West Japan Railway : Corporate Governance Report

Corporate Governance	West Japan Railway Company

Last Updated: December 27, 2021 West Japan Railway Company Kazuaki Hasegawa

President and Representative Director

Contact: Stock and Organization Operation Group, Corporate Governance Headquarters

Securities Code: 9021 https://www.westjr.co.jp

The corporate governance of West Japan Railway Company (the "Company") is described below.

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

1. Basic views

Based on its "Corporate Philosophy" and "Safety Charter," the Company will make steady efforts to establish "corporate culture that places top priority on safety" to fulfill corporate social responsibility and to achieve sustainable growth for the future.

In order to realize these objectives, the Company will execute business operations from a medium- to long-term perspective in keeping with the intent of the "Corporate Governance Code" and the characteristics of its businesses centered on the railway business, and it will strive to establish long-term trusting relationship with each of stakeholders including shareholders. Furthermore, from the perspective of improving transparency, soundness and efficiency of business operations, the Company, aiming for the enhancement of corporate governance, will make efforts to improve the systems to ensure the following: establishment of corporate ethics, strengthening of functions to monitor and supervise corporate management, and prompt execution of operations.

[Reasons for non-compliance with the principles of the Corporate Governance Code]

Principle 1.4

1. Policy for acquiring and holding listed stocks

To achieve sustainable growth of the business aiming at an increase in the corporate value of West Japan Railway Group (the "Group") over the medium- to long-term, the Company believes that it is important to strive for the maintenance and strengthening of relationships with clients or suppliers which may contribute to such growth. Therefore, the Company acquires and holds shares of the relevant client and supplier companies, comprehensively taking into account matters including a synergetic effect on the businesses of the Group.

With regard to holding such shares, the Company examines whether such holding may contribute to the increase of corporate value from the perspectives of medium- to long-term economic rationale and relationships between the client or supplier and the businesses of the Group, and it confirms with the Board of Directors concerning the objective and rationality of holding such shares.

2. Criteria for exercise of voting rights

The Company exercises voting rights based on judgments from such perspectives as contributions to the businesses of the Group through the investees' sustainable growth and such.

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3. Disclosure of details of examination of whether or not the holding is appropriate and specific criteria for exercise of voting rights

The Company comprehensively judges whether or not the holding is appropriate, by individual issues based on the above policy. At its meeting of the Board of Directors held in June 2021, the Company confirmed the rationality of holding its shares held as of March 31, 2021, upon having examined individual holdings with respect to factors such as operating results, returns associated with the holdings, synergetic effects, and risk, from the perspectives of medium- to long-term economic rationale and relationships between the client or supplier and the businesses of the Group.

Moreover, for preparation and disclosure of the criteria for exercise of voting rights, the Company also considers that the above criteria are adequate.

The proportion of listed stocks held by the Company to assets is insignificant. 4. Response to the holding of the Company's shares

In the event that a company, etc. that holds the Company's shares for the purpose of cross-shareholding indicates intention to sell those shares, the Company will not carry out any actions to hinder this sale, such as by implying a reduction of business transactions, etc.

[Disclosure based on the principles of the Corporate Governance Code] [Updated]

Principle 1.7

To ensure that transactions with related parties do not harm the interests of the Company and the common interests of shareholders and to prevent any concerns with regard to such harm, the Company complies with the procedures prescribed in the Companies Act of Japan with regard to the competitive transactions and conflicting interest transactions (self-dealing and indirect transactions) between the Company and its Directors.

With regard to the transactions between the Company and its major shareholders, the Company has established the criteria for matters to be referred to the Board of Directors, and transactions falling under such category will require approval by the Board of Directors.

The Company will ensure a description of how the relevant approved transaction was conducted is reported to the Board of Directors, and that the content of this report is checked by the Board of Directors, thereby ensuring appropriate handling of the relevant transaction so that the interests of the Company and the common interests of shareholders may not be harmed.

Supplementary principle 2.4.1

Please refer to "III.3. Measures to ensure due respect for stakeholders" of this report.

Principle 2.6

The Company has not introduced a corporate pension fund plan, etc. or corresponding plan.

Principle 3.1

1. The Company discloses and releases the Corporate Philosophy, Safety Charter and the Medium-Term Management Plan on its website, etc.

