UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Reporting framework used For its Group-level sustainability reporting UPM follows the Global Reporting Initiative’s (GRI) Sustainability Reporting Standards, the Task Force on Climate-related Financial Disclosures (TCFD) as well as the AA 1000 AccountAbility Principles Standard. The respective information is assured by an independent third-party, PricewaterhouseCoopers, Oy (pages 116-117). Committed to anti-corruption The UPM Code of Conduct underlines the company’s zero tolerance attitude towards corruption and bribery in any form. UPM Anti Corruption Rules explain prohibited conduct and expected ethical behaviour in further detail. UPM performs anti-corruption risk assessment on a regular basis. The annual risk-assessment process includes a top-down risk discussion with the management of each business area. All UPM group entities are also assessed on the basis of country risk and complexity of operations. UPM operates globally and has significant manufacturing operations in several emerging market countries. Such operations require a number of permits and other licenses from the relevant authorities. Some of the countries where UPM operates are perceived as highly corrupt or corrupt according to Transparency International. In these countries, there is an increased risk of corruption, for example in relation to interaction with government officials and in the use of intermediaries when applying for permits and licences requiring governmental approval. Due diligence of suppliers and third parties with whom UPM does business is an essential part of UPM’s anti-corruption compliance programme. UPM requires that due diligence is performed before entering into or renewing any contract with a third party that meets specified criteria. UPM requires anti-bribery contract terms to be included in agreements with such third parties outlining the third party’s commitment to compliance with applicable anti-bribery laws and UPM’s right to audit the third party to verify compliance with these terms. UPM also has corresponding due diligence procedures for joint ventures, including mergers and acquisitions. UPM has a dedicated anti-corruption e-learning platform. The anti corruption training covers all white-collar employees. In 2022, the company organised tailored anti-corruption training workshops for selected target groups across the company and performed risk-based compliance reviews in selected jurisdictions and operations. Respect for human rights UPM is committed to respecting and promoting human rights in line with the United Nations Guiding Principles on Business and Human Rights. UPM has assessed all its operations and activities and has identified the potential human rights issues and impacts. When considering both the severity and likelihood of these potential issues and impacts, UPM considers the salient human rights issues in the company’s sphere of influence to be environmental pollution, occupational health and safety (OHS), working conditions, protection of children, and forced labour. UPM reviews its human rights risks as part of the UPM compliance process quarterly. The assessment of salient human rights issues on a business area level as well as the integration of the process to unit specific management systems continued. The focus was on catching up with the developments in our business landscape and operational environments and on identifying any gaps in our mitigation activities. As a result of the 2022 assessments, contractor management was selected as one of the focus areas going forward. UPM also continued to publish a report of UPM’s Human Rights Responsibility.

Responsible sourcing UPM requires its suppliers, third-party intermediaries and joint venture partners to apply the same principles as in the UPM Code of Conduct including commitment to anti-corruption, environmental and social responsibility, safe products, human rights and occupational health and safety practices. Transparent supplier requirements are the basis for responsible sourcing. These requirements for suppliers are defined in the UPM Supplier and Third Party Code. A number of additional requirements are in place for the sourcing of wood, chemicals, pulp and packaging materials, as well as for safety and logistics. All contractors working on site go through UPM’s safety requirements and a web-based safety induction training. UPM identifies its supply chains with a high risk of potential negative environmental and social impacts. These responsibility-related high risk suppliers are determined by the country of origin, sourced material or service, and the UPM supply chain ESG risk register which holds UPM’s view on company and business area relevant risks on people and the environment. UPM also uses EcoVadis and other assessments, supplier audits and joint development plans to carry out more detailed evaluations of suppliers’ activities. In 2022, UPM updated its supplier assessment criteria and supplier audit questionnaire, and also started a renewal of its Responsible Sourcing Framework with the aim of improving supply chain resilience and risk management. UPM continued its co-operation with Together for Sustainability (TfS), a chemical industry initiative that promotes and improves sustainability practices within the supply chains. In 2022, UPM conducted some 520 (340) EcoVadis environmental and social risk assessments and 121 (124) supplier audits. In addition, about 360 (300) contractor reviews with a focus on working conditions were carried out. Social and employee-related matters UPM’s responsibility focus areas in social and employee-related matters are: learning and development, responsible leadership, diversity and inclusion, fair rewarding as well as safe and healthy working environment. UPM is committed to active employee participation and consultation, organised in accordance with international and national rules and regulations. After the Finnish Forest Industries Federation resigned from collective bargaining, the terms of employment are agreed between forest products companies and trade unions. UPM has agreed business- specific collective labour agreements in Finland (page 67). UPM aims to empower and engage employees at all levels through responsible leadership. UPM encourages its employees to pursue professional growth, expects development and supports them in learning skills and developing them further. UPM respects the privacy of employees and promotes equal opportunities and objectivity in employment and career development. All UPM employees are treated as individuals regardless of gender, age, ethnic origin, nationality, etc. In 2022, UPM implemented gender pay equity review process closing the unexplained gender pay gap and carried out a living wage review process to make sure that salaries are sufficient everywhere. Greater female representation in professional and managerial roles has been in focus for different organisations. In its People Strategy, UPM focused on leadership and creating a safe, inclusive and diverse working environment, as well as aiming higher in performance and ensuring the growth of our people. The aim is to create a unique, positive UPM experience and to develop future ways of working and collaborating, supported by attractive culture, space and technology. In 2022, UPM continued with its programme to develop the UPM experience and ways of working. The enabling

