Mitsui Chemicals : Corporate Governance

Mitsui Chemicals, Inc.

CORPORATE GOVERNANCE

Last revised: June 25, 2021

Mitsui Chemicals, Inc.

President & CEO: HASHIMOTO Osamu Stock code: 4183 https://jp.mitsuichemicals.com/en/

The status of corporate governance of Mitsui Chemicals, Inc. (hereinafter "MCI") is described below.

• Basic philosophy of corporate governance, capital structure, corporate profile and other basic information

1. Basic philosophy of corporate governance

The Mitsui Chemicals Group (hereinafter "MCI Group") is constantly engaged in business activities to realize our Corporate Vision, which is comprised of our Corporate Mission and Corporate Target. We recognize that efforts to achieve effective corporate governance as part of that process will allow us:

1. to maintain and develop trusting relationships with MCI shareholders and all other diverse stakeholders of the MCI Group, and
2. to create a framework that can execute transparent, fair, timely, and decisive decision-making,

through which the MCI Group can achieve sustainable growth and increased corporate value over the mid- to long-term. Accordingly, MCI holds the enhancement of our corporate governance to be one of our key management issues, and is making efforts toward its realization.

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

MCI has observed each principle of the Corporate Governance Code (hereinafter "the Code") prior to its revision in June 2021 (scheduled).

[Disclosure based on Each Principle of Corporate Governance Code]

Please also visit our website (URL: https://jp.mitsuichemicals.com/en/corporate/governance.htm) as MCI has posted the Corporate Governance Guidelines (the "Guidelines") outlining the basic view and policy, etc. concerning MCI Corporate Governance.

(Principle 1-4: Policy on Cross-shareholdings)

1. MCI will acquire and hold shares of our customers and suppliers when we conclude that such holdings would contribute to the mid- to long-term increase of our corporate value in consideration of the creation and strengthening of relationships and the development of business partnerships with them.

Meanwhile, MCI will maintain a basic policy whereby it promptly disposes and reduces the number of shares that are no longer worth holding, and on an annual basis will accordingly have the Board of Directors examine whether or not it would be appropriate to continue holding such shares in view of the respective business alliance, status of business transactions, cost of capital and other such factors.

In fiscal 2018, 2019 and 2020, MCI sold some shares based on results of such examination.

1. MCI will appropriately exercise the voting rights of shares we hold while comprehensively taking into account such factors as whether or not proposals by the issuer will contribute to our shareholding goals or harm shareholder value.

In addition, under circumstances involving a longstanding slump in business performance, a serious compliance violation or other such development, MCI will sufficiently gather information in the course of paying particularly close attention to the types of proposals listed below, and accordingly will make decisions on whether to approve or disapprove of such proposals.

Proposals on the appropriation of surplus, proposals on electing directors and corporate auditors, proposals on granting retirement benefits, proposals on organizational restructuring, proposals on takeover defense measures, etc.

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(Principle 1-7: Transactions with Related Parties)

Transactions between MCI and our directors or transactions involving a conflict of interest will be deliberated and subject to the approval in advance by the Board of Directors before being carried out, and after the transaction has been completed, the result will be reported to the Board. Transactions with related parties such as major shareholders, subsidiaries, and affiliates will be handled in the same way as transactions with third parties: after examining whether the transaction price and other conditions are reasonable, MCI will follow the necessary approval procedures based on our internal regulations, and the Internal Control Division will regularly audit the transactions.

(Principle 2-6: Roles of Corporate Pension Funds as Asset Owners)

1. MCI has adopted a contract-type defined benefit corporate pension plan and a defined contribution corporate pension plan. With respect to the contract-type defined benefit corporate pension plan, MCI will establish the Pension Fund Committee whose membership consists of parties who are familiar with personnel affairs, finance and other such operations. The committee's functions will involve regularly engaging in deliberations, making decisions on key matters, and affirming soundness of fund management overall.
2. MCI entrusts multiple investment management institutions located both in Japan and abroad with the task of managing pension reserves, upon having appropriately evaluated their expertise in that regard. Moreover, MCI also draws on the opinions of external experts in order to ensure a high level of expertise and objectivity with respect to managing its pension funds.
3. MCI will regularly monitor stewardship activities of the investment management institutions and otherwise provide support from an asset owner's perspective.
4. MCI will ensure that conflict of interest does not arise between beneficiaries of the corporate pension fund and MCI by entrusting to the investment management institutions matters involving selecting individual investments and exercising voting rights of investment shares.

