e n v i r o n m e n ta l r e p o r t 2 0 0 6

Contents

A smaller ecological footprint From good to great in safety

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The environment – responsibility and an opportunity The environment plays an important role in Kemira’s business. We aim not only to bear

Environmental work at the sites

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our environmental responsibility but also to

• • • •

5 5 5 6

develop and provide environmental solu-

Kemira Kemira Kemira Kemira

Water Pulp&Paper Specialty Coatings

tions and pro-environmental products and services for our customers. In 2006, we continued to reduce our environmental releases and improved our

Environmental statistics 7 Environmental and safety management systems at production sites in 2006 9 Environmental data for the Kemira group 10

safety performance. The environmental costs were on the rise, mainly due to investments in new waste minimization technology. Preparations to implement the REACH regulation in Europe continued intensively within product safety. Strong growth took place in Kemira’s environmental business,

Assurance statement

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now representing around 36% of company’s revenue.

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A smaller ecological footprint Kemira undertakes to prevent and minimize the harmful effects on the environment, people and property caused by its operations, and to make effective use of natural resources. We have been successful in these long-term efforts, as evidenced by major reductions in emissions, effluents and waste volumes (see the graphs and tables attached to this report). Structural changes in our business have also contributed to smaller environmental effects reflected, for example, in the very low amounts of greenhouse gas emissions generated by our current operations. As a result of lower emissions and discharges, we have shifted our environmental focus towards closed manufacturing processes, more efficient recycling and waste treatment. The environmental ‘footprint’ of Kemira has diminished by c. 80% in under ten years, calculated as an environmental index. The reduction from the previous year was 20% while the net sales of the Group were up by 26%. In 2006, environmental operating costs totaled EUR 35.4 million (33.3 million), up by 6.3% on the year before, and environmental capital spending EUR 12.2 million (7.4 million), up by 65% on a year earlier. Capital expenditure of EUR 25.9 million on the management and productization of the Pori plant’s by-products will be our largest single environmental investment. Due for completion by the end of 2007, this project will end the series of environmental investments of over EUR 100 million made in the plant. All of Kemira’s production sites have been subject to soil and ground water assessments, now covering 96 sites on a global basis, including those received through the latest company acquisitions. We have made a provision of EUR 16.8 million for future soil remediation measures.

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Environmental responsibility

From good to great in safety As a result of active safety management efforts, the frequency of occupational accidents fell to 6.0 (8.4) accidents per million working hours. Although we have made good progress in occupational safety, there is still much room for improvement. The ultimate target is clear – zero incidents.

As part of the Kemira – from Good to Great program, the financial year saw the launch of the Safety – from Good to Great scheme aimed at enhancing the safety culture and occupational safety. We have also a tighter internal audit scheme running at the same time. The Tiel site in the Netherlands was named our ‘best improver’ in 2006 – starting from a relatively high level of incidents the plant has been able to go down to zero within two years. Following the Group certification of our activities in Finland in 2006, the OHSAS 18000 safety management system will also become part of our EHSQ systems in all the business areas.

We are committed to Preventing and minimizing any harmful effects of our operations Continuously improving our environmental performance Promoting sustainable development by making efficient use of energy and natural resources

There were no lethal accidents, or accidents resulting in environmental damage. However, a storage fire at a paint manufacturing plant in Russia and an explosion at one plant unit in Joutseno, Finland, caused substantial property damage.

Product safety – responding to REACH The REACH regulation of the European Union was finalized at the end of December 2006 and Kemira is committed to complying with the regulation. Under the guidance of Kemira’s Reach Competence Center in Finland, Kemira has made an inventory of its substances and is preparing for future registration. Following recent acquisitions, Kemira manufactures or imports approximately 200 substances which must be registered in accordance with REACH within the next 11 years. About ten of these substances will be subject to authorization. The direct cost of REACH compliance on Kemira will be in the order of €30 million during the next ten years. However, this is a very rough estimate since the actual substance level costs depend on many factors, and any business acquisitions or divestments may change the total figure considerably. Although we do not expect material business impacts, a major workload lies ahead of us, especially within the next 3-5 years. Kemira began preparatory work on REACH several years ago, and established a Reach Competence Center (REACH CC) in Finland in 2006 to co-ordinate its efforts. Data collection with other EU manufacturers and importers, in the so-called SIEFs (Substance Information Exchange Forum), will hopefully run smoothly and keep to the tight schedules set out by the regulation.

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The introduction of REACH in Europe coincides with GHS, the globally harmonized system for the classification and labeling of chemicals. Together, these regulatory changes put a great deal of pressure on the development of IT systems and the management of product safety information in the supply chain. Intensive development and the global roll-out of Kemira’s new SAP system will prove to be of decisive help in tackling this challenge.

Environmental business Products and services related to environmental protection are taking up an increasing share of Kemira’s business, accounting for around 36% of revenue in 2006, showing a year-onyear rise of 22%. This was mainly due to acquisitions within the business areas Kemira Water and Kemira Coatings. In particular, the acquisitions in 2006 of the water treatment chemicals business of Cytec Industries Inc. of the USA and Galvatek of Finland, specializing in the treatment, recycling and recovery of industrial side streams, have augmented the total environmental business volume. Established in 2006, the Industrial & Environmental Services business line has a service concept based on providing municipalities and manufacturing plants with complete services ranging from water and environmental engineering research, process planning and plant and chemicals deliveries to plant operation. The business area Kemira Water, also signed a long-term agreement for producing and developing water treatment chemicals for the City of St. Petersburg, Russia. In the Kemira Coatings business area, the challenging VOC directives of the EU are boosting the development of Tikkurila’s high solids products and solutions. For example, many industrial customers have started using our solutions, resulting in lower volatile organic compounds emissions (VOC), and several pilot runs are underway. Sales of products based on waste or recycled raw materials increased by 16%, with growth in all product groups. Intensive development work is going on in many of Kemira’s business areas, in order to expand such businesses and find new applications.

Towards global efficiency Today, 42 Kemira sites have certified environmental and quality management systems in place. Additionally, many of them have certified health and safety systems. We have increased our EHSQ management resources and switched to a Group certification system in Finland. The next step will be to roll out and harmonize these systems within all the business areas globally. We believe this will increase the benefit that Kemira’s customer solutions produce, and help us manage our EHS issues efficiently.

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Business areas

Environmental work at the sites

Kemira Pulp&Paper In Fray Bentos, Uruguay, the chemical plants under construction by Kemira include hydrogen peroxide, sodium chlorate, chlorine dioxide and oxygen units, all representing the best available technology. In Finland, a clean hydrogen power plant was successfully taken in use at Joutseno. This joint venture plant uses by-product hydrogen to generate electricity and heat without any emissions except water vapor. The site also improved energy efficiency by adopting new membrane cells. Meanwhile, the Äetsä site obtained a new environmental permit and contributed to additional soil contamination surveys. The Kuusankoski site completed a long-term project for demolishing and cleaning up certain plant buildings. At the Kokkola site, the construction of acid-proof protection walls was begun in order to improve leakage control. OnePoint Oy, the site’s service company, also began the isolation of a sold onsite landfill area. At Eastover, SC, USA, improvements were made in process area containment and raw material unloading to prevent spills. At Europoort-Rotterdam, the Netherlands, mist eliminators were installed in two waste gas streams of the hydrogen peroxide plant to reduce VOC emissions. At Vaasa, Finland, occasional release of acidic salt water into the sea occurred in September, resulting in some fog development but no environmental impacts. Waste sent to off-site landfills was reduced by external recycling. The gypsum pigment plant at Siilinjärvi, Finland, began closing its water circulation systems, and obtained a new environmental permit which is valid until 2016.

At Swiecie, Poland, waste water discharges from crude tall oil production were eliminated by installing closed water systems. In Columbus, GA, USA, a new methanol byproduct recovery and recycling system will lead to a substantial reduction in hazardous waste. The recently acquired Leverkusen plant in Germany has largely outsourced its environmental services, which are common to this big industrial park. The paper dye plant in Bushy Park, SC, transferred the necessary air permits. The EHSQ management systems of both sites were re-audited.

Kemira Water The Yixing plant in China reduced air emissions and aims to increase the recycling of solid residues. A hydrochloric acid spill at Brantford, Canada, was contained and cleaned up, and a new containment system has been built. In Harjavalta, Finland, the new air pollution control devices have worked well and dust emissions are well below the permit limits. In the Czech Republic, loading areas at Želivka were made safer, and a double wall tank for sulphuric acid was built at the Kolin site. The water treatment chemicals plant in Europoort Rotterdam, the Netherlands, increased production while substantially reducing waste generation. Renewed iron chloride production at Barreda, Spain, is also improving environmental control. The Zlotniki site in Poland improved its scrubbing systems, while the Fredrikstad site in Norway installed closed water systems.

Kemira Specialty At Pori, Finland, Kemira Pigments completed and updated its main permit application and also submitted an application for its Kipsikorpi off-site landfill in 2006. These permits are expected to be issued in 2007. An investment project totaling EUR 25.9 million was started for new technology in by-product management in anticipation of the permit terms.

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In addition, preparations were begun for closing on-site piling areas after 2007, and for moving all landfill activities to Kipsikorpi afterwards. The frequency of lost time accidents was significantly lower than in the previous year, and there were no major accidents. In Oulu, Finland, the outsourcing of energy production lowered many of the reported environmental figures. The site also made improvements in the process safety of gasification, and cut the VOC emissions of hydrogen peroxide plants. The expansion of formic acid production will also enhance the energy efficiency of the plant. In the Netherlands, the Tiel site had zero incidents (see above) and investigated noise reduction and spill control options. In Helsingborg, Sweden, the construction of a new sulphuric acid and liquid sulphur tank farm as well as a new cooling water system were completed on the site. These projects were related to the major sulphuric acid tank accident in 2005. The off-site Kemira landfill at Rökille was outsourced to a regional recycling company, Nordvästra Skånes Renhållnings AB (NSR). NSR will begin preparations for closing the landfill in compliance with EU landfill regulations.

Kemira Coatings The relocation of production and the construction of a stateof-the-art new paint plant at Nykvarn, Sweden, will further reduce environmental risks and releases. A substantial part of the acquired production of Kraski Teks on two sites in Russia is solvent-free. The fire that took place in the paint storage of the St. Petersburg site had no environmental impacts, and is under close investigation. The site also improved its wash water treatment. The Debica plant in Poland obtained ISO EHSQ certification in late 2006, and continued its soil remediation project. Handling of wood-protection products containing chrome was halted at Pigrol, Germany. The Vantaa site in Finland launched a challenging safety program for reducing occupational incidents further.

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Environmental statistics

Kemira’s 13th environmental report deals with the Group companies in line with financial reporting. The report has been prepared, where applicable, in accordance with:

• The Finnish Accountancy Standards Board’s recommendation on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies • CEFIC (European Chemical Industry Council): Health, Safety and Environment Reporting Guidelines, November 1998. Data in this report contains information from 84 production plants worldwide. Six sites were reporting for the first time, while seven were either closed or sold. The Group’s production volumes and energy use increased slightly from the previous year. The total environmental index of the Group shows a reduction of 20% from the previous year, while revenues increased by 26%. Long-term development has also been very good. The changes in 2006 were mainly related to acquisitions and divestments, but also to the sum of many minor or medium-scale performance improvements on the sites. The reported carbon dioxide emissions decreased further by three quarters due to the divestment of two power plants in Finland. The remaining emission level is less than one tenth of the levels observed in early 2000. In this case, the change reflects the fact that the business portfolio of the Group has been moved into sectors which do not generate direct CO2 emissions. Releases of inorganic gases like sulphur dioxide and nitrogen oxide, as well as dust, decreased substantially for the reasons explained above. However, the emission of volatile organic compounds (VOC) was up by c. 32% due to acquisitions. All reported waste water components showed a downward or flat trend. The generation of non-hazardous waste decreased by close to 20% from the previous year, mainly as a result of increased recycling activities. Hazardous waste generation was up 23% due to acquisitions in the Kemira Coatings business area and occasional off-spec items.

Environmental liabilities and risks The bulk of Kemira’s business is in the chemical industry, whose products and operations are governed by numerous international agreements and national legislation all over the world. The Group treats its environmental liabilities and risks in accordance with IFRS and observes established internal principles and procedures. In the context of all of its major mergers and acquisitions in 2006, Kemira carried out due diligence analyses related to the contamination of soil and groundwater caused by ­previous operations. Acquisitions and divestments did not alter the Group’s environmental liabilities significantly. No significant environmental liabilities were connected to the purchase of the Lanxess Group’s paper chemicals business, announced at the end of 2005, and that of the Kraski Teks paint business in Russia. Kemira conducted detailed assessments at the five sites of the water chemicals business acquired from Cytec Inc., and the seller is responsible for any environmental liabilities which have been found in these assessments and can be verified. Provisions for environmental remediation totaled EUR 16.8 million in 2006, the largest pertaining to the future rehabilitation of the piling areas connected to the Pori site, the isolation of the sold waste disposal area at the Kokkola site and the reconditioning of the sediment of a lake adjacent to the Vaasa plant.

