Shinsho : ［Delayed］Corporate Governance Report

Corporate Governance Report

CORPORATE GOVERNANCE	Shinsho Corporation
Last Update:	June 24, 2022

Shinsho Corporation

President and CEO Takafumi Morichi

Contact: Yukio Oshima, General

Affairs Department

Securities code: 8075https://www.shinsho.co.jp/english/

The corporate governance of SHINSHO CORPORATION (the "Company") is described below.

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

Information

1. Basic Views

Based on our corporate philosophy, we believe that increasing our corporate value, supporting the manufacturing for tomorrow, and contributing to society through our corporate activities, are ways to meet the expectations of all our stakeholders, including our shareholders and business partners.

Corporate Philosophy

"Integrity" is Shinsho Corporation's Company motto. We are committed toward securing prosperity for our clients and shareholders through the creation of new values.

Core Values

1. Contribution to tomorrow's manufacturing
2. Corporate activities with compliance
3. Activities in global environment
4. Corporate culture respecting diversity
5. Realization of personal growth

Management Structure

Shinsho Corporation has set as its standard that Independent Outside Directors comprise at least one-third of the Board of Directors' members. The Board of Directors functions to formulate Shinsho Corporation Group's basic philosophy, to conduct management supervision, and to formulate the basic policy on internal control and supervise its implementation. It also serves to strengthen management decision making and supervisory functions, while promoting swift and streamlined management execution within a framework in which Executive Directors and Executive Officers are tasked by the Board of Directors to carry out business execution functions based on the authority delegated by the Representative Director.

The Company has established an Audit & Supervisory Board, in which half of the members are Outside Auditor & Supervisory Board Members. By carrying out supervision of executive-level management and monitoring for conflicts of interests through audits, mainly audits on the legality of business management (business execution), the Audit & Supervisory Board strengthens the supervisory function of management and business execution. In addition, as an advisory body to the Board of Directors, the Company established the Advisory Committee on Appointments and Compensation chaired by an Independent Outside Director. This committee serves to ensure objectivity and fairness in the process for selection and remuneration of executive level management.

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

Shinsho Corporation complies with all of the principles of the revised Corporate Governance Code that took effect in June 2021, including the principles for the Prime Market category of the Tokyo Stock Exchange.

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

Concerning publicly listed shares held by the Company, in addition to the propriety of holding such shares considering its operating policy, Shinsho Corporation confirms and verifies that the combined total of profit and dividends gained by transactions with the issuing company surpasses the Company's weighted average cost of capital (WACC); specifically, the economic rationality, and that those shares determined to be of little significance for the Company to hold are promptly sold. In the fiscal year under review, the Company reduced the number of cross-shareholdings by 10 stocks.

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The Company exercises voting rights of cross-shareholdings using on a holistic judgement based on impacts it will have on transactions with the Company after confirming that proposals do not cause damage to shareholder value.

[1.7 Related Party Transactions]

The Company has established the Basic Policy on Related Party Transactions. In conducting transactions with related parties, the Company preliminarily deliberates prior to the resolution as necessary, and follows appropriate procedures to prevent transactions that would impair the common interests of the Company and its shareholders. One such effort is a transaction within the range of regular market prices accepted on the basis of trading common sense. In internal monitoring, we audit the appropriateness of the decision on such transactions from the aforementioned perspective. In addition, regarding transactions that would cause conflict of interests between the Company and a Director, the Company preliminarily seeks an approval at the Board of Directors, and in principle, makes the Director report the content of such transactions to the Board of Directors annually in order to examine the adequacy and appropriateness of such transactions.

[2.4.1 Ensuring Diversity in the Appointment of Core Human Resources, etc.] ○Approach to Ensuring Diversity

Irrespective of race, nationality, creed, gender, physical impairment and others, the Company acquires and appoints diverse human resources based on our policies of employment stability and equal opportunity. While responding to the social demands as represented by the enforcement of the Act on Promotion of Women's Participation and Advancement in the Workplace, the Company aims to encourage independence and self-reliance of each employee through various training and educational opportunities. The Company also promotes the establishment of personnel system that can respond to diverse working styles and promotes fair treatment based on the degree of contribution to the company, as part of our ongoing efforts to enhance the respect for humanity and secure comfortable working environment.

