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Risks and opportunities

UPM is exposed to several risks and opportunities in its operating environment. Many of these risks and opportunities arise from the general political and economical environment, as well as global megatrends.

Cyclical and competitive business environment

Climate change

Geopolitical and economic uncertainty

Changes in policies, legislation and stakeholder expectations

Execution of strategic investment projects

Input price fluctuations on the main raw materials and services

Information technology availability and increasing cybercrime activity

Operational hazards, health and safety issues and business interruption

Financial risks

Emerging risks

Cyclical and competitive business environment

UPM’s product offering competes in markets where customers have competing alternatives, and shifts in supply and demand continuously influence prices. Changes in production capacity, shifts in the supply chain, new product or raw material development, and changes in competitor and consumer behavior may impact price levels for our products and main inputs, and cause temporary or permanent changes in demand. The rapid acceleration of digitalization and e-commerce may expedite the decline in demand for communication papers and simultaneously increase demand for sustainable packaging products.

Management: Industry-leading balance sheet. Continuous improvement in competitiveness, resource efficiency and customer offering. Responsible operations. Business portfolio development.

Opportunity: The growing need and consumer preference for renewable and recyclable solutions create business opportunities and drives demand growth.

Climate change

The transition to a low-carbon economy may cause policy changes and shifts in market preferences, standards and technologies. These changes may affect cost structures, the commercial opportunities of biomass, and the competitiveness of products, raw materials, industries, and countries. The physical impacts of climate change include more frequent and extreme weather conditions such as droughts, floods and forest fires, which can disrupt business operations and damage UPM's or suppliers' production assets. Damage caused by insects and tree diseases may become more common.

Management: Long-term targets and science-based measures to mitigate global warming through sustainable forestry, reducing emissions and innovating novel products. Enhance biodiversity.

Opportunity: Transition opportunities include those driven by resource efficiency, new technologies and CO2-free electricity, products and services. These may bring new markets, customers, sources of funding, and competitive advantage. Longer forest growing season in the northern hemisphere.

Geopolitical and economic uncertainty

Currently, high uncertainty relates to intertwining geopolitical and trade tensions between major economies, particularly to the impacts of the policies and actions of the current U.S. administration and potential countermeasures by other countries. Russia’s ongoing war in Ukraine, the conflicts in the Middle East, and the recent tension over Greenland, continue to cause high uncertainty in the operating environment, which may impact economic growth, inflation and trade. These factors challenge the competitiveness and predictability of companies with international value chains and operations in several countries. Testing relationships between businesses, governments, and society, as well as the growing international focus on defense and protectionist trade policies, may stress the economic and political environment, causing local challenges to our operations or influencing demand, sales prices, or input costs for our products.

Management: Monitoring through international trade associations. Compliance. Continuous improvement in competitiveness. Continuous monitoring of the geopolitical landscape. Disciplined planning and selection of investments. Business portfolio development.

Opportunity: Diverse business portfolio, geographical presence and responsible business practices may present supply chain optimization or strategic opportunities (incl. M&A) during testing economic times.

Changes in policies, legislation and stakeholder expectations

The strain on natural ecosystems has intensified expectations for companies to provide economic, social and environmental benefits, and complement the actions of governments. Changes in regulation, taxation or subsidies may affect our performance, competitiveness, and the cost and availability of raw materials. Unpredictable and rapid changes in policies, such as those in the U.S. or EU, or local legislation may occur. Environmental regulations may continue to become stricter. As policies, legislation or stakeholder expectations change, or as they are applied, additional costs may be imposed on us for complying with stricter requirements or for noncompliance.

Management: Responsible operations in the value chain enhance the ability to operate and influence long-term business success, including environmental management systems, sustainable forestry and compliance.

Opportunity: Creating value for society through our renewable and responsible material and energy solutions, is an integral part of our strategy. The bioeconomy offers new opportunities for value creation and business growth.

Execution of strategic investment projects

We invest in selective strategic projects to enable profitable growth. These projects are often large and may take several years to complete. They may also involve strategic, technical and operational risks. Our biochemical refinery project in Germany utilizes new technology and opens new markets for us. The recent high inflation and interest rate environment, construction material price uncertainty, availability of skilled labor, and bottlenecks in global logistics and supply chains have introduced new challenges to large investment projects.

Management: Strict and continuous operational planning, steering, supervision, quality control, input procurement, scheduling and resource and cost monitoring. Environmental, health, safety, and social impact assessments and protocols. Stakeholder engagement.

Opportunity: Carefully selected and implemented growth projects improve our earnings and returns, changing the company's positioning.

