Kuraray : Corporate Governance Report 2024/03/28 (598KB)

[Translation for Reference and Convenience Purposes Only]

CORPORATE GOVERNANCE REPORT

Kuraray Co., Ltd.

Last Update: March 28, 2024

KURARAY CO., LTD.

Hitoshi Kawahara

President and Representative Director

Contact: [phone]

Securities Code: 3405https://www.kuraray.com

The corporate governance of Kuraray Co., Ltd. (hereinafter "Kuraray" or the "Company") is described below.

I

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

1. Basic Views

The Company believes that the maintenance of appropriate relationships with various stakeholders and the fulfillment of social responsibilities through establishing a corporate governance system that ensures effective and fair management would contribute to the long-term and sustainable enhancement of corporate value.

The Company has adopted the governance system as "a company with Audit & Supervisory Board." Under this framework, the Company has established corporate governance function centered on its Board of Directors and Audit & Supervisory Board to improve the effectiveness of supervisory and monitoring function while maintaining management efficiency and to handle issues including management remuneration, selection of new company officers, internal control and risk management.

Through the above establishment of function, the Company believes that the effectiveness of supervisory and monitoring function would be improved while maintaining management efficiency, contributing to the long term and sustainable enhancement of corporate value.

Reasons for Non-compliance with the Principles of the Corporate Governance Code

The Company complies with all of the principles set forth in the Corporate Governance Code.

Disclosure Based on the Principles of the Corporate Governance Code

[Principle 1-4: Cross-Shareholdings]

The Company has set forth the policy on cross-shareholdings and standards for exercising voting rights pertaining to cross-held shares as follows.

1. Coming from the viewpoint of stable and long-term business operation, the Company may hold the shares of its business partners, etc. if maintaining and strengthening the relationships with such business partners are deemed to contribute to corporate value enhancement.

2. Regarding the shares held pursuant to the preceding paragraph (hereinafter, "cross-held shares"), the Company regularly examines economic rationality and significance of holding individual stock at the Boardof Directors meetings in consideration of benefits and risks associated with such holding, capital cost and other factors. The Company will sell shares of stocks, as necessary, whose holding was deemed not to be appropriate based on the examination to reduce such stocks.

3. Concerning the voting rights pertaining to the cross-held shares, the Company appropriately exercises such voting rights in light of the objectives of shareholdings set forth in the preceding two paragraphs, taking into consideration the business conditions of the companies and potential impact on the business operation of the Company or a subsidiary of the Company (hereinafter "the Group"). Particularly, the Company carefully exercises such voting rights in a case where the performance of the companies has been sluggish for a long period of time or a serious scandal has occurred or in a case where a proposal that would impair shareholders' value was made.

In the fiscal year ended December 31, 2023, the Company sold all shares of six stocks and part of two stocks of its cross-held listed shares. Additionally, as the result of an examination at the Board of Directors meeting held on February 8, 2024 of the economic rationality and significance of holding individual cross-held listed stocks for the fiscal year ended December 31, 2023 (examination on cross-held shares as of the end of December 2023) in consideration of benefits and risks, capital cost and other factors associated with such holding, the Company plans to continue with the sale of some stocks.

[Principle 1-7: Related Party Transactions]

The Company stipulates that transactions with competitors held by a Director, transactions between the Company and a Director, and transactions involving any conflict of interests would require the approval of the Board of Directors.

[Supplementary Principle 2-4-1: Ensuring Diversity in the Promotion to Core Human Resources]

The Kuraray Group consists of employees from various nationalities and backgrounds, and the active participation of all diverse members is crucial to the long-term and sustainable improvement of corporate value.

To achieve this, the Company has developed the "Kuraray Group Global HR Policy" as a common HR policy to the Group. In addition, the Company has established the "Kuraray Group Diversity and Inclusion Guiding Principles" that is focused on diversity of human resources. Based on these policies, the Company is improving

human resource development program or the environment of workplaces.

The Group's goals and progress for ensuring diversity in the promotion to core human resources are as follows.

1. Assumptions

 "Core human resources" are defined as managers. The state of progress will reflect the status of inclusion of foreign national managers by allowing not only the Company's registered employees (excluding production plants), but also registered employees of overseas affiliates who work at the Company's Japan locations to be

eligible for management positions.

