UPM Annual Report 2017

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

UPM RESPONSIBILITY FOCUS AREA

2030 TARGET

2030 FOLLOW-UP / 2017 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 which are reviewed every year based on a materiality analysis (page 53). The focus areas cover economic, social and environmental responsibility. Having successfully transformed its business model and improved its business performance, UPM renewed its long-term financial targets in January 2017. Targets for diversity and inclusion, continuous learning and develop­ ment and responsible leadership were also revised. New formulations reflect UPM’s ability to get more insight from the renewed Employee Engagement Survey and the development of UPM's people processes. The target related to ecolabelled products was also revised. The new target is to manufacture all products in a way that they will be eligible for ecolabelling. In the area of economic responsibility, UPM’s focus areas are economic performance, good governance and responsible sourcing. Good governance helps UPM to avoid risks, enables growth and opens 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 creates financial and societal value to surrounding communities. 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. Targets are monitored annually.

• 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 and Third Party Code (continuous) • 100% of UPM raw material spend qualified against UPM Supplier and Third Party Code by 2030 1) • Continuous supplier auditing based on systematic risk assessment practices

• Comparable EBIT increased by 13% to EUR 1,292 million (1,143 million) • Comparable ROE was 11.9% • Net debt/EBITDA was 0.11 times

Governance Ensuring accountability and compliance

• 98% (97%) of active employees completed the Code of Conduct training

Responsible sourcing Adding value through responsible business practices

• 82% (80%) of supplier spend qualified against UPM Supplier and Third Party Code • 96% (94%) of raw material spend qualified against UPM Supplier and Third Party Code • Approx. 130 supplier audits were conducted based on identified risks and incl. human rights topics. A human rights due diligence completed at all UPM sites • Responses to Employee Engagement Survey’s Diversity and Inclusion index 67% favourable • All UPM businesses and functions reviewed their diversity status and defined their intent. Inclusive behaviour was integrated into leadership development • 89% of employees had individual goal setting or annual discussion completed • 62% of employees had a development plan documented • Responses to Employee Engagement Survey’s question regarding learning and development were 65% favourable (+1 percentage point) • Employee engagement index 71% favourable. This is 2 percentage points below the external high performing norm • Employee enablement index 73% favourable. This is 1 percentage point above external high performing norm • Three fatal contractor accidents in 2017 (two fatal accidents) • LTAF was 3.3 for UPM workforces and 4.3 including contractors. TRIF was 8.2 for UPM workforce and 8.5 including contractors • All production sites have an OHS management system in place. 44% of the sites got external certification of their OHS system • A majority of the sites with Health Promotion initiatives. Getting ready for the • UPM and FSC ® entered into a global strategic partnership, co-operation with BirdLife and Vida Silvestre continued • Sharing of best practices ensured through well-established operational stakeholder forums, for example • Programme continued with focus on employee volunteering in 2018 • 96% of production sites have a certified environmental management system in place, and implementation is underway at the rest • Environmental declarations are available for all relevant UPM products • 85% (86%) of UPM sales was eligible for ecolabelling • 89% (89%) of UPM’s total process waste was recovered or recycled. The total amount of waste to landfills decreased by 13% compared to 2016. in 2011 due to Myllykoski acquisition has not been compensated yet. • UPM sold greenhouse gas claims worth of 520,000 CO 2 tonnes. Without sales, UPM’s reported emissions (Scope 1 and 2) would have been over 8% lower • Energy efficiency target was achieved • Level of 69% (69%) reached in the use of renewable fuels • 31% reduction achieved since 2008 for the UPM average product • 32% 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 started in 2016. Already 17% of nutrients from recycled resources launch of global UPM Health Concept • The absenteeism rate was 3.8% (3.4%) • Fossil CO 2 emissions reduced by 6% compared to 2016. However, the increase

SOCIAL Diversity and inclusion

• People feel that UPM values and promotes diversity, people are treated fairly in their work environment and can advance regardless of personal background or characteristics. 95% favourable in Employee Engagement

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

Survey Diversity and Inclusion index by 2030 • Diversity and inclusion initiative (continuous)

Continuous learning and development Ensuring high performance for business success and continuous professional development for future employability

• Goal setting discussions are held and development plans are created for all employees, completion rate 100% by 2030 • Employees perceive good opportunities for learning and development at UPM, 80% favourable in Employee Engagement Survey by 2030 • Employee engagement and enablement indices with favourable score clearly above external high performance norm 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

Responsible leadership Emphasising value-based and inspiring leadership and integrity Continuous development of working environment

United Nations Sustainable Development Goals guiding UPM Targets

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

Community involvement Ensuring local commitment

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 eligible for ecolabelling by 2030

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

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

Climate Creating climate solutions and working towards carbon neutrality

• Fossil CO 2

emissions from own combustion and purchased electricity

(Scope 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) • 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 4)

Water Using water responsibly

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 increased to 85% (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

UPM Annual Report 2017 16

UPM Annual Report 2017 17