UPM Annual Report 2021

GOVERNANCE

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

ACCOUNTS FOR 2021

Company for more than ten consecutive years. Based on the Board’s overall evalua tion of the independence of these directors, their long-standing service does not com promise their independence, and no other factors or circumstances have been identi fied that could affect their independence. Board-related work in 2021 The Board convened according to its original meeting schedule and held nine meetings in 2021. Its work was not disrupt ed, even during the continued exceptional circumstances caused by the COVID-19 pandemic. There is no minimummeeting atten dance requirement for Board members. Instead, Board members are expected to attend all meetings unless there is a valid reason for not attending. The average attendance of the Board members at the Board meetings was 98.8% (95.6%), and at the Committee meetings 100% (90.9%). The personal attendance rate of each Board member is presented in the table on page 105. In connection with its meetings, the Board also held non-executive sessions and non-executive sessions with the auditor. Strategic focus points in 2021 In line with its main duties and responsi bilities, the Board reviewed and approved strategic plans during its strategy session in May. The main focus points of the UPM Biofore strategy continue to be growth, performance, innovation, responsibility and portfolio. Read more about our strategy on pages 22–33. An essential part of the Board’s annual strategy-related work is to oversee the assessment and management of risks related to the Company’s strategy and operations. These risks and opportunities, and their impact on operations and strate gy, are described on pages 34–35. In 2021, the Board continued to focus on major strategic investments, the pulp mill project in Uruguay and the biochemicals biorefinery in Germany. The Board has been closely monitoring the status and the feasi bility of the project in Uruguay since 2016 and has conducted several status reviews, including risk assessments, in its meetings since then. The investment will raise UPM’s pulp production capacity by more than 50% and significantly contribute to future

the Board and its committees in relation to their respective duties and responsibilities, the Board and committee compositions and structure, the Board culture, the effective ness of the Board and committee meetings, the individual performance of the Board members and the performance of the Chair of the Board. The overall results of the 2021 self-eval uation were highly favourable and indicated that the Board, Chair of the Board and the Board committees are performing effec tively, and that the Board members are committed to the Board work. Identified areas for improvement are considered when planning the Board-related work, and the Nomination and Governance Committee takes the results into consideration when preparing its proposal for the composi tion of the Board to the Annual General Meeting. Board committees The Board has established the following three committees to further improve the preparation of matters to be decided by the Board: • The Audit Committee • The Remuneration Committee • The Nomination and Governance Committee The Nomination and Governance Com mittee assisted the Board in reviewing the composition, qualification criteria and duties of the Board committees, and made a proposal to the Board for the appointment of committee members and Chairs. The members were appointed to the Board com mittees in the Board’s constitutive meeting on 30 March 2021 and the composition of the Audit Committee was complemented on 27 April 2021. The committee composi tions are presented in the table on the left. Neither the President and CEO nor other Company executives may be members of any Board committees. The written Committee Charters approved by the Board of Directors set forth the purpose, composition, operations and duties of each committee, as well as the prerequisites of committee membership. Each committee is responsible for perform ing the duties assigned to it in its Charter. The Committee Charters are presented in

the CG Statement and are also available at www.upm.com/governance. The committees hold their meetings prior to Board meetings in order to prepare matters to be decided by the Board. The chairs of each committee report on matters discussed and actions taken by the commit tees during the Board meetings. In addition, minutes from the committee meetings are available to the Board members for infor mation purposes. Committee-related work in 2021 The importance and extent of the work of the Committees has increased in recent years and will further increase following the continuous changes in the regulatory frame work and the Company’s business environ ment. This is also reflected in the Committee Charters and in the topics andmatters the committees were involved with in addition to their regular duties throughout the year. Audit Committee The Audit Committee is responsible for overseeing the Company’s financial re porting processes and financial reporting, internal control, internal audit and risk management, and for monitoring the Company’s audit and compliance proce dures. In 2021, the Audit Committee held five meetings. In addition to the Audit Committee’s assigned matters and regular reports as listed above, it also reviewed reports on and discussed non-financial matters (together with the review of non-financial reporting), ESG, cyber security and the audit tendering process. The Committee also replied to a thematic review of the European audit committees launched by the Committee of European Auditing Oversight Bodies (CEAOB). The lead audit partner attended all Committee meetings and reported to the Committee on the interim procedures and findings, as well as quarterly audit and non-audit fees and services. The Com mittees’ standard procedures also include quarterly sessions with the internal auditor, with the lead audit partner, with manage ment and among Committee members. The Audit Committee has prepared the Board’s proposal for the election and remuneration of the auditor to be present ed at the AGM 2022. In this context, the

