三井住友トラスト・ホールディングス（8309） – 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. <> 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. <> 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. <> 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. <> 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. <> 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. <> 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-resources Human 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 • 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 (currently 27.0% as of September 30, 2021) by October 2024. • To promote women’s participation and advancement in the workplace, we are promoting various measures with a view to the advancement of women to management positions, including the formulation of pipeline models to facilitate the planned nurturing of employees in each business and training to enable female employees to build their own career path. In addition, starting in fiscal 2021, we introduced an executive support system in which executive officers get actively involved in women’s management and support the acquisition of a wide range of knowledge, perspectives, and personal connections over a period of approximately one year. In addition to hiring new graduates, we are also actively recruiting mid-career professionals to ensure diversity, which is one of our strengths as a trust bank group. In recent years, our core subsidiary SuMi TRUST Bank has been recruiting around 100 mid-career people every year in Japan, regardless of nationality, including from different industries. As of September 30, 2021, 20% of annual recruits are mid-career professionals, with mid-career professionals making up 20% positions at the rank of section manager or higher, and we will continue to work toward maintaining the current level. • • With respect to non-Japanese nationals, our core subsidiary SuMi TRUST Bank has a total of 81 local staff working in Japan and more than 700 local staff members working at its overseas offices. The percentage of local staff in management positions at each overseas office is about 64% (as of September 30, 2021), and we will continue to work toward maintaining the current level. Going forward, we will continue to encourage diverse human resources to excel through work environment improvements, appointments, training, etc., in accordance with our Basic Policy for Personnel Affairs Management and our Human Resources Development Policy. [Principle 2-6] In February 2016, the SuMi TRUST Bank Pension Fund announced its policy to accept Japan’s Stewardship Code. Accordingly, the SuMi TRUST Bank Pension Fund dispatches experienced corporate pension managers from the Group as Pension Management Directors to fulfill its role as an asset owner of corporate pension funds to support stewardship activities. In October 2018, the SuMi TRUST Bank Pension Fund set up its website to provide information to beneficiaries (participants and qualified recipients). The information includes reports on relevant activities such as monitoring investment performance at each management institution. Regarding the management of conflicts of interest which have possibly occurred between beneficiaries of corporate pension and companies, the SuMi TRUST Bank Pension Fund works to ensure that the interests of the beneficiaries are maximized in accordance with the Basic Management Policy, which has been set forth based on the guidelines of the Ministry of Health, Labour and Welfare. In specific terms, the SuMi TRUST Bank Pension Fund enhances the value of pension assets through the selection and monitoring of management institutions (including stewardship activities such as the exercise of voting rights). Furthermore, a system is in place in which the Asset Management Committee, which comprises investment professionals, and the Board of Representatives, the majority of which comprises representatives of the beneficiaries, examine, as necessary, whether the management is being made in accordance with the Basic Management Policy and whether there are any conflicts of interest. [Principle 3-1] [Supplementary Principle 3-1-3] ・The SuMi TRUST Group has established the SuMi TRUST Group’s management principles and posted them on its website. https://www.smth.jp/en/about_us/philosophy/index.html ・To contribute toachieving carbon newtrality, we announced the SuMi TRUST Group Carbon Neutral Declaration. https://www.smth.jp/-/media/th/news/2021/211020.pdf ・Under the Medium-Term Management Plan, “balanced creation of both social value and economic value” rests at the core of the SuMi TRUST Group’s management approach, and the Group formulated a strategy for this coming three years by reassessing the roles and functions expected of it as a Trust Bank group, as well as the Group’s reason for existence (“Purpose”) from a long-term perspective. https://www.smth.jp/en/news/2020/E200514-1.pdf ・SuMi TRUST Holdings publishes and posts on its website the Integrated Report every year, which covers in detail initiatives towards reforms of corporate governance, initiatives towards the enhancement of fiduciary duties and sustainability initiatives, in addition to the medium- to long-term management strategies of SuMi TRUST Holdings. https://www.smth.jp/en/ir/annual/index.html ・With regard to sustainability initiatives, we have issued Basic Policy on Social Responsibility (Sustainability Policy) as well as a detailed and comprehensive