Sumitomo : Corporate Governance Report

(Translation)

Corporate Governance Report

Last Update: January 4, 2022 Sumitomo Corporation President and Chief Executive Officer Masayuki HYODO

Inquiries: Takao NAGAZAWA General Manager, Corporate Legal & General Affairs Department [phone] Securities Code: 8053

https://www.sumitomocorp.com/en/jp

The corporate governance of Sumitomo Corporation (the "Company" or "Sumitomo Corporation") is described below.

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

1. Basic Views

The Company recognizes that the aims of corporate governance are improving management efficiency and maintaining sound management, while ensuring management transparency is important in order to secure these aims. Accordingly, the Company is endeavoring to establish corporate governance that will result in management serving the interests of shareholders and all other stakeholders. The Company has already taken steps to strengthen and enhance its corporate governance by such means as reinforcing its audit & supervisory board member system and improving the way it functions, optimizing the size of the Board of Directors, limiting the terms of office of the Chairman and the President and Chief Executive Officer, and introducing an executive officer system. Additionally, for the purpose of ensuring appropriate decision-making by the Board of Directors from a variety of perspectives and further strengthening the supervisory function, the Company appoints multiple Outside Directors, and is working to strengthen the supervisory and monitoring function of management by independent Outside Directors and Outside Audit & Supervisory Board Members. In addition, the Company has established the Nomination and Remuneration Advisory Committee (chaired by an outside director), which is an advisory body to the Board of Directors and is composed of a majority of outside directors, to enhance the independence, objectivity and transparency of the functions of the Board of Directors in relation to the nomination and remuneration of senior management. By these means, the Company believes that it will be able to further achieve the aforementioned corporate governance objectives. The Company has summarized its basic views and policy with regard to corporate governance as the Sumitomo Corporation Corporate Governance Principles, which it has made public on its website.

(https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/principle.pdf?la=en)

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

The Company complies all Principles of the Corporate Governance Code.

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

[Principle 1-3]

The Company, guided by its basic management policy of aiming to continue to enhance corporate value in a sustainable way, has a capital policy based on retaining an adequate level of shareholders' equity with a view

- 1 -

to reinforcement of its financial soundness and effectiveness of its capital. In particular, the Company is working to achieve: (i) the goal of keeping risk-adjusted assets, which represent the maximum possible losses, within the scope of shareholders' equity, which is the core risk buffer and (ii) the targets for the capital efficiency indicators (such as ROE) given under the medium-term management plan.

The Company keeps interest-bearing debt at an appropriate level by paying attention to the balance between cash generated as a result of business activities and asset reduction, and cash necessary for returns to shareholders and loans and investments, etc. for the pursuit of growth strategies.

The Company's basic policy in relation to shareholder returns is to provide shareholders with stable dividends over the long term. We also aim to raise per-share dividend payments by pursuing the growth of profit in the medium to long term.

[Principle 1-4]

As a general rule, the Company will neither acquire nor hold shares in other listed companies for purposes other than pure investment.

However, the Company may decide to hold shares in listed companies in some exceptional cases when the Company determines that it is appropriate. For such determination, the Company will comprehensively assess and verify the capital cost of individual stocks and the economic rationality and significance of holding the stocks in light of the necessity of partnering or other business needs. Each year, the Board of Directors reviews whether or not the Company's holding of listed shares is appropriate.

If such annual review concludes that specific shareholdings are of little significance, the Company will push ahead with the sale of the shares.

In FY 2020, the Company sold shares of 37 listed stocks (either in whole or in part), amounting to 49.5 billion yen in total. As of the end of March 2021, the Company's shareholdings in listed companies cover 84 stocks, with the total balance of 244.8 billion yen.

When exercising voting rights, the Company examines various aspects through both quantitative and qualitative approaches in accordance with its own guidelines. Such examination focuses on whether each proposal presented to shareholders will lead to the enhancement of shareholder value and medium- to long- term corporate value of both the Company and the investee company. In this way, the Company tries to make adequate decisions as to whether to vote in favor of or against each proposal based on comprehensive judgments.

If an entity holding shares in the Company for purposes other than pure investment indicates its intention to sell the shares, the Company will, in principle, respect such intention, and the business relationship between the entity and the Company will not be affected.

[Principle 1-7]

It is stipulated in laws and regulations and in the Company's internal rules entitled Matters Related to the Administration of Board of Directors that the approval of the Board of Directors must be obtained to conduct business transactions between the Company and its Directors that are competitive or involve conflicts of interest, and if such transactions are executed, key facts regarding the transactions must be reported to the Board of Directors.

