UPM annual report 2015

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IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Supplier audit process creates mutual benefits “As one of the leading companies in the global paper industry UPM has an advanced management style and comprehensive experience in industrial production. Our business relationship gives us an excellent opportunity to develop our own practices as well,” says Mr Meng Xiang Feng from Asian Sage, the owner and CEO of the company. Asian Sage manufactures blade devices, dewater and sealing elements, fibre reinforced products and composites like fiberglass and carbon fibre. The company started its co-operation with UPM at the Changshu paper mill in 2008 and since then it has become the main supplier for UPM in this field in China. Mr Meng welcomes UPM’s well-designed audit process that has helped Asian Sage to improve management systems and increase production efficiency. The main targets of the audits are to improve company management and the quality of products but also to make improvements in health and safety of employees and social and environmental responsibility. Petri Riihinen, Quality and Supply Development Manager at UPM confirms that the target is to continuously improve relationships with suppliers. “So far, unsafe working practices such as lacking personal protective equipment or excessive working hours have been the most common findings in the audits,” he notes. “This development brings along mutual benefits for both partners but also for employees and for the society in general. Such positive and continuous improvement strengthens the relationship and co-operation between all parties.”

is collected regularly fromUPM’s pulp, chemi- cal and rawmaterial suppliers. The results of these surveys are discussed with the suppliers, both on and off-site, resulting in improvements, action plans and commitments such as continu- ous improvement. Based on UPM Supplier Survey in paper businesses’ rawmaterial sourcing, more than 150 corrective actions were implemented with key suppliers in 2015. More than 50 key suppli- ers received feedback including some 300 proposals for improvement. Supplier awards motivate suppliers for continuous improvement. In 2015, UPM Raflatac launched the Label Life Award compe- tition on corporate responsibility and invited the best performing suppliers to participate. The purpose of the award is to recognise UPM Raflatac’s suppliers’ efforts in achieving good environmental and social performance and to share best practices in the field of sustainabil- ity. UPMPaper ENA awarded packaging sup- plier Paul & Co. with UPMBest in category supplier award. UPM is a significant user and buyer of recovered paper UPM is the world’s largest user of recovered paper for the production of graphic papers. In 2015, the total consumption of recovered paper was approximately 3.1 (3.4) million tonnes. Paper can be recycled up to six times after its first use, and even after the fibres wear out, they can still be used to generate renewable bioenergy. Efficient paper recycling depends on the local infrastructure for national collection schemes and recovery systems. The recovered paper used by UPM is purchased fromEurope, where the most significant suppliers are local authorities, waste management companies and printing houses. UPM aims to optimise the value chain of recovered paper by focusing on

drivers and 5,000 truck drivers working for the entrepreneurs in 2015. UPMwood sourc- ing creates employment opportunities for thousands of people living in rural areas within the UPMwood sourcing spheres.

impacts on society. This is realised inmajority of cases through forest certification and chain of custody standards (FSC, PEFC) and for the remaining part through FSC ControlledWood standard and PEFCDue Diligence system. The human rights-related risk assessment of the supplier base has been enhanced since 2013. Consequently, the number of risk assess- ment-based supplier audits has been doubled, with a much wider geographical coverage than earlier. Some of the audits covered the entire upstream supply chain. In cases of revealed non-conformances the supplier is obligated to make corrective actions. UPM is ready to support its suppliers in order to help them to develop their perfor- mance. Capital expenditure is exposed to scrutinised responsibility Responsible sourcing practices also cover all investments. All approved suppliers are quali- fied against the UPM Supplier Code, i.e. they commit themselves to UPM requirements including occupational health. All suppliers working on UPM site go through UPM’s safety requirements and a web-based safety induction training. Wood is the primary raw material for UPM’s businesses UPM is both a major forest owner and a pur- chaser of wood. UPM sources all wood assort- ments to ensure optimal utilisation of this valuable rawmaterial. In 2015, UPM sourced 26.1 (26.3) million cubic metres of wood from around the world. The majority of wood is purchased from pri- vate forest owners who numbered nearly 22,000. A network of local entrepreneurs takes care of harvesting, logistics and forestry work oper- ations. There were nearly 6,000 harvester

Tracing the origin of wood is a prerequisite for UPM

Wood used in UPMproducts comes from sustainably managed forests and from legal sources. All UPMwood supplies are covered by third-party verified chain of custody certifi- cates under FSC and PEFC. UPM aims to use certified fibre to the highest possible degree and to promote a global increase of certified forests. Today, 84% (83%) of the wood used in the UPMmills is certified. UPM verifies that the wood rawmaterial supplied to its mills is procured according to the requirements of EU Timber Regulation, the US Lacey Act and other regional jurisdic- tions. UPM does not accept all wood. Mixed tropical hardwood from rainforests is not accepted as rawmaterial, neither wood from plantations that have been established by converting rainforests. UPM does not accept wood from areas where the rights of indig- enous peoples are not respected. Pulp, chemicals and other raw materials are purchased worldwide Specific requirements are set for pulp, chemi- cal and other rawmaterials suppliers with regard to environmental performance, for- estry and wood sourcing, product safety and performance reporting. UPMpaper businesses apply systematic supplier management methods in order to ensure good and responsible performance of key suppliers. Environmental and social performance data collection is an integral part of supplier risk and performance management. The data

local supply close to the mills with minimal costs and environmental impact. The share of recycled fibre represents one third of all fibre rawmaterials used in UPM’s paper production. Energy from renewable sources UPM is both a significant purchaser and producer of energy. The majority of electrical and thermal energy is consumed at the com- pany’s pulp and paper production. UPM favours a wide range of low-emission energy sources and focuses on energy efficiency and energy savings in its businesses. In 2015, 67% (67%) of the fuels used by UPMwere from renewable sources. In addition to the company’s own electric- ity generation, electricity is also purchased from the Nordic and Central European energy markets. In Germany, the company has bilateral agreements in place with elec- tricity suppliers. Logistics form the foundation of on-time deliveries UPM delivers approximately 1.2 million truckloads (c. 25 tonne each) of products and rawmaterials around the world every year; that is one load every 25 seconds. Of all UPM deliveries, 68% are transported by rail and road and 32% by sea. The majority of UPM’s haulage is handled by contract partners. UPM aims to create strategic long-term alliances to create benefits for the company and its cus- tomers. UPMhas focused on optimising transpor- tation. At the same time, emissions caused by transportation are reduced to the lowest possible volume.

Electricity sourcing TWh

15 14 13 12 11 10 09 08 07 06

■ CHP ■ Hydro

■ Hydro, shareholdings ■ Nuclear, shareholdings ■ Condensing, shareholdings ■ Market purchace