UPM Annual Report 2022

RESPONSIBILITY

UPM

BEYOND FOSSILS

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2022

ENSURING A RESPONSIBLE SUPPLY CHAIN CREATING VALUE FOR PEOPLE AND SOCIETY

risks through automated screening and support businesses in ethical and prudent decision-making. Effective third-party man agement plays an essential role in securing business continuity and compliance. With regard to responsibility risks, we have implemented a new high sustainability risk supplier model in 2022. The evaluation is based on the country of origin, sourced material or service and the UPM supply chain ESG risk register. The register is updated annually and holds UPM’s view on company and business area relevant risks on people and environment. We apply the model to our suppliers regardless of the business unit, country of operation or sup plier spend. We also use EcoVadis and other assessments, supplier audits and joint de velopment plans to carry out more detailed evaluations of suppliers’ activities. If any non-conformities are identified, the supplier is required to take corrective measures. We monitor the implementation of these measures and provide support for improving the suppliers’ operations if need ed. However, some contracts may have to be discontinued due to insufficient measures or the seriousness of UPM’s findings. In 2022, we started to renew our Re sponsible Sourcing Framework with the aim of improving supply chain resilience and risk management. The corresponding trainings will begin in 2023. Extensive supplier audits Supplier audits are one of the most compre hensive tools to evaluate a supplier’s perfor mance, manage supplier risk and guarantee responsible operations in our supply chain. In 2022, our own trained auditors and external auditors carried out 121 (124) audits in Europe, Asia and the Americas, based on identified risks that covered human rights, social and environmental matters. We also carried out 360 (300) contractor reviews with a focus on working conditions. In 2022, we updated our supplier assessment criteria and the supplier audit questionnaire. We identified approximately 300 re sponsibility-related findings in our audits in 2022. None of the findings were critical. The findings are followed-up with correc tive action plans and further audits in close collaboration with our suppliers. We continue to collaborate with Together for Sustainability (TfS), a chemical industry

initiative. The collaboration improves trans parency and the efficiency of our assessments and audits. As a member, we have access to a wider pool of EcoVadis assessments and TfS audit reports. In 2022, we conducted around 520 (340) environmental and social risk assessments with EcoVadis. Safety first on page 70 Embedding human rights in everything we do on page 72

Strict requirements for wood-based materials All the wood we use is legally logged and comes from sustainably managed forests. We don’t use wood harvested from tropical rainforests or accept wood from plantations that have been established by converting natural forests. We don’t accept wood from regions that do not respect the rights of indigenous peoples. In addition to third-party certification, we also verify that the wood supplied to our mills is compliant with the EU Timber Reg ulation, the US Lacey Act and other regional requirements. Our wood, pulp and recovered paper suppliers are continuously evaluated in regard to environmental issues, social responsibility and their involvement in the local community. These raw materials are either FSC™ (N003385) and PEFC (PEFC/02-44-41) certified or comply with the FSC Controlled Wood standard or Due Diligence requirements for PEFC. We source all wood assortments to en sure optimal utilisation of this valuable raw material. In 2022, we purchased 19.8 (26.0) million cubic metres of wood worldwide. After the start of Russia’s war in Ukraine, we suspended the purchasing of wood in Russia (page 83). We are also one of the world’s leading users of recovered paper for the production of graphic paper. In 2022, we used approxi mately 1.4 (1.7) million tonnes of recovered paper. Recycled fibre accounted for 24% (22%) of all fibre raw materials used in our paper production. We buy approximately 1.7 million tonnes of pulp from external suppliers annually. Identification and evaluation of supplier risks We identify our supply chains with a high risk of potential negative environmen tal and social impacts. Collecting and analysing data on the environmental and social responsibility of our key suppliers is an integral part of our supplier risk and performance evaluation. We create devel opment plans together with our suppliers based on these analyses. We also monitor the performance of our other raw material suppliers through various surveys. With the counterparty risk management tool, we can evaluate counterparty-related

An effective and responsible supply chain guarantees the availability of sustainably produced, cost-competitive and innovative materials and services globally in all market situations.

Committed to compliance on page 74 Climate-positive forestry on page 82

Taking climate action with energy on page 86 Advancing a circular bioeconomy on page 92 Sustainable product lifecycle on page 96 www.upm.com/about-us/for-suppliers

Suppliers are an essential part of our value chain. We buy products, materials and services from about 20,000 B2B suppliers globally. Our sourcing network includes suppliers from start-up compa nies to international corporations. We also buy wood from some 16,000 private forest owners. The main sourcing categories are fibre, chemicals, other raw materials, indirect purchases, logistics and energy. When selecting suppliers, our most important criteria include reliable long-term deliver ies, product and service quality, suppliers’ financial stability, social and environmen tal responsibility, product safety and the product's carbon footprint. Suppliers also play a significant role in UPM’s transformation and business-spe cific growth projects. Supplier manage ment, together with the required compe tencies and digitalisation, boost product development and the commercialisation of new products in the long term. Circumstances remain exceptional In 2022, our focus was on securing the availability of services and products in the highly uncertain and volatile busi ness environment, impacted by high inflation and rapidly rising interest rates. The global economy faced restrictions due to the availability of raw materials and cost increases in many supply chains that have been under increasing pressure since the start of the COVID-19 pandemic. How ever, we were able to successfully protect our business continuity despite the tight global logistics and supply chains.

Reducing CO 2 emissions in the value chain A significant part of UPM’s carbon footprint is created in the value chain, where our most significant emissions sources are pur chased goods and services and logistics. We focus on reducing emissions from selected raw materials such as chemical pulp, pig ments, chemicals and paper as well as from logistics. In the future, climate impacts will become an important factor when selecting suppliers. Our goal is to reduce the CO 2 emissions in the value chain by 30% from 2018 levels by 2030. We started a group-wide –30 by 30 programme to manage supply chain emissions in 2022 (page 89). We aim to reach this goal in close co-operation with our partners and suppliers. What we expect from our suppliers We are committed to responsible sourcing practices, as per our Code of Conduct. The minimum requirements for suppliers are defined in the UPM Supplier and Third-Par ty Code. We expect suppliers to promote the same requirements in their own supply chains. In 2022, 88% (86%) of our total spend was with suppliers who are commit ted to the Code. In addition to the UPM Supplier and Third-Party Code, we apply various addi tional requirements to wood, chemicals, pulp, packaging materials and logistics. The requirements refer to environmental performance, social responsibility and reporting. Contractors working at our production sites must comply with UPM’s safety requirements.

IMPACT • Providing more sustainable choices to customers and consumers • Securing the resiliency of our supply chain • Enhancing positive brand perception for both UPM and our customers TARGETS • We are a trustworthy and future-oriented partner • We ensure the efficiency, compliance and responsibility of the supply chain • We create long-term business opportunities in the value chain in collaboration with our partners OUR WAY • Focus on long-term, co-operative supplier relationships and promoting responsible practices • Clear requirements and expectations for our suppliers • Continuous monitoring and development of our suppliers’ performance • Process development with key suppliers • Focus on 2030 responsibility targets

Spend covered by UPM Supplier Code %

100

90

80

70

60

50

18

19 20

21

Target

22

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

TARGETS 2030

88% achieved

UPM’s external purchasing spend 2022

Energy 14% Indirect materials and services 11% Logistics 17% Fibres 28%

UPM’S FIVE LARGEST SUPPLIERS 2022 1. Suzano, a pulp supplier, Brazil 2. Lechwerke AG, an energy supplier, Germany 3. Bayerngas, an energy supplier, Germany 4. Stora Enso, a pulp supplier, Finland 5. Pohjolan Voima, an energy supplier, Finland

Raw materials 30%

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022