UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Material non-financial topics and key performance indicators

biochemicals refinery, capitalised investments in hydropower plants, capitalised investments in biofuels biorefinery and other capitalised development costs of Taxonomy-eligible activities towards a future beyond fossils. Apart from the CapEx related to investments on leased vessels, all the UPM’s eligible CapEx is also Taxonomy-aligned. Capital expenditure presented in the UPM Annual report within Other financial information differs from Taxonomy-CapEx as it does not include additions to forest assets and leased assets. OpEx UPM has included in OpEx, as defined in Disclosures Delegated Act, research and development costs as accounted for in accordance IAS 38 Intangible assets, short term lease expenses as accounted for in accordance IFRS 16 Leases, and costs of day-to-day servicing (i.e., repairs and maintenance) of property, plant and equipment as accounted for in accordance IAS 16. Costs of day-to-day servicing of property, plant and equipment include direct salaries of maintenance personnel, maintenance materials and maintenance services outsourced. In addition, as UPM owns a significant amount of forest assets, it considers forest management and support services as day-to-day servicing of assets as defined in EU Disclosures Delegated Act. OpEx is included in consolidated income statement line item Costs and expenses, refer Note 2.3. Operating expenses and other operating income. Research and development costs included in Taxonomy-eligible OpEx relate to technologies and products dedicated to the reduction of GHG emissions. These costs relate to Taxonomy-eligible activities 1.3, 3.6 and 4.13 and include mainly new biochemicals biorefinery and next generation biofuels refinery R&D costs. Day-to-day servicing of property, plant and equipment included in Taxonomy-eligible OpEx includes maintenance costs of hydropower and biofuels production facilities and costs related to combined heat power plants and leased vessels. Costs of day-to-day servicing of forest assets included in Taxonomy-eligible OpEx relate to forestry infrastructure maintenance, forest fire fighting, protection and environmental activities whereas forest regeneration costs, e.g., planting, growing of seedlings and operation of nurseries, are included in CapEx. All the above-mentioned Taxonomy-eligible OpEx apart from the costs related to leased vessels are also Taxonomy-aligned.

Nuclear and Gas related activities UPM has reported separately its activities related to Nuclear and Gas as defined in the Complementary Climate Delegated Act (2022/1214). The assessment is based on the comprehensive study made by Teollisuuden Voima Oyj (TVO) which is in control of the nuclear operations where UPM has shareholdings via Pohjolan Voima Oyj (PVO), refer to Note 4.3 Energy shareholdings. Taxonomy-eligible turnover from nuclear related activities includes UPM's sales to external customers related to existing nuclear power plants (Olkiluoto 1 & 2, activity 4.28) and the new constructed power plant (Olkiluoto 3, activity 4.27) which is in the test production phase. Taxonomy-eligible OpEx in activity 4.27 includes, as defined in Disclosures Delegated Act, UPM's share of day-to-day servicing costs related to property, plant and equipment in the existing nuclear power plants Olkiluoto 1 & 2. UPM is not reporting any CapEx related to the nuclear activities as due to the nature of its shareholding ownership in PVO, investments related nuclear are not included in the total UPM's Capital expenditure as presented in the UPM Annual report. UPM did not recognise any gas related activities as defined in the Disclosures and Complementary Climate Delegated Act. All the reported nuclear activities and respective KPIs are both Taxonomy-eligible and Taxonomy-aligned.

KEY PERFORMANCE INDICATOR

TOPIC

MANAGEMENT

2022 RESULTS

Governance/ Anti- corruption

Corruption related risks are identified and assessed in connection with the company’s risk management process. These risks are managed and mitigated by training, communication, due diligence procedures, audits and practical guidelines specifically targeted at anti-corruption and anti bribery. UPM Code of Conduct training is mandatory for all employees and anti-bribery training to all salaried employees.

100% coverage of participation in UPM Code of Conduct training (continuous)

97% (98%) of active employees completed the new training for the UPM Code of Conduct since September 2022.