Sustainability Report, which are posted on our website. For fiscal year 2020, we prepared information from four perspectives: “Governance,” “Planet (Environment),” “People (Society),” and “Prosperity (Economy),” based on the measurement indicators of stakeholder capitalism compiled by the World Economic Forum’s International Business Council. Sustainability Policy: https://www.smth.jp/sustainability/management/philosophy/csr_policy Sustainability Report: https://www.smth.jp/csr/report/index.html ・Sustainability booklets with featured themes are also available on our website. In particular, the TCFD (Climate Change) Report has been revised from the previous climate change report and published in line with TCFD recommendations. The “Strategy” section presents the results of scenario analyses of transition risk and physical risk, while the “Metrics and Goals” section presents SuMi TRUST Bank’s sustainable finance targets and mid- to long-term targets for CO2 reduction. https://www.smth.jp/csr/report/index.html Main booklets with featured themes • TCFD (Climate Change) Report • Natural Capital Report • Environmentally Friendly Property Report • Digest Report for Seniors, etc. ・With respect to human and intellectual capital, which are among the six types of capital that form the financial and non-financial management foundation aimed at achieving the balanced creation of both social value and economic value, the status of our initiatives taken in relation to our high-priority issues (materiality) are disclosed in our Integrated Report and Sustainability Report. ・ The fundamental perspectives and basic policy, etc. on corporate governance are given in 1. (1) Fundamental Perspectives on Corporate Governance of this report for your reference. The compensation of officers shall be determined by the Compensation Committee upon examination of its appropriateness, etc. Details of the policies and procedures relating to the determination of the compensation of officers, including directors and executive officers (*1), by the Compensation Committee are given in (Appendix 2), and an outline of the Compensation Committee is given in of this report, respectively, for your reference. (*1) Executive Officer as defined in the Companies Act (the same shall apply hereafter). ・ SuMi TRUST Holdings shall decide candidates for directors and executive officers (*1) from among a wide range of diversified individuals at the Nominating Committee pursuant to the nomination policies and procedures set forth in Article 5 (Policies Regarding Nomination and Dismissal of Directors and Executive Officers (*1)) of the “Basic Policy on Corporate Governance.” Also, SuMi TRUST Holdings shall deliberate dismissal of directors and executive officers (*1) pursuant to the dismissal policies set forth in Article 5. For the reasons for appointment of directors and executive officers (*1), please refer to Appendix 1 attached to this report. (The details concerning external directors are given in < Matters relating to external directors > of this report for your reference.) [Supplementary Principle 4-1-1] SuMi TRUST Holdings establishes Article 3 (Roles of the Board of Directors) of the “Basic Policy on Corporate Governance” as follows, and delegates business execution and decision-making thereon to the executive officers (*1), by resolution of the Board of Directors. ・ The Board of Directors shall ensure fairness and transparency of SuMi TRUST Group’s corporate management by setting out the basic policy of managing SuMi TRUST Group and overseeing overall management of it. ・ Except for matters which are required by law to be decided by the Board of Directors, the Board of Directors, in principle, delegates decisions on the execution of business to executive officers (*1), and supervises the execution of business by executive officers (*1), etc. as its central role. [Supplementary Principle 4-1-3] SuMi TRUST Holdings has clarified the quality and capabilities as well as personalities required as executive of SuMi TRUST Holdings, SuMi TRUST Bank and Sumitomo Mitsui Trust Asset Management Co., Ltd. (“SuMi TRUST AM”) as part of its succession planning. After deliberation at the Nominating Committee, SuMi TRUST Holdings has also formulated and is operating a “Plan to Foster Human Resource as Potential Executives,” which prescribes various training programs and forums for fostering human resources as potential executives and processes for managerial promotion. [Supplementary Principle 4-2-2] Given that sustainability initiatives are one of its key management issues, the Board of Directors of SuMi TRUST Holdings has established a Basic Policy on Social Responsibility (Sustainability Policy), and will continue to deepen discussions on priority issues (materiality) that have an important impact on balancing social value creation and economic value creation, as well as the framework of management. One of the basic policies of our Medium-Term Management Plan is to strengthen our business portfolio (strengthen the foundation for sustainable and stable growth), and we are continuing to pursue this policy. Going forward, the Board of Directors is committed to continuing its focus on deepening discussions and supervising the Company in order to contribute to sustainable growth and increase medium- to long-term corporate value. [Principle 4-6] To ensure the effectiveness of independent and objective supervision of management by the Board of