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Sustainability

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Printed copies of the report may be ordered through our website at www.storaenso.com/order

or by contacting any of the corporate offices (see back cover).

CONTACTS

Kari VainioExecutive Vice President, Corporate Communications

Tel. +44 20 7016 3140

Fax +44 20 7016 3208

Stora Enso International Office,

9 South Street, London W1K 2XA, UK

[email protected]

James D. Weinbauer

Senior Vice President, Stora Enso Environment

Tel. +1 715 422 3693

Fax +1 715 422 3625

Stora Enso, P.O. Box 8050

Wisconsin Rapids

WI 54495-8050, USA

or

Tel. +46 1046 46000

Fax +46 8 10 60 20

Stora Enso AB

P.O. Box 70395

SE-107 24 Stockholm, Sweden

[email protected]

Eija PitknenVice President, Sustainability Communications and CSR

Tel. +358 2046 21348

Fax +358 2046 21267

Stora Enso Oyj, P.O. Box 309

FI-00101 Helsinki, Finland

[email protected]

www.storaenso.com/contacts

Letter to shareholders

Strategy and actions in 2006

Divisional presentations

Board of Directors and management

Financial statements and notes

Report on operations

Risk management

Capital markets

Sustainability governance, stakeholder

engagement, targets and performance

Sustainability in the value chain

raw materials and suppliers

the Group

markets

Stora Ensos Annual Report 2006 comprises three separate booklets

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S TO RA E NS O S U S TA I NAB I L I TY 2006 1

Scope and profileof this reportI

n this report Stora Enso follows thenew guidelines from the GlobalReporting Initiative (GRI) as far as

they are applicable. The GRI contentindex, presented on pp. 4850, containsinformation on how Stora Enso hasreported the various information andindicators specified in the GRI guide-lines, also stating where in the annual

report this information can be found.Stora Enso supports the ten princi-ples of the UN Global Compact. Forinformation about how Stora Enso hasaddressed these principles in 2006, seepp. 4850.

ScopeThe scope of consolidated data on sus-tainability generally follows the princi-ples of financial reporting. This meansthat the consolidated performance dataincludes the parent company, Stora EnsoOyj, and all companies in which itholds, directly or indirectly, over 50% of

the voting rights. Associated companiesare not included in the consolidated per-formance data. These companies repre-sent undertakings in which the Grouphas significant influence, but which itdoes not control (see notes in the Finan-cials 2006 report).

The following limitations relate tothe principles described above: Consolidated environmental per-

formance data covers all productionunits unless otherwise specified. Salesoffices, merchants and staff functionsare excluded.

Data on social responsibility covers42 223 of the total average 45 631employees. Staff functions areexcluded.

Consolidated Occupational Healthand Safety (OHS) performance datacovers 42 077 employees of the total43 887 employees. Some smaller stafffunctions and sales offices are not yetincluded in the Groups OHS statistics.

Human Resources (HR) data derivedfrom financial accounting (averagenumber of employees and employeedistribution by country) covers allemployees on the payroll during theyear. HR data derived from separatelycollected HR statistics covers perma-nent employees as at 31 December2006.

Due to the fact that the joint venture atVeracel in Brazil, of which Stora Ensoowns 50%, has attracted attentionamong stakeholders, Stora Enso alsoreports here on the most significantstakeholder issues with relation to Vera-cel Pulp Mill and its associated planta-tions. However, Veracel is not consoli-dated into the Groups performancedata.

ProfileEnvironmental and social performancedata is reported according to the Groups

internal guidelines. The guidelines forenvironmental liabilities, capital expend-iture and operating expenses are basedon International Financial ReportingStandards (IFRS) and EU recommenda-tions on the recognition, measurementand disclosure of environmental issuesin the annual accounts and annualreports of companies. Emission factorsused for calculating and reporting green-

house gas emissions are consistent withthe World Resource Institute/World Busi-ness Council for Sustainable Develop-ment Greenhouse Gas Protocol.

Stora Ensos sustainability reportingalso addresses the main sustainabilityconcerns raised by the Groups stake-holders (see pp. 89).

Internal and external assuranceThe environmental and HR performancedata is checked internally before dataconsolidation. All performance data andrelated texts in this sustainability reporthave been subjected to an external assur-ance process by an independent thirdparty (see p. 52).

Readers requesting more back-ground material about StoraEnsos sustainability managementor previous years reports can visit

www.storaenso.com/sustainability

Several Stora Enso units produce unit-spe-cific sustainability reports. These publica-tions can be found atwww.storaenso.com/EMAS

For more information on Veracels sustain-ability performance, please see their sepa-rate sustainability report atwww.veracel.com.br

Stora Enso in brief

Stora Enso is an integrated paper, packaging, and forest products company,producing publication and fine paper, packaging board, and wood products all areas in which the Group is a global market leader. Stora Ensos sales totalledEUR 14.6 billion in 2006. The Group has some 44 000 employees in more than 40countries on five continents. Stora Enso has an annual production capacity of 16.5million tonnes of paper and board and 7.4 million cubic metres of sawn woodproducts, including 3.2 million cubic metres of value-added products. Stora Ensosshares are listed in Helsinki, Stockholm, and New York.

SCOPE AND PROFILE

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2 S TO RA E NS O S U S TA I NAB I L I TY 2006

Stora Ensos Sustainability 2006 report continues to

describe the Groups challenges and opportunities

along the value chain: raw materials and their

suppliers; the Groups economic, environmental and

social performance; the markets for Stora Ensos

products; and other issues of importance for

customers. Stora Enso utilises detailed stakeholder

reviews to ensure that the Groups sustainability

strategy and resources are suitably directed.

A new Sustainability Policy was created during

2006 to better reflect the Groups current

sustainability challenges.

Stora Enso has continued to focus on creatingstronger financial performance through two

programmes, Profit 2007 and Asset Performance

Review, which have resulted in considerable

workforce reductions, mostly in Europe. The Group-

wide guidelines for responsible reductions in

workforce were successfully implemented in

Hammarby Mill in Sweden and in Varkaus Mill in

Finland, providing good examples of ways to find

innovative solutions in such difficult situations.

In 2006, Stora Enso provided increased resources

for sustainability work in plantation projects in Brazil

and Uruguay.

SCOPE AND PROFILE . . . . . . . . . . . . . . . . . . . . . . . . . 1

OPENING WORDS . . . . . . . . . . . . . . . . . . . . . . . . . 45

SUSTAINABILITY AND GOVERNANCE. . . . . . . . . . 67

STAKEHOLDER ENGAGEMENT . . . . . . . . . . . . . . . 89

STRATEGY AND TARGETS . . . . . . . . . . . . . . . . . 1011

MANAGEMENT SYSTEMS . . . . . . . . . . . . . . . . . 1213

SUPPLY CHAIN . . . . . . . . . . . . . . . . . . . . . . . . . . 1415In order to manage environmental and social issues inStora Ensos procurement operations, the Group hasdeveloped a broad set of tools to ensure a uniformapproach towards all suppliers and contractors. The man-agement of sustainability along the supply chain alsoforms a vital part of mills environmental managementsystems.

WOOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1619During 2006, Stora Ensos traceability guidelines forwood purchases were reviewed to ensure global coverageand to include pulp procurement. Stora Enso promotesforest certification, and is working to increase theamount of wood originating from certified forests. In2006, 55% of the wood used by Stora Enso came fromcertified forests with or without chain-of-custody certifi-cation.

CHEMICALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Stora Enso uses chemicals responsibly so as to minimiseenvironmental impacts and the risks to people. Chemical

safety is constantly monitored by occupational healthand safety professionals, and through environmental,risk and quality management systems. In 2006, StoraEnso started to implement the EUs new REACH chemi-cal legislation at unit level to ensure future complianceand avoid any discontinuity in production.

ENERGY AND CLIMATE CHANGE . . . . . . . . . . . 2123Stora Enso is helping to mitigate climate change byimproving energy efficiency, increasing the use of biofu-els and combined heat and power, and supporting nucle-ar power. In 2006, the share of biofuels in Stora Ensosinternal energy production remained high at 64%. StoraEnsos production ensures that carbon is stored in grow-

ing forests and in manufactured wood products whichhave a smaller carbon footprint than many competingproducts.

INTRODUCTION RAW MATERIALS AND SUPPLIERS

2006 IN BRIEF

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ECONOMIC RESPONSIBILITY . . . . . . . . . . . . . . 2429At Stora Enso, the concept of economic responsibilityincorporates both financial and socio-economic perform-ance. In 2006, Stora Ensos focus was on creating strongerfinancial performance through the Profit 2007 and AssetPerformance Review programmes.

Stora Enso supports global and local communityprojects and seeks strategic partnerships from which bothparties can benefit. The Group particularly values part-

nerships with such organisations as UNICEF and theUnited Nations Development Programme (UNDP).

ENVIRONMENTAL RESPONSIBILITY . . . . . . . . . 3033Most of Stora Ensos environmental performance indica-tors continued to develop favourably per unit of produc-tion.