Emissions allowances Under the EU Emission Trading System, the Group holds assigned emissions allowances at one site in Sweden. In net volumes, these allowances at Group level showed a surplus of 5592 carbon dioxide tons in 2006.

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Environmental operating cost

Environmental capital spending

Lost time incidents (LTI) per million working hours

EUR million

EUR million 97 02 50

03

04

05

06

40

97

20

02

03

04

05

06

15

15

10

10

5

5

0

0

30 20 10 0

Growth of environmental business

1,000

97

02

03

04

05

06

800

97

Lost time incidents, Tiel site, the Netherlands per million working hours

EUR million

20

4

01

02

02

03

04

05

06

Heavy metal discharges

tonnes 03

04

05

06

50

98

02

03

04

06

05

40

3

30

600 2

20

400 1

200

10

0

0

0 LTA Employees LTA Contractors

Greenhouse gas emissions

Hg, Cd, Pb, Cr, As, Cu, Ni, Zn

Dust emissions at Kemira Pigments, Pori, Finland

Hazardous waste treatment 0.4%

1,000 tonnes CO2 eq. 7,000

97

02

tonnes 03

04

05

06

6,000

100

93

97

03

04

05

4,000

60

3,000

40

2,000 0

0

VOC emissions per paint liter

Non-hazardous waste generation

1% 24% 22% 31% 20% 0.4%

Environmental index and net sales index

1,000 tonnes

g/l

0,0

22%

On-site incineration Off-site incineration Off-site landfilling Recycling Other treatment On-site landfilling

CO 2 N 2 O as CO 2 eq.

0,5

31%

06

20

1,000

1,0

24%

80

5,000

1,5

1%

20%

01

02

03

04

05

06

2,400

97

02

03

04

05

06

120

97

02

03

04

05

06

120

2,000

100

1,600

80

80

1,200

60

60

800

40

40

400

20

20

0

0

100

0 Environmental index Net sales index

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Environmental and safety management systems at production sites in 2006

Site

Environment

Krems, Austria

ISO 14001

Sao Paolo/Sao Bernardo do Campo, Brazil

ISO 14001

Telêmaco Borba, Brazil

ISO 14001

Kolin and Zelivka, Czech Republic

ISO 14001

Prerov, Czech Republic

ISO 14001

OHSAS 180012)

Esbjerg, Denmark

ISO 14001

OHSAS 18001

Tallinn Vivacolor, Estonia

ISO 14001

Harjavalta, Finland

ISO 14001

OHSAS 18001

Joutseno, Finland

ISO 14001

OHSAS 18001

Kokkola, Finland

ISO 14001

OHSAS 18001

Kuusankoski, Finland

ISO 14001

OHSAS 18001

Oulu, Finland

ISO 14001

OHSAS 18001

Pori, Finland

ISO 14001

OHSAS 18001

Siilinjärvi, Finland

ISO 14001

OHSAS 18001

Vaasa, Finland

ISO 14001

OHSAS 18001

Vantaa, Finland

ISO 14001, EMAS3)

Äetsä, Finland

ISO 14001

Lauterbourg, France

ISO 14001

Leverkusen, Germany

ISO 14001

Rheinberg, Germany

ISO 14001

Ube city, Japan

ISO 14001

Ulsan, Korea

ISO 14001

Rozenburg, The Netherlands

ISO 14001

Tiel, The Netherlands

ISO 14001

Fredrikstad, Norway

ISO 14001

Debica, Poland

ISO 14001

Police, Poland

ISO 14001

Swiecie, Poland

ISO 14001

Wroclav, Poland

ISO 14001

Estarreja , Portugal

ISO 14001

Bistrita, Romania

ISO 14001

Fundulea, Romania

ISO 14001

Flix, Spain

ISO 14001, EMAS

Santander, Spain

ISO 14001, EMAS

Sevilla, Spain

ISO 14001, EMAS

Tarragona, Spain

ISO 14001, EMAS

Helsingborg, Sweden

ISO 14001

Kvarntorp, Sweden

ISO 14001

Stockholm, Sweden

ISO 14001

Goole, United Kingdom

ISO 14001

1) 2) 3)

Safety

1)

OHSAS 18001

OHSAS 18001 OHSAS 18001 OHSAS 18001

International Organization for Standardization, Environmental management system standard. Occupational Health and Safety, management system standard. European Union, Eco-Management and Audit Scheme.

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Environmental data for the Kemira group

2002

2003

2004

2005

2006

Chemical Oxygen Demand (COD)1)

159

173

309

79

29

Nitrogen (N)

753

686

542

96

87

Phosphorus (P)

16

19

15

7

4

Suspended solids, 1,000 tonnes

0.9

1.1

1.3

0.9

0.9

Metals (Hg+Cd+Pb+Cr+As+Cu+Ni+Zn)

2.8

3.6

4.0

2.0

2.3

Releases into water, tonnes

Releases into air, tonnes Particulates

850

801

257

128

40

Sulphur dioxide (SO2) 2)

4,580

4,436

4,330

3,036

1,813

Nitrogen oxides (NO2) 3)

3,950

4,038

2,864

1,152

298

Carbon dioxide (CO 2), 1,000 tonnes

2,369

2,364

1,828

805

224

Volatile organic compounds (VOC) 4)

199

186

136

130

171

2,581

2,627

1,310

24

23

Hazardous wastes, total

5,858

8,473

10,310

5,290

6,497

– Off-site landfill

1,038

1,356

3,621

1,316

2,161

– Off-site incineration

3,752

5,390

4,892

1,933

2,332

29

64

94

35

35

– Other treatment

1,040

1,663

1,704

2,006

1,969

Non-hazardous wastes, 1,000 tonnes

2,289

2,299

1,903

654

526

Fuel consumption, ktoe 7)

523

533

427

292

148

Fuel consumption as raw material, ktoe

740

757

560

81

93

Volatile inorganic compounds (VIC) 5) Waste 6), tonnes

– On-site landfill

Natural resources

Purchased electricity, TJ

4,654

4,633

4,137

9,594

10,420

Purchased heat, TJ

794

982

907

1,177

6,754

Cooling water volume, million m3, approx.

336

349

239

202

213

Waste water volume, million m3, approx.

15

15

13

5.4

5.7

9.7

7.3

6.7

8.4

6.0

2,612

2,738

2,533

1,994

2,523

Safety Number of accidents 8) per million working hours Reference data, EUR million Group net sales Environmental capital expenditure

12.3

9.5

10.3

7.4

12.2

Environmental operating costs

47.3

46.7

40.4

33.3

35.4

2.3

2.1

2.0

2.0

1.9

Total environmental costs, % of net sales 1) 2) 3) 4) 5) 6)

7) 8)

Estimate. In this case, partly caused by inorganic discharges. All sulphur compounds calculated as SO2. Nitric oxide and nitrogen dioxide calculated as NO2. VOC is a sum of volatile organic compounds. Sum of ammonia, hydrogen chloride and six other simple inorganic compounds. Reported figures do not include on-site incineration, waste which is further processed into products at the sites, or sold as a co-product to external recycling. Figures are on wet basis. 1,000 tonnes of oil equivalent. Accidents causing an employee absence at least one day (LTA1).

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Assurance statement

At the request of Kemira Oyj, we have reviewed the information, systems and methodologies behind the data and statements presented in the Environmental review of the Annual Report and in the separate Environmental Report 2006 of Kemira Oyj. The report is the responsibility of and has been approved by the Board of Directors of Kemira Oyj. The inherent limitations of completeness and reliability of the data are set out in the report. Kemira Oyj complies in its environmental reporting, where appropriate, with the Finnish Accountancy Standards Board’s recommendation on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies (24.10.2006) and the CEFIC Health, Safety and Environmental Reporting Guidelines). The assurance work was undertaken in accordance with the International Standard on Assurance Engagements (ISAE) 3000 principles. We planned and carried out our work to provide moderate assurance on the reliability of presented data that was subject to assurance. Our review has consisted of the following procedures:

• enquiries of management responsible for compiling the report; • an examination of relevant supporting information for data and statements presented; • a review in more detail of the systems for collection and processing environmental data at operating level at one site in Germany and at one in Spain, selected by us. Based on our activities undertaken, nothing has come to our attention that causes us to believe that the presented data and statements in the Environmental review of the Annual Report and in the Environmental Report 2006 of Kemira Oyj would not appropriately describe the condition and development of the issues presented in the Environmental Report of Kemira Oyj.

Helsinki, 6 February 2007 KPMG OY AB

Pekka Pajamo Authorized Public Accountant

Olli Miettinen Advisor, Sustainability Services

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