Directors, non-executive directors with no involvement in the execution of business make up 73% of the Board of Directors. Moreover, SuMi TRUST Holdings has appointed an external director as chairman of the Board. For details about the chairman of the Board, please refer to of this report. [Principle 4-8] SuMi TRUST Holdings sets out in Article 4 (Composition of the Board of Directors) of the “Basic Policy on Corporate Governance” that in light of the importance of external directors’ functions in the corporate governance, SuMi TRUST Holdings shall operate the Board of Directors with at least one-third of directors being independent external directors, in principle. As of the date of submission, seven out of the 15 directors are external directors, and the percentage of external directors is 47%. In order to ensure the effectiveness of its corporate governance system and further enhance the soundness and reliability of the business model and the transparency of management of the SuMi TRUST Group, SuMi TRUST Holdings, pursuant to Article 7 (Establishment of Committees) of the “Basic Policy on Corporate Governance,” shall establish a Risk Committee and a Conflicts of Interest Committee, in which independent external directors shall participate, as advisory bodies to the Board of Directors, in addition to the Nominating Committee, the Compensation Committee and the Audit Committee, which are required to be established under the Companies Act. All of these committees shall be chaired by external directors or external specialists and the majority of the members of these committees shall be external members. For details, please refer to “2. Items Related to Business Execution, Audit and Oversight, Nominations and Setting of Compensation, etc. (Overview of Corporate Governance Framework)” of this report. [Supplementary Principle 4-8-1] SuMi TRUST Holdings holds regular External Directors’ Meetings consisting solely of external directors, in an effort to further enhance the effectiveness of corporate governance. At the meetings, external directors engage in discussions that are active and unrestrained, sharing information and awareness from independent and objective positions. These meetings contribute to the greater objectivity and independence of the Board of Directors. [Principle 4-9] SuMi TRUST Holdings has established the Independence Standards of Independent External Officers, and the details of these Standards are given in of this report and posted on SuMi TRUST Holdings’ website. https://www.smth.jp/en/about_us/management/governance/independence.pdf [Supplementary Principle 4-11-1] In its Medium-Term Management Plan starting in fiscal year 2020, the Group defined a new “Purpose” (reason for existence) and set “balanced creation of both social value and economic value” at the very core of its management philosophy. In addition to identifying priority issues (materiality) such as declining birthrates, aging society, climate change, and digital transformation to take on the mission of solving social issues, the Group also recognizes them as growth opportunities and appropriately incorporates them into its management strategy. Because the Group is a financial group specialized in trust banking, its Board of Directors is composed of individuals with knowledge and experience in the four areas of (1) corporate management; (2) financial accounting; (3) legal affairs, risk management, and compliance; and (4) creativity. Board members also possess the skills required to address priority issues (materiality), which are skills specific to the trust business as well as skills in the areas of sustainability, digital/IT, etc. that lead to new value creation and fall under category (4) (“creativity”). Furthermore, it is the policy of SuMi TRUST Group to build a broadly diverse and well-balanced formation and work toward the sustainable improvement of the corporate value of the Group while strengthening the supervisory function by assigning highly specialized experts to the statutory and voluntary committees established by supervisory bodies. The so-called skill matrix of each internal and external director is shown in Appendix 2 attached to this report. We have already appointed multiple external directors who have management experience at other companies. Details on the ideas expressed above are provided in Article 4 (Composition of the Board of Directors) and Article 5 (Policies Regarding Nomination and Dismissal of Directors and Executive Officers (*1)) of the “Basic Policy on Corporate Governance.” Accordingly, the SuMi TRUST Group as a whole makes a steady progress in achieving diversity, including the appointment of a female external director in SuMi TRUST Holdings in June 2017, as well as the appointment of an external director who is a legal professional in SuMi TRUST Holdings and two female external directors in SuMi TRUST Bank, the core subsidiary of the Company, in June 2019, followed by another two in June 2021, and so forth. [Supplementary Principle 4-11-2] The situation concerning officer posts that external directors hold at other listed companies is indicated in < Matters relating to external directors > of this report. Other than external directors, no directors currently hold officer posts at other listed companies. [Supplementary Principle 4-11-3] SuMi TRUST Holdings conducts annual evaluation of the effectiveness of the Board of Directors as a whole (hereinafter, the “Evaluation of the Board