In 2006, Stora Enso set a new Group-level target toreduce process water discharges by 10% per tonne ofpulp, paper and board production from 2005 to the endof 2010. This represents a reduction of 2.7 m3/tonne fromthe baseline by the end of 2010, and would mean savingabout 50 million m3 of water annually, depending onproduction volume.

SOCIAL RESPONSIBILITY . . . . . . . . . . . . . . . . . . 3441Focus areas for 2006 included broadening the coverage ofsocial management systems, increasing gender diversity,and improving occupational health and safety perform-ance. The Women in Stora Enso (WISE) network wasexpanded, and progress has been made on the relatedaction plan and the identification of best practices. Safetyimprovement actions bore fruit in 2006, but the need toimprove safety performance still represents a considera-ble challenge. The number of fatal accidents has dimin-ished and average accident rates were slightly lower thanin 2005.

CUSTOMERS AND PRODUCTS . . . . . . . . . . . . . 4243According to interviews conducted with key customers in2006, customers generally appreciate Stora Ensos sustain-ability performance. Many see Stora Enso as a sustainabil-ity leader in the forest industry. Customers also recognisethe importance of sustainability in both the raw materialsupply and production.

Stora Enso and key customers have continued to runthe Tikhvin-Chlana joint project in Russia, leading to

further improvements in the social and environmentalaspects of wood procurement. Results and best practiceswill be shared with other Russian wood suppliers.

APPENDIXES

SUSTAINABILITY DATA TABLE . . . . . . . . . . . . . . . . . 44

GRI AND THE UN GLOBAL COMPACT . . . . . . . . . . 48

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ASSURANCE STATEMENT . . . . . . . . . . . . . . . . . . 52

THE GROUP MARKETS

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New

sustainability policy a foundation for long-term success

Since the formation of Stora Enso,

there have been major changes in

the global business environment.

Stora Ensos approach to

sustainability and the standards

and tools used around the world

have also changed. For these

reasons, we decided the time was

right to revise our Environmental

and Social Responsibility Policy.

Iam happy to report that Stora Ensosnew Sustainability Policy has beenapproved, after careful consideration.

The new policy now highlights econom-ic responsibility in addition to previously

prioritised environmental and socialaspects of sustainability. We remaincommitted to transparency in our com-munications and stakeholder dialogues.Resource efficiency, the origin of wood,human and labour rights and employeewell-being have all been integrated intothe new policy, which accurately reflectsour current sustainability challenges.

In the past we have dealt with theeconomic, environmental and social ele-ments of sustainability separately in ourbusiness planning. But we are now work-ing to integrate these distinct elementsof sustainability more comprehensively

into our business planning and strategy.Sustainability risks are also now given ahigher priority in our business risk man-agement. We are increasingly utilisingstakeholder reviews to ensure that oursustainability strategy and resources aresuitably directed.

Part of the solution to climate changeClimate change is a major global issuethat affects all of us. It is widely agreedthat greenhouse gas emissions have to besignificantly reduced. The forest prod-ucts industry contributes towards globalefforts to mitigate climate change by

improving energy and operational effi-ciency. It is important to remember that64% of the fuels used by Stora Enso are

OPENING WORDS

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carbon-neutral biofuels. Our productsalso store carbon throughout their activeservice life, they are recyclable, and theyprovide a less carbon-intensive alterna-tive to many competing products.

Our Sustainability Committee hasdecided to measure our carbon footprint,and evaluate the feasibility of greenhouse

gas emission reduction targets. Our aim isto complete this work during 2007.

Good performance better profitabilityGood sustainability performance leads tobetter profitability and reduces risks forstakeholders. I am proud to report thatwe have made good progress towards ourenvironmental and social targets thisyear.

We are committed to using rawmaterials, energy and other resourcesefficiently. We especially value water asan essential natural resource, and nowhave a target to reduce our process water

discharge by 10% by the end of 2010. Bydoing this we will save about 50 millioncubic metres of water annually. Reducingwater use also leads to savings in watertreatment and energy use.

Stora Ensos operations use manage-ment systems for environmental issues,quality and safety. Many mills havealready successfully integrated these man-agement systems to further improve effi-ciency and performance, and more millsare now following in their footsteps.

I am pleased to say that Stora EnsoWood Supply has published its first com-mon verified environmental statement,

covering all of our European businessunits. This is expected to contribute tothe development of the European EMASregulation, by enabling multinationalstatements to be registered with EMASin the future.

From our wood raw material, mean-ing roundwood, chips, sawdust andexternal pulp, 55% came from sourceswith certified forest managementschemes, and all the wood was coveredby Stora Ensos own traceability systems.Notable progress on forest managementcertification was achieved in Russia,where five of Stora Ensos subsidiary log-

ging companies achieved FSC forestmanagement and chain-of-custody certi-fication during 2006.

Health and safety efforts bear fruitAll Stora Ensos employees are entitled tosafe and healthy workplaces. In 2006,our safety improvement actions startedto pay back and the average lost-timeaccident rate continued to decrease.There is a special focus on improvingoccupational health and safety perform-

ance in emerging markets.Work-related fatal accidents areunacceptable, and in 2006 there was aspecial focus on safety in units wherefatal accidents had occurred during theprevious year. The number of fatal acci-dents has decreased, but we deeply regretthat there were still three fatal accidentsin 2006.

Profit improvement actionsFinancial success is a key element of sus-tainability. In 2006, Stora Enso contin-ued to focus on creating stronger finan-cial performance through various pro-

grammes and actions. Related measuresincluded the closure of four units andthe divestment of five, mostly in Europe.These actions resulted in total workforcereductions of 1 930 people.

Our Group-wide guidelines forresponsible reductions in workforcehave been successfully implemented.Hammarby Mill in Sweden and VarkausMill in Finland have both applied exem-plary best practices for responsiblereductions in workforce by findinginnovative solutions through open dia-logues.

Unfortunately, the profit improve-

ment actions also generated two majorlabour union disputes, one at CorbehemMill in France and the other at PortHawkesbury Mill in Canada.

Focus on emerging marketsIn 2006, Stora Enso provided increasedresources for sustainability work in plan-tation projects in Brazil and Uruguay. Inboth cases we have also started environ-mental and social impact assessmentprocesses. These differ from traditionalassessments in that they are each man-aged by an independent third party, andstakeholders can influence processes at

every stage. This sets an example of bestpractice in terms of enabling local stake-holders to participate in our sustainabili-

ty work. We feel that proactive stake-holder engagement is an important wayto earn our licence to operate in thesemarkets.

International collaborationOur co-operation with WWF continuedsuccessfully. Members of our Executive

Management Group held two think-tankmeetings together with WWF representa-tives during 2006 in order to reviewprogress on current projects and plan fornew areas of co-operation. So far, StoraEnso and WWF have run 14 differentprojects together.

We are also continuing our globalcorporate partnership with UNICEF, aim-ing to promote basic education for chil-dren. In 2006, many units continuedtheir voluntary fund-raising to comple-ment our wider corporate efforts.

Our successful partnership with theUnited Nations Development Pro-

gramme China (UNDP) continued withthe launch of a five-year agreement tosupport rural livelihoods by creatingcommunity telecentres. Another projectaims to promote biodiversity in SouthGuangxi.

Stora Enso has supported the UNGlobal Compacts ten principles on sus-tainability since 2001 and our recentprogress is described in this report.

This years stakeholder reviews indi-cate that our key strategic priorities andresource allocations are well aligned. Wewill continue to strive to improve oursustainability performance, particularly

focusing on occupational health andsafety, on responsible reductions inworkforce, on climate change, and onthe acceptability of our wood sources.The progress achieved during 2006 hascreated an improved platform to effi-ciently address current challenges andminimise business risks.

Elisabet Salander Bjrklund

Chairman of the Sustainability CommitteeSenior Executive Vice President,

Stora Enso Forest Products

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Sustainability from values to value addedAt Stora Enso, sustainability

is defined as the responsible

management of economic,

social and environmental issues.

Stora Enso addresses sustainability

throughout its whole value chainand aims to be accountable to its

stakeholders.

Sustainability

Economic Social Environmental

Accountability: transparency, stakeholder dialogue

responsibility in less-developed com-munities. The risks in such contexts aredifferent from those in more maturemarkets, so extra efforts are needed toidentify and manage them. On theother hand, the opportunities to

achieve business benefits and differenti-ation through responsible actions aregreater.

New policyStora Ensos Environmental and SocialResponsibility Policy, approved in 1999,has formed the basis for the Groups sus-tainability work until now. Recentchanges in the Groups business environ-ment and the new approach to sustaina-bility necessitated the development of anew policy to reflect Stora Ensos presentambition level.

Expansion to emerging markets with

new sustainability challenges, increasedinvestor interest and customer demandson sustainability are key examples ofsuch changes in the business environ-ment. The Groups overall approach tosustainability continues to evolve, and isnow managed and reported as a singleconcept. It has also been integrated intothe Groups governance framework andrisk management.

