イオンフィナンシャルサービス（8570） – [Delayed]Corporate Governance Report

Corporate Governance Report Last Update: December 14, 2021 AEON Financial Service Co., Ltd. President and CEO Contact: 03-5281-2007 Securities Code: 8570 https://www.aeonfinancial.co.jp/ The corporate governance of AEON Financial Service is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile andOther Basic Information1. Basic Views(Our basic principles of corporate governance) (1) The AFS Group shall adopt and be guided by the basic principles of AEON Co., Ltd., the parentcompany of the Company, (hereinafter referred to as the “AEON Basic Principles”). The AEONBasic Principles are: Pursuing peace, respecting humanity, and contributing to local communities,always with the customer’s point of view as its core.(2) The AFS Group shall pursue its basic management policy based on the management philosophy ofthe Company and shall respect the independence and autonomy of Group companies.Support Customers’ lifestyles and enable each individual to maximize future opportunities through effective [Management philosophy] use of credit. [Basic management policies] Our basic policies are to put customers first, provide financial services that are closely attuned to customers’ lives, earn the trust of society and meet its expectations, and maintain a corporate culture that encourages our people to excel. (3)To return profits to shareholders, to promote the generation of mutual benefits with otherstakeholders, and to promote social contribution, all officers and employees of the AFS Group shallstrive to work in unison in accordance with the following:(a) When making a decision, endeavor to make an optimal decision by: following proper proceduresand complying with laws and regulations and other social norms; collecting sufficient information- 1 – regarding the advantages, disadvantages and risks; and engaging in unfettered discussions from multilateral viewpoints to identify the gains and losses expected from the decided action. This applies to all parties involved in the decision, from the Board of Directors to the relevant departments. (b) Pursue the improvement of operational efficiency and business innovation for the purpose of enriching the lives of our customers and strive for continuous growth by maximizing Group synergies. (c) Develop employees who think and act autonomously and maximize their abilities by treating them fairly and providing them with appropriate opportunities to demonstrate their skills as well as by conducting fair performance evaluations. (d) Strive for social contribution through business activities and sustainable business management. Our business strategies and medium-term management plan are established based on the above stated Basic Policies, and we implement appropriate business management for Group companies to achieve them. For overseas subsidiaries that hold important positions in terms of our growth strategy, we will build an effective governance system reflecting specific features of each country such as the economic environment, government, and laws and regulations. We will stive to ensure that the above stated Basic Principles is widely enforced and complied with across all business activities of AFS Group companies including overseas subsidiaries and fulfill our social responsibility. We believe that the essence of corporate governance comprises of respecting the rights of our shareholders, securing fairness and transparency of management, and increasing the vigor of management, and will endeavor to realize effective and best corporate governance with on-going reviews. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] We comply with all principles of the Corporate Governance Code revised in June 2021. [Disclosure Based on the Principles of the Corporate Governance Code] We disclose based on Principles of the Corporate Governance Code revised in June 2021. [Principle 1.4: Cross-Shareholdings (strategic shareholdings)] (1) Policy on Strategic Shareholdings Our basic policy is not to engage in strategic shareholdings except where it is considered to have significance based on comprehensive consideration of business and economic rationale such as maintenance of business partnership as a financial institution originating from retail business, and status of individual business transactions. (2) Standard for Exercise of Voting Rights Concerning Strategic Shareholdings When exercising voting rights for strategic shareholdings, we will carefully determine how to vote on each agenda by considering perspectives such as enhancement of the corporate value of the issuing – 2 – company over the medium to long term and improving shareholder returns, and the issuing company’s status of business. [Principle 1.7: Related party transactions] We have established the following framework to ensure that transactions with our directors or major shareholders do not harm the interests of the company or the common interests of our shareholders: • With respect to transactions with the parent company Aeon Co., Ltd., and Aeon Group companies, we established and operate the “Detailed Rules on Management of AFS Group Transactions” to enforce the arms-length rules for transactions with related parties. In addition, significant transactions with the parent company, etc., requires approval of the Board of Directors. • We expressly require an approval by the Board of Directors for competing transactions and conflicting interest transactions between AFS and our directors pursuant to the Companies Act, in principle. Furthermore, the strict procedure prohibits the director engaging in such transactions from taking part in the resolution as a special interested party. • Transactions with directors, corporate auditors and major shareholders, etc., are confirmed periodically. [Supplementary Principle 2.4.1 :Ensuring diversity in the promotion to core human resources, etc.] (1) Policies for ensuring diversity, policies for human resource development and internal environment development, and the status of implementation We respect each employee’s personality and promote creation of a structure where diverse human resources can participate to realize provision of services and products from the customers’ perspective. Therefore, we accept diverse human resources regardless of gender, age, or nationality, etc., and actively provide opportunities to participate; and strive to create a corporate culture and workplace that respects diversity of views and opinions and encourages vigorous discussions. We engage in business in eleven countries including Japan and recognize that we should further promote diversity in Japan. For overseas, dispatch of human resources from Japan is limited, and we already have diversity in core human resources mainly comprising of local personnel. Going forward, we will promote global resource exchange. (2) Goal for ratio of female managers FY2025: Group total of 50.0% (3) Goal for ratio of foreign nationals Ratio of foreign nationals in Japan and ratio of dispatch from Japan to overseas is few percent for both. We have consistently endeavored to develop local resources and respected local management. To promote global cross-border resource exchange, we will continue to provide education