Nishimatsu Construction : [Delayed］Corporate Governance Report

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Corporate Governance

Last Update: December 1, 2021

Nishimatsu Construction Co., Ltd.

Nobutoshi Takase,

Representative Director and President

Contact: General Affairs Department

Tel: [phone]

Securities Code: 1820

https://www.nishimatsu.co.jp/eng/

The corporate governance of Nishimatsu Construction Co., Ltd. (the Company) is described below.

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

1. Basic Views

The basic policy of Nishimatsu Construction Co., Ltd. (the "Company") is to improve its corporate governance and maintain good and stable relationships over the long term between the Company and its stakeholders, in order to strive for the Company's sustainable growth and increase its corporate value over the mid- to long- term.

Based on this policy, the Company will create systems that will lead to the acceleration of decision-making by and strengthen supervision functions of the Board of Directors as well as its business execution systems.

In addition, by establishing our "Corporate Motto," "Corporate Philosophy," and "Code of Conduct," which are put into practice by its officers and employees, and engaging in our CSR Management based on "CSR Management Policy," the Company will forge win-win relationships with all its stakeholders and contribute to society.

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

The Company has implemented each Principle of the Corporate Governance Code in its entirety following the revisions in June 2021.

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

The Principles are described based on the Corporate Governance Code following the revisions in June 2021.

[Principle 1-4Cross-shareholdings]

(1) Policies regarding the reduction of cross-shareholdings

The Company's policy is to hold only those equities that are necessary in terms of business operations as cross-shareholdings, and to reduce any other equities except in special circumstances.

The Cross-Shareholdings Verification Committee, which comprises persons in charge of relevant departments, reports on the propriety of holding each individual cross-shareholding to the Board of Directors each fiscal year upon examining and verifying the existence of any transactions with an issuing company, the availability of works' and other information, and the existence of any other special circumstances. After receiving the report from the Committee, the Board of Directors verifies and judges the propriety of the shareholding individually. The Company discloses in its securities reports matters including the purpose of holding of the equities that the Company has decided to continue holding after the verification.

(2) Policies regarding the execution of voting rights associated with cross-shareholdings

The standards for execution of voting rights regarding the Company's cross-shareholdings are as follows. a. In principle, voting rights shall be exercised on all proposals.

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1. We will determine approval or disapproval for each proposal from the perspective of increasing the mid- to long-term corporate value of the company of which we maintain cross-shareholding, also taking into consideration the business conditions of the company. In particular, we will exercise an even greater examination and make a more cautious judgement with regard to proposals relating to matters such as corporate restructuring including mergers, the presentation of retirement benefits to officers by companies with a sluggish business performance, capital increase by means of third-party allotment, and the introduction of anti-takeover measures.

[Principle 1-7 Related Party Transactions]

In the event that the Company engages in transactions with its officers or major shareholders, etc. (i.e., related party transactions), in order to ensure that such transactions do not harm the interests of the Company or the common interests of its shareholders, it has been specified in the Regulations of the Board of Directors that the approval of the Board of Directors is required, and in the Audit Criteria of the Audit and Supervisory Committee with respect to auditing and approval of conflict of interest transactions, etc. The Company's Board of Directors monitors such transactions in line with these procedures.

[Supplementary Principle 2-4 (1) Ensuring Diversity in the Promotion, etc. of Women, Foreign Nationals, and Midcareer Hires to Middle Managerial Positions]

1. Policies for Ensuring Diversity, Human Resource Development and Internal Environment Development

The Company focuses on Urban Development and Real Estate Business, and Environment and Energy Business, in addition to the construction business, and aims to achieve further growth by organically linking these business fields. In order to respond to the ever-changing social environment and the diversifying needs of customers, we established Human Resources Strategy Office headed by the President. Under the uniform, company-wide strategies for human resources, the Company recruits, develops and allocates human resources who have a broad perspective, and works to create a workplace in which they can demonstrate their individual abilities to their full extent. We will also increase our competitiveness by improving employee engagement and providing "new value."