The new Stora Enso SustainabilityPolicy addresses commitment to manag-ing and developing business in a sustain-able manner. The policy highlights theimportance of continually improvingsustainability performance, and measur-

ing and transparently reporting perform-ance. The policy states the importance ofaddressing sustainability throughout thevalue chain, and of ensuring that suppli-ers and partners comply with StoraEnsos sustainability policies and princi-ples. Stora Enso expects all of its employ-ees to observe these commitments andresponsibilities in their daily work.

Read the new Sustainability Policyon the inside back cover of thisreport.

Read more about Stora Ensos strategy in

the Company 2006 report on pp. 89.

Stora Ensos Mission, Vision and Values canbe found in the Company 2006 report onp. 8 and at www.storaenso.com

All Stora Ensos policies and principles relat-ed to sustainability can be found atwww.storaenso.com/sustainability orwww.storaenso.com/codeofethics

Economic responsibility comprisesthe financial and socio-economicperformance of the Group. Environ-

mental responsibility consists of issuesrelated to the sourcing of wood fromacceptable sources, and environmental

management and performance related toproduction and transportation. Commu-nity involvement, transparent communi-cation, ethical business practices, respon-sible reductions in workforce, and issuesrelated to human and labour rightstogether form the basis of Stora Ensossocial responsibility.

Stora Enso has shown a long-termcommitment to sustainability by takinga consistent and target-orientedapproach. The Groups SustainabilityPolicy is anchored to Stora Ensos Mis-sion, Vision and Values, and forms thecornerstone of the Groups sustainability

work. Sustainability also has a promi-nent role in Stora Ensos governancestructure and business strategy. Policyand strategic decisions on sustainabilityare taken at the highest level.

An accelerating shift towards theemerging markets of South America,Russia and China, as part of the Groupsoverall strategy, has increased theimportance of social and environmental

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Governingsustainability

co-ordinating and following up rela-tions and communication with stake-holders such as governmental andnon-governmental organisations;

taking initiatives for the developmentof relevant management procedures;

producing the annual sustainabilityreport.

The Sustainability Committee hasfour support teams and two sub-teams,whose role is to address sustainabilityissues throughout Stora Ensos valuechain, and to monitor, assess and publi-cise emerging issues in order to promotethe implementation of the Groups sus-tainability policies and strategies.

The teams are: the Environment Co-ordination Team

the Climate Change Working Group the Customer Support Team

the Corporate Social ResponsibilityTeam the Forest Environment Team

the Forest Environment Planta-tions Team

The major items on the agenda for theSustainability Committee during 2006included a new sustainability policy, anew reduction target for process waterdischarge, a new corporate stakeholderengagement process, and a decision todefine Stora Ensos carbon footprint anddevelop benchmark information.

As a member of the Executive Man-agement Group and reporting tothe CEO, the Senior Executive Vice

President, Forest Products, has the over-all responsibility for sustainability issueswithin Stora Enso. Strategy and policy

issues are advanced to the CEO for finaldecisions.

Operational management is respon-sible for sustainability performance ateach organisational level, in order toachieve compliance with the Groupscommitments. The Corporate Environ-ment, Forest Environment, and SocialResponsibility support groups providesustainability expertise and support tothe Groups business operations andstaff functions.

The Sustainability CommitteeStora Ensos Sustainability Committee is

an operative committee chaired by theSenior Executive Vice President, ForestProducts. Other members of the commit-tee, representing divisions, business areasand relevant staff functions, are appoint-ed by the CEO.

The Sustainability Committee isresponsible for: formulating corporate policy and

strategy on environmental and socialresponsibility issues;

ensuring that these policies andstrategies are well established andrespected throughout the Group;

The key aim of Stora Ensos

sustainability governance is to

provide a means to ensure that

the changing nature of both

stakeholder needs and the

operational environment are

included in decision-makingprocesses.

Stora Ensos main tools formanaging sustainability Corporate policies and principles Governance structure Group-level sustainability targets

Management systems for environment occupational health and safety quality

social responsibility traceability systems for wood forest certification

Sustainability in strategic planning due diligence Environmental and Social

Impact Assessment (ESIA) Sustainability in internal training

programmes Supply chain management Customer support network

Third-party assurance of Group-levelsustainability report and verifiedunit-specific EMAS statements

Stora Enso Business ExcellenceGuide

Read more about corporate gov-ernance in the Company 2006report on pp. 3439, or visit

www.storaenso.com/governance

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Focusing on

stakeholder expectationsStora Enso regularly interacts with various stakeholders in its everydayoperations. Risks exist when there are inconsistencies between the

Groups actions and the expectations of stakeholders. Stora Enso strives

to be responsive to stakeholder views and needs, and to maintain trust

in the company.

climate change: mitigation and relat-ed business opportunities

life cycle thinking: bleaching, recy-

cling rates and waste management.

ConclusionsThe reviews confirmed that sustainableforestry and plantation managementcontinue to be major issues for StoraEnsos key stakeholders. It is also clearthat mitigating climate change, sustaina-ble transportation and social responsibil-ity in emerging markets will be amongthe major areas of concern for stakehold-ers in the future.

Stora Enso feels that it is well posi-tioned in relation to these stakeholderneeds, and is confident that the Groups

current key strategic sustainability issuescover the main issues of stakeholder con-cerns. However, transportation is clearlyan area where Stora Enso needs toimprove its reporting.

Feedback onSustainability 2005 reportIn the Sustainability 2005 report, StoraEnso asked for feedback from its stake-holders. There were altogether 63responses, covering all major stakeholdergroups. Based on these answers, thereports structure was seen as clear, thecontent was understandable, and the

most relevant issues were covered. Inaddition, Stora Ensos approach to sus-tainability was reported well from thestakeholders point of view. However,the feedback clearly indicated that StoraEnso should focus more on reporting theeffects of climate change, as well as sus-tainability issues related to products andcustomers.

External recognition from indexesIn 2006, Stora Enso was selected forinclusion on the pan-European DJSISTOXX index for the sixth year in a row.

Stora Ensos strengths compared to

its industry peers were considered to bestrong policies and comprehensive envi-ronmental management and monitoring

customers, and of a questionnaire sent to20 sales offices. According to the con-densed results, the most important sus-

tainability issues influencing Stora Ensoscustomers business are: sourcing of raw materials from legal

and sustainable sources efficient use of resources mitigating climate change renewability and recyclability of raw

materials and products good environmental performance social responsibility.

Non-governmental organisations(NGOs)Stora Ensos NGO screening was basedon reviews of public information availa-

ble from 50 global NGOs important forStora Enso. Conserving forests and biodi-versity is the main sustainability priorityfor three-quarters of these NGOs. Thisincludes issues related to the protectionof old-growth forests and Brazils AtlanticRainforest. Over 60% of the NGOs focuson climate change and promoting sus-tainable energy sources.

Around 35% of the NGOs campaignon sustainable transportation systemsand genetically modified organisms,while 20% focus on indigenous peoplesrights, land ownership issues and thesocial rights of landless people. Other

important areas are toxic chemicals,pesticides, waste/recycling, plantationsand illegal logging.

InvestorsInvestor screening consisted of 16 inter-views conducted with members of thefinancial community. According to theresults, sustainability issues in order ofpriority for the interviewed investorsare:

emerging markets: land ownership,community relations, social and eco-nomic development of communities,indigenous people

human rights sustainable forestry and plantationmanagement

Stora Enso has defined its key stakehold-ers as follows: Customers: All current and potential

companies and individuals thatchoose Stora Enso to provide goodsor services to them.

Employees: All employees of theGroup and employees in operationscontrolled by the Group.

Investors: All current and potential own-ers of the companys equity and debt.

Partners: Suppliers, co-investors andthose who join Stora Enso in mutual-ly beneficial activities includingtrade and business associations ofwhich Stora Enso is a member.

Civil society: Individual citizens inthe neighbouring communities and

public organisations engaged in civicand charitable work, as well as non-governmental organisations.

Governmental bodies andauthorities: Local and national gov-ernmental bodies, authorities, politi-cians and elected officials, as well astransnational bodies such as the UN.

Stora Enso aims to develop an engage-ment practice that is applicable to everyStora Enso unit. This practice willinvolve building and maintaining con-tacts with key stakeholders, developingeffective stakeholder strategies, and effec-

tive conflict management. The model iscurrently being tested by Stora EnsoLatin America in the new plantationprojects in Brazil and Uruguay.

Reviewing stakeholder needsIn 2006, Stora Enso conducted threestakeholder reviews in order to identifypresent and future sustainability issuesamong key customers, non-governmen-tal organisations and investors. The aimof these reviews is to ensure that stake-holders needs are considered when deci-sions are made within Stora Enso.

CustomersThe customer review consisted of inter-views conducted with 15 key Stora Enso

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Membership in international associations

The World Business Council for Sustainable Development (WBCSD)WBCSD is a coalition of international companies united by a shared commitment tosustainable development. Stora Enso has several representatives in different WBCSD

working groups.

