UPM Annual Report 2016

UPM Annual Report 2016

In brief

Strategy

Businesses

Governance

Accounts

Stakeholders

CONTENTS

In 2016, the CDP Forest Program listed UPM as one of the global

leaders on the 2016 Forest A List for timber and timber-based products.

Companies on the A List are responding to market demand for environ

mental accountability and taking action to prevent deforestation.

Active forestry-related research and development

in UPM forests

Forest biodiversity has been one of the key factors in UPM’s operations

for over 20 years. The aim of UPM’s global biodiversity programme is to

maintain biodiversity in forests, to promote best practice in sustainable

forestry and to emphasise the role of ecosystem services. The company

is involved in several biodiversity projects in collaboration with various

stakeholders.

The UPM biodiversity programme received an honourable mention

in the 2016 corporate biodiversity awards by Finland’s leading corporate

responsibility network FIBS. FIBS also gave UPM an award for its

biodiversity reporting.

The Finnish government’s bioeconomy strategy, the increasing

demand for rawmaterials resulting from the strategy and the impacts

will have on biodiversity raise conflicting opinions. This year,

UPM actively participated in a roundtable process coordinated by two

Finnish ministries: the Ministry of the Environment and the Ministry

of Agriculture and Forestry. The process involves forest owners, forest

and environmental organisations and representatives from industry,

research and public administration. The common goal is to find ways

to safeguard forest biodiversity.

One example of a concrete action carried out to safeguard forest

biodiversity is controlled burning. In 2016, UPMperformed controlled

burning of felling sites located in company forests around Finland.

Fire is an essential part of the natural life cycle in boreal forests. After

a fire, deadwood and a new generation of trees develop in a couple of

years. Controlled burning helps to maintain the habitats of rare and

endangered fire-dependent species.

UPM and the FinnishMinistry of the Environment have agreed on

the establishment of several private conservation areas on UPM land

in 2016. The areas are located in different parts of Finland.

Sustainable forestry

At the end of 2016, UPM owned 640,000 hectares of forest in Finland

and 75,000 hectares of forest in the United States. Additionally, the

company has 254,000 hectares of forest plantations in Uruguay. Forests

owned by UPMhouse around 48,000 protected sites with a total area of

147,000 hectares. The company is also responsible for managing almost

900,000 hectares of forests and forest plantations owned by private

forest owners.

Forest certification is an excellent tool for promoting sustainable

forestry. Certification is based on standards that have been defined in

an open stakeholder process, and compliance with these standards is

monitored by an independent third party.

All UPM owned forests are certified. To promote the certification

of privately owned forests in Finland, UPMhas established FSC® and

PEFC

group certification schemes. In 2016, UPM’s Finnish FSC group

certification scheme grew to cover nearly 250,000 hectares of forest.

UPMworked together with FSC Finland to promote certification of

small privately owner forests.

UPM also expanded its electronic services for forest owners during

the year. The digital applications provided by the company facilitate

the systematic management of forest property.

The target is to increase the use of certified wood so that all wood

used by the company will be certified by 2030.

UPM is a responsible forest owner and wood user

The growing need for food production and wood, particularly in the

tropics, causes deforestation, which is an important concern for the

entire forest industry. UPM recognises this challenge and has reacted

by taking action in its own operations and by actively participating in

international co-operation networks.

UPM does not use wood from tropical rainforests as rawmaterial,

or accept wood from forest plantations that have been established by

destroying rainforests. UPM does not operate in areas where the rights

of indigenous peoples are threatened or endangered.

Responsible sourcing

throughout the entire

supply chain

UPM aims to have to have a supplier base that is capable of delivering

responsibly produced, cost competitive and innovative materials and

services to its businesses globally. As a customer, UPM strives to be a

trustworthy business partner and that responsible and ethical practices

create long-term value for both the company and its stakeholders.

Products and services are a significant cost element for UPM and

therefore the cost efficiency is the leading principle in UPM’s sourcing.

UPM also sets requirements for the reliability of deliveries in the long

term as well as for the quality of the products and services. Furthermore,

UPM requires financial stability, environmental and social responsibility,

safe products and professional occupational health and safety practices

from its suppliers.

Wide range of suppliers – targeted co-operation

Suppliers and third party intermediaries are an important stakeholder

group for UPM. The company’s sourcing network consists of suppliers

ranging from private forest owners and local companies and operators to

large international corporations. Over 30,000 suppliers deliver a variety

of rawmaterials, products and services to UPM globally.

UPM continuously evaluates the performance of its supplier base and

seeks to develop its relationship with the key suppliers. The company has

established long-term relationships with some 300 suppliers in order to

ensure systematic performance and quality development. UPM’s

businesses annually evaluate satisfaction with the key suppliers’

responsibility.

UPM Supplier Code revised

UPM requires its suppliers and third party intermediaries such as agents,

consultants, advisers and joint venture partners to apply the same

principles as in the UPMCode of Conduct and to fulfil the criteria

concerning social and environmental responsibility. These supplier

requirements are defined in the UPM Supplier and Third Party Code.

UPMCode of Conduct was revised in 2016 and in connection with that

UPM also revised its Supplier Code. Furthermore, UPM expects its

suppliers to promote the same requirements in their upstream supply

chain.

In 2016, 80% (79%) of UPM supplier spend was qualified against the

Supplier Code, i.e. they commit themselves to UPM responsibility

requirements including occupational health and safety. All suppliers

working on site go through UPM’s safety requirements and a web-based

safety induction training. A number of additional requirements are in

place for sourcing of wood, chemicals, pulp and packaging materials as

well as for safety and logistics.

All suppliers who deliver UPMwood, pulp and recycled paper are

evaluated based on special criteria on environmental and labour

practices, human rights and impacts on society. In practice, this means

that those commodities are either certified (FSC® & PEFC™) or subject

to due diligence system as required by FSC ControlledWood standard

and PEFC Chain of Custody standard.

Sourcing operations play a significant role in

ensuring the efficiency and profitability of UPM.

Renewable wood is UPM’s most important raw material. UPM is committed to

sustainable forestry, and the company uses third-party-verified chains of custody to

ensure that the wood it receives is legally sourced from sustainably managed forests.

Share of

certified

fibre

84%

TARGETS

2030