Nippon Paper Industries : Corporate Governance Report

Corporate Governance Report

Last Update: July 4, 2021

Nippon Paper Industries Co., Ltd.

Toru Nozawa, President, Representative Director Contact: 03-6665-1111 Securities Code: 3863

https://www.nipponpapergroup.com/english/

The corporate governance of Nippon Paper Industries Co., Ltd. (the "Company") is described below.

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

1. Basic Views

The Company has established the "Corporate Governance Policy" as a basic guideline on corporate governance with the aim of contributing to the Corporate Group's sustainable growth and medium- to long- term increases in corporate value, and has posted it on the Company's website.

Corporate Governance Policy https://www.nipponpapergroup.com/english/ir/20220629ECGC.pdf

The Company shall make the top priority of management further enhancing management transparency among its stakeholders including shareholders, in order to achieve fair management. To ensure separation between business execution and management supervision, the Company shall adopt the executive officer system and strive to strengthen the supervisory function of the Board of Directors. In addition, the Company shall, as the headquarters for managing the Group, promote its growth strategy, monitor businesses under its control, and promote legal compliance.

The Company shall work on further reinforcing corporate governance by providing the following policies:

1. The Company shall, having respect for shareholders' rights, work to put in place an environment where its shareholders can exercise their rights in an appropriate manner and ensure the substantive equality of shareholders.
2. The Company shall recognize the importance of social responsibilities and public duties, appropriately collaborate with various stakeholders including shareholders, employees, customers, business partners, creditors, and local communities, and develop a corporate culture and climate for business to be operated in a sound manner based on strict self-discipline.
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1. The Company shall provide for its disclosure policy separately, make appropriate disclosures of corporate information including non-financial information, and strive to ensure the transparency of corporate management.
2. The Company shall work on strengthening the functions of the Board of Directors based on fiduciary responsibility and accountability to shareholders. It shall promote the use of independent outside directors, establish voluntary committees to ensure the transparency of procedures concerning executive appointments and compensation in particular, and have independent outside directors as key members. It shall make analyses and evaluations on the effectiveness of the Board of Directors as a whole and strive to improve the functions of the Board of Directors.
3. The Company shall have constructive dialogues with shareholders, in order to contribute to its sustainable growth and medium- to long-term increases in corporate value.

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

Contents are based on the revised code for June 2021, which includes information for the Prime market. The Company has implemented each principle of the Corporate Governance Code.

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

The Company has provided the "Corporate Governance Policy" (hereinafter referred to the "Company's Policy") and has disclosed it.

Corporate Governance Policy https://www.nipponpapergroup.com/english/ir/20220629ECGC.pdf

Disclosures based on each principle are as follows:

[Principle 1-4 Policy for strategic holdings of stocks, etc.]

• See Article 11 of the Company's Policy.
• The Company shall verify the effects of holding individual stocks for strategic purposes (hereinafter, "strategic holdings of stocks") in terms of medium- to long-term economic rationale for holding, and maintaining and reinforcing comprehensive relationships with business partners, and make reports thereon to the Board of Directors on a regular basis every year.
• If the Company deems there to be no good reason to hold certain stocks after comprehensively taking into account the medium- to long-term economic rationale and effects of holding them, etc., the Company shall sell them in light of gains and losses, etc. from such stocks.
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• As provided in Paragraph 3, Article 11 of the Company's Policy, the Company shall not agree to vote for proposals that impair the corporate value of the Company and the investee company. Specifically, the Company shall make a judgment particularly carefully to vote for or against proposals on the following topics.
• Proposal for appropriation of retained earnings (in case such proposal markedly lacks a balance between financial soundness and retained earnings)
• Proposal for election of directors and statutory auditors (in the event of the occurrence of a serious compliance violation, etc.)
• Proposal for organizational restructuring

[Principle 1-7 Management system for related party transactions] - See Article 10 of the Company's Policy.

[Principle 2-4-1 Ensuring Diversity within the Company]

• The Company believes that ensuring diversity within the Company will lead employees with different personalities to mutually stimulate each other and deepening their knowledge, reinvigorate the Company's organization, which in turn will contribute to the Company's sustainable development.
• With regard to the managerial appointment of women, foreign nationals, and mid-career employees, those recognized as having aptitude as a manager are appointed, after their potential, aptitude, work performance and others are comprehensively evaluated and assessed by an external specialty firm. They are not selected by gender, nationality, or recruitment route.
• With regard to women, we have set a target hiring percentage. Initiatives for appropriate placement and utilization have been taken, providing corporate support for their continuous participation and career advancement even when life events may occur. As a result, the number of female managers is increasing. In April 2021, we updated our Action Plan for the Advancement of Women, and have set a target to reduce the difference between the number of men and women promoted to section manager levels, and a target rate of usage of flextime and working from home systems. For details of the Action Plan and trend in the percentage of female employees in management, please refer to the ESG Data Book posted on the Company website.