The Forests Dialogue (TFD)TFD is a group of various stakeholders from different regions that are committed tothe conservation and sustainable use of forests. Stora Enso actively participates in TFDand has a member on the steering committee.

Confederation of European Paper Industries (CEPI)CEPI represents the interests of the European pulp and paper industry to the Europeaninstitutions. Stora Enso has several representatives on CEPIs Board and employeesparticipating in CEPIs working groups.

UN Global Compact Nordic NetworkThis network enhances and promotes the implementation of the UN Global Compactprinciples by sharing information among Nordic UN Global Compact companies.

ISO 26000 Working Group on Social ResponsibilityStora Enso is currently chairing the Finnish ISO working group and participatingin the development of this new standard.

Global Roundtable on Climate Change (GROCC)Stora Enso actively participates in the GROCC which brings together more than150 stakeholders to discuss key scientific, technological and economic issues criticalto shaping long-term policies on climate change.

Stakeholder Examples of engagement methods

Customers Stora Enso Account Management (SEAM)

Customer satisfaction survey

Customer support networks at sales offices

Customer interviews and feedback

Employees Employee sat isfaction survey

Value & attitude survey

Internal customer satisfaction survey

HRD programmes

Internal communications channels and materials

Investors Annual General Meeting

Road shows and one-to-one meetings

Quarterly telephone and web conferences

Investor pages at www.storaenso.com

Providing information in questionnaires

Public reporting

Partners Supplier satisfaction surveys

Supplier evaluation and auditing

Partnership projects

Participation in industry organisations

Civil society Image surveys

Public hearings

Open House days at production units

Local information lines

Issue-specific dialogues and co-operation with NGOs

Public reporting

Governmental

bodies and

authorities

Co-operation with intergovernmental organisations

(e.g. UNDP and UNICEF)

Issue-specific dialogue with authoritiesPublic reporting

Stora Ensos major stakeholder projects in 2006

UNICEF Stora Ensos global partnership continued

(see p. 28).

Tikhvin-Chalna Second phase of the project to improve the trans-

parency of the social and ecological conditions of

wood procurement from Russia (see p. 43).

WWF Stora Enso and WWF continued to run a series of

joint projects (see p. 29).

UNDP Co-operation between UNDP and Stora Enso con-

tinued in China on the social dimension, particularly

with local communities (see p. 29).

The Forests

Dialogue

Stora Enso continued to be an active participant in

The Forests Dialogue. Focal themes were environ-

mental issues related to plantations, and the links

between forestry and poverty reduction (see p. 17).

Major stakeholder disputes in 2006 involving Stora Enso

Upper Lapland,

Finland

The land use conflict continued. Stora Enso is no

longer directly involved in the dispute as Stora Enso

does not accept wood from the disputed areas

unless an agreement has been reached between

Metshallitus and local reindeer herders co-opera-

tive (see pp. 1718).

Wood from

Russia

Stora Enso was accused of using wood harvested

from illegal sources. Stora Enso only accepts legalwood (see p. 18).

systems, environmental performanceand eco-efficiency and good sustainabili-ty reporting.

Areas to be improved are Code ofEthics enforcement and monitoring,

human capital development, talentattraction and retention, the Groupsapproach to stakeholder engagementand systematic supply chain management.

Regarding issues where improve-ments were recommended in the corre-sponding DJSI Assessment in 2005, StoraEnso has clearly improved its OHS per-formance (see pp. 4041). Concerningthe Code of Ethics enforcement andhuman capital development, Stora Ensowill continue its efforts to implementand manage these areas in a more effi-cient way.

Stora Enso has also been listed by

FTSE4Good, which particularly focuseson human rights issues. In addition,Stora Enso has been included in theEthibel Pioneer Sustainability Index andEthical Index Euro and Global. StoraEnso was also included in the Global100, a list of the 100 most sustainablecompanies in the world.

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During 2006, Stora Enso initiated

a strategy project aiming to

improve the Groups ability to

proactively identify and respond

to strategic sustainability issues.

Another important objective was

to look for opportunities to further

integrate sustainability aspects into

the Groups overall businessstrategy.

At present Stora Ensos sustainabilitywork focuses on the following stra-tegic sustainability issues defined

in 2003 by the Group:

Sustainability in emerging markets Occupational health and safety Acceptability of wood sources Responsible reductions in workforce Environemental performance, includ-

ing emissions and climate change

The strategy project aims to furtherdefine key sustainability issues importantfor Stora Ensos business strategy. In

addition, related objectives and key suc-cess factors will be defined. In addition,the project will define an implementa-tion plan for the selected objectives, aswell as a model and the necessary toolsfor monitoring progress and planningfuture sustainability management.

During 2006, the focus of the projectwas to select those sustainability issuesthat would contribute to competitive

advantage, management of business risksand maintenance of the Groups licenseto operate.

Re-evaluating

strategy increasing proactiveness

Stora Enso aims to save about 50 million cubic metres of water annually through planned improvements in processes.

STRATEGY AND TARGETS

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S TO RA E NS O S U S TA I NAB I L I TY 2006 1 1

Common targetsassure joint efforts

To ensure effective sustainability

management at all levels of the

organisation, Stora Enso has

established Group sustainability

targets and continues to report

progress towards achieving them.

Stora Enso evaluates the significanceof the present targets and the needfor any additional targets on an

annual basis, to achieve and maintainindustry-leading performance.

In 2006, Stora Enso set a new Group-level target to reduce the amount ofprocess water discharge by 10% per

tonne of pulp, paper and board produc-tion from 2005 to the end of 2010. Thisrepresents a reduction of 2.7 m3/tonnefrom the baseline by the end of 2010,and would mean saving about 50 millionm3 of water annually, depending on pro-duction volume.

Targets from 2006 onwards Progress during 2006

Common targets

Policies and

principles

Sustainability policies and principles reflect the current opera-

tional environment and stakeholder demands and are imple-

mented throughout the Group.

New Sustainability Policy approved and communications plan

in place.

Code of Ethics Develop enforcement support and monitoring according to

the implementation plan.

Implementation plan prepared

Sustainability in

business strategy

Ability to proactively identify strategic sustainability issues Initial identification of key sustainability issues, related objec-

tives and key success factors completed. Gap analysis con-

ducted with current sustainability policies and principles.

Supply chain

management

Corporate suppliers and contractors in compliance with

Stora Ensos sustainability standards

Audit scheme for sustainability standards developed

Environmental targets

Acceptability of

wood

Third-party certified traceability: 91% in 2006 and 2007 90% of the wood procured by the Group covered by third-

party certified traceability systems.

Air emissions Sulphur dioxide (SO2): 15% reduction by the end of 2009from 2004*

12% reduction

Water discharges Chemical Oxygen Demand (COD): 10% reduction by the

end of 2009 from 2004*

6% reduction

Waste Waste to landfill: 10% reduction by the end of 2009 from 2004* 23% reduction

Water use Process water discharge: 10% reduction by end of 2010 from 2005* 3% reduction

Energy Increased trend in the power-to-heat ratio of internal energy

production.

Energy efficiency reviews conducted at each pulp, paper and

board mill at least once in a two-year cycle.

18% in 2006 compared to 17% in 2005

During 20052006, 41 reviews conducted compared to

51 reviews during 20042005

Social targets

Social management

systems**

100% of the Groups employees covered by social manage-

ment systems by the end of 2007.Review and develop Group-wide social indicators.

48.5% of the Groups employees now covered

Diversity Train female candidates for management vacancies as part

of the 2007 Management Audit Process.

Continue with the WISE Network meetings and establish

a pilot mentor programme for WISE Network members.

WISE network activities revitalised

Occupational health

and safety (OHS) and

employee well-being

All production units 100% covered by certified OHS manage-

ment systems

Lost-time accident rate in each unit in the upper quartile

within the national forest industry

Absenteeism rate in each unit lower than the national forest

industry average

13 new certificates achieved yielding a total coverage of 48%

of the production units at the end of the year

Average lost-time accident rate reduced by 0.7% from 2005

Average absenteeism the same as in 2005

*Targets are normalised for production of saleable pulp, paper and board products (expressed as emissions per tonne of product). Baseline corrections will be applied as changes in

the production structure and product portfolio occur. Only production units owned by the Group for the entire year 2006 are included in the scope of the targets.

**Stora Ensos internal systems to help units to identify an manage the most significant social aspects of their operations.

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Stora Ensos policies and principles are translated into practice through

management systems that help units to recognise the most significant

aspects of their operations. These systems are used to set targets, and to

follow-up on performance related to environmental issues, forestry,

OHS, social responsibility, product safety and hygiene.

Since 2003, all of Stora Ensos pulp,paper and board production hasbeen covered by ISO 14001 and/or

EMAS. Currently third-party-verifiedenvironmental management systems

cover 99% of production. The recentlyacquired Arapoti Mill in Brazil will startworking towards ISO 14001 certificationin 2007.

