UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Material non-financial topics and key performance indicators

KEY PERFORMANCE INDICATOR

Waste TOPIC

MANAGEMENT

2021 RESULTS

Circular economy means both financial and environmental efficiency. UPM aims to reuse materials and products, reduce the amount of solid waste and increase recycling and recovery in its operations. UPM is committed to sustainable forestry and uses third party verified chains-of-custody to ensure that wood is legally sourced from sustainably managed forests.

No process waste sent to landfills or to incineration without energy recovery by 2030

89% (89%) of all UPM’s process waste was recovered and recycled. The total amount of waste to landfills decreased by 3% compared to 2020. 84% (83%) of all wood used by UPM is sourced from certified forests.

KEY PERFORMANCE INDICATOR

TOPIC

MANAGEMENT

2021 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)

98% (99%) of active employees completed training for the UPM Code of Conduct.

Forest

All fibre certified by 2030

Material risks and their management is described on pages 131-135 of the Report of Board of Directors and in the Annual Report on pages 34–35. Information on the company’s risk management system is available on the corporate website in the governance section and in the Corporate Governance Statement 2021, which is also available as a separate report on the corporate website upm.com/governance . More information about performance related non-financial topics is available in the general section of the Annual Report and on the UPM website upm.com .

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

124 (117) supplier audits were conducted based on identified risks, including human rights, social and environmental topics. In addition, about 300 (350) contractor reviews with focus on working conditions were carried out. 86% (84%) of supplier spend covered by UPM Supplier and Third Party Code.

Research and development Innovating for the future

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. UPM continuously develops leadership capabilities, management teams and working environments. UPM measures work environments, team work and leadership with an annual engagement survey. UPM’s global leadership development portfolio develops capabilities to lead oneself, lead people and lead business. Programmes address, e.g., inspiring and purposeful leadership, coaching, conversation and feedback skills, resilience and leading in complexity. UPM has a systematic process for goal setting and development planning for all employees globally to ensure high performance and continuous professional development. UPM has a comprehensive safety management system which promotes a proactive and engaging safety culture. UPM uses means such as safety audits and reporting on safety related near-misses and safety observations. UPM wants to develop organisational culture and local workplace to ensure an inclusive and diverse working environment. UPM has committed to, and promotes, diversity and inclusion in its policies. UPM reviews the diversity status of all its businesses and functions regularly. The composition of UPM key management teams and inclusiveness is discussed and development actions planned and implemented.

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

significantly reduce the CO ₂ footprint and weight of rubber and plastics in various end-uses (page 57). The basic engineering phase of a next-generation biofuels biorefinery, announced in January 2021, is proceeding at full speed. The potential biorefinery would produce high-quality renewable fuels, including sustainable jet fuel. The products would significantly reduce the carbon footprint of road transport and aviation, as well as replace fossil raw materials with chemical and plastic alternatives from renewable sources. UPM Biomedicals develops and supplies innovative and sustainable wood-based biomedical products for high-throughput drug screening, personalised medicine, advanced cell therapies, 3D bioprinting, tissue engineering and advanced wound care. More than 300 patents protect our existing and future products. We are also examining new ways to utilise renewable fibre-based materials that are being developed for textiles, nonwovens, hygiene products, labels and flexible packaging, amongst other applications . Solid patent portfolio The significance of the patents, trademarks and intellectual property rights protecting our innovations is more pronounced in our new businesses, supporting the journey from innovation to business. We have nearly 3,000 patents and patent applications, and nearly 1,400 trademarks globally. Licensing innovations and technologies provides an excellent basis for value creation with customers and technology partners. As an example, at the end of 2021, UPM Biochemicals owned 160 patents and patent applications and another 353 patents and patent applications were held by partners, covering technology and products throughout the value chain.

