栗田工業（6370） – Corporate Governance Report

Corporate Governance Report Contact: General Affairs Department, Corporate Control and Administration Division KURITA WATER INDUSTRIES LTD Last Update: April 15, 2022 Kurita Water Industries Ltd. President and Representative Director: Michiya Kadota +81-3-6743-5068 Securities Code: 6370 https://www.kurita.co.jp/english/ The corporate governance of Kurita Water Industries Ltd. is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views Kurita Water Industries Ltd. and its consolidated subsidiaries (hereinafter the “Kurita Group,” and Kurita Water Industries Ltd. on a non-consolidated basis shall be hereinafter referred to as the “Company”) aim to contribute broadly to society through corporate activities in the fields of water and environment in accordance with the Kurita corporate philosophy, “Study the properties of water, master them, and we will create an environment in which nature and man are in harmony.” The Kurita Group will make efforts to promote sustainable growth and enhance its corporate value in the medium and long term, deferring to the rights and position of various stakeholders such as customers, business partners, employees, shareholders, and local communities while striving to meet their expectations. To this end, the Kurita Group will establish corporate governance, with the aim of realizing transparent, fair, prompt, and decisive decision-making measures and highly effective management supervision. [Basic Policies] (1) Ensuring the rights and equality of shareholders The Kurita Group will work to develop an environment in which the shareholders are able to appropriately exercise their rights, such as voting rights at a general meeting of shareholders, and provide the information needed to exercise of their rights in a timely and accurate manner in order to secure the substantive equality of the rights of shareholders, including minority and foreign shareholders. (2) Appropriate level of cooperation with stakeholders other than shareholders The Kurita Group will work to ensure an appropriate level of cooperation with stakeholders such as customers, business partners, employees, and local communities under the leadership of the Board of Directors. To achieve this aim, the Kurita Group will properly respond to issues related to sustainability(medium- to long-term sustainability including ESG factors), and make actions based on compliance with laws, regulations, and social ethics a prerequisite for all corporate activities. (3) Ensuring appropriate information disclosure and transparency of information The Kurita Group will develop an environment in which the Audit & Supervisory Board, the members of the Audit & Supervisory Board, and the accounting auditor are able to conduct audits properly. It will also disclose information in accordance with the laws related to information disclosure, such as the Companies Act and the Financial Instruments and Exchange Act, and regulations for the timely disclosure of corporate information established by the Tokyo Stock Exchange. The Kurita Group will actively and fairly disclose information that is deemed to be effective for facilitating understanding of the Kurita Group among – 1 – shareholders and investors. This information will comprise financial information including financial conditions and results of operations, management strategies including risks, corporate governance and matters related to social and environmental issues, and other issues surrounding sustainability, and policies for capital efficiency. (4) Duties of the Board of Directors and the Audit & Supervisory Board, etc. The Board of Directors will fulfill its fiduciary responsibility and accountability to shareholders. It will strengthen the orientation of corporate strategies, decision-making on important matters related to operational execution, the supervision of overall management, the internal controls and risk management measures that support appropriate risk-taking, etc. in order to enhance the corporate value and earnings power, as well as improve capital efficiency, etc. The members of the Audit & Supervisory Board and the Audit & Supervisory Board will fulfill their fiduciary responsibility to shareholders, and conduct audits in an appropriate manner and express their opinions from an independent and objective standpoint. (5) Dialogue with shareholders and investors Continuing to emphasize management that values shareholders, the Kurita Group will make efforts to engage in constructive dialogues with shareholders and investors, as well as provide them with information in a timely and appropriate manner. The Company’s Corporate Governance Policies are posted on our website: https://ir.kurita.co.jp/en/corporate_governance/governance_policies/index.html [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company complies with all the principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] Updated [Principle 1.4 Policies regarding shares owned for policy purposes and the exercise of voting rights] (1) Policy regarding shares owned for policy purposes In some cases, the Company holds listed shares as shares owned for policy purposes to strengthen business relationships, etc. When holding such shares, the Company makes efforts to minimize the risk of holding shares owned for policy purposes by examining economic rationality in the medium and long term and relationships with companies whose shares the Company holds. The propriety of holding each individual stock owned for policy purposes is reviewed on a regular or timely basis at the Board of Directors by closely examining the expected return against the cost of capital and the status of business transactions with the company whose shares the Company holds. Based on the results of the examination, the Company strives to reduce the holding of shares owned for policy purposes. (2) Policy for exercising the voting rights of shares owned for policy purposes When exercising the voting rights of shares owned for policy purposes, the Company will do so by judging the pros and cons of each proposal, taking into comprehensive consideration whether it will contribute to medium- and long-term enhancement of the corporate value of the Company and a company in which the Company holds shares. (3) Policy for responding to the intention to sell, etc. of the Company’s shares indicated by a shareholder owning shares for policy purposes (Note 1) If a shareholder owning shares for policy purposes indicates its intention to sell, etc. the Company’s shares, the Company will not prevent the shareholder from making such sale, etc. Note 1: The term “shareholder owning shares for policy purposes” means a shareholder who owns the Company’s shares for policy purposes. (4) Policy for transactions with shareholders owning shares for policy purposes The Company will not conduct transactions with any shareholder owning shares for policy purposes if such – 2 – transactions are detrimental to the Company itself and common interests of its shareholders. ⇒ In accordance with the above policies, the Company reviewed shares owned for policy purposes, and as a result, sold four holdings (including ones sold partially) in the fiscal year ended March 31, 2022. [Principle 1.7 Related Party Transactions (Note 2)] When conducting an important transaction (Note 3) with a