UPM Annual Report 2018

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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

UPM FORESTS AND PLANTATIONS

% FOREST AREA DISTRIBUTION

Canada and US

81% Share of certified fibre

100% Wood supply from controlled sources

2018

2008 1,012

TARGETS 2030

971 8.8 4.6

Forest and plantation land, own and leased (1,000 ha)

Finland

Forest growth (million m 3 )

4.3 2.2

Wood harvested from UPM forests and plantations (million m 3 ) Value of forests and plantations, including land (EURm)

2,514

1,270

Uruguay

Finland

At the end of 2018, UPM owned 512,000 hectares of forest land in Finland and 76,000 hectares of forest land in the United States. In Uruguay, the company owns 258,000 hectares of plantation land. Forest land owned by UPMhouse nearly 45,000 protected sites with a total area of 130,000 hectares. The company is also responsible for managing approximately 1.1 million hectares of forest and plantation land owned by private forest owners. To improve operational efficiency at its forests and to better serve private forest owners, UPM developed a new pine seedling type, Pikkolo in 2018. The small-sized seedling enables more efficient planting and its enhanced root system secures fast growth on-site. UPM continued to sell forest land that is remote from its production sites. In Finland, UPM and the Ministry of the Environment agreed on the establishment of several private conservation areas on UPM land. Co-operation with stakeholders The growing need for food production and wood causes deforestation, especially in the tropics, which is an important concern for the entire forest industry. UPM recognises this challenge and has reacted by taking action in its own operations and by actively participating in international co-operation networks. UPM’s wood sourcing and forestry operations do not cause deforestation. Forest certification is based on standards that have been defined in an open stakeholder process, and compliance with these standards is monitored by an independent third party. All UPM-owned forests are certified. To promote the certification of privately owned forests in Finland, UPMhas established the FSC® group certification scheme. In 2018, UPM’s Finnish FSC group certification scheme grew to cover approximately 400,000 hectares of forest. 81% of wood consumed in our mills was sourced from certified forests in 2018 and all wood sourced by UPM is FSC Controlled Wood and from PEFC Controlled Sources. UPMhas been recognised as a global leader on the CDP Forest A List for its actions to tackle deforestation in its supply chain with global and sustainable sourcing of key In 2018, UPM became the first forest industry company to announce a target to achieving positive impact on biodiversity in company forests in Finland (read more on the right). UPMhas systematically developed methods for maintaining biodiversity in its eucalyptus plantations in Uruguay. More than one third of the land is left unplanted consisting of grasslands, native forests, wetlands, waterways and ecological corridors. Mafalda is one the most important nature conservation areas and found to have very special flora and fauna, covering up to 1,550 hectares. UPMhas a long tradition of working together with expert stakeholders in various biodiversity projects. In 2018, we partnered with Aves Uruguay and Vida Silvestre in Uruguay and Osprey Foundation in Finland. We have also co-operated with Helsinki University and with the University of Eastern Finland on forestry research. UPM continued to participate in forest-related stakeholder forums such as roundtable process coordinated by the Finnish government, The Forests Dialogue, FSC Boreal Network andWWF New Generation Plantation Platform. These processes involve forest and environmental organisations, forest owners and representatives from industry, research and public administration, working towards a common goal of identifying and developing responsible forestry practices. commodities linked to deforestation. Focus on forest biodiversity

BIODIVERSITY FORMS THE FOUNDATION FOR SUSTAINABLE FORESTRY UPM’s new biodiversity target is one of the company’s responsibility targets for 2030. The aim is to preserve biodiversity alongside modern forestry in UPM’s own forests in Finland. The target was presented at the Conference of the Parties (COP14) of the UN Convention on Biological Diversity, held in Egypt in November. With this target and through our actions, we seek to open up new opportunities for different land use practises that promote the preservation of natural resources or habitats. Biodiversity helps to protect water resources, promote multiple forest uses and ensure the growth of forests that act as carbon sinks to mitigate climate change. The biodiversity programme will be carried out according to the annual plan, and the operations and results will be reported transparently. The key performance indicators for the programme are variation in the forests’ succes- sional stages, the number and type of set-asides, diversity of tree species, variation in forest structure, and deadwood, which provides a habitat to as many as one fifth of forest species. An independent group of researchers will monitor the progress the programme.

COMMITTED TO SUSTAINABLE FORESTRY

We develop our strategic forest assets to secure wood supply to our mills. Finland and Uruguay are the most important countries for UPM’s wood sourcing. In both countries, forest sector is significant for national economy and there is clear land ownership. The economic value of forests forms the basis for responsible land use and thus mitigating climate change.

TARGET • Ensure sustainable land use and keep forests full of life • Secure forest ecosystem services OUR WAY • Credible certification systems for all our own forests

SIGNIFICANCE • Renewable wood is UPM’s most important raw material • All forest ecosystem services are based on biodiversity • Forests and wood-based products have a unique role in climate change mitigation • Forests play an important role in water cycles • Forests support wellbeing of local communities

• Third-party verified chain of custody systems to ensure 100% traceability of wood • Commitment not to use wood from tropical rainforests or accept wood from forest plantations that have been established by converting natural forests • No operations in areas where the rights of indigenous peoples are threatened or endangered • No plantation operations in water-stressed areas • Strong stakeholder engagement • Focus on 2030 responsibility targets: All fibre certified and positive impact on biodiversity in company forests