programs for excellent employees from various countries (e.g., AFS Management Course, AFS Global Course) and implement appointment of management regardless of nationality. (4) Goal for ratio of midcareer hires Ratio of midcareer hires among managerial positions in Japan is high, at around 80%. We have consistently hired employees with various experiences and have not prioritized periodic hiring. Consequently, we have diverse views and values in the Company. [Principle 2.6: Roles of corporate pension funds as asset owners] – 3 – We do not have fund-type or contract-type defined benefit corporate pension plan as assumed under the Corporate Governance Code. In addition, Aeon Corporate Pension Fund is operated in order to secure over the long term the total returns considered necessary, within an acceptable range of risk, for the purpose of reliably paying pension benefits and making lump-sum payments to beneficiaries into the future. In light of the pension fund’s financial status, the policy asset mix is determined and periodically reviewed after listening to the opinions of outside experts. The fund has an Asset Management Committee, which selects investment products and monitors fund performance quarterly, and decisions are made by the Board of Representatives so as to maximize the interests of beneficiaries and appropriately manage conflicts of interest. AFS’s subsidiaries have a representative in the Board of Representatives. Also, the Asset Management Committee includes the Chief Financial Officer and external experts. [Principle 3-1 Full disclosure] website, etc. (1) We disclose our Management Philosophy, Basic Policies, and Medium-Term Strategy on our corporate • Management Philosophy and Basic Policies: https://www.aeonfinancial.co.jp/corp/philosophy • Medium-Term Strategy: https://www.aeonfinancial.co.jp/en/ir/strategy/medium/ (2) Our basic views and basic policy on corporate governance are stated on the “Basic Views” section of this Report. directors are as stated below: (3) The Board policies and procedures in determining the remuneration of the senior management and • With respect to the remuneration of directors and corporate auditors, the Nomination and Compensation Committee references the Regulations on Remuneration of Directors and engages in discussions and exchanges opinions concerning the payment of remuneration (cash, stocks, etc.) and the appropriateness of the amount to be paid. In accordance with the internal rules, and within the limit of total remuneration for directors and corporate auditors as resolved by the General Meeting of Shareholders, the directors’ remuneration is determined by the resolution of the Board of Directors, and the corporate auditors’ remuneration are determined by the discussion at the Board of Corporate Auditors, taking into consideration the business performance and management of the Company, and the state of economy, etc. • Details of the policies are stated in the “Matters Relating to Directors’ Remuneration” section of this Report. (4) Policies and procedures for appointment of senior management and nominations of candidates for Directors/Corporate Auditors by the Board of Directors are as stated below: • Nomination of candidates for Directors are determined by the Board of Directors based on the discussion and exchange of opinions concerning the candidates for Representative Director and other Directors, skills development policy, development plan, and appropriateness of Director’s remuneration by the Nomination and Compensation Committee. • Directors are removed if they are deemed unfit to execute duties as a director where there are objective and reasonable grounds that they do not meet the following criteria: 1. Understands management principles and management policy of the Company. 2. Has extensive knowledge and experience necessary to deliberate agendas at the meetings of the Board of Directors, or has a track record and insight necessary to exercise management supervisory function. – 4 – 3. Has outstanding management sense and leadership. 4. Has a personality and insight appropriate for a director. 5. Maintains good physical and mental health. 6. Has been nominated by an existing Director (in case of newly appointed Directors). 7. Performance evaluation (in case of existing Directors). • Nomination of candidates for Corporate Auditors are proposed by the President & CEO in accordance with the following criteria, and determined by the Board of Directors subject to discussion and consent by the Board of Corporate Auditors: 1. Has appropriate experience/ability, and necessary knowledge regarding finance, accounting, and legal matters. One of the nominees for Corporate Auditors must have sufficient knowledge on finance and accounting. 2. Does not have interests or transaction relationships that may affect management decisions for the Company. 3. Capable of ensuring soundness and transparency of company management by performing audit from neutral and objective perspective. 4. Capable of ensuring effectiveness of compliance and governance. (5) Reasons for appointment of candidates for Directors and Corporate Auditors are disclosed in the Notice of the General Meeting of Shareholders. [Supplementary Principle 3.1.3: Sustainability initiatives] ・ We recognize that sustainable development of society is necessary for our business operation. We engage in environmental preservation and social contribution activities and promote sustainability management that supports both economic and social values through business activities to ensure that our Group business will be positioned as an essential social infrastructure in Japan and overseas. To realize a sustainable society, we have established the AFS Sustainability Policy, and each employee actively and proactively promotes sustainability activities together with local communities, customers, and business partners. On sustainability issues to be addressed, we have identified important issues for the medium- to long-term (“Materiality”) based on the analysis of significance for our stakeholders and the AFS Group. Pursuing happiness through innovative financial services, exerting diversity and the potential of our people, establishing organizational resilience, and addressing climate change have been identified as our Materiality, and we will endeavor to resolve these issues through AFS Group business strategy. In particular, we recognize that addressing climate change will have significant effect on the lifestyles and health of customers as well as development of regional economy and community, and we are committed to supporting the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) that promotes information disclosure by companies on “risks and opportunities” towards creating a decarbonized society. We will conduct a climate scenario analysis for our business activities in accordance with this framework and enhance information disclosure. We have established the Sustainability Committee chaired by the Director in charge of Corporate Planning to promote our sustainability targets together with management strategies and to engage in deliberation, decision-making, and monitoring of Group-based activities. The Committee reports regularly to the Board of