related party, the Company’s Board of Directors will review and decide on the transaction in advance to ensure that the transaction does not harm the interests of the Kurita Group and the common interests of its shareholders. The details of the submission standards, etc. shall be set forth in the Board of Directors Regulations, and the standards shall be disclosed. Note 2: The term “Related Party Transactions” means transactions between the Company and following persons. (a) An officer of the Company and its close relative, (b) a shareholder who holds 10% or more of the voting rights of the Company and its close relative, (c) an important officer of a subsidiary and its close relative, (d) a subsidiary of the Company (excluding wholly owned subsidiaries) and its affiliate, and (e) a company in which a party mentioned in (a) through (d) above holds the majority of the voting rights for its own account and its subsidiary. Note 3: The term “important transaction” means the transactions listed below. (a) Transaction exceeding 10% of the net sales or the sum of the cost of sales and selling, general and administrative expenses on a consolidated statement of income, (b) transaction related to profit or loss exceeding 10% of other income, other expense, finance income, or finance costs on a consolidated statement of income, (c) transaction exceeding 1% of the total assets on consolidated balance sheet, (d) transaction in which the balance, the total amount of transactions generated, or the average balance for the period of the loan of funds or the purchase or sale of tangible fixed assets or securities, etc. exceeds 1% of total assets on a consolidated balance sheet, (e) in the case of the transfer or acquisition of business, the total amount of assets or liability subject to the transfer or acquisition, whichever amount is greater, exceeds 1% of the total assets on a consolidated balance sheet, (f) in the event the related party is an individual, the transaction of an item on a consolidated statement of income or a consolidated balance sheet that exceeds 10 million yen, and (g) other transactions which are judged to need to be submitted to the Board of Directors for discussion, in light of their characteristics. [Supplementary Principle 2.4.1 Approach to human resources diversity and policy for responding to human resources diversity] Based on the concept that human resources diversity is the foundation for generating innovation as well as a source for creating unique value linked to sustained growth, the Kurita Group, in its efforts to secure diversity, established as its human resources policy (a group of professionals in diverse fields who feel pleasure in contributing to customers, society, and the global environment through their work at the Kurita Group and forge ahead with creation of new value) a basic approach to human resources. This approach ensures that those with diverse experience, knowledge, and skills can be active, leveraging their expertise. At the same time, the Group will determine the direction for human resources utilization and organizational support in its human resources policy in order to nurture talent and improve the internal environment, and will disclose the progress of the relevant initiatives. Moreover, the Group will endeavor to ensure diversity in the appointment, etc. of core human resources, clarify its approach and voluntary and measurable targets, while disclosing the status of relevant initiatives. The Kurita Group aims to provide value to customers and society through innovative achievements made by its human resources with diverse backgrounds — including gender, nationality, age, presence or absence of disabilities, how they joined the company, work style (employment status and working arrangements), and experience — by taking advantage of each other’s experience, knowledge, skills, and other qualities, toward realizing the Corporate Philosophy. The Kurita Group is also proactive in ensuring the diversity of its management and employees in management positions (and their equivalents) as its core human resources. – 3 – (1) Promotion of women to management positions, etc. The Company has developed its action plan based on the Act on Promotion of Women’s Participation and Advancement in the Workplace. Under this plan, the Company is taking the following initiatives. (a) Career planning support for women in career track positions (b) Increase the ratio of female recruits (c) Expand the roles of female employees (d) Support career development through the self-reporting system For targets and results for past fiscal years, please refer to the attachments at the end of this report. As of September 2021, the number of women in management positions at the Company is 9 (2.7% of all employees in management positions). In addition, the Company positions specialists, management assistants, and special experts under the specialist system as equivalent to employees in management positions (including employees in management positions), and they are working actively as core human resources. As of September 2021, the number of women who are equivalent to employees in management positions is 19. Because of its initiatives to promote women to core human resources, the Company has been selected as a constituent of the MSCI Japan Empowering Women Index (WIN) since 2017. (2) Promotion of non-Japanese employees to management positions, etc. The Kurita Group strives to establish a system for operating globally by adopting ways of thinking of diverse countries and regions through the following initiatives. (a) Have the Company’s headquarters organizations (organization other than the Japan Sales Business Division) work together with overseas Kurita Group companies (b) Promote locally recruited employees to the senior management of overseas Kurita Group companies Accordingly, the Company is promoting globally competitive human resources including non-Japanese (such as non-Japanese employees, those who have experienced living and working overseas for three years or longer, those who have experienced overseas businesses for three years or longer, and those who can use English for work) to positions equivalent to management positions at headquarters organizations. The Company recruits several non-Japanese employees every year. As of September 2021, it has 18 such employees, two of whom are working actively in positions equivalent to management positions. In addition, the ratio of globally competitive human resources to those equivalent to employees in management positions at headquarters organizations is 30% as of September 2021, and the Company will increase this ratio further. The Company has not set any long-term target for the recruitment and promotion of non-Japanese employees. However, it will continue to recruit globally competitive human resources and promote them to core human resources proactively as it expands its businesses globally. Further, the ratio of locally recruited employees to representatives of overseas Kurita Group companies and those in positions immediately under the representatives in the reporting line has reached 71%. Thus, human resources from various countries and regions are working actively as core human resources at the Kurita Group. (3) Promotion of mid-career recruits to management positions, etc. The Company recruits