UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Commission’s press release on 12 October 2021, the Commission has concerns that the inspected companies in the wood pulp sector may have violated EU antitrust rules that prohibit cartels and restrictive business practices. The Commission states that the unannounced inspections are a preliminary step in an investigation into suspected anticompetitive practices, and the fact that the Commission carries out such inspections does not mean that the companies are guilty of anti competitive behaviour nor does it prejudge the outcome of the investigation itself. UPM takes any suspected violation of antitrust rules very seriously and has a compliance programme in place to mitigate the risk of such violations. For example, all employees and executives are required to take training on the UPM Code of Conduct, which includes a section regarding antitrust compliance. In addition, UPM has also in place a specific training programme regarding antitrust rules which covers approximately 3,000 employees and executives. » Refer Note 9.2 Litigation , of the consolidated financial statements 2022 for information on legal proceedings. Risks Risk management UPM regards risk management as a systematic and proactive means to analyse and manage opportunities and threats related to its business operations. This also includes risks that can be avoided through careful planning and evaluation of future projects and business environments. Risk management is an integral part of UPM’s management system as risk taking is a normal part of business operations. While executing strategies, UPM and its business areas, functions and manufacturing units are exposed to a number of risk and opportunities. Each business area, function and unit is responsible for identifying, measuring and managing of risks related to its own operations, and for reporting on risk exposures, risk management activities and results to its own management team and to the Risk Management function. The Risk Management Committee, chaired by the CFO, is responsible for recommending risk tolerances and profile to the President and CEO and the Strategy Team. The Strategy Team is responsible for aligning risk management priorities, business and risk management strategies and policies. The Board of Directors, assisted by the Audit Committee, monitors and assesses the effectiveness of the company’s risk management systems and oversees the assessment and management of risks related to the company’s strategy and operations. The Audit Committee oversees that risk management activities are aligned with the Risk Management Policy, and that risk assessments are used to guide internal audit activities. UPM seeks to transfer insurable risks through insurance arrangements for any risks that exceed the defined tolerance. UPM strives to ensure compliance with the UPM Code of Conduct and other corporate policies. To enhance compliance and mitigate risks, UPM performs risk assessments, training and monitoring at regular intervals. UPM has developed and implemented a comprehensive internal control system that covers business and financial reporting processes. Internal control is aimed at ensuring that the company’s operations are efficient and reliable, and in compliance with statutory requirements, and that the company’s financial reporting is accurate and reliable, and reflects operational results. Internal control pertaining to financial reporting is described in the Corporate Governance Statement available in the corporate website. The main risk factors that can materially affect the company’s business, financial results and non-financial performance are set out

below. They have been classified as strategic risks, operational risks, and financial risks. Risks may also arise from legal proceedings incidental to UPM’s operations. Strategic risks Uncertainties in the economic and political operating environment The main short-term uncertainties in UPM’s earnings relate to sales prices and delivery volumes of its products, as well as to changes in the main input cost items and currency exchange rates, most of which are affected by uncertainty in the global, regional or local economic and political conditions. Political developments are causing uncertainties to the global economy. Such uncertainties also affect UPM’s customers influencing the demand for UPM’s products. Examples of such developments are the trade tensions between the United States, the EU and China, the nature of the relationship between the EU and the UK after its exit from the EU as well as increased geopolitical tensions that may lead to military conflicts, such as Russia's war in Ukraine, or economic sanctions, blockades, or export and/or import restrictions that could limit or prevent UPM’s business in a country or area. UPM is also exposed to the impacts of certain governmental protection and trade protection measures such as foreign direct investment restrictions that safeguard domestic industries and other changes affecting international trade. Restrictions on import and export and other measures protecting national interests may affect the availability or cost of necessary raw materials, and changes in the international trade agreements. Changes in fiscal, monetary and other policies taken to respond to the economic impacts of Russia's war in Ukraine and to reduce dependency on Russian resources may cause unintended price volatility or other adverse effects on UPM. Economic downturn, global pandemics, or global power struggles continue to cause high uncertainty to global trade, geopolitics or trajectories of economies. UPM is especially exposed to the economic and political conditions in countries in which UPM has significant production operations and ongoing investment projects, such as Finland, Uruguay and Germany. UPM also has significant production operations and sales in and to China where the lack of transparency and predictability of the political, economic and legal systems may lead to an increasing uncertainty and risk level when investing in or operating in the country. UPM's subsidiaries and employees in Russia and Ukraine, while currently not operating, are exposed to challenging and unpredictable environment stemming from Russia's war in Ukraine. Cyclical and highly competitive markets In all markets UPM operates in, the price level is determined by a combination of demand and supply and an imbalance between them could cause the prices of UPM’s products to fluctuate significantly. Imbalances in demand and supply may be caused by factors such as decreases or increases in the end-use demand, changes in customer preferences, market adjustments to Russia's war in Ukraine, or a new production capacity entering the market or an old production capacity being closed, all of which may affect both the volume and price level of UPM’s products. Competitor behaviour may also influence the market price development. UPM may, from time to time, experience price pressures from competitors in its main business areas and geographic market areas as well as particularly large fluctuations in operating margins due to this competitive environment. The majority of UPM’s revenue comes from sales of graphic and specialty papers, pulp and label materials, and UPM principally