performance, growth, innovation, responsibility and portfolio development. This strategy is enhanced by the UPM purpose: We create a future beyond fossils (read more on pages 20-21). An essential part of the Board’s annual strategy work is to review and assess strategic and operational risks and opportunities (see UPM Corporate Governance Statement 2022). These risks and opportunities and their impact on operations and strategy are described on pages 32-33. In 2022, the Board decided to set measures related to environmental, social and governance (ESG) themes in the Company’s performance share plan (PSP), one of its long-term incentive plans. They decided to set three distinct ESG performance measures and the total weighting of these measures accounts for 20% of all measures. The Group Executive Team, headed by the President and CEO, is responsible for the management of corporate responsibility, including possible impacts on economy, environment and people, determining courses of action and guiding development work. In practice, corporate responsibility work takes place in businesses and functions, and in the group’s Responsibility team, which co-ordinates the projects carried out by businesses and functions. UPM Legal Function and its Compliance team manage legal compliance programmes and arrange related training at regular intervals for specific target groups, which have been defined based on risk assessments. UPM Sourcing organisations follow clearly defined selection and follow-up processes when evaluating suppliers. Reliable long-term deliveries, product and service quality, financial sustainability of suppliers, social and environmental responsibility and product safety are the key factors when selecting and evaluating suppliers. While executing strategies, UPM and its business areas, functions and production units are exposed to a number of financial and non financial risks and opportunities. Each business area, function and unit is responsible for identifying, measuring and managing 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. Management of non-financial matters UPM’s responsible thinking starts with anticipating, mitigating and managing risks, and extends to creating a competitive advantage and long-term value. UPM continually strives to reduce its risk exposure and improve its performance by using tools such as certified management systems. Since 2018, all production sites have a certified ISO 14001 environmental management system. Nearly all production sites and wood sourcing operations implemented integrated management systems for environmental protection, quality management and occupational health and safety in accordance with ISO 14001, ISO 9001 and ISO 45001 standards. All pulp and paper mills in the EU, as well as the UPM Fray Bentos pulp mill in Uruguay and the UPM Changshu paper mill in China, also adhere to the EU’s Eco-Management and Audit Scheme (EMAS). Many of the sites also have energy management systems certified under ISO 50001 or the Finnish ETJ+ system, and food safety management systems certified under ISO 22000, if relevant. Should stakeholders have any concerns or suspect misconduct, they are encouraged to contact UPM or to use the UPM Report Misconduct channel. The service is available on the corporate website for both the company’s employees and external stakeholders. Operated by an independent external service provider, the channel is accessible in over 40 languages, 24/7. In 2022, 54 (66) cases were reported either through the UPM Report Misconduct channel or directly to Internal Audit or the Compliance team. 9 (9) of these cases related to alleged discrimination or harassment. 8 (18) cases led to disciplinary action including warnings and terminations of employment.

performance approach by strengthening feedback culture, agile goal setting and frequent manager-employee discussions is being further strengthened. Development programmes to support growth and performance were continued and implemented virtually. To further develop inclusive leadership and culture, UPM continued to train leaders and launched a digital learning to all UPMers on LGBTIQ+ inclusion in workplace. UPM promotes employees´ health and wellbeing. Safety is an essential part of UPM’s activities and business management system. Equal safety requirements are applied to all employees, visitors and contractors working at UPM’s premises. Proactively thinking about the safety of employees and contractors remained an important focus area in 2022. The safety and wellbeing of our employees during the global pandemic has been the key priority. The requirements concerning process safety have been clarified with a new safety standard and process safety has been in focus especially in the new investment projects of the biofuel and biochemicals businesses. Product stewardship The majority of UPM’s products are made from renewable raw materials and are recyclable. UPM products help to mitigate climate change by replacing fossil-based products with bio-based renewable alternatives. Product stewardship covers the entire lifecycle of all UPM products from the development phase to the end-use and beyond. In 2022, the new Sustainable Product Design concept was further tested on several product development cases with UPM businesses. The approach applies lifecycle thinking and lifecycle assessment data, both of which are integrated in sustainable product design practices. During the process, the whole raw material chain, production and distribution efficiency, sustainable use and circularity are considered. UPM provides product declarations to provide customers with easy access to information concerning the products´environmental and product safety aspects or the wood origin. Together with a number of paper and chemical companies the exchange of information in the supply chain was improved. This facilitated a pre-assessment of chemical use and to ensured compliance with legislations and ecolabels. Most UPM products are certified with widely recognised ecolabels, such as the EU ecolabel and national ecolabels for graphic paper or ISCC and RSB certification for biofuels, biocomposites and labels. All UPM pulp mills, UPM Raflatac sites, UPM Specialty Papers´ production lines and UPM Kymi paper mill have implemented food management systems in accordance with ISO 22000. The respective products are designed and produced to meet food packaging requirements. In 2022, we modernised our chemical database to improve access to advanced reporting and control features.