UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

UPM climate related disclosures according to TCFD (Task Force on Climate-related Financial Disclosures) are presented in UPM annual report as follows:

All of UPM pulp mills, UPM Raflatac sites and UPM Specialty Papers' production lines have implemented food management systems in accordance with ISO 22000 or FSSC 22000. The respective products are designed and produced to meet food packaging requirements. Environment UPM’s responsibility focus areas in environmental matters are forests and biodiversity, water, waste and climate. UPM uses raw materials, water, energy and other resources in a responsible manner and continuously improves its energy, resource and cost efficiency. UPM is committed to sustainable forestry and third-party-verified FSC™ and PEFC chain of custody certification covers all sites using wood raw materials. This ensures that the wood it legally sourced from sustainably managed forests. All UPM owned forests are certified, or in the process of certification if acquired recently. UPM is continuously working to improve biodiversity in its forests. In 2021, all eight quantitative biodiversity indicators which were developed and are monitored for UPM’s forests in Finland showed a positive trend. In Uruguay, UPM implemented a strategy to increase biodiversity in the long-term, and monitors biodiversity with three main indicators. In 2021, we further raised the bar with a new global forest responsibility programme that will be launched in 2022 and reaches until 2030. The new programme covers not only climate and biodiversity targets and commitments but also sustainability criteria related to water, soil and social and economic contribution. All of UPM’s production plants are located in areas where there is sufficient water available. In 2021, a comprehensive water risk analysis confirmed the earlier results, and provided scenarios for 2030 and 2050. 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 2021, wastewater volume decreased by 12% per tonne of paper and remained on the previous year's level 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, residues and recovered materials. For example, tall oil is used for the production of UPM BioVerno renewable diesel and naphtha and ash is utilised in soil stabilisation, cement industry or as raw material for paper filler production. Regulatory changes may have an impact on the options for waste or residue use, either by restricting the end uses and thus causing higher costs for alternative solutions, or by creating new opportunities. In 2021, 89 (89)% of UPM’s process waste was recycled or recovered, of which 21% is energy recovery. In 2021, UPM’s environmental investments totalled EUR 5 million (6 million). The largest investment was the capacity increase of the electrostatic precipator at UPM Kymi pulp mill's lime kiln to reduce dust emissions. UPM’s environmental costs, which were mainly attributable to effluent treatment and waste management, totalled EUR 111 million (110 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 1,400 (1,700) environmental walks were organised and 2,500 (2,700) preventive environmental observations and near misses were reported in 2021.

Until 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. However, in 2021 the number increased by 8 to a total of 25 (17) temporary deviations from permit, contractual or other obligations. The deviations were minor contraventions of obligations. 12 cases were related to air, 12 to water and one to soil. All deviations were immediately reported to the authorities and, where relevant, to local stakeholders. Appropriate measures were taken to normalise the situation, and will be taken to prevent similar occurrences. No major environmental incidents occurred at UPM production plants in 2021. As part of Clean Run development, UPM launched in 2021 a new process to collect, share and improve the implementation of environmental related best practices across our operations. A best practice can be a procedure, instruction, practice or technology, worth sharing with others who could benefit from knowing it and possibly implementing it. 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 2021, fossil CO 2 emissions (scope 1 and 2) summed up to 5.0 (5.4) million tonnes, which is a decrease of 8% compared to 2020. 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 70% (72%) 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 10 per tonne, it would mean additional costs of approximately EUR 27 million annually.

REQUIREMENTS

PAGES

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

Page 136, paragraph "Roles of the group management and functions in leading non-financial matters" Page 136, 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

STRATEGY a) The climate related risks and opportunities over the short, medium and long term Pages 131-134, chapter "Risks"

Pages 34-35, chapter "Risks and opportunities" Pages 10-13, chapter "Beyond fossils"

Pages 34-35, chapter "Risks and opportunities" Pages 10-13, chapter "Beyond fossils" Page 132-134, 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 138, paragraph "Climate" Pages 10-13, chapter "Beyond fossils"

RISK MANAGEMENT a) Processes for identifying climate-related risks

Page 131, paragraph "Risk management" Page 136, paragraph "Roles of the group management and functions in leading non-financial matters" Page 131, paragraph "Risk management" Page 136, 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 131, paragraph "Risk management" Pages106-108, chapter "Governance"

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

Pages 14–15, "Key figures 2021"

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

Page 138, paragraph "Climate" Page 94, graph "Sources of UPM's greenhouse gas emissions"

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

Page 142, table "Material non–financial topics and key performance indicators" Pages 32-33, table "UPM Responsibility targets"

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