Sumitomo Mitsui Trust : Report Concerning Corporate Governance

CORPORATE GOVERNANCE

Last updated: December 16, 2021

Sumitomo Mitsui Trust Holdings, Inc. President Executive Officer: Toru Takakura Inquiries: 03-6256-6000 Securities Code No.: 8309 https://www.smth.jp/en/

The status of the corporate governance of Sumitomo Mitsui Trust Holdings, Inc. ("SuMi TRUST Holdings") is described below.

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

1. Fundamental Perspectives

(1) Fundamental Perspectives on Corporate Governance

SuMi TRUST Holdings has established and posted on its website a "Basic Policy on Corporate Governance," a set of corporate governance guidelines aiming to contribute to sustainable growth and medium- to long-term enhancement of the corporate value of Sumitomo Mitsui Trust Group (the "SuMi TRUST Group"). https://www.smth.jp/en/about_us/management/governance/policy.pdf

In order to adhere to the principles of sound management based on a high degree of self- discipline with the background of fiduciary spirit and establish strong credibility from society, SuMi TRUST Holdings commits itself to enhancing its corporate governance system in line with the following fundamental perspectives:

• SuMi TRUST Holdings shall respect shareholder rights, and endeavor to develop an environment in which shareholders can exercise their rights appropriately and effectively, and to secure effective equal treatment of shareholders.
• By recognizing the importance of its social responsibilities and public mission, SuMi TRUST Holdings shall endeavor to appropriately cooperate with its stakeholders such as shareholders, customers, employees, business partners, and local communities, and to establish corporate culture and climate where it conducts sound business operations based on a high degree of self-discipline.
• In order to establish the basis for constructive dialogue with its stakeholders, SuMi TRUST Holdings shall separately set out its Disclosure Policy, and endeavor to appropriately disclose corporate information, including non-financial information, and ensure the transparency of its corporate management.
• As a financial holding company with the function of managing the business administration of the SuMi TRUST Group, SuMi TRUST Holdings shall adopt the institutional design of the Company with Three Committees and, by separating execution and supervision of business, shall endeavor to ensure the Board of Directors' role of effective oversight.
• SuMi TRUST Holdings shall engage in constructive dialogue with its stakeholders in order to contribute to sustainable growth and medium- to long-term enhancement of the corporate value of SuMi TRUST Holdings.

(2) Role and Function of SuMi TRUST Holdings in the SuMi TRUST Group

In the SuMi TRUST Group, SuMi TRUST Holdings determines the management policies and business models of the entire Group and disseminates them to each Group company, while at the same time, takes responsibility for the following functions, in an effort to fulfill its role of group management that allows each company to realize the respective management plans that have been formulated in accordance with such policies.

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SuMi TRUST Holdings adjusts the business strategies of Sumitomo Mitsui Trust Bank, Limited ("SuMi TRUST Bank") and other subsidiaries and affiliated companies, which it directly owns (collectively referred to in this report as the "Directly Owned Companies"), and creates management strategies to maximize the profits of the entire SuMi TRUST Group, as well as shareholder value.

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While the Directly Owned Companies take responsibility for the operation of their own business activities, SuMi TRUST Holdings engages in activities that include (i) monitoring the Directly Owned Companies' operation of business activities in order to, among other things, ensure its consistency with the group strategies and (ii) understanding the performance of each business activity.

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SuMi TRUST Holdings allocates the SuMi TRUST Group's management resources (personnel, expenses, investment in systems, capital, etc.), and monitors the usage of management resources at the Directly Owned Companies.

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SuMi TRUST Holdings creates the basic risk management policy for the entire SuMi TRUST Group and, among other things, monitors the risk management activities of the Directly Owned Companies.

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SuMi TRUST Holdings creates the basic policy for SuMi TRUST Group's corporate ethics and compliance standards as action guidelines for officers and employees and, among other things, monitors compliance of the Directly Owned Companies.

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SuMi TRUST Holdings creates the basic policy on the internal auditing of the entire SuMi TRUST Group, and engages in activities such as understanding, among other things, the Directly Owned Companies' preparedness for internal audits and giving instructions necessary for the Directly Owned Companies.

【Reasons for not implementing each principle of the Corporate Governance Code】 (Updated)

SuMi TRUST Holdings implements every principle of the Corporate Governance Code revised in June 2021 (including principles aimed at the prime market segment that will apply on or after April 4, 2022).