[Supplementary Principle 2-4-1]

• The Company implements various measures to ensure diversity in the assignment of core human resources, such as middle managerial positions. The Company's stance for the assignment and appointment of female employees, mid-career hires and foreign personnel to managerial positions, its voluntary and measurable goals and the progress of activities toward such goals are explained in this corporate governance report under the following three headings (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Other >> Stance to ensure diversity in personnel in managerial positions, voluntary and measurable goals, and the progress toward such goals):
• • Appointment of female employees
  • Appointment of mid-career hires
  • Appointment of foreign personnel
• Regarding other issues related to the diversity of personnel, please refer to the explanations under the heading "Policies on human resources development to ensure diversity and policies on the improvement of
• • 2 -

diversity-oriented working environments, and the progress of implementing these policies" in this corporate governance report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Other).

[Principle 2-6]

The Company has adopted a defined benefit corporate pension plan (contract type).

It also deploys personnel with financial market and investment experience as investment managers and manages the investment operations of pension assets. When selecting an external asset manager, the Company sufficiently checks investment management track records and management structures including governance while periodically monitoring the conditions of them even after the commencement of investment management operations.

Furthermore, the Pension Management Committee, which is chaired by the Chief Administration Officer and comprised of managers in charge of human resources, finance and accounting organizations, verifies investment results and the financial position of pension assets, reports them to the Management Council and also discloses them to the pension holders.

[Principle 3-1]

1. Company objectives (e.g., business principles), business strategies, and management plan ・Business Principles

Refer to the Sumitomo Corporation Group Management Principles and Activity Guidelines-as well as Sumitomo's Business Philosophy, on which they are based-which the Company makes public on its website (https://www.sumitomocorp.com/en/jp/about/policy/principles).

・Medium-Term Management Plan

Additionally, refer to the medium-term management plan, which the Company also makes public on its website (https://www.sumitomocorp.com/en/jp/about/policy/mid-term).

1. Refer to the Sumitomo Corporation Corporate Governance Principles, which summarize the Company's basic views and policy with regard to corporate governance, and are made public on the Company's website. (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/principle.pdf?la=en)
2. Refer to the policies and procedures of the Board of Directors for determining the remuneration of Directors and Executive Officers, which are disclosed in the Company's annual securities report (yukashoken houkokusho), and in this corporate governance report in the section entitled "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" under "1. Organizational Composition and Operation [Director Remuneration]" and "2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Remuneration Decision- making Function]."
3. Refer to the Company's policies and procedures regarding appointment and dismissal of Directors and Audit & Supervisory Board Members, which are disclosed in this corporate governance report in the section entitled "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" under "2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Nomination Function, etc.]."
4. Refer to the reasons for nominating candidates for the posts of Outside Director and Outside Audit & Supervisory Board Member, which are disclosed in the reference documents within the Notice of Convocation of the Ordinary General Meeting of Shareholders, and in this corporate governance report in the section entitled "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" under "1. Organizational Composition and Operation [Directors] and [Audit & Supervisory Board Members]." Refer also to the reasons for nominating candidates for the posts of internal Director and internal Audit & Supervisory Board Member, which are disclosed in the reference documents within the Notice of Convocation of the Ordinary General Meeting of Shareholders.
   Refer to the Company's policies and procedures regarding the selection and dismissal of Executive Officers, which are disclosed in this corporate governance report in the section entitled "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" under "2. Matters on Functions of Business Execution, Auditing, Oversight,
5. • 3 -

Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Nomination Function, etc.]."

[Supplementary Principle 3-1-3]

• The Company's efforts towards sustainability are explained in "Sustainability initiatives" in this report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Implementation of Environmental Activities, CSR Activities etc.). In addition, please refer to the explanations under the heading "Disclosure under the TCFD and IBC framework" in this report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Implementation of Environmental Activities, CSR Activities etc.).
• The Company's investment in human capital development is explained in "Investment in human capital development" in this report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Other).
• Company's investment in intellectual property enhancement
  The Company's investment in business development, which extends over a variety of business fields, focuses on additional value to be created by such means as business model transformation driven by innovative technologies or the offering of new product designs. In addition, the Company is underpinned not only by the competitive superiority brought about by technological innovation and creative designs or content, but also by its management base which comprises the Company's diverse human resources, multifaceted business expertise accumulated so far, the Company's global network, trust relationships with clients and business partners, the Company's brand value in the markets, and all other wealth of capital (intangible assets). The Company's strategy is to integrate or combine this management base and the diverse business functions of the business group, aiming to create new businesses and further boost business growth.
  In this context, the Company holds the corporate vision of "aiming to be a global organization that constantly stays a step ahead in dealing with change, creates new value, and contributes broadly to society." Under this vision, we are always exploring new business models, know-how and technologies and planting the seeds for future business development. We believe that in most of those new business models, our existing and future intellectual property and intangible assets can contribute toward upholding and strengthening our high profitability, differentiation from competitors' products or services, and pricing power in the markets, which are expected to eventually bring about greater competitiveness and higher profit margins in the future. Efforts to leverage intellectual property and intangible assets to create new businesses are being deployed by respective organizations in the business group.
  Furthermore, under the ongoing medium-term management plan, "SHIFT 2023," the following six fields are identified as next-generation growth themes, in which our management resources are to be intensively invested.