of Directors”), and reviews and implements remedial measures for the challenges derived therefrom, whereby a PDCA cycle is activated for improving the effectiveness of the Board of Directors. In the Evaluation of the Board of Directors in fiscal year 2020, assessments were conducted from multiple angles; namely, self-evaluation by the Board of Directors, the Board of Directors’ evaluation of each committee, each committee’s self-evaluation, and executive officers’ evaluations of the Board of Directors. In addition, starting this fiscal year, we have initiated self-assessments of individual directors. In conjunction with these evaluations, we undergo reviews by third-party organizations (external consultants) to receive verification from different perspectives and gain new insights before conducting our own self-evaluations. Upon conducting surveys mainly on questionnaires and interviews with directors while obtaining advice and support from external consultants, SuMi TRUST Holdings was able to confirm a certain level of effectiveness for the Board of Directors and each committee, while recognizing the new challenges. In the Evaluation of the Board of Directors in fiscal year 2020, SuMi TRUST Holdings conducted the evaluation of the effectiveness of the Board of Directors and each committee as follows, upon conducting questionnaires and interviews, and keeping in mind the results of the “Third-party Evaluation” conducted by external consultant. Bodies to be evaluated The Board of Directors The Nominating Committee, the Compensation Committee, the Audit Committee, the Risk Committee, the Conflicts of Interest Committee Respondents Directors, executive officers (*1), and members of each committee Method of inquiry 1) Questionnaires for directors, executive officers (*1), and members of each committee (evaluation by five-grade multiple choice, along with narrative writing) 2) Interviews with directors by a third-party organization (external consultant) In fiscal year 2020, SuMi TRUST Holdings tackled the following challenges that were recognized through the Evaluation of the Board of Directors in fiscal year 2019 and, as a result of confirming the status of improvements in each challenge in the Evaluation of the Board of Directors in fiscal year 2020, a certain degree of improvement was confirmed. (1) Supervision of and advice on the progress of the Medium-Term Management Plan in light of the impact of the COVID-19 pandemic (2) Improvements to internal control systems and operations at Group companies (3) Further improvements to the appropriate operations of the Board of Directors, reflecting the supervision and execution roles expected of it

In the Evaluation of the Board of Directors for fiscal year 2020, SuMi TRUST Holdings confirmed that the content of the deliberations has been enhanced and the supervisory function has been strengthened as a result of the Board of Directors and each committee being operated with an awareness of its objectives, and that a certain level of effectiveness had been ensured. Meanwhile, through the Evaluation of the Board of Directors, the following three points were confirmed as issues of the Board of Directors and each committee which required improvements and enhancements, and SuMi TRUST Holdings shall continue to make efforts to address these issues. (1) Improving discussions concerning important themes and medium- to long-term management issues and strategies set out in the Medium-Term Management Plan (2) Further improvement and validation of the effectiveness of the internal control system and governance on a Group-wide basis (3) Enhancement of dialogue with executives regarding the Board of Directors’ recognition of issues and acceleration of responses to the issues SuMi TRUST Holdings shall, aiming for sustainable growth and medium- to long-term enhancement of corporate value, endeavor to further enhance the effectiveness of the Board of Directors and each committee by continuing to activate the PDCA cycle through the Evaluation of the Board of Directors. The results of the Evaluation of the Board of Directors for fiscal year 2020 have been posted on SuMi TRUST Holdings’ website. https://www.smth.jp/about_us/management/governance/index.html [Supplementary Principle 4-12] The Board of Directors supervises the status of execution of duties by the executive officers (*1), etc., as well as determines the basic management policy, selects business models through the formulation of a management plan and makes decisions on risk-taking, etc. To fulfill such a role, the Board of Directors selects management priority issues and themes from a medium- to long-term perspective, in addition to matters required by laws and regulations, as the “management theme,” and discusses them freely without the express purpose of reaching conclusions. Through these initiatives, the Board of Directors utilizes the insights and perspectives of the external directors on important themes at the heart of management. [Supplementary Principle 4-14-2] SuMi TRUST Holdings sets out its policies regarding the training of directors as follows in Article 6 (Policies Regarding Training of Directors) of the “Basic Policy on Corporate Governance”: ・ SuMi TRUST Holdings shall collect and provide information regarding economic conditions, industry movement, compliance with laws, corporate governance, finance & accounting, and any other matters, which is required by directors in order to perform their roles and functions, and it shall thereby support directors’ execution of duties. ・ In a timely manner after assuming office, external directors of SuMi TRUST Holdings shall receive explanations from governing sections or responsible officers, etc., and acquire a sufficient understanding regarding such matters as SuMi TRUST Group’s management strategy, management plan, status of various business, management environment, and management issues, in order to perform their roles and functions. In addition, the “Policy on Training of Directors and Other Officers” was established in February 2016. SuMi TRUST Holdings will clarify systematically the training and orientation sessions as well as other training programs SuMi TRUST Holdings had hitherto offered, and report to the Board of Directors on the status of implementation for training programs. Implementation status for the fiscal year 2020 is as follows. 1. Providing opportunities to external directors to acquire knowledge on business, etc. ・ Conducting business briefings for mainly newly-appointed external directors: Each of the managerial departments and the planning departments of main businesses conduct briefings each year for newly-appointed external directors on the details of business and issues, among other matters. Since there were no new appointments in fiscal year 2020, external lecturers were invited to cover highly specialized topics (the state of Group governance, global financial regulations, and cyber security) for the currently serving external directors. In addition, we added themes that are of interest to external directors and themes that are specialized and difficult to understand, such as financial and economic trends and the Group’s digital strategy, in an effort to improve the briefing sessions. ・ Advance briefing on matters to be deliberated by the Board of Directors ・ Attendance at the Group Management Strategy Meeting held at the beginning of the fiscal year ・ Compliance training (jointly held with internal officers): Participation in US compliance and high level training, as well as officer compliance training ・ Joining in at the “Officers Hearings,” “Executive Officers Hearings,” and “Affiliated Company President Hearings,” which are held as interviews with the Audit Committee members and Audit and Supervisory Committee members 2. Various training and seminars for mainly internal officers ・ Workshops on highly specialized topics: Inviting external lecturers to cover highly specialized topics (the state of Group governance, global financial regulations, and cyber security) at workshops held jointly with external directors ・ Regular workshops: Inviting lecturers from the research departments, Sumitomo Mitsui Trust Research Institute Co., Ltd., and Sumitomo Mitsui Trust Asset Management Co., Ltd. to hold regular workshops on topics such as economic trends, real estate market trends, and ESG evaluation ・ Compliance training programs: Conducting High-level US Compliance training programs and compliance training programs for officers ・ Training for newly appointed executive officers: Implemented for the purpose of having officers fully understand what is expected of them so they can change their way of thinking and transform from branch/ general managers into a management team (executive officers) capable of achieving overall optimization, future creation, and innovation ・ Human rights training programs: Trainings based on the introduction of case examples [Principle 5-1] SuMi TRUST Holdings has established the Policy for Constructive Dialogue with Shareholders, etc. as provided in Article 17 (Policy for Constructive Dialogue with Shareholders, etc.) of the “Basic Policy on Corporate Governance” and the “Annual Report-Financial Data Section” which is a supplementary volume of the Integrated Report: ・ SuMi TRUST Holdings shall emphasize constructive dialogue with its shareholders, etc., and shall endeavor to engage in dialogue with its shareholders, etc. through various opportunities under the initiative of its senior management. ・ Through constructive dialogue, SuMi TRUST Holdings shall endeavor to obtain the understanding of its shareholders, etc. regarding SuMi TRUST Holdings’ management policies, and it shall endeavor to support sustainable growth and medium- to long-term enhancement of the corporate value of the SuMi TRUST Group, by absorbing and reflecting analyses of management administration and views from the perspective of capital providers, etc. through listening to the voice of the shareholders, etc. To promote constructive dialogue with shareholders, SuMi TRUST Holdings actively conducts IR activities. For details, including the structural development for the promotion of dialogue as well as other efforts and measures, please refer to of this report. 2. Capital Structure Percentage of shares held by overseas investors (Updated) Name The Master Trust Bank of Japan, Ltd. (trust account) Custody Bank of Japan, Ltd. (trust account) ＴＨＥ ＢＡＮＫ ＯＦ ＮＥＷ ＹＯＲＫ ＭＥＬＬＯＮ １４００５１ Custody Bank of Japan, Ltd. (trust account 7) ＮＯＲＴＨＥＲＮ ＴＲＵＳＴ ＣＯ． （ＡＶＦＣ） ＲＥ ＳＩＬＣＨＥＳＴＥＲ ＩＮＴＥＲＮＡＴＩＯＮＡＬ ＩＮＶＥＳＴＯＲＳ ＩＮＴＥＲＮＡＴＩＯＮＡＬ ＶＡＬＵＥ ＥＱＵＩＴＹ ＴＲＵＳＴ ＳＴＡＴＥ ＳＴＲＥＥＴ ＢＡＮＫ ＷＥＳＴ ＣＬＩＥＮＴ － ＴＲＥＡＴＹ ５０５２３４ Custody Bank of Japan, Ltd. (trust account 9) ＮＯＲＴＨＥＲＮ ＴＲＵＳＴ ＣＯ．（ＡＶＦＣ） RE Ｕ．