Corporate Philosophy, Safety Charter and Medium-Term Management Plan

URL: https://www.westjr.co.jp/global/en/about-us/

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1. Basic policy for Corporate Governance is as per "I.1. Basic views" above.
2. Remuneration for Directors and Audit & Supervisory Board Members is as described in the accompanying "Disclosure of policy for determining remuneration amounts or calculation methods thereof."
3. As for the policy for nomination of Directors and Audit & Supervisory Board Members, the Company nominates those officers based on the selection criteria concerning high ethical standards, respect from others, dignity and managerial capability in accordance with the following procedures.

In the formulation of the policy for nomination and actual cases of nomination based on that policy, the Company ensures objectivity, fairness and trustworthiness of nomination by making the relevant matters subject to deliberation by the Personnel and Remuneration Advisory Committee prior to the resolution of the Board of Directors.

1. The Company appoints and dismisses Representative Directors based on laws, regulations and the Regulations of the Board of Directors, and the President and Representative Director proposes candidates for Representative Directors from among Directors, with such matters resolved by the Board of Directors.
2. The President and Representative Director proposes candidates for Directors to be recommended to the General Meeting of Shareholders based on the selection criteria established by the Board of Directors, and the nomination of candidates is approved by resolution of the Board of Directors.
3. The President and Representative Director proposes candidates for Audit & Supervisory Board Members to be recommended to the General Meeting of Shareholders upon consent by the Audit & Supervisory Board, and the nomination of candidates is approved by resolution of the Board of Directors.

The Audit & Supervisory Board gives such consent in accordance with the criteria for consent to the selection of Audit & Supervisory Board Members established by the Audit & Supervisory Board.

5. For explanation in line with the appointment and dismissal of Directors and Audit & Supervisory Board Members, such matters as brief history, position and status of important concurrent office as well as reasons for the appointment and dismissal of each candidate are described in the "Reference Document for the General Meeting of Shareholders."

Supplementary principle 3.1.3

The Group discloses information about the value that we deliver to society and our efforts to realize it such as initiatives for sustainability including measures to address climate change and issues in terms of respecting human rights, and investment in human capital and intellectual property, in the "West Japan Railway Group Integrated Report," and on the Company's website and elsewhere.

Particularly, as for the measures to address climate change, the Group has formulated the long-term environmental goal "JR West Group Zero Carbon 2050" in April 2021, and declared its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and has implemented information disclosure based on the said recommendations.

"West Japan Railway Group Integrated Report" https://www.westjr.co.jp/global/en/ir/library/annual-report/2021/

The Company's website (Initiatives for Sustainability) (in Japanese only) https://www.westjr.co.jp/company/action/

Information Disclosure based on the TCFD recommendations (in Japanese only) https://www.westjr.co.jp/company/action/env/eco/002/#tcfd

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Supplementary principle 4.1.1

The Company has established the criteria for the matters to be decided by the Board of Directors for the purpose of clarifying the scope of judgment and decision made by the Board of Directors for timely and appropriate decision-making by the Board of Directors, and propositions are referred to the Board of Directors in accordance with the criteria and the Board of Directors makes decisions through discussion.

From the perspective of appropriate risk-taking, the decision for referral of propositions to the Board of Directors may, where necessary, take into account not only on the quantitative criteria but also qualitative risk and importance, and the Board of Directors makes decisions through discussion.

Matters to be decided by the Board of Directors

Matters prescribed by laws and regulations and the Articles of Incorporation, and other important matters related to the management are referred to the Board of Directors.

Among these, main matters with fixed numerical criteria such as amount of money are specified below.

• Large amount of loans
• Disposal and acceptance of transfer of important property
• Debt relief to investees, etc.

Main matters prescribed in the Articles of Incorporation as the matters to be decided by the Board of Directors are specified below.

• Distribution of interim dividends
• Acquisition of treasury stock

Principle 4.9

The Board of Directors of the Company has established the criteria for independence to invite external officers who are able to carry out highly effective monitoring and supervision from an objective standpoint independent from the Company.

1. Person related to the Group

1. The relevant person is not currently or was not in any of the past ten fiscal years an executive (meaning a person who executes business as an executive director, corporate officer, executive officer or other employee; hereinafter the same) of the Company or its subsidiary (hereinafter referred to as the "Group Company").
2. A relative within the second degree of kinship of the relevant person is not currently or was not in any of the past ten fiscal years an executive of the Group Company.

