UPM annual report 2014

Independent Assurance Report

Corporate governance

UPM-Kymmene Corporation (UPM) is a publicly listed limited liability company with headquarters in Helsinki, Finland. It is the parent company of the UPM Group which consists of 110 subsidiaries in 44 countries. The Group’s business operations are divided into six business areas supported by global functions.

Read more: www.upm.com/governance

To the Management of UPM-Kymmene Corpo- ration

believe that UPM-Kymmene Corporation does not adhere, in all material respects, to the AA1000 AccountAbility Principles and that the CR Reporting is not reliable, in all material respects, based on the Reporting criteria. In a limited assurance engagement the evi- dence-gathering procedures are more limited than for a reasonable assurance engagement, and therefore less assurance is obtained than in a reasonable assurance engagement. An assur- ance engagement involves performing proce- dures to obtain evidence about the amounts and other disclosures in the CR Reporting, and about the Company’s adherence to the AA1000 AccountAbility Principles. The procedures selected depend on the practitioner’s judgement, including an assessment of the risks of material misstatement of the CR Reporting and an assessment of the risks of the Company’s mate- rial nonadherence to the AA1000 AccountAbil- ity Principles. Our work consisted of, amongst others, the following procedures: • Interviewing senior management of the Company. • Interviewing employees from various organisa- tional levels of the Company with regards to materiality, stakeholder expectations, meeting of those expectations, as well as stakeholder engagement. • Assessing stakeholder inclusivity and respon- siveness based on the Company’s documenta- tion and internal communication. • Assessing the Company’s defined material corporate responsibility topics as well as assessing the CR Reporting based on these topics. • Performing a media analysis and an internet search for references to the Company during the reporting period. • Visiting the Company’s Head Office as well as three sites in Finland and Uruguay. • Interviewing employees responsible for collect- ing and reporting the information presented in the CR Reporting at the Group level and at the different sites where our visits took place. • Assessing how Group employees apply the reporting instructions and procedures of the Company. • Testing the accuracy and completeness of the information from original documents and systems on a sample basis. • Testing the consolidation of information and performing recalculations on a sample basis. Conclusion Based on our work described in this report, nothing has come to our attention that causes us to believe that UPM-Kymmene Corporation does not adhere, in all material respects, to the AA1000 AccountAbility Principles. Furthermore nothing has come to our attention that causes us to believe that UPM- Kymmene Corporation’s CR Reporting has not been prepared, in all material respects, in accordance with the Reporting criteria, or that the CR Reporting is not reliable, in all material respects, based on the Reporting criteria.

When reading our assurance report, the inherent limitations to the accuracy and com- pleteness of sustainability information should be taken into consideration. Observations and recommendations Based on our work described in this report, we provide the following observations and recom- mendations in relation to UPM-Kymmene Cor- poration’s adherence to the AA1000 Account- Ability Principles. These observations and recommendations do not affect the conclusions presented earlier. • Regarding Inclusivity: UPM-Kymmene Corpo- ration has processes in place for stakeholder inclusivity and engagement. Stakeholder Rela- tions function coordinates stakeholder engage- ment at the group level. We recommend that the Company clarifies the need to increase stakeholder engagement related guidance from the Stakeholder Relations function to the businesses. • Regarding Materiality: UPM-Kymmene Corpo- ration has a systematic process in place to evaluate and determine the materiality of corporate responsibility topics. The Company conducted a materiality analysis that highlights the most important issues for the Company and its stakeholders in 2014. On this basis, we recommend that the Company continues to pay special attention to business and regional characteristics in its stakeholder dialogue. • Regarding Responsiveness: UPM-Kymmene Corporation has processes in place for respond- ing to stakeholder needs and concerns. We recommend that the Company considers the possibilities to increasingly utilise the Stake- holder Relations function in sharing best practices between the businesses. Practitioner’s independence and qualifications We comply with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the IESBA (the International Ethics Standards Board for Accountants). Our multi-disciplinary team of corporate responsibility and assurance specialists possesses the requisite skills and experience within finan- cial and non-financial assurance, corporate responsibility strategy and management, social and environmental issues, as well as the relevant industry knowledge, to undertake this assurance engagement.

RESPONSIBILITY 45–59

We have been engaged by the Management of UPM-Kymmene Corporation (hereinafter also the Company) to perform a limited assurance engagement on corporate responsibility perfor- mance indicators in the areas of economic, social and environmental responsibility for the report- ing period 1 January 2014 to 31 December 2014. The assured performance indicators are disclosed in UPM-Kymmene Corporation’s Annual Report 2014, and on its website in section “Responsibil- ity”, and they are listed in section 5 “Perfor- mance Indicators” of the GRI Content Index (hereinafter CR Reporting). The GRI Content Index is disclosed in the Company’s Annual Report 2014 and on its website. Furthermore, the assurance engagement has covered UPM-Kymmene Corporation’s adher- ence to the AA1000 AccountAbility Principles with moderate (limited) level of assurance. Management’s responsibility The Management of UPM-Kymmene Corpora- tion is responsible for preparing the CR Report- ing in accordance with the Reporting criteria as set out in the Company’s reporting instructions and the G3 Sustainability Reporting Guidelines of the Global Reporting Initiative. The Management of UPM-Kymmene Corpo- ration is also responsible for the Company’s adherence to the AA1000 AccountAbility Princi- ples of inclusivity, materiality and responsiveness as set out in AccountAbility’s AA1000 Account- Ability Principles Standard 2008. Practitioner’s responsibility Our responsibility is to express a conclusion on the CR Reporting and on the Company’s adher- ence to the AA1000 AccountAbility Principles based on our work performed. Our assurance report has been prepared in accordance with the terms of our engagement. We do not accept, or assume responsibility to anyone else, except to UPM-Kymmene Corporation for our work, for this report, or for the conclusions that we have reached. We conducted our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000 “Assurance Engage- ments Other than Audits or Reviews of Histori- cal Financial Information”. This Standard requires that we comply with ethical require- ments and plan and perform the assurance engagement to obtain limited assurance whether any matters come to our attention that cause us to believe that the CR Reporting has not been prepared, in all material respects, in accordance with the Reporting criteria. In addition, we have conducted our work in accordance with the AA1000 Assurance Stand- ard 2008. For conducting a Type 2 assurance engagement as agreed with the Company, the AA1000AS (2008) requires planning and per- forming of the assurance engagement to obtain moderate (limited) assurance on whether any matters come to our attention that cause us to