【Disclosure based on each principle of the Corporate Governance Code】(Updated)

[Principle 1-4]

• In the SuMi TRUST Group's FY2021 Management Plan, a priority theme is "creating a virtuous circle from increased enterprise value leading to increase in household savings, assets and capital."
• In order to achieve this goal, the Group, recognizing its special role as a Trust Bank group that is both an investor and a provider of solutions to increase corporate value, has transitioned to a policy under which, in principle, we shall not hold any conventional
  "Strategic Shareholdings" (that is, shares of business partners held as a stable shareholder without the purpose of forming a capital or business alliance, etc.).
• In accordance with this policy, we will engage in dialogue with our business partners with the aim of increasing their corporate value and solving their issues based on the environment in which they operate and stakeholder trends, and through such dialogue, we will accelerate the reduction of our Strategic Shareholdings. As a target for immediate reduction, we aim to reduce our holdings by 100 billion yen (as measured by original acquisition cost, not current market value) over the two years from FY2021 to FY2022.
• Furthermore, during the interim period until the reduction of Strategic Shareholdings is agreed upon with our business partners, the Board of Directors shall examine and verify the correlation between the benefits/risks and capital cost of holding the Strategic Shareholdings.

In the five years from fiscal year 2016 to fiscal year 2020, the SuMi TRUST Group reduced its holdings (at cost) by a total of 142.6 billion yen. In fiscal year 2021, the SuMi TRUST Group reduced Strategic Shareholdings (at cost) by 22.3 billion yen in the six months to the end of September.

• In accordance with profitability standards, SuMi TRUST Holdings carefully observes and examines the relationship between the benefits/risks and the capital costs of Strategic Shareholdings based on the following indicators.
• • Profitability indicators
    (Profit after deduction for credit costs/expenses) ÷ (Equity risk-weighted assets + credit risk-weighted assets)
• As of the end of March 2021, approximately 20% of the book value of the Strategic Shareholdings did not meet profitability standards.
• Starting in fiscal year 2021, under the new policy, we will continue to examine and verify the correlation between the benefits/risks and capital cost of holding the Strategic Shareholdings, both overall and on a per-company basis, based on profitability standards, while at the same time engaging in dialogue with our business partners with the aim of increasing their corporate value and solving their issues, regardless of profitability. In this way, we will continue to discuss measures for reducing our holdings. Based on the status of these discussions, and after carefully examining the impact of reducing the Strategic Shareholdings on our financial targets, client base, etc., we will verify the appropriateness of our targets and actions for reducing the Strategic Shareholdings, and the Board of Directors will confirm these determinations on a regular basis.

• SuMi TRUST Holdings and SuMi TRUST Bank, which is a core subsidiary of SuMi TRUST Holdings, shall decide to vote for or against each agenda and exercise voting rights pertaining to the Strategic Shareholdings (the "Voting Rights"), after comprehensively taking into consideration the business conditions, etc. of the issuing company of the Strategic Shareholdings (the "Issuing Company"), as well as the impact

to sustainable growth and medium- to long-term enhancement of the corporate value of the Issuing Company and the SuMi TRUST Group.

• In the case that SuMi TRUST Holdings or SuMi TRUST Bank is required to pay special attention upon the exercise of Voting Rights due to a long-term downturn of business conditions, a reorganization, or an occurrence of significant compliance violations, etc. of the Issuing Company, SuMi TRUST Holdings or SuMi TRUST Bank shall decide to vote for or against each agenda, by paying attention to the agendas especially listed below, after collecting enough information through a variety of methods including engaging in dialogue with the Issuing Company.
  (Agenda regarding the distribution of surplus, appointment of directors and corporate auditors, grant of retirement benefits to corporate auditors, etc., organizational restructuring, MBOs, etc.)
• In the case that there is a risk of conflicts of interest upon the exercise of the Voting Rights, SuMi TRUST Holdings and SuMi TRUST Bank shall properly deal with the risk pursuant to the Management Policy Concerning Conflicts of Interest prescribed separately.
• Furthermore, new policy on exercising voting rights based on the recent revision in policy regarding Strategic Shareholdings/ have been published on SuMi TRUST Holding's website and are scheduled to be applied at general meetings of Shareholders held on or after June 1, 2022.

