UPM Annual Report 2021

RESPONSIBILITY

BEYOND FOSSILS

STRATEGY

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2021

UPM

RESPONSIBLE FOUNDATION OF OUR BUSINESS

SUSTAINABLE FORESTRY Our business is based on sustainable forest management. We grow and harvest wood to produce renewable and sustainable materials and products.

Co-operation with stakeholders We have a long history of working with re searchers, academia, environmental organ isations and other stakeholders to develop sustainable forest management. Long-term co-operation with the Osprey Foundation in Finland and with Aves Uruguay and Vida Silvestre in Uruguay continued in 2021. In Finland, together with the Finnish Natural Resources Institute Finland, we investigated the occurrence of endangered species in commercial forests. The aim of the project was to determine the importance of natural management measures in com mercial forests for species. We implemented species and habitat projects with stakehold ers, such as the development of a network of nesting sites for birds of prey, together with the Ornithological Society of North Karelia and the Osprey Foundation. We also carried out biodiversity-enhancing drainage and removed invasive species. We carried out management measures in the habitats of endangered species in commercial forests to ensure the presence of endangered species. We continued to participate in forest and environmental stakeholder forums. In Fin land, we took part in biodiversity roundtables coordinated by theMinistry of Environment and theMinistry of Agriculture and Forestry. Active co-operation with the international FSC and PEFC continued to promote sus tainable forest management globally.

UPM FORESTS AND PLANTATIONS 2008

IMPACT • Sustainable forest management is an im portant means to adapt to climate change • Forests and wood-based products play a unique role in climate change mitigation • Demand for wood-based products creates a strong economic incentive for good forest management and growth • Forestry builds wealth and prosperity for local communities • Sustainably managed commercial forests provide well-being and recreation TARGETS • Climate-positive forestry and maintenance of carbon sinks • Efficient production of quality wood • Increasing biodiversity • Safeguarding forest ecosystem services OUR WAY • Third-party verified and certified wood origin monitoring systems to ensure full traceability • No wood sourced from tropical rainforests or from forest plantations that have been established by converting natural forests • No operations in areas where indigenous peoples' rights are at risk • No plantations in areas where water is scarce • Strong stakeholder engagement • Focus on 2030 responsibility targets

2021

Forest and plantation land, own and leased (1,000 ha) Forest growth (million m 3 ) Wood harvested from UPM forests and plantations (million m 3 ) Value of forests and planta tions, including land (EURm)

1,057

1,012

8.8

4.3

3.6

2.2

3,241

1,270

Finland and Uruguay are UPM's main wood sourcing regions. At the end of 2021, we owned approximately 900,000 hectares of forest land in Finland, Uruguay and the USA. Most of this land is in Finland, total ling around 516,000 hectares. In Uruguay, we have about 305,000 hectares of eucalyp tus plantations, grasslands and conserva tion areas and in the USA 76,000 hectares of forest. We also lease about 160,000 hectares in Uruguay and manage about 1.3 million hectares of private forests in Finland. We apply the same strict sustainability stan dards everywhere we operate. About 180,000 hectares (20%) of the land we own is protected. Protected areas include valuable habitats, natural forests and other areas of high value. UPM has three modern nurseries: one in Finland and two in Uruguay. A fourth nursery is under construction in central Uruguay to ensure sufficient wood supply for the new Paso de los Toros pulp mill. There were uncommonly wide fires in Uruguay at the end of 2021, caused by ex ceptionally high temperatures and drought. The fires affected approximately 10,000 hectares of plantations owned and leased by UPM. We have supported partners in the area and operations continue as usual. High-quality seedlings will ensure good growing conditions for the forests and provide an important basis for research. In Finland, we also produce hardwood seedlings, which supports our goal of dou bling the number of deciduous trees in our forests. Vibrant mixed forests contribute to biodiversity, climate goals and forest well-being. In 2021, we introduced our new global forest responsibility programme. The pro gramme covers also sustainability criteria related to water, soil, economic and social contribution (page 30).

