UPM Annual Report 2024

WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

Current and anticipated effects on UPM From an opportunity perspective, the global transformation to green and sustainable societies supports UPM's strategy and business objectives by increasing market demand for fossil-free, renewable, and circular products and raw materials. The identified opportunities are strategic for UPM's business and financial performance in the short, medium and long term. From a risk perspective, UPM's main sustainability risks are climate change, biodiversity loss, increasing sustainability-related regulation and acceptance of forest biomass, human rights violations in the value chain, and risks to the environment and people from potential operational hazards. Climate change and biodiversity loss are becoming important sources of direct financial and operational risks for UPM's operations and raw material sourcing. These risks are increasing droughts, heatwaves, water scarcity and pest damage. Potential floods and forest fires can also affect UPM's operations, and their potential impact is expected to increase in the long term. In addition, climate change has, and is expected to have, a direct impact on global logistics and supply chains, directly affecting UPM's own operations and those of its suppliers. UPM is increasingly investing in developing resilience in forest management, supply chain management and operations to mitigate potential negative effects. UPM considers responsible sourcing a key measure to mitigate identified and potential sustainability risks. UPM's forests and plantations are in areas with low water stress risks. Forest management certification schemes ensure responsible wood sourcing. Risk management at Group and business area level considers sustainability risks as part of the ongoing risk management processes. UPM actively participates in the development of sustainability-related regulation at the local and EU level to support the sustainable transformation of the industry. UPM fully supports the EU's sustainability related initiatives but also identifies certain regulatory changes that may have a direct impact on operations through the availability of raw materials. These regulatory changes may have an impact on raw material costs while strengthening UPM's position in the production of bio-based products and materials. UPM has identified human rights and responsible sourcing risks and impacts in its global supply chains. UPM follows global human rights and sustainability frameworks to ensure and support the overall development of responsible sourcing in all supply chains, but there are also potential negative impacts in supply chains where UPM's sustainability standards may not be met. UPM is continuously developing methods and tools to identify, assess and mitigate sustainability risks and impacts related to supply chains. From an impact perspective, UPM's GHG emissions from its operations and value chain (Scopes 1–3 emissions) contribute to climate change. Wood sourcing can have a short-term impact on carbon storages in forests, but sustainable forest management ensures carbon sinks in the medium and long term. These impacts have direct links to climate change and risks for UPM' business. At the same time, forest management practices have a direct impact on the state of biodiversity in forests. UPM recognises the direct link between forest operations and biodiversity and is constantly increasing its efforts to enhance biodiversity. Resilience of UPM's business model

Overview of material impacts, risks and opportunities

market dynamics. The analysis of business resilience is based on different scenario analyses, which also takes the main sustainability related risks, impacts and opportunities into account. Key sustainability related risks and impacts are considered to have an impact on raw material and operational expenses, which are monitored and forecasted as part of the regular business steering processes. Separate climate resilience analyses and water scarcity risk assessments have been conducted in relation to environmental risks. » Refer to ESRS 2 IRO-1 Climate-related risks, E1 SBM-3 Climate risks and business resilience; E3-2 Actions, Water risk assessments Comparison with 2023 reporting The list of material impacts, risks and opportunities remained unchanged compared to the previous year's report. However, changes have been made to the disclosure of information in accordance with the requirements of the ESRS standards. Process in general Since 2011, UPM has carried out its materiality assessment annually. Since 2023, UPM's annual materiality assessment has followed EFRAG's guidelines for double materiality assessments. Double materiality refers to the consideration of both impact materiality such as UPM's impact on people and the environment and financial materiality, i.e. sustainability-related risks and opportunities that are likely to have a financial impact on UPM. The analysis covers negative and positive, actual and potential impacts on the economy, the environment and people, including impacts on their human rights. The identification of impacts, risks and opportunities is based on internal expertise and several internal sources, including: • salient human rights assessments, • supplier audits, • occupational health and safety and environmental performance results, • grievance mechanisms, • company risk assessments and compliance, • regulatory monitoring, • sustainability-related data (e.g. emissions, resource use, OHS data) and • sustainability due diligence processes. The interests and concerns of various stakeholders have also informed the process of identifying material impacts, risks and opportunities. For example, customer and local community enquiries, counterparty and media screening, NGO concerns, investor, government and regulatory agendas, and UPM's employee engagement survey are used to assess the materiality of various issues. In addition, external human rights expertise is used to identify salient human rights issues at corporate level. In 2023, interviews, questionnaires and workshops with internal and external stakeholders were also used for the first double materiality assessment. In 2024, the focus of the review was on impacts on people in UPM's own operations and in the supply chain. IRO-1 Materiality assessment process

