UPM Annual Report 2016

60-61 / 176

UPM Annual Report 2016 UPM Annual Report 2016 60 61
In brief Strategy Businesses Governance Accounts Stakeholders
CONTENTS
Wood is the primary raw material
UPM is both a major forest owner and a purchaser of wood. UPM sources
all wood assortments to ensure the optimal utilisation of this valuable
rawmaterial.
In 2016, UPM sourced 27.8 (26.1) million cubic metres of wood
globally. The majority of wood is purchased from private forest owners
who numbered over 25,000.
A network of local entrepreneurs is responsible for UPM’s harvesting,
logistics and forestry operations. Wood Sourcing and Forestry in Finland
indirectly employs approximately 2,000 persons via entrepreneurs.
In 2016, Wood Sourcing and Forestry trained its 45 key contractors
in Finland in business management. The trainings will continue in 2017.
Tracing the origin of wood is a prerequisite for UPM
All wood UPMuses in its products is legal and comes from sustainably
managed forests. UPM does not accept mixed tropical hardwood from
rainforests, nor does it accept wood from plantations that have been
established by destroying rainforests. UPM does not source wood in
areas where indigenous peoples’ rights are not respected.
All wood is covered by a third-party verified chain of custody
certificates under the FSC® and PEFC™. In 2016, 84% (84%) 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 jurisdictions. The Finnish
authorities audited UPM’s compliance with the EUTR regarding the
deliveries of chips fromRussia and the same was done for the pulp
fromBrazil by the German authorities.
Aiming at continuous improvement together with
pulp and other paper raw material suppliers
UPM buys approximately 1.8 million tonnes of chemical pulp from
external suppliers. Specific requirements are set for pulp suppliers with
regard to environmental performance, social responsibility, forestry,
wood sourcing and performance reporting.
Collecting and analysing the environmental and social performance-
related data of UPM’s pulp and chemical suppliers is an integral part of
the company’s supplier risk and performance management. Based on
the results of these analyses, the development plans are made together
with the suppliers.
In 2016, UPMRaflatac invited the best performing suppliers to
participate in the Label Life Award competition on corporate
responsibility. The award recognises UPMRaflatac’s suppliers’ efforts
in achieving good environmental and social performance and generates
further co-operation among the participating companies.
Since 2012, UPMPaper ENA and UPM Specialty Papers have
conducted a Supplier Performance and Responsibility Survey to follow
responsibility of their key suppliers. In 2016, 42 key suppliers were
evaluated and some 170 improvement proposals were identified.
To motivate its suppliers to further improve their performance,
UPM awards the most responsibly performing suppliers annually.
The packaging supplier Paul & Co. received the UPMBest in category
supplier award for the second time in a row.
UPM uses significant amounts of recovered paper
UPM is the world’s largest user of recovered paper for the production
of its graphic papers, consuming 2.8 (3.1) million tonnes of recovered
paper in 2016. The share of recycled fibre represents one third of all
fibre rawmaterials used in UPM’s paper production.
The efficiency of paper recycling depends on how the local
infrastructure for national collection schemes works. UPMpurchases
its recovered paper from local authorities, waste management
companies and printing houses, all of which are located close to the
mills in Europe. This is how UPMmaximises cost efficiency and
minimises environmental impact.
Energy from renewable sources
UPM is both a significant purchaser and producer of energy. The
majority of electrical and thermal energy is used for 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 2016, 69% (67%) of the fuels used by UPM came from renewable
sources.
In addition to UPM’s own electricity generation, electricity is also
purchased from the energy markets.
Logistics form the foundation for on-time deliveries
UPM delivers approximately 1.3 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, 66% are transported by
rail and road and 34% 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 customers.
UPM considers cost efficiency and environmental aspects in its
transport operations. For example, the transport services are purchased
from environmentally advanced contractors using low-emission
vehicles and transport payloads are optimised.
Wood sourcing and logistics services have a significant socio-eco­
nomic impact on the rural areas where UPMmills are located. In total,
5,350 harvester drivers, 5,500 truck drivers and 820 rail-road workers
work indirectly or directly for UPM. The number of entrepreneurs and
companies involved is 860. These numbers combined with purchases
from private forest owners significantly support local livelihoods in
rural Europe, the US and Uruguay.
Out of a total spend of EUR 3.3 billion for UPMprimary raw
materials —wood, pulp and recovered paper — 68%was purchased
from local suppliers.
Transparent supplier requirements
are the basis for responsible sourcing
UPM’s supplier risk assessment covers financial, quality, environ­
mental, social, economic and delivery related risks.
Based on the risk assessments, UPM selects the suppliers whose
performance is assessed in more detail. UPMuses tools such as annual
questionnaires, audits and joint development plans. In 2016, UPM
Sourcing function provided comprehensive risk assessment training
to key personnel as well as training on operational health and safety
issues to personnel visiting suppliers’ production units regularly.
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 increased with a comprehensive geo­
graphical coverage. Some of the audits covered the entire upstream
supply chain.
In case of any non-conformance, the supplier is required to take
corrective actions. UPM follows the progress and supports the supplier
to develop its performance, when needed. However, no significant
negative impacts have been identified.
,
and
SUPPLY CHAIN RISK MANAGEMENT ENHANCED
The purpose of supplier selection process and the audit is to
ensure compliance with UPM’s requirements. Using external
experts has improved the quality of the audits, especially in
environments where accurate knowledge of local language
and legislation is important.
UPM’s audit partner in China is SGS, the world’s leading
auditing, verification, testing and certification company.
“Typically, the focus has been on occupational health and
safety and environmental issues”, says Tony Yang, the expert
in charge of UPM audits at SGS.
“During the audits, we assess, for example, the measures
UPM’s subcontractors take to maintain their facilities, the
firefighting equipment available or how first aid training
is carried out. Meanwhile, we also make sure that the
subcontractors comply with the local and international
regulations and UPM’s requirements”.
Based on risk assessment, UPM defines the areas for the
audit. The auditor is then responsible for conducting the
audit and reporting the results. UPM’s responsibility is to
ensure the suppliers address any found issues as required.
Read more:
WOOD DELIVERIES TO UPM MILLS
1,000 m3 2016 2015
Finland 18,619 17,697
Germany 2,030 1,543
Austria 1,297 1,013
United Kingdom 368 271
Russia 344 272
Estonia 165 135
United States 544 867
Uruguay 4,469 4,293
Total 27,776 26,090
11 12 13 14 15 16 07 10 09 08
20
16
12
8
4
0
■ Market purchase
■ Condensing, shareholdings
■ Nuclear, shareholdings
■ Hydro, shareholdings
■ Hydro
■ CHP
Electricity sourcing
TWh
Company forests
17%
Import 12%
Private forests
32%
State forests 3%
Delivered sale/
incl. sawmills 36%
Sources of wood to UPM mills 2016
Fibre 31%
Logistics 16%
Energy 10%
Raw materials 29%
Indirect
materials and
services 14%
UPM’s external purchasing spend
Continuous
supplier
development
Compliance Transparent
supplier
requirements
Systematic risk
assessment
IMPROVED FINANCIAL
PRFORMANCE
UPM Responsible Sourcing fundamentals
94%
TARGETS
2030 of raw material spend
qualified against
UPM Supplier Code