around 10 to 20 mid-career employees every year (equivalent to 10% to 30% of new recruits in each year), expecting them to contribute immediately to its business expansion. Mid-career recruits have been demonstrating their abilities, which has resulted in their promotion to core human resources. As of September 2021, 85 of those who joined the Company as mid-career recruits have been promoted to positions equivalent to management positions (constituting 13% of all employees in such positions). The Company has a policy of recruiting mid-career employees as industry-ready human resources and promoting them in a flexible manner in line with its business expansion, and therefore has not set any long-term targets for the recruitment and promotion of such employees. However, it will continue to recruit such human resources and promote them to core human resources proactively. (4) Other matters The Kurita Group has developed its Value Creation Story (Note 4), which provides a roadmap for growing together with society sustainably over the long term. It believes that engineers in technology fields (Note 5) supporting Kurita and business human resources promoting DX (Note 6) are important for achieving this. The Human Resources Development Committee will enhance measures to secure, train, and utilize engineers in technology fields supporting Kurita and the DX Committee will take the same initiatives for business – 4 – human resources promoting DX. As a human resource development policy based on the above human resources policy, the Company takes initiatives with a focus on the following two points. (1) Continue to strengthen development and utilization of engineers in technology fields supporting Kurita and secure and develop business human resources promoting DX in the coming several years, thus promoting creation of new value ⇒ Engineers in technology fields supporting Kurita are developed in a carefully planned manner by the Company’s subcommittee of specialized engineers under the engineer development plan it has formulated. Development of business human resources promoting DX is strengthened, such as by creating opportunities to learn AI and data science, based on the results of assessments of the Company’s employees about their digital innovator quality and the skills and needs of organizations. (2) Position the active participation of human resources with a high degree of expertise, in addition to the cohesion of human resources, as core strengths and develop a system that will facilitate both of them. ⇒ The Human Resources Development Committee is systematically organizing the Company’s training and development programs, enhancing programs for developing human resources with a high level of expertise, and taking other steps to rebuild the training and development system. In addition, as its policy for improving the internal environment, the Company takes initiatives with a focus on the following two points. (1) Foster an organizational culture with Diversity & Inclusion (Note 7) instilled in it and a high level of engagement (Note 8), so as to create value that contributes to customers and society ⇒ The Company is pursuing initiatives to take advantage of diversity, including training for taking advantage of the diversity of an organization (for managers), human rights training for instilling an understanding of diversity, including sexual minorities, training related to the development of a corporate culture that takes advantage of diversity, and understanding and exploration of diversity through workplace discussion. In addition, the Company is making use of work from home and remote work, helping employees balance work and life events such as childcare and nursing care, and taking other steps to build an environment where diverse employees can work comfortably. Further, initiatives to build an organization with a high level of engagement are taken on a group-wide basis by instilling an understanding of the Value Creation Story to encourage employees to support the Corporate Philosophy and by implementing a PDCA cycle based on regular engagement surveys. (2) Build a system for providing value globally in accordance with characteristics of each region ⇒ The Company aims to provide value that is suitable for the characteristics of customers and society in each of the countries and regions in which it operates, including Japan. In particular, in countries other than Japan, the Company is fostering locally recruited employees in each area and promoting them to senior management in accordance with the situation of each overseas Kurita Group company. In addition, diverse human resources from all over the world participate in multiple Group-wide projects. Thus, the globalization of human resources is also promoted through creation of new value. Note 4: It provides a roadmap for the Kurita Group to achieve sustainable growth with society by creating corporate value over the long term to achieve the Corporate Philosophy. Please refer to pages 6 and 7 of the Company’s Integrated Report. https://ir.kurita.co.jp/en/downloads/pdf/annual_2021_en.pdf Note 5: It refers to approx. 30 technology fields indicated in the map of the Group’s engineers. Note 6: They are digital specialists of the Company who create new business models and value using digital technologies. Note 7: The Company is fostering a corporate culture and taking other actions based on Our Vision for Diversity & Inclusion, “The corporate group that continues to create unique value through interaction among diverse people who care about water and the environment and who accept each other’s differences,” which was set to enhance the Company’s measures to improve the Kurita Group’s competitiveness by taking advantage of diversity, including the promotion of women’s empowerment. – 5 – Note 8: It refers to the bonds between employees and company/organization and between employees and work. It is believed that if these bonds are strong, employees work with enthusiasm and motivation and contribute to their company or organization, on a voluntary basis. [Principle 2.6 Roles of Corporate Pension Funds as Asset Owners] The Company does not adopt the fund-type and contract-type defined benefit corporate pension plan and the employees’ pension fund so that it does not fall under the relevant general principles. The Company has adopted a corporate-type defined contribution pension plan, which is operated by employees on their own. The Company provides training and information about the plan to employees on a regular basis, in addition to providing an explanation on it when they join the Company. [Principle 3.1 Full Disclosure] Regarding (1) Company objectives (e.g. business principles), business strategies and business plans and (2) Basic views and guidelines on corporate governance based on each of the principles of the Code, please refer to 1. Basic Views under I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information of this report. (3) Policies and procedures for determining the remuneration of the Directors and the members of the Audit & Supervisory Board (a) Policy for determining the remuneration of the Directors and the members of the Audit & Supervisory Board The remuneration system for the Directors (excluding the External Directors) consists of fixed remuneration as the basic remuneration and incentive