Human rights UPM is committed to respecting human rights based on its Code of Conduct. UPM has a process for assessing human rights at UPM site level, including community relations and local sourcing, as well as for risk assessments and audits for suppliers.

Continuous supplier auditing based on systematic risk assessment practices

121 (124) supplier audits were conducted based on identified risks, including human rights, social and environmental topics. In addition, about 360 (300) contractor reviews with focus on working conditions were carried out. 88% (86%) of supplier spend covered by UPM Supplier and Third-Party Code.

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. These supplier requirements are defined in the UPM Supplier and Third Party Code. UPM continuously develops leadership capabilities, management teams and working environments. UPM measures work environments, team work and leadership with an annual engagement survey. UPM’s global leadership development portfolio develops capabilities to lead oneself, lead people and lead business. Programmes address, e.g., inspiring and purposeful leadership, coaching, conversation and feedback skills, resilience and leading in complexity. UPM has a systematic process for goal setting and development planning for all employees globally to ensure high performance and continuous professional development. UPM has a comprehensive safety management system which promotes a proactive and engaging safety culture. UPM uses means such as safety audits and reporting on safety-related near misses and safety observations. UPM wants to develop organisational culture and local workplace to ensure an inclusive and diverse working environment. UPM has committed to, and promotes, diversity and inclusion in its policies. UPM reviews the diversity status of all its businesses and functions regularly. The composition of UPM key management teams and inclusiveness is discussed and development actions planned and implemented.

80% of total supplier spend covered by UPM Supplier and Third Party Code (continuous)

Responsible leadership

Employee engagement clearly above benchmark by 2030

In the Employee Engagement Survey average score of 70 (68). This is 5 (9) points below the global external benchmark.

Learning and development

Goal setting discussions are held and development plans created for employees, completion rate 100% by 2030 No fatalities Total recordable injury frequency (TRIF) <2 by 2030, including contractors UPM is among top 10% companies by 2030 on employees’ sense of belonging at UPM

83% (88%) of employees had completed individual goal settings or annual discussions. 58% (70%) had a development plan documented. 3 (0) fatal accidents, 5 (3) serious accidents TRIF was 6.4 (6.3) for UPM workforce and 5.9 (7.2) including contractors. In the Employee Engagement Survey, question about belonging average score of 68 (67). This is 12 (13) points below the benchmark of top 10% companies.

Safe and healthy working environment Diversity and inclusion

Fair rewarding UPM’s rewarding and recognition philosophy is to reward high performance. We aim to ensure fair, equitable and competitive rewarding for all employees. In addition to competitive, robust and performance based rewarding practices, we have yearly review processes ensuring the gender pay equity and employees’ pay meeting at least a living wage locally. UPM ensures that employees have sufficient information to understand what their rewarding comprises and how they can influence on its development.

Ensure gender pay equity for all employees by implementing yearly review process to identify and close unexplained pay gaps

Company-wide review done in 2022 and pay adjustments implemented to close identified statistically significant unexplained gaps related to gender.

Product stewardship

Ecolabels help customers make responsible choices and provide stakeholders with important information. Third-party verified environmental certificates and labels tell customers about the environmental performance of our products. UPM favours the use of renewable and other carbon-neutral energy sources and strives to continuously improve its energy efficiency across all its operations. Strengthened targets for scope 1 and 2 to be in line with the commitment to Science Based Targets and 1.5° pledge. UPM's goal is to minimise the impact of its operations on water resources, safeguard the natural water cycle in forests, and maintain the functioning of aquatic ecosystems.

All applicable products eligible for ecolabelling by 2030

87% (84%) of UPM sales were eligible for ecolabelling.

Climate

Fossil CO 2 emissions from its own combustion and purchased electricity (Scope 1 and 2) reduced by 65% by 2030 (compared to 2015) Wastewater volume reduced by 30% by 2030 (compared to 2008)

Fossil CO 2 emissions reduced by 34% compared to 2015 and 11% compared to 2021.

Water

13% reduction in wastewater volume achieved since 2008 for the UPM average product.