Around 92% of sawmilling and fur-ther processing capacity is covered byISO 14001 and/or EMAS. In 2006, muchprogress was made in implementingenvironmental management systems inStora Enso Timbers Central EuropeanProduction Unit. Stora Ensos wood sup-ply units have ISO 14001 and/or EMAScertification in the Baltic countries,Canada, Finland, Sweden and the USA.

Knowing the origin of woodStora Enso uses different tools to helpensure that only wood (roundwood,chips, sawdust and external pulp) fromacceptable sources is used by the Group.Examples of tools used are Stora Ensosown traceability systems, forest manage-ment certification and chain-of-custodycertification.

Traceability systems are Stora Ensosinternal systems and document the ori-gin of wood from the forest until thefirst Stora Enso reception point. Theycover all wood used, roundwood, chips,sawdust and external pulp, sourced from

both certified and uncertified sources.Forest management certification

means that the management of a forestarea has been audited by an independentcertifier to meet a defined set of perform-ance standards in line with the princi-ples for sustainable forest management.

Chain-of-custody certification islinked to forest management certifica-tion, and is a certified system to trackwood coming from certified forests. Ifchain-of-custody certification is imple-mented throughout the supply chain,and enough wood comes from certifiedforests, many systems offer a possibility

for product labelling.In 2006, all wood was covered by

traceability systems and 90% of the

Ensuring continuous

improvement

MANAGEMENT SYSTEMS

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wood was covered by third-party certifi-cation through chain-of-custody, con-trolled wood, EMAS and/or ISO 14001.In 2006, 55% of the wood came fromforest management certified sources

(with and/or without chain-of-custodycertification).

Sustainable forest managementStora Enso manages and leases forests inCanada and Russia, and plantations inChina. The forestlands managed by PortHawkesbury Woodlands Unit are double-certified, and the forests leased by fiveWood Supply Russias subsidiariesachieved FSC forest management andchain-of-custody certification during2006. The Group has started to obtaincertification for all recently purchased orleased land areas and plantations. Stora

Enso promotes forest certification wher-ever the Group operates.

Progress in managing occupationalhealth and safety (OHS)Since 2004, all production units havebeen working towards a Group-wide tar-get to establish certified OHS manage-

ment systems by the end of 2007, accord-ing to either the ISO standard OHSAS18001, or acceptable national OHS stand-ards. To date, a total of 31 OHS manage-ment system certificates cover 35.9% ofthe total average of 45 631 employees.

Social management systemsAccording to Stora Ensos objective set in2003, each unit should develop its ownsocial management system, based onStora Ensos social responsibility princi-ples, by identifying the significant socialimpacts of its operations, and developingrelated action plans and key perform-

ance indicators.So far, 48.5% of the Groups employ-

Forests, plantations and lands owned by Stora Enso

Unit HectaresForest certificationmanagementsystem

Veracel plantations and

lands, Bahia, Brazil*)205 000, of which

77 000 planted

CERFLOR, prepara-

tions started for FSC

Ararpoti plantations and

lands, Paran, Brazil

50 000, of wich

28 000 planted

CERFLOR

Plantations and lands,Rio Grande do Sul, Brazil

46 000, of which5 000 planted

Plantations and lands,

Uruguay

30 000, of which

4 600 planted

Port Hawkesbury

Woodlands Unit, Canada

23 900 CSA, SFI, preparations

started for FSC

Wood Supply U.S. 2 200 SFI, FSC

Wood Supply Baltic,

Latvia

900

Wood Supply Baltic, Estonia 700

Wood Supply Baltic,

Lithuania

600 FSC

Trial plantations, Thailand 1 200

*) 50% ownership

Forests and plantations leased and managed by Stora Enso

Unit HectaresForest certificationmanagementsystem

Port Hawkesbury

Woodlands

Unit, Canada

607 300 CSA, SFI, prepara-

tions started for FSC

Olonetsles, Russia 222 500 Preparations started

for FSC

Ladenso, Russia 154 000 FSC

Russkiy Les, Russia 152 000 FSC

KLPP, Russia 52 800 FSC

Terminal, Russia 42 800 FSC

STF Stug, Russia 22 500 FSC

STF Gudov, Russia 22 300 FSC

Plantations and lands,

Guangxi, China

90 000, of which

44 000 planted

ees are covered by social managementsystems. During 2006, 11 more unitsstarted implementing new social man-agement systems.

Ensuring product safetyAll of Stora Ensos mills producing foodpackaging materials for direct food con-tact have set up or are in the process ofestablishing certified hygiene manage-ment systems based on Hazard Analysisand Critical Control Points (HACCP) andGood Manufacturing Practice (GMP).

The sustainability data table on pp.4447 indicates which Stora Ensounits are certified under ISO 14001,

EMAS and/or OHSAS 18001. All the relevantcertificates can be downloaded atwww.storaenso.com/certificates

Stora Ensos wood traceability system and chain-of-custody

Customer Customersend product

Chain-of-custody forcertified forests

Certified and uncertified forestsMill

Stora Ensos traceability systems

Stora Ensos traceability systems cover all wood used by the Group, whereas chain-of-custody only cover wood from certified forests. Stora Ensos

traceability systems end when wood enters the first Stora Enso reception point, whereas chain-of-custody can be implemented throughout the supply

chain to the product level.

First receptionpoint

Chain-of-custody

Chain-of-custody

Chain-of-custody

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Stora Ensos material flows are diverse, and the

responsibility for purchases is shared between

different units, so managing sustainability

throughout the supply chain in a consistent

manner is a considerable challenge. In order to

Sustainability along the

supply chainmanage environmental and social issues in

Stora Ensos procurement operations, the Group

has developed a broad set of tools to ensure a

uniform approach towards all suppliers and

contractors.

MARKETSTHE GROUPRAW MATERIALS & SUPPLIERS

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Wood is by far the most importantraw material for Stora Enso.Wood Supply units are responsi-

ble for wood purchases and transporta-tions. Pulp Marketing and Procurementunder Corporate Technology has responsi-bility for pulp procurement issues, whileStora Enso Energy Services takes care of

energy procurement at the Group level.Stora Enso Purchasing is responsible forcorporate purchasing of pigments, fillers,chemicals and paper machine clothing.Stora Enso Transport and Distribution isresponsible at the Group level for trans-porting products from the mills to the cus-tomers. The mills have a shared responsi-bility for their own chemical purchases,other purchases, local energy contracts,and their own transportation solutions.

Monitoring suppliersStora Ensos corporate sustainabilitystandards set the minimum level of sus-

tainability performance and managementexpected from suppliers and contractors.Suppliers are generally evaluated on theirsustainability management and perform-ance every second year to ensure that sus-tainability performance is up to standardalong the supply chain, and to help sup-pliers to improve the sustainability oftheir operations.

Stora Enso Purchasing and Stora EnsoTransport and Distribution have includedthe corporate sustainability standards inall new and renewed purchasing con-tracts. Wood Supplys minimum require-ments are already expressed in the Princi-

ples for Sustainable Wood and Fibre Pro-curement and Land Management. Themanagement of sustainability along thesupply chain is also included in the millsenvironmental management systems.

The main areas in Stora Ensos corpo-rate sustainability standards for suppliersand contractors include: environmental standards related to

legislation, organisational responsi-bilities, training and instructions;

social standards in the contexts ofbusiness practices, occupational

health and safety, and workers rights; general standards concerning suppli-ers own supply chain management,the provision of information, andco-operation on sustainability audits.

Stora Enso has various tools for follow-ing suppliers performance, like supplieraudits, traceability systems, forest certifi-cation schemes, and environmental andsocial management systems.

The main tool to monitor supplierscompliance is a database calledCOMPASS. Information from supplierquestionnaires, direct follow-ups and

audit reports are recorded together withdetails of the monitoring status of thesupplier in a special data system.

During 2006, 177 suppliers wereevaluated through the COMPASS systemand 68% of them were found to meetthe required standards.

Non-compliance andcorrective actionsIf evidence of a suppliers non-compliancewith Stora Ensos standards is detected,the supplier is asked to develop a correc-tive action plan to improve their activi-ties, with the assistance of Stora Enso if

necessary. If a supplier refuses to draw upsuch a plan, or shows no improvementregardless of several notifications duringa follow-up period, appropriate actionwill be taken to select another supplier.

Guidelines on ethicalpurchasing operationsStora Enso has function-specific policiesand guidelines in place to ensure an ethi-cal approach and acceptable behaviourbetween Stora Ensos employees and itsbusiness partners:

Code of Ethics for all Stora Ensos

employees Social Responsibility Principles forall Stora Ensos employees

Moral and Ethics Guidelines forcorporate-level purchasing personnel

How to Do Business with StoraEnso guidelines for Stora Ensosbusiness partners

Principles for Sustainable Wood andFibre Procurement and Land Man-agement for wood and pulp pro-curement operations.

