Nagase : Corporate Governance Report

Corporate Governance Report

Last Update: December 21, 2021

NAGASE & CO., LTD

Kenji Asakura, Representative Director and President Contact：Corporate Management Dept.

Corporate Administration Div. Securities Code：8012 https://www.nagase.co.jp/english/

The corporate governance of NAGASE & CO., LTD (the "Company") is described below.

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

We recognize our responsibility to society and offer beneficial products and services while maintaining the highest standards of integrity. Through our growth, we will contribute to society and enrich the lives of our employees.

Under this philosophy, we pursue the NAGASE Vision as a promise to our stakeholders that we will realize a sustainable world where people live with peace of mind, each of us embodies our value proposition, Identify, Develop and Expand through daily activities, and strives to improve our medium- and long-term corporate value.

We continue to strengthen corporate governance, as the Company believes that speed in decision-making and action and ensuring transparency are essential for executing the initiatives described above.

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

This report is written based on the revised Corporate Governance Code from June 2021.

Supplementary Principle 2.4(1)

The Company strives to appoint diverse human resources representing different genders, nationalities, career histories, and specialties as core personnel to drive organizational change. The Company engages in initiatives to ensure these diverse personnel play an active role in the company. To ensure diversity, the basic policy of the Company is to support skills and career development and to provide comfortable safe workplaces and work styles that stimulate creativity. The Company continues to provide training and challenging opportunities to employees to increase options for work styles and locations. We also support employees in their self-directed career development. We will continue to consider ways of achieving our diversity goals in the future.

Supplementary Principle 4.10(1)

As advisory bodies to the board of directors, the Company has established the Compensation Committee, the majority of which consists of outside directors, and the Nomination Committee, the majority of which consists of outside directors and outside members of the Audit & Supervisory Board. Outside directors and outside members of the Audit & Supervisory Board meet the criteria for independence. We believe these individuals are fully capable of fulfilling the role to ensure the independence, objectivity, and, and transparency with respect to the nomination and compensation of the Company's management team at present. The Compensation Committee deliberates the design of compensation packages for directors and executive officers. The Nomination Committee deliberates the knowledge, experience, and abilities required of directors, as well as the diversity of the composition of the board of directors, specific proposals regarding appointments, and succession plans. Each committee provides reports and advice to the board of directors as necessary. In this way, these committees enhance the objectivity and transparency of the management nomination process within the Company.

Supplementary Principle 4.11(1)

The board of directors is composed of internal directors with business experience, knowledge, and expertise, and outside directors who have management experience, mainly at other companies, and who can raise issues based on the perspectives of stakeholders and society. This composition ensures that the board understands the status of business execution, can make decisions in a flexible and prompt manner, and can supervise business execution.

Under this basic policy, the board of directors consists of eight members, including three outside directors who are independent directors. More than one-third of the board of directors is composed of independent outside directors. Further, the Company pursues diversity in management, regardless of gender, nationality, or race. We believe we have secured a certain level of diversity in terms of gender and internationality, including the appointment of one female director. As well, many of our directors have worked overseas for several years (an average of six years of overseas service among our internal directors). At present, we believe we have achieved a certain level of diversity and an appropriate size with respect to the board of directors. However, the Company will continue to examine the possibility of providing a list of the knowledge, experience, and abilities required of directors, as well as disclosing the degree to which such requirements have been satisfied by our board, to improve the effectiveness of the board of directors further.

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

Principle 1.4

<> Policy and Objectives>

To improve the group's corporate value in a sustainable manner, the Company may hold shares for strategic purposes when deemed necessary, taking into account the maintenance and strengthening of business relationships and business strategies.

The rationality of our cross-shareholdings is reviewed by the department in charge. This department examines whether the earnings from related transactions and dividends received are commensurate with the internal hurdle rate based on the cost of capital, as well as the prospects for business expansion and synergies. The department also considers whether the stable supply of services essential to the group's corporate activities can be expected in the future. The board of directors reviews the results of this examination on an annual basis. In cases where shareholdings are deemed other than rational, the Company will proceed with the sale of such shares in stages, taking into consideration various circumstances, to reduce the size of the holding.

