UPM Annual Report 2022

BUSINESSES

UPM

BEYOND FOSSILS

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2022

RAMPING UP NEW BUSINESS UPM BIOREFINING - UPM BIOCHEMICALS The world’s first industrial-scale wood-based biochemicals biorefinery in Leuna is rapidly taking shape, while a robust business platform is almost complete and new customer partnerships confirm a promising commercial future.

OUR STRENGTHS • Unique and innovative technology concept • Sustainable, certified feedstock • High quality products for plastics, textile and rubber applications, as well as industrial liquids, with a sustainability that sets us apart • Very positive brand image for many consumer products in packaging, automotive, textiles and other industrial segments • A robust, scalable business platform

OUR DIRECTION • Increase expectations for sustainable solutions and create conditions for market progress • Establish biochemicals as a widely accepted category of renewable solutions • Consolidate understanding of the concept of climate-positive forestry and achieve buy-in to its execution • Open new end-use markets for UPM, with large growth potential for the future • Successfully launch the business to scale Manufacturers in multiple sectors must reduce their carbon footprints urgently. UPM’s new generation of biochemicals made from hardwood, which is sourced from sustainably managed forests, will enable brands to redefine their emission reduction, significantly reduce their Scope 3 emissions and switch out of fossil-based chemical feedstocks for good. Our inno vative biochemicals will show the way for the transition of the chemicals industry towards a circular bioeconomy. The EUR 750 million investment at Leuna is rapidly taking shape, in anticipa tion for start-up by the end of 2023. The biorefinery will be the first industrial-scale facility of its type ever built, requiring precision in every detail of planning and construction. The biorefinery will convert solid wood into next generation biochemicals: bio-monoethylene glycol (BioMEG) and renewable functional fillers. In addition, the biorefinery will produce bio-monopro pylene glycols (BioMPG) and industrial sugars.

PLANNED ACTIONS FOR 2023 • Site completion and gradual start-up of the biorefinery • Accelerate commercial partnerships in readiness for production • Continue to optimise the performance of the product portfolio, further reducing its carbon footprint as we strive for carbon negative • Strengthen the sourcing network for our sustainably sourced feedstock

CASE

PRODUCT COLLABORATION WITH DONGSUNG CHEMICAL COMPANY

A world beyond fossils took a significant step forward in 2022, as we entered into commercial partnership with the South Korean company Dongsung Chemicals. To gether, we are aiming to bring sustainable biochemicals to global markets. The initial focus for Dongsung is to replace fossil-based mono-ethylene glycols, used to make shoe soles for global sports brands, with UPM BioPura TM . For manufacturers like Dongsung, a leading Asian provider of polymers for the shoe industry, UPM’s wood based biochemicals present an opportunity to advance their net zero commitments and to achieve a competitive advantage. Renewable materials in footwear are already being commercialised and demand will continue to increase further in the fashion and shoe industry. Whilst sports shoes are the first objective, UPM and Dongsung intend to extend their collaboration into other sectors, including automotive interior materials and adhesives. The rising demand of electric vehicles is driving a consumer expectation that, not only should it deliver zero emissions, but the whole vehicle should be made from environmentally sound materials.

After confirming in January 2022 that the completion of the biorefinery would be delayed, we successfully navigated the challenges stemming from the global supply chain disruptions. Construction at the biorefinery-site in Leuna continues with visible progress. Major overground structures have been emerging. The erection of pipe racks, casings, tanks and the substation buildings is progressing with good speed. Also, large parts of the reactors, furnaces and columns have been delivered and are stored on site. Along with building the facility, we are preparing the business to become fully oper ational. We have hired and started training the operations personnel and established reliable supply chains. We have also extended our feedstock sourcing network, resulting in the first deliv eries of wood on site in November. This has enabled us to begin testing our wood handling and processing operations. The networks we have built with partners in the forest value chain have helped us to address the benefits of wood use in wider policy discussions.

Commercialisation on the way We took important steps to bring our products to global markets. We presented our lignin-based Renewable Functional Filler (RFF) solutions, UPM Biomotion™, at the world’s biggest rubber industry trade fair (DKT IRC) in Nuremberg and further strengthened our distributor network. We were ranked by the European Rubber Journal as the most important sustainabil ity project in the elastomers and rubber industry. Our renewable monoethylene glycols (bMEG), UPM BioPura™, were shortlisted by Packaging Europe magazine as one of the standout innovations for its 2022 Sustainability Awards. We also announced commercial part nerships for UPM BioPura that will trans form the carbon footprint of value chains in different industries. For manufactur ers like Dongsung Chemical (a supplier to global footwear brands) and Haertol (a leading engine and battery coolant producer), this is an opportunity to both advance their net zero commitments and achieve a competitive advantage in their

Our innovative biochemicals lead the way in transforming the chemical industry.

plications for biochemicals. We are exploring opportunities to address needs in additional chemical value chains, utilising side-stream products or based on the technological plat form we are now completing. A heightened focus on reduced carbon emissions means the demand for renew able materials will continue to increase. We are actively working to optimise processes and material streams to further reduce emissions, seeking carbon neutrality - or even carbon negativity - of the products produced in our biorefinery. The sustainable sourcing of biomass is a vital factor for us and our commercial partners. The wood used to produce UPM’s renewable biochemicals is 100% certified and sourced from regional beechwood forests around Leuna, conserving biodiver sity and natural ecosystems. All the wood used is fully traceable and supported by a verified third-party chain of custody.

global markets, where demand for sustain able products is increasing. In 2022, we staffed our process and appli cation development laboratories, ensuring high quality, continuous process optimisation and ongoing research and development activi ties around our portfolio of biochemicals. Studying future applications While fully focusing on completing the proj ect and ramping up the business, we have also built the fundamentals for further growth in Biochemicals. We have brought together a team of experts to assess and study future ap

www.upmbiochemicals.com

www.idongsung.com

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022