Certified fibre share %

Forests and climate We are committed to climate-positive forestry and improving biodiversity. Forests and forest diversity are beneficial for the climate. We ensure that our forests continue to act as carbon sinks, remain resilient and diverse in changing climate conditions, and grow well for future generations. For our forests to remain carbon sinks, they need to growmore than we use them. We are improving the health, growth and carbon sequestration of our forests. The annual carbon sink from owned and leased forests in Finland and Uruguay has aver aged 3.8 million tonnes of CO 2 equivalent over the past five years. In 2021, soil carbon accounting models for Uruguayan planta tions were developed. Due to the developed calculation method, the published figures are not comparable with previous years. Development of calculation method contin ues together with scientific community to further improve reliability and accuracy. Improving biodiversity We are continuously working to improve biodiversity in our forests. We promote biodiversity as part of our everyday forest management and through conservation and collaborative stakeholder projects. Based on indicators developed in co-operation with researchers, we monitor biodiversity development in relation to the target we have set. In Finland, the indicators are:

100

Third-party verified supply chain We always know the origin of our wood. We do not source wood from illegal sources or from areas where human rights or high conservation value forests are threatened. Our wood sourcing does not cause land-use change. We don’t use genetically modified trees. Compliance with these requirements is verified by an independent third party. All UPM-owned forests are certified, or in the process of being certified if the site is new. We also promote forest certification for private forest owners and other custom ers. We have established the FSC group cer tification scheme. The forest area covered by UPM's FSC group covered approximate ly 520,000 hectares in Finland and over 13,000 hectares in Uruguay in 2021. CDP recognised UPMas a Forest A List company for its significant actions tomitigate climate change and prevent deforestation.

90

80

70

60

50

17

18

19

20

21

Target

TARGETS 2030

100% certified fibre by 2030

84% achieved

Responsible sourcing on page 82 Sustainable product lifecycle on page 86

In 2021, quantitative indicators showed a positive trend, except protected areas and valuable habitats. Total restriction areas decreased due to the changes in external land use plan restrictions, however, strictly pro tected areas increased by 9% from the pre vious year. Valuable habitats decreased due to refined calculationmethod, whichmade the previous year´s results incomparable. We constantly review and develop indicators and their monitoring and calculation processes to providemore accurate and comprehensive information on biodiversity. For example, regular monitoring of the amount of decaying wood in Finnish forests is an important indi cator for the future (right). In the company-owned land inUruguay, we implemented an upgraded biodiversity strategy to increase biodiversity in the long term (page 43).

CASE

DECAYING WOOD AS AN INDICATOR OF BIODIVERSITY

We will investigate the effects of nature management measures in commercial forests, such as leaving retention and decaying trees in regeneration fellings, on the structural features and species of forests that are important for biodiversity. The study started in autumn 2021 in co-op eration with the Natural Resources Institute of Finland. In the first phase, 30-50 regeneration areas harvested in 2000-2018 in Southern Fin land will be inventoried. In addition to species and structural inventories, we aim to create

a reliable method for assessing the impact of nature management measures. The study seeks to verify how UPM's conser vation of retention and decaying trees in its own forests has affected the amount and species distri bution of biodiversity important structural features (large decaying trees, coarse decaying wood). We will also develop a list of indicator species based on three species groups to monitor the impact of nature management on species diversity.

• Tree species • Forest age

One clear difference between natural and commer cial forests is the amount of decaying wood. More than a fifth of Finland's forest species depend on decaying wood at some point in their lives. Different species such as fungi and insects are best adapted to live on a particular type of decaying wood, and the species that live on a tree are influenced by the tree species, the size of the tree, the position of the decaying wood and the stage of decay.

• Forest structure • Protected areas • Valuable habitats • Habitat restoration • Species and habitat projects • Indicator development

www.upm.com/forests

84

85

UPM ANNUAL REPORT 2021

UPM ANNUAL REPORT 2021