We exercise voting rights appropriately, carefully reviewing the resolution in question and determining approval or disapproval in a comprehensive manner according to whether the measure contributes to the increased share price of the issuing company and whether the measure contributes to our own improved corporate value as a shareholder.

Principle 1.7

Before engaging in transactions with directors or major shareholders, the Company determines whether said transaction requires a resolution of the board of directors according to the Company's Board of Director Regulations or Regulations Governing Approvals.

Principle 2.6

The Company has adopted a contract-type defined benefit pension plan, establishing and managing an Asset Management Committee which serves as a body to provide basic policies for plan management, establish policies for plan asset composition, and review said policies. The Asset Management Committee is also responsible for evaluating and reviewing the contracted investment institution.

This contracted investment institution includes the Company's labor union and uses outside consultants in plan management, ensuring transparency and objectivity. The committee manages the plan appropriately to ensure no conflicts of interest occur between plan beneficiaries and the Company.

Further, the Company has established Operating Regulations for Corporate Pension Asset Management Committee to prevent any conflicts of interest. The Company appoints a plan manager who is well-experienced in finance and investing. This individual develops greater expertise through the guidance of outside consultants and performs regular monitoring of the investment institution.

Principle 3.1

（i）,（ii）

We recognize our responsibility to society and offer beneficial products and services while maintaining the highest standards of integrity. Through our growth, we will contribute to society and enrich the lives of our employees.

Under this philosophy, we pursue the NAGASE Vision as a promise to our stakeholders that we will realize a sustainable world where people live with peace of mind, each of us embodies our value proposition, Identify, Develop and Expand through daily activities, and strives to improve our medium- and long-term corporate value.

We continue to strengthen corporate governance, as the Company believes that speed in decision-making and action and ensuring transparency are essential for executing the initiatives described above.

（iii）

See II Business Management Organization and Other Corporate Governance Systems Regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation [Director Remuneration] in this report and 4 [Corporate Governance] (1) Corporate Governance 4. Director Remuneration in our annual securities report for more information related to policies and decision-making procedures regarding director compensation.

（iv）,（v）

Candidates for executive officer are those individuals who demonstrate an honest character and who possess great insight and skills. Candidates must also possess operational experience, knowledge, and expertise. Candidates are selected by the representative director. After deliberations by the independent Nominating Committee, the board of directors then conducts deliberations and comes to a decision.

As a rule, internal directors interim directors are selected from candidates who have experience as an executive officer. Candidates for outside director are individuals who demonstrate honest character and possess great insight and skill, providing insight from stakeholders in society from which they can raise issues to be addressed by the Company. Candidates are selected by the represent rector. After deliberations by the independent Nominating Committee, the board of directors then conducts deliberations and comes to a decision. Finally, candidates are proposed before the general shareholders' meeting.

Candidates for member of the Audit & Supervisory Board are selected by the represent director from among individuals who meet conditions as provided in the Audit & Supervisory Board Audit Standards. After deliberations by the independent Nominating Committee, the board of directors conducts deliberations and comes to a decision Finally, candidates are proposed before the

general shareholders' meeting. The Company discloses the reasons for nominating each candidate for director in each candidate for member of the Audit & Supervisory Board within the reference materials included in the shareholders' meeting convocation notice.

The Company has established standards for the dismissal of directors and executive officers*. After deliberations by the independent Nominating Committee as to the dismissal of individuals subject to any of the aforementioned standards, the board of directors conducts celebrations and comes to a decision. The Company performs dismissal procedures as necessary, disclosing the reasons for dismissal as applicable.

*Dismissal Standards:

1. Individual has committed an act of suspected illegality, unfairness, or bad faith, individual becomes subject to discipline under the provisions of Employment Regulations, individual has engaged in acts or speech damaging to the Company's reputation for profits, or individual has become otherwise ineligible, deemed unsuitable to serve in the capacity of corporate officer.
2. Individual demonstrates insufficient performance of duties or results, and the board of directors determines that leaving said individual in the capacity of corporate officer is inappropriate.