 "Women, foreign nationals, and mid-career hires" are regarded as one category of diversity components, and targets are set for the percentage of the total number of persons in this category to the total number of managers.

2. Goals  Women, foreign nationals, and mid-career hires accounted for 12% of managers as of September 30, 2021 (women 5.1%, foreign nationals 1.2%, mid-career hires 7.7%, with some overlap among each).

 The goal is to reach 25% by fiscal 2030.

3. Progress  Women, foreign nationals, and mid-career hires accounted for 16% of managers as of December 31, 2023 (women 7.0%, foreign nationals 2.2%, mid-career hires 10.6%, with some overlap among each).

Details of the Company's Policy on Human Resources Development, Including Ensuring Diversity of Human Resources, and Policy on Development of the Internal Environment, as well as the indicators and targets of these policies have been announced in the Annual Securities Report (Japanese only).

Annual Securities Reporthttps://www.kuraray.co.jp/ir/library/account

[Principle 2-6: Roles of Corporate Pension Funds as Asset Owners]

Regarding the management of corporate pension funds of the Company, the Finance Department, which specializes in fund management, monitors management policy, method and status through an external management agency.

[Principle 3-1: Full Disclosure]

(i)Company objectives (e.g., business principles), management strategies and management plans

Based on our history and moving towards the future, we at the Company develop our corporate activities by adhering to "Our Mission," which represents how the Group should act to meet society's expectations and make contribution thereto, and act in accordance with "Our Values" and "Our Commitment."

[Our Mission]

We are committed to developing new fields of business using pioneering technology that improves the environment and enhances the quality of life throughout the world.

For people and the planet ̶ to achieve what no one else can.

[Our Values]

Philosophy:

Respect for individuals,

Close cooperation to attain shared goals, Constant creation of new value

Guiding Principles:

Safety is the cornerstone of everything we do Customers' needs are our top priority

We act on ideas in the workplace [Our Commitment]

We will constantly develop and provide safe, high-quality products and services. We will maintain a sound relationship with society through good communication.

We will strive to preserve and improve the global environment, and to secure safety and health in all our workplaces.

We will value all members of the Kuraray community and respect their rights.

We will always conduct businesses in a free, fair and transparent manner.

We will honor all intellectual property and secure data and information in a proper manner.

The Company formulated "The Kuraray Group Code of Conduct" as our guiding principles by breaking down "Our Commitment" and ensures that the officers and employees of the Group are fully aware of it, of which implementation status is checked as necessary.

In line with our long-term vision "Kuraray Vision 2026," which lays out our vision for our centennial in 2026, and our Sustainability Long-Term Vision, we are implementing the five-year Medium-Term

Management Plan, "PASSION 2026," which ends in fiscal 2026.

1. Long-term vision "Kuraray Vision 2026"

Kuraray Group's mission in the Corporate Statements is: "For people and the planet-to achieve what no one else can." We aim to become a "Specialty Chemical Company contributing to customers, societyand the planet and growing sustainably by incorporating new innovation platforms into its own technologies" under the Kuraray Vision 2026, a long-term vision toward 2026, the centennial of the Company's founding.

2. Sustainability Long-Term Vision

We have formulated the Sustainability Long-Term Vision to promote sustainability as a united group.

This Sustainability Long-Term Vision will serve as our basic policy on sustainability.

Sustainability Long-Term Vision

"As a sustainability leader, Kuraray will develop innovative solutions with unique products and cleaner technologies to improve the natural environment and enhance quality of life for people everywhere."

As one initiative for the Sustainability Long-Term Vision, we aim to reduce Scope 1 and 2 GHG emissions by 30% from 2019 levels by 2030 to achieve net zero carbon emissions in 2050. In addition, to respond to sustainability issues that are becoming more and more important, we reorganized the CSR Committee and established the Sustainability Committee, chaired by the President, in January 2022.

Under the new organization, we promote initiatives to solve material issues.

Details of the Medium-Term Management Plan "PASSION 2026" are disclosed on the Company's website.

(URL:https://pdf.irpocket.com/C3405/OMfg/WHzC/QwQl.pdf)

• (ii) Basic views on corporate governance

  The Company believes that the maintenance of appropriate relationships with various stakeholders and the fulfillment of social responsibilities through establishing a corporate governance system that ensures effective and fair management would contribute to the long term and sustainable enhancement of corporate value.

