高砂熱学工業（1969） – [Delayed]CORPORATE GOVERNANCE REPORT

Last Updated: December 23, 2021 Takasago Thermal Engineering Co., Ltd. Kazuhito Kojima, President and Representative Director, COO Contact: Yoshiyuki Hara, Director and CFO TEL:03-6369-8212 Ticker code: 1969 https://www.tte-net.com The corporate governance of Takasago Thermal Engineering (the “Company”) is described below. I Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The basic policy of corporate governance of the Company is to secure the legality, transparency and agility of corporate management and improve the management efficiency in order to earn the trust of society and improve corporate value in the medium and long terms. For details, see [Principle 3-1 Full Disclosure] (ii) below. [Reasons for Non-Compliance with the Principles of the Corporate Governance Code] Update [Supplementary Principle 5-2-1 Basic Policy and Status of Review of Business Portfolio] In the Group, the equipment construction business currently accounts for approximately 98% of net sales. At the Company, the status of initiatives in the equipment construction business, such as “by region” or “by customer market,” is ascertained by profitability, and is periodically evaluated by the Company’s Board of Directors. For example, in the domestic business, in addition to the return on capital, the Company considers the establishment of a value chain, synergies, and growth potential. Further more, the Company is reviewing its international business by adding the perspective of economic (market and country specific) gro wth potential to its return on capital. In order to “establish the second and third pillars of business” as stated in the Medium-Term Management Plan, the Company will disclose the status of the review of the business portfolio, including the restructuring of existing businesses, as necessary, in accordance with the progress of new business fields. [Disclosure Based on the Principles of the Corporate Governance Code] Update [Principle 1-4 Cross-Shareholdings] The Company’s basic policy is not to hold cross-shareholdings in order to achieve the sustainable enhancement of corporate value, except in cases where important strategic cooperation and the maintenance and development of business relationships are recognized. For shares that have already been held, the Company periodically and continuously judges the appropriateness of holding the same from the following viewpoints, and examines the results at meetings of the Board of Directors every year, and in principle, considers reducing stockholdings of which the significance of holding is not recognized. – Whether or not it leads to the enhancement of the Company’s corporate value over the medium to long term, such as the maintenance of smooth and favorable business relationships and business synergy. – Whether or not it has an adverse effect on the Company’s financial soundness. – Whether or not the return from stockholdings, including related transaction profits, dividends, etc., exceeds the cost of capital. Regarding the exercise of voting rights, the Company makes a decision on whether each agenda contributes to improving the corporate value of an issuer and to the interests of the Company as a shareholder and properly exercises voting rights. In light of the above criteria, the Company sold 6 out of 110 stocks that were held at the beginning of FY2020. [Principle 1-7 Related Party Transactions] The Company, in conducting a transaction with any officer thereof, has the following system in place so that such transaction does not harm the interests of the Company and shareholders. ･ In principle, internal rules prohibit all directors and executive officers from conducting a transaction or a competing transaction for themselves or others by using their position at work. ･ However, internal rules also stipulate that reporting to the Board of Directors is required if an adequate reason exists, and that if a transaction is actually conducted, important matters concerning such transaction should be reported to the Board without delay. ･ Internal rules require audit & supervisory board members to monitor and review competing transactions, conflict-of-interest transactions, provision of property benefits with no charge by the Company (including provision of property benefits with significantly limited counter-performance) and irregular transactions with subsidiaries and shareholders to see if there is any violation of the duties of directors. ･ The Company requires its officers to submit a “Letter of Confirmation” concerning related party transactions at the end of every fiscal year, and the Board of Directors monitors if such transactions are conducted. If such transaction of high importance is conducted, the Company discloses it in accordance with the Companies Act and the Financial Instruments and Exchange Act. There is no shareholder who owns 10% or more of the Company’s voting rights. However, in conducting a transaction with such shareholder, the Company, as with any regular transaction, judges the necessity thereof based on the decision-making standards stipulated by internal rules. The Company shall obtain prior approval of the Board of Directors for any transaction of high importance and non-regular ones. [Supplementary Principle 2-4-1 Ensuring Diversity in the Promotion of Core Human Resources, etc.] 1. Approach to ensuring diversity in the promotion of core human resources, etc. The Company’s Corporate Mission, Management Philosophy, and Takasago Way stipulate “personal harmony” and “mutual respect.” By respecting and gathering together various opinions and values of people, regardless of their gender, nationality, or other attributes, a wide range of officers and employees will share the idea of creating useful technologies, products, and services that contribute to society, as well as take a people-oriented approach to hiring and personnel evaluation, including ability and performance. At present, the Company is actively recruiting female employees, and in the personnel system, the Company has abolished regular positions and replaced them with career-track positions, including so-called “regionally limited” positions, and taken other measures, so that almost all female employees can advance their careers to management positions. In addition, a company-wide diversity promotion working team, chaired by the President, has been established to create a working environment in which all employees, regardless of gender, nationality, mid-career employment, the presence or absence of disabilities, or other matters, can fully demonstrate their abilities and play an active role with enthusiasm. On the other hand, the Company recognizes that it currently needs to take further measures to promote human resources, which play a central role in management, especially in the promotion of female managers, compared to the average of all industries and its own industry average. In light of this situation, the Company will work to develop various measures, such as considering the expansion of fields in which women can play an active role, such as construction site work, design work, and research and development work. In order to achieve sustainable growth and enhance corporate value, the Company will continue to set and regularly monitor medium- to long-term targets for the ratio of women in management positions, based on the recognition that it is important to create management innovation and inn ovation by respecting and embracing diverse viewpoints and values. In addition, the Company will also promote the recruitment, development, and promotion of mid-career employees and employees with foreign nationalities to human resources who will play a central role in the