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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