Nippon Sanso : Update notice of Corporate Governance Report

Corporate Governance Report

Nippon Sanso Holdings Corporation

Last updated: June 7, 2022

Nippon Sanso Holdings Corporation

Toshihiko Hamada, Representative Director, President CEO Contact: [phone] TSE Code: 4091

https://www.nipponsanso-hd.co.jp

The corporate governance of Nippon Sanso Holdings Corporation (the "Company") is described below:

I. Basic thinking on corporate governance, capital structure, corporate attributes and other basic information

1. Basic Thinking on Corporate Governance

From the perspective of ensuring sustainable growth of the Company and long-term increase of corporate value, taking into account the positions of shareholders and other stakeholders, customers, employees, and local communities, the Company believes that the essence of corporate governance involves ensuring transparency and fairness of decision-making, making effective use of the management resources available, and maximizing the efficiency and strength of management through prompt and decisive decision-making. The Company will work toward a full implementation of correct corporate governance based on the basic approach below.

1. The Company will respect shareholders' rights and ensure their equality.
2. The Company will consider the benefits of shareholders and other stakeholders and work appropriately in partnership with those stakeholders.
3. The Company will ensure transparency by releasing appropriate corporate information at appropriate times.
4. By separating supervisory and executive functions, the Company will improve effectiveness of the Board of Directors' supervisory function over the Company's business executions.
5. The Company will engage in constructive dialogue with shareholders in order to contribute to the sustainable growth of the Group and the medium- to long-term improvement of corporate value.

[Reasons for Not Implementing the Principles of the Corporate Governance Code]

[Updated]

[The Code Applied]

The following is presented in accordance with Japan's Corporate Governance Code revised in June 2021:

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[Supplementary Principle 4.11.1 Appointment of Outside Director(s) with Management Experience]

None of the Company's independent outside directors have the experience of managing listed companies or Japanese subsidiaries of global enterprises. However, Director Eduardo Gil Elejoste has the experience of managing non-Group companies, an example being that he was responsible for the European business of Praxair, Inc. when the business was acquired by the Company. In addition to him, President CEO Toshihiko Hamada, Chairman of the Board Yujiro Ichihara, and Directors Kenji Nagata and Thomas Scott Kallman have all ample management experience in that they currently manage or previously managed Group companies respectively as their president. As a result, the Company's Board of Directors is engaged in discussions drawing on the members' experience of managing various Group and non-Group companies, albeit having no independent outside directors with management experience appointed.

The Company has nominated Mr. Katsumi Nagasawa who has the management experience of a managing corporate executive officer of Hitachi, Lt. etc. as candidate for a director at the 18th Ordinary General Meeting of Shareholders of the Company to be held on June 17, 2022.

(https://www.nipponsanso-hd.co.jp/en/ir/stock/meeting.html)

[Disclosure Based on the Principles of the Corporate Governance Code] [Updated][Principle 1.4 Cross-Shareholdings]

The Company has established its policy on strategic holdings of listed stock and basic rules on exercising voting rights in relation to strategic stock holdings in Article 4 of Principles of Corporate Governance available on its corporate website. The Board of Directors annually carries out a comprehensive assessment of each of strategic stock holdings both quantitatively, by using the Return on Invested Capital (ROIC) indicator, and qualitatively, by analyzing its business needs and other matters, and thereby verify whether there are sufficient reasons for each individual stock holding.

(https://www.nipponsanso-hd.co.jp/Portals/0/images/company/governance/nippon-sanso- holdings-corporate-governance-principles_en.pdf)

[Principle 1.7 Related Party Transactions]

The Company has established the framework of procedures for related party transactions in Article 5 of Principles of Corporate Governance available on the Company's website. (https://www.nipponsanso-hd.co.jp/Portals/0/images/company/governance/nippon-sanso- holdings-corporate-governance-principles_en.pdf)

[Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Core Human Resources and Other Elements]

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[Ensuring Diversity]

The Nippon Sanso Holdings Group has in place its "Global Policy on Respecting Human Rights, Contributing to Communities, Employment, Labor and Health." Under the "Code of Conduct" based on the policy, all officers and employees are striving to establish an environment in which they can work while respecting diversity. Based on the recognition that ensuring diversity is important to the Group's development, we will be committed to the following initiatives.

[Promotion of Women's Active Participation]

One of nine directors of the company is woman and the ration of women to its total employees is 17.4% at the end of fiscal 2021 ended in March 2022. As a goal of the next Medium-Term Management Plan, we have set the fiscal 2025 ending March 2026 targets of 22% in the ratio of women to the Group's total employees (20.1% at the end of fiscal 2020 ended in March 2021) and 18% in the ratio of women to its total officers (14.6% as of the same date). We will strive to improve institutional systems enabling proactive employment of women and permitting their flexible work style, establish a management training scheme designed to appoint women to managerial posts, and undertake other measures in an aggressive manner.

[Mid-career Recruitment]

In the Group's overseas affiliated companies, most officers and employees are mid-career hires, and we recognize that diversity is ensured continuously. In fiscal 2021 ended in March 2022, Nippon Sanso Holdings Corporation and its main business company, Taiyo Nippon Sanso Corporation, proactively recruited mid-career professionals equipped with necessary skills, employing 33 of them. The ratio of mid-career officers and employees to the company's total officers and employees is 20.9 % at the end of fiscal 2021 ended in March 2022. In the future as well, we will seek to employ mid-career professionals necessary from the viewpoint of placing the right person in the right position.