Directors. In addition, the Company makes annual reports on the progress on our initiatives through our – 5 – Annual Report and on our website to ensure transparency and soundness of management through appropriate information disclosure, referencing the frameworks presented by the International Annual Reporting Council (IIRC) and Global Reporting Initiative (GRI). We also strive to build a trusting relationship with broad society through dialogue with our stakeholders including institutional investors and shareholders. ・ To realize these goals, we will implement our capital strategy (including investment in human capital and intellectual assets) and the human resource strategy to build human resources and organization that drives the capital strategy. [Principle 4-1-1: Scope of delegation to management] We have established the “Rules on Board of Directors” and set forth the matters to be deliberated by the Board of Directors pursuant to laws and regulations as matters to be referred to the Board of Directors. In addition, the “Regulations on Division of Duties and Authorization” has been established to clarify the scope of execution by senior management, and have built a framework for on-going review corresponding to organizational change, etc. [Principle 4.9: Independence standards of Outside Directors] ・ Our “Independence Standards for Outside Directors” is stated in the “Matters Relating to Independent Directors,” “Other Matters Relating to Independent Directors” section of this Report. [Supplementary Principle 4.10.1 :Roles and authorities of the Nomination and Compensation Committee] We have established the Nomination and Compensation Committee as an advisory body to the Board of Directors to ensure that the decisions on the nomination and compensation of directors are made according to objective, transparent, and independent procedures. The Nomination and Compensation Committee comprises of three to seven members nominated from the directors by the Board, with outside directors comprising the majority. The chair of the Committee is elected by mutual election among members who are outside directors. The Committee deliberates on matters related to appointment and dismissal of directors, corporate auditors, or executive officers; human resource development and other human resources related matters; and matters related to compensation and may submit its opinion to the Board of Directors. For selection of candidates for corporate auditors, the opinion of the Board of Corporate Auditors must be obtained in advance. [Supplementary Principle 4.11.1 :Approach on the diversity of the Board of Directors] (1) Structure or the Board of Directors ・ The Board shall be composed of appropriate number of directors with emphasis on flexibility and to enable prompt decision-making. ・ The Board of Directors shall have individuals who meet the conditions stated below for independent outside directors compose at least one-third of the Board. (2) Policy and procedures for appointment of directors ・ Under the management philosophy to “support customers’ lifestyles and enable each individual to maximize future opportunities through effective use of credit,” to contribute to the various life stages and life styles of our customers, we appoint individuals that have high integrity (ethics and honesty) and management abilities; who share AEON’s philosophy, have abundant practical experience and expertise to play a leadership role in corporate management, global, financial, retail, legal, and accounting matters; and are capable of appropriate business management decision-making and supervision as directors, with consideration to diversity including age and gender. – 6 – ・ For outside directors, we emphasize independence, and appoint individuals who meet the requirements of an “independent directors/auditors” as defined by the Tokyo Stock Exchange, Inc., who have played a leadership role in relevant areas or have experience in policy decision-making level and can be expected to contribute to increase of our corporate value, with consideration to diversity including the balance of expertise, age, and gender. ・ The Company has established the Nomination and Compensation Committee with the majority of its members comprising of independent outside directors and chaired by an independent outside director to serve as an advisory body to the Board of Directors. Board of Directors shall determine the candidates for the Board with the result of deliberation by the Committee respected to the extent possible. [Principle4.11.2: Information on directors and auditor who have concurrent posts] ・ We disclose the significant concurrent posts of Directors and candidates for Directors annually on information disclosure documents such as the Business Report section of the Notice of the General Meeting of Shareholders. [Principle4.11.3: Evaluation of the Effectiveness of the Board of Directors] The “AFS Corporate Governance Guideline” sets forth that the effectiveness of the Board of Directors must be periodically evaluated from the perspective of the functions concerning establishment of appropriate management strategies and appropriate supervision of management, and that the deliberations by the Board of Directors shall be continuously improved based on these evaluations. The method of evaluation is by a survey of Directors and Corporate Auditors on the structure and operation, etc., of the Board of Directors. Summary of the evaluation of the effectiveness of the Board of Directors for FY2020 is provided below: ・ The Board of Directors comprises of Directors with diverse knowledge and experience and is operated appropriately through provision of sufficient information on the agenda to be presented to the Board of Directors, and enhancement of support for Outside Officers. ・ On the other hand, further enhancement of discussions about the medium-term business strategy for the whole of AFS Group, separation of execution and supervision by the Board of Directors, and succession planning, etc. are expected. We will further enhance the effectiveness of the Board of Directors through on-going discussion on the expected matters. [Principle4.14.2: Support for Directors] ・ We offer education and training programs periodically to Directors and Corporate Auditors, such as compliance and governance education, and study groups inviting attorneys for significant regulatory changes, etc. ・ In addition, we offer opportunities to independent Outside Directors to observe sales offices, etc., as part of the orientation program upon appointment. We continue to provide necessary information such as business related knowledge after the appointment. [Principle5.1: Policies for dialogue with shareholders] ・ We believe it is important to deepen the shareholders’ understanding of AFS and our understanding of the shareholders’ positions through constructive dialogue with shareholders and investors, and to work towards an appropriate response based on such dialogue. ・ We appointed the Senior Executive Officer in charge of Corporate Planning for the AFS Group as the Corporate Disclosure Officer, and the AFS Group Corporate Planning Department is responsible for disclosure operations. In addition, the Disclosure Committee chaired by the Corporate Disclosure – 7 – Officer has been established and is promoting multifaceted and comprehensive discussions by relevant business units, creating a framework for timely and appropriate information disclosure. ・ We report and share information obtained from shareholders and investors through IR activities to the Board of Directors as appropriate. ・ Dialogue with shareholders and investors is held based on public information, we ensure its fairness, and strive to enforcing control of insider information. ・ As an initiative to promote deeper mutual understanding between the Company and our shareholders/investors, we hold quarterly meetings on financial results, and regularly hold small meetings between investors and senior management, as well as briefings for individual investors. In addition, we actively accept individual interviews from domestic and overseas institutional investors. We also make information disclosure through our website and Annual Report. 