Showa Denko KK : (Delayed) CORPORATE GOVERNANCE REPORT

Corporate Governance

Last Updated: December 27, 2021

SHOWA DENKO K.K.

Kohei Morikawa, President and Chief Executive Officer Contact: 03-5470-3111 (General Affairs Office, CSR & General Affairs Department)

Securities Code: 4004 http://www.sdk.co.jp/

The corporate governance of SHOWA DENKO K.K. (the "Company") is described below.

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

1. Basic Views

The Company shall enhance its corporate governance in order to realize "a company contributing to the sound growth of society," which ensures soundness, effectiveness and transparency of management, and continuously enhances its corporate value, thereby earning social trust and esteem. In addition, proper relationships with our shareholders, customers, business partners, community residents, employees, and other stakeholders must also be maintained as well as developed further in order to earn social trust and esteem through continuous enhancement of our corporate value. Based on the above, we have clarified our mission in the form of the Group vision stated below. We shall conduct our business with the aim of realizing this vision.

Vision of the Showa Denko Group

We at the Showa Denko Group will provide products and services that are useful and safe and exceed our customers' expectations, thereby enhancing the value of the Group, giving satisfaction to our shareholders, and contributing to the sound growth of international society as a responsible corporate citizen.

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

It is described based on the code revised in June 2021.

(Includes principles for the prime market applicable after April 4, 2022.)

(Principles 4-8 (1) and (2): Meetings consisting solely of Independent Outside Officers and election of the lead Independent Outside Officer)

The Company has appointed four Outside Directors and three Outside Audit & Supervisory Board Members to increase the effectiveness of oversight from an independent and objective standpoint. At every Board of Directors' meeting, each Outside Officer has actively participated in unfettered and constructive discussions about management and other issues. On the date of the Board of Directors' meeting, the Company has provided an opportunity for Chairperson, President and Outside Officers to exchange opinion; and also has held semiannual sessions for all Officers to exchange opinions, so that they are able to fully share information. For these reasons, the Company has neither provided the meetings consisting solely of Outside Officers, nor appointed Lead Outside Director among them. However, the Company shall arrange meetings solely of Outside Officers at their request.

[Disclosure Based on the Principles of Japan's Corporate Governance Code]

It is described based on the code revised in June 2021.

(Includes principles for the prime market applicable after April 4, 2022.)

(Principle 1-4:Cross-Shareholdings)

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(1) Policy on Reduction of Cross-Shareholdings

The Company has decided that it shall not cross-hold shares with other companies in principle. With regard to existing cross-shareholdings, the Company shall reduce the amount of them.

(2) Review on the Appropriateness of Cross-Shareholdings

Every year, the Board of Directors of the Company shall review and judge the suitability of each cross- shareholdings through cost-benefit analysis of capital and other measures based on the results of the evaluation of profitability and feasibility of the relevant cross-shareholdings.

(3) Voting Right Exercise Standard

When the Company exercises its voting rights of cross-shareholdings, the company shall decide approval or disapproval of each item on the agenda by examining whether the item contributes to increasing corporate value and maintaining/increasing shareholders' returns or not.

(Principle 1-7: Transactions among Related Parties)

The Company gains approval from the Board of Directors in accordance with laws and regulations as well as its Rules of Board of Directors for competitive transactions and conflict of interest transactions between the Company and its Directors or Corporate Officers. In addition, the Company reports the results of the said transactions to the Board of Directors.

(Principle 2-4 (1): Policies and Targets for Ensuring Diversity)

The Company has defined its policy on human resource management as follows:

"The leading creators of value in all activities of the Showa Denko Group are employees of the Group. The Group has defined its Purpose as to 'Change society through the power of chemistry,' and aims to become a corporate group that choose and is chosen by talented persons who can compete on the world stage and contribute to a sustainable global society."

Under this human resource management policy, the Company promotes human resource development and the principle of Diversity and Inclusion. The Company discloses the situation of implementation of this policy and the Company's target for increasing the number of female employees in managerial positions via the "Showa Denko Report," which is published every year.

