Stora Enso approach to governance and sustainability Yngve Stade 12 September 2005

Stora Enso approachto governance and sustainability

Yngve Stade12 September 2005

12 September 2005 UPS2

It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similar expressions, are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to:(1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Group’s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group’s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group’s products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group’s principal geographic markets or fluctuations in exchange and interest rates.

12 September 2005 UPS3

Outline

Introduction to Sustainability

Corporate Governance

Environmental Responsibility

Corporate Social Responsibility

Conclusion

Questions and Discussion

Introduction to Sustainability

12 September 2005 UPS5

Business cannot be sustainable if it is not competitive

and

it cannot remain competitive if it is not sustainable.

12 September 2005 UPS6

We view sustainability as being a natural part of our business practice and industrial tradition because our business is based on renewable and recyclable raw material - wood.

12 September 2005 UPS7

EnvironmentalSocial(CSR)Economic

Accountability: Transparency, Stakeholder dialogue

Sustainability(Corporate Responsibility)

Balancing different aspectsof sustainability

12 September 2005 UPS8

Towards superior performance

Company strategy: Stora Enso wants to achieve operational excellence and superior performance and image in sustainability.

Mission: Our products promote well-beingVision: We take the lead Values: ResponsibilityPolicy: Code of Ethics

Environmental and Social Responsibility Policy CSR Principles Set of Environmental Principles

12 September 2005 UPS9

• Tools to implement the commitments e.g.– Environmental management systems– Traceability and forest certification systems

– 98% of all the fibre used covered by traceability systems– 48% of the wood used come from certified sources (2004)

– CSR Unit Implementation– Significant social aspects, related action plans and key

performance indicators identified by each unit by the end of 2006

– Excellence 2005• Third-party verified external reporting

– Group Sustainability report– 48 production-unit-specific EMAS statements (2004)

• Stakeholder engagement

Managing Sustainability at Stora Enso

12 September 2005 UPS10

Sustainable companies

• Take a long-term focus

• Address overall impacts and “footprint”

• Engage with full range of stakeholders

• Seek economic growth, ecological balance and social progress

• Well governed companies have mitigated risks

The Business Case for Sustainable Development

12 September 2005 UPS11

Customers’ sustainability expectations

• Acceptability of fibre – Traceability of fibre, forest/plantation

certification, illegal loggings– Case: Upper Lapland, Harry Potter

• Emerging markets– Human rights, labour rights, land usage– Health and safety– Business practices– Case: Tihkvin, Veracel

• Sustainability governance– Internal monitoring, helplines

• Managing our supply chain– Sustainability criteria and monitoring of

suppliers & contractors

Corporate Governance

12 September 2005 UPS13

Stora Enso’s Corporate Governance is guided in addition to laws and regulations by:

• Corporate Governance Code• Working Order of the Board of Directors• Charter and Working Order of the Financial and Audit

Committee• Charter of Compensation Committee

• Charter of Nomination Committee

12 September 2005 UPS14

Stora Enso Governance StructureCommittee responsibilities

12 September 2005 UPS15

Board Structure

• Currently, the Board has 10 ordinary members: – Nine non-executive members who are independent

and not affiliated with Stora Enso – One executive member (CEO)

• Competence– Long and extensive experience within paper industry,

finance, marketing, capital markets and large international corporations

12 September 2005 UPS16

Remuneration Policy

• Remuneration of the Board members is decided by the shareholders at the AGM

• Paid to non-executive members only

• No options granted

EUR Chairman Vice Chairman

Board Member

2004 135 000 85 000 60 000

2003 135 000 85 000 60 000

2002 135 000 85 000 60 000

12 September 2005 UPS17

Protection of minority shareholders Annual General Meeting (AGM)

• Invitations sent to all shareholders• AGM simultaneously translated into Finnish, Swedish,

English• Live webcasted in Finnish, Swedish, English• Nominee-register voting• Proxy voting arranged for ADR holders

-> All shareholders have the possibility to participate or follow the AGM online

• In the past there has been even lively stakeholder dialogue in the AGMs

12 September 2005 UPS18

Reliable financial reporting and disclosure processes

• Supervised by the Disclosure Committee – Headed by Group Controller and the other permanent

members are the head of Internal Auditing and the General Counsel

– Reports to the CEO and the CFO• Currently on the agenda are initiatives to comply with

Sarbanes-Oxley Act• Stora Enso financial reporting has received international

recognition already for many years

12 September 2005 UPS19

Economic aspect – the 1st pillar

• Profitable growth, mergers and acquisitions in mature and emerging markets, enhancing efficiency through continuous improvement, asset restructuring

• Strong balance sheet, operating profit, cash flow, debt/equity, etc.

