UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Value from data and digital solutions We aim to significantly increase the accelerate and improve data-based decision-making. Our development work in data utilisation focuses on high-quality, compliant, secure and modern common data platforms and services. We use agile methods in defining and implementing new business-driven data and digital solutions together with our partners. As a result, we aim for data products and digital services that have identified business value. We finalised our Digi and Data strategy in 2021 based on a solid operating model created in cooperation with businesses. Our target is to achieve greater impact from the digital and data-driven solutions both on a corporate and a business level. The development projects common to several businesses include digital customer experience and pricing, digital supply chain and intelligent operations. The implementation of the strategy and development projects will start in 2022. Extensive partner network Our close-knit global partner network is comprised of customers, universities, research organisations, suppliers and start-up companies. Collaboration speeds up the development and launch of new business solutions. The partnership with the European Joint Undertaking on Bio-Based Industries (BBI) focuses on strengthening the competitiveness of bio based products in Europe. As a shareholder in the Finnish company CLIC Innovation Ltd, we aim to propel breakthrough solutions in the circular economy and cleantech. We collaborate with the European Chemical Industry Council (CEFIC) and Renewable Carbon Initiative (RCI) to promote making chemicals more sustainable and more climate smart. UPM Specialty Papers and UPM Raflatac actively collaborate with 4evergreen Alliance, an initiative by CEPI to raise the overall recycling rate of fibre-based packaging to 90% by 2030 (page 88). UPM wants to be proactive in the developments that reduce greenhouse gas emissions. In 2021, UPM joined the EU’s Clean Hydrogen Alliance and became a member of the Roundtable on Clean Hydrogen for industrial users. UPM also joined the newly established Finnish Hydrogen Cluster to accelerate investments in the hydrogen economy. Sustainable product design We want our products to create value for our stakeholders during the whole product lifecycle. We offer suitable solutions for the customers’ sustainability challenges and ensure that the new product or service has a proven sustainability value proposition and supports UN Sustainable Development Goals (SDGs). In 2021, we further developed our Sustainable Product Design concept, the methodology of which is based on design thinking and aims to steer our product development projects. Our approach applies lifecycle thinking and lifecycle assessment data, both incorporated in sustainable product design practices. We consider product development in six lifecycle steps. The process starts with a holistic overview of the design, e. g. what purpose and use is the product developed for and considers all circularity and technology aspects. During the process, the whole raw material chain, production and distribution efficiency, sustainable use and circularity are considered. In 2021, we piloted the new concept with some of our businesses. Testing will continue in 2022 and the new concept will be gradually adopted in all businesses.

Market demand and customer interest confirmed in UPM Biochemicals The first-of-its-kind biorefinery in Leuna is taking shape, while a robust business platform is being built and customer engagement points to a promising commercial future for UPM Biochemicals. The EUR 550 million investment will open completely new markets for us, with large growth potential for the future. The biorefinery will produce a range of 100% wood-based biochemicals, the main products being bio-monoethylene glycol (BioMEG), bio-monopropylene glycol (BioMPG) and lignin-based renewable functional fillers, with a total annual capacity of approximately 220,000 tonnes. In 2021, detailed engineering, procurement and permit processes continued progressing well, and building at the site took off. However, the pandemic materially slowed down the completion of the detailed engineering. Disruptions to global supply chains affected both the availability and cost of critical construction materials. As a result, the start-up is estimated to take place by end of 2023. The capital expenditure estimate will also be updated. At the same time, the business platform was strengthened.We have continued building a team of international experts with a strong chemical industry background to further advance our research and development, build strong commercial operations, and then establish the service and supply infrastructure to meet our customers’ specific needs. We also started hiring and training the operations personnel for the biorefinery. The innovative digital twin of our biorefinery supports the establishment of robust production processes and a competent, well trained team. UPM’s biochemicals made from renewable raw materials will offer a missing link to achieve a truly sustainable circular economy: rubber and plastics based on renewable chemicals. Our glycols and Renewable Functional Fillers (RFF) are made from renewable resources, work well in existing production and recycling processes, and will support the transition away from oil-, gas- and coal-based materials. We have made strong progress in opening sales channels in various glycol end-use industries, mainly in packaging, automotive and textile applications. We have started joint product development with potential customers in various rubber applications to validate the technical performance of our RFFs and bring sustainable alternatives to CO 2 -heavy rubbers to the market. We also launched UPM BioMotion™, the renewable functional fillers set to significantly reduce the carbon footprint and weight of rubber and plastic applications. The possibilities of our new biochemical products are endless. This was demonstrated by a co-operation announcement with the Coca-Cola Company, who have unveiled their new 100% plant-based recyclable bottle, highlighting UPM’s industrial-scale biorefinery as a breakthrough for the production of a new generation of biochemicals that will help produce the sustainable packaging of the future. Our biorefinery project has also received positive external recognition. We were among the seven finalists of the prestigious German Sustainability Award and our contribution to the sustainability transformation was recognised by the jury. We climbed up to 3rd place in the European Rubber Journal’s top 10 elastomers for sustainability ranking.