ESG Data Book https://www.nipponpapergroup.com/english/csr/npg_esgdb2021_e_ALL.pdf

• With regard to mid-career employment, recently we have been working to make more efforts in this area, together with new graduate employment. Those with unique insight and experience from outside the Company as well as those expected to play an active role internally based on the premise that they will be cultivated after employment are actively employed. Currently, the ratio of mid-career employees to
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managers of the Company is 4.4%. (as of November 2021) Our belief is that the participation and advancement of human resources with various types of insight and experience will lead to reinvigorating the organization and developing the Company. Based on this, we will work to further promote mid-career employees to managerial positions to increase the number of such employees from the current level by the fiscal year 2030.

• With regard to foreign nationals, the majority of managerial positions are held by local nationals in the Group's overseas subsidiaries. They are supporting the respective company management by cooperating with Japanese employees stationed locally. Foreign human resources are playing an active role in the Group's global expansion. At present, the ratio of foreign nationals to managers of the Company's overseas

consolidated subsidiaries is approximately 90%. (as of November 2021) We will continue to maintain the current level.

• With changes in the domestic environment surrounding human resources (including a declining population, declining birthrate and aging population), the Company views building an organization in which diverse human resources can fully demonstrate their potential to be a critical issue. We will allocate our workforce in line with the growth strategy in such ways that a diverse range of people with different personalities will be able to fully demonstrate their potential. By establishing an organizational structure that encourages this, and by strengthening employee engagement, we will develop human resources.
• As for the development of an environment to embrace diversity, the Company is making efforts to develop its working environment and review work systems to realize a "flexible work style." In the fiscal year 2021, a flextime system was revised, and a system to work from home and system for taking annual paid leave in hourly increments were introduced. For details, please refer to the Integrated Report.

Integrated Report https://www.nipponpapergroup.com/english/ir/%28E%29npg_ir_2021_all.pdf

[Principle 2-6 Performance of functions as the asset owner of the corporate pension fund]

• The Company has established the Asset Management Committee, which receives reports on and monitors pension fund management.
• Members of the Asset Management Committee shall comprise persons with knowledge of financial markets and investing assigned from the accounting and finance departments, etc.
• The Company leaves the decision to select each investee company and exercise voting rights in such investee company to the entrusted financial institution to ensure there will be no conflict of interest between the Company and beneficiaries of the corporate pension fund.
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[Principle 3-1 Disclosure of information]

1. Corporate Group Philosophy and mid-term management plan - See the Company's website.

Group Mission https://www.nipponpapergroup.com/english/about/group_mission/Medium-Term Business Plan https://www.nipponpapergroup.com/english/ir/policy/plan/

(2) Corporate Governance Policy

- See "1. 1. Basic views" of this Report and Article 2 of the Company's Policy.

(3) Policy and procedures for deciding compensation, etc. of directors and statutory auditors

• For the policy, see Article 8 of the Company's Policy. Regarding compensation for directors, see also "II.
• 1. Director remuneration" of this Report.
• For procedures, see Article 9 of the Company's Policy. Regarding the Personnel & Remuneration Advisory Committee, see also "II. 1. Committee's Name, Composition, and Attributes of Chairperson" of this Report.

1. Policy and procedures when nominating nominees as directors and statutory auditors and election and dismissal of the President
   - For the policy when nominating nominees as directors and statutory auditors, see Articles 5 and 6 of the Company's Policy.
   - For the procedures when nominating nominees as directors and statutory auditors, see Article 9 of the Company's Policy. Regarding the Personnel and Remuneration Advisory Committee, see also "II.1. Committee's Name, Composition, and Attributes of Chairperson" of this Report.
   - The procedures for election and dismissal of the President shall be the same as the above-provided nomination procedures. The President of the Company shall be required to thoroughly fulfill the requirements for directors provided in Article 5 of the Company's Policy. Meanwhile, in the case where a question arises concerning the qualifications of the President, the Personnel and Remuneration Advisory Committee shall hold deliberations on the matter and the Board of Directors shall pass a resolution on whether or not to dismiss the President based on the report by the Committee.
2. Individual reasons for appointing directors and statutory auditors

• Regarding the appointment of directors and statutory auditors, the Company has disclosed the reasons for nominating each nominee in the Reference Documents for the Ordinary General Meeting of Shareholders.

Notice of Convocation Annual General Meeting 2022 https://www.nipponpapergroup.com/english/ir/Notice%20of%20Convocation%20Annual%20General%20 Meeting%202022.pdf

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