Ｓ． ＴＡＸ ＥＸＥＭＰＴＥＤ ＰＥＮＳＩＯＮ ＦＵＮＤＳ ＳＴＡＴＥ ＳＴＲＥＥＴ ＢＡＮＫ ＡＮＤ ＴＲＵＳＴ ＣＯＭＰＡＮＹ ５０５００１ ＪＰ ＭＯＲＧＡＮ ＣＨＡＳＥ ＢＡＮＫ ３８５７８１ 30% or more Number of Shares Held 52,297,000 Percentage (%) 13.94 21,610,100 6,560,500 6,257,500 5,939,400 5,697,535 5,375,700 4,958,010 4,931,624 4,751,401 5.76 1.74 1.66 1.58 1.51 1.43 1.32 1.31 1.26 None None Controlling shareholders (except parent company) Parent company Supplementary Remarks (Updated) ・ Principal shareholders indicated are as of the end of September, 2021. ・ For Percentage (%), the numbers are rounded down to two decimal places. ・ BlackRock Japan Co., Ltd. (BlackRock Japan) filed a Report of Large Volume Holding as of October 21, 2014 and reported that BlackRock Japan and nine others held common shares of SuMi TRUST Holdings as of October 15, 2014 as provided below. SuMi TRUST Holdings, however, has not been able to confirm the actual holding of shares as of the end of September, 2021, and they are not included in the status of principal shareholders above. SuMi TRUST Holdings consolidated its shares with a ratio of ten shares of common stock into one share on October 1, 2016. Please note that the number of shares held as shown below does not take into account the consolidation of shares. Name of holder of large-volume shares: BlackRock Japan, Co., Ltd. and nine joint holders Number of shares held: 197,950,253 (including the number of shares held by joint holders) Percentage of shares held to total shares issued (%) 5.07% ・ A Change Report of Large Volume Holding filed by Nomura Securities Co., Ltd. (Nomura Securities) available for public inspection as of July 21, 2020, reported that Nomura Securities and two other shareholders held common shares of SuMi TRUST Holdings as of July 15, 2020, as provided below. SuMi TRUST Holdings, however, has not been able to confirm the actual holding of shares as of the end of September, 2021 and they are not included in the status of principal shareholders above. Name of holder of large-volume shares: Nomura Securities and two joint holders Number of shares held: 23,078,902 (including the number of shares held by joint holders) Percentage of shares held to total shares issued (%): 6.15% ・ Sumitomo Mitsui Trust Asset Management Co., Ltd. submitted a Report on Large Volume Holdings on the status of large-volume holdings of its stock certificates, etc. on December 7, 2020 declaring that Sumitomo Mitsui Trust Asset Management Co., Ltd. and one other joint holder held our common stock as of November 30, 2020 as follows. However, as it is not possible for us to confirm the status of real holdings as of the end of September, 2021, it is not included in the above-mentioned status of principal shareholders. Name of holder of large-volume shares: Sumitomo Mitsui Trust Asset Management Co., Ltd. and a joint holder Number of shares held: 19,195,626 (including shares held by joint holder) Percentage of shares held to total shares issued (%): 5.11% ・ 394,000 shares of common stock owned by Custody Bank of Japan, Ltd. (trust account) are included in the trust assets of SuMi TRUST Holdings’ Share delivery trust for Directors, etc. and are accounted for as treasury stocks in the consolidated financial statements and the financial statements of SuMi TRUST Holdings, but these figures have not been deducted from the total issued shares. 3. Corporate Profile Stock exchange listings Fiscal year end Industry (Consolidated) number of employees at last fiscal year end (Consolidated) net sales in the last fiscal year Number of consolidated subsidiaries at last fiscal year end Tokyo Stock Exchange (first section), Nagoya Stock Exchange (first section) March 31 Banking 1,000 or more 1 trillion yen or more More than or equal to 50 and fewer than 100 4. Policies relating to measures for protecting minority shareholders when conducting transactions, etc. with controlling shareholders None. 5. Other Special Items that could have a Significant Impact on Corporate Governance None. II. Organizational Structure for Managerial Decision-Making, Execution, Supervision and other Corporate Governance System 1. Organizational Structure and Operational Management Type of Organization Company with Three Committees 【Directors】 Number of directors stipulated in Articles of Incorporation: Directors’ term of office stipulated in Articles of Incorporation: Chairperson of the Board of Directors: (Updated) Number of directors: 【Matters relating to external directors】 Number of external directors: Number of external directors designated as independent officer: 20 1 year 15 7 7 Relationship with SuMi TRUST Holdings (1) Name Attribute External Director Isao Matsushita Shinichi Saito Hiroko Kawamoto Mitsuhiro Aso Nobuaki Kato Masanori Yanagi Kaoru Kashima From another company From another company From another company Lawyer From another company From another company Certified public accountant Relationship with SuMi TRUST Holdings* a b c d e f g h i j k * Categories for relationship with SuMi TRUST Holdings * “○” when the said individual presently falls or has recently fallen under each of the following categories; “△” when the said individual fell under each of the following categories in the past. *“●” when a close relative of the said individual presently falls or has recently fallen under each of the following categories; “▲” when a close relative of the said individual fell under each of the following categories in the past. a. Person performing an executive role of a listed company or its subsidiary b. Person performing an executive role or acting as a non-executive director of the parent company of a listed company c. Person performing an executive role of a