UPM Annual Report 2017

Stakeholders

In brief

Strategy

Businesses

Governance

Accounts

UPM Responsible Sourcing principles

Compliance

Transparent supplier requirements

Systematic risk assessment

Continuous develop­ ment in co-operation

UPM is committed to responsible sourcing practices in its own Code of Conduct.

All suppliers must comply with UPM’s global responsible sourcing requirements.

Suppliers are evaluated on a regular basis for social, financial and environmental risks.

In addition to supplier audits, tools such as joint development plans and competitions are used for continuous development.

The UPM Supplier and Third Party Code guarantees global common rules UPM is committed to responsible sourcing practices in the company’s Code of Conduct. All the minimum requirements for suppliers are defined in the UPM Supplier and Third Party Code. UPM requires that the suppliers promote the same requirements in their own supply chains. In 2017, 82% (80%) of UPM spend was qualified against the UPM Supplier and Third Party Code. For the first time, energy sourcing was included in the KPI. Despite the inclusion, the share of qualified suppliers grew from the previous year, so the relative improvement is excellent. The qualified suppliers are committed to complying with UPM’s responsibility criteria, including occupational health and safety. All suppliers working at UPM’s production plants must be aware of UPM’s safety requirements. Various additional requirements are applied to wood, chemicals, pulp, packaging materials, safety and logistics. All UPM’s wood, pulp and recovered paper suppliers are continuously evaluated in regard to environmental issues, personnel policy, human rights and the local community involvement. These raw materials are either FSC® and PEFC™ certified, or comply with the FSC ControlledWood standard or Due Diligence requirements for PEFC. Proactive risk management, audits and data analysis UPM’s supplier risk assessment includes supplier-specific financial, quality and supply and responsibility related risks. Country of origin, sourced commodity and complexity of supply chain are used to determine responsibility risks. Based on the risk assessment, selected suppliers’ activities are evaluated in more detail through annual surveys, supplier audits and joint development plans. Audits are carried out by both UPM’s own trained auditors and external auditors. Human rights are one of the main focus areas of these audits. In 2017, UPM organised extensive audit training for key personnel regularly visiting suppliers’ production facilities. UPM also conducted several audits that included every layer of the supply chain. When non-conformances are discovered, the supplier is required to take corrective measures. UPMmonitors the implementation of these measures and provides support for improving the suppliers’ operations if needed. Despite corrective measures, some contracts had to be discontinued due to insufficient measures or the severity of UPM’s findings. Special focus areas for UPM are CO 2 emissions and water-related risks caused by supply chains. UPMmonitors CO 2 emissions and water consumption throughout the supply chain and encourages suppliers to continuous improvement.

A prominent user of wood and recovered paper UPM is both a major forest owner and purchaser of wood. Wood is a valuable rawmaterial and UPM ensures its optimal utilisation by acquiring all types of wood. In 2017, UPM sourced 27.4 (27.8) million cubic metres of wood worldwide. UPM is also the world’s leading user of recovered paper for the production of graphic paper. In 2017, the company used a total of approximately 2.6 (2.8) million tonnes of recovered paper. The share of recycled fibre represents approximately 30% of all fibre rawmaterials used in UPM’s paper production. Tracing the origin of wood is an essential prerequisite All the wood used to produce UPMproducts is legally harvested and comes from sustainably managed forests. UPM does not use wood harvested from tropical rainforests or accept wood from plantations that have been established by converting natural forests. UPM does not accept wood from regions that do not respect the rights of indigenous peoples. All of UPM’s wood supplies are covered by third-party-verified, FSC® and PEFC™ certified chains of custody. UPM ensures that the wood supplied to its mills is compliant with the EU Timber Regulation, the U.S. Lacey Act and other regional requirements. Continuous improvement together with raw material suppliers UPM buys approximately 1.8 million tonnes of pulp from external suppliers. Pulp suppliers have special requirements for environmental performance, social responsibility, forestry, wood sourcing and reporting. Collecting and analysing data on pulp and chemical suppliers’ environmental and social responsibility is an integral part of supplier and risk management. UPM creates development plans together with the suppliers based on these analyses. UPM also monitors the performance of its other rawmaterial suppliers by performing various surveys. Over the past few years, UPM has organised responsibility-focused Supplier Days and competitions, and has granted awards to its best-performing suppliers. The aim of these awards is to encourage suppliers to improve their performance. In 2017, UPM organised a Supplier Day for partnerships and key suppliers in China. The goal was to provide information on the UPM Changshu mill development projects, bolster collaboration with suppliers, form networks, give recognition to the suppliers and encourage them to perform even better.

Co-operation with suppliers is the basis of a responsible supply chain

SIGNIFICANCE • An effective supply chain guarantees the availability and production of commodities, even in exceptional circumstances • Suppliers are an essential part of UPM’s value creation TARGETS • UPM is a reliable and future-oriented business partner and sets clear requirements and expectations for its suppliers • Together with its suppliers, UPM uses cost leadership, innovation, continuous development and proactive risk manage­ ment to generate competitiveness OUR WAY • Focus on long-term co-operative relationships • Continuous monitoring of suppliers’ performance and improvement of processes in co-operation with key suppliers • Responsible and ethical practices in the supply chain create long-term value for UPM and its stakeholders • The UPM Supplier and Third Party Code sets transparent requirements • Focus on 2030 targets

Suppliers are an essential part of UPM’s value chain. Continuous development work with the suppliers ensures the efficiency, transparency and responsibility of the whole supply chain.

Globally, UPMhas over 25,000 material and service suppliers. The company’s sourcing network includes suppliers from private forest owners to international corporations. UPM buys numerous different products, materials and services. The main sourcing groups are fibre, rawmaterials, other indirect material purchases and services, logistics and energy. Co-operation between UPM and its suppliers is based on mutual commitment and openness. The aim is to ensure productivity, quality, innovative development and systematic performance improvement. All new suppliers are evaluated and they must meet the requirements set for UPM’s suppliers and third parties. Cost efficiency and responsibility as principles UPM aims to ensure that suppliers are able to provide responsibly produced, cost- competitive and innovative materials and services for UPM business units globally — in all market situations. Long-term reliable deliveries, product and service quality, suppliers’ financial stability, social and environmental responsibility, product safety and occupational health and safety are taken into consideration when selecting suppliers.

UPM’s external purchasing spend 2017

Sources of wood to UPM mills 2017

Read more about UPM’s operating practices and compliance on pages 76–77, sustainable forest management on pages 62–63 and UPM’s value creation on pages 74–75.

Import 11%

Company forests 17%

Logistics 17%

Fibre 33%

State forests 3%

Indirect materials and services 12%

96% of raw material spend is qualified against the UPM Supplier and Third Party Code

Private forest 35%

TARGETS 2030

Delivered sale/ incl. chips and

Energy 9%

sawdust 34%

Raw materials 29%

CONTENTS

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UPM Annual Report 2017

UPM Annual Report 2017

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