Input price fluctuations on the main raw materials and services

The main production inputs required for manufacturing our products are wood, fibre, chemicals, energy and water. Prices of many of these inputs have been volatile in recent years and are expected to remain so in the foreseeable future. Ongoing military conflicts, government protection, geoeconomic rivalry, climate change, supply chain disruptions, environmental policies, and other governmental actions or restrictions may cause further uncertainty regarding the prices and availability of these inputs, as well as logistics services.

Management: Continuously improving resource efficiency, supply chain optimization and diversification. New technologies. Long-term supply contracts and reliance on alternative suppliers. Own selected ownership forest land and enter into long-term forest management contracts.

Opportunity: The circular economy, continuous improvement in resource efficiency and supply resilience offer a competitive advantage in the face of price fluctuations .

Information technology availability and increasing cybercrime activity

Our business operations depend on the availability of supporting information systems and network services. Unplanned interruptions in critical information system services may disrupt the continuity of operations. Information systems may be exposed to cyber intrusions that may result in the leakage of sensitive information, violation of data privacy regulations, theft of intellectual property, and the dissemination of AI-generated misinformation or disinformation. Such intrusions may also lead to production outages or damage to our reputation.

Management: Systematically maintaining and further developing our cybersecurity protection measures. Information security governance, roles, and responsibilities are defined as a part of the UPM Digital Safety Rules approved by the Group Executive Team. The UPM Information Security Management System, approved by the IT Management team, further defines related processes and practices to ensure the integrity and protection of our systems, services and data.

Every individual involved in UPM operations (employees, suppliers, customers) plays a role in cybersecurity protection. Trainings ensure up-to-date knowledge to understand risks, identify threats, and report deviations
We systematically maintain and continuously develop measures for cybersecurity protection. We perform audits and assessments of our IT infrastructure, systems and services, and we actively monitor and respond to threats and vulnerabilities
Cybersecurity is incorporated into our business continuity plans as a part of our risk management processes
Our cybersecurity requirements extend to our business partners and suppliers

Opportunity: Sophisticated IT systems enable efficient operations, optimized performance, new customer services and data security.

Operational hazards, health and safety issues and business interruption

Our operations are exposed to environmental risks, fires, natural disasters, machinery breakdowns, site security issues, and occupational health and safety hazards. A major incident at a UPM site or a critical part of the supply chain may result in a shutdown or curtail production. Failure to maintain high safety management levels may result in physical injury, illness or liability to employees, contractors or third parties, causing a business interruption.

Management: Systematically maintaining and further developing our management, safety, security and loss prevention program,s as well as insurance protection and business continuity. Development of process safety.

Opportunity: Industry-leading environmental performance provides competitive advantage. Health and safety performance strengthens engagement, efficiency and productivity.

Financial risks

Financial risks include foreign exchange and interest rate fluctuations, refinancing challenges, counterparty or credit risks and changes in taxes. Changes to the monetary policies of major central banks may significantly impact interest rates. Escalation of global trade tensions could influence currency exchange rates. Changes consequently could impact UPM’s cash flow, earnings or balance sheet, and may also affect the competitiveness between different currency regions. Our foreign exchange rate risk is primarily related to the U.S. dollar, British pound and Japanese yen.

Management: Continuous hedging of net currency exposure. Hedging the balance sheet. Continuously improving competitiveness. Disciplined planning and selection of investments. Business portfolio development.

Opportunity: A diverse business portfolio and geographical presence, focus on competitiveness and strong balance sheet may present strategic opportunities in a changing currency environment.

Emerging risks

Geostrategic shifts refers to evolving sources and concentration of geopolitical power. Global rules-based order is increasingly being tested. Confrontations may cause rapid unplanned changes in the viability of our long-standing sourcing or sales destinations. Many of our businesses are operating in global marketplaces, and major shocks to fundamental business realities could result in lost customers or suppliers in a country or region.

Management and opportunity: Strong balance sheet. Diverse business portfolio and geographical presence, resilient production footprint.

Biodiversity refers to the variety of species and ecosystems on our planet. Despite ongoing efforts, the UN reports that biodiversity is deteriorating worldwide. Our operations are closely linked to biodiversity, and the most significant impacts arise from wood sourcing activities. The deterioration of biodiversity may lead to slower forest growth, which may impact the availability of wood and increase its cost for UPM in the long term. Biodiversity loss arising from wood sourcing may result in legal action against UPM or restrictions on wood use.

Management and opportunity: The global 2030 Forest Action Program combines measures on climate, biodiversity, soil, water and social contribution. Biodiversity is essential to maintaining healthy forest growth.