competes with several large multinational paper and forest product companies as well as with numerous regional or more specialised competitors. Changes in consumer behaviour Demand for UPM’s products may be affected by the introduction of substitute or alternative products. The demand for graphic papers in the mature markets is forecast to continue to decline. This will likely increase the pressure on UPM’s graphic paper deliveries and sales prices as well as the scarcity of recycled fibre. The COVID - 19 pandemic may further amplify the speed of changes adopted by consumers in consuming and communicating information. Changes in demand could also cause overcapacity in some of UPM’s products, affecting the sales prices and deliveries of such products. Depending on the product area, the shifts in consumer demand may either have a positive or an adverse effect on the consumption of UPM’s products. For example, UPM expects that there will continue to be a growing need for renewable and recyclable solutions, which creates various opportunities for UPM and drive demand growth for most of UPM’s products. At the same time digitalisation and e-commerce have changed consumer behaviour and resulted in decline in demand for graphic papers for various end uses. Changes in legislation UPM is exposed to a wide range of laws and regulations globally. The performance of UPM’s businesses, for example the paper, energy, and biofuels businesses, are to a high degree dependent on the regulatory framework for these areas. Changes in regulation, direct and indirect taxation or subsidies, aid, grants or allowances could have a direct effect on UPM’s performance and its relative competitiveness, and structurally restrict or exacerbate UPM’s ability to compete for raw material. For example, the Finnish Government has published in December 2022 a law proposal for a temporary profit tax on the Finnish electricity sector. The proposed tax would be 30% of the companies’ net profits generated from the electricity operations in Finland in fiscal year 2023 exceeding 10% annual return on shareholder’s equity of the electricity business. UPM Energy is the second largest electricity producer in Finland and in the scope of the proposed temporary profit tax. UPM also operates in industries that are subject to extensive environmental laws and regulations governing, among others, emissions, water quality, energy efficiency, as well as waste handling, recycling and disposal. Environmental laws and regulations have become more stringent and may continue to develop to be even more stringent due to various global, regional and national level regulatory initiatives. As these environmental laws and regulations are amended or as their application or enforcement is changed, additional costs in complying with new and more stringent regulations may be imposed on UPM. UPM’s operations require UPM to obtain multiple environmental permits and other licences from relevant authorities and comply with their terms and conditions. These permits and licences may be subject to modification, renewal or, subject to certain conditions, revocation by the issuing authorities. UPM monitors regulatory changes in order to UPM is a shareholder of Pohjolan Voima Oyj (PVO), which is the majority shareholder of Teollisuuden Voima Oyj (TVO). TVO is in the process of constructing a third nuclear power plant unit, OL3 EPR, at the Olkiluoto site (OL3). When completed, OL3 will supply electricity to its shareholders on a cost-price principle (so called ‘Mankala-principle’) that is widely applied in the Finnish energy industry. Under the Mankala better adapt to the effects of such changes. Shareholdings in Pohjolan Voima Oyj

principle, electricity and/or heat is supplied to the shareholders in proportion to their ownership and each shareholder is, pursuant to the specific stipulations of the respective Articles of Association, severally responsible for its respective share of the production costs of the energy company concerned. OL3 is expected to increase UPM’s electricity generation capacity significantly. UPM’s indirect share of OL3 is approximately 31%. According to TVO OL3 was procured as a fixed price turnkey project from a consortium formed by Areva GmbH, Areva NP SAS and Siemens AG (Supplier). Under the plant contract, the consortium companies have joint and several liability for the contractual obligations. In March 2018 TVO announced that it had signed a Global Settlement Agreement (the 2018 GSA) with Supplier and the Areva Group parent company, Areva SA, a company wholly owned by the French state. The Global Settlement Agreement, which concerns the completion of the OL3 project and related disputes and entered into force in late March 2018.According to TVO’s announcement, the GSA was amended with agreements signed in June 2021. In the GSA, the Supplier consortium companies committed to ensuring that the funds dedicated to the completion of the OL3 project are sufficient and cover all applicable guarantee periods. Consequently, a trust mechanism was set up funded by the Areva companies to secure the funds required to cover Areva’s costs for the completion of the OL3 project. According to TVO the key matters of the amendment agreements to the GSA are: • The Areva companies’ trust mechanism, established in the GSA of 2018, was replenished in July 2021 with EUR 432.3 million. • Both TVO and the Supplier are to cover their own costs as of July 2021 until end of February 2022. • In the case that the Supplier consortium companies would not complete the OL3 project by the end of February 2022, they would pay additional compensation for delays, depending on the date of completion. • In connection with the amendment of GSA entering into force, the Supplier paid EUR 206.9 million of the EUR 400.0 million delay compensation as agreed in the GSA 2018. Due to OL3 additional delay in 2022 in interim report Q3 2022 TVO announced that TVO had recorded receivables from the Supplier for the additional delay compensation accumulated by the end of Q3 2022 in accordance with the amended GSA. The additional delay compensation has been recorded as EUR 56.7 million at the end of Q3 2022. At the end of Q3 2022, TVO has recognised current receivables of EUR 249.8 million from the Supplier. According to TVO, all payments related to the settlement compensations have been recorded in the consolidated balance sheet as property, plant and equipment. TVO announced in its interim report Q3 2022 that the trust, which was replenished in July 2021, has been used to cover costs incurred to Areva companies for the completion of the OL3 project in accordance with the GSA. Also, TVO mentioned, that TVO’s right to terminate the plant contract in accordance with the GSA was postponed until 31 March 2023. In addition, the payment of approximately EUR 193 million of the delay compensation agreed in the GSA of 2018 was postponed until the completion of OL3, up to 31 March 2023 at the latest. On 12 March 2022, TVO announced that the electricity production at OL3 had started, when OL3 was connected to the national grid. In June 2022 TVO announced that according to information received from Supplier, OL3’s regular electricity production would start in December 2022. In August 2022, TVO announced that after completion of