COMMITTEE MEMBERS 2021

Director independence The Board of Directors evaluates the inde pendence of its members both annually and on a continuous basis, with the assistance of the Board’s Nomination and Governance Committee. Director independence is assessed based on the independence criteria of the Finnish CG Code. The majority of the members of the Board of Directors must be independent of the Company, and at least two of these independent members must be independent of any significant shareholders. The independence evaluation of director candidates is one of the key factors in the preparation of the Nomination and Gover nance Committee’s annual proposal for the composition of the Board. The Committee assesses the independence of members of the Board of Directors on a continuous basis. It also reviews a report on any changes in professional engagements and other com mitments at everymeeting to ensure that members are compliant with the indepen dence criteria. The Committee also assesses how such changes may affect the Board members’ availability for Board-related work and reports to the Board on the outcome of such assessments. In particular, the Com mittee assesses Boardmembers’ positions in other publicly listed companies to ensure that themembers adhere to the best practice related to overboarding. According to the Nomination and Governance Committee’s assessment, all directors are independent of both the Company and the significant share holders. High attendance rates at the Board and Committeemeetings prove the Board members’ commitment and availability for Board-related work. The attendance rates at themeetings by eachmember are in the table on the previous page. According to the evaluation carried out by the Board with the assistance of the Nomina tion and Governance Committee, all Board members are independent of the Company’s significant shareholders, as the Company has no controlling shareholder and none of the Company’s shareholders have announced a holding of 10%or more of the Company’s shares or votes attached thereto. All directors are non-executive, and the Board has also concluded that all directors are independent of the Company, including Berndt Brunow and BjörnWahlroos, who have been non-executive directors of the

AUDIT COMMITTEE Kim Wahl (Chair as of 30 March) Emma FitzGerald

(member until 30 March and as of 27 April) Jari Gustafsson (member as of 30 March)

Marjan Oudeman Piia-Noora Kauppi (Chair and member until 30 March)

earnings. Read more on this strategic invest ment on pages 42–43 and on the corporate website at upm.uy/en/growth. The investment decision on the new biorefinery in Germany was made in January 2020 and the Board has regularly reviewed the status and feasibility of the project. The biorefinery will produce a range of 100% wood-based biochemicals that enable a switch from fossil rawmate rials to sustainable alternatives in various consumer-driven end-uses. Read more on this strategic investment on pages 56–57 and on the corporate website at www.upm biochemicals.com/biorefinery. Board performance evaluation The Board of Directors conducts an annual evaluation of its performance and working methods, including an evaluation of the performance and working methods of its committees. In 2021, the evaluation was conducted as a self-evaluation in November and its results were reviewed and discussed at the Board meeting in December. The Board members evaluated the performance of REMUNERATION COMMITTEE Henrik Ehrnrooth (Chair as of 30 March) Emma FitzGerald (member as of 30 March) Martin à Porta Veli-Matti Reinikkala (Chair and member until 30 March) NOMINATION AND GOVERNANCE COMMITTEE Björn Wahlroos (Chair) Berndt Brunow Piia-Noora Kauppi (member as of 30 March) Ari Puheloinen (member until 30 March)

CASE

ALL-ROUND EXPERTISE

Massimo Reynaudo was appointed to lead UPM Communication Papers as of October 2021. He joined UPM in 2017, taking re sponsibility for the UPM Raflatac self-adhe sive label business in Europe, Middle East, India and Africa. Before joining UPM, he spent 22 years at Kimberly-Clark in various positions. He says that this gave him the opportunity to invest in gathering a very wide set of experience. “During my career I’ve moved across multiple roles and worked in different countries. This has taught me to work across businesses and different cultures.” The four years of Reynaudo at the helm of the EMEIA Region in UPM Raflatac saw a strong business performance. “We’ve stream lined the organisation and made the business more agile. Enabling our teams to make more decisions, the business has been fast to adapt and has performed strongly, also during the turbulent times of the pandemic.” He’s not only driven by results but by transparency and collaboration as well. The future is built on a strong foundation, cou pled with the right ingredients for success. “The paper business has traditionally performed at a high level. I believe that operational and commercial efficiency, en gagement, and the motivation of the people are surely the key ingredients to continue delivering high performance.”

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UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021