UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Management of non-financial matters UPM’s responsibility thinking starts with anticipating, mitigating and managing risks, and extends to creating a competitive advantage and long-term value. UPM continually strives to reduce its risk exposure and improve its performance by using tools such as certified management systems. Since 2018, all production sites have a certified ISO 14001 environmental management system. Almost all production sites and wood-sourcing operations implemented integrated management systems for environmental protection, quality management and occupational health and safety in accordance with ISO 14001, ISO 9001 and ISO 45001 standards. All pulp and paper mills in the EU, as well as the UPM Fray Bentos pulp mill in Uruguay and the UPM Changshu paper mill in China, also adhere to the EU’s Eco-Management and Audit Scheme (EMAS). Many of the sites also have energy management systems certified under ISO 50001 or the Finnish ETJ+ system, and food safety management systems certified under ISO 22000, if relevant. Should stakeholders have any concerns or suspect misconduct, they are encouraged to contact UPM or to use the UPM Report Misconduct channel. The new service is available on the corporate website for both the company’s employees and external stakeholders. Operated by an independent external service provider, the channel is accessible in over 40 languages, 24/7. In 2021, 66 (23) cases were reported either through the UPM Report Misconduct channel or directly to internal audit or compliance team. 9 of these cases related to alleged discrimination or harassment. 18 cases led to disciplinary action including warnings UPM uses the GRI Standards reporting guidelines published by the Global Reporting Initiative to measure and report on corporate responsibility at group level. UPM’s corporate responsibility reporting has been compiled in accordance with the GRI Standards: Core option. UPM also follows the recommendations of the Task Force on Climate related Financial Disclosures (TCFD) (see page 139) . Committed to anti-corruption The UPM Code of Conduct underlines the company’s zero tolerance attitude towards corruption and bribery in any form. UPM Anti Corruption Rules explain prohibited conduct and expected ethical behaviour in further detail. UPM performs anti-corruption risk assessment on a regular basis. The annual risk-assessment process includes a top-down risk discussion with the management of each business area. All UPM group entities are also assessed on the basis of country risk and complexity of operations. UPM operates globally and has significant manufacturing operations in several emerging market countries. Such operations require a number of permits and other licenses from the relevant authorities. Some of the countries where UPM operates are perceived as highly corrupt or corrupt according to Transparency International. In these countries, there is an increased risk of corruption, for example in relation to interaction with government officials and in the use of intermediaries when applying for permits and licences requiring governmental approval. Due diligence of suppliers and third parties with whom UPM does business is an essential part of UPM’s anti-corruption compliance programme. UPM requires that due diligence is performed before entering into or renewing any contract with a third party that meets specified criteria. UPM requires anti-bribery contract terms to be included in agreements with such third parties outlining the third party’s commitment to compliance with applicable anti-bribery laws and UPM’s right to audit the third party to verify compliance with these terms. UPM and terminations of employment. Reporting framework used

Social and employee-related matters UPM’s responsibility focus areas in social and employee-related matters are: learning and development, responsible leadership, diversity and inclusion, fair rewarding as well as safe and healthy working environment. UPM is committed to active employee participation and consultation, organised in accordance with international and national rules and regulations. After the Finnish Forest Industries Federation resigned from collective bargaining, the terms of employment are agreed between forest products companies and trade unions (see page 65). UPM aims to empower and engage employees at all levels through responsible leadership. UPM encourages its employees to pursue professional growth, expects development and supports them in learning skills and developing them further. UPM respects the privacy of employees and promotes equal opportunities and objectivity in employment and career development. In 2021, UPM implemented gender pay equity review process closing the unexplained gender pay gap. All UPM employees are treated as individuals regardless of gender, age, ethnic origin, nationality, etc. UPM promotes employees' health and wellbeing. Safety is an essential part of UPM’s activities and business management system. Equal safety requirements are applied to all employees, visitors and contractors working at UPM’s premises. In its People Strategy, UPM focused on leadership and to create a safe, inclusive & diverse working environment, as well as aiming higher in performance and ensuring growth of our people. UPM is creating the future by building resilience, developing future ways of working and developing digital capabilities. In 2021, UPM continued the enabling performance approach by strengthening feedback culture, agile goal setting and frequent manager-employee discussions. Development programmes to support growth and performance were continued and implemented virtually. To further develop inclusive leadership and culture, UPM continued the dialogue on diversity and inclusion widely in the organisation. The proactive safety of employees and contractors has remained an important focus area in 2021. Safety and wellbeing of our employees during global pandemic has been the key priority . Product stewardship Majority of UPM’s products are made from renewable raw materials and are recyclable. UPM products help to mitigate climate change by replacing fossil-based products with bio-based renewable alternatives. Product stewardship covers the entire lifecycle of all UPM products from the development phase to the end-use and beyond. In 2021, the new Sustainable Product Design concept was developed further and piloted with few UPM businesses. The approach applies lifecycle thinking and lifecycle assessment data, both integrated in sustainable product design practices. During the process, the whole raw material chain, production and distribution efficiency, sustainable use and circularity are considered. UPM provides product declarations to provide customers with easy access to information concerning the products' environmental and product safety aspects or the wood origin. Together with a number of paper and chemical companies the exchange of information in the supply chain was improved. This facilitates to pre-assess chemical used and to ensure compliance with legislations and ecolabels. Most of UPM products are certified with widely recognised ecolabels, such as the EU ecolabel and national ecolabels for graphic paper or ISCC and RSB certification for biofuels, biocomposites and labels. In 2021, UPM Raflatac’s label range RAFNXT+ was the world’s first CarbonNeutral® certified label material to help mitigate climate change.