2. Capital Structure Foreign Shareholding Ratio From 20% to less than 30% – 8 – [Status of Major Shareholders] Name / Company Name Percentage (%) Number of Shares Owned 103,776,549 10,456,300 Aeon Co., Ltd. The Master Trust Bank of Japan, Ltd (Trust account) Custody Bank of Japan, Ltd (Trust account) 6,050,500 State Street Bank and Trust Company 505223 4,841,565 Custody Bank of Japan, Ltd (Trust account 9) 4,075,800 2,950,283 JP Morgan Chase Bank 385632 Maxvalu Nishinihon Co., Ltd 2,646,705 State Street Bank and Trust Company 505103 2,396,070 JP Morgan Bank Luxembourg S.A. 381572 2,546,644 Custody Bank of Japan, Ltd (Trust account 5) 2,373,800 1,864,659 Mizuho Securities Co., Ltd. 48.08 4.84 2.80 2.24 1.89 1.37 1.23 1.11 1.17 1.10 0.86 Controlling Shareholder (except for Parent Company) ― Parent Company Aeon Co., Ltd. （Tokyo Stock Exchange）（Stock code）8267 Supplementary Explanation 1. Schroder Investment Management (Japan) Limited and its joint owners jointly submitted the Report on Large Shareholders dated October 21, 2021, stating that they own 11,433,000 shares (5.29%) as of October 15, 2021. As this was reported after the base date for Status of Major Shareholders (August 31, 2021) and cannot be confirmed on the shareholder register, it is not included in the above stated Major Shareholders. 3. Corporate Attributes Listed Stock Market and Market Section Tokyo Stock Exchange/First Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year February Other Financial More than 1000 Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 10 to less than 50 From ¥100 billion to less than ¥1 trillion – 9 – 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder Aeon Co., Ltd., is our parent company holding 48.08% of the voting rights (as of August 31, 2021). We have established the following framework to protect minority shareholders, ensuring that transactions with our officers or major shareholders do not harm the interests of the Company or the common interests of our shareholders: ・ With respect to transactions with the parent company Aeon Co., Ltd., and Aeon Group companies, we established and operate the “Detailed Rules on Management of AFS Group Transactions” to enforce the arms-length rule for transactions with related parties. In addition, significant transactions with the parent company, etc., requires approval of the Board of Directors. ・ We expressly require an approval by the Board of Directors for competing transactions and conflicting interest transactions between AFS and our directors pursuant to the Companies Act, in principle. Furthermore, the strict procedure prohibits the director engaging in such transactions to take part in the resolution as a special interested party. ・ Transactions with directors, corporate auditors and major shareholders, etc., are confirmed periodically. The Board of Directors comprises of a total of twelve Directors including four independent Outside Directors who constitute more than one-third of all the Directors at present. We will continue to maintain our framework for protection of minority shareholders and aim to further improve the framework. 5. Other Special Circumstances which may have Material Impact on Corporate Governance We belong to a corporate group consisting of more than 300 companies led by Aeon Co., Ltd. (pure holding company, “Aeon” hereinafter). Aeon Group organically combines retail business including the general merchandise store Aeon, supermarkets, drugstores, and specialty stores; financial services business; shopping center development business; and service business, creating synergies with ever-lasting innovative spirit. We conduct Aeon Group’s financial business as the parent company of domestic and overseas subsidiaries that operate credit card purchase contracts centering on credit card business, loan business, and lending business, etc. Whereas Aeon is responsible for preparation of overall strategies, optimal allocation of management resources, enforcement and control of the Management Philosophy and Basic Principles, and provision of shared services and functions for the Aeon Group, the subsidiaries including AFS aim to further improve customer satisfaction by enhancing our expertise and engaging in business operation that is closely aligned with local communities. We will cooperate with the Aeon Group in Japan and overseas to resolve environmental and social issues, while also promoting unique financial inclusion initiatives utilizing our financial framework. We apply our own management decision making to routine business operations and consult with or report to Aeon on significant issues on business management. We endeavor to achieve sustainable growth and development and improve our business performance in close cooperation with Aeon and Aeon Group companies while maintaining sufficient respect for mutual autonomy. At present, Aeon Group including Aeon holds 48.08% (as of August 31, 2021) of our voting rights and has the rights of a major shareholder of AFS. To deepen cooperation with the Aeon Group and incorporate its broad management perspective, an Executive Officer of Aeon has been appointed as a Director of AFS. However, considering that the four independent Outside Directors comprise one third of the twelve Directors at present, we believe it does not hamper our independent management decision making. – 10 – We have overseas listed subsidiaries Aeon Credit Service (Asia) Co. Ltd. (Hong Kong), Aeon Thana Sinsap (Thailand) Public Co., Ltd. (Thailand), and Aeon Credit Service (M) Berhad (Malaysia), and we will aim to maximize the corporate value of AFS Group as a whole and to achieve sustainable growth and development, while respecting their autonomy and independence. AFS Group endeavors to establish compliance and risk management framework and enhance corporate governance and aim to become a corporate group that provides safer, more comfortable, convenient and beneficial financial products and services from the customers’ perspective. In addition, as a general financial services group originating from the retail industry, we will optimize and effectively use management resources including the financial know-how, system infrastructure and sales network developed in Japan and overseas, and further strengthen our management