∙ Digital transformation (DX):	Business reform	and	new business development utilizing	digital
solutions and Technology x Innovation
∙ Energy innovation:	Developing carbon-free energy, expanding power and energy services, and CO2
capture, storage and utilization
∙ Social infrastructure:	Infrastructure development	in	developing countries, development of	social
infrastructure with new functions

• Retail/consumer: Provision of value and services essential for local communities through the utilization of data from various retail businesses

∙ Healthcare:

Creation of new businesses in the medical, health, prevention and nursing care fields

• Agriculture: Expansion of services for the agricultural sector through the utilization of digital technology
  With a focus on the value obtained from intellectual property and intangible assets in the manner described above, our business investment, reinforcement and development will continue based on meticulous analyses on how such property and assets can lead to competitiveness, differentiation and earning power.

[Supplementary Principle 4-1-1]

The functions of the Board of Directors are to supervise business execution and to make decisions relating to important management matters including basic management policies such as business plans. The Board also makes decisions on important aspects of business execution required by laws and regulations and the Company's Articles of Incorporation to be decided by the Board of Directors. Standards for such decision-

- 4 -

making are stipulated in the Company's internal rules, Matters Related to the Administration of Board of Directors.

Decision-making and execution regarding matters not required by the foregoing internal rules to be decided by the Board of Directors are delegated to the Management Council, the decision-making body at the operational execution level, and to the Executive Officers. Moreover, the foregoing internal rules specify that decisions and progress with execution relating to matters delegated to the Management Council and the Executive Officers should be reported to the Board of Directors. The Board of Directors uses such reports and related information as a means to supervise decision-making and business execution by the Management Council and the Executive Officers.

[Principle 4-8]

Of the eleven Directors, five are Outside Directors, and they meet the standards set by the Company for independence of Outside Directors, as well as the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments exchanges that the Company is listed on.

[Principle 4-9]

For details of standards related to the independence of Outside Directors and Outside Audit & Supervisory Board Members from the Company, refer to the Standards for Appointment and Independence of Outside Directors and Outside Audit & Supervisory Board Members, which the Company has set down and made public on its website.

(https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/outdirec_independ.pdf?la=en）

[Supplementary Principle 4-10-1]

The Nomination and Remuneration Advisory Committee serves as an advisory board to the Board of Directors. A majority of committee members shall be Outside Directors, with one of them acting as the committee chairperson. This scheme helps to enhance the independence, objectivity and transparency of the Board of Directors' function for executive nomination and remuneration.

The Company's view on the composition and independence of the Nomination and Remuneration Advisory Committee, the scope of authority and roles assigned to the committee and other related information are disclosed in the following section in this report (II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management >>

1. Organizational Composition and Operation >> Committee's Name, Composition, and Attributes of Chairperson >> Supplementary Explanation).

[Supplementary Principle 4-11-1]

• For details of the appropriate balance between knowledge, experience, and skills of the Board of Directors as a whole, and the Company's view with regard to the diversity and appropriate size of the Board of Directors, refer to the Sumitomo Corporation Corporate Governance Principles, which are made public on the Company's website.
  (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/principle.pdf?la=en)
• Refer to the Company's policies and procedures regarding appointment of Directors, which are disclosed in this corporate governance report in the section entitled "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management" under "2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Nomination Function, etc.]."
• Refer to the skill matrix posted in the end of this corporate governance report, which indicates the types of knowledge, experience and competencies, etc. (collectively, "Skills") that the Board of Directors is required to possess for fulfilling its roles, and which Directors or Audit & Supervisory Board Members currently in office possess such Skills.

[Supplementary Principle 4-11-2]

The Company discloses significant positions concurrently held by Directors, Audit & Supervisory Board Members, and candidates for those posts on an annual basis in disclosure documents such as the reference documents within the Notice of Convocation of the Ordinary General Meeting of Shareholders, the business report, and the Company's annual securities report.

- 5 -