management of the Company, with a policy of increasing the ratio of management positions from the current level. In order to ensure diversity, the Company has set the following targets for the promotion of female managers, mid-career employees, and employees with foreign 2. Voluntary and measurable targets to ensure diversity nationalities to management positions, and regularly monitors them. (1) Female employees around 15% by around 2035. As of April 2021, the ratio of female managers remains 1.5% of all employees, but this ratio is targeted to be raised to around 10% by around 2030, and then to April 2021 Around 2030 Around 2035 Ratio of female managers 1.5% 10% 15% In order to steadily advance the above targets, the Company has set targets such as the ratio of female candidates for management positio ns as supplementary indicators and, by around 2030, aims to achieve such ratio of 30%, which is equivalent to the ratio of women to officers and employees. The Company will also work to promote the rate of male employees taking childcare leave and improve the working environment that enables female managers to play an active role. April 2021 Around 2030 Ratio of female candidates for management positions (deputy section manager level) Ratio of women to officers and employees Rate of male employees taking childcare leave (1 week or more) *Results for the previous fiscal year 5.5% 16.6% 3.6% 30% 30% 100% (2) Mid-career employees and employees with foreign nationalities The Company will also work to increase mid-career employees and employees with foreign nationalities in the future, with the aim of the ratio of officers and employees. April 2021 In the future Ratio of mid-career employees management positions in 8.9% Increase from the current level Ratio of nationalities in management positions employees with foreign Ratio of mid-career employees to officers and employees 15.8% Increase from the current level Ratio of nationalities to officers and employees employees with foreign As for employees with foreign nationalities, 1,651 of 1,683 employees at overseas subsidiaries of the Company are employees with foreign nationalities, and 341 employees with foreign nationalities account for 359 management positions. By closely communicating with staff with foreign nationalities at overseas subsidiaries, the Company aims to improve the work ing environment in order to increase opportunities for employees with foreign nationalities to exercise their functions at the Company alone. 3. Human resource development policy to secure diversity, internal environmental development policy, and the status thereof In light of the decline in the number of workers due to the declining birthrate and aging population, changes in the sense of value toward working, and other factors, the Company will continue to hire, train, and evaluate excellent human resources based on the concept of a people -oriented approach, such as ability and performance, regardless of gender, nationality, or other attributes. At the same time, the Company will continue to improve the working environment so that all employees can play an active role in all workplaces in a lively and rewarding manner. April 2021 0% 1.5% In the future Increase from the current level Increase from the current level Status of current initiatives – Promotion of various measures by the company-wide diversity promotion working group – Work style reform at construction sites (workplaces) (review of working hours) – Introduction of hourly paid leave system – Expansion of telework – Promoting flexible working styles through staggered working hours – Promotion of male employees taking childcare leave – Childcare and nursing care support system exceeding legal requirements – Support system for accompanying family members (system for accompanying spouses when they are transferred) – Promotion of health and productivity management For details, please refer to the website. https://www.tte-net.com/english/csr/pdf/csr_2020.pdf [Principle 2-6 Roles of Corporate Pension Funds as Asset Owners] As the Company has a defined benefit corporate pension plan, in managing the reserve fund, it works to appoint a person with expertise and qualifications for pension management to fulfill the expected function as an asset owner. In terms of management, the Corporate Pension Management Committee monitors the status of management and determines a management policy. [Principle 3-1 Full Disclosure] (i) Management Policy, Management Principles, Long-Term Management Vision and Medium-Term Management Plan The management policy of the Company is “Contribution to society through personal harmony and creativity.” Its management principles consist of “To serve society through the development of business activities that focus on the creation of the best product quality,” “To develop technolog y that serves our customers’ needs and utilizes the creativity of all employees” and “To enhance personal character and harmony between people by nurturing talent a nd promoting mutual respect.” The Company created “GReeN PR!DE 100,” the Group’s long-term management vision, with a view to the 100th anniversary of its foundation in 2023. The vision intends to realize a “Corporate group continuously meeting customer expectations and always relied on and trusted by them,” a n “Environmental company whose presence is admired in the global market” and an “Environmental solution professional contributing to the global environment” and shift from an independent contractor to a general engineering company. Based on the achievements of “iNnovate on 2016,” the medium-term business plan with the “Establishment of the foundations for innovation” as the first step (FY2014 – 2016) toward the realization of the long-term vision, the Company has been committed to “iNnovate on 2019 just move on!,” the medium-term business plan with the “Bold implementation of innovations for growth” as the second step (FY2017 – 2019). In addition, the Company newly established the new medium-term management plan “iNnovate on 2023 go beyond!” as the final step (FY2020 – 2023). Currently, the Company is implementing various growth strategies under the basic policies of “steady evolution into a multi-disciplinary equipment business,” “establishment of the second and third core businesses,” and ” further enhancement of employee engagement,” in order to “Strengthen the management infrastructure,” as outlined in the medium-term management plan. The Company will regularly announce the progress of these strategies, including efforts to address sustainability issues (such as responding to climate change, human resources, and investing in intellectual property). (ii) Basic Views on Corporate Governance and Basic Policy Based on the Principles of the Code With “Contribution to society through personal harmony and creativity” as the corporate mission, the Company positions at its root ESG and CSR management that contributes to the resolution of issues faced by stakeholders, including shareholders, employees, customers, subcontractors and communities, and works to earn the trust of society through its corporate activities. The Company also considers strengthening of corporate governance as one of the important management issues and works to achieve sustainable growth and medium- and long-term improvement of corporate value through enforcing effective corporate governance. 