• Create value for employees, customers, shareholders, suppliers, capital providers and the public sector

• Transparent independently audited reporting

Environmental Responsibility

12 September 2005 UPS21

Environmental aspect – the 2nd pillar

• Product life cycle, eco-efficiency, holistic view• Strive for continuous improvement (minimise

environmental footprint)• Protection of natural resources, avoiding depletion,

preserving ecological values• Transparent independently audited reporting

12 September 2005 UPS22

What is environmental responsibility?

• Operating in natural resources industry – Conflicting values

• Ensuring the environmental and social acceptability of raw materials

• Minimising the environmental impacts of mill operations

• Resource and energy efficiency– Minimising solid residuals– Maximising use as raw materials for other

processes– Combined heat and power production and

energy conservation• Minimising the environmental impacts of

transportation– E.g. noise and vibration

12 September 2005 UPS23

Major wood procurement areas

Othercountries

Finland

The BalticCountries

ContinentalEurope

Portugal

Canada

USARussia

Sweden

Wood flows between procurement areas

Total consumption of woodin Stora Enso's own mills in 2004 was approximately46 million m3 (solid under bark). The total figure includes deliveries to joint ventureand subsidiary companies.

12 September 2005 UPS24

Maximising wood coming from certified forests

• Stora Enso promotes forest certification wherever it operates• The Group is working towards the mutual recognition of credible

certification schemes• Due to different conditions, Stora Enso sees a need for more than

one forest certification system in various regions

12 September 2005 UPS25

Traceability – Knowing every step

• Stora Enso’s traceability systems cover 98% of all wood.

• All wood must come fromsustainably managed andlegal sources.

• Sources must also be perceivedas acceptable.

• Traceability systems– Guarantee compliance with

corporate policies and national legislation

– Can be third-party-verified through EMAS, ISO 14001

Auditing

Wood origin data

Contracts

C

B

A

External auditsD

12 September 2005 UPS26

Less is more

Water needed to produce your daily newspaper

• 10 litres 30 years ago

• 2.5–6 litres today

30 years ago

Now

Waste and residuals

12 September 2005 UPS27

Making more with less by

• Continually reducing energy consumption per ton of product

• Overall resource efficiency, for example by decreasing water consumption

• Minimising production breaks

12 September 2005 UPS28

96% of the mills’ residuals utilised

Stora Enso strives to use raw materials as efficiently as possible

Group-level target: landfill waste reduced by 10% from 2004 to 2009

Achieved by:• increased raw material

efficiency in the mills• identifying new ways to reuse

landfill waste

12 September 2005 UPS29

Bio-fuels replacing fossil fuels

• High share (63%) of bio-fuels in energy production

• Target to improveutilisation in countrieswith remaining potential

• For Stora Enso, the most important bio-fuels are black liquor, bark and logging residues

12 September 2005 UPS30

Stora Enso and Climate Change (CC)

• Our business is from a CC perspective basically sound– Renewable raw material, high bio-fuels proportion, products store carbon

• We work systematically to develop our operations– Reduce specific energy consumption (per unit of production) for all processes

and product lines– Increase bio-fuel know-how better in markets with potential, such as Germany

and the USA– Improve wood procurement through full-assortment buying, and by

increasingly providing bio-fuels also for external users

• We participate in EU’s Emissions Trading Scheme and are a founding member of the voluntary trading scheme “Chicago Climate Exchange” (CCX)

• We are included in the recently launched Climate Leadership Index

12 September 2005 UPS31

Carbon Dioxide (CO2) Emission Rights

• EU has issued emission rights to participating entities to emit a specified level of emissions. Participants in the scheme have received certain amount emission rights for free and they are also able to buy and sell these rights in a market.

• Stora Enso has received 4.6 million tons of emission rights for 2005, which is estimated to be sufficient to cover the emissions.

• Stora Enso has not recorded any effect of the emission rights on its income statement nor balance sheet.

0

5

10

15

20

25

30

35

01.01.05 01.02.05 01.03.05 01.04.05 01.05.05 01.06.05 01.07.05 01.08.05

EUR / CO2 tonEmission Rights Price Trend

Corporate Social Responsibility

12 September 2005 UPS33

Corporate social responsibility aspect – the 3rd pillar

• Business practices (Code of Ethics)• Communication (accountability, stakeholder engagement

and transparent reporting)• Community involvement (responsible partner)• Reduction in work force (respect, sensitivity and

assistance for those impacted)• Principles regarding human rights

12 September 2005 UPS34

Corporate Social Responsibility– the principles

• Business Practice

• Communication

• Community Involvement

• Reduction in work force

• Principles regarding Human Rights– Working Conditions– Diversity– Freedom of association– Free choice of employment– Child labour– Remuneration– Working hours

12 September 2005 UPS35

Principles in action – Working conditions

Our employees are entitled to safe and healthy workplaces.

