UPM Annual Report 2024

First page Table of contents Previous page 144-145 Next page Last page

WE ARE UPM

GOVERNANCE

ACCOUNTS AND PERFORMANCE

Report of the Board of Directors

Sustainability Statement

Financial Statements

Auditor's Report

Sustainability Assurance Reports

The material topics identified are taken into account in the review of UPM's sustainability focus areas and define the scope of this Sustainability Statement. » See table on page 142 in the Annual Report for an overview of the material topics, and how they relate to UPM's sustainability focus areas and the ESRS standards relevant to this Sustainability Statement. Short-, medium- and long-term impacts are considered throughout the value chain. The significance of impacts is assessed according to their severity, which is determined by their scale, scope and, in the case of negative impacts, irremediability. The likelihood of potential impacts is also assessed. UPM's thresholds for assessing scale, scope and irremediability follow the principles of global frameworks to which UPM is committed in its operations (e.g. different thresholds for environmental impacts versus social impacts). Thresholds can be both quantitative and qualitative. For example, the thresholds for materiality evaluate the impacts against UPM's financial performance, impacts on the number of stakeholders, and their geographical coverage. UPM's risk assessment process at Group level includes an assessment of the financial impact of sustainability-related risks and opportunities for the Company. Some of the impacts of the Company's activities and business relationships on the economy, the environment and people may eventually become financially material issues. Financial materiality is assessed by analysing the probability or frequency of events and a range of financial consequences to determine their potential effect on the Company's objectives. Risks are evaluated based on their immediate and direct impacts (e.g. physical climate-related risks to UPM's production sites), secondary impacts (e.g. the ability to continue operations and generate business results), and long-term transformative impacts through demand and regulatory changes (e.g. societal transition to renewable and fossil-free materials). Based on the thematic assessments (e.g. climate change, biodiversity, human rights), UPM's expert teams evaluate potential risks arising from identified dependencies. After analysing the impacts, risks and opportunities, the most significant are identified as material for UPM and then grouped into topics. Internal professional judgement is also used to prioritise and group them. This list of material impacts, risks and opportunities is reviewed annually and approved by the GET before being reviewed by the Audit Committee. The management of risks related to environment, social or governance (ESG) matters is integrated at UPM into risk management practices throughout the organisation. The responsibility of monitoring UPM's risks, impacts and opportunities is shared between the business areas and assurance functions according to UPM's three lines of defence model. The top management reviews ESG topics and UPM's business performance management. Every business area and function is responsible for taking ESG risks into consideration as part of their risk management practices. The risk assessment processes are interlinked, with continuous engagement with external stakeholders such as suppliers, customers or local stakeholders.

screen for potential impacts and risks. The Clean Run reviews also help identify best practices and opportunities. » Refer to E2-2 Actions, UPM’s Clean Run concept UPM has screened its pulp and paper mills based on annual benchmarks between sites and against best available techniques. The pulp and paper mills are considered most relevant in terms of potential water, air and soil pollution, and water use. Resource use and the circular economy is a material topic for UPM as a whole. For new products and product development, screening of possible impacts and identification of risks and opportunities throughout the product lifecycle is covered by UPM's Sustainable Product Design concept. » Refer to E5-2 Actions, UPM’s Sustainable Product Design concept Environmental impacts and risks related to UPM's upstream value chain are identified as part of the regular sustainability risk salience assessment. In addition, UPM's sourcing categories use the Company's Sustainable Supply Chain Programme and a dedicated guidance document to identify the highest priority sustainability topics in their category. » Refer to G1-2 Responsible sourcing, UPM's Sustainable Supply Chain Programme In relation to water risks, UPM's production sites are also mapped and analysed using the WWF Water Risk Filter tool for water-related risk analysis and water scarcity identification. Pulp and paper production is known to be UPM's most water-intensive operation. Material water related impacts on biodiversity were screened and prioritised during UPM's participation in the Science-Based Targets for Nature (SBTN) methodology pilot in 2023–2024. UPM does not use marine resources. Connections are related to the direct discharge of treated wastewater in the case of two sites located on the coast, the transport of resources and products by sea, and indirectly through discharge of treated wastewater into rivers and lakes that end up in the sea. All these aspects have been assessed but are not considered to have a material negative impact or to pose a material risk. Consultation with affected communities is usually part of the environmental permitting processes. In addition, ISO 14001 and EMAS emphasise engagement and communication with affected stakeholders. Biodiversity-related impacts and risks UPM continuously assesses actual and potential impacts, risks, opportunities and dependencies related to biodiversity as part of the annual double materiality assessment and other regular or case-by-case assessments. For example, forest certification plays a crucial role in identifying and managing biodiversity impacts and risks in both UPM's own forests and in other wood sources. UPM participates in a project led by FSC™ to better understand and quantify the positive impacts of forest certification on biodiversity. Biodiversity risks associated with UPM's upstream value chain are identified as part of UPM's sustainability risk assessment. In addition, UPM's sourcing categories use the Company's Sustainable Supply Chain Programme and a dedicated guidance document to identify the highest priority sustainability topics in their sourcing category. Regarding biodiversity, the focus is on supply chains with a high risk of habitat destruction, overexploitation or pollution. Possible ecosystem services of UPM's forest areas are water and recreational value, for example. Assessments and stakeholder information are carried out as appropriate. UPM's main raw material is wood, so UPM depends on forest ecosystems, and the biodiversity and ecosystem services they provide. Industrial activities such as pulp and paper production and hydropower generation also have an impact on biodiversity. No systemic risks specific to UPM have been identified.

