UPM Annual Report 2020

Climate The management of climate change related issues is integrated to management of other non-financial issues and is reported to the Board depending on the context and matter. For example: 1) risks are reported to the Board by CFO, 2) related compliance and regulatory issues are briefed quarterly to Audit Committee (Board) by Compliance Officer, 3) annual progress on 2030 responsibility targets is reported by EVP Stakeholder Relations or 4) if there are specific climate-related topics, then responsible topic owner briefs the Board. Additionally, major climate-related issues such as scenario analyses, commitments and UPM’s overall approach of acting through forests, emission reductions in production and supply chain and through climate-positive products are reported directly to UPM management bodies led by CEO. UPM's position and resilience in different climate scenarios (IPCC RCP 2.6, RCP 4.5, RCP 8.5, IEA B2DS, IEA NPS and IEA CPS) have been evaluated for the businesses and functions from both physical and transitional angles, involving expertise from scientific community. Generally, in low- and medium-emission scenarios the transition impacts play a bigger role and UPM is well positioned as its business portfolio allows for flexibility regarding recognised risks and opportunities. In the high-emission scenario physical impacts dominate with severe consequences not only to UPM but the ecosystems and societies over the globe. UPM's main target related to climate change is reducing fossil CO 2 emissions (scope 1 and 2) by 65% from 2015 level by 2030. This target was validated by Science-Based Target initiative to be aligned with the 1.5°C pathway according to Paris agreement. In 2020, fossil CO 2 emissions (scope 1 and 2) summed up to 5.4 million tonnes, which is a decrease of 6% compared to 2019. Further targets related to climate change are reducing fossil CO 2 emissions from supply chain (Scope 3) by 30% from 2018 level by 2030, climate-positive land use and developing climate-positive product portfolio. Concerning land use, forestry and product portfolio, UPM has engaged with scientific partners in order to gain credible data and approaches. UPM favours the use of renewable and other carbon-neutral energy sources. Biomass-based fuels make up 72% (70%) of fuels used by UPM worldwide. If UPM needed to buy certificates to cover its whole direct fossil CO 2 emissions, and if the price of CO 2 certificates were to rise by EUR 5 per tonne, it would mean additional costs of approximately EUR 14 million annually.

UPM climate related disclosures according to TCFD (Task Force on Climate-related Financial Disclosures) is integrated to this report as follows:

All of UPM’s largest production plants are located in areas where there is sufficient water available. The water used by UPM plants comes from rivers, lakes or groundwater resources. UPM uses water responsibly in terms of the company’s water consumption and effluent quality. If the price of raw water were to increase by EUR 0.01 per cubic metre, it would mean additional water costs of approximately EUR 4 million annually. In 2020, wastewater volume increased by 2% per tonne of paper and decreased by 4% per tonne of pulp. Circular economy thinking is at the core of our operations. We have developed innovative ways to reduce and recover waste and to use side streams. For example, tall oil is used for UPM BioVerno renewable diesel and naphtha and ash is utilized in soil stabilisaton, cement industry or as raw material for paper filler production. Regulatory changes can have an impact on the options for waste or residue use, thus causing higher costs for alternative solutions. In 2020, 89 (89)% of UPM’s process waste was recovered or recycled. In 2020, UPM’s environmental investments totalled EUR 6 million (17 million). The largest investments were the modernization of UPM Chudovo plywood mill’s wastewater treatment plant and a system to collect rainwater from the wood yards and direct it to the wastewater treatment plant at UPM Kaukas. UPM’s environmental costs, which were mainly attributable to effluent treatment and waste management, totalled EUR 110 million (123 million), including depreciation. The company-wide Clean Run programme, launched in 2012, aims to improve UPM’s environmental performance by bringing environmental issues to the forefront of everyday work. All sites systematically follow up any deviations, proactively report observations and near misses, carry out walks and discussions, and compile detailed risk assessments. Despite the global pandemic, approximately 1,700 (1,900) environmental walks were organised and 2,700 (2,900) preventive environmental observations and near misses were reported in 2020. There has been a significant decrease in the number of environmental non-conformances since UPM’s internal Clean Run programme was launched in 2012. No major environmental incidents occurred at UPM production plants in 2020. However, a total of 17 (19) temporary deviations from permit limits or limits set by UPM occurred over the course of the year. The deviations were minor contraventions of air emission and water-related limits (7 and 10, respectively). All deviations were immediately reported to the authorities and, where relevant, to local stakeholders. Appropriate measures were taken to normalise the situation and prevent similar occurrences.

