UPM Annual Report 2021

RESPONSIBILITY

BEYOND FOSSILS

STRATEGY

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2021

UPM

RESPONSIBLE SOURCING RESPONSIBLE FOUNDATION OF OUR BUSINESS

ulation, the US Lacey Act and other regional requirements. We source all wood assortments to en sure optimal utilisation of this valuable raw material. In 2021, we purchased 26.0 (24.9) million cubic metres of wood worldwide. We buy approximately 1.7 million tonnes of pulp from external suppliers annually. We set further requirements to pulp suppli ers for environmental performance, social responsibility, forestry, wood sourcing and reporting. We are also one of the world’s leading users of recovered paper for the production of graphic paper. In 2021, we used approxi mately 1.7 (1.8) million tonnes of recovered paper. Recycled fibre accounted 22% (26%) of all fibre rawmaterials used in UPM’s paper production. The decrease is due to the closure of one newsprint mill and the sale of another. Know your supplier We identify our supply chains with a high risk of potential negative environmental and social impacts. Collecting and analys ing data on the environmental and social responsibility of our key suppliers is an integral part of our supplier risk and per formance management. We create devel opment plans together with our suppliers based on these analyses. We also monitor the performance of our other rawmaterial suppliers through various surveys. With the counterparty riskmanagement tool, we can better evaluate counterparty-re lated risks through automated screening and support businesses in ethical and prudent decision-making. Effective third-partyman agement plays an essential role in securing business continuity and compliance. The responsibility risk assessment is based on the country of origin, sourced material or service and complexity of supply chain. We use EcoVadis and other assessments, supplier audits and joint de velopment plans to carry out more detailed evaluations of suppliers’ activities. If any non-conformities are identified, the supplier is required to take corrective measures. We monitor the implementation of these measures and provide support for improving the suppliers’ operations if need ed. However, some contracts may have to be discontinued due to insufficient measures

or the seriousness of UPM’s findings. In 2021, we assessed the working conditions of the service providers in the wood procure ment value chain (page 71).

Spend covered by UPM Supplier Code %

100

90

Working together towards more responsible supply chains

80

In relation to CO 2 emissions caused by supply chains, our focus is on reducing emissions from logistics and selected rawmaterials such as chemical pulp, pigments, chemicals and paper. Close co-operation with suppliers is needed to achieve this target. Climate impacts will become an import ant factor when selecting suppliers in the future. In 2022, a group-wide programme to manage supply chain emissions will be started (page 94). Global co-operation in sustainability In 2021, our co-operation with Together for Sustainability (TfS), a chemical industry initiative continued. TfS promotes respon sible practices within the supply chains of its members. The co-operation improves transparency and the efficiency of our assessments and audits. As a member of TfS, we have access to a wider pool of EcoVadis assessments and TfS audit reports. In 2021, we conducted some 340 (290) environmental and social risk assessments with EcoVadis. The number of on-site audits was limited due to COVID-19 restrictions; however, on-site audits were carried out at logging sites and at some mills. Last year, our own trained auditors and external auditors carried out 124 (117) audits, based on identified risks, including human rights, social and envi ronmental topics. In addition, about 300 contractor reviews with focus on working conditions were carried out. Responsible sourcing is also an im portant theme in the UN Global Compact. We are an active member of the Action Platform, promoting decent work in global supply chains. Safety culture on page 74 Compliance on page 76 Sustainable product design on page 86 Circular bioeconomy on page 88 Reducing energy use and emissions to air on page 92 www.upm.com/about-us/for-suppliers/

70

An effective and responsible supply chain guarantees the availability of sustainably produced, cost-competitive and innovative materials and services globally in all market situations.

60

50

17

18

19

20

Target

21

Suppliers are an essential part of our value chain. We buy products, materials and services from about 20,000 B2B suppliers globally. Our sourcing network includes suppliers from start-up compa nies to international corporations. We also buy wood from some 23,000 private forest owners. Themain sourcing categories are fibre, chemicals, other rawmaterials, indirect purchases, logistics and energy. When selecting suppliers, our most important criteria include reliable long-termdeliver ies, product and service quality, suppliers’ financial stability, social and environmen tal responsibility and product safety. Exceptional circumstances continued Due to the continued COVID-19 pan demic, we strongly focused on guarantee ing business continuity and the progress of our transformative growth projects in Uruguay and Germany. Many global commodity prices in creased in the recovering global economy. The adverse energymarket situation in Europe and inChina added to our energy costs. However, wewere able to protect our business continuitywell despite the chal lenges in logistics and global supply chains. We gave our digital platform a wider use to standardise and simplify sourcing processes. This platform, implement ed in 2020, will improve efficiency in demand planning, tendering, contract ing and purchase transactions. We also carried out trainings to increase our supplier auditing capabilities. The devel opment of the platform and the trainings will continue in 2022.

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

TARGETS 2030

IMPACT • Providing more sustainable choices to customers and consumers • Enhancing positive brand perception for both UPM and our customers TARGETS • We are a trustworthy and future-oriented partner • We ensure the efficiency, compliance and responsibility of the supply chain • We create long-term business opportunities in the value chain in collaboration with our partners Standards of integrity We are committed to responsible sourcing practices, as per our Code of Conduct. All the minimum requirements for suppli ers are defined in the UPM Supplier and Third-Party Code. We require suppliers to promote the same requirements in their own supply chains. In 2021, 86% (84%) of our total spend was with suppliers who are committed to the Code. All contractors working at our produc tion sites must comply with UPM’s safety requirements. Various additional require ments are applied to wood, chemicals, pulp, packaging materials and logistics. All our wood, pulp and recovered paper suppliers are continuously evaluated in regard to environmental issues, social responsibility and their involvement in

OUR WAY • Focus on long-term, co-operative relation ships and promoting methods for responsi ble sourcing • Clear requirements and expectations for our suppliers • Continuous monitoring and development of our suppliers’ performance • Process development with key suppliers • Responsible practices in the supply chain • Focus on 2030 responsibility targets

86%

achieved

UPM’S FIVE LARGEST SUPPLIERS 2021 1. Suzano, a pulp supplier, Brazil 2. Andritz, a technology supplier, Austria 3. Lechwerke AG, an energy supplier, Germany 4. Pohjolan Voima, an energy supplier, Finland 5. Stora Enso, a pulp supplier, Finland

UPM’s external purchasing spend 2021

the local community. These rawmaterials are either FSC™ (N003385) and PEFC (PEFC/02-44-41) certified or comply with the FSC Controlled Wood standard or Due Diligence requirements for PEFC. Strict requirements for wood-based materials All the wood we use is legally logged and comes from sustainably managed forests. We don’t use wood harvested from tropical rainforests or accept wood from plantations that have been established by converting natural forests. We don’t accept wood from regions that do not respect the rights of indigenous peoples. In addition to third-party certification, we also verify that the wood supplied to our mills is compliant with the EU Timber Reg

Energy 11% Raw materials 29% Indirect materials and services 11% Logistics 17%

Fibre 32%

82

83

UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021