treasury, taxes, disclosures, insider matters, anti-corruption, competition law, confidentiality, human resources, responsibility, forestry, information security and data protection, and safety. UPM requires its suppliers, third party intermediaries and joint venture partners to apply the same principles as in the UPM Code of Conduct and to fulfil criteria concerning social and environmental responsibility. These requirements are defined in the UPM Supplier and Third Party Code, latest updates effective as of beginning of 2020. The UPM Code of Conduct was last updated in 2019, and will be updated in 2022. The preparations for the upcoming update started in 2021. Roles of the group management and functions in leading non financial matters The Board of Directors, with the assistance of the Audit Committee, is responsible for monitoring compliance with applicable legal and regulatory requirements and with the UPM Code of Conduct and other corporate policies. In addition, the Audit Committee oversees procedures for treatment of complaints and concerns received by the company, anonymous or otherwise. As part of the committee’s compliance review, the committee is provided with a quarterly report by the company’s Chief Compliance Officer, and a report of submissions under the company’s Report Misconduct channel by the Head of Internal Audit. In line with its main duties and responsibilities, the Board reviewed and approved strategic plans during its strategy session in May 2021. The main focus areas of the UPM Biofore strategy continue to be performance, growth, innovation, responsibility and portfolio development. This strategy is enhanced by the UPM purpose: We create a future beyond fossils (read more on pages 22-23). An essential part of the Board’s annual strategy work is to review and assess strategic and operational risks and opportunities (see UPM Governance Statement 2021). These risks and opportunities and their impact on operations and strategy are described on pages 34-35. The Board had decided to set environmental, social and governance related (ESG) related measures in the Company’s performance share plan (PSP) long-term incentive plan as of January 2022. They decided to set three distinct ESG performance measures and the total weighting of these measures accounted for 20% of all measures. The Group Executive Team, headed by the President and CEO, is in charge of the management of corporate responsibility, determining courses of action and guiding development work. In practice, corporate responsibility efforts take place in businesses and functions, and in the group’s Responsibility team, which co-ordinates the projects carried out by businesses and functions. UPM Legal Function and its Compliance team manage legal compliance programmes and arrange related training at regular intervals for specific target groups, which have been defined based on risk assessments. UPM Sourcing organisations follow clearly defined selection and follow-up processes when evaluating suppliers. Reliable long-term deliveries, product and service quality, financial sustainability of suppliers, social and environmental responsibility and product safety are the key factors when selecting and evaluating suppliers. While executing strategies, UPM and its business areas, functions and production units are exposed to a number of financial and non financial risks and opportunities. Each business area, function and unit is responsible for identifying, measuring and managing risks related to its own operations, and for reporting on risk exposures, risk management activities and results to its own management team and to the Risk Management Function.

also has corresponding due diligence procedures for joint ventures, including mergers and acquisitions. UPM has a dedicated anti-corruption e-learning platform. The anti corruption training covers all white-collar employees. In 2021, the company organised tailored anti-corruption training workshops for selected target groups across the company and performed risk-based compliance reviews in selected jurisdictions and operations. Respect for human rights UPM is committed to respect and promote human rights in line with the United Nations Guiding Principles on Business and Human Rights. UPM has assessed all its operations and activity and has identified the potential human rights issues and impacts. When considering both the severity and likelihood of these potential issues and impacts, UPM considers the salient human rights issues in the company’s sphere of influence to be environmental pollution, occupational health and safety (OHS), working conditions, protection of children, and forced labour. In 2021, UPM was announced as one of the leading companies in the SIHTI (Status of Human Rights Performance of Finnish Companies) project initiated by the Government of Finland assessment and research services. In connection, a report of UPM’s Human Rights Responsibility was published. UPM reviewed its human rights risks as part of UPM compliance process quarterly. The assessment of salient human rights issues on a business area level as well as the integration of the process to unit specific management systems continued . 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 including commitment to anti-corruption, environmental and social responsibility, safe products, human rights and occupational health and safety practices. Transparent supplier requirements are the basis for responsible sourcing. These supplier requirements are defined in the UPM Supplier and Third Party Code. A number of additional requirements are in place for the sourcing of wood, chemicals, pulp and packaging materials, as well as for safety and logistics. All contractors working on site go through UPM’s safety requirements and a web-based safety induction training. UPM identifies its supply chains with a high risk of potential negative environmental and social impacts. These responsibility-related risks are determined by the country of origin, sourced material or service, and complexity of supply chain. Based on the risk identification, selected suppliers’ activities are evaluated in more detail through EcoVadis and other assessments, supplier audits and joint development plans. In 2021, UPM focused on increasing auditing capabilities of its sourcing employees and continued the digital platform implementation. UPM Forest proceeded with their supply chain audit project. UPM continued its co-operation with Together for Sustainability (TfS), a chemical industry initiative that promotes and improves sustainability practices within the supply chains and its participation to UN Global Compact Action Platform on Decent Work in Global Supply Chains. In 2021, UPM conducted some 340 (290) EcoVadis assessments and 124 (117) supplier audits. In addition, about 300 (350) contractor reviews with focus on working conditions were carried out.

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