Innovation and R&D programmes are essential in the development of new products and technologies. Research and development expenses cover the development of new technologies, businesses and processes. Our 2030 responsibility targets and our contribution to the UN SDGs are integrated into our R&D activities and product development (page 32). In 2021, UPM spent EUR 266 (189) million on research and development, making up 21.3% (18.8%) of UPM’s operating cash flow. In addition to direct R&D expenditure of EUR 46 (41) million, the figure includes negative operating cash flow and capital expenditure in developing businesses, transformative business prospects and digitalisation projects. Expanding the infrastructure UPM’s Biofore Base research centres in Lappeenranta, Finland and Changshu, China are accelerating the development of new bio-based products and their launch to the markets. The Leuna Biofore Base in Germany was established at the end of the year. It works in connection with the upcoming biochemicals refinery and specialises in developing new biomolecular products. The Biofore Base research centres unite UPM’s various technologies with globally accumulated experience and expertise in the new and existing businesses. The centres also focus on piloting and analytics enabling seamless collaboration with customers, value chain partners and research organisations such as universities. The research centres work closely with mills, UPM businesses and their research centres in various countries. Innovating climate-positive products Our products offer solutions to mitigating climate change as they replace fossil raw materials with bio-based renewable alternatives. The products store carbon for the entire duration of their lifecycle, especially when recycled multiple times. New solutions are developed in collaboration with our businesses, technology partners and customers. Molecular bioproducts form one of UPM’s three strategic focus areas for growth. Our first-of-its-kind biochemicals biorefinery in Leuna, Germany, will enable a switch from fossil raw materials to wood-based sustainable alternatives in textiles, plastics, PET bottles, packaging and pharma or cosmetics products. The commercialisation of biochemicals is taking significant steps forward. In 2021, UPM started a collaboration with The Coca-Cola Company to develop wood-based plastic materials for PET bottles. We also launched UPM BioMotion™ renewable functional fillers to

Responsible leadership

Employee engagement clearly above benchmark by 2030

Employee engagement average score 68. This is 9 points below the global external benchmark.

Learning and development

Goal setting discussions are held and development plans created for employees, completion rate 100% by 2030 No fatalities Total recordable injury frequency (TRIF) <2 by 2030, including contractors UPM is among top 10% companies by 2030 on employees’ sense of belonging at UPM

88% (82%) of employees had completed individual goal settings or annual discussions. 70% (63%) had a development plan documented. 0 (0) fatal accident, 3(2) serious accidents TRIF was 6.3 (5.3) for UPM workforce and 7.2 (6.2) including contractors. Average score 67 on Employee Engagement Survey question about belonging. This is 13 points below the benchmark of top 10% companies.

Safe and healthy working environment

Diversity

Fair rewarding UPM’s rewarding and recognition philosophy is to reward high performance. We aim to ensure fair, equitable and competitive rewarding for all employees. In addition to competitive, robust and performance based rewarding practices, we have yearly review processes ensuring the gender pay equity and employees’ pay meeting at least a living wage locally. UPM ensures that employees have sufficient information to understand what their rewarding comprises and how they can influence on its development.

Ensure gender pay equity for all employees by implementing yearly review process to identify and close unexplained pay gaps

Company-wide review done in 2021 and pay adjustments implemented to close identified statistically significant unexplained gaps related to gender.

Product stewardship

Ecolabels help customers make responsible choices and provide stakeholders with important information. Third party verified environmental certificates and labels tell customers about the environmental performance of our products. UPM favours the use of renewable and other carbon-neutral energy sources and strives to continuously improve its energy efficiency across all its operations. Strengthened targets for scope 1 and 2 to be in line with the commitment to Science Based Targets and 1.5° pledge. UPM's goal is to minimise the impact of its operations on water resources, safeguard the natural water cycle in forests, and maintain the functioning of aquatic ecosystems.

All applicable products eligible for ecolabelling by 2030

84% (82%) of UPM sales were eligible for ecolabelling.

Climate

Fossil CO 2 emissions from its own combustion and purchased electricity (Scope 1 and 2) reduced by 65% by 2030 (compared to 2015) Wastewater volume reduced by 30% by 2030 (compared to 2008)

Fossil CO 2 emissions reduced by 27% compared to 2015 and 8% compared to 2020.

Water

18% reduction in wastewater volume achieved since 2008 for the UPM average product.

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UPM FINANCIAL REPORT 2021 143 UPM ANNUAL REPORT 2021 143

UPM ANNUAL REPORT 2021

UPM FINANCIAL REPORT 2021 142