• (iii) Policies and procedures for determining the remuneration of Executives and Directors

  The Company's basic policy for the remuneration of its Directors is to have a competitive level and system of remuneration that can secure and retain competent Directors fit for their positions and responsibilities in order to achieve long-term and sustainable improvements in corporate performance and corporate value. The Remuneration system comprises three parts: (1) fixed remuneration as basic remuneration in accordance with job responsibilities, (2) performance-linked remuneration as an incentive to achieve yearly business results, and (3) stock-based remuneration designed to enhance corporate value over medium to long term and sharing value with shareholders through appropriate corporate management, provided remuneration for Outside Directors shall solely comprise fixed remuneration without performance-linked or stock-based remuneration as their role is to supervise management from an independent standpoint.

  The specific level and system of remuneration will be verified and deliberated by the Corporate Advisory Committee, composed of Outside Officers and outside experts, on whether the level and system of remuneration are appropriate, based on the results of a survey by a specialized external research institution on executive remuneration covering companies such as those listed on the Prime Market of the Tokyo Stock Exchange, and the salary of the managers of the highest level in the Company. The Board of Directors receives reports on the results from the Committee and gives it due consideration to determine the level and system of remuneration.

• (iv) Policies and procedures for the election and dismissal of executives and for the appointment of the candidates for Directors and Members of Audit & Supervisory Board

  1. The Company appoints individuals who have experience, knowledge and capabilities required for Directors of the Company as candidates at the Board of Directors meeting with the attendance of Outside

Officers, and they are elected as Directors by resolution of the General Meeting of Shareholders. However, the candidates for Outside Directors shall satisfy the criteria of independence provided separately.

2. The Company appoints individuals who have experience, knowledge and capabilities required for Members of Audit & Supervisory Board of the Company as candidates at the Board of Directors meeting with the attendance of Outside Officers, and they are elected as Members of Audit & Supervisory Board by resolution of the General Meeting of Shareholders after obtaining the consent of the Audit & Supervisory Board. However, the candidates for Outside Members of Audit & Supervisory Board shall satisfy the criteria of independence provided separately.

The election and dismissal of Directors and the appointment and removal of Representative Directors and Directors with special titles are determined by the Board of Directors after deliberation at the aforementioned Corporate Advisory Committee.

(v) Explanations on the election and dismissal of executives and the appointment of each candidate for Director and Member of Audit & Supervisory Board

Regarding the reasons for nominating each candidate for Director and Member of Audit & Supervisory Board, please refer to the Notice of Convocation of the General Meeting of Shareholders.

[Supplementary Principle 3-1-3: Disclosure of the Sustainability Initiatives]

Since its foundation, the Group has conducted management that aims for the improvement of the natural and living environments through our business activities, to contribute to the sustainable advancement of society.

Positioning sustainability as one of its key management strategies, key priority issues (materiality) for the sustainable advancement of the Company and society have been selected at a management level, and we are working on solutions to those issues across the entire Group.

In the Medium-Term Management Plan "PASSION 2026," we have summarized the sustainability-related measures that the Group will address in our "Sustainability Medium-Term Plan."

We have declared our endorsement of the Recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), and we are striving to enhance our disclosures in the four areas recommended by TCFD, namely "Governance," "Strategy," "Risk Management," and "Indicators and Targets." The Group will actively promote sustainability and help to improve the natural environment and enhance quality of life for people

everywhere with unique technologies and products. Detailed information about the Kuraray Group's sustainability initiatives and disclosures based on the TCFD framework can be found on the Company's website.

Kuraray Report (integrated report)	https://www.kuraray.com/csr/report_backnumber
Sustainability website	https://www.kuraray.com/csr
Sustainability Medium-Term Plan	https://www.kuraray.com/csr/report2023/4p-model

[Supplementary Principle 4-1-1: Scope of the Matters Delegated to the Management]

The Company clearly defines the scope of the matters delegated to the management by specifying the matters to be judged and determined by the Board of Directors as matters to be discussed in the Board of Directors'

Regulations.