(Principle 3-1: Enhancement of Information Disclosure)

1. What MCI Strives For (e.g. management philosophy), Business Strategies and Business Plans MCI's corporate vision is as follows:

[Corporate Mission]

Contribute broadly to society by providing high-quality products and services to customers through innovations and the creation of materials and products while keeping in harmony with the global environment

Contributing to Society

• Promoting human well-being
• Contributing to the value of shareholders' investments
• Increasing customer satisfaction
• Contributing to local communities
• Promoting the happiness and fulfillment of employees

[Corporate Target]

To be a corporate group that continues to grow through solving social challenges and creating diverse value with the power of chemistry

[Our Ideal Vision for 2030] Chemistry for Sustainable World

A global solutions company that leads change and contributes to a sustainable future

MCI established a long-term business plan in fiscal 2016 with an eye to fiscal 2025. Its details are available on MCI website. (URL: https://jp.mitsuichemicals.com/en/corporate/vision/)

Furthermore, as the social environment surrounding MCI has changed significantly, MCI has revised its long-term management plan with a view to 2030.

Please refer to "Mitsui Chemicals Formulates VISION 2030 Long-Term Business Plan" published on MCI website. (URL:https://jp.mitsuichemicals.com/en/release/2021/2021_0602_01.htm)

2. Basic View and Basic Policy on Corporate Governance in view of Each Principle in the Code

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The basic view and policy on MCI Corporate Governance are as described in the Guidelines.

3. Principles and Procedures for the Board of Directors to Determine Compensation for Senior Management and Directors

1. Details of the policy for determining the amount and calculation method of compensation, etc. for directors and corporate auditors

Compensation paid to directors (excluding outside directors) is subject to the following conditions.

• Compensation will be commensurate with the entrustment of MCI's management and will be tied to the growth and performance improvement of the MCI Group.
• Compensation schemes will be devised to reflect both corporate performance and the performance of the individual director.
• Compensation for higher positions will more strongly reflect their contributions to mid- and long-term corporate growth, and deepen the sharing of values with shareholders.
• We will ensure transparency and maintain accountability to our shareholders and other related parties regarding the determination of compensation for directors.

Compensation for outside directors and corporate auditors will be comprised solely of basic compensation (a monthly fixed amount), the level of which will be established referring to third-party surveys regarding compensation for corporate managers in Japan and other information.

1. Method of determining the amount of compensation, etc. for directors and corporate auditors and the policy for determining the calculation method

The decision is made by the Board of Directors after deliberation by the Executive Compensation Advisory Committee.

(3) Resolution of the general meeting of shareholders regarding compensation, etc., for directors and corporate auditors

The amount of compensation for directors was resolved at the 20th general meeting of shareholders held on June 27, 2017 to be no more than ¥600 million per year (including no more than ¥60 million per year for outside directors). In addition, MCI grants restricted shares to directors (excluding outside directors) separately from this amount of remuneration, and the amount of remuneration was resolved at the 20th general meeting of shareholders held on June 27, 2017 to be no more than ¥120 million per year. MCI currently has eight directors (including three outside directors).

At the 8th general meeting of shareholders held on June 28, 2005, the amount of compensation for corporate auditors was resolved to be ¥11 million per month or less. MCI currently has five corporate auditors (including three outside corporate auditors).

1. Authority to determine policies regarding the determination of the amount and calculation method of compensation, etc. for directors and corporate auditors

The policy regarding the determination of the amount and calculation method of compensation, etc. for directors and corporate auditors is decided by the Board of Directors after deliberation by the Executive Compensation Advisory Committee. The amount of each director and corporate auditor's bonus is calculated based on the degree of achievement of performance targets set at the beginning of each fiscal year with the approval of the President, in accordance with the calculation method and performance evaluation method determined by the Executive Compensation Advisory Committee and the Board of Directors.

In addition, the Executive Compensation Advisory Committee deliberates on the policy and level of compensation for directors and corporate auditors from the perspective of ensuring the appropriateness of the level of compensation for directors and corporate auditors and the transparency of performance evaluation, and submits its report to the Board of Directors. The Executive Compensation Advisory Committee is also described in the "Outline of the Corporate Governance."

1. Process of determining the amount of compensation, etc. for directors and corporate auditors for the most recent fiscal year Compensation for directors and corporate auditors for the current fiscal year was decided at two meetings of the Executive Compensation Advisory Committee and two meetings of the Board of Directors.

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1. Reasons for the Board of Directors' determination that the details of compensation, etc. for individual directors for the most recent fiscal year are in line with the decision policy

The Board of Directors has confirmed that the method of determining the details of compensation, etc., and the details of compensation, etc., determined for individual directors for the current fiscal year are consistent with the decision-making policy determined by the Board of Directors and that the report from the Executive Compensation Advisory Committee has been respected, and the Board of Directors has determined that the compensation, etc., is in line with such decision-making policy.

(1) Structure of compensation for directors and corporate auditors

Compensation for directors (excluding outside directors) will be comprised of basic compensation, bonuses and stock compensation. The compensation for directors and corporate auditors is structured as follows. In addition, MCI increases the proportion of bonuses and stock compensation in accordance with improvement in business performance. Compensation for outside directors and corporate auditors will be comprised solely of basic compensation (a monthly fixed amount).

Average compensation of directors (excluding outside directors) in fiscal 2020

Basic compensation:	71%
Bonus:	22%
Stock compensation:	7%

(2) Basic compensation

Basic compensation is a monthly fixed amount of compensation and determined in accordance with the director's title, with consideration given to compensation levels of other companies as stated by third-party surveys regarding compensation for corporate managers in Japan and other information.