platform. Aeon’s “Policy on Governance of Listed Subsidiaries” is as stated below: Aeon has, under the Basic Principles of pursuing peace, respecting humanity, and contributing to local communities, always with the customer’s point of view at its core, implemented since our foundation a decentralized Group management with emphasis on autonomy and independence of management of the Group companies, based on the belief that this will improve the corporate value of the whole Group. As the parent company, Aeon implements various management measures to enhance synergies across the Group, as seen by quickly becoming a Company with a Nominating Committee, etc., in 2003 to improve the transparency of Group governance and the speed of business operation; and becoming a pure holding company in 2008 to enhance Group-based management that does not focus excessively on specific businesses. Group companies are listed where autonomous management aligned with the attributes of the region and the business operation is deemed to promote sustainable growth; and capital market disciplines are expected to improve the quality of management. From the perspective of protecting minority shareholders of listed subsidiaries, we request appointment of independent Outside Directors and establishment of Advisory Committee by independent officers. As stated above, we believe that maximizing cooperation and synergies with Aeon Group companies will lead to benefits for the minority shareholders. II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Organization Form Company with Kansayaku Board [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Number of Outside Directors 15 persons 1 year President 12 persons 4 persons – 11 – Number of Independent Directors 4 persons Outside Directors’ Relationship with the Company (1) Relationship with the Company* Name Attribute Yoshimi Nakajima Kotaro Yamazawa Tatsuya Sakuma Takashi Nagasaka * Following symbols and letters indicate the Outside Director’s relationship with the company: From another company From another company Lawyer CPA a b c d e g h f i j k ○: Director presently falls or has recently fallen under the category; △: Director fell under the category in the past; ●: A close relative of the director presently falls or has recently fallen under the category; ▲: A close relative of the director fell under the category in the past a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, i. Executive of a company, between which and the Company outside directors/kansayaku are mutually a legal entity) or f) (the director himself/herself only) appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) Name Reasons of Appointment Designation as Independent Director Supplementary Explanation of the Relationship Yoshimi Nakajima 〇 Concurrently serving as an outside director for the following companies: – Japan Freight Railway Company – ULVAC Inc. – Sekisui House, Ltd. She does not breach the criteria under the Securities Listing Regulations and maintains high degree of independence. She does not have special interest in AFS and possesses abundant overseas business experience and significant knowledge. The appointment is being made to receive opinions reflecting the broad perspectives leveraging on the acquired network, know-how, and knowledge on the business operation – 12 – of AFS, and we do not believe the concurrent posts will create conflict of interest with general shareholders. He does not breach the criteria under the Securities Listing Regulations and maintains high degree of independence. He does not have special interest in AFS and is being appointed to receive opinions reflecting the broad perspectives leveraging on his financial and accounting related knowledge and corporate governance knowledge acquired through working for the Bank of Japan and the stock exchange as well as by utilizing his wide network in the financial industry, and we do not believe the concurrent posts will create conflict of interest with general shareholders. He does not breach the criteria under the Securities Listing Regulations and maintains high degree of independence. He does not have special interest in AFS and is being appointed to seek assistance in enhancing our internal control framework centering on compliance with his abundant experience and knowledge in the legal community acquired through significant past positions the Special including the Tokyo Investigation Department of District Public Prosecutors Office, and we do not believe the concurrent post will create conflict general of shareholders. the Director of interest with He does not breach the criteria under the Securities Listing Regulations and maintains high degree of independence. He does not have special interest in AFS and is being appointed to receive advice on the promotion of strengthening corporate governance and improving corporate value with his abundant practical experience as an accounting expert being a certified public accountant, and we do not believe the concurrent posts will create conflict of interest with general shareholders. Kotaro Yamazawa 〇 Concurrently serving as outside corporate auditor for the following companies: – Special Advisor of Glory Ltd. – Outside Director of WingArc1st Inc. Tatsuya Sakuma 〇 Concurrently serving as an attorney at the following law office: -Aoyama TS Law Office Takashi Nagasaka 〇 Concurrently serving the following posts: -Representative of Takashi Nagasaka CPA Office – Outside Director of Contec Co., Ltd. – Outside Auditor of Tokushu Tokai Paper Co., Ltd. – Outside Director of Park24 Co., Ltd. – 13 – Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Corresponding to Corresponding to Committee Nomination Committee Nomination Committee 6 Committee Remuneration Committee Nomination Committee 6 and Compensation and Compensation Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson 0 2 4 0 0 Supplementary Explanation 0 2 4 0 0 Outside Director Outside Director The Nomination and Compensation Committee is an advisory committee established by the Board of Directors as a body that engages in discussions/consultations regarding the candidates of Directors for the next fiscal year and the remuneration of Directors. The Committee serves the functions of both the nomination committee and remuneration committee and is expected to be held on at least annual basis, in principle. The members comprise of the Chairman of the Board, President & CEO, and Outside Directors, and is chaired by Outside Directors. For FY2020, meetings were held on April 8, 2020, and June 24, 2020, and discussions were held on the appointment of executive officers in conjunction with the change in the composition of Directors. [Kansayaku] Establishment of Kansayaku Board Established Maximum Number of Kansayaku Stipulated in Articles of Incorporation Number of Kansayaku 4 persons 4 persons Cooperation among Kansayaku, Accounting Auditors and Internal Audit Departments The Board of Corporate Auditors holds meetings with our Accounting Auditor Deloitte Touche Tohmatsu LLC on periodic and as necessary basis, cooperates by exchanging opinions and information on the overview of the audit plan, matters relating to performance of duties by the Accounting Auditor, matters relating to the