A year of growth for UPM Biocomposites UPM Biocomposites is mitigating climate change and creating circular economy solutions through the manufacture of innovative composite materials and decking products. UPM ProFi utilises post-consumer plastic waste and post-industrial label waste to manufacture high-quality composite decking. The label production side streams from UPM Raflatac and its customers are collected and delivered to Germany, where the composite decking is manufactured. Recycled plastic from European post-consumer waste is also utilised in the manufacturing process. UPM ProFi’s latest product launches in the UPM ProFi Piazza product range consist of up to 75% recycled materials. UPM ProFi is a member of the EU Circular Plastics Alliance, which aims to boost the EU market for recycled plastics to 10 million tonnes by 2025. In 2021, UPM ProFi achieved significant sales growth across many European markets with its renewed product portfolio. Thanks to its local European operations, operating efficiency and marketing capabilities, it also benefitted from the increase in home renovations during the COVID-19 lockdowns. UPM Formi creates and manufactures wood-based biocomposites, which enables up to an 80% reduction in the carbon footprint of the end product, compared to similar products made from fossil-based materials. The composite materials are suitable for various end uses, including kitchenware, personal care and acoustic devices. The materials meet the highest quality standards, allowing the products to pass food standards or similar quality requirements. In 2021, UPM Formi, in conjunction with key business development partners, experienced volume growth among new and existing customers as a result of new end-use areas. Strong demand for UPM Formi EcoAce continued. UPM Formi’s customers were recognised with prestigious awards for using sustainable materials, such as the Red Dot Design Award and the iF Gold Award.

We actively collaborate with universities, research centres and key industrial partners in the fields of high-throughput drug screening, personalised medicine, advanced cell therapies, 3D bioprinting, tissue engineering and advanced wound care. More than 520 patents and patent applications protect our existing and future products. In life science, our main products are GrowDex®, a range of hydrogels for 3D cell culturing, and GrowDase™, an enzyme to release the cells from the gel. The nanocellulose ensures excellent compatibility with even the most demanding cells, such as stem cells and patient derived cells. Our gels are animal free and do not introduce animal DNA into the test results. In 2021, we entered into a global distribution agreement with PerkinElmer Health Sciences, Inc. for the UPM GrowDex® and Grow- Dase™ products. The collaboration offers researchers a solution for high-throughput screening (HTS) of 3D cell cultures in the early stages of the drug discovery process, combining the cell imaging solutions and knowledge of PerkinElmer and the animal-free 3D reagents of UPM. The instrument, software and cell culture matrices advance research and accelerate the drug development process in which thousands of molecules are screened, to eventually introduce a new drug onto the market. PerkinElmer’s automated high-content screening system using GrowDex hydrogels has been successfully used in a number of research projects, including automated drug sensitivity and resistance testing of patient-derived cells for personalised cancer treatment research. GrowInk™ is a range of bioinks for 3D bioprinting, used in areas like cancer research, where models of tumours can be printed to test their response to different treatments. Launched in 2021, our collaboration with CELLINK will allow us to develop the technology to print organs or tissue that, in the future, could be transplanted into patients. In the clinical field, FibDex® wound dressings were marketed and sold to healthcare professionals and hospitals in Finland, and work is ongoing to expand into other European markets.

Opening new markets for UPM Biomedicals UPM Biomedicals is at the forefront of innovation and

commercialisation, with a particular focus on personalised medicine. UPM Biomedicals develops and supplies innovative and sustainable wood-based biomedical products for medical and life science applications. The main component in our products is high-quality nanocellulose, extracted from birch wood.

144

UPM FINANCIAL REPORT 2021 145 UPM ANNUAL REPORT 2021 145

UPM ANNUAL REPORT 2021

UPM FINANCIAL REPORT 2021 144