UPM Annual Report 2022

GOVERNANCE

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

ACCOUNTS FOR 2022

and has conducted several status reviews, in cluding risk assessments, in its meetings since then. The investment will raise UPM’s pulp production capacity by more than 50% and significantly contribute to future earnings. Read more about this strategic investment on pages 40–41 and on the corporate website at www.upmpasodelostoros.com. The investment decision on the new biorefinery in Germany was made in January 2020 and the Board has regularly reviewed the status and feasibility of this project. The biorefinery will produce a range of 100% wood-based biochemicals that will enable a switch from fossil raw materials to sustainable alternatives in various consumer-driven end-uses. Read more about this strategic investment on pages 54–55 and on the corporate website at www.upmbiochemicals.com/biorefinery. Board performance evaluation The Board of Directors conducts an annual evaluation on its performance and working methods, including an evaluation of the performance and working methods of its Committees. In 2022, the evaluation was conducted as a self-evaluation in November and its results were reviewed and discussed at the Board meeting in December. The Board members evaluated the performance of the Board and its Committees in relation to their respective duties and responsibilities, their compositions and structure, Board culture, the effectiveness of the Board and Committee meetings, the individual performance of the Board members and the performance of the Chair of the Board. The overall results of the 2022 self-eval uation were highly favourable and indicated that the Board, the Chair of the Board and the Board Committees are performing effec tively, and that the Board members are com mitted to Board work. Identified areas for improvement are considered when planning Board-related work and the Nomination and Governance Committee takes the re sults into consideration when preparing its proposal for the composition of the Board for the Annual General Meeting. Board Committees The Board has established the following three Committees to further improve the

ment and amongst Committee members. The Audit Committee has prepared the Board’s proposal for the election and remuneration of the auditors for the financial years 2023 and 2024, to be pre sented at the AGM 2023. When preparing the proposal for the financial year 2023, the Committee evaluated the qualifica tions and independence of the auditor, as well as the audit-related and non audit-re lated services provided by the auditor. The evaluation included an assessment of the effectiveness of the audit process, the quality of the audit, the performance of the lead auditor and audit team and the co-operation with the auditor’s interna tional audit network. As a result of the evaluation, the Committee recommended the re-election of PricewaterhouseCoopers Oy as the Company’s auditor for the finan cial year 2023. Following the stipulations of the Audit Regulation, the last financial year that PricewaterhouseCoopers Oy can act as the Company’s auditor is 2023. The Company has an obligation to organise an audit firm selection procedure in accordance with the EU Audit Regulation concerning the audit for the financial year 2024 (mandatory auditor rotation). To pre pare for the mandatory rotation, the Annual General Meeting held on 29 March 2022 resolved on amending the article 8 of the Articles of Association to allow the Annual General Meeting to elect the auditor also in advance for a term of one financial year. With regard to the proposal for the financial year 2024, the Audit Committee has prepared its recommendation in accor dance with the EU Audit Regulation and organised a statutory audit firm selection procedure. The Committee has reviewed potential audit firm candidates and iden tified Ernst & Young Oy and Deloitte Oy as the best candidates for the global audit engagement of the Company. These candi dates have been evaluated against a variety of selection criteria such as proposed audit plan and methodology, experience and composition of the audit team, audit quality, and price. The selection process included multiple rounds of information submissions, testing of technological ca pabilities, interviews and presentations by the candidates as well as external reference checks. After careful consideration based

CG Statement and are also available at www.upm.com/governance. The Commit tees hold their meetings prior to Board meetings in order to prepare matters to be decided by the Board. The chairs of each Committee report on matters discussed and actions taken by the Committees during the Board meetings. In addition, minutes from the Committee meetings are available to the Board members for infor mation purposes. Committee-related work in 2022 The importance and extent of the work of the Committees has increased in recent years and will further increase following the continuous changes to the regulatory framework and the Company’s business environment. This is also reflected in the Committee Charters and in the topics and matters that the Committees were involved with in addition to their regular duties throughout the year. overseeing the Company’s financial reporting processes and financial reporting, internal control, and internal audit and risk manage ment, as well as monitoring the Company’s audit and compliance procedures. In 2022, the Audit Committee held six meetings. In addition to the Audit Committee’s assigned matters and regular reports as listed above, it also reviewed reports on and discussed cybersecurity, the audit tendering process, energy market topics, ESG, impacts on the environment and other non-financial mat ters (together with the review of non-finan cial reporting). The Board would respec tively be informed as part of the Committee Chair's regular reporting to the Board if the Committee was provided concerns from the stakeholders analysed having a material im pact on the economy, environment or people. Read more on our sustainable development on pages 58–99. The lead audit partner attended all reg ular, pre-scheduled Committee meetings and reported to the Committee on interim procedures and findings, as well as quar terly audit and non-audit fees and services. The Committee’s standard procedures also include quarterly sessions with the internal auditor, the lead audit partner, manage Audit Committee The Audit Committee is responsible for