No employee shall be subject to any physical, psychologicalor sexual harassment, punishment or abuse.

Accidents at Stora Ensoper million worked hours

0

10

20

30

40

50

60

lost-time accidents all accidents

2003 20042004 20032003

12 September 2005 UPS36

Principles in action – Diversity

We recognise diversity as a strength.

Discrimination against any employee in respect of race, ethnic background, gender, disability, sexual orientation, religion, political opinion, maternity, social origin or similar characteristic is prohibited.

Age distribution 2004

< 20 0.7%

21 – 30 13.3%

31 – 40 26.2%

41 – 50 31.8%

51 – 60 25.1%

> 60 2.9%

Women in recruitment 2004

Permanent hires 26%

Permanent hires, bachelor’s or higher degree

38%

Gender distribution 2004

Female 18.4%

Male 81.6%

Employee distribution by country 2004

Employees %

Finland 13 820 31

Sweden 8 848 20

Germany 4 734 11

USA 4 644 11

Russia 1 710 4

Austria 1 261 3

France 1 260 3

Estonia 970 2

Netherlands 954 2

China 849 2

Canada 775 2

Belgium 603 1

Other countries 3 351 8

TOTAL, average 43 779 100

Conclusion

12 September 2005 UPS38

Key sustainability issues

• Acceptability of fibre sources

• Environmental performance

• Occupational Health and Safety

• Emerging Markets

12 September 2005 UPS39

SustainabilityWhy Does it Matter?

The Drivers

• Operating in natural resources industry

• Lack of trust toward companies

• Legislative pressures

• Legitimacy of globalisation questioned

• Size – a major player in forest industry

• Knowledge society – transparency and life on-line

• Vulnerability of brands

The Business Case

• Supports company’s license to operate

• Creates competitive advantage

• Enhances access to capital

• Mitigates investor risks

• Attracts the best employees

• The right thing to do – value driven

12 September 2005 UPS40

Transparent reporting

• Accountability, including transparency and open stakeholder dialogue, is the basis for Stora Enso’s sustainability work

• Public reporting as part of transparency is a way to show how the company is moving towards its targets

• Third-party verification is an essential part of transparent external reporting

• Stora Enso’s sustainability performance is reported in company’s annual sustainability report and production-unit-specific EMAS statements

– Stora Enso uses Global Reporting Initiative (GRI) in its annual sustainability report as applicable

12 September 2005 UPS41

Direct results of implementing environmental principles

• Increased environmental awareness and involvement of all employees

• Improved environmental performance and resource efficiency

– e.g. 25% reduction of landfilling of solid waste in 2002

• Improved proactivity• Enhanced stakeholder credibility

– the only forest products company that has been included in the Dow Jones Sustainability Index since 1999

• Enhanced monitoring and transparent reporting

– 100% covered by environmental management systems

• Generated cost savings

Visit www.storaenso.comfor more information

Appendix

12 September 2005 UPS44

Ownership Distribution

25%

2%

3%

31%

3%

22%14%

Finnish institutionsFinnish state

Swedish institutionsSwedish private shareholders

Finnish private shareholders ADR holders

Under nominee names (Non-Finnish/ Non-Swedish shareholders)

12%

2%

9%

15%

16%

42%

4%

By % of voting powerBy % of shares held

12 September 2005 UPS45

Dow Jones Sustainability Index• Tracks the financial performance of leading sustainability-driven

companies worldwide• Stora Enso listed seven years in a row and remains ranked as

one of the leading forest products companies

FTSE4Good Index• Index series for socially responsible investors• Assesses achievements in:

– Upholding and supporting universal human rights – Developing positive relationships with stakeholders– Working toward environmental sustainability

• Stora Enso listed continuously since inception in 2001

Other• Ethibel Sustainability Indexes • Nordic Sustainability Index

Sustainability Indices – Independent Assessment of Performance

12 September 2005 UPS46

• World Business Council for Sustainable Development (WBCSD): a coalition of 170 international companies united by a shared commitment to sustainable development via the three pillars of economic growth, ecological balance and social progress.

• The U.N. Global Compact: a partnership of private sector and U.N. agencies seeking to advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalisation.

• Business Leaders Initiative on Climate Change: an international program for industry committed to reducing the impact of business-related greenhouse gas emissions.

Involvement and Leadership in Sustainability Organisations