[Recruitment of Foreign Nationals]

The Group is operating globally, and employees of foreign nationality account for most of employees in the Group companies except for the domestic operation of Taiyo Nippon Sanso and Thermos groups, with their ratio reaching about 66% as of the end of fiscal 2020 ended in March 2021. As for the Nippon Sanso Holdings, two of its nine Board members and one of its four executive officers are foreign nationals. Globally oriented management is in place at the company, with important meetings and decision-making are basically conducted in English. It has four non-Japanese employees, or 5% of the total, as of the end of fiscal 2021 ended in March 2022. Looking ahead, we will strive to realize proactive personnel exchanges with overseas business companies, setting up a structure matching a global holding company.

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[Employment of Persons with Disabilities]

Taiyo Nippon Sanso, the main domestic business company, has been aggressively hiring people with disabilities, and the ratio of people with disabilities to total employees is 2.56%. that achieves the legally mandated 2.3% target of their employment. We will continue to strive to employ such human resources and establish an easy-to-work environment in an effort to contribute to expansion of their working opportunities.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

Taiyo Nippon Sanso (TNSC) which is the core business company of the Company group has established the Corporate Pension Managing Committee that has been engaged in deliberation of the management of corporate pension. TNSC has managed the corporate pension fund in accordance with the basic policy of managing pension reserves and based on the strategic asset contribution ratio necessary for achieving the target of the pension asset management in order to ensure stable management of the employee's assets, while properly controlling conflict of interests. Furthermore, TNSC has appointed the best trustees based on the strategic asset contribution ratio, evaluated the quantitative and qualitative aspects of the trustees designated by TNSC, and disclosed to employees the summary of performance by trustee, including the investment results of corporate pension fund.

[Principle 3.1 (1) Full Disclosure]

The Company has formulated its corporate philosophy and published it on its corporate website.

(https://www.nipponsanso-hd.co.jp/en/company/mission.html)

The Company has formulated its Four-YearMedium-Term Management Plan "NS Vision 2026～Enabling the Future" final fiscal year of which is fiscal 2025 ending March 2026 and published it on its corporate website.

(https://www.nipponsanso-hd.co.jp/en/ir/management/plan.html)

[Principle 3.1 (2) Full Disclosure]

The Company has formulated Principles of Corporate Governance as its basic thinking and policy on corporate governance and published it on its corporate website. (https://www.nipponsanso-hd.co.jp/Portals/0/images/company/governance/nippon-sanso- holdings-corporate-governance-principles_en.pdf)

[Principle 3.1 (3) Full Disclosure]

As regards the policy and procedures for the Board of Directors' determining of the remuneration of management personnel and directors, please refer to "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in the subsection "Director Remuneration" under the section "1. Matters on Organizational Composition and Operation" under the part "Ⅱ. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" of this report.

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[Principle 3-1(4) Full Disclosure]

The Company has defined its policy and procedures for the Board of Directors' appointment of executive officers and nominating candidates of directors and Audit & Supervisory Board members in Articles 13 through 15 of Principles of Corporate Governance available on its corporate website.

(https://www.nipponsanso-hd.co.jp/Portals/0/images/company/governance/nippon-sanso- holdings-corporate-governance-principles_en.pdf)

[Principle 3-1(5) Explanations with respect to the individual appointments/dismissals and nominations of executive officers, candidates of directors and Audit & Supervisory Board members]

Explanation of the reason for nominating as candidate for directors and Audit & Supervisory Board members is made in the proposal for the election of directors and election of Audit & Supervisory Board members stipulated in the reference documentation for the General Meeting of Shareholders. In the case the candidates are scheduled to be appointed as executive officers at the board meeting to be held after the General Meeting of Shareholders, the explanation is made taking such appointment into consideration. The Company has published the notice of convocation for the 18th Ordinary General Meeting of Shareholders that includes reference documentation on its corporate website.

(https://www.nipponsanso-hd.co.jp/en/ir/stock/meeting.html)

[Supplementary Principle 3.1.3 Disclosure of Company Initiatives on Sustainability]

The Company details its sustainability initiatives and human capital investment on pages 56- 85 and 140-175 of the Integrated Report available on the link below.

(https://www.nipponsanso-hd.co.jp/Portals/0/images/ir/library/integrated_report/nippon- sanso-holdings-integrated-report_en-full_2021.pdf)

Also, Taiyo Nippon Sanso Corporation, a principal operating company of the Group, explains investment in intellectual property on its website.

(https://www.tn-sanso.co.jp/jp/rd/intellectual[in Japanese])

The Company collects and analyzes the necessary data on the impact of climate change- related risks and earning opportunities on its business activities, profits, and other factors in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The results are presented on pages 66-67 of the Integrated Report available on the link below. Note that TCFD-based disclosure complies with the principle that applies to the companies listed on the Prime Market.

(https://www.nipponsanso-hd.co.jp/Portals/0/images/ir/library/integrated_report/nippon-

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