UPM Annual Report 2022

BEYOND FOSSILS

UPM

BUSINESSES

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2022

OUR FOCUS IN 2022

IMPACT • Respond to global megatrends and growing demand for bio-based products • Reduce the use of fossil raw materials • Provide more sustainable choices for customers and consumers

IMPLEMENTING A SUSTAINABLE PRODUCT DESIGN CONCEPT

Our 2030 responsibility targets and contribution to the UN SDGs are integrated into our R&D activities and product development. We want our products to create value for our stakeholders during the whole product lifecycle. We started to implement the sustainable prod uct design concept and worked on cases for new product development to form solid sustainability value propositions. At UPM Specialty Papers, the concept was successfully used from development to the new packaging paper launch. The new Our biochemicals refinery under construction in Leuna, Germany, will enable a switch from fossil raw materials to wood-based alternatives in textiles, plastics, PET bottles, packaging and pharma. We introduced UPM BioPura™, renew able monoethylene glycols (bMEG) produced from carbon-neutral feedstocks. We are in the basic engineering phase of a next-generation biofuels biorefinery. This biorefin ery would produce high-quality renewable fuels, UPM’s four Biofore Base research centres accel erate the development of bio-based products. The new Leuna Biofore Base in Germany works in connection with the upcoming biochemicals refinery and specialises in developing new molecular bioproducts. The centres focus on research, piloting and analytics enabling seamless collaboration with customers, value chain partners and research organisations such as universities. They work closely with UPM’s mills, businesses and business-specific research centres in various countries. R&D supports our growth and responsibility targets globally and enhances technology-triggered business opportunities and protects performance in existing businesses. The strong focus is on the growth businesses and close collaboration with customers and production. We continuously develop our competences for the future needs of our businesses. Competence development is essential for the entire organisation, including both technical capabilities and ways of

concept will be adopted gradually in all of our businesses. Our approach applies lifecycle thinking and lifecycle assessment data, both of which are incor porated in sustainable product design practices. We use different sustainability tools, such as Life Cycle Assessments (LCAs), and biodegradability and recyclability testing in product development. LCAs are a good tool to support businesses in sustainability communication. including sustainable jet fuel. The products would significantly reduce the carbon footprint of road transport and aviation, as well as replace fossil raw materials for chemicals and plastic with alternatives. We are examining new ways to utilise renew able fibre-based materials for textiles, nonwovens, hygiene products, labels and flexible packaging for example. We also look into opportunities provided by green hydrogen and biogenic CO 2 . UPM’s first forestry research centre specialising in eucalyptus plantations began operations in Pa ysandú, Uruguay (page 41). The centre’s research work is mainly focused on developing genetic materials with high productivity, optimal wood quality and tolerance to the pests and diseases that can affect plantations. The new centre contains state-of-the-art laboratories and equipment, as well as specific greenhouses and nurseries for various research and development purposes. working. We focused especially on our digi and data and chemistry capabilities. We also started an apprenticeship training to educate new laboratory technicians and piloting plant operators for our growing needs in these areas. In addition to internal competence development, we collaborate with uni versities and vocational schools to enhance mutual learning, for example through the Aalto Internation al Talent mentoring programme.

TARGETS • Replacing fossil raw materials with renewable alternatives

What the world needs on page 10 Sustainable product lifecycle on page 96 Report of the Board of Directors on page 120 www.upm.com/innovation trality of the packaging value chain. We want to take part in the develop ments that reduce greenhouse gas emis sions. In 2022, we actively participated in Hydrogen Cluster Finland, the EU’s Clean Hydrogen Alliance and participated in the Roundtable on Clean Hydrogen in industri al applications. (CEFIC). We are a part of the Renewable Carbon Initiative (RCI) and a member of the 4evergreen alliance, an initiative created by CEPI (Confederation of European Paper Industries) to raise the overall recycling rate of fibre-based packaging to 90% by 2030. We also joined EUROPEN, the European association that strives towards carbon neu • Accelerating the commercialisation of bio based solutions into viable industrial-scale operations • Creating new business and a competitive advantage OUR WAY • In-depth expertise in forest biomass processing • Responsibility and circular bioeconomy • Sustainable product design • Technological development and intellectual property rights • Innovation culture, current and future competences • Extensive partner network

INNOVATIVE CLIMATE POSITIVE PRODUCTS

INNOVATING FOR THE FUTURE We innovate climate-positive products and turn them into growing businesses.

EXPANDING R&D INFRASTRUCTURE

Our products offer solutions to mitigating climate change as they replace fossil raw materials with renewable alternatives. The products store carbon for the entire dura tion of their lifecycle, and extended when recycled multiple times. New solutions are developed in collaboration with our busi nesses, technology partners and customers. Innovation and R&D programmes are essential in the development of new products and technologies. Research and development expenses cover the develop ment of new technologies, businesses and processes. In 2022, UPM spent EUR 414 million (EUR 266) million) on research and development, which accounted for 81.5% (21.3%) of UPM’s operating cash flow. The patents, trademarks and intellectual property rights protecting our innovations support the journey from innovation to business. We have more than 3,000 patents

and patent applications, and nearly 1,400 trademarks globally. Licensing innovations and technolo gies provides an excellent basis for value creation with customers and technology partners. As an example, at the end of 2022, UPM Biochemicals owned 592 patents and patent applications and another 433 pat ents and patent applications were held by partners, covering technology and products throughout the value chain. Extensive partner network Our close-knit global partner network includes customers, universities, research organisations, suppliers and start-up compa nies. Collaboration speeds up the develop ment and launch of new business solutions. Our network includes the Circular Bio based Europe Joint Undertaking (BBI) and the European Chemical Industry Council

DEVELOPING R&D COMPETENCES

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022