JAFCO : Corporate Governance Report

This is an excerpt translation of the Japanese original for convenience only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Last Update: December 10, 2021

JAFCO Group Co., Ltd.

Shinichi Fuki, President & CEO Contact: [phone] Securities Code: 8595 https://www.jafco.co.jp/english/

The corporate governance of JAFCO Group Co., Ltd. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

With an eye to increasing corporate value over the medium to long term, the Company has established the following basic policies on corporate governance and will make continuous efforts for its enhancement:

• Build respectful relationships with stakeholders;
• Maintain transparency and fairness in decision making;
• Establish an appropriate supervising structure;
• Establish a corporate structure that ensures effective and swift business execution.

[Reasons for Not Implementing Each Principle of the Corporate Governance Code] Updated

The Company implements each principle of the Corporate Governance Code after the June 2021 revision.

[Disclosure Based on the Principles of the Corporate Governance Code] Updated

Based on the above basic views, the Company has established the Corporate Governance Policy (the "Policy") which outlines the Company's concrete corporate governance measures. The Policy is posted on the Company's website:

https://www.jafco.co.jp/company/governance/ (Japanese) https://www.jafco.co.jp/english/company/governance/ (English)

Descriptions of the items disclosed based on the principles of the Corporate Governance Code are as follows:

Principle 1.4 Cross-ShareholdingsChapter II 1(4) of the Policy

• The Company will not acquire additional cross-holding shares in other listed companies, except in the following cases:
• 1. When it determines that the holding would be beneficial in maintaining and strengthening a cooperative business relationship with the counterparty;
  2. When it determines that the value of the shares would be financially beneficial for the Company.
• The Board of Directors regularly examines the appropriateness of existing cross-shareholdings. When it determines that the continuous shareholding lacks rationale after reviewing the risks and returns from a medium- to long-term perspective as well as the objectives given above, the Company will make efforts to sell such stock to the extent possible.
• With regard to cross-shareholdings as of the end of March 2021, the Board of Directors examined the appropriateness of cross-shareholdings from the following perspectives at the meeting of the Board of Directors held in June 2021 after monitoring business transactions with the counterparties and the counterparties' financial status and business performance.

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• 1. Compliance with the Company' policy on holding of the relative shares;
  2. Possibility of contributing to the Company's business promotion and higher corporate value over the medium to long term, such as through commitments to JAFCO-operated funds, etc.
• When executing voting rights regarding cross-shareholdings, the Company decides whether to vote for or against the proposal by taking into account the counterparty's situation and after discussing whether or not the proposal would contribute to its higher corporate value over the medium to long term.

Principle 1.7 Related Party Transactions

Chapter II 1(6) of the Policy

• The Company shall engage in transactions with its officers only with the prior approval of the Board of Directors (and the Board-Audit Committee if applicable) and in accordance with laws and regulations.
• The Company shall engage in transactions with affiliated firms or major shareholders (including their subsidiaries) on fair terms and conditions with due consideration to market quotations, etc. The Board of Directors, representative directors or other applicable corporate bodies will evaluate and approve such transactions based on the detail and amount.

Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Core Human Resources Chapter II 2(2) and (3) of the Policy

• As the business environment surrounding the Company dramatically changes, it requires increasingly diverse perspective to invest in start-ups that are working to address diverse social needs and issues. To this end, the Company accepts and respects diverse perspectives and values of employees, irrespective of gender, nationality, age, etc.
• For each division, the Company will promote diversity-focused recruitment and appointment to management positions. In particular, a small number of women among venture capitalists in the investment divisions is an outstanding issue, and the Company plans to undertake aggressive recruitment to this end.

1. Appointment of women to managerial positions
   (1) Approach to ensuring diversity
   We have been actively recruiting women to general positions and appointing them to managerial positions. This policy will remain unchanged. We have been making appointment to managerial positions regardless of gender, etc. and recruited a number of manager-level female employees.
   However, in the investment divisions, the majority of investment staff have been male employees over the years, and as a result, the appointment of female managers has been limited. Therefore, whether in the case of new graduate or mid-career recruitment, the Company will aggressively recruit women and promote them to managerial positions.
   (2) Voluntary and measurable goals for ensuring diversity
   - In order to increase the appointment of women to managerial positions, the Company plans to increase the ratio of female employees (number of female employees divided by total number of employees). By the end of March 2025, the Company aims to increase this ratio to over one-third of the total workforce. - For the ratio of female managers (number of female managers divided by total number of managers), the Company aims to increase the ratio to over 20% on a company-wide basis through managerial personnel development and mid-career hires.
   (3) Current status of diversity
   Fiscal year ended March 31, 2021 (as of March 31, 2021)
   - Female employee ratio: 28.2% on a company-wide basis
   - Ratio of female managers on a company-wide basis: 15.4%
2. Appointment of mid-career hires to managerial positions

(1) Approach to ensuring diversity

• We have been actively promoting mid-career recruitment of those with advanced specialized skills and those who have built extensive careers and experiences at other companies. For the appointment to managerial positions after employment, opportunities are provided equally, regardless of mid-career or new graduate hires. In recent years, there have been a number of cases where the Company has hired mid-careermanager-level candidates with diverse career history. With the aim of securing diverse human resources, the Company will continue with aggressive mid-career recruitment and appointment of mid- career hires to managerial positions.
  (2) Voluntary and measurable goals for ensuring diversity

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• We aim to maintain the ratio of mid-career hires in managerial positions to the total number of managers at one-third or more. Mid-career hires in managerial positions include employees who were recruited in mid-career and appointed as manager later on and those who were hired as manager.

