UPM Annual Report 2022

RESPONSIBILITY

UPM

BEYOND FOSSILS

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2022

ELECTRICITY GENERATION THROUGH OWN POWER PLANTS AND SHAREHOLDINGS TWh 2022 2021 Mill CHP 4.3 5.5 Hydropower 3.0 3.5 Nuclear power 5.4 4.7 Thermal power 0.5 0.3 Total 13.2 14.0

FUEL AND HEAT RESOURCES USED TWh

the UK, we will invest in vacuum blowers in 2023 to replace pump systems, which will significantly reduce the site’s electricity use. UPM Timber will implement a new heat pump system at the UPM Korkeakoski sawmill in 2023. This will decrease SO 2 and NOx emissions as well as energy use. Sawn timber kilning is typically handled with heat generated from the wood bark, and the plant uses the waste heat generated during drying. UPM Plywood has started projects to re duce steam consumption and air emissions by preheating and improved heat recovery at the UPM Pellos plywood mill. As a result of our energy-saving invest ments and actions taken in 2022, we reduced our energy costs by EUR 8.5 million (1.7 mil lion), avoided emitting 34,900 (5,400) tonnes of CO 2 and achieved a 114,000 (33,000) MWh reduction in energy consumption. The annu al savings were EUR 9.5 million (1.9 million), 40,500 (6,100) tonnes of CO 2 and 126,000 (35,000) MWh of energy. Follow-up on our 2030 targets Our energy portfolio consists mostly of energy sources that do not cause fossil CO 2 emissions. In 2022, we decreased our fossil CO 2 emissions from energy generation (Scope 1) and purchased energy (Scope 2) by 11% compared to the previous year, which is in line with our 65% reduction target for 2030. The main reason for the reduction is the increased use of emission-free electrici ty at our pulp and paper mills in Finland. Due to the strike in Finland in early 2022

and Russia’s war in Ukraine, coal and peat usage increased by 3%, after a decrease of 9% in 2021. Our target is to stop using coal and peat for on-site energy generation by 2030. Currently, coal is the main fuel at the UPM Changshu paper mill in China, where alterna tives have not been available historically. Peat is used in Finland. In 2022, we achieved our target for acid ifying flue gases (NOx and SO 2 ). We did not reach our target of increasing energy efficien cy by 1% annually. However, an improvement of 0.3% was achieved compared to 2021. Collaboration with suppliers to reduce CO 2 emissions In addition to fossil CO 2 emissions from our own energy generation (Scope 1) and pur chased energy (Scope 2), we also evaluate the emissions from other indirect sources (Scope 3), such as purchased materials, transporta tion and the processing of sold products. We set a target to reduce the fossil CO 2 emission levels from materials and logistics by 30% by 2030 from 2018 levels. To reach this target we launched our -30 by 30 programme in 2022 (right). New and existing suppliers are required to provide data about the carbon footprint of goods and services provided to UPM. This includes all the relevant emissions from the supplier’s own upstream supply chain and operations. Almost 70% of our pigment supplies is already covered with primary CO 2 emissions data from suppliers, and almost 60% of our deliveries is calculat ed based on supplier data already.

CAPACITY TO GENERATE POWER THROUGH OWN POWER PLANTS AND SHAREHOLDINGS

Sources of UPM’s fossil CO  emissions

2022 2021

Black liquor

14.3

20.1

On-site energy generation 24%, 2.3 million t

Nominal MW

Bark and other biomass Heat recovered from TMP production Renewable fuels total

5.2

5.9

Hydropower Nuclear power Thermal power

729 588 154

Purchased energy 23%, 2.2 million t

0.6

0.8

Other indirect sources* 53%

20.1 26.8

Peat

0.6 0.4 6.3 0.9 2.5 0.2

0.5 0.4 7.2 0.5 2.5 0.3

UPM Energy in total

1,471

Purchased heat

Mill site combined heat and power (CHP) Mill site hydropower Mill site power generation in total

Natural gas

1,250

*Other indirect sources such as purchased materials, transportation or processing of sold products 53%, 5.0 million t

Oil

7

ELECTRICITY CONSUMPTION TWh

Coal

2022 2021

1,257 2,728

Fossil recovered fuel

Total

31.0 38.2

Total

9.7

11.7

Total UPM

Fossil CO 2 emissions

mio t

Fossil CO 2 emissions by country mio t

8

CASE

2.5

6

2.0

WE REDUCE EMISSIONS IN THE VALUE CHAIN

4

1.5

A significant part of the company's carbon footprint is created in the value chain, where UPM's most significant emissions sources are purchased goods and services and the logistics at the beginning and end of the supply chain. These emissions account for a third of our total carbon footprint. Our goal is to reduce the CO 2 emissions in the value chain by 30% from 2018 levels by 2030. We aim to reach this goal with the –30 by 30 programme in close co-op eration with our partners and suppliers. The first phase of the programme involves collecting emissions data from suppliers of goods and services. Using the information, we can determine an accurate baseline for the products and services that we procure from very different types of companies internationally. The quickest way to reduce emissions involves improving energy and operation al efficiency and making technological improvements. In the future, when selecting our suppliers and partners and developing our product portfolio, we will take into account the climate impacts of the products or services we purchase, as well as their quality, delivery time and price.

2

1.0

0.5

0

15 18 19

20 21 22

Target

0

CO 2 from on-site energy generation (Scope 1) CO 2 from purchased energy (Scope 2)

Germany

China

Finland

US

Uruguay

UK

Other

Scope 1 Scope 2

Fuel consumption by country TWh

14

CASE

12

10

COMPETITIVE ADVANTAGE IN THE DEVELOPING HYDROGEN ECONOMY

tricity and hydrogen with bio-based carbon in new commercial products. Together with our partners, we are in the process of actively assessing the opportunities in the hydrogen economy that our resources can provide. We have the assets, infrastructure and process know-how required to further develop the hydrogen economy.

UPM produces emission-free energy in the form of hydropower and, through shareholdings, nuclear power. We already use hydrogen in our industrial processes, particularly to produce advanced biofuels to be used in transport. We also have significant amounts of biogenic CO 2 available at the UPM pulp mills. This biogenic CO 2 will be a key resource to achieve a fully sustainable hydrogen economy in the future. UPM sees significant business opportunities in combining zero-emission elec

8

6

Green and emission-free hydrogen plays a key role in the EU’s plans to achieve climate goals, in crease energy self-sufficiency and reduce depen dence on fossil energy sources. The EU’s goal is to produce 10 million tonnes of domestic renewable green hydrogen in Europe and import the same amount. The aim of this is to replace natural gas, coal and oil in transport and industry.

4

2

0

Germany

China

Finland

US

Uruguay

UK

Other

Black liquor Peat

Natural gas Recovered fuel

Bark and other biomass Oil

Coal

www.upm.com/responsibility

88

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022