In terms of human resource development, we aim to foster human resources who are able to respond appropriately to changes in society with a broad perspective, in addition to possessing advanced technological skills. To this end, we proactively provide opportunities for employees to voluntarily learn to acquire social graces, professional expertise and foundational strength, mainly through Nishimatsu Employees' University that opened in FY2019.

In terms of internal environment development toward ensuring diversity, in order for us to provide "new value," we believe it is essential to create a workplace in which human resources who have different backgrounds come together, think about things from various perspectives and can demonstrate their individual abilities to their full extent. The Company introduced a flextime system and an annual paid leave in hourly unit, enhanced work-life balance support programs to help employees pursue their careers and child-rearing, and are working to reduce total work time. In this manner, while encouraging the use of these internal systems, we are striving to create a workplace where our people can choose flexible work styles.

1. Voluntary and Measurable Goals for Ensuring Diversity (Status of females in middle managerial positions)
   For many years, construction engineers, who account for a majority of the Company's employees in career track positions, have tended to be male, and the ratio of female construction engineers has remained low. Since around 2105, however, we have been working to increase the number of females in career track positions, including by increasing the number of female new graduates hired for career track positions and moving ahead with the promotion of females from general positions to career track positions. Currently, the Company employs 2,299 career track employees, of whom 145 are female, 37 of whom are active as employees with titles (including 3 in middle managerial positions). In addition, we have established a numerical target for the promotion of females to middle managerial positions as follows.
   ・ Ratio of females in middle managerial positions to all middle managerial positions: Target of 2.0% or higher by FY2025 (currently 0.3%)

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(Status of foreign nationals and mid-career hires)

We currently employ 137 mid-career hires, 31 of whom are active in middle managerial positions. Since FY2015, we have been employing approximately 2 foreign nationals each year, mainly new graduates, and currently 10 foreign nationals are engaged in our domestic business. In addition, 551 foreign nationals in all Group companies, including four affiliated companies, are employed in our overseas business, approximately 10% of whom are active in middle managerial positions.

Although the Company has not established numerical targets for the promotion of mid-career hires and foreign nationals to middle managerial positions at the present time, we would like to consider this on a case-by-case basis should the need arise as the result of our future business structure and other factors. The Company will continue to work on human resource development and on internal environment development so that diverse human resources can play an active role.

[Principle 2-6 Roles of a Corporate Pension Fund as an Asset Owner]

In order to demonstrate the roles expected as an asset owner of a corporate pension fund, the Company assigns employees with specialized knowledge and experience to the Personnel Department, which is the Secretariat for corporate pension fund management, and strives to improve those functions by having said employees attend various seminars held by financial institutions handling pension fund business and consulting companies. On the operational side, the Retirement Benefit System Steering Committee implements initiatives such as the regular monitoring of the status of operations.

The Company appropriately manages conflicts of interest that may arise between the beneficiaries of the corporate pension fund and the Company.

[Principle 3-1 Full Disclosure]

The Company carries out appropriate and timely information disclosure in accordance with laws and regulations and the rules of the Tokyo Stock Exchange. It also strives to actively provide information beyond that required by laws, etc. as set forth below.

(1) Management Principles, etc., Management Strategy, and Management Plan

The Company publishes its "Corporate Motto," "Corporate Philosophy," "Code of Conduct," "CSR Management Policy," "Nishimatsu-Vision 2027," "Midterm Management Plan 2023," and other information on its website.

The Company's website (Japanese): https://www.nishimatsu.co.jp/

The Company's website (English): https://www.nishimatsu.co.jp/eng/

(2) Basic Views and Policies on Corporate Governance

Basic views and policies on corporate governance are described in "I. 1. Basic Views" of this report. The Company also publishes the "Initiatives on Corporate Governance by Nishimatsu Construction Co., Ltd." on its website.

https://www.nishimatsu.co.jp/eng/company/business.html

(3) Policies and Procedures for Determining Compensation for the Management and Directors

a. Compensation for executive directors and Executive Officers

The compensation of executive directors and Executive Officers consists of basic compensation and performance-linked compensation.

