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

SIGNIFICANCE • We are building a sustainable future by replacing non- renewable materials with renewable ones, using them more efficiently and creating new responsible solutions • Responsibility is an integral part of our Biofore strategy and our operations, and seen as a source of competitive advantage TARGET • We lead the forest-based bioindustry into a sustainable, innovation-driven and exciting future beyond fossils • We provide solutions to global challenges, while at the same time creating value for our stakeholders OUR WAY • We respect international agreements such as the UN Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises • Our Biofore strategy guides us in achieving our responsibility targets for 2030 and in contributing to the UN Sustainable Development Goals • Our Code of Conduct and Supplier and Third Party Code provide a foundation for responsible business conduct and continuous improvement • Corporate responsibility is managed by the Board of Directors and the Group Executive Team, as well as by businesses and functions

ARTIFICIAL INTELLIGENCE MEASURES BUSINESS IMPACT

At the request of UPM, The Upright Project analysed the net impact of the company's operations on the society. In addition to environmental factors, the analysis considered the impact on health, society and the creation and sharing of knowledge. The assessment shows the sum of the positive and negative effects of the company. “We studied both the impact of UPM's whole operation and of its individual businesses, looking especially at the importance of its products in the everyday life of consumers and the company’s significant role in creating jobs,” notes Annu Nieminen , founder and CEO of Upright. The business impact analysis developed by The Upright Project is based on machine learning using data from scientific articles. The analysis is used by investors and companies that want to be more aware of how they affect the world around them. The beginning of the value chain is often well known in companies but Upright also evaluates the effects of a product’s end use. “For example, labels on food and medicine packaging provide information on the content and use of the product. This later correlates with the positive health effects of the products. Through our analysis, we strive to understand what the positive and negative effects of the value chain are based on,” she says. Value-based leadership Value-based and inspiring leadership ensures high performance and continuous professional development, a safe and healthy working environment and the wellbeing of employees and contractors. An inclusive and diverse working environment empowers people. Ensuring local commitment and balanced stakeholder engagement is crucial. A new approach to performance management was put into action for the majority of salaried employees in 2018 and will be expanded to all salaried employees in 2019. The aim is to improve employee motivation and performance. (Read more on page 57). Sustainable and safe solutions Renewable rawmaterials and recyclable products are the essence of a circular economy. Product stewardship ensures that our solutions respond to global challenges and that UPM’s product communication is reliable and transparent. UPM’s businesses further enhanced product stewardship in 2018. UPMRaflatac became the first self-adhesive label material supplier whose European factories are all certified according to the ISO 22000 food safety standard. UPMBiofuels received the world's first RSB (Roundtable of Sustainable Biomaterials) low ILUC (indirect land use change) risk certification. UPMwas one of the first companies to receive the enhanced Singapore Green Label and the first to receive a new China Green Label certification. UPMRaflatac signed up to the New Plastics Economy Global Commitment, led by the Ellen MacArthur Foundation. READ MORE: upm.com/responsibility

VALUE FROM RESPONSIBILITY

Transparency of reporting was developed further. All UPMpulp and paper mills reported locally relevant information on their societal impact as part of the EU’s EMAS (Eco-Management and Audit Scheme). UPMpiloted a new approach for net impact analysis in collaboration with the Finnish start-up company (read more above). Amore detailed description of our commitments, impact and corporate responsibility can be found in the Report of the Board of Directors (pages 99–119). Responsible operations and value chain Responsible business conduct is integrated into the entire value chain. Efficient operations do not only reduce costs, but also minimise negative environmental impact. Sustainable forest management ensures wood availability while at the same time safeguarding biodiversity and the contribution of forests to mitigating climate change as carbon sinks. Human rights are the focal point of all activities. In 2018, UPM’s businesses worked on how to reach 2030 environmental targets and on developing environmental reporting and best-practice sharing. As a result, environmental deviations reduced from 33 to 26. The More with Biofore in China research programme continued at the UPMChangshu paper mill. The mill was able to further improve its energy efficiency by 2%. All UPMproduction sites now have a certified ISO 14001 environmental management system in place. UPM initiated a climate change scenario study with the Finnish Meteorological Institute (FMI) to discover how climate change will affect UPM’s business operations in the long run (read more on page 75). To complement our forest-related responsibility targets, we launched a new biodiversity target to continuously improve the diversity of UPM's own forests in Finland (read more on page 69). UPM continued its human rights due diligence process with a local human rights risk assessment in UPM’s operations in Uruguay, focusing on working conditions, community relations and contractors (readmore on page 55).

Creating value for society, both as a company and through our renewable and responsible solutions, is an integral part of our Biofore strategy. The bioeconomy offers new opportunities for value creation and business growth.

Responsibility is integrated into our Biofore strategy We promote responsible business practices throughout our value chain and actively seek sustainable solutions in co-operation with our customers, suppliers and other stakeholders. Responsibility is integrated into our Biofore strategy as the solid foundation for long-termvalue creation: • Compliance • Responsible operations and value chain • Value-based leadership • Renewable rawmaterials, recyclable and safe products Compliance is a must in all our activities Decision-making, management and operations are guided by our values and the UPMCode of Conduct (read more on page 80). Responsible

business practices, complemented by credible and transparent reporting, form the basis for responsible business conduct across the whole value chain. In 2018, UPMworked on strengthening the management of material compliance issues: anti-corruption and anti-bribery, environmental matters, product safety, labour practices, safety, human rights and responsible sourcing. These issues are reported to the Audit Committee on a quarterly basis. In 2019, the UPMCode of Conduct will be revised and all UPM employees trained. In 2018, UPMwas again named a Global Compact LEAD company for its commitment to the UN Global Compact. We were one of only 34 global companies to receive this recognition, and the only representative of the forest industry and Finland. UPMwas one of the founding members of the Finnish Global Compact network.

READ MORE about responsibility throughout the Annual Report.

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CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018