1. Securing the Rights and Equal Treatment of Shareholders (Securing the Rights of Shareholders) The Company recognizes that shareholders are important stakeholders and develops an environment where they can fairly exercise their rights. The Company also works to secure the equality of minority shareholders and foreign shareholders and ensure that they can properly exercise the ir rights as well. (Basic Strategy for Capital Policy) The Company enhances the trust of stakeholders such as shareholders, customers and suppliers by securing a stable financial base. At the same time, the Company works to realize efficient corporate management based on ROE with an awareness that efficiency and adequacy of capital such as effective use thereof is an important issue. For profit allocation, the Company positions the return of profits to shareholders as one of its priority management issues, and the basic policy is to return profits to shareholders through dividends. Beginning with the interim and year-end dividends for the fiscal year ending March 31, 2022, the Company will not reduce the dividend during the period covered by the current medium-term management plan (“iNnovate on 2023 go beyond!”) (April 1, 2020 to March 31, 2024), and will increase the dividend in line with earnings growth. The Company intends to further enhance the return of profits to shareholders. For the sustainable growth of the Group and medium- and long-term improvement of corporate value, the Company uses internal reserves as funds to develop technology and reinforce the financial standing to strengthen its competitiveness and for business and capital alliances to expand its business domains and other purposes. In addition, the Company promotes shareholder returns by flexibly implementing share buybacks that comprehensively take into a ccount market conditions, capital levels, business investment opportunities, and other factors, while taking into account “soundness” and “capital efficiency.” 2. Appropriate Cooperation with Stakeholders Other Than Shareholders (Management Principles) Based on the management principles, “Best product quality, unique technology development and human resource development and m utual respect,” the Company believes that cooperation with all stakeholders is essential for sustainable growth and medium- and long-term improvement of corporate value. In order to do this, the management leads activities to nurture a corporate culture that respects the rights and positions of stakeholders and corpora te ethics. (Sustainability) Given the recent growing awareness of social and environmental issues on a global level, the Company bears social responsibilities while striving to enhance its corporate value, engaging in ESG-oriented management in an effort to contribute to the realization of a sustainable society. The Company actively promotes fair and transparent management, including thorough enforcement of corporate ethics, activities that contribute to environmental conservation, such as decarbonization as an environment creator and consideration of climate change initi atives, and activities that contribute to the provision of distinctive technologies and the highest quality based on customer needs, improvement of employee engagement, and the fostering of a corporate culture in which diverse human resources can thrive. 3. Ensuring Appropriate Information Disclosure and Transparency (Full Disclosure) Regardless of whether required by law or not, the Company works to maintain timely and proper information disclosure from the perspective of protecting investors and earning the trust of the capital market. (Accounting Auditors) In disclosing information, the Company works to be accurate and easy to understand so that it can have constructive dialogue with its shareholders. Accounting auditors, in collaboration with audit & supervisory board members and relevant departments such as Accounting & Finance and Internal Audit, work to secure an audit plan and a system and conduct a proper audit. The Company promptly reports any event which affects accounting to the auditing firm and consults with and notifies it of an accounting policy. Accounting auditors work to understand accurate background information and the facts of such event to form an opinion. 4. Responsibilities of the Board (Roles and Responsibilities of the Board) The Company develops and uses a system including an optional committee so that the Board of Directors can fully perform its main ro les and responsibilities: “Presentation of directions such as corporate strategy,” “Development of environment which supports risk taking” and “Highly effective supervision of the management and directors.” The Board of Directors makes important decisions for business execution and supervises performance of duties by directors to improve the efficiency of business management and secure the legality and validity of business execution. (Use of Independent Outside Directors) The Company utilizes judgments of outside directors independent from the management to promote “Segregation of supervision and execution of management” and secure the independence and objectivity of the Board of Directors in supervising business management. The Company believes that independent outside directors can have discussions which contribute to the sustainable growth of the Company and medium- and long-term improvement of corporate value by offering useful advice and opinions on a management policy and improvement of business m anagement from an independent perspective based on their expertise, abundant experience and knowledge. At the General Meeting of Shareholders held in June 2021, the Company raised the ratio of outside directors from 36.4% (4 of the 11 directors are independent outside directors) to 50% (5 of the 10 directors are independent outside directors). (Evaluation of Effectiveness of the Board) The Company checks whether the entire Board of Directors properly functions or not, so that it can effectively perform its roles and responsibilities. While regularly analyzing and evaluating the effectiveness of the entire Board of Directors based on self-assessment of the respective director and audit & supervisory board members, the Company directly obtains advice and opinions on this analysis and evaluation from outside directors and outside audit & supervisory board members, and takes proper measures to solve issues, if any. The Company uses the results of analysis of this evaluation to improve the Board of Directors’ decision-making/supervisory function. For details, see [Supplementary Principle 4-11-3 Analysis/Evaluation of Effectiveness of the Board, Disclosure of Summary of Results Thereof] below. 5. Dialogue with Shareholders (Dialogue with Shareholders) The Company believes listening to shareholders and taking proper measures lead to the sustainable growth and medium – and long-term improvement of corporate value. Thus, the Company commits to building a constructive relationship with shareholders through dialogue with shareholders and disclosure of materials. For details, see [Principle 5-1 Policy for Constructive Dialogue with Shareholders] below. (i) Policy and Procedures for the Board of Directors to Determine Remuneration of Executives and Directors With regard to the individual remuneration, etc. of the Company’s directors, for the purpose of growing its business over the medium to long term and continuously and sustainably improving its corporate value and the common interests of its shareholders, the Company has decided, by resolution of the Board of Directors, to adopt a policy of having a remuneration system that functions as one of the sound incentives (motivation) in consideration of trends in corporate governance, survey data from external specialist organizations, the remuneration levels of other companies, and other factors. In addition, the individual remuneration, etc. for audit & supervisory board members are determined through discussion by audit & supervisory board members within the maximum amount of the total remuneration, etc. of audit & supervisory