[Principle 4-9: Independence Standards for Outside Officers]

1. The Company judges that its Outside Officers and the candidates for the Outside Officers are fully independent from the Company if they do not fall under any of the following items:

• (1) A business executive of the Group

• (2) A counterparty that has transactions principally with the Group, or a business executive thereof

• (3) A major business partner of the Group, or its business executive thereof

• (4) A major lender of the Group, or its business executive thereof

• (5) A counterparty that receives a large amount of donations from the Group, or its business executive thereof

• (6) A major shareholder of the Company (who possesses 10% or more of the total voting right either directly or indirectly), or its business executive thereof

(7) A business executive of the party whose major investor (who possesses 10% or more of the total voting right either directly or indirectly) is the Group

(8) A consultant, certified public accountant or other accounting professional, attorney or other legal professional who receives a large amount of monetary or other assets from the Group other than the executive remunerations (in case of a legal entity, association or other organization, a person belonging thereto)

• (9) A person who belongs to an accounting firm that conducts the statutory audit of the Company

• (10) A person who has fallen under the above criteria (1) in the past ten years

• (11) A person who has fallen under any of the above criteria (2) through (9) in the past three years

• (12) A person whose position constitutes him/her as having an Outside Officer's interlocking relationship with the

Group

(13) A relative of the persons listed in the above criteria (1) through (11)

2. Even in cases where a person falls under any of the above items, if the person is deemed to be appropriate for the post of an independent Outside Officer in light of his/her personality, knowledge and other qualities, the Company may appoint him/her as independent Outside Officer on the condition that the reasons why the person is deemed appropriate for the post are explained to the public.

[Supplementary Principle 4-10-1: Nomination Committee and Remuneration Committee Disclosures

The Company has established "Corporate Advisory Committee" composed of Outside Officers and outside experts, as an advisory organ to the Board of Directors, with a view to enhancing transparency, fairness and objectivity in decision making concerning important matters of management, including nomination and remuneration of Directors, and further strengthening its corporate governance. Details on the mandates and roles of the Corporate Advisory Committee, as well as the policy regarding the independence of the committee are disclosed in the supplementary explanation under "Committee's Name, Composition, and Attributes of Chairperson" in this Report. Other details are disclosed on the following website.

Kuraray Report (integrated report)https://www.kuraray.com/csr/report_backnumber

[Supplementary Principle 4-11-1: Policies on the Structure and Size of the Board of Directors]

• 1. The Company's Board of Directors shall be comprised of the Directors with diverse backgrounds in their knowledge, experience and expertise, and the number of Directors shall not exceed twelve as prescribed in the Articles of Incorporation in order to enable swift and bold decision making.

• 2. In the light of the importance of the Outside Directors' functions in corporate governance, the Company stipulates that, in its Board of Directors, at least one-third of its directors shall be appointed as independent Outside Directors to ensure transparency and fairness in its decision making.

When appointing candidates for Directors pursuant to the above policies, the Company takes into consideration diversity, including gender and internationality, as well.

The skills matrix for Directors and Members of Audit & Supervisory Board of the Company is stated on the last page of this report.

[Supplementary Principle 4-11-2: Status of Concurrent Posts Held by Directors and Members of Audit & Supervisory Board]

The Company regularly confirms the status of concurrent posts held by all of its Directors and Members of Audit & Supervisory Board at the Board of Directors meetings and is notified of the changes in such status in advance if any. The status of concurrent posts is also stated in the business report.

[Supplementary Principle 4-11-3: Analysis and Evaluation of the Effectiveness of the Board of Directors]

The Company conducts an evaluation and verification of the effectiveness of the Board of Directors every fiscal year for the purpose of improving the Board of Directors' effectiveness. Analysis and evaluation were conducted by the following method, in consultation with an external organization.

1. Analysis and Evaluation Method

The Company conducted a questionnaire of all the Directors and Members of Audit & Supervisory Board in December 2023. Anonymity was ensured by having responses made directly to an external organization. Upon a report by the external organization of the results of the aggregation of the responses, the Board of Directors conducted its analysis and evaluation.

(40 questions in total)

• ⚫ Concerning Structure of the Board of Directors

• ⚫ Concerning Operations of the Board of Directors

• ⚫ Concerning Discussions in the Board of Directors

• ⚫ Concerning Systems for Supporting Directors and Members of Audit & Supervisory Board

2. Outline of Analysis and Evaluation Results

From the responses to the questionnaire, generally positive evaluations were received, including that discussions are productive and that recommendations and discussions are conducted appropriately, taking advantage of the respective specializations of the individual Directors, and it was confirmed that the Company's Board of Directors is generally functioning properly and that the effectiveness of the Board of Directors is secured. On the other hand, the need for more in-depth discussion of topics such as the advancement of the business portfolio, medium- to long-term management strategies, and management that is conscious of capital costs were recognized as issues. In light of the results from this evaluation, the Company will implement initiatives such as a review of the medium-term management plan by the executive management team, including the members of the Board of Directors, and continue its efforts to increase the effectiveness of the Board of Directors in fiscal 2024.

[Supplementary Principle 4-14-2: Training Policy for Directors and Members of Audit & Supervisory Board]

1. The Company continuously provides lectures and trainings by the internal specialist team or outside experts to its Directors and Members of Audit & Supervisory Board at the time when they assume their offices or when needed thereafter, regarding the Company's management strategies, organization, financial status, legal compliance, corporate governance and other important matters.

2. The Company shall provide the summary of the business and organization of the Group to its Outside Officers at the time when they assume office or when needed thereafter, and create opportunities of the Company's on-site tour, etc. as needed.

[Principle 5-1: Policy for Dialogue with Shareholders]

1. The Company engages in constructive dialogue with shareholders and investors with an aim to maintain its growth and enhance its corporate value and the common interests of its shareholders over the mid-term.

2. In order to promote dialogue with shareholders and investors, the Company prepares a framework based on the following policies:

(1) President or an officer responsible for investor and public relations deal with the interviews with shareholders to the extent reasonable.

(2) President and an officer responsible for investor and public relations oversee the dialogue with shareholders and the measures related thereto.

(3) An officer responsible for investor and public relations holds information exchange on a day-to-day basis among divisions responsible for corporate management planning, general affairs, finance, accounting and legal affairs to establish an organic coordination system.

(4) In addition to holding individual interviews with shareholders and investors, the Company works for a full provision of information through financial briefing sessions, explanatory meeting on medium-term management plan and other means.

(5) President or an officer responsible for investor and public relations report to the Board of Directors about the opinions and concerns obtained from the dialogue with shareholders and investors as necessary.

(6) Insider information shall be strictly managed based on the internal regulations during the dialogue with shareholders and investors.

The status of the Group's dialogues conducted with shareholders and investors can be found on the Company's website.

Kuraray Report (integrated report)https://www.kuraray.com/csr/report_backnumber Dialogue with Shareholders and Investorshttps://www.kuraray.com/ir/strategy/dialogue

[Principle 5-2: Formulation and Publication of Management Strategies and Management Plans

Action to Implement Management That is Conscious of Cost of Capital and Stock Price can be found on the Company's website.

Action to Implement Management That is Conscious of Cost of Capital and Stock Price:https://www.kuraray.com/ir/strategy/action

2. Capital Structure

Foreign Shareholding Ratio

20% to less than 30%

[Status of Major Shareholders]

Name / Company Name	Number of Shares Owned (Shares)	Percentage (%)
The Master Trust Bank of Japan, Ltd. (Trust account)	64,245,700	19.19
Custody Bank of Japan, Ltd. (Trust account)	29,688,129	8.87
National Mutual Insurance Federation of Agricultural Cooperatives	10,882,700	3.25
Nippon Life Insurance Company	10,448,963	3.12
Kuraray Employee Stock Ownership Plan	6,166,957	1.84
JP Morgan Securities Japan Co., Ltd.	6,121,630	1.83
Meiji Yasuda Life Insurance Company	5,372,512	1.60
THE BANK OF NEW YORK MELLON 140042	4,869,727	1.45
Kuraray Business Partner Stock Ownership Plan	4,697,700	1.40
Japan Securities Finance Co., Ltd.	4,611,200	1.38

Controlling Shareholders (excluding Parent Company)	-
Parent Company	None

Supplementary Explanation

The information above is the status of major shareholders as of December 31, 2023.

In addition to those stated in the Status of Major Shareholders, there are 20,107,257 shares of treasury stock (percentage: 5.67%) owned by the Company as of the same date.

3. Corporate Attributes

Listed Stock Market and Market Section	Tokyo Stock Exchange, Prime Market
Fiscal Year-End	December
Type of Business	Chemicals
Number of Employees (consolidated) as of the End of the Previous Fiscal Year	1,000 or more
Sales (consolidated) as of the End of the Previous Fiscal Year	¥100 billion to less than ¥1 trillion
Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year	50 to less than 100

• 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholders -

• 5. Other Special Circumstances which may have Material Impact on Corporate Governance -

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