○Targets and Action Plan for Ensuring Diversity

The Company seeks to create new value by addressing diverse needs as it strives to utilize its diverse workforce, respect their individuality, and maintain/improve a comfortable workplace environment. Amidst this, the Company's initiatives for women's empowerment and work-life balance are positioned as important issues. Additionally, the Company has established an action plan pursuant to the Act on Promotion of Women's Participation and Advancement in the Workplace enacted on April 1, 2016. As of the date of this report, the Company employs five women in managerial positions. There are also 48 women in general career track positions (including general career track positions with restrictions on relocation). The Company has established a target to have women in general career track positions (including general career track positions with restrictions on relocation) account for at least 20% of the total by the end of FY2030.

The Company continues to hire foreign nationals out of university. As of the date of this report, the Company employs 18 foreign nationals in general career track positions. Among these, four are in managerial positions. The Group actively hires employees locally including at its overseas subsidiaries for its corporation operations. Also, the Company has a system in place to accept and develop seconded employees from its overseas subsidiaries.

As for mid-career hiring, as of the date of this report the Company employs 109 persons hired mid-career, with 65 of these in managerial positions.

The Company will continue hiring women, foreign nationals and mid-career workers based on the needs of each workplace and the need for certain skill sets in an effort to develop and promote them to core human resource positions.

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

The Company has adopted a defined contribution pension plan in order to mitigate future risks associated with corporate accounting and to support independent asset formation in line with economic rationality and the life plans of each individual employee. Under the plan, the Company employs a highly specialized financial institution as asset manager, and regularly provides asset management education for employees.

[Principle 3.1 Full Disclosure]

1) Corporate Philosophy, Action Guidelines and Medium Term Management Plan

As described in 1-1. Basic Views of this report, the Company has established a Corporate Philosophy and Core Values (Action Guidelines).

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The Company established "A trading company that supports manufacturing for tomorrow and contributes to society" as its long-term management vision, envisioning its ideal image of 10 years in the future. In addition, the Company launched a medium term management plan for achieving greater growth from FY2021. For details, please see the Company's website.

https://www.shinsho.co.jp/english/ir/policy/pdf/2023-chuki-e.pdf

2) Basic Approach/Basic Policy Concerning Corporate Governance

Based on its corporate philosophy, the Company believes that increasing our corporate value, supporting the manufacturing for tomorrow, and contributing to society through our corporate activities, are ways to meet the expectations of all our stakeholders, including our shareholders and business partners. For details, see the Company's website.

https://www.shinsho.co.jp/english/csr/governance/

3) Policy and Procedures for Determining Remuneration

In determining remuneration, it is important to provide the management members with incentives for active management, while having them assume appropriate levels of risk. From this viewpoint, the Company decided to incorporate stock trust scheme as long-termincentive-based remuneration, in addition to the existing fixed remuneration and performance-linked remuneration as a short-termincentive-based remuneration. This scheme was approved at the General Meeting of Shareholders held in June 2022. This will provide motivation to increasing corporate value continuously over the medium to long term and increase its effectiveness.

1. Policy and Procedures for Selection/Dismissal of Executive Level Management and Nomination of Candidates for Director/Audit & Supervisory Board Member
   In selecting candidates for Director and Audit & Supervisory Board Member, the Company selects human resources with quality, knowledge, and experiences appropriate for the shareholders and other stakeholders to entrust the Company's management, in order to achieve the Company's basic management policy of "A trading company that supports manufacturing for tomorrow and contributes to society."

Decision making on proposals related to nomination and remuneration is carried out after preliminary deliberations by the Advisory Committee on Appointments and Compensation, chaired by an Independent Outside Director and a majority of whose members are Independent Outside Directors, in order to ensure the transparency and fairness of the decision-making process of the Board of Directors regarding proposals related to nomination and remuneration.