fellow subsidiary company of a listed company d. Person whose principal client or supplier is a listed company or person performing an executive role thereof e. Principal client or supplier of a listed company or person performing an executive role thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from a listed company besides compensation as an officer g. Major shareholder of a listed company (person performing an executive role of the said corporate shareholder if the major shareholder is a legal entity) h. Person performing an executive role of a client or supplier company of a listed company (which does not correspond to any of d, e, or f above) (the said individual only) i. Person performing an executive role of a company, between which and SuMi TRUST Holdings external officers are mutually appointed (the said individual only) j. Person performing an executive role of a company or organization that receives a donation from a listed company (the said individual only) Relationship with SuMi TRUST Holdings (2) (Updated) Name Committees-based Indep- endent officer Supplemental information on corresponding items Reason for selecting as external director (and reason for appointing as independent officer) k. Other Committee iNomnating Committee Compensation Audit Committee ○ ○ ○ Isao Matsushita Outside Director of Matsumotokiyoshi Holdings Co., Ltd. Mr. Isao Matsushita has extensive experience in the general management of companies, as the former Representative Director and President of JX Holdings, Inc. (currently ENEOS Holdings, Inc.), which is a representative integrated energy, resources and material enterprise group in Japan. During his term of office as external director of our Company, he has contributed to further enhancing the effectiveness and supervisory capabilities of the Board of Directors as the Chairman of the Board and Chairperson of the Nominating Committee as well as provided comments and advice based on such years of experience. In order to make full use of his knowledge and insight regarding business management and company management through supervision of the execution of the business, advice on the overall management of the business, and similar contributions, SuMi TRUST Holdings has selected him as an external director. Further, although until June 2019 he served as a Senior Advisor of JXTG Holdings, Inc. (ENEOS Holdings, Inc.), with which SuMi TRUST Holdings and the SuMi TRUST Group company have conducted transactions, the average annual amount of such transactions in the immediately preceding three fiscal years has been less than one percent of each of the consolidated sales of JXTG Holdings, Inc. and the consolidated gross profits of SuMi TRUST Holdings. Thus, these facts should not affect his independence. Name Committees-based Indep- endent officer Supplemental information on corresponding items Reason for selecting as external director (and reason for appointing as independent officer) Committee iNomnating Committee Compensation Audit Committee Shinichi Saito ○ ○ ○ Outside Director of The Prudential Gibraltar Financial Life Insurance Co., Ltd. Mr. Shinichi Saito has extensive knowledge and experience in financial accounting as the former Finance Director of Marubeni Corporation. In addition to engaging in management at an investment company, he also has deep insight as a company executive in the financial sector. During his term of office as an external auditor of SuMi TRUST Holdings for four years from June 2013, and thereafter as an external director of SuMi TRUST Holdings since June 2017, he has provided comments and advice based on such years of experience. At the same time, as the chairperson of the Audit Committee, he has been making efforts to further improve the effectiveness of the overall audit of business execution and the soundness and transparency of management. In order to make full use of his knowledge and insight regarding business management and company management through supervision of the execution of the business, advice on the overall management of the business, and similar contributions, SuMi TRUST Holdings has selected him as an external director. Further, up until November 2019 he served as Chairman & Representative Director of Japan Industrial Solutions, Ltd., with which SuMi Trust Holdings and the SuMi TRUST Group company have not entered into any transactions. Also, SuMi TRUST Bank, a subsidiary of SuMi TRUST Holdings, holds common shares of Marubeni Corporation, a company at which Mr. Saito worked until September 2002, but the amount of holdings is less than 1% of shares outstanding. Thus, these facts should not affect his independence. Name Committees-based Indep- endent officer Supplemental information on corresponding items Reason for selecting as external director (and reason for appointing as independent officer) Committee iNomnating Committee Compensation Audit Committee 〇 ○ ○ Hiroko Kawamoto Advisor of the Board of ANA Strategic Research Institute Co., Ltd., Outside Director of Renaissance Inc., Outside Director of East Japan Railway Company Ms. Hiroko Kawamoto had served as a Director and Executive Officer of All Nippon Airways Co., Ltd. from April 2013 and, thereafter has served as a Director and Senior Executive Officer of All Nippon Airways Co., Ltd. since April 2016, and she has been responsible for the overall management of the company and promotion of women’s activities, giving her extensive knowledge and experience