URL for the Showa Denko Report: https://www.sdk.co.jp/english/csr/report/csr_report.html

(Principle 2-6: Roles as Asset Owners of Corporate Pension Plan)

To securely and effectively manage funds for its defined benefit pension plan, the Company has organized the Pension Management Committee consisting of experts from each of Human Resources, Finance & Accounting, and Strategy Planning Divisions. The Committee deliberates on the formulation and review of basic investment policies for the pension funds and a policy asset mix. In addition, we have established a structure that allows us to cooperate with an investment-consulting firm in deliberating basic investment policies so that we can ensure sustainable and proper pension funds management.

(Principle 3-1: Full Disclosure)

(1) For company goals (Vision, etc.), management strategies and business plans.

Please refer to the Group's vision, management strategies and mid-term business plan on its website. (URL: http://www.sdk.co.jp/about.html)

(2) Basic views and basic policies on corporate governance

Details of basic views are described in "1.1 Basic Views" in this report. Concerning basic policies, "Corporate Governance Basic Policies" is posted on the Company's website.

(URL: http://www.sdk.co.jp/about/governance.html)

1. The Board of Directors' policies and procedures in determining the compensation of the senior management and Directors
   Remuneration of Executive Directors and Corporate Officers shall consist of base remuneration, short-termperformance-linked remuneration, and mid- to long-termperformance-linked remuneration. In addition to the amount of base remuneration which is determined based on titles and other factors, the amount of performance-linked remuneration shall be determined in consideration of corporate and individual performance and other factors based on the performance evaluation system. In determining remuneration, the Remuneration Advisory Committee, an advisory body to the Board of Directors where Independent Outside Directors and Outside Audit & Supervisory Board Members account for the majority of its members, shall deliberate matters related to the remuneration and report the results of its deliberation to the Board of Directors.

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1. Board of directors policies and procedures in the appointment/dismissal of the senior management and the nomination of candidates for Directors and Audit & Supervisory Board Members
   Candidates for Directors shall be persons who have the knowledge, experiences and capabilities required to fulfill their duties as Directors. The Company selects senior management members by taking into account corporate and individual performance and other factors. Candidates for Audit & Supervisory Board Members shall have the knowledge, expertise and capabilities required to fulfill their duties, including those with strong expertise in finance and accounting. In electing and nominating Audit & Supervisory Board Members, the Nomination Advisory Committee, an advisory body to the Board of Directors where Independent Outside Directors account for the majority of its members, shall deliberate matters related to nomination and report the results of its deliberation to the Board of Directors. If there is a fact concerning the senior management, including CEO, that may meet the Dismissal Standards given below, the Nomination Advisory Committee shall deliberate the applicability of the Dismissal Standards, and report the result of deliberation to the Board of Directors. Then the Board of Directors shall make a final decision on dismissal of the relevant Director.

(Criteria for selecting candidates for Directors and Audit & Supervisory Board Members) 1. Directors

a) Inside Director

• A candidate must have high principles, wide-ranging insight, strict ethical view, fair judgement, and executive power, which are essential characteristics for carrying out Director's duties.
• A candidate must have enough knowledge and experience concerning businesses of the Group, which are essential for realizing management vision of the Group.
• A candidate must be well-educated, and maintain strong willpower, physical and mental health enough to fulfill Director's obligations.

1. Outside Director

• A candidate must have high principles and objective judgment enough to give pertinent advice on the management of the Group.
• A candidate must be a talented one who satisfies the above-mentioned condition and has expertise in the field the candidate is engaged, such as a corporate executive, an expert on laws or accounting, and a person who once served at public agencies.

2. Audit & Supervisory Board Members

1. Inside Audit & Supervisory Board Member

• A candidate must have knowledge and experience rich enough to appropriately and fairly audit the Company's Directors' performance of their duties.
• A candidate must have high principles, wide-ranging insight, strict ethical view, and fair judgement.

1. Outside Audit & Supervisory Board Member

• A candidate must have knowledge and experience rich enough to fairly and objectively judge audit of the Company's Directors' performance of their duties.
• A candidate must be a talented one who satisfies the above-mentioned condition and has expertise in the field the candidate is engaged, such as a corporate executive, an expert on laws or accounting, and a person who once served at public agencies.