CORPORATE GOVERNANCE STRUCTURE AND POLICIES OF UPM-KYMMENE CORPORATION

UPM’s governance structure UPM’s control and governance is divided among the General Meeting of Shareholders, the Board of Directors and the President and CEO as shown in the illustration on the right. In the operational management of the com- pany, the President and CEO is assisted by the Group Executive Team. In matters pertaining to the preparation of group and business area strategies, financial targets, strategic projects, capital expenditure, M&A initiatives and other strategic develop- ment initiatives, the President and CEO is assisted by the Strategy Team consisting of the CFO and the heads of the strategy, technology and legal functions. Each of the company’s business areas and functions has its own management team, the purpose of which is to assist the business area or function head in the preparation and imple- mentation of strategies, budgets, commercial strategies, business development plans, and the operating model and organisation for the business area or function in question. Governance guidelines In addition to laws and regulations applicable to Finnish listed companies, UPM complies with – and its corporate governance is based on – the recommendations of the Finnish Corpo- rate Governance Code issued by the Securities Market Association. UPM’s Corporate Gov- ernance Statement for the year 2014, and the Remuneration Statement dated 3 March 2015, prepared in accordance with Recommendations 54 and 47 of the Finnish Corporate Govern- ance Code, are available on the corporate website www.upm.com in the Investors Section, under Governance. Furthermore, the company’s governance is based on the charters and policies listed in the table on the right. UPM’s Code of Conduct forms the frame- work for all company operations and sets out standards of behaviour for each individual at UPM globally. It covers topics relating to legal compliance and disclosure, conflicts of interest, gifts and anti-bribery, HR practices, human rights issues and environmental matters. Viola- tion of the Code will lead to disciplinary action up to and including termination of employ- ment. The UPM Code of Conduct is comple- mented by more detailed rules and guidelines approved by the Group Executive Team. These rules and guidelines cover, among others, such topics as anti-bribery, competition law compli- ance, contract management, human resources, environment, safety and equality.

GENERAL MEETING OF SHAREHOLDERS

Issues Auditor’s Report

Elects

Elects

Remuneration Committee

Report

BOARD OF DIRECTORS

AUDITOR

Nomination and Governance Committee

Assist

Appoints, steers, monitors

Reports

Audit Committee

PRESIDENT AND CEO

Steers, monitors

INTERNAL AUDIT

STRATEGY TEAM

Appoints

Reports

GROUP EXECUTIVE TEAM

Charter / Policy

Approved by

Originally approved

Last amended

22 March 2010

Articles of Association

General Meeting of Shareholders

31 October and 1 November 1995 *)

UPM Code of Conduct

Board of Directors

31 May 2006

3 August 2010

Board Charter

Board of Directors

31 May 2006

24 October 2013

Audit Committee Charter Board of Directors

31 May 2006

24 October 2013

Remuneration Committee Charter Nomination and Governance Committee Charter

Board of Directors

31 May 2006

24 October 2013

Board of Directors

31 May 2006

24 October 2013

Risk Management Policy Board of Directors

1 February 2007

6 April 2009

Disclosure Policy

Board of Directors

24 July 2008

–

Group Treasury Policy

Board of Directors

1996

26 April 2012

Treasury Policy for Subsidiaries and Business Units

Board of Directors

1996

26 April 2012

Insider Policy

Board of Directors

31 October 2006

24 October 2013

Acceptance Policy

Board of Directors

5 February 2009

3 February 2015

Internal Audit Charter – *) Approved in the General Meetings of the merging companies Repola Oy and Kymmene Oy. Board of Directors 1 February 2010

Helsinki, 19 February 2015

Annual General Meeting 2014 The General Meeting of Shareholders is the company’s supreme decision-making body. The Annual General Meeting (AGM) of 2014 was held on 8 April in Helsinki. A total of 1,984 (in 2013: 1,769) shareholders attended the meeting in person or through a legal or proxy repre-

sentative, representing 45.6% (42.4%) of the company’s registered share capital and voting rights at the time of the meeting. The AGM adopted the company’s financial statements for the period 1 January–31 Decem- ber 2013, decided to distribute dividends amounting to EUR 0.60 (EUR 0.60) per share

PricewaterhouseCoopers Oy

Sirpa Juutinen

Maj-Lis Steiner

Partner,

Director,

Sustainability & Climate Change

Authorised Public Accountant Assurance Services

CONTENTS

59

60

UPM Annual Report 2014

UPM Annual Report 2014