UPM annual report 2014

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Key trends

Key area of responsibility

Target

Achievement 2014

ECONOMIC Profit Shareholder value creation

Group Executive Team in charge of managing corporate responsibility The company’s Biofore strategy and the Code of Conduct approved by the Board lay the foundations for responsible business opera- tions and continuous improvement. The Group Executive Team, headed by the President and CEO, is in charge of managing corporate responsibility, determining the course of action and guiding development work. The day-to-day work has been integrat- ed into the company’s business operations. Group-level corporate responsibility is man- aged by the Environment and responsibility team that coordinates the projects being car- ried out in business areas and functions. The company’s Code of Conduct addresses human rights, labour rights, good business conduct, occupational safety and environmen- tal practices. The Code of Conduct is comple- mented by more detailed policies, rules and guidelines, and training concerning these documents is provided regularly. The Code of Conduct training is required from all employees and it is part of the induc- tion programme for new employees. By the end of 2014, approximately 88% of all active UPM employees had attended Code of Con- duct training. In 2015, the company will update the Code of Conduct and launch a new round of training. UPM continuously strives to improve its environmental and health and safety perfor- mance by using various tools, such as certified management systems. In 2014, UPM began renewing the management systems of its pulp and paper mills in order to harmonise proce- dures. The company monitors and assesses its anti-corruption and anti-bribery activities, and an Ethics Advisory Committee has been estab- lished to perform these tasks. The committee oversees UPM’s compliance with company rules and reports to the Audit Committee regularly. Based on a materiality assessment, UPM has established a series of responsibility principles and determined targets and performance indicators to monitor how these principles are translated into action (see table on next page). In the area of economic responsibility, UPM’s responsibility principles cover eco- nomic performance and good governance. The principles for social responsibility focus on sourcing, local co-operation between UPM and stakeholders, occupational safety and UPM’s role as a responsible employer. In terms of environmental responsibility, the key focus areas are sustainable products, the cli- mate, the use of forests and water, and the reduction of waste. In 2014, UPM’s group-wide responsibility efforts focused on the Step Change in Safety Responsibility principles and targets steer business

• Operating profit margin > 10%

Operating profit excluding special items was 8.6% of sales. Four out of six business areas achieved their long-term return targets. Return on equity excluding special items was 8.3%.

PRODUCT STEWARDSHIP WITH NEW TOOLS

initiative, the improvement of contractor safety and the Clean Run environmental campaign. The business areas also focused on increasing the amount of ecolabelled products, verifying product safety and improving prod- uct safety-related communication. In addition, special attention was paid to the continued development of UPM’s respon- sible sourcing activities. The development work was based on the human rights related assessment conducted in 2013 within the context of the UN Protect, Respect and Rem- edy Framework and the associated UN Guid- ing Principles on Business and Human Rights. Results of technology, know-how and development Investments ensure that businesses are able to continue their good environmental perfor- mance. UPM’s investments in environmental performance are part of the Group’s invest- ment programme and aim to improve the efficient and responsible use of energy, water and raw materials. In 2014, the company’s environmental investments totalled EUR 12 (29) million. The largest investment was the combustion gas purification system at UPM Changshu paper mill. The company’s environmental protection costs amounted to EUR 127 (134) million (including depreciation), and mainly consisted of effluent treatment and waste management costs. No major environmental incidents No significant environmental incidents occurred at UPM production plants in 2014. However, several minor temporary deviations from permit limits did arise. UPM immedi- ately reported these deviations to the local authorities and undertook corrective measures to normalise the situation and prevent similar situations from occurring in the future. These measures are part of UPM’s internal Clean Run campaign that aims to improve the company’s environmental performance further, sharing best practices and promoting and maintaining environmental awareness. UPM provides an extensive amount of assured information At corporate level, UPM follows the Global Reporting Initiative’s G3 reporting guidelines, which enable companies to measure and report on their sustainability performance. The cor- porate responsibility information in English (see the Independent Assurance Report on page 59) has been assured by Pricewaterhouse- Coopers Oy, and congruence between the English and Finnish versions has been checked. PricewaterhouseCoopers has checked that UPM’s corporate responsibility reporting for 2014 meets the GRI requirements for Applica- tion Level B+, which does not indicate quality,

