UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Environment UPM’s responsibility focus areas in environmental matters are forests, biodiversity, water, waste and climate. UPM uses raw materials, water, energy and other resources in a responsible manner and continuously improves its energy, resource and cost efficiency. UPM is committed to sustainable forestry and third-party-verified FSC™ and PEFC chain of custody certification covers all sites using wood raw materials. This ensures that the wood is legally sourced from sustainably managed forests. All UPM-owned forests are certified, or in the process of certification if acquired recently. UPM is continuously working to improve biodiversity in its forests. Since 2022, biodiversity-related activities in Finland, Uruguay and the U.S. have been incorporated in UPM’s new Forest Action programme. The new programme covers not only biodiversity and climate but also sustainability criteria related to water, soil and social aspects. In 2022, the importance of biodiversity was also reflected in UPM’s broader approach towards biodiversity to also cover other areas beside forests, e. g. streams and mill sites, and in establishing it as an own focus area. All of UPM’s production plants are located in areas with low and medium basin risk where there is sufficient water available. A comprehensive water risk analysis has provided 2030 and 2050 scenarios of water risks, based on climate and socio-economic changes to enable us to understand and prepare for future water risks and opportunities. The water used by UPM plants comes from rivers, lakes or groundwater resources. UPM uses water responsibly in terms of the company’s water usage and effluent quality. If the price of raw water were to increase by EUR 0.01 per cubic metre, it would mean additional water costs of approximately EUR 4 million annually. In 2022, wastewater volume increased by 3% per tonne of paper and by 15% per tonne of pulp. As Finnish pulp and paper mills went on strike in early 2022, effluent treatment plants had to be kept in operation with low capacity while production was ceased, leading to an increase of wastewater volume per tonne of product. Circular bioeconomy is at the core of our operations. We have developed innovative ways to reduce and recover waste and to use side streams, residues and recovered materials. For example, tall oil is used for the production of UPM BioVerno renewable diesel and naphtha and ash is utilised in soil stabilisation, cement industry or as raw material for paper filler production. Regulatory changes may have an impact on the options for waste or residue use, either by restricting the end uses and thus causing higher costs for alternative solutions, or by creating new opportunities. In 2022, 90 (89)% of UPM’s process waste was recycled or recovered, of which 21 (21)% is energy recovery. In 2022, UPM’s environmental investments totalled EUR 11 million (5 million). The largest investment was for the improvement of one fibre line’s brown stock washing at UPM Kaukas pulp mill to reduce the COD load of wastewater. UPM’s environmental costs, which were mainly attributable to effluent treatment and waste management, totalled EUR 123 million (111 million), including depreciation. The company-wide Clean Run concept, launched in 2012, aims to improve UPM’s environmental performance by bringing environmental issues to the forefront of everyday work. All sites systematically follow up any deviations, proactively report observations and near misses, carry out walks and discussions, and compile detailed risk assessments. Approximately 1,400 (1,400) environmental walks were organised and 2,100 (2,500) preventive environmental observations and near misses were reported in 2022. In 2022, the number of environmental non-conformances decreased by 3 to a total of 22 (25) deviations from permit, contractual or other

UPM climate related disclosures according to TCFD (Task Force on Climate-related Financial Disclosures) are presented in the UPM annual report as follows:

obligations. 10 cases were related to air, 9 to water, 2 to soil and 1 to noise. All deviations were reported to the authorities and, where relevant, to local stakeholders. Appropriate measures were taken to normalise the situation, and will be taken to prevent similar occurrences. No major environmental incidents occurred at UPM production plants in 2022 and UPM was not required to pay any significant fines due to environmental non-conformances. Climate The management of climate change related issues is integrated into the management of other non-financial issues and is reported to the Board depending on the context and matter. For example: 1) risks are reported to the Board by CFO, 2) related compliance and regulatory issues are briefed quarterly to the Audit Committee (Board) by the Compliance Officer, 3) annual progress on 2030 responsibility targets is reported by EVP Stakeholder Relations or 4) if there are specific climate-related topics, then the responsible topic owner briefs the Board. Additionally, major climate-related issues such as scenario analyses, commitments and UPM’s overall approach of acting through forests, emission reductions in production and supply chain and through climate positive products are reported directly to UPM management bodies led by CEO. UPM´s position and resilience in different climate scenarios (IPCC RCP 2.6, RCP 4.5, RCP 8.5, IEA B2DS, IEA NPS and IEA CPS) have been evaluated for the businesses and functions from both physical and transitional angles, involving expertise from scientific community. Generally, in low- and medium-emission scenarios the transition impacts play a bigger role and UPM is well positioned as its business portfolio allows for flexibility regarding recognised risks and opportunities. In the high-emission scenario physical impacts dominate with severe consequences not only for UPM but for the ecosystems and societies across the globe. UPM´s main target related to climate change is reducing fossil CO 2 emissions (scope 1 and 2) by 65% from 2015 levels by 2030. This target was validated by the Science-Based Targets initiative to be aligned with the 1.5° C pathway according to the Paris agreement. In 2022, fossil CO 2 emissions (scope 1 and 2) summed up to 4.5 (5.0) million tonnes, which is a decrease of 11% compared to 2021. Further targets related to climate change are reducing fossil CO 2 emissions from supply chain (Scope 3) by 30% from 2018 levels by 2030, climate-positive land use and developing climate-positive product portfolio. Concerning land use, forestry and product portfolio, UPM has engaged with scientific partners in order to gain credible data and approaches. UPM favours the use of renewable and other carbon-neutral energy sources. Biomass-based fuels make up 65% (70%) of fuels used by UPM worldwide. If UPM needed to buy certificates to cover its whole direct fossil CO 2 emissions, and if the price of CO 2 certificates were to rise by EUR 10 per tonne, it would mean additional costs of approximately EUR 23 million annually. I n 2022, UPM finalised a study on climate-related substitution and carbon storage effects of our products with the Finnish SYKE and the German IFEU institutes and we joined the pilot testing phase of the GHG Protocol Land Sector and Removals Guidance. This development work will help defining UPM’s approach for net-zero emissions

REQUIREMENTS

PAGES

GOVERNANCE a) The role of the Board in overseeing climate-related issues

Page 137-138, paragraph "Roles of the group management and functions in leading non-financial matters" Page 137-138, paragraph "Roles of the group management and functions in leading non-financial matters"

b) The role of management in assessing and managing climate-related issues

STRATEGY a) The climate related risks and opportunities over the short, medium and long term Pages 132-136, chapter "Risks"

Pages 32-33, chapter "Risks and opportunities" Pages 10-13, chapter "Beyond fossils"

Pages 32-33, chapter "Risks and opportunities" Pages 10-13, chapter "Beyond fossils" Page 132 paragraph "Climate change", 136 paragraph "Forest and plantations"

b) The impact of climate-related risks and opportunities on business, strategy and financial planning

c) The resilience of strategy, taking into consideration climate-related scenarios

Page 140, paragraph "Climate" Pages 10-13, chapter "Beyond fossils"

RISK MANAGEMENT a) Processes for identifying climate-related risks

Page 132, paragraph "Risk management" Page 137-138, paragraph "Roles of the group management and functions in leading non-financial matters" Page 132, paragraph "Risk management" Page 137-138, paragraph "Roles of the group management and functions in leading non-financial matters"

b) Processes for managing climate-related risks

c) How processes for identifying, assessing, and managing climate-related risks are integrated into overall risk management

Page 132, paragraph "Risk management" Pages 106-108, chapter "Governance"

METRICS AND TARGETS a) Metrics used to assess climate-related risks and opportunities

Pages 14–15, "Key figures 2022"

b) Scope 1, Scope 2 and Scope 3 emissions, and related risks

Page 140, paragraph "Climate" Page 88, graph "Sources of UPM's greenhouse gas emissions"

c) Targets used to manage climate-related risks and opportunities and performance against targets

Page 149, table "Material non–financial topics and key performance indicators" Pages 30-31, table "UPM Responsibility targets"