(3) Current status of diversity

Fiscal year ended March 31, 2021 (as of March 31, 2021)

• Number of mid-career hires in managerial positions (including contract employees) and their ratio to the total number of managers (mid-career managers divided by total managers): 24 (36.9%)

3. Appointment of foreign employees to managerial positions

(1) Approach to ensuring diversity

- With a focus on individual abilities, we have intermittently been hiring foreign employees. In line with the rapid change in the business environment and globalization, it has also become necessary for the Company to secure diverse human resources, including foreign employees. The Company will continue to promote recruitment of foreign workers and work on the appointment of foreign workers to managerial positions.

- At the Asian and U.S. subsidiaries, employees are recruited locally. Foreign employees are also appointed to management-level or higher positions and implement investment activities rooted in each region.

(2) Voluntary and measurable goals for ensuring diversity and the current status of diversity

- With the exception of subsidiaries in Asia and the U.S., the Company currently has no foreign employees. It aims to hire one or more foreign employees by the end of March 2024.

- At the Asian and U.S. subsidiaries, all staff are hired locally, and with the exception of one Japanese staff at the U.S. subsidiary, all local foreign employees are appointed to managerial positions, in principle. The Company will continue to maintain this situation.

[Human resource development policy, internal environment improvement policy, and implementation status for securing diversity]

• The Company's human resource development centers on the implementation of effective OJT. In particular, for new graduates, the Company provides one-on-one,hands-on training based on the instructor system, in addition to introduction training. In the investment division, with the aim of

developing human resources capable to stand on an equal footing with entrepreneurs, new staff will take charge of investment candidates that they identify and be required to think and act on their own initiative from an early stage. For the instructor system, in particular, detailed measures are being taken at an organizational level, such as providing necessary feedback on the activities of instructors based on regular reporting to related parties.

• In addition to securing diverse human resources, their retention is also an issue. In recruitment, candidate's aptitude is assessed from various aspects based on interviews by multiple officers, related division managers, and investment staff. By having the division taking on new staff actively involved in recruitment activity, the Company supports the realization of career plans for diverse human resources after employment and ensures their retention.
• The policies and implementation status of the Company's human resource development and internal
  environment improvement are posted on the Company's website. https://www.jafco.co.jp/english/company/esg/

Principle 2.6 Roles of Corporate Pension Funds as Asset Owners

The Company has adopted a defined contribution scheme for its pension system. While explaining the intent and outline of the system to its employees on an as-needed basis, it provides information on the asset management status, alternative financial instruments, and potential changes of allocation on a regular basis.

Principle 3.1(i) Company objectives (e.g., business principles), business strategies and business plansChapter I 1 of the Policy

(1) JAFCO's Mission

"Commit to new business creation and jointly shape the future"

Since the establishment, the Company has created various innovative products/ services with entrepreneurs. The Company's mission is to open a new era with its stakeholders by committing to creating new businesses needed in the society.

1. Policy and Strategy for Achieving JAFCO's Mission
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The Company aims to achieve its mission by making venture/ buyout investment through funds.

To better clarify its commitment to entrepreneurs embarking on new businesses and fund investors, the Company will further increase competitiveness by enhancing its organizational strength accumulated since inception and introducing the partnership model whereby individuals also take management responsibility.

The essence of the Company's business strongly matches with the concept of sustainable investment. The Company will incorporate ESG factors into the entire investment process from identifying high- potential companies aiming to solve social issues to investment exit, including supporting their growth through post-investment engagement. The company will boost competitiveness and corporate value by contributing to sustainability through business growth of its portfolio companies.

In realizing its mission, the following strategies will also be implemented.

i. Highly selective, intensive investment and management involvement

To create new businesses, the Company will narrow down investment targets and make bold investments in companies with high growth potential. It acquires influential stakes in its portfolio companies and accelerate their growth through deep management involvement.

1. Sustain improvement in fund performance
   To stably secure sufficient investment capital, it is vital to achieve sustainable improvement in fund performance and raise funds from outside investors. The Company also invests its own capital in funds and receives returns with fund investors. It aims to build high-quality portfolios through highly selective, intensive investment and management involvement to achieve sustainable improvement in fund performance.
2. JAFCO as "Co-Founder"

During the startup phase of a portfolio company, the Company is required to be a "Co-Founder" rather than a fund provider. It aims to become an organization where each employee and the Company as a whole can play an active role as a "Co-Founder" by passing on and developing its spirit, expertise and experience that it has built up since establishment.