• Return on equity at least 5 percentage points above the yield of a 10-year risk-free investment • Gearing ratio to be kept below 90%

RESPONSIBILITY 45–59

Product safety is the single most important responsibility-related topic for UPM’s customers. To support UPM’s paper customers, UPM created a new Product Safety Profile in 2014. It is a unique tool to ensure that UPM’s customers receive all relevant product information in one, concise form. The document includes basic facts on product composition, product certificates, regulations related to product compliance and other possible measures taken to ensure that the product is safe. The UPM Restricted Substance List (UPM RSL) was updated in 2013, and its implementation started in 2014. UPM RSL includes nearly 6,000 substances that are either restricted or prohibited. In 2014, all relevant sourcing personnel received training, and the new updated list was communicated to UPM’s suppliers and their compliance with the renewed restricted substances list was examined.

Gearing ratio as of 31 December 2014 was 32%.

Governance Accountability and compliance

• > 90% coverage of participation to UPM Code of Conduct training by 2015

Approximately 88% of employees have completed Code of Conduct training.

SOCIAL 1) Leadership Responsible leadership

Employee engagement index overall favourable score increased slightly to 63%. Employee engagement survey response rate was 78%.

• Employee engagement index overall favourable score exceeding 70% by 2015 • Employee engagement survey response rate reaching 70% and over by 2015 • Employee Personal Performance Review (PPR) coverage exceeding 90% globally by 2015

POWER SHIFT IN WORLD ECONOMY

People development High performing people

Employee Personal Performance Review (PPR) coverage increased slightly and was at the level of 86%.

Working conditions Safe and encouraging working environment

• No fatal accidents (continuous)

Three fatal accidents: one employee accident in Finland as well as one contractor accident in Finland and one in Germany. Approximately 18% improvement in lost-time accident frequency (LTAF) from the previous year and 70% achievement over 3 years. In 2014, the LTAF was 4.4. Annual target (two near misses or safety observations reported per employee) set and achieved at corporate level. Sharing of best practices ensured for example through well-estab- lished operational stakeholder forums in various locations. 67% of supplier spend qualified against UPM Supplier Code with 3 percentage points increase compared to the previous year. Risk assessment related to supplier base enhanced and number of risk assessment-based supplier audits significantly increased in 2014, with a wider geographical coverage than before. Awareness on responsible sourcing raised through internal training. All sites except one have a certified environmental management system in place. UPM is a global frontrunner in the use of EU EMAS. Environmental declarations are available for all relevant UPM products. In 2014, UPM launched Product Safety Profiles for its paper products. Increase of ecolabelled sales in line with target. UPM actively participated in developing new EU Ecolabel criteria for converted paper products. Development not in line with target. Despite improvements in fuel mix and energy efficiency, actions have not compensated for the increased level caused by the Myllykoski acquisition in 2011. Development not in line with target. Average specific wastewater volume for UPM decreased only slightly due to a higher weight of pulp in portfolio, despite the fact that UPM Fray Bentos has one of the lowest water use rates in the industry. Development in line with target. 16% reduction achieved since 2008 for the UPM average product. Development in line with target. The certified share increased from 80% to 83%. Coverage is 100%. Co-operation with IUCN, WWF and Vida Silvestre continued.

• Lost time accident frequency below 5 (per million hours or work) by 2015

• Annual targets set for the reporting of near misses and safety observations • Continuous development of strategic sustainability initiatives with leading NGOs • Continuous sharing of best practices of stakeholder initiatives • > 80% of UPM supplier spend qualified against UPM Supplier Code by 2015 5) • Continuous supplier auditing based on systematic risk assessment practices

Community involvement Local commitment

DEMOGRAPHIC CHANGE

Responsible sourcing Value creation through responsible business practices