UPM Annual Report 2019

Operations

COMMITTED TO CLIMATE ACTIONS

Knowing the risks As well as taking action to mitigate the impacts of climate change, it is crucial to understand how a company’s businesses, operations and assets could be affected by the physical impacts of climate change and by the transition aspects such as policies, regulation, technologies and market behaviour. We must understand the risks and opportunities in order to take actions that help us adapt for possible future scenarios. In 2019, UPM engaged with the FinnishMeteorological Institute (FMI) to study the physical impacts of climate change in UPM’s main areas of operations. We looked at three scenarios, representing low, medium and high CO 2 emissions and other greenhouse gases. As part of the climate project, all UPM businesses studied transition impacts for the same three scenarios. The price of energy and carbon, development of energy markets, availability of rawmaterials and regulation, as well as market and consumer behaviour, were key considerations.

PHYSICAL IMPACTS UNDER CLOSE MONITORING The Finnish Meteorological Institute (FMI) has issued a report helping UPM to predict the future physical long-term impacts of climate change on its business in Finland, Uruguay, Southern Germany and Eastern China. The Institute incorporated three alternative emission scenarios in the report. The biggest risks in the company's business are related to more frequent and severe extreme weather conditions such as heavy rainfall, storms and drought. Climate change will have the biggest physical impact on UPM’s business environment in Finland, where temperatures are expected to rise more significantly and rapidly than the world average. The average temperature may rise between 1°C and 6°C in winter and between 1°C and 4°C in summer. “Forest growth will likely accelerate as the growing season will be longer and the amount of carbon dioxide in the atmosphere will increase. However, weather extremes will intensify, which presents new risks,” explains Ari Venäläinen, Senior Research Scientist at the FMI. The Finnish Meteorological Institute estimates that the impacts of climate change will be less significant in the other three countries where UPM operates. In Uruguay, the annual average temperature may rise between 0.9°C and 1.8°C, but this would not significantly affect forest growth. In Eastern China, the annual average temperature may rise by between 1.6°C and 2.7°C. The FMI predicts that the biggest related risk would be the flooding of the River Yangtze due to a potential increase in rainfall. In Southern Germany, the annual average temperature could rise between 1.6°C and 2.7°C by 2050, depending on the eventual emission scenario. The increase of droughts and forest fires due to higher temperatures constitute the biggest risks for forestry. SIGNIFICANCE • Climate change is a major challenge and require action • The transition to a low-carbon economy and the physical impacts of climate change bring both risks and opportunities • The global climate agreement aims to keep the average global temperature rise at a level that does not threaten nature or society • Forests, which function as carbon sinks, and wood-based products have a unique role in mitigating the effects of climate change, whilst the use of fossil fuels must be reduced TARGET • Create climate solutions and innovate for a future beyond fossils, whilst aiding in limiting the global temperature rise to 1.5°C OUR WAY • Ensure wood supply comes from sustainably managed forests and ensure a positive impact on land use • Efficient use and increasing share of renewable and low-emission energy • Renewable and recyclable products, materials and solutions that replace fossil-based ones • Focus on 2030 responsibility targets CASE

Our Biofore strategy drives the transition to a low-carbon economy. Forests, wood-based products and low-carbon energy have a unique role, both in mitigating the effects of climate change and in our strategy.

In 2020, we will begin a study on climate-related substitution and carbon storage effects of our products. CDP recognised UPM as one of the only six Triple A List companies globally for its significant actions to mitigate climate risk. Management of climate-change-related issues We placed more emphasis on managing climate-change-related issues in 2019. Our climate action project, established in 2017, was strengthened by the appointment of a full-time project manager. The findings of the project, including scenario analyses, will be used in business planning to mitigate risks and capture benefits. To increase transparency in climate-related reporting and management, we signed the pledge of the TCFD (Task Force on Climate-related Financial Disclosure) and developed our reporting according to this framework (read more 135).

Committed to limit global temperature rise to 1.5°C We committed to the UN’s Business Ambition for 1.5°C pledge to pursue science-based measures to limit global temperature rise to 1.5°C. UPM is uniquely positioned to reach carbon neutrality by climate-positive land use, reduced emissions and climate- positive products. We have made a systematic global review of our opportunities for reducing emissions using existing technologies. We have also analysed the financial impact of each carbon action. Based on this assessment we committed to reduce our CO 2 emissions from fuels and purchased electricity by 65% from the 2015 level by 2030. Climate-related science is developing quickly and we want to take an active role by seeking scientific partners to collaborate with in order to gain credible data and approaches.

Sustainable forestry on next page Reducing energy use and emissions to air on page 90 Sustainable and safe products on page 8 Risks and opportunities on pages 28 and 129–131 upm.com/responsibility

THREE EMISSION SCENARIOS UPM’s selected three global emission scenarios to illustrate portraits of the future contingent on CO 2 emission levels in 2040. They are based on forecasts issued by the International Energy Agency (IEA).

GtCO

/a

1

2

40

2

35

OUR CLIMATE COMMITMENT AND TARGETS

30

25

We drive long-term value creation

20

We commit to the UN Business Ambition for 1.5 ° C OUR ONLY FUTURE BUSINESS AMBITION FOR 1.5°C

3

15

’90

’10

’20

’30

’40

’00

Sources: UPM and IEA

We act through FORESTS

We act through EMISSIONS

We act through PRODUCTS

Global CO 2 emissions increase, temperature rise of more than 3°C Conclusions: In the high-emission scenario, physical impacts dominate 1 Combined emissions increase, albeit slowly, temperature rise of 3°C Temperature rise remains below 2°C Conclusions: In the low- and medium-emission scenarios the transition impacts play a bigger role. UPM is well positioned, as our business portfolio allows for flexibility regarding recognised risks and opportunities. 2 3

Climate-positive forestry

65% CO 2

emission reductions

Product innovations

RESPONSIBLE BUSINESS CONDUCT

Based on the scenario work and the outcome of the project, we revised our climate-related targets to better address the aspects that were identified as relevant in mitigating the effects on climate change.

86

87

OUR WAY

OUR WAY

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS