Avant : 【Delayed】 Corporate Governance Report 2023

Corporate Governance

Avant Group Corporation

September 27, 2023

Avant Group Corporation

Tetsuji Morikawa, President and Representative Director

For inquiries Investor Relation Office 03-6864-0100 (main)

The status of the Company's corporate governance is as follows

I. Basic Information on Corporate Governance and Capital Structure Basic Policy on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic concept

(1) Corporate Philosophy

Since our founding, our corporate philosophy has been to respect the Japanese management view of the company as a public institution of society and to develop as an organization that exists for the benefit of society.

We believe that the fundamental management perspective based on Japanese culture is to regard the company as a "public institution" of society. Even in a globalized society, we respect this management perspective as a cultural asset and strive to develop as an organization that exists for the benefit of society.

We describe our corporate activities based on this Japanese management perspective as "creating a 100-year company" and have positioned it as our corporate philosophy since our founding. It is not simply sustaining a company or brand. It is a 100-year company as a result of the management view as a public institution that is passed down from generation to generation, and all members of the company burn to provide value to society in a free and creative manner. To achieve this, we practice group management that fosters organizational independence and group synergy.

For group management that contributes to the growth of people and organizations, we place great emphasis on highly honed corporate governance. By continuing to learn and engage in dialogue with various stakeholders, we aim to develop our business with an open perspective so that we can provide value to society without being biased toward any particular stakeholder.

(2) Approach to Corporate Governance

Based on this corporate philosophy, we have established the "Avant Group Basic Policies on Corporate Governance" and are striving to enhance the transparency and soundness of management and to build a management system that enables prompt business execution based on accurate decision-making and appropriate monitoring of these activities. We are striving to enhance corporate governance.

URL:

https://www.avantgroup.com/en/sustainability/governance/main/0/teaserItems1/01/linkList/0/link/CG_en.pdf

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[Reasons for not implementing each principle of the Corporate Governance Code]

To realize our management philosophy, all of our employees share the values of (1) customer orientation, (2) high profit orientation, and (3) single-mindedness. These are values that lead to a virtuous cycle that supports such growth: putting the customer first, growing as a person through creative conversations with various stakeholders in order to meet the needs and expectations of customers amid various changes in the environment, creating new value that is second to none, and earning a high reputation. Diversity is an important issue for our company, as it is important to form an organization that transcends differences in age, gender, race, religion, hobbies and interests in order to share such values. However, in the fiscal year ending June 30, 2023, 8.8% of our managers were women, 4.3% were foreign nationals, and 82.3% were mid-career hires. We have people from various backgrounds working in our leadership positions.

We believe that the development of diversity will (1) enable employees to exchange opinions from a broader perspective, (2) enable us to make high-quality proposals to our customers, and (3) enhance our customers' evaluation of us, thereby improving employee job satisfaction. For this reason, the Group as a whole is a Great Place to Work.

Supplementary Principle 4-1(iii): Succession Planning

We recognize that the succession of the Chief Executive Officer(CEO) is an important management issue for the Company, and the Board of Directors began discussing it in the fiscal year ending June 30, 2018. In the fiscal year ending June 30, 2019, we will further incorporate the knowledge of an outside consulting firm and study the development of a comprehensive succession plan.

In September 2021, the Articles of Incorporation were amended to change the clause that the CEO is naturally the chairman of the Board of Directors to a system in which the CEO is selected from among the directors. In October 2022, the CEO, who was the founder of the company, was no longer concurrently serving as president of a business subsidiary.

Although no progress has been made on the CEO succession plan itself, we believe that progress is being made in separating the role of the founder and developing an environment for succession planning.

[Disclosure based on each principle of the Corporate Governance Code] Principle 1-4: So-called"policy shareholdings" (Comply)

The Company has no so-called policy shareholdings. The purpose of the policy shareholdings is to maintain and strengthen inter-company transactions, and if acquired, the director in charge of finance will report regularly to the board of directors on the risks and returns, and approval by the board of directors is required in accordance with the "Fund Management Regulations" and other relevant regulations. The basic criterion for determining whether or not to exercise voting rights in relation to policy shareholdings is whether or not it is in line with the

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enhancement of the corporate value of both the Company and the investee company.

Principle 1-7 Related Party Transactions] (Comply)

The Company's Board of Directors deliberates and resolves on any competing transactions or conflict-of-interest transactions by directors. At the end of each fiscal year, each Director, Audit Committee member, and Corporate Officer is asked to complete a questionnaire regarding transactions with related parties to ensure that they do not harm the company or the common interests of shareholders. There are no related party transactions.

Principle 2-6: Exercise your function as an asset owner of a corporate pension plan] (Comply)

Although we do not have a corporate pension plan, we will function as an asset owner of a corporate pension plan if such a plan is introduced.

Principle 3-1: Enhance disclosure of information] (Comply)

1. We have established a philosophy system that includes the management philosophy of the Avant Group, and have published management strategies and a medium-term management plan to realize our management philosophy. The Management Philosophy is described in this report, but please refer to the details of the Management Philosophy, as well as the Management Strategy and Mid-term Management Plan, which are available on the Company's website.
2. Our basic approach to corporate governance, based on each of the principles of this Code, is described in "I.1 Basic Approach" of this report.
3. In determining the remuneration, etc. of directors and corporate auditors, our basic policy is to make it function effectively as compensation for their contribution to the enhancement of the Company's corporate value. Within the limit of the amount of remuneration, etc., resolved at the Annual General Shareholders' Meeting, the distribution of such remuneration is determined by taking into consideration factors such as position, performance and results during the term of office. For details on the remuneration system for directors and corporate auditors, please refer to II. Matters Related to Organizational Structure, Organization and Operation, etc. [Related to Directors' Remuneration] "Disclosed Details of Policy for Determining Amount of Remuneration or Calculation Method" for the remuneration system for directors and corporate auditors. Details are explained in "Disclosed Details of Policy for Determining Amounts and Calculation Methods of Compensation.
4. In appointing senior management and nominating candidates for directors, the Company selects, by resolution of the Board of Directors, the most suitable candidates, taking into consideration their personalities, professional experience and abilities, and wide-ranging insight that will enhance corporate value, as well as their abundant experience and broad knowledge of the Company's business. The Board of Directors selects the most suitable person for the position by resolution of the Board of Directors. In addition, we also consider whether outside directors can fulfill their management oversight function from a

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neutral, fair, and objective standpoint.

1. Reasons for the appointment of candidates for Outside Directors and Outside Audit & Supervisory Board Members and their expected roles are disclosed in the Notice of Convocation of the Annual General Shareholders' Meeting.

Supplemental Principle 3-1(iii): Sustainability Initiatives, etc.] (Comply)

As pointed out by the United Nations Intergovernmental Panel on Climate Change, global warming is progressing at a faster pace than expected, and we recognize that the impact of climate change on economic activities can no longer be ignored.

Our founding management philosophy of "creating a 100-year company" reflects our sustainability concept of realizing continuous business growth through a self-sustaining organization that is highly adaptable to a rapidly changing market environment. The company does not only need to pursue profits, but always considers how to realize sustainable corporate value creation in balance with society and the environment. We signed the UN Global Compact on August 25, 2020 and endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) on December 22, 2021. We will take this opportunity to consider and implement measures that can be taken as a group while conducting risk assessments to achieve sustainability.