(Dismissal Standards of the senior management)

1. If a Director greatly damages corporate value of the Company due to negligence of the Director's duties.
2. If it is revealed that a Director does not meet the criteria for nomination of candidates for Directors
3. If a Director cannot continue to perform the Director's duties for reasons of health.

1. Explanations about respective elections or dismissals of senior management members and nominations of candidates for Directors and Audit & Supervisory Board Members
   The Company gives explanations on its nomination of Directors and Audit & Supervisory Board Members, including reasons for their election in reference documents for the General Meeting of Shareholders. In addition, the Company appropriately discloses reasons for dismissals.

(Principle 3-1 (3): Grappling with Sustainability)

The Company and Showa Denko Materials Co., Ltd. have defined the newly integrated company's long- term vision concerning sustainability as a "Company that contributes to a sustainable global society." To

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realize this long-term vision on sustainability and make it possible for society and the Company to grow continuously, the Company has formulated its long-term management strategy including human-resource strategy and intellectual property strategy. The Company discloses this long-term management strategy, its business activities to solve various issues, and its effort to support sustainable development of society and the Company via the "Showa Denko Report" and the Company's website.

URL for the Showa Denko Report: https://www.sdk.co.jp/english/csr/report/csr_report.html

URL for the Company's intellectual property strategy: https://www.sdk.co.jp/english/rd/ip.html

In addition, the Company has endorsed principles of TCFD (Task Force on Climate-related Financial Disclosures). The Company shall evaluate risks and opportunities to be brought to the Showa Denko Group by climate change, strengthen resilience of the Group through analysis of climate-change scenarios, and promote sound dialogue with stakeholders.

(Principle 4-1 (1): Range of Scope of Delegation)

The Company has defined the scope of delegation of authority to the management by setting rules for matters to be resolved by Board of Directors and matters to be reported to the Board of Directors in the "Rules of Board of Directors."

(Principle 4-9: Independence Standards and Qualification for Independent Outside Directors)

The Board of Directors shall establish independence standards and qualifications for our Independent Outside Directors in accordance with the Independence Standards as defined by laws and regulations and Tokyo Stock Exchange, and nominates the candidates who meet these independence standards and qualifications. For the independence standards, please refer to "Attachment to the Corporate Governance Basic Policies."

(Principle 4-10 (1): Appropriate Involvement of Independent Outside Directors in the Process to Investigate Nomination of Executives and Remuneration to Them)

The Company has established Consultative Committee for Nomination of Directors and Audit & Supervisory Board Members and Consultative Committee for Remuneration to Directors and Corporate Officers. Each Committee consists of three members or more including Independent Outside Directors. Members of the two committees are selected from Directors and Audit & Supervisory Board Members. Presently, Consultative Committee for Nomination of Directors and Audit & Supervisory Board Members consists of six members including four Independent Outside Directors, deliberates nomination and dismissal of Directors and Audit & Supervisory Board Members, selection of key executives, plan for selection and training of candidates to succeed the presidency and other key positions, etc., and reports results of the deliberation to the Board of Directors. Consultative Committee for Remuneration to Directors and Corporate Officers consists of five members including two Independent Outside Directors and one Independent Outside Audit & Supervisory Board Member, deliberates policy on and amount of remuneration to be paid to each Director and Corporate Officer, etc., and reports result of the deliberation to the Board of Directors. Independent Outside Directors chair both Consultative Committees.

(Principle 4-11 (1): View on Total balance of knowledge, experience, skills and diversity, size of the Board of Directors)

The Board of Directors is composed of persons with knowledge, experiences and skills required to fulfill duties as Directors; the size of the Board of Directors shall be designed to ensure prompt decision-making and appropriate oversight of business execution. For more appropriate business execution and higher effectiveness of oversight, we shall elect at least two Independent Outside Directors with a wealth of experience and extensive knowledge, who are corporate executives, academic experts, etc. The Company shall disclose its policy on and procedures for nomination of Directors via the Corporate Governance Report, the Company's website, etc. The Company shall also identify skills which are required of Directors in order to make the Board of Directors have a combination of Directors which enable the Board of Directors to perform effective corporate governance, and disclose combination of skills of each Director, as attached at the end of this Report.

