UPM Annual Report 2021

BUSINESSES

UPM

BEYOND FOSSILS

STRATEGY

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2021

LOWER EMISSIONS WITH RENEWABLE FUELS UPM BIOFUELS Strong market demand and attractive returns continued while moving ahead in biofuels growth plans.

streammapping and coaching to improve the business agility and to enable continu ous improvement. Next generation biorefinery Global demand for biofuels is expected to rise substantially by 2030. Advanced biofuels play an important role inUPM's Biofore strategy (page 22) by offering innovative and sustain able alternatives to fossil-based products. In January, we moved forward with biofuel growth plans and started the basic engineering phase of a next generation biofuels biorefinery to define the business case, select the most innovative technol ogy option and estimate the investment requirements. The planned biorefinery would improve the long-term competitiveness and sustain ability performance of UPM Biofuels by introducing several sustainable feedstocks. It would also enhance material efficiency with solutions based on the use of waste and residues without compromising global food production or biodiversity. The use of green hydrogen is studied as part of the technology concept. In 2021, we completed site assessments in Kotka and Rotterdam. Work continues in Rotterdam, in the Netherlands, where the operating environment is more favourable for the biofuels business. Enabling green growth Fossil substitution plays a key role in enabling the EU's green growth. In the EU, an overall CO 2 reduction of 55% is needed by 2030 to move towards a zero-carbon economy by 2050. UPM Biofuels facilitate the EU's targets for greenhouse gas (GHG)

OUR DIRECTION • Unique, sustainable, advanced biofuels and biomaterials in various markets and segments • Expanding biofuels business OUR STRENGTHS • Established producer of low-emission renewable diesel and naphtha • Sustainable bio-based alternative to fossil feedstock in the petrochemical industry • Advanced biofuels belong to the most demanding sustainability class of biofuels

CASE

We offer our customers ways to replace fossil rawmaterials and reduce their car bon footprint with wood-based advanced biofuels. Our UPMBioVerno diesel offers a low-emission solution for transportation by significantly decreasing the amount of greenhouse gas emissions compared to fossil fuels. UPMBioVerno naphtha works identically to fossil-based naphtha and can be used both for plastics and as a low-emis sion biocomponent for gasoline. Our operations are based on a circular economy and our rawmaterial, crude tall oil, is a residue from pulp production. Our production process and development focus stresses further emission reductions and material efficiency. Year of strong demand but disturbances in production The biofuels market remained strong in 2021, with continuous demand growth driven by climate targets. Market prices were at a high level. The profitability of

the UPM Biofuels business was strong and clearly above UPM's average return targets. Production rates of the UPM Lappeen ranta Biorefinery were at a very high level excluding the maintenance shutdowns and repair work time needed due to a fire in the summer. The scheduled maintenance break in Q1 was completed safely and successfully ahead of schedule despite the challenging COVID-19 situation. In May, a major incident occurred at the biorefinery when the rupture of a process gas line caused an explosion and a fire. The fire spread to the cabling and the roof struc tures of a utility building. No one was in jured and the fire was quickly extinguished. Production resumed in August. We received great feedback from a customer survey, especially for our high professionalism in customer relationships. We aim to maximise the customer value added and started to develop ways of work ing based on the lean leadership principles in 2021. The personnel have practiced value

BRINGING CIRCULAR ECONOMY TO THE BEAUTY INDUSTRY CUTRIN, a pioneer in Nordic hair design, uses sustainably procured raw materials in its products. The company finds it important to extend its sustainability message to be visible also on its product packaging. The AINOA Moisture Treatment is packaged in recyclable plastic containers that are mostly made from recycled plastic. The label on the jar is a 100% wood-based solution originating from sustainably managed forests. UPM Raflatac For est Film™ PP label material utilises UPM BioVerno naphtha, a fossil-free raw material made from crude tall oil. This bio-based label material is a renewable alternative for plastics. CUTRIN is a part of the beloved Finnish beauty brand Lumene. It has worked on developing products while aiming to utilise ingredients developed from side streams and residues of the food and wood industries. When designing new products, a lot of atten tion is also paid to packaging recyclability.

reduction. UPM BioVerno reduces GHG emissions by over 80% compared to fossil diesel. It is a drop-in solution suitable for all diesel engines. Predictable regulation is one of the key elements that enables green growth investments and transformation beyond fossils (page 67). We support the increased emission reduction targets in transport and the increased mandate for advanced biofuels as proposed in REDIII, while believing that even further ambition can be put on the role of sustainable biofuels. The inclusion of e-fuels, which are regu lated by a separate mandate, opens new opportunities for effective climate change mitigation. Our products comply with the most comprehensive sustainability criteria and certification including the RSB and ISCC international sustainability standards.

Lumene aims to use PCR plastics (plastic made from post-consumer recycled materials) and bio-based materials. When recycled plastic comes specifically from consumer prod ucts and not from industry, it has indeed made a full cycle. A matching label material also enhances packaging recyclability and it will go straight to the right recycling stream.

www.upmraflatac.com

www.upmbiofuels.com

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UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021