quarterly financial results, and results of the year-end audit, with sufficient time spent on each topic. The Internal Audit Department exchanges opinions and information with the Corporate Auditors and the Accounting Auditors on periodic and as necessary basis from the perspective of effectiveness and efficiency of audits. – 14 – Appointment of Outside Kansayaku Number of Outside Kansayaku Number of Independent Kansayaku Appointed 3 persons 2 persons Outside Kansayaku’s Relationship with the Company (1) Name Attribute Relationship with the Company* a b c d e f g h i j k l m Junichi Suzuki Go Otani Yuko Yogo * Following symbols and letters indicate the External Corporate Auditor’s relationship with the company: From another company From another company From another company △ △ ○: Corporate Auditor presently falls or has recently fallen under the category; △: Corporate Auditor fell under the category in the past; ●: A close relative of the Corporate Auditor presently falls or has recently fallen under the category; ▲: A close relative of the Corporate Auditor fell under the category in the past a. Executive of the Company or its subsidiary b. Non-executive director or accounting advisor of the Company or its subsidiaries c. Non-executive director or executive of a parent company of the Company d. Kansayaku of a parent company of the Company e. Executive of a fellow subsidiary company of the Company f. A party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a kansayaku i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity) j. Executive of a client or supplier company of the Company (which does not correspond to any of “f,” k. Executive of a company, between which and the Company outside directors/kansayaku are mutually “g,” or “h”) (the kansayaku himself/herself only) appointed (the kansayaku himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the kansayaku himself/herself only) m. Others – 15 – Outside Kansayaku’s Relationship with the Company (2) Name Designation as Independent Kansayaku Junichi Suzuki Supplementary Explanation of the Relationship Reasons of Appointment Concurrently serving the following posts: – Auditor of AEON Bank – Auditor of AFS Corporate Ltd. Co., Ltd. Concurrently serving at the Institute of Corporate Governance, Japan. Go Otani 〇 Yuko Yogo 〇 – He has abundant experience at overseas subsidiary of Aeon Group, and we believe he can provide supervision and effective advice on overall management and play the role to secure appropriateness of business operation for AFS. He does not have special interest in AFS. He does not breach the criteria under the Securities Listing Regulations and maintains high degree of independence. He does not have special interest in AFS, and is being appointed based on superior personality, knowledge, and ethics, detailed knowledge on internal control and corporate governance, and abundant experience to play a role in securing appropriateness of business operations for AFS, and we do not believe the concurrent posts will create conflict of interest with general shareholders. She does not breach the criteria under the Securities Listing Regulations and maintains high degree of independence. She does not have special interest in AFS and is being appointed based on the experience as representative officer of a holding company, long experience at a foreign financial institution as internal control manager and head of HR, to receive opinions based on the deep knowledge and global perspectives as to well as from social perspective enhance our corporate governance, and we do not believe the concurrent posts will create conflict of interest with general shareholders. [Independent Directors/Kansayaku] Number of Independent Directors/Kansayaku 6 persons – 16 – Matters relating to Independent Directors/Kansayaku Criteria for independence of candidates for Outside Directors are as set forth below. 1.1 Is not a person belonging to the Company or a subsidiary of the Company in the capacity of executive director, vice president, corporate executive or other employee (hereinafter, collectively, “business executive”) and was not a business executive at the Company or a subsidiary of the Company within the last 10 years prior to the appointment. 1.2 Is not a person who, at any time in the 10 years prior to the appointment, was a director, accounting advisor, or corporate auditor (excluding business executive) of the Company or a subsidiary of the Company who, during the 10 years prior to that appointment as director, accounting advisor, or corporate auditor was a business executive at the Company or a subsidiary of the Company. 2.1 Is not a person who has a business relationship with the Company or a major subsidiary of the Company (Note 1) whereby the Company or a major subsidiary of the Company is its major transacting counterparty (Note 2), or a person who is not currently or has not been in the last three years a business executive at such business partner that is an incorporated entity, etc. (Note 3). 2.2 Is not a person who has a business relationship with the Company or a major subsidiary of the Company who is a major transacting counterparty, or a person who is not currently or has not been in the last three years a business executive at such major transacting counterparty that is an incorporated entity, etc. 3. 4. 5. 6. 7. Is not a person who is a consultant, accounting expert or legal expert, etc. receiving a large sum (Note 4) of money or other financial asset other than the remuneration for Directors and Corporate Auditors from the Company. Is not an employee, etc. of a consulting firm, accounting firm, legal firm, etc. that has the Company as a major transacting counterparty. Is not a person who receives a donation, etc. of a large sum from the Company, or who is a business executive of an incorporated entity, etc. receiving such donation. Is not a person who is a major shareholder of the Company or a business executive of an incorporated entity, etc. that is a major shareholder of the Company. Is not a person falling under the following categories (excluding persons who are not important persons (Note 5)) or a close relative (Note 6) of such person: (a) Person falling under the above criteria 1 to 6. (b) Person who is a director, corporate auditor, corporate executive, and important employee, etc. (Note 1) Major subsidiary: AFS Corporation Co., Ltd., AEON Bank, Ltd., AEON CREDIT SERVICE CO., LTD. (Note 2) Major transacting counterparty: Judged by the criterion of at least 1% of consolidated net sales (ordinary income in the case of the Company) in the most recent business year. (Note 3) Incorporated entity, etc.: Includes organizations other than incorporated entities. (Note 4) Large sum: At least 10 million yen per year based on an average of the past three years. – 17 – (Note 5) Persons who are not important persons: An “important person” refers to a person with a position in the class of company officer or general manager, and in the case of persons belonging to an accounting firm or law firm, etc., it refers to a certified public accountant or lawyer, etc. (Note 6) Close relative: Spouse or relative within the second degree of kinship Incentive Policies for Directors Performance-based option plan