remuneration that reflects performance. The remuneration system for External Directors with supervising functions and members of the Audit & Supervisory Board is a fixed remuneration plan. The fixed remuneration is a fixed amount by position for the Directors and by working form for the members of the Audit & Supervisory Board, and a portion thereof is appropriated for the Directors’ and Audit & Supervisory Board members’ Shareholding Scheme for the purchase of the Company’s shares so that the Directors and members of the Audit & Supervisory Board share the risks of share price fluctuations with shareholders. The incentive remuneration consists of short-term incentive remuneration, which increases or decreases depending on factors such as the level of attainment of the annual business plan or the evaluation of each individual’s performance of his or her duties, and long-term incentive remuneration, whereby shares are issued to retiring directors according to their performance while in office and their title. The incentive remuneration is intended to serve as an incentive to Directors (excluding External Directors) to continuously improve the Kurita Group’s business results for the enhancement of the corporate value. (b) Procedures for deciding the remuneration of the Directors and the members of the Audit & Supervisory Board When making a proposal regarding the remuneration system and the remuneration level of the Directors (excluding External Directors) and the members of the Audit & Supervisory Board and the performance evaluation of the Directors to the Board of Directors, the chairperson of the Board of Directors will consult the Nomination and Remuneration Advisory Council in advance. Based on the report given by the Nomination and Remuneration Advisory Council, the Board of Directors will decide the remuneration of the Directors within the total amount determined by a General Meeting of Shareholders. The allocation of remuneration to each member of the Audit & Supervisory Board shall be decided through consensus of the Audit & Supervisory Board. (4) Policies and procedures for nominating candidates for directors and members of the Audit & Supervisory Board and for replacing the president and director, directors with positions of responsibility and representative directors (a) Policy for nominating candidates for directors and members of the Audit & Supervisory Board and for replacing the president and director, directors with positions of responsibility and representative directors The Board of Directors will nominate candidates for directors in accordance with the “Size and makeup of the Board of Directors” in (12) and, by giving consideration to sustained growth, etc. of the Kurita Group, will review the management structure at least once a year and determine the president and director, – 6 – directors with positions of responsibility and representative directors. The Board of Directors will also nominate candidates for the members of the Audit & Supervisory Board in such a way that the number of the members will be three or more, one or more of which will be a member who is specialized in finance, accounting and legal affairs. (b) Procedures for nominating candidates for directors and members of the Audit & Supervisory Board and for replacing the president and director, directors with positions of responsibility and representative directors When making a proposal of candidates for directors, the president and director, directors with positions of responsibility, and representative directors as well as members of the Audit & Supervisory Board, the chairperson of the Board of Directors will consult the Nomination and Remuneration Advisory Council in advance. Based on the report given by the Nomination and Remuneration Advisory Council, the Board of Directors will submit a proposal for recommending the candidates for directors and members of the Audit & Supervisory Board to the Board of Directors by stating the reason for recommendation. After deliberating the proposal, the Board of Directors will nominate the candidates for directors and members of the Audit & Supervisory Board and determine the president and director, directors with positions of responsibility and representative directors. When submitting a proposal for recommending the candidates for the members of the Audit & Supervisory Board to the Board of Directors, the consent of the Audit & Supervisory Board shall be obtained in advance. (5) Explanations with respect to the appointment and nomination of directors and members of the Audit & Supervisory Board In 2016, the Company began to disclose explanations with respect to the individual appointments and nominations in the notice of convocation of the Ordinary General Meeting of Shareholders. [Supplementary Principle 3.1.3 Initiatives for sustainability, etc.] (1) Sustainability actions Recognizing that addressing sustainability issues and other matters related to social and environmental issues contributes to the realization of the Corporate Philosophy and the improvement of corporate value of the Kurita Group over the medium to long term, the Group will enhance the framework for promoting sustainability initiatives by appropriately incorporating them into management strategies. Moreover, through information disclosure in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) and other international criteria for information disclosure, the Kurita Group will work to hold dialogues with stakeholders. The Kurita Group defines its CSR as “the Kurita Group’s responsibility for its impacts on society” and has positioned it at the core of its corporate activities and management strategies, thus taking initiatives to create business opportunities and enhance its capability of handling risks. To execute the initiatives, the Kurita Group considered materiality in CSR with the two axes of stakeholders’ expectations of the Kurita Group and the Kurita Group’s important sustainability-related themes in the aspects of issues to be the basis of management and business activities and growth opportunities for achieving the Corporate Philosophy. (a) Provide highly safe services and products, (b) Conduct fair business activities, (c) Respect human rights, (d) Solve issues related to water resources, (e) Realize sustainable energy use, (f) Reduce waste, and (g) Advance industrial production technologies. These themes are specified as priority themes of the CSR Policy. Individual activities under each theme of the CSR Policy are integrated and promoted by the E&S (Environmental & Social) Committee, which is chaired by the Company’s managing director. This committee checks the progress regarding unified Group medium-term targets and key performance indicators, identifies issues, and makes improvements. Further, responsible managers who are directors or executive officers of the Company are appointed for individual activities, and the Company’s Board of Directors determines activity plans and evaluates activity results. For three environmental themes under the CSR Policy, that is, solving issues related to water resources, realizing sustainable energy use, and reducing waste, a target was set for each of them as the “amount of the reduction in environmental impact of customers – the amount of the Kurita Group’s own environmental impact,” a unique indicator, so