board members determined by a resolution of the General Meeting of Shareholders. The content of individual remuneration, etc. for directors is determined by a resolution of the Board of Directors. In making such determination, the Nomination and Remuneration Committee, which consists of seven members, four of whom are independent outside directors, met nine times in total in the recent fiscal year. In these meetings, the Committee deliberates the appropriateness of the remuneration, the system design, etc. and considers the draft in a diversified manner, including consistency with this policy. The Board of Directors also fundamentally respects the report thereon. Therefore, the Company has determined that the content of the individual remuneration, etc. for directors related to the recent fiscal year is in line with this policy. The following is a summary of the policy for determining the content of individual remuneration for officers of the Company. The Company determines, based on a resolution of a shareholder meeting, the maximum limit of total remuneration of each direc tor and audit & supervisory board member. To enhance the independence, objectivity and transparency of officer remuneration, the Company established, as an optional advisory body, the Nomination and Remuneration Committee, which consists of the Chairman and Director, the President and Director, and independent outside directors. After discussions at a meeting of the Committee, the Company determines, based on a resolution of the Board of Directors, the director remuneration, etc. The remuneration of directors consists of basic remuneration, a bonus as a short-term (annual) incentive, and a trust-type stock compensation plan as a medium- and long-term incentive, and the composition ratio is set in consideration of this policy. The Company’s policy is to reduce the proportion of basic remuneration and increase the proportion of bonuses and a trust -type stock compensation plan as the rank increases. The proportion of basic remuneration, bonuses, and a trust-type stock compensation plan on the basis of the President and Representative Director’s standard payment ratio is 60%: 20%: 20%. The Company only pays basic remuneration to independent outside directors and pays no bonus or stock-related remuneration to them. Basic remuneration is fixed remuneration determined according to one’s title and is paid monthly. For bonuses, for the purpose of boosting the motivation to achieve a single-year performance goal, etc., the Company introduced a system where bonuses fluctuate between 50% to 150% depending on the base amount by position, according to the previous year’s earnings (profit attributable to owner s of parent from the viewpoint of sharing performance with shareholders, ratio of net income to consolidated sales from the viewpoint of profitability, and consolidated sales from the viewpoint of the sustainable growth of the Group) as well as qualitative evaluation of each officer (degree of achievement of individual goal, training of successors, improvement of corporate value, efforts toward SDGs, vitalization of the Board of Directors and compliance). Bonuses are paid at a certain time each year. The purpose of the trust-type stock compensation plan is to further motivate them to contribute to higher profits and improve corporate value in the medium and lo ng terms. In June of each year, points are granted based on base points that are predetermined according to one’s position and multiplied by a performance-linked coefficient that varies according to the degree of achievement against the target values of the performance indicators for the fiscal year ending on the last day of March of the same year. Shares of the Company equivalent to the cumulative points are delivered at the time of retirement. The performance-linked coefficient is designed to vary within the range of 0% to 150%, depending on the degree of achievement of targets, etc. for financial indicators (consolidated sales, consolidated ordinary income, consolidated ROE, etc.) and non-financial indicators (CO2 emissions, etc.) for each fiscal year. Number of points granted = Base amount of stock compensation by position / Average acquisition price of shares of the Company (*1) × Performance-linked coefficient of financial indicators (*2) × Performance-linked coefficient of non-financial indicators (*3) *1. Average acquisition unit price of shares of the Company through a trust. If the trust period is extended, the average acquisition price of shares of the Company acquired through the trust after the extension. ROE coefficient × 10% *2. Performance-linked coefficient of financial indicators = Consolidated sales coefficient × 30% + Consolidated ordinary income coefficient × 60% + Consolidated *3. CO2 emissions are used as a non-financial indicator. As with directors, remuneration of executive officers consists of basic remuneration, bonus as a short-term (annual) incentive and trust-type stock compensation as a medium- and long-term incentive, and is determined based on a resolution of the Board of Directors after discussion by the Nomination and Remuneration Committee. Each director (except for independent outside directors) and executive officer shall endeavor to acquire shares of the Company by way of optional contribution through the director shareholding association. The remuneration of audit & supervisory board members only consists of basic remuneration whose amount is determined through discussions by audit & supervisory board members by considering the details, volume and difficulty of the duties of each audit & supervisory board member and the extent of responsibilities in a comprehensive manner. A fixed amount is paid each month. No bonus or stock-related remuneration is paid to audit & supervisory board members in light of their duties. Conceptual image of director’s remuneration 1) Directors Type of remuneration Date of resolution Eligible person Amount Basic remuneration and bonus June 29, 2010 Director Stock compensation June 22, 2021 Director (except for outside director) and executive officer ¥550 million or less (in one fiscal year) ¥769 million or less (in three fiscal years) 158,200 shares or less (in one fiscal year) Number of members at the time of resolution 12 5 directors and 23 executive officers who do not concurrently serve as a director 2) Audit & Supervisory Board Members Type of remuneration Basic remuneration Date of resolution June 26, 2018 Eligible person Audit & Supervisory Board Member Amount ¥120 million or less in a year Number of members at the time of resolution 5 The Company determines the bonus paid to each director based on his/her performance, duties, degree of contribution, etc. in a comprehensive manner. For the purpose of boosting the motivation to achieve a single-year performance goal, etc., performance indicators for the recent fiscal year are composed of the results for the previous year’s earnings (profit attributable to owners of parent from the viewpoint of sharing performance with shareholders, consolidated operating profit from the viewpoint of profitability, and consolidated sales from the viewpoint of sustainable growth of the Group) as well as qualitative evaluation of each director (degree of achievement of individual goal, training of successors, improvement of corporate value, efforts toward SDGs, vitalization of the Board of Directors and compliance). In addition, regarding the performance evaluation for the recent fiscal year, it was difficult to come up with an outlook for the external environment at the start of the recent fiscal year, and it was difficult to anticipate the performance forecast based on target values. Therefore, after deliberation by the Nomination and Remuneration Committee, the Company decided to calculate the amount of individual payments under a mechanism that varies between 0% and 150% of the base amount by position in accordance with the rate of change from the previous fiscal year in relation to the following indicators. The actual results related to indicators for the recent fiscal year are as follows: Actual results (rate of change from the previous fiscal year) (23.5%) (31.3%) (14.2%) Indicator Profit attributable to owners of parent Consolidated operating profit Consolidated sales The Board of Directors determines the amount of remuneration of directors after discussions at the Nomination and Remuneration Committee. For an overview of the Committee, see “2. Matters on Functions of Business Execution, Auditing/Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System).”

The Company determines the amount of each type of remuneration within the limit stipulated by shareholders’ meetings. As basic remuneration is determined based on the amount by position stipulated by resolutions of the Board of Directors, there is no room for discretion of Representative Directors or the Nomination and Remuneration Committee in principle. Bonus is calculated by the formula by position stipulated by resolutions of the Board of Directors. The Board approves its amount after the Nomination and Remuneration Committee verifies the appropriateness. Stock compensation is determined based on the formula by position stipulated by resolutions of the Board of Directors. The scope of employees discussed by the Nomination and Remuneration Committee concerning remuneration includes directors (except for outside directors) and executive officers. The Office of the Nomination and Remuneration Committee is established in the Corporate Planning Division and convenes meetings and provides prior explanation in accordance with the “Rules for Nomination and Remuneration Committee.” What is discussed in those meetings is reported to the Board of Directors at the discretion of the chairperson. The Nomination and Remuneration Committee held nine meetings during last fiscal year and discussed validity of the remuneration to each director proposed by the Company given the level of fulfillment of one’s function while discussing the method of calculating performance-linked compensation. The Board of Directors received reports on discussions at the Committee. In addition to the remuneration of directors, the Nomination and Remuneration Committee deliberated on matters related to the appointment and dismissal of executives and reported the results to the Board of Directors. All directors who are members of the Committee attended all nine meetings of the Committee. (ii) Policy and Procedures for the Board of Directors to Appoint/Dismiss Executives and Nominate Candidates for Directors and Audit & Supervisory Board Members To enhance the objectivity and transparency of appointment/dismissal of executives as well as nomination of candidates for di rectors and audit & supervisory board members, the Company, as an optional advisory body, established the Nomination and Remuneration Committee which consists of the Chairman and Director, the President and Director, and independent outside directors. After discussions at the Committee, candidates are submitted to the Board of Directors for further deliberation. However, for audit & supervisory board members, approval of the Audit & Supervisory Board is obtained when submitting candidates to the Board of Directors for deliberation. As of the submission of this Report, five out of seven members of the Committee are independent outside directors. The criteria for appointment of directors include knowledge of business operation with excellent foresight, insight and objec tive judgment, ability to exercise leadership for sustainable growth of the Group and improvement of corporate value, ability to make an active and positive contrib ution to development of the next-generation executives, great character with popularity, high ethical standards and courage, ability to perform one’s duty with no physical or mental problem and freedom from any problem such as having a vested interest. In addition to the above criteria, for directors who are not outside directors, sufficient experience and knowledge to manage the area he or she is in charge of and a sense of balance as well as leadership to execute business from the perspective of total opti mization are required. For outside directors, an ability to supervise and check business management from an independent perspective by using abundant experience and knowledge of the area of expertise and corporate management is required. For the standards to secure the independence of independent outside directors , see [Principle 4-9 Independence Standards and Qualification for Independent Outside Directors] below. The criteria for appointment of audit & supervisory board members include quality to fulfill responsibilities of audit & supervisory board members with high ethical standards, physical and mental fitness and freedom from any problem such as having a vested interest. In addition to the above criteria, for audit & supervisory board members who are not outside audit & supervisory board members, sufficient experience and knowledge of the Company’s businesses and ability to conduct a proper audit are required. For outside audit & supervisory board members, an ability to conduct a proper audit from an independent perspective by using abundant experience and knowledge of the area of expertise and corporate management is required. For the standards to secure the independence of independent outside audit & supervisory board members, see [Principle 4-9 Independence Standards and Qualification for Independent Outside Directors] below. The criteria for appointment of executive officers include an ability to perform important management in terms of corporate strategy supported by a high level of professionalism and track record, ability to exercise leadership for sustainable growth of the Group and improvement of corpo rate value, ability to make an active and positive contribution to development of the next-generation executives, great character with popularity, high ethical standards and courage, ability to perform one’s duty with no physical or mental problem and freedom from any problem such as having a vested interest. When executives are considered to lack aptitude in light of the above-mentioned standards, the Nomination and Remuneration Committee may discuss dismissal of such executives. (iii) Explanation of Each Appointment/Dismissal and Nomination When the Board Appoints/Dismisses Executives and Nominates Candidate s for Directors and Audit & Supervisory Board Members Based on (ii) Above The Company, in nominating candidates for directors and audit & supervisory board members, specifies the reason for selecting each candidate in a notice of a general shareholder meeting. The explanations for nomination of current directors and audit & supervisory board members as candidates therefor are shown below. Atsushi Ouchi: Chairman and Representative Director, CEO Having served as President and Representative Director since April 2010 and Director, Chairman and President since April 2016, Atsushi Ouchi engages in management by exercising his leadership as the Group CEO. We believe that, as Chairman and CEO, he can be expected to achieve the Group’s sustainable growth as well as medium and long-term improvement in corporate value and to revitalize and strengthen the functions of the Board of Directors. Kazuhito Kojima: President and Representative Director, COO; Global Business Planning Headquarters, and Research and Development Headquarters Through the execution of the air conditioning equipment business, Kazuhito Kojima has gained abundant experience and deep insight in the design/construction of building equipment relating to the Group’s businesses. He has also fulfilled his executive responsibilities through the devel opment of the Group’s medium-term/annual business plans and through structural reforms and ESG/SDG-conscious corporate planning operations. We believe that, as President, he can be expected to achieve the Group’s sustainable growth as well as medium and long-term improvement in corporate value and to revitalize and strengthen the functions of the Board of Directors. Yoshiyuki Hara: Director and Senior Managing Executive Officer, CFO; Risk Management Office, and Property Development Management Department Yoshiyuki Hara has gained advanced knowledge in finance and banking field through his years of service with financial institutions. He has also fulfilled his executive responsibilities associated with accounting, finance, and planning-related operations toward the enhancement of the Group’s corporate governance and management foundation. We believe that, as CFO, he can be expected to achieve the Group’s sustainable growth as well as medium and long -term improvement in corporate value and to revitalize and strengthen the functions of the Board of Directors. Tadashi Kamiya: Director and Managing Executive Officer; Chief Executive Officer of Business Management Headquarters; Director in Charge of Quality Environment & Safety Control, Total Engineering, Group Companies, and Sales & Marketing Headquarters Through the execution of the air conditioning equipment business, Tadashi Kamiya has gained abundant experience and deep insight in the design/construction of building equipment relating to the Group’s businesses. He has also fulfilled his executive responsibilities through business management and productivity improvemen t in the air conditioning equipment business. We believe that, as Director in Charge of Quality Environment & Safety Control including core business management, he can be expected to achieve the Group’s sustainable growth as well as medium and long-term improvement in corporate value and to revitalize and strengthen the functions of the Board of Directors. Toshikazu Yokote: Director and Managing Executive Officer, CDXO; Director in Charge of Compliance, Corporate Operations Headquarters, and DX Management Headquarters Through the execution of the air conditioning equipment business, Toshikazu Yokote has gained abundant experience and deep insight in the design/construction of building equipment relating to the Group’s businesses. He has also fulfilled his executive responsibilities through the enhancement of the management foundation, as Officer in charge of human resources, general affairs, accounting & finance, legal-related operations and DX management. We believe that, as Director in Charge of Compliance including overall corporate management, he can be expected to achieve the Group’s sustainable growth as well as medium and long-term improvement in corporate value and to revitalize and strengthen the functions of the Board of Directors. An explanation is shown below in “Reasons for Appointment” of the said Outside Director. Kazuo Matsunaga, Director Kiyoshi Fujimura, Director Yoko Seki, Director Makio Fujiwara, Director Hideka Morimoto, Director An explanation is shown below in “Reasons for Appointment” of the said Outside Director. An explanation is shown below in “Reasons for Appointment” of the said Outside Director. An explanation is shown below in “Reasons for Appointment” of the said Outside Director. An explanation is shown below in “Reasons for Appointment” of the said Outside Director. Yukitoshi Yamamoto, Full-time Audit & Supervisory Board Member We believe Yukitoshi Yamamoto can supervise and check business management by using his knowledge of con struction, overall technology such as technological administration and general administration such as general affairs and human resources. Kunihiro Kondo, Full-time Audit & Supervisory Board Member Kunihiro Kondo has abundant experience and knowledge of finance and accounting from his work at financial institutions. As he has serv ed as Deputy General Manager of the Tokyo Main Office and Deputy Chief Executive Officer of the Sales & Marketing Headquarters since joining the Company, we believe he can supervise and check business management. Tetsuo Ito, Audit & Supervisory Board Member An explanation is shown below in “Reasons for Appointment” of the said Outside Audit & Supervisory Board Member Masahiro Seyama, Audit & Supervisory Board Member An explanation is shown below in “Reasons for Appointment” of the said Outside Audit & Supervisory Board Member. Shigeharu Kawahara, Audit & Supervisory Board Member An explanation is shown below in “Reasons for Appointment” of the said Outside Audit & Supervisory Board Member. [Supplementary Principle 3-1-3 Initiatives for Sustainability] The Company believes that addressing sustainability issues through its business activities will lead to the enhancement of its corporate value and has been implementing this policy at the core of its management based on its Basic CSR Policy, and the Company has established the Bas ic Principles of Sustainability as a new policy. In terms of specific activities, the ESG Promotion Committee, chaired by the President and composed of internal directors and gener al managers, is the core of the Company’s activities, which are based on the following three pillars for the current fiscal year. (i) ESG promotion activities in which each department takes the initiative in addressing items of the issues listed by all stores and each depa rtment of the head office (ii) Activities to set up working groups under the Committee to focus on the knowledge of the entire company and all stores and to promote consideration (iii) Other activities that are highly individualized and considered across the company, mainly by committees With regard to (i) above, in each branch and each organization of the head office: – Efforts to reduce CO2 and waste in response to environmental issues – In response to social issues, initiatives for quality improvement and human resource development (improvement of the working environment for employees such as improvement of employee engagement, health and productivity management, and promotion of diversity), education and information dissemination regarding human rights, etc. – Fairness and transparency of management as governance issues The Company has set target levels for each of the above items and is working on them. With regard to (ii) above: – CO2 Working Group to promote the consideration of CO2 reduction in Scope 3. – Engagement Improvement Working Group aimed at improving employee engagement with the Company – Diversity Promotion Working Group aims to create a workplace where female, foreign nationals, and mid-career employees, who are considered social minorities, can play an active role. The above three working groups have been established and are being considered. The content under consideration in the above working groups is discussed by the ESG Committee and presented and reported to the Board of Directors. With regard to (iii) above, the Company considered disclosure and other issues in accordance with the TCFD’s recommendation frame, which the Company expressed its support in September 2020. Please refer to the website of the Company for details of the disclosure. https://www.tte-net.com/topics/2021/pdf/20211015_2.pdf The Company will continue to deepen its focus on sustainability issues through initiatives led by the ESG Promotion Committee. With regard to investment in human capital, based on the philosophy that “people are the greatest asset” set forth in the Basic Policy for Human Resource Development, the Takasago Academy provides practical and multifaceted educational programs by purpose and level with the aim of fostering human resou rces who will create the future. In the future, in addition to enhancing these employee training systems, the Company will consider improving the workplace environment to increase employee engagement, expanding systems to enable all types of human resources to play an active role from the perspective of promoting diversity, and taking other measures. With regard to investments in intellectual property, the Company annually invests in research and development for the advancement of the Company’s technology, and the Intellectual Property Strategy Office strives to maintain and acquire intellectual property rights for products and services put on the market. In addition to securing a competitive advantage in the market through such investments in research and development and the number of intelle ctual property cases at the top level in the industry, the Company maintains technical knowhow in design, procurement, and construction, which are important management resources, and establishes a system to prevent patent infringement. In addition, in recent years, as the Company works to disseminate and expand the Group’s technologies in collaboration with value chains, the Company’s intellectual property revenues have also been steadily increasing. [Supplementary Principle 4-1-1 Scope of Delegation to Management] The “Rules for the Board of Directors” and the “Regulations for the Management Council” stipulate matters to be discussed by the Board and the Management Council. The Board of Directors supervises performance of duties by Representative Directors and other directors, improves the efficiency of business management and secures the legality and validity of business execution while making a decision on matters stipulated by laws and the Articles of Incorporation, th e basic policy for business management and other important matters for business execution. For matters to be resolved by the Board of Directors, clear procedures are in place by developing certain quantitative criteria for disposal/transfer of important assets and large borrowings. The Management Council consists of directors and Chief Executive Officers of Headquarters excluding outside directors, working to have full discussions on important matters for business management and expedite decision-making on allocation of management resources. After the Management Council discusses important matters for business management, they are submitted to the Board of Directors for further discussion. For matters concerning allocation of management resources, they are reported to the Board after being discussed by the Management Council. Also, for these matters, clear procedures are in p lace by developing quantitative decision-making standards for each item such as acquisition of property, plant and equipment. [Supplementary Principle 4-1-3 Plan for Successor to Director and CEO] To secure the transparency and objectivity of the Director and CEO’s succession to a successor, in a plan for successor to the Director and CEO, a policy and a plan to develop a successor and the progress thereof shall be reported to the Nomination and Remuneration Committee which in turn discusses these matters. The Director and CEO proposes the most qualified person as a candidate for successor when appointing a new director and CEO. The Committee deliberates on the candidate and reports its results to the Board of Directors. [Principle 4-8 Effective Use of Independent Outside Directors] The Company appointed five out of ten directors as independent outside directors. Independent outside directors fulfill their management oversight and checking functions from an independent p erspective at the meetings of the Board of Directors or the Nomination and Remuneration Committee, by drawing on their abundant experience and deep insight in their fields of expertise or corporate management. [Principle 4-9 Independence Standards and Qualification for Independent Outside Directors] The Independence Standards for Outside Officers of the Company are shown below. Standards for Independence of Outside Officers 1. He or she is not a party whose major client or supplier (Note) is the Company or an executive thereof (Note) A party whose major client or supplier is the Company is a business entity whose transactions with the Company in each target fiscal year (previous fiscal year and last three fiscal years) account for 2% or more of its net sales in principle. 2. He or she is not a major client or supplier (Note) of the Company or an executive thereof (Note) A major client or supplier of the Company is a business entity whose transactions with the Company in each target fisc al year (previous fiscal year and last three fiscal years) account for 2% or more of the net sales of the Company in principle. 3. He or she is not a consultant, an accountant or a legal professional who receives a large amount of monetary consideration or other property (Note) from the Company besides compensation as a director/audit & supervisory board member (when a party that receives such property is an organization such as a corporation or an association, a person who belongs to such organization) (Note) A large amount of monetary consideration or other property is defined as those whose total value is 10 million yen or more in a given fiscal year in principle. 4. He or she was not recently applicable to any of (1) through (4) below (1) A party set forth in 1, 2 or 3 (2) Executive or a non-executive director of the parent company of the Company (3) Audit & supervisory board member of the parent company of the Company (only when appointing an outside audit & supervisory board member as independent officer) (4) Executive of a fellow subsidiary company of the Company 5. He or she is not a close relative (Note) of a party applicable to any of (1) through (8) below (except for a party who is not important (Note)). (1) A party set forth in 1 through 4 above (2) An accounting advisor of the Company (when the accounting advisor is a corporation, including an employee who performs that duty; the same applies hereafter) (only when appointing an outside audit & supervisory board member as independent officer) (3) Executive of a subsidiary of the Company (4) Non-executive director or an accounting advisor of a subsidiary of the Company (only when appointing an outside audit & supervisory board member as independent officer) (5) Executive or a non-executive director of the parent company of the Company (6) Audit & supervisory board member of the parent company of the Company (only when appointing an outside audit & supervisory board member as independent officer) (7) Executive of a fellow subsidiary company of the Company (8) A party that recently served as (3), (4) above or executive of a listed company (including non-executive director when appointing an outside audit & supervisory board member as independent officer) (Note) An “important” party is an officer or a manager of each company/supplier in the case of the executive in 1. or 2. and a certified public accountant affiliated with each auditing firm or a lawyer affiliated with each law firm (including so-called associate) in the case of a person who belongs to an organization in 3. Close relative means relatives within the second degree of kinship. [Supplementary Principle 4-10-1 Establishment of Nomination and Remuneration Committee] With the aim of establishing a fair corporate governance system and ensuring management transparency, the Company has established the Nomination and Remuneration Committee, consisting of five independent outside directors (one of whom is a female) and two internal directors. The Committee deliberates on the following matters regarding the nomination, remuneration, etc. of directors, Audit & Supervisory Board members, and executive officers, and presents and reports them to the Board of Directors. – Policy on the election and dismissal of directors, representative directors, executive officers, and Audit & Supervisory Board members* *As for Audit & Supervisory Board members, the consent of the Audit & Supervisory Board is required. – Proposals for the election and dismissal of directors and Audit & Supervisory Board members to be submitted to the General Meeting of Shareholders – Succession plans for the President and directors – Policy for the remuneration of directors and executive officers and the calculating method draft – Other important management matters deemed necessary by the Board of Directors At present, the Nomination and Remuneration Committee consists of a majority of independent outside directors in order to ensure independence and objectivity, and the chairperson is elected from among the committee members, including independent outside directors, by mutual vote at each committee meeting. The Company will consider ways to further enhance independence and objectivity. The standards for ensuring the independence of independent outside directors are described in [Principle 4-9 Independence Standards and Qualification for Independent Outside Directors] below. [Supplementary Principle 4-11-1 Views of the Board as a whole on Balance of Knowledge/Experience/Capability, Diversity and Size] The Board of Directors of the Company works to improve the efficiency of business management and secure the legality and adequacy of business execution by making important decisions for business execution and supervising the performance of duties by directors. To do that, the Company believes the Board of Directors consisting of an appropriate number of diverse personnel is required to have active discussions and perform swift decision -making. Executive directors should have abundant experience and knowledge of their respective field of expertise and have a sense of balance as well as leadership to execute business from the perspective of total optimization. On the other hand, we believe outside officers can hold discussions which contribute to the sustainable growth of the Company and medium- and long-term improvement of corporate value by offering useful advice and opinions from an independent perspective based on abundant experience and knowledge of the respective field of expertise (outside directors) and from a professional standpoint and abundant experience and knowledge of corporate management (outside audit & supervisory board members). In order to realize the Group’s medium- to long-term management strategy, the Company has identified the following as particularly important areas: (i) corporate management and management strategy, (ii) technology, innovation, and DX, (iii) environment, (iv) global, (v) sales strategy and marketing, (vi) finance and accounting, (vii) legal and risk management, and (viii) human resources development and labor. The skills of the current members of the Company’s Board of Directors are not excessive or inadequate and are appropriately a ssigned, and the list is as follows: Technology, innovation, DX Sales strategy and marketing Legal and risk management Finance and accounting Environment Global and Human resources development and labor Corporate management and management strategy ● ● ● ● Corporate management and management strategy Atsushi Ouchi Kazuhito Kojima Yoshiyuki Hara Tadashi Kamiya Toshikazu Yokote Kazuo Matsunaga Kiyoshi Fujimura Yoko Seki Makio Fujiwara Hideka Morimoto Yukitoshi Yamamoto Kunihiro Kondo Tetsuo Ito Masahiro Seyama Shigeharu Kawahara ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Environment Global Technology, innovation, DX and Sales strategy and marketing Finance accounting and Legal and risk management Human resources development and labor [Supplementary Principle 4-11-2 Status of Concurrent Posts Held by Directors and Audit & Supervisory Board Members] When outside directors or outside audit & supervisory board members serve as an officer of any other listed company, the Company ensures that they would spend the time and energy required to fulfill their roles and responsibilities the Company expects them to perform. The Company che cks and adjusts in advance a schedule of meetings of the Board of Directors and the Audit & Supervisory Board to increase the attendance rate. The Company discloses the status of important concurrent posts in its business report, reference documents for shareholders meetings and securities reports. Directors that are not outside directors and audit & supervisory board members that are not outside audit & supervisory board members do not hold any important concurrent post. [Supplementary Principle 4-11-3 Analysis/Evaluation of Effectiveness of the Board, Disclosure of Summary of Results Thereof] The Company evaluates the effectiveness of the Board of Directors annually based on the self-evaluation of each director and audit & supervisory board member to secure the efficacy and effectiveness of the Board. Each director and audit & supervisory board member performs a self-evaluation based on the “Self-Evaluation Sheet,” and the results are analyzed and evaluated by the Board of Directors after being discussed by Representative Directors and outside officers. The summary results of this analysis and evaluation are shown below, and we believe the efficacy and effectiveness of the entire Board of Directors is secured. Given the results, the Company will work to further improve the supervisory and decision-making function of the Board. ･ As a result of promoting more in-depth discussions at the meetings of the Management Council and the Internal Control Committee, which are organized under the Board of Directors, as well as enhanced internal controls, it was confirmed that the appropriate development of highly effective oversight and risk management systems, which is one of the responsibilities of the Board of Directors, has been conducted on a continuous basis. ･ It was confirmed that active, wide-ranging and constructive discussions and full and multifaceted reviews were conducted at the Board of Directors, showing that the Board was vitalized. In addition, there was an opinion that we should deepen more multilateral discussions to further enhance debates about the direction of medium and long-term management. ･ Regarding the new risk of COVID-19, there were comments that it is important to deepen our understanding of the impact on management, the status of the disease, countermeasures, etc. [Supplementary Principle 4-14-2 Policy for Training of Directors and Audit & Supervisory Board Members] The Company believes that matters required of directors and audit & supervisory board members mainly consist of matters unique to the Company such as required knowledge of the businesses, finance and organization of the Company and general matters such as the roles required of directors and audit & supervisory board members and responsibilities including legal ones. Executive directors, through discussions at the Management Issue Review Committee, work to gain a better understanding of gen eral matters such as the businesses, finance and organization of the Company every year. Executive directors and audit & supervisory board members that are not outside audit & supervisory board members work to understand the roles and responsibilities required of directors and audit & supervisory board members