1. Person related to major client or supplier

The relevant client's or supplier's transaction amount with the Company does not reach 2% of the consolidated operating revenues (consolidated total assets in the case of loan) of the Company or the relevant client or supplier currently or on average in the past three fiscal years (or if the relevant client or supplier is a corporation, etc., the relevant person is not currently or was not in the past three years an executive thereof).

3. Legal professional, etc.

Remuneration, etc. received by the expert from the Company, other than officers' remuneration, does not exceed the annual amount of ¥10 million currently or on average in the past three fiscal years (if the relevant professional, etc. belongs to a corporation, etc., such remuneration does not reach 2% of the consolidated operating revenues thereof).

4. Other

1. The relevant person is not a board member or other executive of an organization, etc. whose donations from the Company exceed the annual amount of ¥10 million currently or on average in the past three fiscal years.

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1. The relevant person is not currently or was not in any of the past five fiscal years a major shareholder (whose stockholding ratio is 10% or more of the total number of voting rights) of the Company (if the relevant major shareholder is a corporation, etc., the relevant person is not currently or was not in the past five years an executive thereof).
2. The relevant person does not currently or did not in any of the past three fiscal years have important interest in the Group Company.

Supplementary principle 4.10.1

Please refer to "Supplementary explanation" under "II.1. [Directors]" of this report.

Supplementary principle 4.11.1

1. Size of the Board of Directors, balance of members, and diversity of skills, etc. of Directors

The Board of Directors of the Company develops and improves the environment to ensure that the enhancement of safety toward as a prerequisite for an increase in the corporate value of the Group over the medium- to long-term is promoted and appropriate risk-taking for the sustainable growth of the business is carried out, and fulfills its duties including highly effective monitoring and supervision.

To be more specific, the Board of Directors of the Company conducts evaluation of risks and returns from the medium- to long-term perspective concerning various measures, etc. necessary for the achievement of the Medium-Term Management Plan, which has been prepared for the realization of management vision, and it makes timely and appropriate decisions on these measures. Furthermore, the Board of Directors receives reports on the status of execution of business operations in a timely and appropriate manner. In the course of these processes, each Director and each Audit & Supervisory Board Member fulfills his/her duties appropriately through constructive discussions and exchange of opinions.

Currently, the Board of Directors of the Company comprises thirteen Directors including five External Directors, requires the attendance of five Audit & Supervisory Board Members including three External Audit & Supervisory Board Members, and fulfills appropriate functions as mentioned above. In order to fulfill duties of the Board of Directors continuously, the Board of Directors will maintain appropriate size, composition ratio between Internal and External Directors and others, and strive to ensure diversity in gender and other aspects.

In addition, the Group has promoted its united efforts based on the "JR-West Group Medium-Term Management Plan 2022" and its core component, the "JR-West Group Railway Safety Think-and-Act Plan 2022," since the fiscal year ended March 31, 2019. In October 2020, the Group announced the "Revision of the JR-West Group Medium-Term Management Plan 2022," taking into account the impact of the novel coronavirus pandemic. Under this revision, the Group positions four strategies, namely, "Enhancing safety, with the derailment accident on the Fukuchiyama Line as the starting point," "Enhancing coexistence with local communities and taking on the challenge of creating new value," "Strengthening management," and "Reforming the Company to enhance our ability to address change," as its basic strategies and has been promoting its initiatives.

Toward the achievement of these four basic strategies, the Group defines skills (such as knowledge, experience and abilities) that are considered important to the Board of Directors at present in order to ensure that the Board of Directors makes appropriate decisions in a timely manner and fulfills highly effective monitoring and supervisory functions as (i) corporate management, (ii) governance, (iii) safety and quality, (iv) innovation and advanced technology, (v) city development, and (vi) coexistence with local communities. The Group believes that components of ESG-related skills are included in each of the six skills, and all the Directors and Audit & Supervisory Board Members should be equipped with such ESG- related skills in exercising their respective skills.

With regard to the above six skills, the list of skills that each Director and Audit & Supervisory Board Member currently has and is expected to display in particular is as stated at the end of this report.

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