UPM Annual Report 2023

BEYOND FOSSILS

UPM

BUSINESSES

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

OUR FOCUS IN 2023

INNOVATING CLIMATE POSITIVE PRODUCTS

UPM’s three Biofore Base research centres accel erate the development of bio-based products. 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. In 2023, we continued to strengthen our infra structure in Germany, Finland, Switzerland and Uruguay. In Germany, we intensified biochemical Our biochemicals refinery 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 accel erate product development, UPM Biochemicals announced several partnerships in 2023. Co-creating products with customers and technol ogy partners continued. For example, we introduced the world’s first fleece jacket containing 30% of wood-based polyester as well as fully fibre-based heat-sealable packaging and a bio-attributed jar for a moisturiser. 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 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 develop ment is essential for the entire organisation, including both technical capabilities and ways of working.

R&D and piloting in several of our laboratories in connection with the upcoming biochemicals refinery, supported by the acquisition of Suncoal Industries (page 54). 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 collabora tion with our forestry research centre specialising in eucalyptus plantations. UPM Biomedicals opened a new cell laboratory in Basel, Switzerland. The step from mainly fossil-based plastic pack aging 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 prod ucts and labels for example. We are also looking into the opportunities provided by green hydrogen and biogenic CO 2 (page 91). 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. lifecycle assessment data, both of which are incor porated 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 avail able on the market. We also continued to conduct biodegradability and recyclability testing. product reuse with UPM Biocomposites and UPM Raflatac. Our approach applies lifecycle thinking and

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 duration of their lifecycle and this is extended when recycled multiple times. We co-create new solutions in collaboration with our business es, technology partners and customers. Innovation and R&D programmes are essential in the development of new prod ucts and technologies. Research and devel opment expenses cover the development of new technologies, businesses and process es. In 2023, we spent EUR 538 million (EUR 414) million) on research and development, which accounted for 23.7% (81.5%) of oper ating 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 busi nesses, transformative business prospects and digitalisation projects. The patents, trademarks and intellectu al property rights protecting our innova tions support the journey from innovation to business. We have more 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.

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

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 recy cling rate of fibre-based packaging to 90% by 2030. We are also a member of EURO PEN, the European association that strives towards achieving carbon neutrality in the packaging value chain. We want to take part in the develop ments that reduce greenhouse gas emis sions. In 2023, we actively participated in Hydrogen Cluster Finland to create new technologies, business opportunities and climate benefits throughout the network.

IMPLEMENTING A SUSTAINABLE PRODUCT DESIGN CONCEPT

TARGETS • Replacing fossil raw materials with renewable alternatives

• 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

DEVELOPING R&D COMPETENCES

What the world needs on page 10 Sustainable product lifecycle on page 98

28

29

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023