REQUIREMENTS

PAGES

GOVERNANCE a) The role of the Board in overseeing climate-related issues

Page134, paragraph "Roles of the group management and functions in leading non-financial matters"

b) The role of management in assessing and managing climate-related issues

Page 134, paragraph "Roles of the group management and functions in leading non-financial matters"

STRATEGY a) The climate related risks and opportunities over the short, medium and long term Pages 129–133, chapter "Risks"

Pages 36–37, chapter "Risks and opportunities" Pages 14–15, chapter "Global megatrends drive demand"

Pages 36–37, chapter "Risks and opportunities" Pages 14–15, chapter "Global megatrends drive demand" Page131, 132 paragraphs "Climate change", "Forest and plantations"

b) The impact of climate-related risks and opportunities on business, strategy and financial planning

c) The resilience of strategy, taking into consideration climate-related scenarios

Page 136, paragraph "Climate" Pages 16–17, chapter "Towards a future beyond fossils"

RISK MANAGEMENT a) Processes for identifying climate-related risks

Page 129, paragraph "Risk management" Page 134, paragraph "Roles of the group management and functions in leading non-financial matters" Page 129, paragraph "Risk management" Page 134, paragraph "Roles of the group management and functions in leading non-financial matters"

b) Processes for managing climate-related risks

c) How processes for identifying, assessing, and managing climate-related risks are integrated into overall risk management

Page 129, paragraph "Risk management" Pages 105–106, chapter "Governance"

METRICS AND TARGETS a) Metrics used to assess climate-related risks and opportunities

Pages 10–11, "Key figures 2020"

b) Scope 1, Scope 2 and Scope 3 emissions, and related risks

Page 136, paragraph "Climate" Page 93, graph "Sources of UPM's greenhouse gas emissions" Page138–139, table "Material non–financial topics and key performance indicators" Pages 22–23, table "UPM Responsibility targets"

c) Targets used to manage climate-related risks and opportunities and performance against targets

Material non-financial topics and key performance indicators

KEY PERFORMANCE INDICATOR

TOPIC

MANAGEMENT

2020 RESULTS

Governance/ Anti- Corruption

Corruption related risks are identified and assessed in connection with the company’s risk management process. These risks are managed and mitigated by training, communication, due diligence procedures, audits and practical guidelines specifically targeted at anti-corruption and anti bribery. UPM Code of Conduct training is mandatory to all employees and anti-bribery training to all salaried employees.

100% coverage of participating in UPM Code of Conduct training (continuous)

99% (96%) of active employees completed training for the revised UPM Code of Conduct. Training started in September 2019.

Human rights UPM is committed to respecting human rights based on its Code of Conduct. UPM has a process for assessing human rights at UPM site level, including community relations and local sourcing, as well as for risk assessments and audits for suppliers.

Continuous supplier auditing based on systematic risk assessment practices

117 supplier audits were conducted based on identified risks, including human rights, social and environmental topics. In addition, about 350 contractor reviews with focus on working conditions were carried out. 84% (84%) of supplier spend covered by UPM Supplier and Third Party Code.

Responsible sourcing

UPM requires its suppliers, third party intermediaries and joint venture partners to apply the same principles as in the UPM Code of Conduct. These supplier requirements are defined in the UPM Supplier and Third Party Code.

80% of total supplier spend covered by UPM Supplier and Third Party Code (continuous)

136

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