• About the Company's business portfolio
• • The Company specializes in venture/ buyout investment through fund management. The main income sources are management fees and success fees derived from fund operations and capital gains on direct investment in funds.
  • Investment teams in Japan, Asia, and the U.S. manage their own funds based on their respective investment strategies. Investment teams that are deeply rooted in each region carry out everything from identifying investment candidates, making and executing investment decisions, to providing post-investment support. The Company diversifies regional risks through tri-polar investment activity based in Japan, Asia and the U.S.
  • While promoting global solidarity as a group, the Company will pursue uniqueness in each region in accordance with their respective investment styles.
• About business plans

Due to the nature of the venture/ buyout investment business, the Company is greatly impacted by volatility in stock markets and the IPO environment in Japan and overseas. Moreover, as the Company invests its own capital alongside its partners in funds, its earnings may fluctuate sharply over the short term. With the aim of enhancing its corporate value over the medium to long term, the Company strives to achieve long-term targets set for its fund performance.

*To realize the Company's mission

Since adopting the partnership model in 2018, the Company has been focusing on building a flat organization centered around Partners, who are responsible for fund management as top capitalists. Partners and employees have invested alongside the Company in the latest SV6 Fund Series, bearing the risk of fund performance while receiving carried interest based on fund performance and degree of individual contribution. The Company is also enhancing its long-accumulated organizational strength to further improve fund performance through deep involvement in the management of portfolio companies.

Principle 3.1(ii) Basic views and guidelines on corporate governanceChapter I 2 of the Policy

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The Company's basic views on corporate governance are as shown in the section "1. Basic Views". The Company has established the Corporate Governance Policy, which is posted on the Company's website:

https://www.jafco.co.jp/english/company/governance/

Principle 3.1(iii) Board policies and procedures in determining the remuneration of the executive members and directorsChapter IV 2(3) of the Policy

- The Board of Directors decides the remuneration of directors (excluding directors serving as Board- Audit Committee members), corporate officers and partners based on the "Policy for Determination of Remuneration of Directors, etc." (*) and after deliberations by the Nomination and Remuneration Committee composed of all Board-Audit Committee members and the President. The decision on remuneration adequately reflects evaluation of the Company's business results, fund performance, and the degree of individual contribution.

1. Please see "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" under the "Director Remuneration" below for reference.

• The Board-Audit Committee expresses its opinion on directors' remuneration at the General Meeting of Shareholders when it deems it necessary.

Principle 3.1(iv) Board policies and procedures in the appointment/ dismissal of the executive members

and the nomination of director candidates	Chapter IV 2(4) of the Policy
Principle 4.11.1 Views on Board Composition	Chapter IV 2(4) of the Policy

• Directors, including CEO, and corporate officers are appointed by the Board of Directors after deliberations by the Nomination and Remuneration Committee.
• All directors (excluding directors serving as Board-Audit Committee members) are subject to election/re-election every year at the General Meeting of Shareholders. The Board-Audit Committee expresses its opinion on directors' election/ dismissal at the General Meeting of Shareholders when it deems it necessary.
• The Company shall select director candidates who have business skills, insight, experience, and expertise to serve as a director to allow the Board of Directors to fully exercise its operational and supervisory functions. The Company proactively selects suitable candidates from diverse background regardless of gender and nationality.
• The Company shall select independent director candidates who have abundant experience and deep insight into corporate management or specialist fields, and can be expected to fulfill the roles and responsibilities of an independent director. The selection is in accordance with the Company's "Standards for Independence of Independent Directors."
• In a case where a director has caused the Company to incur a tremendous loss or operational problems by committing a wrongful act, or violating laws, regulations, the Articles of Incorporation or the Company's internal rules, or has become difficult to execute duties by other reasons, such director shall be subject to dismissal proposal.
• A Partner is nominated with consensus of all partners and appointed upon the approval of the Board of Directors after deliberations by the Nomination and Remuneration Committee.
• In principle, a majority of the Board of Directors are independent directors, and the Board size shall be determined to allow high effectiveness in term of the Company's scale and business. The Company strives to ensure diversity in terms of gender, nationality, career history, and age.

The skill matrix of the Board of Directors listing each director's expertise, experience and specialty is provided in the notice of convocation of the annual general meeting of shareholders.

https://www.jafco.co.jp/english/ir/shareholder/meeting

Principle 3.1(v) Explanations with respect to the individual appointments/ dismissals and nominations of executive members based on (iv) above

Reasons for the appointment of three (3) directors (excluding directors serving as Board-Audit Committee members) and four (4) directors serving as Board-Audit Committee members elected at the 49th Annual General Meeting of Shareholders on June 15, 2021 are explained in the Notice of Convocation of the respective Annual General Meeting of Shareholders.

The above convocation notice is posted on the Company's website:

https://www.jafco.co.jp/english/ir/shareholder/meeting/

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