As part of our environmental efforts, we will purchase "Green Power Certificates" issued by Japan Natural Energy Company, Limited for all electricity consumption at the offices of our group companies from July 1, 2021, based on the electricity consumption in the fiscal year ending June 30, 2020 (approximately 1.5 million kwh). We will purchase "Green Power Certificates" issued by Japan Natural Energy Company, Ltd. from July 1, 2021 for the entire power consumption at the offices of our group companies to reduce CO2 emissions by approximately 660 tons-CO₂ per year and to promote the efficient use of electricity and the spread of power generation using natural energy to help prevent global warming. We will continue to make such efforts, aiming to reduce greenhouse gas emissions by 50% in Scope 2 and 30% in Scope 3 by the fiscal year ending June 30, 2030, compared to the fiscal year ending June 30, 2018.

Please refer to our website for more information on our sustainability initiatives. https://www.avantgroup.com/en/sustainability.html

Supplementary Principle 4-1 (i) Scope of Delegation to Management] (Comply)

We have established a separation of management decision-making and supervision from business execution through the Board of Directors as a management decision-making and supervisory body and the Corporate Officer System as a business execution system based on such decision-making. A summary of this information is disclosed on the Company's website and in the Corporate Governance Report. The Board of Directors, while deciding on matters stipulated by law and the Articles of Incorporation, as well as important matters concerning the Company and its subsidiaries in the Group, will transfer part of its authority to make business execution decisions to the executive directors in accordance with the transition to a company with an Audit Committee

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System in September 2022.. In October 2022, the Board of Directors transferred authority for the appointment of Executive Officers to Representative Director and President (Group CEO). In addition, a director or key member of the Board of Directors of Avant Group attends the Board of Directors meetings of the Company's subsidiaries as an officer or observer, and keeps abreast of the management situation. Although the boards of directors of the Company's subsidiaries make decisions on important matters, the Group's holding company, Avant Group, must approve the following three matters that have a significant impact on the Group: (a) investments, (b) executive appointments, and (c) financing, including capital policies. The Company has entered into a management guidance and business management agreement with its subsidiaries, under which the Company receives reports on important matters related to the execution of duties by directors, the results of which are reported to the Company's Board of Directors. The Company's Group Legal Office confirms that the Board of Directors of the Company's subsidiary convenes monthly.

Principle 4-2 Roles and Responsibilities of the Board of Directors] (Comply)

The Board of Directors receives proposals from time to time from the Group CEO and Group CFO, who are directors, or the Group CxO, who is an executive officer delegated by the Group CEO, and thoroughly examines them from various perspectives to ensure that they are in line with the management philosophy, annual business plan, and medium-term business plan, etc. Proposals that are approved by the Board of Directors are implemented by the Group CEO or Group CxO. For its smooth execution, the Board of Directors will provide personnel, financial, and other necessary support.

Supplementary Principle 4-2 (i) Compensation of sound management for sustainable growth] (Comply)

The Company's remuneration for directors and corporate auditors is divided into "basic remuneration based on the director's function" and "a remuneration system to achieve sustainable growth through a combination of bonuses linked to short-term and medium- to long-term business performance" and is determined within the remuneration limit resolved at the Annual General Shareholders' Meeting. In order to reflect the medium-term business performance and risks of the Company and to encourage incentivization that contributes to the exercise of sound entrepreneurial spirit, "Establishment of Remuneration Amount for Directors (excluding Directors who are Audit Committee Members) and Remuneration Related to Performance-Linked Stock Compensation" was submitted as Proposal 5 and "Establishment of Remuneration Amount for Directors who are Audit Committee Members" as Proposal 6 at the 26th Annual Annual General Shareholders' Meeting held on September 27, 2022. The proposal was approved and adopted, and the system has been introduced as a system. In addition, in order to further share value with shareholders in conjunction with the start of the new medium-term management plan, "Revision of the Performance-Based Stock Compensation Plan for Directors (excluding Directors who are members of the Audit Committee and Outside Directors)" was submitted as Proposal 3 to the 27th Annual General Shareholders' MeetingAnnual Annual General Shareholders' Meeting held on September 27, 2023, which was approved and adopted, and as a result, the plan has been revised. For details on the remuneration system for directors and corporate auditors, please refer to II. Matters Related to Organizational Structure,

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