All employees involved in purchasingoperations are expected to follow these

guidelines.

Standards fortransportationStora Enso transported 74.9 million

tonnes of raw materials and

products in 2006, up from 72.3million tonnes in 2005. Nearly two-

thirds of this total consists of wood

transportation, and the rest is other

raw materials and products.

At Stora Enso almost all transport iscarried out by subcontractors, whoare covered by Stora Ensos sus-

tainability standards.

EmissionsAir emissions result from the transport ofraw materials to Stora Ensos mills and

the transport of products from the millsto customers. In 2007, the Group willstart defining and quantifying greenhouse

gas emissions related to these transports toidentify potential reduction opportunities.

Stora Enso is continuously striving to

reduce the environmental impacts oftransport by improving logistics and uti-lising the best possible methods.

Nordic transport systemIn 2006, the northern Finnish ports ofOulu and Kemi were connected to theNorth European Transport Supply System(NETSS) hub port in Gothenburg, Sweden.This system already includes the millsfrom Sweden and southern Finland. Threenew long distance vessels contracted forthe Oulu-Kemi-Gothenburg service weredesigned to minimise impacts on the envi-ronment. The vessels use low-sulphur fuel

to minimise sulphur emissions, and alsoutilise catalytic cleaning to reduce NO

X

emissions by more than 95%.

Three new purpose-built vessels ferry paper and

board products from Oulu and Kemi mills toStora Ensos NETSS transport system hub in

Gothenburg.

Wood ............................................ .......30%

Chemicals and fillers .............................13%

Energy ..................................................13%

Production services and materials .........18%

Logistics and commissions ....................19%

Other variable costs ................................7%

*% of variable costs

Composition of raw material and

service costs*

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Tracing

wood sourcesDuring 2006, Stora Ensos

traceability guidelines for wood

purchases were reviewed to

ensure global coverage and to

include pulp procurement.

Stora Enso uses traceability systemsto check that all wood, meaningroundwood, chips, sawdust and

external pulp, has been harvested incompliance with the Groups principlesand national legislation. Traceability sys-tems, that cover all wood used by theGroup, document the origin of woodfrom the forest until the first Stora Ensoreception point. In 2006, 90% of thewood passing through these systems wasalso covered by third-party certificationschemes such as, chain-of-custody, con-

trolled wood, EMAS and/or ISO 14001.As part of the traceability system, auditsare conducted to ensure compliancewith Stora Ensos requirements.

Promoting forest certificationStora Enso promotes forest managementcertification, and is working to increasethe amount of wood originating from

certified forests. The forest certificationsystems relevant for Stora Enso includeFSC, PEFC, CSA, SFI, ATFS and CERFLOR.The Group is working for harmonisationof national standards.

In 2006, 55% of the wood came fromcertified forests with or without chain-of-custody certification. This percentage isan aggregate figure covering various busi-ness areas. However, all wood used byStora Enso is covered by the Groupstraceability systems to assure its accepta-bility for Stora Enso.

Stora Enso is offering group forestmanagement certification to private for-est owners in Finland, the Baltic Coun-tries, Canada, Sweden and the USA inorder to mitigate the high cost of forestcertification for small private forestowners. In 2006, Stora Enso ran an FSCgroup forest management certificationproject in Estonia where seven private

forest owners and 360 hectares wereaudited for FSC certification. Stora Ensoprovided help with administration andtraining.

A notable contribution to forestmanagement certification was achievedin Russia, where five of Stora Ensos sub-sidiary logging companies achieved FSCforest management and chain-of-custodycertification during 2006.

Environmental statementIn 2006, Wood Supply published its first

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third-party-verified environmental state-ment covering all European WoodSupply units. The statement, which wasprepared in line with the EMAS regula-tion, covers the Wood Supply businessareas and compiles unit-specific targetsand results. This was a pilot projectdesigned to contribute to the reviewof the EMAS regulation by examining

how multinational statements couldalso be registered under EMAS in thefuture. Under the current EMAS regula-tion only single country-reports canbe registered.

Stakeholder co-operationStora Enso is active in dialogue andprojects with suppliers, customers andNGOs. The collaboration in the Tikhvin-Chalna project with customers and sup-pliers is an example of such stakeholderinitiative (see p. 43). Stora Enso also

actively participates in The Forests Dia-logue an international forestry discus-sion forum hosted by Yale University inthe United States. The dialogue has awide range of participants from industry,research, labour representatives, familyforest owners, and inter-governmental,social and environmental organisations.The aim is to increase mutual under-

standing and collaboration between thedifferent interest groups through opendialogue and interaction. Issues dis-cussed include forest certification, illegallogging, plantations, biodiversity conser-vation, and poverty reduction. In 2006,the main themes were tree plantationsand their environmental and socialaspects, as well as the links between for-estry and poverty reduction. As part ofThe Forests Dialogue, Stora Enso hosteda plantation meeting in Guangxi, China,in April 2006.

Forest disputesUpper Lapland, FinlandThe land use conflict continued in 2006.Stora Enso is no longer directly involvedin the dispute as Stora Enso does notaccept wood from the disputed areasunless an agreement has been reachedbetween Metshallitus and local reindeerherders co-operative. The lands under

dispute, 90 000 hectares, are owned bythe Finnish State and managed by theState enterprise Metshallitus.

The conflict concerns two mainissues: the need to balance reindeerherding and forestry, as well as the landuse and ownership rights of the Smipeople.

A detailed academic study commis-sioned by the Finnish Ministry of Justicewas published in October, aiming to clarifythe land ownership issue in Upper Laplandby referring to historical and legal docu-

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0.1

11.4 13.0

7.1

2.9

7.1

0.2

2.7

0.7

0.2

FinlandFinland

RussiaRussia

The BalticcountriesThe Balticcountries

PortugalPortugal

CanadaCanada

USUS

OthercountriesOthercountries

ContinentalEuropeContinentalEurope

SwedenSweden

BrazilBrazil

Wood procurement areasand wood flows

Stora Ensos wood flows (roundwood, chips and sawdust).

Total amount of wood (roundwood, chips and sawdust)

procured within these areas and delivered to own mills. In

2006, the total amount was 45.4 million m3 (solid under

bark).

mentation. According to the report, nobasis for Smi land ownership was found.These findings will be used by the Finnish

State to try to resolve the land use issue.

Russian KareliaIn autumn 2006, Greenpeace publisheda report alleging that Finnish companies,including Stora Enso, received illegallyharvested wood from the Republic ofRussian Karelia.

The main allegation by Greenpeacewas that the authorities have failed toenforce federal law by not requiringEnvironmental Impact Assessments(EIAs) for forest management plans inthe region. Greenpeace further alleged

that two Stora Enso suppliers had loggedin two sites for which EIAs had not beenconducted, and that one supplier had

also carried out regeneration harvestingincorrectly and caused excessive soildamage at one site. Stora Ensos policy isto only accept wood that is legally har-vested, and hence started immediateinvestigations of the sites.

Stora Enso organised external auditsof the logging sites, conducted byresearchers from two Russian forestresearch institutes, the Karelian ResearchCenter and the St. Petersburg ForestResearch Institute together with the for-est administration and supplier compa-nies. Both sites were also audited by an

external auditor. The conclusions fromthese audits were that the sites had beenlogged in accordance with logging per-

mits and, hence harvested in line withregulations of the Republic of Karelia,even though the authorities had notrequested Environmental Impact Assess-ments (EIA). According to the new Forestcode, no state EIA is required for forestmanagement plans in Russia since2007.

More focus on tree plantations

Stora Enso recognises the increasing-ly significant role of tree planta-tions in global industrial wood pro-

duction and actively promotes sustaina-ble plantation development.

Stora Ensos established plantationsin Brazil are the 50% owned joint ven-ture Veracel and the recently acquired

Arapoti. The Group also has plantationprojects in China, Uruguay and southernBrazil. Stora Enso also owns small trialplantations in Thailand.

Currently, some 5% of the woodused by Stora Enso originates from treeplantations. This figure is expected toincrease as plantations in southern

Brazil, Uruguay and China come intoproduction.

Stora Ensos plantations are estab-lished and managed primarily for pro-ducing raw material for the pulp andpaper industry. They are classified asindustrial fast-growing tree plantations.The structure, management and species

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plantation forestry. Various participatorytools, such as Environmental and SocialImpact Assessments (ESIAs) and land-scape ecological planning, are used topromote sound land use decisions.

Stora Enso does not convert nativeforests into plantations and recognisesindigenous peoples legitimate rights totheir traditional lands and land use prac-tices. For Stora Enso, managed planta-tions can only be sustainable if they areeconomically profitable, enhance localwelfare and support the conservation ofnative ecosystems.

Major sustainability challenges forStora Ensos plantations in Brazil andUruguay include conservation of biodi-versity and hydrological resources, man-agement of the outsourced operations,

benefits for the local communities, stake-holder engagement and ESIA.

In China, the challenges include theclarity and transparency of rental agree-ments, communication with local com-

munities in order to ensure that informa-tion reaches all levels of affected com-munities effectively and transparentlyand sustainability in the supply chain.

Read more about Stora Ensos planta-tions in the Company 2006 report onp. 30.

Recovered fibre is a strategicallyimportant raw material for StoraEnso. The Group is committed to

increasing the use of recovered fibre andpromoting the recycling of paper prod-ucts as part of its manufacturer responsi-bility.

Stora Enso is among the largest con-sumers of recovered paper in Europe. In

the USA, Stora Enso is a leading user ofrecovered fibre in the coated paper sec-tor. In 2006, 16 Stora Enso mills used atotal of 2.7 million tonnes of recoveredfibre as raw material (2.5 million tonnesin 2005).

Recovered fibre is channelled to useswhere it creates the most value for theGroup and its customers. It is particular-ly suitable for products with a short life

cycle. Stora Ensos main end uses forrecovered fibre include newsprint,magazine paper, and certain types ofboard. The average recycled content forstandard newsprint in 2006 was70% (64%).

The majority of the recovered paperused by Stora Enso comes from house-hold collection. In 2006, 19% (18%) of

the Groups total demand for fibre rawmaterial was met by recovered paper.However, fibre cannot be recycled indefi-nitely, since its quality is reduced eachtime it is processed, so fresh fibreremains an essential element in paperand board production.

The mills that consume the largestquantities of recovered fibre are concen-trated in densely populated areas of Cen-

tral Europe, close to major sources ofrecycled paper. Langerbrugge Mill isStora Ensos largest consumer of recov-ered paper using annually almost700 000 tonnes. Having already pro-duced newsprint made entirely fromrecovered paper since 2003, Langer-brugge Mill has now also switched itsmagazine paper production to 100%

recovered paper in 2006.In 2006, Stora Enso invested in a

Spanish company Palwaste Recycling S.L.that has developed a new way to recyclebeverage cartons. The efficient recyclingof liquid packaging boards is strategicallyvery important for Stora Enso, since con-siderable amounts of beverage cartonsare used as raw material at Varkaus Milland Barcelona Mill.

Stora Ensos pulp production is inte-grated into the paper and boardbusiness. However, 15% of Stora

Ensos chemical pulp consumption todayis externally sourced for quality andlogistical reasons. Consequently, thepulp surplus is sold on the external mar-ket. Mechanical pulp is produced inter-nally in sufficient volumes.

Purchased pulp has to meet the samerequirements as purchased wood. Thismeans that purchased pulp has to com-ply with the Principles for Sustainable

Wood and Fibre Procurement and LandManagement.

Stora Enso recommends that allpulp suppliers establish chain-of-custo-dy certification and environmentalmanagement systems. In 2006, all ofStora Ensos pulp suppliers had environ-mental systems in place up from 75%in 2005.

Stora Enso does not use elementalchlorine in bleaching processes at anyof its 13 chemical pulp mills. The choiceof the bleaching method is based on the

optimisation of quality, productionprocesses and environmental impacts.One of Stora Ensos pulp mills usesTotally Chlorine-Free (TCF) processeswith another having the capability touse TCF. The others use Elemental Chlo-rine-Free (ECF) processes. ECF bleachinghas been recognised as a Best AvailableTechnology by the European Commis-sion and the US Environmental Protec-tion Agency.

A major consumer ofrecovered fibre

composition of these fast-growing plan-tations differ considerably from those ofnative forests, and their ecological char-acteristics resemble those of cultivatedcroplands more than natural forests.

Most controversies related to treeplantations arise from varying percep-tions of their environmental and socialimpacts. Tree plantations have attractedcriticism for their effects on biodiversity,soils and the water supply, as well astheir limited benefits to local communi-ties, and consequent changes in land useand tenure.

Stora Enso develops plantations inthe local land use context and carefullyaddresses their impacts. Plantations areplanned and managed in line with wide-ly accepted standards for sustainable

Sustainable pulp

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Responsible use of

chemicalsChemicals are essential forpulping and paper-making

processes. Small amounts of

chemicals are also used in

plantations. Stora Enso uses

chemicals responsibly so as to

minimise the risks to people

and environmental impacts.

In the pulping process, chemicals areused for cooking, bleaching andimproving the efficiency of pulp pro-

duction. Many of these chemicals arerecycled in the process, or diverted toenergy production.

In the paper-making process, pig-ments and fillers like calcium carbonate,clay, talc and other chemicals like bind-ers, starch and retention aids are used toimprove the quality, strength and printa-bility of the paper. Many of the chemi-cals used as pigments and fillers areabundant in nature.

Chemicals are also used in various

mill support processes, such as water andwaste water treatment facilities, and formaintenance work.

Chemical suppliers provide keyinformation on their products on materi-al safety data sheets that are processedand stored in various data systems. Thesesystems ensure the availability of thenecessary safety information for every-one who handles or uses chemicals. Ateach mill, chemical contact persons areappointed and trained to be responsiblefor chemical safety. Chemical safety isalso constantly monitored by OHS pro-fessionals, and through environmental,

risk and quality management systems.All detected cases of non-conformitywith chemical safety regulations andguidelines are investigated, and correc-tive actions are taken.

Prepared for REACHThe EUs new chemical legislation,known as REACH (Registration, Evalua-tion, Authorization and Restriction ofChemicals), will require the registrationof chemicals together with documenta-tion on their effects on the environmentand humans. This information willbecome publicly available.

Stora Enso will be affected by thenew regulation as a major downstreamuser, manufacturer and importer of

chemicals. In 2006, Stora Enso started toimplement REACH legislation at the unit

level in order to ensure compliance infuture, and to avoid any discontinuity inproduction.

Chemicals in plantationsVarious chemicals are carefully used inStora Ensos established plantationsaccording to strict controls. Fertilisers areused for soil improvement, pesticides areapplied to control leaf-cutter ants andtermites, and herbicides are used againstweeds and fungi.

Decisions to use chemicals are basedon continuous monitoring. Chemicalsare only used where other alternative

control methods do not work effectively.The dosages of all chemicals are regulat-ed by national legislation. Regular analy-

ses of water, sediments and soil are con-ducted as part of good plantation man-

agement practices.Chemical containers are handled

and disposed of in strict accordance withnational legislation and internal guide-lines. All workers exposed to chemicalshave to wear appropriate protectiveequipment, and are duly trained in theuse, application, storage and transporta-tion of chemicals. All employees, includ-ing outsourced contractors, are undermedical surveillance. Health and safetyaudits are additionally conducted toassess contractors performance.

Stora Ensos new plantation projectsin China, Brazil and Uruguay will be

developing the same procedures for safehandling of chemicals as part of theirgood plantation management practices.

Process chemicals are carefully labelled and stored to enable their safe use.

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Energy is an essential part of the pulp, paper and board manufacturing

process. Stora Ensos energy supply strategy focuses on the long term.

The Groups approach to energy use, production and fuel mix supports

actions to help mitigate climate change. The wide use of combined

heat and power supplies energy efficiently and has a lower impact on

climate change than conventional power production.

Stora Enso continuously looks foropportunities to increase the shareof biofuels in its fuel mix. In 2006,

the share of biofuels in Stora Ensos

internal energy production remainedhigh at 64% (63%). The most importantbiofuels for the Group are black liquor,bark, logging residues and internal resid-uals including de-inking sludge and bio-sludge.

Guaranteeing electricity supplyStora Enso is continuing to develop itselectricity procurement with a long-termfocus. The most important componentsin the Groups procurement portfolio areinternal electricity production and long-term procurement contracts. Approxi-mately 80% of the Groups electricity

needs for the next 10 years are alreadycovered by internal generation andexternal procurement contracts, but itis essential to continue to develop theGroups own electricity productioncapacity so as to optimise its fuel mixand minimise costs.

Progress towards targetsThe Groups energy targets for 20042009 are to increase the power-to-heatratio of internal energy production, andto conduct energy efficiency reviews at

each pulp, paper and board mill at leastonce in a two-year cycle.

The power-to-heat ratio shows howmuch electricity is produced in relation

to the total amount of heat energy gen-erated. In 2006, the Group-level power-to-heat ratio was 18%, compared to 17%in 2005. The increase was due to comple-tion of the Energy 2005 project atSkoghall Mill and full-year operation atthe Finnish mills.

The energy efficiency review targetwas achieved during the two-year period20052006, when a total of 41 (51 in20042005) reviews were conducted.Energy reviews help units to identifynew opportunities to reduce energy con-sumption. In 2006, an energy efficiencytask force was established to help mills

to act on the basis of their efficiencyreviews, and to promote best practiceswithin the Group. Energy efficiencyreviews are just one part of the Groupscontinuous work to reduce energy costsand improve results.

Investing in energy supplyIncreasing energy prices and rising envi-ronmental costs are the main driversbehind investments in improved energyasset quality.

The Energy 2005 project at Skoghall Millwas completed in August 2006. Theproject will reduce the mills oil con-sumption by 60 000 m3 a year, thereby

cutting fossil CO2 emissions by 170 000tonnes annually. This represents 3% ofStora Ensos total CO

2emissions. Both

of these targets will be achieved during2007.

The rebuilding of the bark boiler atHylte Mill was completed in April. Biofu-els now account for about 60% of all fuelsconsumed at the mill. This is expected toincrease to over 75% during 2007.

Fors Mill has now installed woodpowder burners in its oil boiler, whichwill reduce oil consumption by 10 000m3 annually, and cut CO

2emissions by

approximately 25 000 tonnes a year

from 2007.Anjala Mill introduced a PDF-packag-

ing-derived fuel to improve its fuel mixby replacing more expensive fossil fuels,whereas Heinola Fluting Mill installed anew turbine to increase its electricityself-sufficiency.

Nuclear powerStora Enso currently owns nuclear powergeneration capacity in Finland throughpart-ownership of the power company,Pohjolan Voima Oy.

Read more about energy efficien-

cy in this report on pp. 2223and about energy costs in the

Financials 2006 report.

Biofuels .................................................64%

Gas .......................................................19%

Coal........................................................9%

Oil ..........................................................4%

Peat ........................................................4%

Biofuels already account for some 64% (63%) of

Stora Ensos total annual fuel consumption of

215 900 (208 200) TJ.

Energy consumption in 2006

External purchasing ..............................54%

Internal generation ...............................36%

Pohjolan Voima Oy ...............................10%

Stora Ensos own mills consumed 23.9 (24.1) TWh

of electricity in 2006. Electricity self-sufficiency was

46% (40%).

Fuel Electricity

Energy issues require a long-term focus

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Bio carbonBio carbonBio carbon

Non-fossil CO2

Fossilfuels

Carbon cycle for theforest products industry


Climate change is a global

problem that requires global

solutions. Stora Enso is taking

actions to contribute toward

mitigating climate change. Stora

Ensos challenge is to minimise

business risks while competing in

a carbon-constrained economy.

Direct fossil CO2

emissions have

been reduced by 10% per unit

sales production and 2% total

since 2002.

Scientific consensus concludes thatthe Earth is warming as the concen-trations of greenhouse gases accumu-

late in the atmosphere. Scientists believehuman activities are largely responsible forthis trend. The combustion of fossil fuelssignificantly contributes to the increase ofgreenhouse gases, including carbon diox-ide (CO

2). Greenhouse gases accumulate in

the atmosphere and act like a blanket,

warming the planet by trapping heat thatwould otherwise escape. Global climatechange is a serious concern, becausewarmer temperatures may lead to more

extreme weather events, shifts in agricul-tural and forest productivity, the loss ofland and property due to rising sea levels,reductions in biodiversity, and possiblechanges in ocean circulation patterns.

Stora Ensos products store carbonboth in growing forests and in manufac-tured wood products. Wood-based prod-ucts offer a lower carbon footprint alter-native than many competing products.In addition, 64% of the Groups energyneeds are met with carbon-neutral biofu-

els. However, there is a need to find moresustainable, clean, affordable, safe andsocially acceptable raw materials, energysources and transport solutions.

Actions to help mitigate climate changeStora Enso is taking the following actionsto reduce greenhouse gas emissions asso-ciated with the Groups manufacturingprocesses: energy efficiency improvements; increased use of biofuels; increased use of combined heat and

power from plants that utilise theheat content of fuel more efficiently

than conventional power plants; use of nuclear power and energy

from renewable sources such ashydropower and wind power.

Stora Ensos Climate Change WorkingGroup co-ordinates climate changeissues, working within the Groups sus-tainability governance structure. TheSustainability Committee recently decid-ed that the Groups carbon footprintshould be defined and the feasibility ofgreenhouse gas emission reduction tar-gets evaluated. This work is aimed tobe completed during 2007.

Reducing CO2

emissions

Stora Enso has been making progress onefforts to help mitigate climate change.During the past five years, Stora Ensospulp, paper, board and converted prod-uct facilities have reduced their directfossil CO

2emission intensity by 10%

(see p. 23) due to investments in energyproduction assets and mill energy effi-ciency projects. These investments weredesigned to increase the use of biofuelsand to improve the efficiency of energygeneration and production processes.Total direct fossil CO

2emissions in-

creased slightly in 2006 due to increasedsales production and increased internal

power generation, but are down slightlysince 2002.

Climate change challenges and opportunities

Fossilfuels

FossilCO

2

1) Trees absorb CO2

(both fossil and non-fossil) from the atmosphere. 2) Trees store carbon in their woody tissue. This carbon is transferred and stored

also in wood products. 3) Use of biofuels and recycling of these products release non-fossil CO2 which is again absorbed by the trees. Emissions frombiofuels are considered to be carbon-neutral because CO

2is recycled through the atmosphere and stored by growing forests. 4) Use of fossil fuels

introduces new carbon to the atmosphere in the form of fossil CO2.

1 2

3

4

4

3

2

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Trend: 20022006

-2%

-10%

5.73 5.95 6.00 5.59 5.62

349 350 332 320 313

million tonnes

kg/tonne

Direct fossil CO21)

2002 2003 2004 2005 2006

6.2

6.0

5.8

5.6

5.4

5.2

5.0

4.8

4.6

400

380

360

340

320

300

280

260

240

Stora Ensos direct fossil CO2

emissions continued to decrease per saleable tonne of pulp,

paper, board and converted product. The reductions were mainly due to investments in

energy production assets, mill energy efficiency projects and increased use of biofuels.

Indirect CO2

emissionsStora Ensos total estimated indirect fossil CO

2emissions from

purchased electricity and heat were 6.4 million tonnes in 2006,down from 6.9 million tonnes in 2005. The emission estimateswere primarily lower in 2006 due to the labour dispute at PortHawkesbury Mill. The indirect emission estimates weredeveloped by multiplying energy purchases with country-specific emission factors or more specific regional factors withincountries where data was available. These estimates will varyfrom year-to-year based on regional energy mix, especially inthe Nordic countries where variations in hydropower

generation is balanced by fossil fuel based generation. Whilethe Group cannot directly control the fuel mix and CO2

emissions from purchased energy, indirect emissions can bereduced by improving energy efficiency and increasing internalgeneration from carbon-neutral fuel sources.

Emissions tradingThe EU Greenhouse Gas Emission Trading Scheme started in

January 2005. Even though the schemes greenhouse gas emis-sion targets are country-specific, the allocations of emissionrights are mill-specific. Mills utilising emission trading haveimplemented suitable procedures and measures to monitorand verify their CO

2emissions according to the respective nation-

al legislation. In 2006, the Groups allocated emission allowances

were 4.6 million tonnes, compared to CO2 emissions of 3.9 mil-lion tonnes. The surplus allowances were sold on the market.

Preparing for Kyoto complianceStora Ensos operations in Europe and Canada are subject tothe Kyoto Protocol and the required greenhouse gas emissionreductions. In the EU, National Allocation Plans (NAP) grant-ing emission rights for the first Kyoto compliance period(20082012) are currently being developed. In Europe, StoraEnso is actively engaged in the NAP development processthrough national federations and the Confederation of Euro-pean Paper Industries. In Canada, Stora Enso is continuingto follow developments related to the Kyoto and greenhousegas reduction requirements.

Going beyond legal requirementsIn the USA, where there is currently no carbon legislation,Stora Ensos operations are involved with three voluntarygreenhouse gas reduction programmes:

Chicago Climate Exchange

US Environmental Protection Agencys Climate LeadersProgram

US Administrations Climate Vision Program (through theAmerican Forest & Paper Association).

Participation in these voluntary programmes helps the GroupsNorth American operations to reduce their greenhouse gasemissions, prepare for potential future regulation, develop abetter understanding of the regions emission profile, and gainexperience in emissions trading.

Electricity consumption 1)

2002 2003 2004 2005 2006

25

24

23

22

21

20

19

1817

1.50

1.45

1.40

1.35

1.30

1.25

1.20

1.151.10

22.7 23.3 24.5 23.7 23.5

1.38 1.37 1.35 1.36 1.31

TWh

MWh/tonne

Trend: 20022006

+4%

-5%

TWh (terawatt-hour) = 109 kilowatt-hours

MWh (megawatt-hour) = 103 kilowatt-hours

Heat consumption 1), 2)

2002 2003 2004 2005 2006

160

150

140

130

120

110100

90

80

9.50

9.00

8.50

8.00

7.50

7.006.50

6.00

5.50

Trend: 20022006

+1%

-8%

139.9 142.2 148.7 140.6 140.9

8.52 8.37 8.22 8.07 7.86

PJ

GJ/tonne

PJ (petajoule) = 1015 joules

GJ (gigajoule) = 109 joules

Read more about the costs of European emissions tradingin the Financials 2006 report.

1) From pulp, paper, board and converted product facilities. Normalised figures are

reported per unit sales production.

2) Excluding heat for electricity generation.

Documents

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