[Supplementary Principle 1-4-1]

When strategic shareholders indicate their intention to sell, etc. their shares, SuMi TRUST Holdings shall not hinder their selling by, for instance, implying a possible reduction of business transactions.

[Principle 1-7]

SuMi TRUST Holdings sets out in Article 13 (Management System of Related Party Transactions) of the "Basic Policy on Corporate Governance" that when the SuMi TRUST Group engages in transactions with its officers or major shareholders, etc., the transactions shall be referred to the Board of Directors for prior approval, in order to ensure that such transactions do not harm, among other interests, the interests of the SuMi TRUST Group or the common interests of its shareholders, except where the trading terms are obviously equivalent to those of general transactions. In addition, SuMi TRUST Holdings separately prescribes, and discloses an outline of, the Management Policy Concerning Conflicts of Interest pursuant to laws, etc. in order to ensure that the interests of its customers are not unfairly harmed, and appropriately manages transactions that may give rise to a conflict of interest pursuant to this policy.

[Supplementary Principle 2-2-1]

SuMi TRUST Holdings conducts an awareness survey and compliance survey on the SuMi TRUST Group's employees each year. The questions cover employees' satisfaction, sense of burden, corporate outlook, recognition of the current state of their jobs, superiors, workplaces and company and other matters. The results of the survey are compiled and reported to the Board of Directors, which shares information about the state of compliance with conduct standards, SuMi TRUST Holdings' corporate culture and others.

[Principle 2-3] [Supplementary Principle 2-3-1]

In order to appropriately address issues surrounding sustainability as management themes, the SuMi TRUST Group has identified priority issues (materiality) based on opinions of external directors and corporate auditors, as well as external experts. The SuMi TRUST Group will strengthen its countermeasures toward these issues at the practical level. In addition, the SuMi TRUST Group will position these issues as management issues to be addressed in creating values that are shared with society, and multilaterally discuss themes of high priority at the Board of Directors level with the aim of supporting long-term enhancement of corporate value.

In order to achieve the goal of "Balanced creation of both social value and economic value" at the very core of our management philosophy in our Medium-Term Management Plan starting in fiscal year 2020, during this fiscal year, the SuMi TRUST Group will continue to improve the sophistication of its management methods, for example by setting KPIs for materiality items.

With regard to climate change in particular, the TCFD Project Team, established in October 2019, is working to strengthen risk management and information disclosure related to climate change, and deliberations are regularly held by the Risk Committee, an advisory body, and the Board of Directors.

[Supplementary Principle 2-4-1]

1. Approach to Ensuring Diversity, Human Resources Development Policy, and Internal Environment Improvement Policy
   The SuMi TRUST Group has formulated a Basic Policy for Personnel Affairs Management, the goal of which is to provide a workplace in which individuals' diversity and creativity are fully utilized as value-added to the organization and they can have dreams and pride and feel motivation when working, to form a workforce capable of successfully providing comprehensive solutions by making full use of their advanced expertise and comprehensive capabilities and to promote their activities.
   In addition, in April 2018, we established the SuMi Trust Group Human Resources Development Policy to improve the working environment and bolster human resources. For specific details on the Policy and our efforts to implement it, please refer to SuMi
   TRUST Holdings' website and Integrated Report and to "Others" in "3. Measures for Respecting the Position of Stakeholders" in Part III of this report.
   Basic Policy for Personnel Affairs Management: https://www.smth.jp/sustainability/strategy_approach/human-resourcesHuman Resources Development Policy: https://www.smth.jp/sustainability/strategy_approach/human-resources/various-population-1
   Integrated Report: https://www.smth.jp/investors/report/disclosure/2020
2. Status of Ensuring Diversity
3. • With respect to the appointment of female managers, guided by its general business owner action plan based on Japan's Act of Promotion of Women's Participation and Advancement in the Workplace ("action plan"), with the goal of increasing the number of women in decision-making positions, our core subsidiary SuMi TRUST Bank set a target of more than 12% female employees serving at a rank of section manager or higher by the end of March 2023. This target was achieved ahead of schedule in July 2021 when the percentage reached 12.2%.
     Furthermore, a new KPI was set that calls for more than 20% women at the rank of section manager or higher and more than 30% in charge of management operations