in corporate management and diversity. In addition, for one year from June 2016, she has served as an external director of SuMi TRUST Bank, and as an external director of SuMi TRUST Holdings since June 2017, and she has provided comments and advice based on such years of experience during her term of office. At the same time, as the chairperson of the Compensation Committee, she has been making efforts to further improve the supervisory functions of the Board of Directors. In order to make full use of her knowledge and insight regarding business management and company management through supervision of the execution of the business, advice on the overall management of the business, and similar contributions, SuMi TRUST Holdings has selected her as an external director. Further, although she currently serves as Director and Advisor of the Board of All Nippon Airways Strategic Research Institute Co., Ltd., which belongs to the corporate group under ANA Holdings Co., Ltd., with which SuMi TRUST Holdings and the SuMi TRUST Group company have conducted transactions, the average annual amount of such transactions in the immediately three preceding fiscal years has been less than one percent of each of the respective consolidated sales of ANA Holdings Co., Ltd. and the consolidated gross profits of SuMi TRUST Holdings. Also, SuMi TRUST Bank, a subsidiary of SuMi TRUST Holdings, holds common shares of ANA Holdings, Inc., the corporate group at which Ms. Kawamoto served as an officer, but the amount of holdings is less than 1% of shares outstanding. Thus, these facts should not affect her independence. Name Committees-based Indep- endent officer Supplemental information on corresponding items Reason for selecting as external director (and reason for appointing as independent officer) Committee iNomnating Committee Compensation Audit Committee ○ ○ Mitsuhiro Aso External Auditor of Sumitomo Chemical Company, Limited Nobuaki Kato ○ ○ ○ As Mr. Mitsuhiro Aso served as the Superintending Prosecutor of the Fukuoka High Public Prosecutors Office and Interlocking Professor at Hosei University Law School, etc., he is a law specialist and has experience of organizational management. In addition, he has served as an external auditor of SuMi TRUST Bank for three years since June 2016 and as an external director of SuMi TRUST Holdings since June 2019, and during this time he provided statements and advice based on such experience; therefore, SuMi TRUST Holdings has selected him as an external director, in order to make effective use of such experience and knowledge in its management. Although he has never been directly involved in the management of a company in the past, for the reasons stated above, SuMi TRUST Holdings is convinced that he is capable of properly performing his duties as an external director. In order to make full use of his knowledge and insight through supervision of the execution of the business, advice on the overall management of the business, and similar contributions, SuMi TRUST Holdings has selected him as an external director. As a former President & CEO of Denso Corporation, a global automotive parts manufacturer, he has extensive experience in overall corporate management. In addition, as a former President & CEO of Denso International Europe, he has overall experience in corporate management overseas. Therefore, in order to make full use of his knowledge and insight regarding business management and company management through supervision of the execution of the business, advice on the overall management of the business, and similar contributions, SuMi TRUST Holdings has selected him as an external director. Further, although he served until June 2019 as a consultant for Denso Corporation, with which SuMi TRUST Holdings and the SuMi TRUST Group company have conducted transactions, the average annual amount of such transactions in the immediately preceding three fiscal years has been less than one percent of each of the sales of Denso Corporation and the consolidated gross profits of SuMi TRUST Holdings. Thus, these facts should not affect his independence. Name Committees-based Indep- endent officer Supplemental information on corresponding items Reason for selecting as external director (and reason for appointing as independent officer) Committee iNomnating Committee Compensation Audit Committee ○ ○ ○ President of The Japan Economic Research Institute Inc. External Director of Kintetsu Group Holdings, Co., Ltd. External Director of Fukoku Mutual Life Insurance Company External Director of Tobu Railway Co., Ltd. Mr. Masanori Yanagi has extensive experience in bank management and policy-based finance, etc. as the former President and CEO of Development Bank of Japan Inc., and has extensive knowledge on domestic and foreign financial and economic circumstances as President of Japan Economic Research Institute Inc. Therefore, in order to make full use of his knowledge and insight regarding business management, company management, policy finance, etc. through supervision of the execution of the business, advice on the overall management of the business, and similar contributions, SuMi TRUST Holdings has selected him as an external director. Further, although he served until June 2018 as President and CEO of Development Bank of Japan Inc., and is currently the Chairman of the Japan Economic Research Institute Inc., with which SuMi TRUST Holdings and the SuMi TRUST Group company have conduct