Metsä Board Annual and sustainability report 2022

climate becomes warmer, the most significant physical risks influencing forests and the availability of wood raw material will be the weakening of harvesting conditions due to shorter winters and increasing insect damage. The mitigation of climate change and the transition to a low-carbon economy are strongly visible in Metsä Board’s sustainability goals. Tran- sitioning to fully fossil-free energy in production, abandoning fossil-based raw materials and using energy and water more efficiently are at the core of these objectives. The measures related to the objectives help Metsä Board to manage climate risks. At the same time, they open new opportunities for Metsä Board in the changed operating environment and meet the needs of the circular economy. Forest protection must be increased to safeguard forest biodiversity, which, in turn, poses risks to wood supply. All wood sourced by Metsä Group comes from sustainably managed forests, and this is verified by certification or controlled in other ways. Metsä Group also implements its ecological sustainability programme in commercial forests jointly with forest owners The company also has a nature programme for non-com- mercial forests, which aims to safeguard biodiversity and improve the state of waters in Finland through restoration projects funded by Metsä Group. Increasing EU regulation poses risks to the commercial use of forests in Metsä Group’s wood supply. There are many different vegetation zones in the EU area, and each zone has its own characteristic forests. The forests of each zone, as well as the forest management practices best suited to them, differ from one another. However, EU-based regulation concerning forests in the EU area and their use has become clearly more detailed, treating different areas in a similar way. This trend increases the risk for poorly suited regulation also applying to forests from which Metsä Group obtains raw material.

company has prepared continuity and recovery plans in preparation for the realisation of these risks.

Business development The development and growth of Metsä Board’s business requires strategic choices that involve risks. The uncertainties in question involve the selection and timing of growth investments, for example, as well as the development of sales and the customer portfolio. The growth of the paperboard business and the introduction of new production to the market are dependent on successful sales. The commercialisation of new products involves uncertainties that, should they be realised, could have a negative impact on the demand for Metsä Board’s products and the company’s profitability. Increasing sales on a global scale also involves cost and exchange rate risks. Business is also being developed by modernising production technology, running efficiency programmes, conducting product development, and harmonising business processes. If the costs of development projects and investments are significantly exceeded, their completion is delayed, or their productive or commercial objectives are not met, this could negatively affect the company’s profitability. Business ethics Business ethics in general, as well as the prevention of human rights violations, conflicts of interest, misuses, corruption, bribery and money laundering, have been identified as requiring continuous development. The company carries out an ethics barometer aimed at the entire personnel every other year. The anonymous Compliance and Ethics Channel and the functioning of the related investigation process are also key tools in the identification and management of compliance-related risks. As part of its ongoing sustainability efforts, the company is developing processes and controls to help identify and more efficiently manage risks related to the sustainability of the supply chain, including trade sanctions, conflicts of interest, irregularities, corruption, bribery, money laundering, taxation and human rights. Liability risks Metsä Board’s business involves liability risks, such as contractual, envi- ronmental and product liability risks. Liability risks are managed by way of efficient business processes, contract training, management practices, quality control and transparent operations. Some of the operational liability risks have been hedged with insurance policies. Corporate security risks Risks to corporate security include shortcomings and neglect in personal safety and security and safety at work and in the management of financial misconduct, any negative information manipulation and cyber threats, threats affecting the supply chains, and the adequacy of internal control. Operating processes related to corporate security and the guidelines, training and internal control related to the management of threat factors are developed continuously, and exercises on the management of crisis situations are organised on a regular basis.

Concentration of operations in a limited geographical area

Seven of Metsä Board’s eight production units are located in Finland, and one of them is located in Sweden. Finland has a history of labour disputes in both the forest industry and the distribution chain of forest industry products. These may have a negative impact on production volumes and customer deliveries and weaken the company’s competitiveness and profitability. Labour disputes in Sweden may also damage Metsä Board’s production and customer deliveries and have a negative impact on the company’s business operations. Continuity risks The continuity of mills’ production may be impacted by, for example, large- scale fires, significant equipment malfunctions, serious accidents, extreme weather phenomena and environmental damage. Employees falling ill due to infectious diseases, cyberattacks and malware and ensuing long-term malfunctions in IT systems, labour disputes, availability issues concerning the most important raw materials and disruptions in the logistics chain may suspend the entire business or parts thereof. Interruptions in production or the supply chain may influence the continuity of customer service and delivery reliability. If such interruptions continue for a long period of time, the resulting financial losses may be very substantial and result in the permanent loss of customers. The


Report of the Board of Directors | METSÄ BOARD ANNUAL AND SUSTAINABILITY REPORT 2022

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