in Employee Engagement Survey's Diversity and Inclusion index by 2030

Product stewardship

All applicable products eligible for ecolabelling by 2030

85% of UPM sales was eligible for ecolabelling.

Climate

Fossil CO 2

emissions from

Fossil CO 2 emissions reduced by 6% compared to 2016. However, the increase in 2011 due to Myllykoski acquisition has not been compensated yet. 13% reduction in wastewater volume achieved since 2008 for the UPM average product. 89% (89%) of all UPM’s process waste was recovered and recycled. The total amount of waste to landfills decreased by 13% compared to 2016.

own combustion and purchased electricity (Scope 1 and 2) reduced 30% by 2030 (compared to 2008) Wastewater volume reduced 30% by 2030 (compared to 2008) No process waste to landfills or to incineration without energy recovery by 2030

Water

Waste

Forest

All fibre certified by 2030 85% (84%) of all wood used by UPM is sourced from certified forests.

Material risks and their management is described on pages 102-104 of the Report of Board of Directors and in the Annual Report on pages 22-23. Information on the company’s risk management system is available on the corporate website in the governance section and in the Corporate Governance Statement 2017, which is also available as a separate report on the corporate website www.upm.com/governance .

More information about performance related non-financial topics is available in the general section of the Annual Report and on the UPM website: www.upm.com .

CONTENTS

ACCOUNTS

106

107

UPM Annual Report 2017

UPM Annual Report 2017

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