UPM is responsible for many projects in several of its countries of
operation at any given time. All projects involve technical and
operational risks, and projects require continuous operational planning,
steering and supervision, quality control, input procurement, scheduling
as well as resource and cost monitoring. Managing several projects
requires that UPM has sufficient resources and efficient processes.
Persistent port congestion issues, transportation bottlenecks, and rising
logistics costs, all of which could be resulting from external events or
market conditions beyond the control of UPM, may have an effect on
the execution or profitability of investment projects. The COVID‑19
pandemic and the required additional health and safety measures have
also added a new challenge to large investment projects. UPM’s
transformative pulp project in Uruguay and biochemicals project in
Germany are proceeding with strict health and safety controls, but
despite these efforts, some changes to the detailed timeline of the
projects may occur due to containment measures or infections affecting
project workers, suppliers or infrastructure.
Unavailability of information systems as well as cybersecurity
breaches
UPM’s production and business operations depend on the availability of
supporting information systems and network services. Unplanned
interruptions in UPM's or a supplier's critical information system
services, loss of critical, financial or personal data due to reasons
beyond UPM’s or its suppliers' control, such as power cuts, software or
telecommunication errors or other major disasters, such as fires or
natural disasters, as well as user errors by UPM’s own personnel or
suppliers, can potentially cause major damage to UPM’s businesses and
disruptions to the continuity of operations.
UPM’s or its suppliers' information systems may be exposed to
various cybersecurity risks. Malicious cyber intrusion could cause
leakage of sensitive information, violation of data privacy regulations,
theft of intellectual property, production outages and damage to UPM’s
reputation.
Litigation and compliance
UPM operates globally in a large number of jurisdictions and complex
regulatory frameworks. UPM may from time to time be involved in
litigation and other similar proceedings or it could become subject to
various claims and actions based on various grounds.
On a global scale, enforcement activities and jurisdictional reach
regarding competition issues and anti-corruption have increased. Also,
the recent development of Renewable Energy Sources Act (EEG) related
lawsuits in Germany for alleged non-payment of EEG based surcharges
may have an adverse impact on UPM, albeit UPM is not currently a
party to any such lawsuits. The UPM Code of Conduct sets the
standards of responsible behaviour and it covers topics relating to legal
compliance and disclosure, anti-corruption, competition law, HR
practices, human rights, responsible sourcing and environmental
matters.
UPM’s environmental performance and social responsibility play a
significant role in UPM’s ability to operate and influence the long-term
success of its businesses. UPM has significant manufacturing operations
or sourcing in several developing countries, some of which are
perceived as highly corrupt or corrupt according to Transparency
International. In these countries, there is an increased risk of corruption,
for example in relation to interaction with government officials and in
the use of intermediaries when applying for permits and licences
requiring governmental approval. Breaches of applicable laws and
regulations or corporate policies by UPM employees may lead to legal
processes, sanctions and fines as well as reputational damages
effecting UPM’s operations. For example, In October 2021 the
European Commission conducted an unannounced inspection at UPM’s
premises. According to the Commission’s press release on 12th
October, the Commission has concerns that the inspected companies in
the wood pulp sector may have violated EU antitrust rules that prohibit
cartels and restrictive business practices. Commission states that the
unannounced inspections are a preliminary step in an investigation into
suspected anticompetitive practises, and the fact that the Commission
carries out such inspections does not mean that the companies are guilty
of anti-competitive behaviour nor does it prejudge the outcome of the
investigation itself. UPM continues to support the Commission with any
investigation activity that may follow.
Industrial actions
UPM is subject to risk of industrial actions, which could disrupt its
business operations or the business operations of its stakeholders.
Uncertainty may increase in the Finnish labour market amid the
announcement of the Finnish Forest Industries Federation in fall 2020 to
transfer collective bargaining to companies. For example, in the
beginning of 2022, members of the Paperworkers’ Union, the Finnish
Electrical Workers´ Union and the Trade Union Pro started strikes at
UPM mills in Jämsänkoski, Kouvola, Lappeenranta, Pietarsaari, Rauma,
Tampere and Valkeakoski, Finland. These strikes or other industrial
actions in UPM’s business operations or related sectors could have an
effect on UPM’s business operations. For example, industrial actions in
the transport sector or among other stakeholders important to UPM, may
disrupt UPM’s operations. Additionally, public dissatisfaction with
UPM’s labour-related decisions may, in extreme cases, lead to
unanticipated boycotts or disruptions at its facilities or construction sites.
A natural disaster, fire, accident or other calamity at UPM’s
production facilities
UPM operates a significant number of production facilities globally that
are exposed to risks related to environment, fires, natural events, site
security and occupational health and safety risks. If UPM’s production
facilities were to experience a major accident or were forced to shut
down or curtail production due to such unforeseen events, such as a
leak or spill due to malfunction or human error, this could cause major
interruptions in UPM’s operations and result in significant costs in order
to clean up and repair any potential damages to the production plant
and the surrounding areas. Any failure to maintain high levels of safety
management could also result in physical injury, sickness (such as a
COVID‑19 infection) or liability to UPM’s employees, contractors or
third parties. These risks are managed through established management
procedures, health and safety precautions and loss prevention
programmes. UPM’s insurance programme provides coverage for
insurable hazard risks, subject to insurance terms and conditions.
Forests and plantations
UPM’s plantations and forests may be affected by the impacts of climate
change, which include more frequent and severe extreme weather
conditions such as heavy rainfall, storms, floods and drought. Climate
change is expected to have the biggest physical effect on UPM’s forest
lands in Finland, where temperatures are expected to rise more
significantly and rapidly compared with other countries where UPM
owns forest. Although forest growth will likely accelerate, particularly in
Finland, due to the longer growing season, extreme weather conditions
will intensify, presenting new risks. The increase of droughts and fires
are estimated to pose the most significant risks for UPM’s business. Also,
damages caused by insects and tree diseases are becoming
increasingly common, which could have an effect on the value of UPM’s
forest assets. Should these risks materialise, they could harm UPM’s
forest and plantations resulting in production interruption and additional
costs.