Basic compensation is fixed compensation (monthly compensation) that is determined based on position, and the amount of employee salary and the industry average, etc. are taken into consideration when calculating the said compensation.

Performance-linked compensation is variable compensation that is determined in accordance with the degree of achievement of the performance targets. The performance-linked compensation that forms the base is established for each position and multiplied by the performance-linked coefficient to calculate the amount to be paid. To calculate the amount to be paid, evaluation indices that contribute to an increase in corporate value are set for each position and job title, and the degree of achievement of the targets set at the start of the fiscal year and the performance compared with the previous fiscal year are evaluated each fiscal year.

Performance-linked compensation is separated into monetary compensation paid as a short-term

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incentive, and share-based compensation paid as a long-term incentive. Monetary compensation is paid in July each year as a bonus, and share-based compensation is granted in June each year in the form of conversion points through a stock benefit trust, and shares equivalent to the accumulated points are paid when an officer retires.

The ratios of basic compensation and performance-linked compensation are to be set appropriately, based on trends among other companies in the same industry and taking into account factors such as the Company's management strategy, the business environment, responsibilities, and the degree of difficulty in achieving the targets. In addition, the ratio of monetary compensation to share-based compensation in performance-linked compensation is 1:1. A minimum amount of compensation for share-based compensation is established, which is the same as the minimum amount of performance-linked compensation.

Based on the above policies, the President prepares the proposals, and the Company consults the Nominating and Compensation Committee, and after receiving the report from the Committee, the compensation is determined by the Board of Directors (basic compensation is determined in March each year and performance-linked compensation is determined in June each year).

1. Compensation of Directors who are Members of the Audit and Supervisory Committee Compensation of Directors who are Members of the Audit and Supervisory Committee consists solely of basic compensation, and is determined by consultation with all the Directors who are Members of the Audit and Supervisory Committee, taking into consideration the compensation of the executive directors and the industry average, etc.

1. Policies and Procedures for Appointment or Dismissal of the Management and Nomination of Candidates for Director

Candidates for Director and Executive Officers are appointed from among persons who have extensive knowledge, experience and abilities, as well as outstanding character and high ethical standards. Candidates for executive director are appointed from among persons who have extensive knowledge and experience in civil engineering business, building engineering business, international business, and development and real estate business, or who have superior knowledge of finance and accounting, etc. Candidates for Director who are Members of the Audit and Supervisory Committee are appointed from among persons the Company determines to be able to audit and supervise appropriately, with emphasis on their expertise and career history.

Candidates for Outside Director are appointed with emphasis on their independence from the Company, and efforts are made to appoint persons with specialized knowledge and persons with experience in corporate management, etc. Also, diversity of the Board of Directors is taken into consideration.

A mandatory retirement system for executive directors and Executive Officers is established, and a maximum term of office is put in place for Directors who are Members of the Audit and Supervisory Committee, Outside Directors, and Executive Officers.

Based on these policies, the President prepares the proposals, and the Company consults the Nominating and Compensation Committee, and after receiving the report from the Committee, the appointments are determined by the Board of Directors.

The dismissal of Executive Officers, including the President, is determined by the Board of Directors upon deliberation by the Nominating and Compensation Committee, based on the dismissal criteria and procedures stipulated in the Regulations of the Executive Officers.

(5) Explanation of Appointment, Dismissal and Nomination of Candidates for Director

The reasons for the appointment and nomination of individual candidates for Director are stated in the notice of the general meeting of shareholders.

Notice of the general meeting of shareholders: https://www.nishimatsu.co.jp/eng/ir/meeting/meeting.php

[Supplementary Principle 3-1 (3) Initiatives on Sustainability]

In the "Midterm Management Plan 2023," which covers the period from FY2021 to FY2023, we will "establish a sustainable society and environment where people can live with peace of mind," which we stated in our Management Principles, and plan to provide value to society through the businesses to achieve a sustainable society, taking societal and environmental changes into consideration.