Supplementary Principle 3.1 (3)

We recognize that sustainability initiatives are an important management issue. When we formulated our ACE 2.0 medium-term management plan, announced in May 2021, we analyzed the external environment and identified the most important issues for NAGASE and our shareholders: technological innovation, climate change and resource shortages, demographic changes, and industrial reorganization. We identified materialities based on the value we offer to stakeholders. With respect to climate change and resource shortages in particular, we established the Decarbonization Project under the Sustainability Committee. We plan to conduct scenario analysis incorporating scenario analyses incorporating climate-related risks and opportunities, identifying and preparing to disclose these risks and opportunities in line with the TCFD (Task Force on Climate-related Financial Disclosure) as we ready ourselves to endorse the TCFD. With respect to human capital, we established the Employee Engagement Project under the Sustainability Promotion Committee, and we strive to strengthen human capital by improving employee engagement.

Our sustainability initiatives, including initiatives related to climate change, are disclosed on our corporate sustainability website. https://www.nagase.co.jp/english/sustainability/

Supplementary Principle 4.1(1)

The board of directors functions to oversee business operations and make decisions regarding important business matters. The board also make decisions about important management issues, as well as important operational issues as provided by laws,

relations, and the Company's articles of incorporation. The Company has established standards for those matters to be decided by

the president, the director in charge, division general managers, or supervisory departments. We have established systems that clarify the division of responsibilities, allowing for speed in business management. We clearly define these standards in Board of Director Regulations and Regulations Governing Approvals.

Principle 4.9

The Company selects candidates according to independent standards provided by the financial instruments exchange, as well as the ability to raise issues to be addressed by the Company from the standpoint of our stakeholders and society.

Supplementary Principle 4.11(1)

Our basic policy is to have a board of directors consisting of inside directors and a multiple number of outside directors. Inside

directors have operational experience, knowledge, and expertise to properly understand the Company's business operations,

provide agile and timely decision-making, and oversee the execution of our business. Outside directors provide insight from stakeholders and society, raising issues to be addressed by the Company.

As a part of this basic policy, currently the Company's board of directors comprises nine directors of whom three are independent outside directors, meaning these independent outside directors comprise more than one-third of the board of directors. Furthermore, we feel that the NAGASE Group pursues diversity in management, regardless of gender, nationality, or race, and we have appointed one female director. We have also ensured a certain degree of diversity from the perspective of gender and internationality, and by ensuring that many of our directors have experience of being posted overseas for a number of years (average length of overseas posting for internal directors: six years). Presently, we believe that we are able to maintain both a certain level of diversity and an appropriate size for the board of directors. However in order to ensure the effectiveness of the board of directors, we are aiming to achieve higher levels of both diversity and a more appropriate size for its composition.

Supplementary Principle 4.11(2)

The Company discloses the significant concurrent duties (including service as directors of other publicly traded corporations) performed by directors, members of the Audit & Supervisory Board, and candidates thereof on an annual basis in disclosure documents including shareholders' meeting convocation notice reference materials, business reports, and annual securities reports. The Company believes that the number of companies in which directors perform concurrent services is within a reasonable scope.

Supplementary Principle 4.11(3)

The Company analyzes and evaluates the effectiveness of the board of directors, believing in the importance of improving board effectiveness on an annual basis. Accordingly, the Company has conducted a survey of all directors and members of the Audit & Supervisory Board to analyze and evaluate the effectiveness of the board of directors.

As a result, the Company confirmed that our board of directors conducts appropriate and timely deliberations and decision-making, functioning effectively.

Additionally, in response to the issue of the requirement to further expand deliberations of medium- and long-term policies, companywide strategies, and other important matters identified in the evaluation from the previous year's board of directors meetings, we reviewed items deliberated in board of director meetings to ensure improvements allowing for sufficient time to be allotted.