UPM recognises the importance of dialogue and open communication channels with internal and external stakeholders who are or may be affected by the Company's actions. For example, this is done as part of UPM's forest management practices in accordance with FSC™ . and PEFC requirements in the Company's forestry operations. FSC™ requirements include measures such as identifying and analysing stakeholders, engaging with stakeholders via meetings or feedback mechanisms, and involving stakeholders in the planning, implementation and monitoring of forest management activities. This is a continuous process for UPM's forest operations. UPM is also engaging with stakeholders by participating in relevant networks and organisations like the SBTN's Corporate Engagement Programme and Initial Target Validation Group in 2023 and 2024. In UPM's operations, the most significant impact on biodiversity occurs in wood sourcing. UPM is therefore committed to sustainable forestry that provides high-quality wood, maintains and enhances biodiversity and water protection, and protects the recreational use and ecosystem services of forests. Biodiversity-sensitive areas are identified, and measures are taken to avoid negative impacts on these areas in line with the relevant legislation at national or international level. UPM's approach is to establish protected areas adjacent to or even within its forest and plantation areas, and to identify valuable habitats that are left outside forest management. This means that 100% of forest operations are nearby these protected or other biodiversity-sensitive areas. UPM does not operate in global biodiversity hotspots. Compliance-related impacts and risks » Refer to G1-1 Policies, Reporting and identifying concerns and Investigating and handling concerns

and severe weather conditions, which may lead to societal shifts, with increasing social inequality and working poverty. UPM can mitigate the negative impacts through its climate-related sustainability targets and developments. » Refer to E1-4 for climate-related sustainability targets and follow-up; Refer to E1-6 for UPM's greenhouse gas emissions. Climate-related risks Both top-down (macro trends, expert interviews) and bottom-up (business area, business unit input) approaches are used to manage risks, including those related to climate change. The process includes the assessment of strategic risks (regulation, market), operational risks (availability and price of key inputs) and hazard risks (natural events). Many transitional risks and some physical risks, and especially their combinations, are considered to have a potential strategic and significant financial impact on UPM's operations. UPM's position and resilience in different climate scenarios have been evaluated for the businesses and functions from both a physical and a transition perspective using expertise from the scientific community. The Finnish Meteorological Institute (FMI) has issued a report to predict the future physical impacts of climate change on UPM's main operation areas in Finland, Germany, Uruguay and China. Three greenhouse gas scenarios are considered: the SSP1-2.6 scenario represents low, SSP2-4.5 medium and SSP5-8.5 very high future emissions. Published in December 2024, the report examines changes in weather conditions between the years 1961-2023, and the future climate projections in the aforementioned areas. This report is an update to a wider FMI report ordered in 2019. Observational data shows a statistically significant increase in seasonal temperatures. Mean temperatures are expected to rise in all four regions, although the magnitude of change varies considerably. With general warming, hot extremes will become more frequent. Precipitation is likely to increase in Finland during winter and to decrease in Germany during summer. Extreme precipitation events are expected to intensify in all four regions. In the second half of the 21 st century, the extent of climate change will strongly depend on the evolution of greenhouse gas emissions. If emissions are effectively reduced, the changes will likely be less severe. The FMI report is publicly available on the University of Helsinki open repository (helda.helsinki.fi) as report 2024-3; Climate change in Finland, Germany, Uruguay and China: observed changes and future projections derived from CMIP6 global climate models. In general, transition impacts play a greater role in low- and medium emission scenarios, and UPM is well positioned, as its business portfolio allows flexibility with respect to the identified risks and opportunities. The main risks and opportunities related to climate change have been identified as transitional risks: competition; markets; customers; products; and regulation. In the high-emission scenario, physical impacts dominate, with severe consequences not only for UPM but also for ecosystems and societies around the world. For example, distortions in the raw material (wood) market due to the physical impacts of climate change or unpredictable regulation, subsidies or EU policies and resulting national legislation in EU countries could have a significant impact on UPM's financial performance. Opportunities arise from the use of wood as a renewable raw material for UPM's products, which are often an alternative for fossil-based materials. Impacts and risks related to pollution, water, circularity and resource use For all production sites and forestry units, deviations from permit limits and the results of the internal Clean Run standard reviews are used to

Supplier-related impacts, risks and opportunities » Refer to G1-2 Responsible Sourcing, Risk mitigation

Risks and opportunities related to anti-corruption and bribery » Refer to G1-3 Anti-corruption and bribery, UPM's compliance system

Topical assessments

Impact on climate change Based on its double materiality assessment, UPM considers the impact of its fossil CO 2 emissions on climate change to have a high negative potential. The physical impacts of climate change include more frequent