UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

Megatrends increase consumer demand and the need for sustainable choices

WE RESPOND TO THIS CHALLENGE IN MANY WAYS, INCLUDING THE FOLLOWING:

More sustainable choices While consumer demand grows, natural resources are dwindling. Mitigating climate change and other environmental challenges require sustainable choices. The demand for sustainably produced renewable materials and products increases as a result of sustainable consumer choices and increasing regulation. Replacing non-renewable materials and products with renewable ones creates new demand. We must make more efficient use of materials and increase the recycling and reusing of materials so that we can respond to these challenges. More alternatives to fossil-based solutions Mitigating climate change requires that use of fossil-based resources and fuels be reduced. Traffic emissions can be reduced by using high-quality renewable fuels. Fossil-based plastic can be replaced with sustainable, renewable alternatives in many applications, and plastics must be recycled and used more efficiently. More life Sustainable forestry as a responsible land use solution secures wood production and safeguards biodiversity, the good status of water bodies and the benefits of forests for humans. This is the foundation of a sustainable bioeconomy. The recreational use of forests has a health-promoting effect. In addition, the berries, mushrooms and herbs found in forests are an important and diverse source of nutrition. In Finland, the unique everyman’s right legislation provides an excellent framework for using nature for recreation and hiking. More added value for society Sustainable commercial forestry and forest industry create significant economic wellbeing, the positive impact of which can be seen in many ways across society. Often these operations are based in areas that have little economic activity and few job opportunities. The forest industry is a significant source of tax revenue. In addition to the municipal share of corporate tax and real-estate tax, the taxes that UPM employees pay on their wages have a local impact. The purchasing power of employees and contractors maintains and also increases the vitality of local communities.

• Our products are made of responsibly sourced renewable raw materials and are recyclable. • Pulp-based packaging products and specialty papers are sustainable alternatives to plastic products or fossil-based materials. • UPM Raflatac’s thin label materials and wash- off adhesives and label materials containg recycled content. • UPM BioVerno renewable diesel reduces fossil CO 2 emissions by 80% compared with fossil fuels. It also significantly reduces local emissions. • UPM’s wood-based biochemicals can replace plastics and other materials produced from oil, gas and coal. • Solutions to decarbonise energy systems.

More pressure We need more renewable solutions and recycling options. Sustainable forestry responds to resource scarcity and climate change and promotes biodiversity, while also creating the prerequisites for financial growth. The benefits of forestry are far-reaching, which also balances out regional disparity. More customer demand Population growth, urbanisation and rising living standards, particularly in the emerging markets in Asia, create new consumer demand far into the future. Demographic change creates new kinds of needs. Digitalisation and e-commerce change consumer behaviour. The demand for daily consumer goods and the need for packaging materials and labelling are increasing. People also move more, use more energy and invest in lifestyle choices, all of which increase the demand for UPMproducts.

Sustainable forestry preserves forests and increases carbon sinks

More forests A sustainably managed forest grows more, creates renewable rawmaterials and is a larger carbon sink. Sustainable forest management requires investment but also increases the economic value of forests. Increasing demand for sustainable products creates a need to increase forest areas. One solution is the plantations in the southern hemisphere that have been established on naturally degraded grasslands. Investments are required for establishing and maintaining the plantations. These investments are profitable because they respond to the growing demand for sustainable wood-based products and the operations are economically viable for their owners. More carbon sinks Natural and sustainably managed growing forests are the second most important carbon sinks after oceans. By increasing forest growth and reducing the use of fossil fuels, we can mitigate climate change and develop sustainable solutions for future needs. The carbon sinks of the boreal forests are maintained and developed through sustainable felling rates and by ensuring good forest growth potential. The sustainably established plantations in the southern hemisphere constitute additional carbon sinks.

• We know the origin of the wood we use. • We plant 70 million trees every year – one hundred trees every minute. • The company’s forests and plantations are certified, as are 81% of the wood we use. • We create significant economic wellbeing in Finland and Uruguay. • UPM’s global biodiversity programme maintains and promotes biodiversity. • Our operations do not cause deforestation.

Circular economy for the efficient use of resources

• UPM is the world’s largest user of recovered paper in graphic paper manufacturing. • UPM Raflatac’s RafCycle recycling concept collects the paper and plastic used in labelling materials and recycles it as wood- plastic composites. • Our target is zero solid waste to landfills. We already recycle or recover 90% of the process waste. • Our target is to use water as efficiently as possible. This also saves energy. • Biomass-based fuels account for 70% of fuel usage. • Our target is to improve energy efficiency by 1% every year.

More recycling and resource efficiency, less waste The circular economy and resource efficiency offer solutions to the scarcity of natural resources, climate change and many other environmental challenges. Many of the challenges we face could be solved entirely or in part if materials and products were recycled and used more efficiently. Approximately 60% of the wood fibre used in the production of paper and boards are recycled globally. However, only some 14% of plastics and 20% of electronic waste are recycled. Fewer emissions The main cause of climate change is the use of fossil fuels. We must reduce their use quickly and move to low-emission or zero-emission energy sources. This requires a versatile fuel portfolio that guaran- tees a clean and sufficient energy supply for consumers. Being energy efficient and using circular economy solutions that conserve natural resources are two ways in which emissions can be reduced. What’s more, part of the side streams of products obtained from forests are already used efficiently as energy. However, other low-emission and zero-emission energy sources are also required.

More new solutions The product design of sustainable products must cover the entire value chain, from rawmaterial sourcing to end products and their recycling or sustainable disposal. Renewable and recyclable products and innovations based on these are an essential part of the bioeconomy, both now and in the future. Open and transparent product communication supported by ecolabels, certificates and product declarations, for example, increases consumer confidence.

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CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018