Positive impact or opportunity Negative impact or risk

Upstream Own operations

Downstream Short (1 year)

Medium (2–5 years)

Long (over 5 years)

UPM FOCUS AREAS

VALUE CHAIN LOCATION

MATERIAL TOPICS

TIME HORIZON

ESRS

IMPACTS, RISKS AND OPPORTUNITIES - IN SHORT

Economic and governance Bio-based and renewable products ESRS 2, E1, E5

Product stewardship

Positive impact: Bio-based products as alternative for fossil-based products and as temporary carbon storage Opportunity: Increasing market demand for bio-based products Potential negative impact: Threat of temporary shut-downs or closures of sites due to lack of raw materials with negative impact on employment

Business resiliency

ESRS 2 Profit

Risk: Dependency on a few main resources such as wood, energy or water Opportunity: Competitive advantage to address dependency for main resources

CO 2 -free energy

E1, E5 Product

Positive impact: Production of CO 2 -free energy Opportunity: Increasing market demand for CO 2 -free energy

stewardship

Business ethics and values

G1, S2

Governance

Positive impact: Ensuring and enhancing ethical behaviour in operations and value chain Risk: Non-compliance with legislation or agreed practices Potential negative impact: Human rights violations with effects on people in the supply chain Risk: Disruptions in UPM's supply chain Positive impact: Ensuring and enhancing net-positive impact on biodiversity by UPM's forest management Negative impact: Biodiversity loss in UPM's multi-tier supply chain Risk: Dependency on wood as main resource for production Opportunity: Biodiversity ensures healthy forest growth Positive impact: Circularity in UPM's production processes and recyclability of products reducing the need for virgin materials Opportunity: Avoided costs for waste disposal and purchase of virgin materials Positive impact: Climate change mitigation through climate-related effects of forests and bio-based products Negative impact: Fossil CO 2 emissions from own energy generation Scope 1), purchased energy (Scope 2) and related to value chain (Scope 3) Risk: Transitional as well as physical climate-related risks, due to changes in legislation and extreme weather events Opportunity: Transition opportunities covered by UPM's business model focussing on bio-based products and CO 2 -free energy

Responsible sourcing

G1 Responsible sourcing

Environmental Biodiversity E4 Biodiversity

Circular bioeconomy

E5 Waste Product

stewardship

Climate change

E1 Climate

Sustainable forestry

E4 Forestry

Potential negative impact: Deforestation in UPM's multi-tier supply chain Risk: Physical risks for forests due to climate change Opportunity: Accelerated forest growth due to climate change

Sustainable water usage Social Decent work and fair rewarding

E3 Water

Potential negative impact: UPM's water usage and environmental incidents may effect people an the environment Risk: Potential operational hazards causing shut-down or curtailed production

S1 Responsible leadership, Continuous

Positive impact: Providing equal and adequate wages, training and development support Potential negative impact: Job losses due to closing of operations or restructuring Risk: Lack of skilled workforce Opportunity: Being the employer of choice

learning and development, Fair rewarding

Diversity and inclusion Health and safety

S1 Diversity and inclusion

Positive impact: Enhancement of diversity and inclusion with positive effect on workforce

S1, S2 Safe and healthy working

Positive impact: Enhanced focus on health and safety measures for workforce in all UPM sites Negative impact: Health and safety incidents, including serious accidents and fatalities for people working at UPM sites and in the supply chain Risk: Potential injury of UPM's employees, contractors or third parties Positive impact: Effect on local development through UPM's production sites and investments Potential negative impact: Environmental or safety accidents can effect people or environment in the communities around UPM sites

environment

Local engagement

S3 Community involvement

UPM's strategy and business management are based on continuous assessment of potential changes in the operating environment and

UPM FINANCIAL REPORT 2024

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UPM FINANCIAL REPORT 2024

143

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UPM ANNUAL REPORT 2024

UPM ANNUAL REPORT 2024