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

Ensuring local commitment, enhanced co-operation, stakeholder engagement and sustainability initiatives

Biofore Share and Care demonstrates commitment to responsibility

million on local sponsorships. UPM’s support for its Uruguayan UPMFoundation continued with USD 400,000. The foundation supports and encourages training, entrepreneurship, employment, healthy living and entertainment in local communities in the Uruguayan countryside. EUR 499,000 (406,300) was donated to charities or other non-profit causes, including donations to the Central Finland Centre for Economic Development, Transport and the Environment and to the Laurinvirta project to remove barriers to fish migration. UPMhas also made donations to the Finnish Olympic Committee to organise children’s afternoon sports clubs, the Economic Information Office (TAT) to support the Yrityskylä learning environment and the Finnish Forest Association to provide forest education to pupils. Plant for the Planet Foundation in Germany and China Green House Foundation also received donations in 2018.

TARGETS 2030

UPM’s Biofore Share and Care programme demonstrates our dedication to a sustainable and innovation-driven future through sponsorships, donations and employee voluntary work. We share our resources with causes that respect sustainable development and work in line with the company strategy. UPM directs support to reading and learning projects, responsible water initiatives, bioinnovations and community engagement. UPM does not financially support political parties or individual candidates. Employee volunteering, initiated in 2018, emphasises local commitment. UPM’s salaried employees can use up to 8 hours per year for volunteering work during their working hours. The focus of the local sponsorship is on supporting the vitality of UPMproduction locations. UPM spent approximately EUR 1.2 (1.1)

Forest and climate policies as key themes in public affairs work Through public affairs work, we aim to foster the necessary prerequisites for operations, particularly in Finland, Uruguay, Germany and China. Active influencing at EU level is also important. UPM co-operates with a number of trade associations on these topics, the most important of which are the Finnish Forest Industries Federation (FFIF) and the Confederation of European Paper Industries (CEPI). Sustainable forest management and the climate impact of forests were highlighted during 2018, and discussions on forestry were carried out with environmental organisations, certification bodies, authorities and decision makers. The discussion on the climate impact of forests is also essentially linked to the EU regulation on land use, land-use change and forestry (LULUCF). UPM actively promotes the competitive and consistent regulation of energy and climate policy. One of the key themes in recent years has been the EU Renewable Energy Directive that sets the sustainability criteria for forest-based biomass. It defines, for example, the goals to increase the share of sustainable low-emission biofuels in transport by 2030. Finalisation of the directive proceeded during 2018. In Finland, we contributed to discussions on the Finnish operating environment that impact the competitiveness of the forest industry in Finland. The discussion focused on different public subsidies and existing tax mechanisms, for example to promote renewable energy generation or the competitiveness of industries exposed to international competition. In Uruguay, UPM continued discussions with the government regarding the development of logistics infrastructure and other local prerequisites related to a potential pulp investment. An agreement on long-term industrial development and initiatives for infrastructure development was signed in November 2017. The agreement covers areas such as rail and road connections and a connection to a deep sea port that are prerequisites for establishing a large-scale industrial operation in the Uruguayan inland. Close co-operation to promote responsible business practices In terms of responsibility, we concentrated on promoting UPM’s performance, along with securing the prerequisites for future activities and communicating our future possibilities and competitiveness. Globally, we continued active co-operation with local permit authorities. Responsibility issues were also raised in customer enquiries, with product safety, ecolabels and the origin of rawmaterials emerging as key themes. UPM continued active participation in the LEAD group of the UN Global Compact responsibility initiative. The group represents world-leading companies to promote sustainability through innovation and actions. In September, the UN recognised UPM as one of 34 Global Compact LEAD companies demonstrating world-class commit­ ment to corporate responsibility. In October, the Global Compact Network Finland was established to bring together all Finnish companies and organisations committed to Global Compact. UPMwas selected to chair the network. We also continued our co-operation with different stakeholders in responsibility issues on a voluntary basis around themes such as ecolabels, fish migration and nature conservation. UPM’s two-year co-operation agreement with the Forest Stewardship Council FSC® will significantly increase the share of FSC® certified wood in Finland. More information on local impacts of pulp and paper mills UPM’s mills in Europe, China and Uruguay can be among the biggest employers and taxpayers in the locations in which they operate. Our EMAS (EU Eco-Management and Audit Scheme) statements, extended to cover societal impacts in addition to environmental performance, provide more detailed information on the local impacts of mills. In addition to economic impact, the extended EMAS statements also include information on co-operation with local stakeholders. UPM sponsors local organisations and works in close co-operation with educational institutions, for example. Local statements complement UPM’s corporate responsibility reporting. Mill- specific EMAS statements are compiled annually and published on the UPMwebsite.

UPM’S MATERIALITY ANALYSIS 2018 The materiality analysis (below) of the company’s responsibility issues covers topics that directly or indirectly influence the ability to create, maintain or acquire economic, environmental or social value for UPM, its stakeholders and society. Analysis is carried out annually, based on follow-up of the interests and concerns of various stakeholder groups, including communities, employees, NGOs, customers, suppliers, government and regulators, investors, researchers and media.

All customer questions and stakeholder concerns received during the year are taken into consideration. Additionally, UPM conducts a specific stakeholder survey using a web-based tool that enables stakeholders to answer anonymously. Results of the survey are gathered and analysed by an independent third party and used to support UPM’s wider evaluation. Most material economic, environmental and social responsibility topics identified in UPM’s analysis are presented on the right. UPM’s responsibility focus areas and targets (page 26–27) reflect these material aspects. UPM does not distinguish between topics within the section and considers them all equally material.

ROOTED IN CHINA FOR 20 YEARS

In November 2018, UPM celebrated its 20th anniversary in China with a ceremony at the Finland Pavilion at the China International Import EXPO (CIIE) in Shanghai, attended by government officials from Finland and China, as well as business partners and customers. President and CEO Jussi Pesonen affirmed China’s growing strategic importance to UPM. Speaking at the ceremony, Pesonen underlined UPM’s long-term commitment to providing the most innovative and responsible forest- based solutions as China continues its transformation into a green economy. UPM’s strong focus on sustainability and innovation was on full display at CIIE, through its cutting-edge Biofore Concept Car, made out of UPM’s renewable and recyclable forest-based materials. The car received its biggest Over the past two decades, UPM has invested over USD 2 billion in China as part of its global growth strategy. Today, its operations include a paper mill with three paper machines, a label stock factory and three slitting and distribution terminals as well as the Asia R&D centre. Its environmental investments in China amount to USD 80 million. welcome and media coverage in China since its unveiling in 2014.

STRATEGIC FOCUS AREAS

PERFORMANCE 1 2 3 4 5 RESPONSIBILITY GROWTH INNOVATION

PORTFOLIO

ECONOMIC Compliance, ethics and values Competitiveness Responsible sourcing Corruption and bribery

MEDIUM HIGH

ECONOMIC Risk and opportunity management Regulatory environment Selling ethics Taxation

SOCIAL Health and safety Employee engagement Diversity Child and forced labour

ENVIRONMENTAL Responsible forest manage- ment and biodiversity Resource efficiency and environmental performance Climate change Product stewardship

ENVIRONMENTAL Sustainable land use Circular economy Third-party verified management systems

SOCIAL People development and talent attraction Local engagement

Significance for stakeholders

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Significance for UPM

MEDIUM

HIGH

50

51

CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018

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