(Principle 4-11 (2): Directors and Audit & Supervisory Board Members also serving as officers at other listed companies)

The Company discloses facts about its Directors and Audit & Supervisory Board Members concurrently

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serving as Directors or Audit & Supervisory Board Members at other listed companies in its annual business reports.

(Principle 4-11 (3): Results of evaluation on overall effectiveness of the Board of Directors)

1. Method of Evaluation

In December 2020, the Company surveyed respective Directors and Audit & Supervisory Board Members through questionnaires and free descriptions to evaluate effectiveness of the Board of Directors in fiscal 2020. Furthermore, in January 2021, the Company conducted individual interviews with four Outside Directors for the same purpose. Based on the collected results, all Directors and Audit & Supervisory Board Members discussed the topic in the Board of Directors' meeting held in March 2021, evaluated effectiveness of the Board of Directors in fiscal 2020, and formulated an execution plan for fiscal 2021. Note that we have outsourced the questionnaire and interview survey and aggregation of the results to an outside institution in order to ensure its objectivity and enhance future effectiveness of the Board of Directors.

2. Evaluation Results

The evaluation results have revealed that in the Board of Directors' meetings, highly effective board members who have broad perspective and set of values reflecting a variety of experiences and expertise are engaged in discussions which help increase the corporate value; and that handouts and explanations about agenda are provided beforehand to encourage the members to have vigorous and constructive discussions and allow the members to have enough time for discussions. With regard to the execution plan for 2020, which was made based on the results of evaluation of overall effectiveness of the Board of Directors for 2019, members of the Board of Directors and Audit & Supervisory Board have confirmed facts and issues as follows.

1. Regarding business integration between Showa Denko and former Hitachi Chemical Company (current Showa Denko Materials), concept of the "Long-term Vision for Newly Integrated Company" has been discussed sufficiently at the Board of Directors' meetings and the meetings to exchange views among all Directors and Corporate Officers. However, "optimization of business portfolio" still requires further discussion at these meetings.
2. Taking into account the substantial increase in the number of group companies and the progress in globalization of business activities of the Showa Denko Group, the Board of Directors will continue discussing how the governance and compliance system of the Group should be.
3. The number of bills referred to the Board of Directors' meetings is expected to increase considerably due to the business integration with Showa Denko Materials. Therefore, the Board of Directors should revise the internal rules and regulations about referring bills to the Board of Directors' meetings in order

to secure enough time to discuss business strategy even under such a new circumstances.

In the execution plan for 2021, the Board of Directors decided to have thorough discussion about management strategy, governance system and Group management at the Board of Directors' meetings and the meetings to exchange views among all Directors and Corporate Officers (twice a year), as stated in 1) and 2) above. The Board of Directors also decided to continue taking measures to improve efficiency of the conduct of proceedings of the Board of Directors' meetings, even under the pandemic of COVID-19.

(Principle 4-14 (2): Training policy for Directors and Audit & Supervisory Board Members)

In addition to offering training to new Directors and Audit & Supervisory Board Members, the Company shall provide Directors and Audit & Supervisory Board Members with opportunities for internal and external training and bear the necessary expenses so that they may regularly update their knowledge about management strategies, revision of laws and regulations, corporate governance, and other matters.

(Principle 5-1: Policy for Constructive Dialogue with Shareholders)

The Company regards investor relations (IR) activities as activities to enable shareholders and investors to understand the Company's corporate management, activities, and strategies and to evaluate the Company's corporate value appropriately. Therefore, the Company shall

1. actively hold dialog with shareholders and investors and increase the transparency of management, and
2. disclose the Company's corporate information in an easy-to-understand, fair, timely, and accurate manner in order to increase understanding and trust towards the Company.

In addition to IR activities for institutional investors both in Japan and abroad by CEO and CFO, the Company shall hold presentations for individual investors in Japan. In addition, the Company shall set up the IR Promotion Council chaired by CFO with members from Corporate Strategy, CSR & General Affairs,

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