From April 2021, while narrowing new business domains to the "Environment and Energy Field," we will embark on full-scale efforts to achieve a decarbonized society, and focus on the renewable energy business and

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the infrastructure-related service business in order to resolve environmental issues.

In addition, the amount of investment, details of investment, and priority measures with regard to investment in human capital (human resource development, system reforms, health management) and investment in intellectual property (growth investment related to the construction business) are also disclosed in the "Midterm Management Plan 2023," while the progress of these activities is disclosed in the "Integrated Report 2021."

Midterm Management Plan 2023: https://www.nishimatsu.co.jp/eng/ir/library/plan.php

Integrated Report 2021: https://www.nishimatsu.co.jp/eng/csr/report/

[Supplementary Principle 4-1 (1) Outline of Scope of the Matters Delegated to the Management]

The Board of Directors deliberates and determines matters specified in the Regulations of the Board of Directors, in addition to important management issues including the basic management policy as well as matters stipulated by laws and regulations and in the Articles of Incorporation. With regard to decision-making authority over matters other than those to be resolved by the Board of Directors, the Rules for the President and General Managers Meeting are established, among other rules, and the decision-making authority is delegated to executive directors and others at the President and General Managers Meeting.

[Principle 4-9 Criteria for Determining the Independence and Qualifications for Independent Outside Directors]

The Company, to ensure the independence of candidates for Outside Director, has formulated and disclosed the Criteria for Determining the Independence of Outside Directors. Furthermore, in addition to use of the Criteria for Determining the Independence of Outside Directors, the Company has made efforts to select persons who can be expected to contribute to frank, active and constructive discussions at meetings of the Board of Directors.

Criteria for Determining the Independence of Outside Directors:	https://www.nishimatsu.co.jp/eng/company
	/business.html

[Supplementary Principle 4-11 (1) Composition of the Board of Directors and Policy and Procedures for Appointment of Directors]

The Company, by having a small number of Directors and introducing an executive officer system, has striven to accelerate decision-making in relation to management by the Board of Directors and strengthen its business execution system. Also, by increasing the proportion of Outside Directors on the Board of Directors, it has worked to improve supervision over the Board of Directors.

The Board of Directors is comprised of ten persons, five of whom are executive directors serving as the President, General Manager of Civil Engineering Division, General Manager of Building Division, General Manager of Urban Development & Real Estate Division and General Manager of Management Division. The remaining five are Directors who are Members of the Audit and Supervisory Committee and are non-executive directors.

Candidates for Director are appointed from among persons who have extensive knowledge, experience and capabilities, as well as outstanding character and high ethical standards.

Candidates for executive director are appointed from among persons who have extensive knowledge and experience in civil engineering business, building engineering business, international business, and development and real estate business, or who have superior knowledge of finance and accounting, etc. Candidates for Director who are Members of the Audit and Supervisory Committee are appointed from among persons whom the Company deems capable of appropriate audits and supervision, with emphasis on their expertise and career history. In addition, the Company appoints four Outside Directors (including two female Directors), taking diversity of the Board of Directors into consideration.

The Company has established a mandatory retirement system for its Directors (excluding Directors who are Members of the Audit and Supervisory Committee and Outside Directors), in order to prevent a stiff hierarchy among the Board of Directors.

The Company consults the Nominating and Compensation Committee in relation to the nomination of candidates for Director and makes decisions in meetings of the Board of Directors after receiving the report from the Committee, in order to contribute to the establishment of an appropriate management system. The Board of Directors' skill set is disclosed in the "Integrated Report 2021."

Integrated Report 2021: https://www.nishimatsu.co.jp/eng/csr/report/

[Supplementary Principle 4-11 (2) Directors' Concurrent Positions]

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