stock compensation plan/Stock [Incentives] Supplementary Explanation AFS abolished the Officer’s Retirement Benefit System in May 2004, limiting the Director’s annual remuneration to within 300,000,000 yen, and newly introducing a share-compensation-type stock option of up to 100,000,000 yen and 20,000 shares per annum. The purpose was to share the stock price benefits and risks with shareholders, and to enhance motivation towards improving business performance and increasing corporate value. The program has been approved at the 26th Annual General Meeting of Shareholders. At the 34th Annual General Meeting of Shareholders held in June 2015, the Director’s annual remuneration was revised to within 550,000,000 yen. Of which, cash remuneration shall be within 400,000,000 yen per annum (of which, remuneration for Outside Directors shall be within 50,000,000 yen per annum) and the fair value of the share-compensation-type stock option shall be up to 150,000,000 yen per annum. The person with authority to determine the amount and calculation method for AFS Officers’ remuneration for 2019 was the President & CEO Kenji Fujita, and the scope of his authority and discretion is as stated in the part related to the individual remuneration (cash) for each Director, based on the resolution of the Board of Directors held on May 27, 2020. Performance-linked compensation has been determined based on the performance of AFS and individual performance of each Officer, within the scope determined by the budget achievement ratio. Achievement ratio for ordinary income is the main indicator related to performance-linked compensation, and the actual payment amount is determined reflecting extraordinary profit, changes in business environment during the fiscal year, and revision of the terms of internal transactions. Recipients of Stock Options Inside Directors Supplementary Explanation To secure independence, remuneration for Outside Directors and Corporate Auditors do not include performance-linked compensation and share-compensation-type stock options and is limited to fixed monthly compensation. – 18 – [Director Remuneration] Disclosure of Individual Directors’ No Individual Disclosure Remuneration Supplementary Explanation Officers’ remuneration for AFS Directors and Corporate Auditors for FY2020 is as stated below: Total annual Directors’ remuneration: Total annual Corporate Auditors’ remuneration: Total: 223,000,000 yen 30,000,000 yen 253,000,000 yen of which, outside Officers’ remuneration: 79,000,000 yen (Notes) 1. Above stated remuneration includes 27,000,000 yen of expenses for payment of bonuses to five Directors, and 9,000,000 yen expenses for allocation of share-compensation-type stock options (subscription rights) to six Directors. 2. As of the end of the fiscal year, there were twelve Directors and four Corporate Auditors. Of which, one Corporate Auditor is serving without compensation. Policy on Determining Remuneration Amounts Established and Calculation Methods Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods ・ Director’s remuneration is paid to promote strong motivation to execute management strategies and is linked with performance, with consideration to fairness and transparency. ・ Director’s remuneration comprises of base remuneration, performance-based remuneration, and share-compensation-type stock options. Base remuneration is paid on a monthly basis to the Directors. Performance-based remuneration is paid to the Directors after the close of the fiscal year based on the annual performance and is the sum of corporate performance-based remuneration and personal performance-based remuneration. Corporate performance-based remuneration is calculated by applying the consolidated financial performance-based conversion factor to the base amount. Personal performance-based remuneration is calculated by applying the personal performance evaluation based conversion factor to the base amount. Share-compensation-type stock options are granted to the Directors in the form of subscription rights after the close of the fiscal year based on annual performance. [Supporting System for Outside Directors and/or Kansayaku] ・ Support to Outside Directors is provided through the General Affairs Department, serving as the secretariat for the Board of Directors. It provides necessary support to enable the Outside Directors and – 19 – External Corporate Auditors to make appropriate decisions, including advanced distribution of materials and explanation of agenda ahead of the Board of Directors meetings. ・ A dedicated staff for assisting the Corporate Auditors’ duties have been appointed. [Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)] Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Name Responsibilities (Full/part time, with/without Term Job title/ position Employment terms compensation, etc.) Date when former role as president/ CEO ended – – – – – – Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) 0 person Others At present, AFS does not have consultants or advisors (sodanyaku, komon, etc.) who served as former President & CEO, etc. We may appoint a consultant (komon) for the purpose of receiving advice, etc., on management issues based on experience as senior management. 2.Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) We are engaging in on-going enhancement of management monitoring and internal control functions by holding monthly meetings of Board of Directors chaired by the President & CEO. Periodic meetings are held on a monthly basis, and extraordinary meetings are held as necessary. A total of eighteen meetings were held in FY2020, with 99% attendance by Outside Directors and 94% attendance by External Corporate Auditors. The Management Policy Committee is established as an advisory body for decision making on business execution by the President & CEO. Meetings are held on monthly basis, in principle, and where necessary. – 20 – The Internal Control Committee discusses and reviews matters related to the establishment of internal control system in a comprehensive and expert manner promoting the appropriateness and efficiency of the business of the corporate group for which AFS is the parent, and aiming at sustainable growth and medium- to long-term increase in the corporate value of the AFS Group; providing necessary instruction and advice to relevant parties; resolve matters delegated by the Board of Directors; and to report and make proposals to the Board of Directors. Meetings are held on monthly basis, in principle, and where necessary. AFS is a Company with a Board of Corporate Auditors, and the Board of Corporate Auditors comprises of a total of four (4) Corporate Auditors, i.e., three (3) External Corporate Auditors (of which two (2) are independent officers) and one (1) internal Corporate Auditor, one of whom has considerable knowledge on finance and accounting. Meetings are held on monthly basis, in principle, and as necessary. A total of seventeen meetings were held in FY2020, with 100% attendance by External Corporate Auditors and 93% attendance by internal Corporate Auditor. AFS has commissioned Deloitte Touche Tohmatsu LLC for accounting audit pursuant to the Companies Act and Financial Instruments and Exchange Act for AFS, and