All directors are non-executive and the Board has also concluded that all directors are independent of the Company, includ ing Kim Wahl and Björn Wahlroos, who have been non-executive directors of the Company for 10 or more consecutive years. Based on the Board’s overall evaluation of the independence of these directors, their long-standing service does not compromise their independence and no other factors or circumstances have been identified that could affect their independence. Board-related work in 2022 The Board convened according to its origi nal meeting schedule and held 14 meetings in 2022. Its work was not disrupted, even during the continued exceptional cir cumstances in spring 2022 caused by the COVID-19 pandemic. There is no minimum meeting atten dance requirement for Board members. Instead, Board members are expected to attend all meetings unless there is a valid reason for not attending. The average atten dance of the Board members at the Board meetings was 100% (98.8%) and 89.0% (100%) at the Committee meetings. The per sonal attendance rate of each Board member is presented in the table on page 105. In connection with its meetings, the Board also held non-executive sessions and non-execu tive sessions with the external auditor. Strategic focus points in 2022 In line with its main duties and responsi bilities, the Board reviewed and approved strategic plans during its strategy session in May. The main focus points of the UPM Biofore strategy continue to be growth, performance, innovation, responsibility and portfolio. Read more about our strategy on pages 20–21. An essential part of the Board’s annual strategy-related work is to oversee the assessment and management of risks re lated to the Company’s strategy and opera tions. These risks and opportunities, as well as their impact on operations and strategy, are described on pages 32–33 and 132. In 2022, the Board continued to focus on major strategic investments, most notably the pulp mill project in Uruguay and the bio chemicals biorefinery in Germany. The Board has been closely monitoring the status and the feasibility of the project in Uruguay since 2016

COMMITTEE MEMBERS 2022

AUDIT COMMITTEE Kim Wahl (Chair) Jari Gustafsson Marjan Oudeman Emma FitzGerald (member until 29 March)

REMUNERATION COMMITTEE Martin à Porta (Chair as of 29 March) Emma FitzGerald Topi Manner (member as of 29 March) Henrik Ehrnrooth (Chair and member until 29 March)

NOMINATION AND GOVERNANCE COMMITTEE Björn Wahlroos (Chair) Henrik Ehrnrooth (member as of 29 March) Piia-Noora Kauppi Berndt Brunow (member until 29 March)

CASE

LEADERSHIP IS A TEAM EFFORT

Topi Manner, Finnair President and CEO and a new Board member for UPM, has been impressed by UPM’s people, culture and business model. “The people are very committed; they have deep know-how and they are goal-driven. The roots, long history and strong will for continuous renewal are visi ble in the culture. There is room for innova tion and success is rewarded. The business model enables strategy to be implemented across various businesses and empowers people to act. The strategy packages every thing into a common direction.” “UPM’s purpose guides the activities of all business areas and personnel in the short and long term. The purpose is like a map on which thinking and actions can be linked. I hope it also inspires UPM’s customers, owners and other stakeholders.” Manner, who has had a long career at Nordea, says his leadership style is entrepreneurial. It could be defined as being focused on responsibility, initiative and determination. “I believe in teams of diverse people and building teams is an im portant part of leadership. I strive to be an approachable people-oriented leader who communicates the direction and rationale for decisions and motivates people.”

preparation of matters to be decided by the Board: • The Audit Committee • The Remuneration Committee • The Nomination and Governance Committee The Nomination and Governance Com mittee assisted the Board in reviewing the composition, qualification criteria and duties of the Board Committees and made a proposal to the Board for the appoint ment of Committee members and Chairs. The members were appointed to the Board Committees in the Board’s constitutive meeting on 29 March 2022. The Committee compositions are presented in the table on the left. Neither the President and CEO nor other Company executives may be members of any Board Committees. The written Committee Charters ap proved by the Board of Directors define the purpose, composition, operations and du ties of each Committee, as well as the pre requisites of Committee membership. Each Committee is responsible for performing the duties assigned to it in its Charter. The Committee Charters are presented in the

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022