With regard to the selection of the President and CEO, the Company has established a succession plan that stipulates the requirements and procedures for the selection and appointment of the President and CEO in order to realize the Company's corporate philosophy and management plan and enhance the corporate value of the Company and its Group. In the event that an executive level management engages in serious violation of law or performs inappropriate duties that seriously damage the corporate value and credibility of the Company, the relevant executive level management may be dismissed.

5) Reasons for Selection and Nomination of Individual Director Candidates

For the reasons for selection of Director candidates, please refer to the Reference Documents for the General Meeting of Shareholders.

https://www.shinsho.co.jp/english/ir/stock/pdf/104reference.pdf

[Supplementary Provision 3.1.3 Sustainability Initiatives]

In order to further strengthen initiatives for sustainability, the Company established the Basic Policy for Sustainability and important sustainability issues (materiality issues), along with the Sustainability Committee as an advisory body to the Board of Directors.

https://www.shinsho.co.jp/english/csr/basic/basic_policy.html

Additionally, the Group recognizes that response to climate change is an important management issue. The Group is working not only to reduce the CO2 emissions of the entire Group, but is also endeavoring continuously on social contributions concerning climate change initiatives utilizing its trading company functions. The Company discloses its initiatives following the TCFD's recommendations on its website.

https://www.shinsho.co.jp/english/csr/environment/tcfd.html

Fully recognizing that human resources are an important management resource for a trading company, the

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Company implements and promotes various measures such as reviewing personnel system and recruitment so that diverse human resources can play an active role. In the medium term management plan announced in May 2021, the Company set the goal of introducing a new personnel system and enhancing the training system as part of personnel system reform. In addition, the Company provides all officers and employees with learning tools for self-improvement in order to enhance their abilities. The Company continues working to protect intellectual properties. For details, see the Company's website.

https://www.shinsho.co.jp/english/csr/social/env_improvement.html

[Supplementary Provision 4.1.1 Scope of Delegation to Management]

In accordance with internal regulations (Rules of the Board of Directors, Rules of the Management Committee, Rules on the Delegation of Duties, and Rules on Executive Officers, etc.), the Company clearly stipulates the scope of decision-making by the Board of Directors and the scope of delegation of business to the management team, and based on these regulations, the Board of Directors makes management decisions and supervises operations, and Executive Directors and Executive Officers execute business. As a result, decision-making, supervision and business execution are separated, and management is appropriate and swift.

[Principle 4.8 Effective Use of Independent Directors]

The Company has strengthened its management decision-making and supervisory functions based on the basic principle that at least one third of the Board of Directors shall comprise Independent Outside Directors.

In addition, by establishing a system in which Executive Directors and Executive Officers perform business execution functions, the Company promotes swifter, more efficient management execution.

[Principle 4.9 Independence Standards and Qualification for Independent Directors]

The Company has established the Independence Standards for Outside Directors/ Outside Audit & Supervisory Board Members). In accordance with these standards, the Company confirms that the independence of candidates for Independent Outside Director is ensured in terms of their qualifications, background, and knowledge, as well as their substantive independence.

[Supplementary Principle 4.10.1 Authority and Roles, etc. of Nomination Committee and Remuneration Committee]

With regard to the nomination and remuneration of the management team, voluntary committees, a majority of whose members comprise independent Outside Directors, have been established as an advisory body to the Board of Directors. Each committee is chaired by an Independent Outside Director.

[Supplementary Principle 4.11.1 Approach, etc. to Diversity of the Board of Directors]

The functions of the Board of Directors are based on the functions of management decision-making and supervision, and the composition of the Board of Directors is based on the basic structure of having Independent Outside Directors comprise at least one-third of all Directors. In addition, each Director is a person who is familiar with the management of each business and urgent issues, and the Board of Directors has a balanced and appropriate size composition in terms of qualities, experience, ability, and global perspective.

The Company has established an Audit & Supervisory Board, half of whose members are Outside Audit & Supervisory Board Members. It conducts audits mainly on the legality of management (execution of duties), supervises management, monitors conflicts of interest, etc., thereby strengthening the management and execution supervision functions.

