UPM Annual Report 2023

RESPONSIBILITY

UPM

BEYOND FOSSILS

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2023

SUSTAINABLE SUPPLY CHAIN PROGRAMME

ENSURING A RESPONSIBLE SUPPLY CHAIN CREATING VALUE FOR PEOPLE AND SOCIETY

We create a future beyond fossils - Together

ENVIRONMENT

SOCIAL

GOVERNANCE

ESG topics

Resources and circularity

Business ethics and values

Climate action

Labour and human rights

Health and safety

Responsible use of assets

Strategic focus

Biodiversity

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

Ethical behaviour and culture of integrity in the supply chain

Responsible use and management of assets in the supply chain

Climate change mitigation in the supply chain

Biodiversity protection in the supply chain

Responsible resource use in the supply chain

Decent work in the supply chain

Health, safety and security in the supply chain

AMBITION

cost competitiveness, product and service quality, suppliers’ financial stability, social and environmental responsibility, product safety and the product’s carbon footprint. Suppliers also play a significant role in UPM’s transformation and business-specific growth projects. Supplier management, to gether with the required competencies and digitalisation, boost product development and the commercialisation of new products. Sustainable supply chain programme For the first time in 2023, our responsible sourcing practices and priorities were formulated into a cohesive, over-arching sustainable supply chain programme. Each element entails clear instructions regard ing the relevant sourcing and supply chain management practices and implications at UPM, as well as tangible guidance, require ments and expectations for UPM’s suppli ers. Effective implementation is managed and tracked through our 2030 responsibili ty targets and performance indicators. COMPLIANCE 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-Party Code. We expect suppliers to promote the same requirements in their own supply chains. In 2023, 89% (88%) of our total spend was with suppliers who are committed to the Supplier and Third-Party Code. We also apply additional, category-spe cific requirements for example to wood, chemicals, pulp, packaging materials and logistics. The requirements refer to envi ronmental performance, social responsi bility and reporting. Contractors working

at our production sites must comply with UPM’s safety requirements. 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, we verify that the wood sup plied to our mills is compliant with applica ble timber and deforestation legislation and other regional requirements. Our wood, pulp and recovered paper suppliers are continuously evaluated with regard to environmental and social respon sibility 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 the optimal utilisation of this valuable raw material. We purchased 25.5 (19.8) million cubic metres of wood worldwide in 2023. We suspended the purchasing of wood in Russia after the start of Russia’s war in Ukraine. RISK MITIGATION We identify our suppliers with the greatest business relevance and supply chains with a high risk of potential negative environmen tal and social impacts. In 2023, we improved risk management in our supply chain. We created risk man

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, responsibility and compliance 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, cooperative supplier relationships and on 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 Suppliers are an essential part of our value chain. We buy products, materials, and services from some 20,000 B2B suppliers globally. Our sourcing network includes suppliers from start-up companies to in ternational corporations. We also buy wood from around 15,000 private forest owners. The main sourcing categories are fibre, chemicals, other raw materials, indirect purchases, logistics and energy. When selecting suppliers, our most important pri orities include reliable long-term deliveries,

RISK MITIGATION

Sustainability risk identification, assessment and mitigation in the supply chain Transparent sharing of reliable and credible sustainability information between chain members

COMPLIANCE

Compliance with applicable regulations and UPM requirements in the supply chain

cific sustainability risk insights. We also use EcoVadis and other assess ments, supplier audits and reviews as well as joint development plans to carry out more detailed evaluations of suppliers’ activities. All suppliers are screened regularly with our counterparty risk management tool. If any non-conformities are identified, the supplier is required to take corrective measures. We monitor the implementation of these measures and provide support to improve the suppliers’ operations if needed. Some contracts may have to be discontin ued due to insufficient measures or the seriousness of UPM’s findings. In 2023, we renewed UPM’s Responsible Procurement Guidebook to improve supply chain resilience and risk management. By the end of 2023, a total of 420 UPMers had completed the online training. We continued our close collaboration with Together for Sustainability (TfS). Extensive supplier audits and reviews In 2023, our own trained auditors and ex ternal auditors carried out 95 (121) audits globally, based on identified risks related to social and environmental topics, including human rights. We identified approximately 125 find

agement contingency plans for identified high sustainability risk suppliers. The evaluation is based on the country of origin, sourced material or service and the UPM supply chain ESG risk register, encompass ing country-, commodity- and sector-spe-

ings in these audits in 2023. One of the findings was considered critical with po tential significant negative social impacts. Corrective actions and development plans with suppliers are underway. All findings are followed-up with corrective action plans and further audits in close collaboration with our suppliers. We also carried out 890 (360) contractor reviews in Uruguay focusing on working conditions. The number increased with the new pulp mill in Uruguay. Around 540 (520) of our suppliers completed sustainability assessments with EcoVadis. AMBITION We seize sustainability-related opportu nities to create business value through supplier development and collaboration. Our sourcing ambitions focus on selected environmental, social and governance top ics (above). We use shared development and innovation projects with our suppliers and different sustainability initiatives. In 2023, we focused on collaboration in climate action via our Group-wide – 30 by 30 programme on CO 2 emission reductions in the supply chain (page 93).

Spend covered by UPM Supplier Code %

100

90

80

70

60

50

19 20 21

22 23

Target

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

TARGETS 2030

89% achieved

www.upm.com/about-us/for-suppliers

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UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023