(3) Bonuses

Bonuses are set from the perspective of corporate performance, with consideration given to compensation levels of other companies. MCI links its bonus to business performance with the aim of providing greater incentive to achieve earnings targets across the entire Group. The base bonus amount is calculated using a formula where core operating income acts as a benchmark of such business performance. In addition, when determining the bonus amount for each individual, the Group takes into account how the individual's performance evaluation corresponds with the level of achievement of the initially set earnings targets following the approval from the president.

a) Formula for base bonus amount

Core operating income × Coefficient × Director-title-specific index b) Determining bonus amount for each individual

The amount of bonus depends on the extent to which earnings targets have been achieved. It is calculated based on the formula.

1. 1. Targets and results for key performance-linked compensation indicators Target: Core operating income: ¥35.0 billion*
      Result: Core operating income: ¥85.1 billion
      *The target is the forecast for fiscal 2020, which was set at the beginning of the fiscal year when the impact of the novel coronavirus disease (COVID-19) pandemic was unclear.
2. Stock compensation

Stock compensation provides medium- to long-term incentive to work toward sustainable improvement of MCI's corporate value, and also promotes the concept of achieving shared value with MCI's shareholders. The stock compensation is in the form of specified restricted stock with a three to five year transfer restriction period. MCI's total levels of compensation encompassing basic compensation and bonuses are set according to the position of MCI's performance in relation to the level of other companies. The details of MCI's specific restricted share compensation plan are as follows:

Stock compensation will be reduced or otherwise unpaid in the event of a serious compliance violation, major accident or other such incident that would adversely affect MCI and its operations.

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i) Eligible persons for the plan

Directors of MCI (excluding outside directors)

ii) Monetary compensation claims to be paid by MCI to the eligible persons

Based on the resolution of the Board of Directors of MCI, monetary compensation claims shall be paid to the eligible persons within the limit of ¥120 million per year.

1. Total number of shares to be issued or disposed of by MCI
2. • The eligible person shall pay all of the monetary compensation claims to be provided to the eligible person in ii) above as contribution in kind, and shall receive the issuance or disposal of common shares of MCI.
   • The total number of common shares of MCI to be issued or disposed of to the eligible persons shall be no more than 120,000 shares per year. However, if a stock split (including gratis allotment of MCI's common shares) or a reverse stock split of MCI's common shares is conducted, or if any other event occurs that requires adjustment of the total number of MCI's common shares to be issued or disposed of as specified restricted transferable shares, the total number of such shares shall be adjusted to a reasonable extent.
   • The above amount to be paid per share of MCI's common shares shall be based on the closing price of MCI's common shares on the Tokyo Stock Exchange on the business day immediately preceding the day on which the Board of Directors resolves to grant monetary compensation claims and issue or dispose of specified restricted transferable shares.
3. Period of restriction on transfer

The eligible person may not transfer, grant a security interest in, or otherwise dispose of the allotted shares of common stock of MCI (the "Allotted Shares") for a period of three to five years (the "Period of Restriction on Transfer").

1. Cancellation of restriction on transfer
2. • If the eligible person continuously holds the position of director, executive director, corporate auditor, executive officer, managing director, director, counselor, advisor, or employee of MCI or its affiliates, or any other similar position ("Position of Restriction on Transfer") during the Period of Restriction on Transfer, the restrictions on transfer of all of the Allotted Shares shall be lifted upon expiration of the restricted transfer period.
   • However, if the eligible person resigns or retires from a Position of Restriction on Transfer before the expiration of the Period of Restriction on Transfer due to expiration of their term of office, death or mandatory retirement age, or any other justifiable reason, the number of the Allotted Shares for which the restriction on transfer is cancelled and the time of cancellation of the restriction on transfer shall be reasonably adjusted as necessary.
3. Reasons for forfeiture

If the eligible person resigns or retires from the Position of Restriction on Transfer before the expiration of the Period of Restriction on Transfer without any justifiable reason such as expiration of term of office, death or mandatory retirement age, MCI shall naturally acquire the Allotted Shares free of charge.

4. Principles and Procedures for the Board of Directors to Elect and dismiss Senior Management and Nominate Candidates for Directors and Corporate Auditors

1. MCI has established the Human Resource Advisory Committee as a consultative body to the Board of Directors in order to ensure the suitability and transparency of procedures for electing directors and corporate auditors. The Human Resource Advisory Committee deliberates the proposed list of candidates for directors and corporate auditors based on the standards for election of directors and corporate auditors, and reports the results of the deliberation to the Board of Directors. The Board of Directors decide upon the final list of the candidates for directors and corporate auditors with maximum respect given to the results report of the Human Resource Advisory Committee. The president will formulate the proposal on candidates for corporate auditors in consultation with the full-time corporate auditors in advance, and following the above deliberations, the Board of Directors resolves the proposal with the consent of the Board of Corporate Auditors. The

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