In addition, in order to realize the Company's corporate philosophy and management plan and enhance the corporate value of the Company and the Group, the Company has identified six skills that it expects from Directors and Audit & Supervisory Board Members: (1) management experience, (2) global perspective, (3) sales and marketing, (4) treasury, accounting, and finance, (5) legal affairs and compliance, and (6) sustainability and governance. The Company has prepared a skill matrix table that lists the skills possessed by each Director and Audit & Supervisory Board Member. For details, see the Company's website. https://www.shinsho.co.jp/csr/governance/

[Supplementary Provision 4.11.2 Concurrent Positions of Directors and Audit & Supervisory Board Members]

The Company discloses the status of concurrent positions of Directors and Audit & Supervisory Board Members every year in the Business Report for the General Meeting of Shareholders.

[Supplementary Provision 4.11.3 Evaluation of Effectiveness of the Board of Directors] 1. Purpose of Evaluation

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In order to enhance corporate value and meet the expectations of stakeholders, the Company evaluates the effectiveness of the Board of Directors every year with the aim to strengthen the management decision-making and supervisory functions, which are functions of the Board of Directors. In the fiscal year under review, in order to ensure the objectivity and fairness of the effectiveness evaluation and to actively incorporate external opinions, the Company engaged a third-party organization to conduct the evaluation of the effectiveness of the Board of Directors.

2. Evaluation Method

In the fiscal year under review, the Company conducted a questionnaire targeting all Directors and Audit & Supervisory Board Members to evaluate the effectiveness of the Board of Directors.

In light of the shift to the Prime Market, in the fiscal year under review the Company used an external organization to design the questionnaire and to conduct evaluations that ensured objectivity and transparency in the construction and operation of the governance system expected by the market and the involvement of the Board of Directors in issues related to sustainability.

In addition, based on the results of the analysis of the questionnaire, the Board of Directors deliberated on the effectiveness of the Board of Directors and the whereabouts of issues for the fiscal year under review.

3. Evaluation

As a result of the deliberations, it was evaluated that the Board of Directors has made innovations to the way it is run, such as appropriately allocating time for each agenda item, and that it has established an effective risk management system through the Risk Management Committee and a system for the supervision of nomination and remuneration through committees, and that it is functioning appropriately.

On the other hand, the Company recognized the necessity of enhancing officer training to deepen knowledge of the Company's businesses and to respond to and disclose sustainability issues.

Based on the recognition of these issues, the Board of Directors will strive to function more effectively.

[Supplementary Provision 4.14.2 Training for Board of Directors and Audit & Supervisory Board] Following the Basic Policy on Officer Training, the Company prepares a training plan for the management team including newly appointed officers, Directors, and Audit & Supervisory Board Members. In order for them to acquire knowledge on businesses, finance, organizations, and other fields necessary for fulfilling their roles and responsibilities as Director and/or Audit & Supervisory Board Member, the Company provides appropriate training, such as seminars led by outside experts, in a timely and appropriate manner. In FY2021, the Company conducted training for newly appointed officers and held training and seminars on compliance and governance led by outside experts.

In FY2022, the Company will continue to conduct training for newly appointed officers, and plans to conduct training and seminars on sustainability and governance. The Company encourages officers to actively participate in training and seminars on specialized fields related to the execution of business operations and on topics outside of these specialized fields.

Additionally, the Company provides all officers and employees with learning tools for self-improvement in order to improve their skills.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]

The Company's Basic Policy of Investor Relations/Shareholder Relations is as follows.

Basic Policy

The Group positions building long-term relationships of trust with its shareholders and investors as an issue of the upmost importance. We properly provide corporate information necessary for investment decisions and carry out activities that would contribute to the enhancement of corporate value through constructive dialogue, thereby strengthening the bonds of trust with the shareholders and investors.

Policy of Disclosure

1. Compliance with related laws, regulations and rules

We comply with related laws and regulations, such as the Financial Instruments and Exchange Act and the Companies

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