UPM Annual Report 2017

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

Megatrends drive demand for sustainable and safe solutions

MEGATRENDS

EXPRESSIONS

OPPORTUNITIES FOR UPM

CHALLENGES FOR UPM

The global megatrends represent many long-term opportunities and challenges for UPM towards 2030 and beyond. They are also driving demand for sustainable and safe solutions, new techno­ logies and responsible business practices.

POPULATION GROWTH, URBANISATION AND DEMOGRAPHIC CHANGE

UPM Pulp | UPM Biofuels | UPM Raflatac | UPM Specialty Papers | UPM Paper ENA | UPM Plywood | UPM Timber | UPM Biochemicals | UPM Biocomposites Significant growth in global consumer demand Growing consumer demand for sustainable and safe products New business opportunities with ecodesign Opportunities relating to bioeconomy Cost-efficient and responsible supply chains UPM Pulp | UPM Biofuels | UPM Energy | UPM Raflatac | UPM Specialty Papers | UPM Paper ENA | UPM Plywood | UPM Timber | UPM Biochemicals UPM Biocomposites | Wood Sourcing and Forestry Growing demand for renewable and biodegradable materials and renewable energy New business opportunities replacing non-renewable materials New technologies to improve resource efficiency and replace non-renewable materials Resource efficiency and circular economy offer a competitive advantage Healthy forests and safeguarded wood availability Sustainable land use and ecosystem services Responsible water use and safeguard the natural water cycle in forests Increased forest growth in Northern Europe, sustainable plantations UPM Pulp | UPM Raflatac | UPM Specialty Papers | UPM Plywood Online shopping drives growth in demand for labelling, packaging, pulp and transport Increasing efficiency, productivity and change agility Industrial Internet, big data, robotics and automation Different demand trends for different paper end uses and geographical areas UPM’s paper production platform provides continuous optimisation opportunities UPM Biofuels | UPM Energy | UPM Biochemicals | UPM Biocomposites | UPM Pulp | UPM Plywood | UPM Timber Sustainability offers competitive advantages and growth opportunities Prioritising use of low-emission and renewable energy Growing consumer demand for sustainable and safe products New technologies and business opportunities replacing fossil energy and

Fit of UPM’s product mix and geographical presence to the future growth outlook Unpredictable regulation and subsidies may distort markets

Global consumption growth Growing middle class in China and the emerging markets Higher living standards Changing consumer behaviours and preferences Impact on the environment, societies and human rights

RESOURCE SCARCITY AND ROLE OF RENEWABLES

Competition for natural and fossil resources Biodegradability Land-use change Threat of deforestation Threat of biodiversity loss Human rights

Unpredictable raw material costs and availability Competition for renewable raw materials Unpredictable regulation and subsidies may distort markets Competition for land use

DIGITALISATION

UPM Paper ENA Declining graphic paper consumption Fit of UPM’s product mix and geographical presence to future growth outlook New forms of competition Changing needs for skills and competencies Cyber security Unpredictable regulation and subsidies may distort markets Cost of greenhouse gas emissions Political instability Increasingly common and more severe storms, floods and droughts Unpredictable wood-harvesting conditions

Changing consumer behaviours and preferences Growing e-commerce Changing work Disruptive business models and technologies

CLIMATE CHANGE

Policies to mitigate climate change Direct and indirect impact of climate change

oil-based materials Circular economy Forests as carbon sinks Increased forest growth in Northern Europe

RESPONSIBILITY AND COMPLIANCE

Increasing regulation, subsidies Requirements for transparency Global trade and businesses – local impact Focus on human rights, environment and biodiversity

Responsibility offer competitive advantage and growth opportunities Regulation may drive markets for sustainable products Product stewardship

Reputation and financial risks in the event of non-compliance Unpredictable regulation and subsidies may distort markets Trade barriers, protectionism and sanctions

Transparency as competitive advantage Cost-efficient and responsible value chains Engaged and diverse workforce, talent attraction Sustainable returns and risk mitigation

CONTENTS

UPM Annual Report 2017 20

UPM Annual Report 2017 21