At the same time, and from the perspective of improving the effectiveness of the board of directors, we identified the need to ensure more robust meetings by providing information for consideration prior to meetings, to provide better feedback and follow- up, and to secure greater diversity in the composition of the board of directors over the medium to long term.

The Company intends to continue with initiatives for improving board of director effectiveness.

Supplementary Principle 4.14(2)

The Company provides information related to the NAGASE Group Management Philosophy, corporate management, business activities, and organization to outside directors and outside members of the Audit & Supervisor Board. In this way, we help these individuals gain a deeper understanding of these topics.

The Company also provides opportunities at the Company's expense to help directors and members of the Audit & Supervisory Board (including outside directors and outside members) obtain the necessary knowledge to accomplish their roles and responsibilities.

Principle 5.1

Our basic policy is to conduct constructive dialogue with shareholders that contributes to sustainable growth and corporate value improvement over the medium and long term. As much as reasonable, we respond to meeting requests from shareholders the purpose of holding constructive dialogues.

The Company's director in charge of the Corporate Management Department in charge of Company investor relations. Our investor relations department works in cooperation with other internal departments to provide appropriate responses in creating opportunities for constructive dialogue with our shareholders.

The Company strives to provide information through various briefings, in-person meetings with domestic and foreign investors, facilities tours, and publication on our corporate website.

Information and requests received from shareholders through these and other dialogues are forwarded to the board of directors as deemed necessary. We manage information carefully in accordance with our Regulations for Preventing Insider Trading to prevent inside information from being disclosed during these dialogues.

2. Capital Structure

Foreign Shareholding RatioMore than 20% less than 30%

[Status of Major Shareholders]	Updated

		Name / Company Name			Number of Shares			No. of Shares Held
				Owned			(%)
		The Master Trust Bank of Japan, Ltd. (Trust Account)	15,026,800	12.38
		Sumitomo Mitsui Trust Bank, Limited			5,776,000		4.76
		NORTHERN TRUST CO. (AVFC) RE SILCHESTER	5,312,500	4.38
		INTERNATIONAL INVESTORS INTERNATIONAL
		VALUE EQUITY TRUST
		Custody Bank of Japan, Ltd. (Trust Account)	4,550,900	3.75
		Sumitomo Mitsui Banking Corporation			4,377,000	3.61
		Nippon Life Insurance Company			3,589,133	2.96
		Reiko Nagase			3,519,249	2.90
		NAGASE & CO., LTD. Own Share Investment Association	3,023,193	2.49
		NORTHERN TRUST CO. (AVFC) RE U.S. TAX	2,920,700	2.41
		EXEMPTED PENSION FUNDS
		Nagase Shunzo Co., Ltd.			2,688,000	2.21
	Controlling Shareholder (except for		―――
	Parent Company)

Parent Company	None

Supplementary Explanation	Updated

1. On August 20, 2010, BlackRock Japan Co., Ltd. submitted the following information to the Director-General of the Kanto Finance Bureau in connection with a substantial shareholding report (change report) concerning holdings of Company stock. As of the end of the second quarter, we have not been able to confirm beneficial ownership status. Accordingly, BlackRock Japan Co., Ltd. is not included in the Status of Major Shareholders above.

Name/Company Name	Number of Shares Held (Thousands)	(%)
BlackRock Japan Co., Ltd.	3,672	2.65
BlackRock Advisors (UK) Limited	654	0.47
BlackRock Fund Advisors	309	0.22
BlackRock Institutional Trust N.A.	1,057	0.76

2. On December 4, 2020, Sumitomo Mitsui Trust Bank, Limited submitted the following information to the Director-General of the Kanto Finance Bureau in connection with a substantial shareholding report (change report) concerning holdings of Company stock. As of the end of the second quarter, we have not been able to confirm beneficial ownership status. Accordingly, Sumitomo Mitsui Trust Bank, Limited is not included in the Status of Major Shareholders above.

Name/Company Name	Number of Shares Held (Thousands)	(%)
Sumitomo Mitsui Trust Bank, Limited	5,776	4.53