UPM Annual Report 2020

RESPONSIBLE SOURCING Suppliers are an essential part of our value chain. Our continuous work with suppliers ensures the efficiency, transparency and responsibility of our supply chain.

of this valuable rawmaterial. In 2020, we purchased 24.9 (27.5) million cubic metres of wood worldwide. We are also one of the world’s leading users of recovered paper for the production of graphic paper. In 2020, we used approxi mately 1.8 (2.3) million tonnes of recovered paper. Recycled fibre accounted 26% (28%) of all fibre rawmaterials used in UPM’s paper production. The decrease is mainly due to the closure of one newsprint mill. The origin of wood is monitored All the wood we use is legally logged and comes from sustainably managed forests. We don’t use wood harvested from tropical rainforests or accept wood from plantations that have been established by converting natural forests. We don’t accept wood from regions that do not respect the rights of indigenous peoples. In addition to third-party certification, 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. We buy approximately 1.6 million tonnes of pulp from external suppliers. We set further requirements to pulp suppliers for environmental performance, social responsibility, forestry, wood sourcing and reporting. Collecting and analysing environmen tal- and social-responsibility-related data for our pulp and chemical suppliers is an integral part of our supplier risk and per formance management. We create devel opment plans together with the suppliers based on these analyses. We also monitor the performance of our other rawmaterial suppliers through various surveys. Know your supplier We identify our supply chains with a high risk of potential negative environmental and social impacts. With the counterparty risk management tool, we can better eval uate counterparty-related risks through automated screening and support busi nesses in ethical and prudent decision-mak ing. Effective third-party management plays an essential role in securing business continuity and compliance. In 2020, our Continuous improvement with raw material suppliers

focus was on assessing new suppliers criti cal to our growth projects. The responsibility-related risks are determined by the country of origin, sourced material or service and complexity of supply chain. Based on the risk identi fication, we evaluate selected suppliers’ activities in more detail through EcoVadis and other assessments, supplier audits and joint development plans. 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 meas ures or the seriousness of UPM’s findings. In relation to CO 2 emissions caused by supply chains, our focus is on reducing emissions from logistics and selected raw materials such as chemical pulp, pigments, chemicals and paper (read more on page 91). In addition, we started a project to assess the working conditions of the service pro viders in the wood procurement value chain. The project will be carried out in 2021. Global cooperation in sustainability In 2020, we continued our cooperation with Together for Sustainability (TfS), a chem ical industry initiative that promotes and improves practices within the supply chains of its members. The cooperation improves transparency and the efficiency of our assessments and audits. With TfS membership, we have access to a wider pool of EcoVadis assessments and TfS audit reports. In 2020, we conducted some 290 environmental and social risk assessments with EcoVadis. With the excep tion of wood sourcing and forestry, the number of on-site audits was halved due to COVID-19 restrictions, additionally some virtual audits were piloted. Last year, our own trained auditors and external auditors carried out 117 audits, based on identified risks, including human rights, social and environmental topics. In 2021, we plan to increase the number of suppliers who have been audited and assessed by EcoVadis. Responsible sourcing is also an impor tant theme in the UN Global Compact. We are an active member of the Action Platform, promoting decent work in global supply chains.

Spend covered by UPM Supplier Code %

100

90

80

70

60

50

16 17

18

19 20

Target

We buy products, materials and services from over 21,000 B2B suppliers globally. Our sourcing network includes suppliers from start-up companies to international corporations. We also buy wood from some 16,000 private forest owners. The main sourcing categories are fibre, chemicals, other rawmaterials, indirect purchases, logistics and energy. When selecting suppliers, our most important cri teria include reliable long-term deliveries, product and service quality, financial stabil ity of suppliers, social and environmental responsibility, and product safety. The aim of the cooperation between us and our suppliers is to ensure efficiency, compli ance and systematic performance. A com mon goal is to guarantee that suppliers can provide responsibly produced, cost-compet itive and innovative materials and services globally – in all market situations. Due to COVID-19, we strongly focused on guaranteeing business continuity and the pro gress of our transformative growth projects inUruguay andGermany in 2020. Thanks to the extensive safety precautions, both the rawmaterials and customer deliveries were secured and the growth projects were well on trackwith the planned start-up timeline. Our solution to standardise and simplify sourcing processes was adopted in 2020. The new digital platformwill improve pro cess efficiency in demand planning, tender ing, contracting and purchase transactions. To enhance transparency and suppliers’ integration into our business processes, we plan to develop the platform further in the coming years. Continuous development under exceptional circumstances

wood, chemicals, pulp, packaging materials and logistics. 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 rawmateri als are either FSC® (N003385) and PEFC (PEFC/02-44-41) certified or comply with the FSC Controlled 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

Standards of integrity 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 2020, we launched the updated Supplier and Third-Party Code along with extensive internal e-learning. We require suppliers to promote the same requirements in their own supply chains. In 2020, 84% (84%) of UPM’s total spend was with suppliers who are committed to the UPMSupplier and Third-Party Code. All contractors working at our produc tion sites must comply with UPM’s safety requirements. Various additional require ments, updated in 2020, are applied to

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

TARGETS 2030

84% achieved

UPM’S FIVE LARGEST SUPPLIERS 2020 1. Suzano, a pulp company, Brazil 2. Pohjolan Voima, an energy company, Finland 3. Andritz, a technology company, Austria 4. Kemira, a chemicals company, Finland 5. Omya, an industrial minerals company, Switzerland

UPM’s external purchasing spend 2020

SIGNIFICANCE • An effective supply chain guarantees our competitiveness and the availability of commodities required for production in all market situations TARGETS • We are a trustworthy and future-oriented partner • We ensure the efficiency, transparency and responsibility of the supply chain • We create business opportunities in the value chain in collaboration with our partners • We engage in long-term co-operation with selected suppliers to optimise costs, quality, responsibility and innovation OUR WAY • Focus on long-term, co-operative relationships and promoting methods for responsible sourcing • We set clear requirements and expectations for our suppliers • Monitoring our suppliers’ performance continuously and developing processes together with our key suppliers • Responsible practices in the supply chain • Focus on 2030 responsibility targets

Energy 8% Indirect materials and services 13% Logistics 19% Fibre 28%

Raw materials 32%

Compliance on page 76 Work safety on page 74 Collaboration needed to reduce emissions in the supply chain on page 91 Drivers’ working conditions on page 72 www.upm.com/about-us/for-suppliers/

80

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UPM ANNUAL REPORT 2020

UPM ANNUAL REPORT 2020