pursuant to the Companies Act, etc., for domestic subsidiaries. There is no special interest involved between AFS and domestic subsidiaries (“AFS, etc.” hereinafter) and the engagement partner of Deloitte Touche Tohmatsu LLC, and the engagement partner will not be involved in the accounting audit of AFS, etc., beyond certain period. The name of certified accountant who was the engagement partner during the continuous audit period during the consolidated accounting period and the composition of assistants in the audit operation are as stated below: ・ Continuous audit period 24 years (Note) Due to the extreme difficulty of investigation, above stated period is the result of investigation for the period after listing of AFS, and the actual continuous audit period may exceed such period. ・ Names of Certified Accountants who were engagement partners: Designated Limited Liability Partner, Engagement Partner: Yoshiki Okutsu, Kensuke Yamazaki (Note) Number of years of continuous audit has been omitted, as it is within seven years for all parties. ・ Composition of assistants for accounting audit Certified public accountants: 13 Other: 14

The amount of compensation paid by AFS and domestic subsidiaries to Deloitte Touche Tohmatsu LLC is as state below. ・ Details of Audit Fees Fees for audit certification: 423,000,000 yen (excluding tax)

To enable recruitment of competent personnel, AFS enters into limited liability agreements with the Outside Directors and External Corporate Auditors that limit their liability for damages payable to AFS as stipulated in Article 427, paragraph 1 of the Companies Act to the higher of two million yen or the minimum liability amount prescribed by law and exempt the Outside Directors and External Corporate Auditors from liability for damages exceed the limit, where they acted in good faith and without gross negligence in performing their duties. – 21 –

AFS has purchased an officers liability insurance policy with all Directors (including Outside Directors) and Corporate Auditors (including External Corporate Auditors) as the insured (“D&O Insurance” hereinafter), covering damages, etc., incurred by the officers arising from performance of their duties (excluding liabilities falling under the indemnification clause of the insurance policy). AFS is liable for the full amount of the D&O Insurance premiums. Insurance period of the D&O Insurance is one year, which will be renewed subject to resolution of the Board of Directors prior to expiry. 3. Reasons for Adoption of Current Corporate Governance System AFS has appointed a total of six independent officers as prescribed in the Tokyo Stock Exchange Securities Listing Regulations, comprising of four Outside Directors (of which, four are independent officers) and three External Corporate Auditors (of which, two are independent officers). Three of the four Corporate Auditors are Outside Corporate Auditors as prescribed in Article 2, paragraph 16 of the Companies Act, attending the Board of Directors meetings and other major meetings, and implementing initiatives to enhance corporate governance in cooperation with the Internal Audit Department. The current structure has been selected as it provides sufficient framework for objective and neutral management monitoring function from outside to operate. We will continue to implement improvements to further enhance our corporate governance. III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights Notification of Shareholder Early General Meeting Scheduling AGMs Avoiding the Peak Day Allowing Exercise of Voting Rights Electronic Participation in Electronic Voting Platform Providing Notice in English Other Convocation Supplementary Explanations For 2021, the notice was dispatched fourteen (14) days before the date of the General Meeting of Shareholders. For 2021, the date of the General Meeting of Shareholders is May 21st. Electronic voting is allowed. We inform the shareholders in the Notice of the General Meeting of Shareholders that their voting rights can be exercised using an electronic method, together with the website for voting. We are participating in the electronic voting platform. We provide convocation notices (narrow definition and reference documents) in English language. We use narrated business report video and PowerPoint presentation materials for easy to understand reporting at the General Meeting of Shareholders and livestream the event online. – 22 – 2. IR Activities Preparation and Publication of Disclosure Policy Regular Investor Briefings for Individual Investors Regular Investor Briefings for and Analysts Institutional Investors Regular Investor Briefings for Overseas Investors Posting of IR Materials on Website Establishment of Department and/or Manager in Charge of IR Other Supplementary Explanations We have established a Disclosure Policy and published the Basic Policy, Information Disclosure Standards, Information Disclosure Methods, and IR Silent Period. We hold regular briefings for individual investors to introduce AFS and provide explanation on our business performance. We hold regular briefings hosted by the AFS Representative Director or the Officer in charge of Group Corporate Planning. We hold regular briefings for overseas investors. In addition to posting of various materials, we distribute audio recording of the IR meeting and disclose the contents of the question and answer session, etc., during the IR meeting. We also make monthly information disclosure. We have prepared an English version of the IR site, and post various financial materials and the annual report. AFS Group Corporate Planning Department is in charge of IR. Individual meetings with the President & CEO, Officer in charge of Group Corporate Planning, Officer in charge of Group Corporate Management, and Group Corporate Planning Department are held with domestic and overseas investors and securities analysts. 3. Measures to Ensure Due Respect for Stakeholders Stipulation of Internal Rules for Respecting the Position of Stakeholders Implementation of Environmental Activities, CSR Activities etc. Supplementary Explanations We have established guidelines and criteria to ensure respect for customers and other stakeholders in accordance with the Aeon Code of Conduct. We are actively and continuously committed to fulfilling our mission as a good corporate citizen and engage in volunteer activities closely aligned with the communities and global environmental activities. ・Support for recovery from the Great East Japan Earthquake As a member of the AEON Group, We are participating in the “Project AEON Joining Hands,” a joint labor and management initiative established by AEON Co., Ltd., to support long-term reconstruction efforts following the Great East Japan Earthquake. We participate in many activities including tree planting, employee volunteer dispatch, and fund-raising campaign towards the recovery of the affected areas. ・Donation to COVID-19 vaccination support fund and healthcare professionals. We, together with AEON Co., Ltd., AEON MALL Co., Ltd., AEON DELIGHT Co., Ltd., and AEON 1% Club Foundation, donated a total of 350 million yen (of which 60 million yen from the Company) to the governments of ASEAN nations Malaysia, Vietnam, Indonesia,