UPM Annual Report 2019

Operations

CASE

In Uruguay, UPMhas systematically developedmethods for maintaining biodiversity in its eucalyptus plantations. More than one third of the land is left unplanted, so it consists of grasslands, native forests, wetlands, waterways and ecological corridors. Wood supply from controlled sources The growing need for food production and for wood as a resource causes deforestation. This is especially so in the world's tropical regions and is an important area of concern for the entire forest industry. We recognise this challenge. We are taking action in our 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. Our 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 2019, UPM’s Finnish FSC group certification scheme covered approximately 504,000 hectares of forest. 82% (81%) of wood consumed in our mills was sourced from certified forests in 2019, and all wood sourced by UPM is FSC ControlledWood and fromPEFC Controlled Sources. CDP recognised UPMas one of the only six Triple A List companies globally for its significant actions to mitigate climate risk and prevent deforestation.

Engaging with stakeholders UPMhas a long tradition of working together with expert stakeholders on several development projects. In 2019, we partnered with Aves Uruguay and Vida Silvestre in Uruguay, and with the Osprey Foundation in Finland. In Finland, we started transplanting threatened wood-inhabiting fungi in co-operation with Natural Resources Institute Finland and the University of Helsinki. The target is to accelerate the reintroduction of species inhabiting deadwood to forests. We also co-operated with BirdLife in a project where we developed artificial nest network for raptor species. Another project was the EU-funded Beetles Life project which aims to protect specific threatened beetle species in forest ecosystem. Co-operation with Helsinki University and with the University of Eastern Finland on forestry research continued. UPM continued to participate in forest-related stakeholder forums, including roundtable process coordinated by the Finnish government, FSC Boreal Network and theWWF NewGeneration Plantation Platform. These forums bring together forest and environmental organisations, forest owners and representatives from industry, research and public administration, with the common goal of identifying and developing responsible forestry practices.

A NEW TARGET OF CLIMATE- POSITIVE LAND USE Climate-positive land use is UPM’s latest responsibility target. This means that the company-owned forests will maintain the carbon sink effect and thus contribute to the mitigation of climate change. Natural Resources Institute Finland calculated the carbon balance of the company forests in Finland and Uruguay for 2019. The carbon sink of UPM’s forests in Finland amounted to 1.3 million tonnes of CO 2 as an annual average during the last five years. UPM’s climate target related to land use is regularly monitored by calculating and reporting the carbon balance. At the same time, methods for measuring greenhouse gases caused by land use are being developed in collaboration with researchers. UPM has started to provide forest owners with a forest regeneration service to replace clear-felling. Reforestation, which maintains the varied age structure of the forest, is suitable for certain sites. Certain peatland sites can also be suitable for this practice — and they can provide more affordable solutions for improving the carbon balance and climate than clear-felling. High-quality seedlings produced in the company’s own nurseries and timely work in the forests contribute to climate-positive forest management. UPM’s decision to invest in a new pulp mill in Uruguay has increased the plantation area. This increase has resulted in a temporary increase in the size of the carbon sink, which will level off as the mill starts production. The carbon storage of soil and trees will be maintained in the future.

Follow the path and discover the secrets of Finland’s unique forests. Visit upmforestlife.com

SUSTAINABLE FORESTRY We manage our forests sustainably and develop our strategic forest assets to secure the high-quality wood supply to our mills.

SIGNIFICANCE • Renewable wood is UPM’s most important raw material • Forest biodiversity is the basis for various ecosystem services • Forests and wood-based products play a unique role in climate change mitigation • Forests are part of the water cycle • Forests support the wellbeing of local communities TARGETS • Ensure sustainable land use and maintain and enhance biodiversity •Secure forest ecosystem services •Climate-positive forestry OUR WAY • Third-party-verified and credible certification systems for all of our own forests • Third-party-verified and certified chain of custody systems to ensure 100% wood traceability • Commitment not to use wood from tropical rainforests or from forest plantations that have been established by converting natural forests • No operations in areas where the rights of indigenous peoples are endangered • No plantation operations in water- stressed areas • Strong stakeholder engagement • Focus on 2030 responsibility targets

Finland and Uruguay are the most important countries for UPM’s wood sourcing. In both countries, the forest sector is significant for the national economy, and there is clear land ownership. Responsible land use ensures the long-term economic value of forests and mitigates climate change. At the end of 2019, UPM owned 510,000 hectares of forest land in Finland, and 76,000 hectares of forest land in the United States. In Uruguay, the company owns 263,000 hectares of plantation land. Forest land owned by UPMhouses nearly 46,000 protected sites, with a total area of 142,000 hectares. We are also responsible for managing approximately 1.3 million hectares of forest and plantation land owned by private forest owners. UPM owns modern nurseries in Finland and in Uruguay. High-quality seedlings provide the foundation for good tree growth and for services that best meet the needs of forest customers. In 2019, we increased our seedling production volumes. Our Finnish

nursery improved the conditions for deciduous tree production, promoting both wood production and biodiversity, as well as climate change mitigation and adaptation. Focus on mitigating climate change and forest biodiversity We are committed to climate-positive forestry. Sustainably managed forests are more resilient to changes in the climate. We ensure that we always growmore forests than we harvest, and we work to improve our forests’ growth and ability to absorb more carbon. In the future, we will also annually report the carbon sink levels of our forests, and the reporting systemwill be developed further. In 2019, UPM continued to implement its work aimed at positive impact on biodiversity in company forests in Finland. This biodiversity programme is implemented through biodiversity guidelines for operational forestry work, forest protection and co-operation with stakeholders. Developing indicators and monitoring methods were the focus area.

Climate actions on page 86 upm.com/responsibility/forests

100% Wood supply from controlled sources

Certified fibre share %

100

90

UPM FORESTS AND PLANTATIONS

80

2019

2008 1,012

70

991 8.9 3.7

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

60

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)

50

2,688

1,270

40

15

16

17 18

19

Target

Forest area distribution % 2008

82% 100% certified fibre by 2030

TARGETS 2030

Canada and US

Finland

UK

2019

achieved

Uruguay

Finland

US

88

89

OUR WAY

OUR WAY

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS