UPM Annual Report 2023

ACCOUNTS FOR 2023

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Research and development Innovating for the future

assets. Refer to line items Capital expenditure, Additions to forest assets and Acquisition of businesses and subsidiaries, net of cash acquired in Consolidated cash flow statement and Note 5.2. Leases in UPM consolidated financial statements 2023. 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, acquisition of businesses and subsidiaries and leased assets. In 2023 and 2022 1) , the numerator consists of the following categories of Taxonomy-aligned CapEx: 1.1. “Afforestation” CapEx includes purchased and leased land for afforestation. 1.3. “Forest management” CapEx includes capitalised forest regeneration costs. 3.6 “Manufacture of other low carbon technologies” CapEx relates to investment in new-generation biorefinery in Leuna, Germany and intangible rights related to UPM Biochemicals acquisition of SunCoal Industries GmbH, a German-based company that developed a unique technology portfolio to produce performance products such as functional fillers from renewable raw materials. The group is reporting all CapEx related to ongoing investment in new-generation biorefinery as Taxonomy-aligned CapEx. 4.13. “Manufacture of biogas and biofuels for use in transport” CapEx includes refurbishment of Lappeenranta biorefinery. 4.5. “Electricity generation from hydropower” CapEx includes refurbishment of hydropower plants. 4.20. “Cogeneration of heat/cool and power from bioenergy” includes refurbishment of related power plants. CapEx related to investments on leased vessels (6.10 “Sea and coastal freight water transport, vessels for port operations and auxiliary activities”) in 2023 and 2022 is Taxonomy-eligible but not Taxonomy aligned. 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. In 2023 and 2022 1) , the numerator consists of the following categories of Taxonomy-aligned OpEx: 1.3. “Forest management” OpEx includes 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. 3.6 “Manufacture of other low carbon technologies” includes R&D costs related to biochemicals biorefinery. 4.5. “Electricity generation from hydropower” OpEx includes maintenance costs of hydropower plants. 4.13. “Manufacture of biogas and biofuels for use in transport” OpEx includes maintenance costs of biofuels production facility in Lappeenranta and next generation biofuels refinery R&D costs.

partners and research organisations such as universities. They work closely with UPM’s mills, businesses and business-specific research centres in various countries. In 2023, we continued to strengthen our infrastructure in Germany, Finland, Switzerland and Uruguay. In Germany, we intensified biochemical R&D and piloting in several of our laboratories in connection with the upcoming biochemicals refinery, supported by the acquisition of Suncoal Industries. In Finland, we expanded our research centre in Lappeenranta with the main focus on developing biomolecular businesses. In Uruguay, we focused on piloting future pulp end-uses in close collaboration with our forestry research centre specialising in eucalyptus plantations. UPM Biomedicals opened a new cell laboratory in Basel, Switzerland. Implementing 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 carried out screenings in the early stages of product development using a tool we developed to map impacts on the SDGs. Based on the feedback we obtained, we continued to develop the tool by reviewing and adapting the questions included in the tool. The concept was also tested to investigate product reuse with UPM Biocomposites and UPM Raflatac. Our approach applies lifecycle thinking and lifecycle assessment data, both of which are incorporated in sustainable product design practices. Life Cycle Assessment (LCA) and carbon footprint are key tools in our concept. They provide credible environmental data over the lifecycle of products under development and for products already available on the market. We also continued to conduct biodegradability and recyclability testing. Developing R&D competences R&D supports our growth and responsibility targets globally, enhances technology-triggered business opportunities and protects performance in existing businesses. Strong focus is placed 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 working. We focused especially on chemical safety and behavioural safety at work, noting both safe and at-risk behaviours. Our R&D and piloting teams have also become more international thanks to successful recruitments and onboarding. In addition to internal competence development, we collaborate with universities and vocational schools to enhance mutual learning. UPM Biofuels - Green growth with advances biofuels Our renewable and sustainable biofuels help to mitigate climate change. Advanced biofuels reduce greenhouse gas emissions by more than 80% compared to fossil fuels. In addition to decarbonising road transportation, we help to defossilise various other industries by offering wood-based naphtha. Naphtha is the major raw material for most chemicals and plastics. UPM BioVerno™ naphtha is a drop-in solution for replacing fossil-based naphtha allowing the production of sustainable chemicals and plastics. Our strategy is based on proprietary technology and UPM’s integrated feedstocks.

4.20. “Cogeneration of heat/cool and power from bioenergy” includes maintenance of related power plants. OpEx related to investments on leased vessels (6.10 “Sea and coastal freight water transport, vessels for port operations and auxiliary activities”) in 2023 and 2022 is Taxonomy-eligible but not Taxonomy aligned. Nuclear and Gas related activitie s UPM has reported separately its activities related to Nuclear and Gas as defined in the Complementary Climate Delegated Act (2022/1214). Taxonomy-eligible turnover from nuclear related activities includes UPM's electricity sales to external customers related to nuclear power plants (Olkiluoto 3 under activity 4.27 and Olkiluoto 1and 2 under activity 4.28). Taxonomy-eligible OpEx in activities 4.27 and 4.28 includes, as defined in Disclosures Delegated Act, UPM's share of day to-day servicing costs related to property, plant and equipment in the new and existing nuclear power plants. 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, refer Note 4.3 Energy shareholdings . For 2023, UPM identified a potential new activity 4.29. “Electricity generation from fossil gaseous fuels” related to new Nordland CHP plant in Germany. The reportable amounts for the activity are currently minor and have no impact on the KPIs, hence, UPM considered to report it as non-eligible. All the reported nuclear activities and respective KPIs are both Taxonomy-eligible and Taxonomy-aligned. 1) UPM reclassified its R&D activities previously reported within activity 9.1. Close to market research, development, and innovation to be reported as a part of activities 3.6 “Manufacture of other low carbon technologies” and 4.13 “Manufacture of biogas and biofuels for use in transport and of bioliquids”. Reclassification regarding the activities did not have an impact on the alignment interpretation of the items. The change has also been incorporated into comparison figures.

Innovation and R&D programmes are essential in the development of new products and technologies. Research and development expenses cover the development of new technologies, businesses and processes. In 2023, we spent EUR 538 million (EUR 414) million) on research and development, which accounted for 23.7% (81.5%) of operating cash flow. In addition to direct R&D expenditure of EUR 66 (55) million, the figure includes negative operating cash flow and capital expenditure in developing businesses, transformative business prospects and digitalisation projects. The patents, trademarks and intellectual property rights protecting our innovations support the journey from innovation to business. We have nearly 3,600 patents and patent applications, and more than 1,700 trademarks globally. Licensing innovations and technologies provides an excellent basis for value creation with customers and technology partners. Extensive partner network Our close-knit global partner network includes customers, universities, research organisations, suppliers and start-up companies. Collaboration speeds up the development and launch of new business solutions. Our network includes the Circular Bio-based Europe Joint Undertaking (CBE JU), the European Chemical Industry Council (Cefic) and the Renewable Carbon Initiative (RCI). We are a member of the 4evergreen alliance, an initiative created by the Confederation of European Paper Industries (Cepi) to raise the overall recycling rate of fibre-based packaging to 90% by 2030. We are also a member of EUROPEN, the European association that strives towards achieving carbon neutrality in the packaging value chain. We want to take part in the developments that reduce greenhouse gas emissions. In 2023, we actively participated in Hydrogen Cluster Finland to create new technologies, business opportunities and climate benefits throughout the network. Our focus in 2023 Innovating climate-positive products Our biochemicals refinery under construction in Leuna, Germany, will enable us to switch from fossil raw materials to wood-based alternatives in textiles, plastics, PET bottles, packaging and pharma. To accelerate product development, UPM Biochemicals announced several partnerships in 2023. Co-creating products with customers and technology partners continued. For example, we introduced the world’s first fleece jacket containing 30% wood-based polyester as well as fully fibre-based heat sealable packaging and a bio-attributed jar for a moisturiser. The step from mainly fossil-based plastic packaging to biomaterials requires R&D in numerous areas. Our work focused on packaging paper and pulp value chains, including pulp side streams such as lignin. We led a collaboration project on finding alternatives for fossil-based binders and coatings. We are examining new ways to utilise renewable biomaterials for textiles, nonwovens, hygiene products and labels for example. We are also looking into the opportunities provided by green hydrogen and biogenic CO 2 . Expanding R&D infrastructure UPM’s three Biofore Base research centres accelerate the development of bio-based products. The centres focus on research, piloting and analytics, enabling seamless collaboration with customers, value chain

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