that the reduction in the environmental impact achieved as a consequence of the Group’s business will offset and exceed the environmental impact of the business itself. Thus, the Kurita impact on society and specified the following seven themes as – 7 – Group not only works to reduce its water and energy consumption and reduce waste generated internally but also strives to reduce the environmental impact of customers by using products and services related to water and the environment, which have been cultivated by the Kurita Group over many years. In addition, the Kurita Group views climate change as an urgent issue to be addressed globally. Based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), it has established a system under which the Board of Directors supervises the overall initiatives taken by the Kurita Group to address climate change. At the same time, the E&S (Environmental & Social) Committee analyzes the risks and opportunities associated with climate change and its impact on business strategies and sets and discloses medium- and long-term targets and measures, including targets for the reduction of greenhouse gas emissions. Details of the disclosed contents are available at the Company’s website. Please refer to the following. ・Overall CSR initiatives https://www.kurita.co.jp/english/csr/management/index.html ・Initiatives to address climate change https://www.kurita.co.jp/english/csr/tcfd/index.html ・Sustainability Report https://www.kurita.co.jp/english/csr/pdf/kurita_csr_E_2021.pdf ・Integrated Report https://ir.kurita.co.jp/en/downloads/pdf/annual_2021_en.pdf (2) Investment in human capital The Kurita Group views its human resources as the foundations underpinning its sustainable growth. To enhance customer intimacy as the Group’s strength, each employee needs to be a human resource with a high level of expertise and commit themselves to solving customers’ issues. Therefore, the Kurita Group works to secure and develop human resources and succeed technologies related to water that it has cultivated over many years. At the same time, it is building an environment in which each one of its employees can fully demonstrate their capabilities and aptitude and create an organizational culture that permits diverse human resources to work actively. The following four initiatives are introduced as examples at the Company’s website. Please refer to them. https://www.kurita.co.jp/english/csr/csr_activity_human/index.html (a) Training of specialized engineers (b) Enhancing capabilities through training (c) Knowledge and skill acquisition through the mentoring program (d) Providing opportunities to increase self-development (3) Investment in intellectual property To expand its business and improve profitability by making maximum use of its intellectual property, the Kurita Group engages in intellectual property activities under a basic approach it has specified and under its policies for intellectual property activities, which it has established for the purpose of facilitating the appropriate acquisition, protection, and utilization of intellectual property and respecting the property of other companies. As investments in intellectual property, the Group makes investments aimed at increasing the number of patents applications filed overseas in response to the expansion of global operation and investments for reinforcing the protection of patents covering the solution business, which is vital to the development of total solutions approach as the Company’s focus and which contributes to solving issues related to water and the environment faced by society and customers. As for solution models, which cover products, technologies, services, and contract methods and which can be applied horizontally, the Company strives to improve its competitiveness by clearly identifying the source of each solution’s competitiveness to be protected by the patent in the model development stage and by building a patent network that covers both element technologies and business models. In the fiscal year ended March 31, 2021, the Kurita Group added a further seven solution models to its portfolio of protected intellectual property (IP) assets and started efforts to establish common Group rules for protecting the Group’s IP rights and for preventing infringement of rights held by other companies in various countries and regions where the Group operates. The Group’s R&D activities and use of intellectual property other than the above are introduced in the Company’s Integrated Report (pages 26 and 27). Please refer to them. https://ir.kurita.co.jp/en/downloads/pdf/annual_2021_en.pdf [Supplementary Principle 4.1.1 The scope of judgments and decisions made by the Board of Directors and the scope of responsibility delegated to the senior management] The Board of Directors will make decisions on important matters related to operational execution, such as – 8 – matters related to the management strategies and policies set forth in the Board of Directors Regulations, the strategies, targets, and focused measures for management plans, important investments and loans, and business transfers, etc. With regard to operational execution other than important matters, the Executive Committee consisting of the senior management or senior management, etc. with the decision-making authority specified in the Internal Decision Approval and Review Rules will rapidly make decisions on matters related to operational execution, striving to achieve the objectives of the business plans. [Principle 4.9 Roles and duties of independent external directors and criteria for judging the independence of independent external directors] The independent external directors shall evaluate the results of the business activities of the Kurita Group and the execution of operations by the directors and the executive officers, taking into consideration the corporate philosophy, the corporate vision, the medium-term management plan, and the management plan for a fiscal year. They shall express their opinions to the Board of Directors from the standpoint of promoting the sustainable growth of the Kurita Group and enhancing its corporate value in the medium and long term. The independent external directors shall express their opinions to the Board of Directors from an independent position and the standpoint of supervising management with regard to the nomination of the candidates for directors, the remuneration of the directors, and other important decisions made by the Board of Directors. The criteria for judging the independence of the independent external directors in selecting candidates shall be that the candidates for independent external directors and their close relatives (Note 9) must not fall under any of the following items. a. A person who currently executes the operations of the Company or its subsidiary, or has executed such operations in the past 10 years b. A person whose major business partner is currently the Company (Note 10) or was the Company at some time during the past year, or an individual who executes the operations of this party c. A current major business partner of the Company (Note 11) or a major business partner at some time during the past year, or a person who executes the operations of the major business partner d. A consultant, an accountant, or a legal professional who currently receives or has received at some point during the past year a lot of money or property (Note 12) other than remuneration for officers from the Company e. A current major shareholder of the Company (Note 13) or a person who executes the operations of a major shareholder f. A person who executes the operations of an organization in which an external officer also currently assumes office (the person only) g. A person who executes the operations of an organization to which the Company currently makes a donation (the person only) Note 9: In these policies, the term “close relatives” means relatives within the second degree of kinship. Note 10: The term “person whose major business partner is the Company” means a person whose sales in transactions with the Company make up 2% or more of that person’s consolidated net sales. Note 11: The term “major business partner of the Company” means a business partner with whom the Company’s sales in transactions make up 2% or more of the consolidated net sales of the Company, or a business partner from which borrowings make up 1% or more of the consolidated total assets of the Company. Note 12: The term “a lot of money or property” means money and other property that are equivalent to 10 million yen or more per year, other than remuneration for officers. Note 13: The term “major shareholder of the Company” means a shareholder who has voting rights that account for 10% or more of the voting rights of the Company. [Supplementary Principle 4.10.1 Approach to roles, authority and composition of Nomination and Remuneration Advisory Council and Successor Planning Committee] In determining the remuneration of Directors and Audit & Supervisory Board Members and nominating candidates for Directors and Audit & Supervisory Board Members, the Company establishes the Nomination – 9 – and Remuneration Advisory Council in order to improve the objectivity of judgment and the transparency of the process, and also establishes the Successor Planning Committee in order to select candidates for succeeding the President and Directors and formulate successor developing measures. Members for both the committee and council will be selected from among Directors and Audit & Supervisory Board Members by resolution of the Board of Directors, and a majority of the members shall be independent External Directors and External Audit & Supervisory Board Members. [Supplementary Principle 4.11.1 Size and makeup of the Board of Directors] (1) Personnel structure To fulfill the highly effective supervisory function over operational execution, the Board of Directors will consist of personnel with the necessary knowledge, experience and competence, taking into consideration gender and diversity. With regard to this knowledge, experience and competence, the Company will identify skills regarding corporate management, management planning and other aspects of corporate governance management, skills required to realize the direction sought by the Kurita Group of creating social value by leveraging diversity and water knowledge, and necessary skills, etc. for realizing the Corporate Philosophy. The Board of Directors as a whole will be organized in a way that complements the above. For the skill matrix, please refer to the attachments at the end of this report.. (2) Number of directors There shall be three or more directors in total. No less than one-third of these Directors shall be External Directors to ensure the independence and objectivity of the Board of Directors. [Supplementary Principle 4.11.2 Restrictions on concurrent service of directors and members of the Audit & Supervisory Board] Full-time directors and full-time members of the Audit & Supervisory Board shall not serve concurrently as a director or a corporate auditor of some other listed company, etc. Part-time independent external directors and independent members of the Audit & Supervisory Board shall not serve concurrently as a director or a corporate auditor at more than three listed companies including the Company. The Company discloses the concurrent service status of the directors and the members of the Audit & Supervisory Board every year in the notice of convocation of the Ordinary General Meeting of Shareholders and other materials. [Supplementary Principle 4.11.3 Policies for evaluating the Board of Directors] (1) Purpose and frequency of evaluation The Board of Directors will analyze and evaluate its effectiveness every year in order to fulfill its expected roles and functions more effectively. (2) Method and items of evaluation The effectiveness of the Board of Directors shall be analyzed and evaluated in terms of a variety of aspects by specifying appropriate evaluation items. These items will make it possible to understand the makeup of the Board of Directors and identify the degree of the contribution made by individual directors to the Board of Directors, etc. [Evaluation subject] All directors and members of the Audit & Supervisory Board [Evaluation method] Self-Evaluation This evaluation was conducted via a written survey, with each of the respondents identified. Following a discussion using the aggregated results, the Board of Directors evaluated its effectiveness, clarified issues and adopted measures for the future. [Evaluation items] (a) Roles and responsibilities of the Board of Directors (b) Fulfilling the function of external directors (c) Composition of the Board of Directors (d) Operation of the Board of Directors (e) Contributions of individual directors and members of the Audit & Supervisory Board – 10 – (f) Dialogue with shareholders [Evaluation period] One year from January to December (3) Disclosure of evaluation results The overview of the evaluation results and the future issues and measures of the Board of Directors will be disclosed every year via the Company’s website and the integrated report, etc. https://ir.kurita.co.jp/en/corporate_governance/board_evaluation/index.html ⇒ According to the evaluation results for January to December 2021, the average self-evaluation of all directors and members of the Audit & Supervisory Board was generally good in all six areas, indicating that the Board of Directors is operating effectively. By category, “operation of the Board of Directors” was most highly evaluated as in the previous year. This was followed by “contributions of individual directors and members of the Audit & Supervisory Board.” However, in the “roles and responsibilities of the Board of Directors” category, items related to the building and monitoring of the DX promotion structure and “dialogue with shareholders” received relatively low valuations compared with other items. Items related to the building and monitoring of the DX promotion structure also received relatively low valuations compared with other items in the previous evaluation results. In response, we have built a structure under which the DX Committee in charge of supervising the DX of the entire Group checks the progress and achievements from initiatives on a timely basis, has begun to have external directors attend DX Committee meetings as observers to understand facts about the activities, has begun to hold a workshop regularly for all members of the Board of Directors, and has taken other initiatives. Because a DX promotion structure is essential as a foundation for the future development of the Kurita Group, we regard it as a continuing issue and decided to strengthen supervision by the Board of Directors further. Regarding the “dialogue with shareholders,” we have set “Each member of the Board of Directors needs to be more conscious of external perspectives in fulfilling their duties, so as to improve the quality of dialogue with shareholders and investors to achieve higher corporate value of the Group” as the task. We have decided to enhance the structure for having the results of dialogues with shareholders and investors shared by all members of the Board of Directors, have the Board of Directors committed more strongly to IR and SR activities, have a correct understanding of shareholders’ and investors’ requests and expectations of the Group and the Group’s current situation before identifying issues to deepen discussion by the Board of Directors, and request specific committees to report important themes to be discussed by the Board of Directors and have discussions based on the expectations of shareholders and investors to set the direction. [Supplementary Principle 4.14.2 Training policies for directors and members of the Audit & Supervisory Board] (1) Orientation for newly appointed directors and members of the Audit & Supervisory Board Newly appointed directors and members of the Audit & Supervisory Board shall participate in the prescribed orientation immediately after they take office so that they can perform their expected roles and duties. (2) Self-improvement of directors and members of the Audit & Supervisory Board The directors and the members of the Audit & Supervisory Board shall acquire the knowledge they require on their own and devote themselves continuously to learning so that they can perform their expected roles as executives who play a role in the important governing bodies of a company. The Company will provide the directors and the members of the Audit & Supervisory Board with information about external seminars and other opportunities for self-improvement, and cover their expenses within the range specified in a separate document. (3) Checking the implementation status of training The executive general manager of the Corporate Planning and Management Office will report on the implementation status of training for the directors and the members of the Audit & Supervisory Board to the Board of Directors every year. ⇒ In the fiscal year ended March 31, 2022, the Company held orientation for Mr. Kenichiro Kamai (a new external director), which is aimed at deepening his understanding of the Company, had external directors participate in company-wide committee activities, and implemented review meetings and training intended – 11 – for directors, members of the Audit & Supervisory Board, executive officers, etc. In addition, self-development efforts are made by participating in external seminars and others. [Principle 5.1 Policies for dialogue with shareholders and investors and the appropriate disclosure of information] (1) Basic stance Continuing to emphasize management that values shareholders, the Kurita Group will actively listen to feedback of shareholders and investors, and continuously work to develop a framework to promote constructive dialogue with shareholders and investors in order to contribute to the sustainable growth of the Company and enhance its corporate value in the medium and long term. (2) Framework for promoting dialogue The responsible official in charge of carrying out constructive dialogue with shareholders and investors shall be the executive general manager of the Corporate Control and Administration Division. The executive general manager of the Corporate Control and Administration Division shall, upon receiving a request for dialogue from shareholders and investors, individually engage in dialogue, and work to set up a useful place for shareholders and investors by securing opportunities for them to engage in a dialogue with the president, directors including external directors, and others. As an organization that supports dialogue with shareholders and investors, the Company will establish full-time Investor and Shareholder Relations sections in the Corporate Control and Administration Division and appoint full-time Investor and Shareholder Relations staff. To identify and gather important in-house information and manage it appropriately, the executive general manager of the Corporate Control and Administration Division will also establish an Investor and Shareholder Relations liaison group consisting of the persons in charge in the Corporate Planning Department, the CSR and Investor Relations Department, the General Affairs Department, the Corporate Accounting Department, and the Corporate Finance Department to share information regularly or as needed. The executive general manager of the Corporate Control and Administration Division will manage this group and provide the information necessary for dialogue. (3) Efforts to enhance IR and SR activities The executive general manager of the Corporate Control and Administration Division shall be in charge of IR and SR activities. The full-time IR and SR staff will work to enhance dialogue with shareholders and investors by planning and conducting various explanatory meetings and transmitting more information via website. (4) Conveying the feedback of shareholders and investors to management The executive general manager of the Corporate Control and Administration Division shall convey the feedback and concerns of shareholders identified through dialogue with them to the Board of Directors on a regular basis or as needed. The full-time IR and SR staff shall prepare the minutes soon after the dialogue is conducted, and provide an environment where the directors, the members of the Audit & Supervisory Board, and the executive offices are able to read the minutes whenever they wish to do so. The executive general manager of the Corporate Control and Administration Division shall report on the results of and plans for IR and SR activities at the Board of Directors each year. (5) Management of insider information The Company has established the “Regulations Concerning Control of Insider Trading of Shares, etc.” as specified by law to prevent insider trading from occurring, and will work to observe the Regulations in dialogue with shareholders and investors. The Company has also established a silent period that lasts from the day after the fiscal year end until the announcement of business results. In general, the purpose of the silent period is to prevent the leakage of information about business results and ensure fairness. The Company will refrain from answering questions and commenting on the business results during the silent period. However, in the event that performance is expected to deviate significantly from forecasts during the quiet period, the Company will implement the appropriate information disclosure in accordance with the standards for information disclosure. (6) Understanding the shareholder structure To promote dialogue with the substantial shareholders, the Company will make efforts to understand the – 12 – shareholder structure by conducting a survey at least twice a year in Japan and other countries to identify the major shareholders. [Supplementary Principle 5.2.1 Policy for business portfolio management] In accordance with the policy for business portfolio management approved at its meetings, the Board of Directors evaluates each business segment at least once a year from the perspectives of growth potential, return on capital, etc. and supervises the allocation of managerial resources and implementation of strategies based on the business portfolio. Moreover, the Board will work to better illustrate the status of review of the business portfolio, etc. when publicly disclosing managerial strategies, etc. Business portfolio management is planned to be started in the fiscal year ending March 31, 2023 (results for the fiscal year ending March 31, 2022). 2. Capital Structure Foreign Shareholding Ratio More than 30% [Status of Major Shareholders] Updated Name / Company Name The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) Nippon Life Insurance Company CACEIS BANK, LUXEMBOURG BRANCH/UCITS CLIENTS ASSETS MUFG Bank, Ltd. STATE STREET BANK WEST CLIENT – TREATY 505234 BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/FIM/ LUXEMBOURG FUNDS/UCITS ASSETS STATE STREET BANK AND TRUST COMPANY 505025 JP MORGAN CHASE BANK 385781 Resona Bank, Ltd. Controlling Shareholder (except for Parent Company) Parent Company — None Supplementary Explanation Updated Number of Shares Owned Percentage (%) 16,627,600 6,196,557 5,979,883 2,334,781 2,056,131 1,812,829 1,725,400 1,667,233 1,434,789 1,417,323 14.76 5.50 5.30 2.07 1.82 1.60 1.53 1.48 1.27 1.25 1. The status of the Company’s major shareholders shown above is as of March 31, 2022. 2. Custody Bank of Japan, Ltd. (Trust Account), which has 6,196,557 shares, includes 244,657 shares of treasury stock for performance-linked stock compensation for directors. 3. The Company hold 3,575,201 shares of treasury stock, which is not included in above major shareholders. Treasury stock does not include 244,657 shares of treasury stock for performance-linked stock compensation for directors, held by Custody Bank of Japan, Ltd. (Trust Account). 4. Ratio of shareholding is calculated based on the number of shares after deduction of the number of treasury stock from the total number of issued shares. 244,657 shares for performance-linked stock compensation for directors, owned by Custody Bank of Japan, Ltd. (Trust Account), is not included in the treasury stock deducted from the total number of issued shares. – 13 – 5. Based on a large shareholding report (change report) that was submitted by BlackRock Japan Co., Ltd. to the Director of the Kanto Finance Bureau effective October 21, 2021, the Company received a report that, as of October 15, 2021, eight group companies of BlackRock Japan Co., Ltd. held 7,720,000 shares (percentage to the number of shares outstanding: 6.64%). However, this company is not included in the above “Status of Major Shareholders” because the Company has yet to confirm the substantive number of shares held as of the end of the fiscal year. 3. Corporate Attributes Updated Listed Stock Market and Market Section Tokyo Stock Exchange, Prime Market 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 March Machinery More than 1000 Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 50 to less than 100 From ¥100 billion to less than ¥1 trillion 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder No controlling shareholder None 5. Other Special Circumstances which may have Material Impact on Corporate Governance – 14 – II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Company with the members of the Audit & Supervisory Board Organization Form [Directors] No upper limit to the number of directors is stipulated. Maximum Number of Directors Stipulated in the Articles of Incorporation Term of Office Stipulated in the Articles of Incorporation Chairperson of the Board Number of Directors Number of External Directors Number of Independent Directors 1 year President 8 3 3 Appointment of External Directors Appointed External Directors’ Relationship with the Company (1) Name Attribute Ryoko Sugiyama Keiko Tanaka Kenichiro Kamai * Categories for “Relationship with the Company” * From another company From another company From another company Relationship with the Company* a b c d e f h g △ i j k “” when the director presently falls or has recently fallen under the category; “” when the director fell under the category in the past “” when a close relative of the director presently falls or has recently fallen under the category; “”when 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 remuneration as a director/ the member of the Audit & Supervisory Board g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company external directors/members of the Audit & Supervisory Board are mutually 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 – 15 – External Directors’ Relationship with the Company (2) Name Designation as Independent Director Ryoko Sugiyama — Supplementary Explanation of the Relationship Reasons of Appointment to and that she supervising and Audit Ms. Ryoko Sugiyama is an expert in the environment and wastes and has experience of management, including serving as External Director at multiple companies. The Company listed believes individual is an capable of expressing opinions from an outside perspective different from the Company’s to increase the rationality and transparency of the Company’s the management execution of the duties of Directors based on her high expertise and a wealth of experience in the environment field. UACJ Corporation, which Ms. Sugiyama serves as an external director, is a business partner of the Company, but the ratio of business with the UACJ Corporation the Kurita Group’s consolidated sales is less than 0.1% and does not constitute a major counterparty of the Company. The LECIP Holdings Corporation, which she serves as an and external director Supervisory Committee member are not business partners of the Company. Thus, the Company has determined that she has no conflict of interest with general shareholders and has designated her as an independent officer. Ms. Keiko Tanaka has been active in business fields that differ from those of the Kurita Group and possesses a great deal of knowledge on public relations and marketing, as well as having held Ambassador the Extraordinary and Plenipotentiary of to Uruguay. The Company Japan believes individual is an capable of expressing opinions from an outside perspective different from the Company’s to increase the rationality and transparency of the Company’s management and utilizing her expansive knowledge and international experience for supervising the execution of the duties of Directors. Nissan Financial Services Co., Ltd., which Ms. Tanaka serves as Vice President, and JATCO Ltd, which she that she position of Keiko Tanaka — – 16 – Kenichiro Kamai DENSO CORPORATION, with which Mr. Kenichiro Kamai had been affiliated is a until June 2014, business partner of the Company, but the ratio of recent with business DENSO ORPORATION to the Group’s consolidated net sales is less than 0.4% and does not major constitute counterparty the Company. Kurita of a from in DX including overseas, served as equivalent to Vice President, are not business partners of the Company. Thus, the Company has determined that she has no conflict of interest with general shareholders and has designated her as an independent officer. Mr. Kenichiro Kamai has a wealth of in experience,