UPM Annual Report 2019

Operations

our pulp and chemical suppliers is an integral part of our supplier risk and performance management. We create development plans together with the suppliers based on these analyses. We also monitor the performance of our other raw material suppliers through various surveys. Know your supplier UPM carries out supplier risk assessments. The responsibility-related risks are determined by the country of origin, sourcedmaterial and complexity of supply chain. Based on the risk assessment, selected suppliers’ activities are evaluated inmore detail through annual surveys, supplier audits and joint development plans. Last year, UPM’s own trained auditors and external auditors carried out 185 audits, based on identified risks, including human rights, social and environmental topics. If any non-conformities are discovered, the supplier is required to take corrective measures. We monitor the implementation of these measures and provide support for improving the suppliers’ operations if needed. However, some contracts may have to be discontinued due to insufficient measures or the seriousness of UPM’s findings. In relation to CO 2 emissions and water- related risks caused by supply chains, the focus is onmonitoring pulp suppliers’ CO 2 emissions and water consumption. An effective third-party management plays an essential role in securing business continuity and compliance. In 2019, UPM enhanced its supplier screening and risk mitigation. A new counterparty risk management tool offers better visibility into counterparty-related risks through automated screening and support businesses in ethical and preventive decision-making. Global co-operation in sustainability In 2019, UPM continued its co-operation with Together for Sustainability (TfS), a chemical industry initiative that promotes and improves practices within the supply chains of its members. TfS membership also gave UPMaccess to EcoVadis assessments and TfS member audit reports. The co-operation improves transparency and the efficiency of our assessments and audits. In 2019, we conducted over 400 environmental and social risk assessments with EcoVadis and initiated first TfS audits. In 2020, we will

increase the number of supplier audits and EcoVadis assessments. Responsible sourcing is also an important theme in the UNGlobal Compact. We are an active member within the Action Platform, promoting decent work in global supply chains.

A cost-effective supply chain is a significant part of our value creation. The long-term development together with our suppliers guarantees a well-functioning and responsible supply chain. RESPONSIBLE SOURCING

Addressing decent work in the tapioca supply chain on page 65.

UPM’s external purchasing spend 2019

Energy 7% Raw materials 30% Indirect materials and services 12% Logistics 18%

Fibre 33%

SIGNIFICANCE • An effective supply chain guarantees our competitiveness and the availability of commodities required for production in all market situations TARGETS • We are a reliable and future-oriented partner • We create business value through proactive and collaborative supplier management • We set clear requirements and expectations for our suppliers • We focus on cost leadership, innovation, continuous development and proactive risk management OUR WAY • Focus on long-term, co-operative relationships and promoting methods for responsible sourcing • Monitoring our suppliers’ performance continuously and developing processes together with our key suppliers • Having responsible practices in the supply chain creates long-term value for us and our stakeholders • The UPM Supplier and Third Party Code sets transparent All our wood, pulp and recovered paper suppliers are continuously evaluated in regard to environmental issues, social responsibility and their involvement in the local community. These rawmaterials are either FSC® and PEFC™ certified or comply with the FSCControlled Wood standard or Due Diligence requirements for PEFC. A prominent user of wood and recovered paper We are both a major forest owner and a purchaser of wood. We source all wood assortments to ensure optimal utilisation of this

valuable rawmaterial. In 2019, we purchased 27.5 (27.6) million cubic metres of wood worldwide. We are also the world’s leading user of recovered paper for the production of graphic paper. In 2019, we used approximately 2.3 (2.5) million tonnes of recovered paper. Recycled fibre is approximately 30% of all fibre rawmaterials used in UPM’s paper production. The origin of wood is monitored All the wood used is legally logged and comes from sustainably managed forests. We don’t use wood harvested from tropical rainforests or accept wood fromplantations that have been established by destroying natural forests. We don’t accept wood from regions that do not respect the rights of indigenous peoples. All of our wood supplies are covered by third-party-verified, FSC® and PEFC™ certified chains of custody. We also verify that the wood supplied to our mills is compliant with the EU Timber Regulation, the US Lacey Act and other regional requirements. UPMbuys approximately 1.6million tonnes of chemical pulp from external suppliers. We set further requirements to pulp suppliers for environmental performance, social responsibility, forestry, wood sourcing and reporting. Collecting and analysing environmental- and social responsibility-related data for Continuous improvement with raw material suppliers

UPM buys products, materials and services from over 24,000 b-to-b suppliers globally. Our sourcing network includes suppliers from start-up companies to international corporations. In addition, UPM buys wood from some 18,000 private forest owners. The main sourcing categories are fibre, chemicals, other raw materials, indirect purchases, logistics and energy. Long-term reliable deliveries, product and service quality, financial stability of suppliers, social and environmental responsibility, and product safety are taken into consideration when selecting suppliers. Cost-efficiency and continuous development The aim of co-operation between UPM and its suppliers is to ensure compliance, competitiveness and systematic performance. A common goal is to guarantee that suppliers can provide responsibly produced, cost-competitive and innovative materials and services globally – in all market situations. The supply chain’s long-term development work has continued in several projects with suppliers. In terms of digital solutions, UPM decided to use a single platform to standardise and simplify sourcing processes, such as demand planning, tendering, contracting and purchase transactions. The aim is to improve process efficiency and transparency as well as to integrate suppliers transparently to business processes. The solution will be put into operation in 2020. Suppliers are bound by the same rules We are committed to responsible sourcing practices in our Code of Conduct. All the minimum requirements for suppliers are defined in the UPM Supplier and Third Party Code. In 2019, the UPM Supplier and Third Party Code was revised in line with the updated UPMCode of Conduct. We require suppliers to promote the same requirements in their own supply chains. In 2019, 84% (83%) of UPM total spend was qualified against the UPM Supplier and Third Party Code. All contractors working at our production facilities must comply with UPM’s safety requirements. Various additional requirements are applied to wood, chemicals, pulp, packagingmaterials and logistics.

Sources of wood to UPM mills 2019

UPM’s forests 14% Private forest owners 34%

Other companies 52%

Supplier code qualified supplier spend %

100

90

80

70

60

50

Target

15

16

17 18

19

84% 80% of total supplier spend qualified against UPM Supplier and Third Party Code (continuous) achieved

TARGETS 2030

requirements for the entire supply chain • Focus on 2030 responsibility targets

80

81

OUR WAY

OUR WAY

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS