荏原製作所（6361） – [Delayed] Corporate Governance Report

Notes: 1) 2) This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation. Corporate Governance Report Last Update: April 5, 2022 EBARA CORPORATION President, Representative Executive Officer Masao Asami Contact: +81-3-3743-6111 Securities Code: 6361 https://www.ebara.co.jp/en/ The corporate governance of EBARA CORPORATION (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile, and Other Basic Information 1. Basic Views The Company has established the “EBARA Way,” composed of its “Founding Spirit,” “Corporate Philosophy” and the “EBARA Group CSR Policy” as the EBARA Group’s identity and set of values to be shared across the Group. Under the EBARA Way, EBARA upholds the enhancement of corporate value through sustainable business development and sharing the results with all stakeholders including shareholders as its most important management objectives. To achieve such objectives, the Company constantly seeks the best possible corporate governance and strives toward its further enhancement. The EBARA Group has also established the “EBARA Corporate Governance Basic Policy,” and will endeavor to ensure the implementation of the basic policy and to further enhance its corporate governance. ➔For further information about the “EBARA Way,” please see Appendix 1. ➔For full disclosure on “EBARA Corporate Governance Basic Policy,” please see Appendix 2 Reasons for Non-compliance with the Principles of the Corporate Governance Code The EBARA Group agrees with the intent of the Corporate Governance Code, and has adopted all of the principles therein. Disclosure Based on the Principles of the Corporate Governance Code This Report is based on the Corporate Governance Code revised in June 2021. ————————————————————————————————————————————- ◇Definitions ・ “The Company,” “EBARA,” “our,” —— Ebara Corporation ・ “The EBARA Group,” “the Group” —— EBARA and its subsidiary and affiliated companies “us” or “we” or “our Group” ・ “General Principle(s),” “Principle(s)” or “Supplementary Principle(s)” —— The General Principle(s), Principle(s) or Supplementary Principle(s) of Japan’s Corporate Governance Code ・ “EBARA’s Basic Policy” —— EBARA Corporate Governance Basic Policy (See Appendix 2) ・ “Independent Directors” —— The Company’s Directors who satisfy EBARA’s ・ “Non-executive Inside Directors” —— The Company’s inside Directors who do not ・ “Executive Directors” —— The Company’s Directors who concurrently serve as Independence Standards (See Appendix 3), and are registered as independent directors with the Tokyo Stock Exchange concurrently serve as Executive Officers of the Company Executive Officers of the Company 1 / 82◇Appendixes ・ Appendix 1——EBARA Group Corporate Ethics Framework ・ Appendix 2——EBARA Corporate Governance Basic Policy ・ Appendix 3——Independence Standards of Independent Director of EBARA ・ Appendix 4——Corporate Governance Framework ・ Appendix 5——System for Ensuring Appropriate Operations and the State of Operation of the System ・ Appendix 6——Disclosure Process ・ Appendix 7——Flow Chart of Communication with Shareholders & Investors ————————————————————————————————————————————- 1. Management Philosophy Principle 2.1, 2.2, 3.1 i), Supplementary Principle 2.2.1 The Company set the “EBARA Way,” composed of the following elements, as the Group’s identity and values to be shared within, and it has been formally adopted by the Board of Directors as the basis for conducting business activities. In addition, the Company monitors, as appropriate, to ascertain that the EBARA Way is widely disseminated and complied with throughout the Group. (1) Founding Spirit The founder, Issey Hatakeyama, was also an excellent tea master. He believed that the spirit of the tea ceremony, “Ichigo Ichie, only once in a lifetime” could also be applied to management, and he used to talk about it to our employees with the words, “Netsu to Makoto (Passion and Dedication).” “Work with a spirit of ingenuity and sincerity and accomplish what you have started, rather than just sticking to the work you are given.” Hatakeyama wanted to tell that each individual’s work is beneficial to themselves and contributes to the Company, society, and the nation. Our founding spirit of working with pride and confidence in our work has been passed down within the Group globally. (2) Corporate Philosophy “We contribute to society through high-quality technologies and services relating to water, air and the environment.” Since its establishment as a pump manufacturer in 1912, the EBARA Group has advanced by acquiring technological capabilities that meet society’s needs. Going forward, we will continue to contribute to the creation of a sustainable society through our business, by using energy optimally, mitigating climate change, promoting of resource recycling, and evolving of digital technology. (3) EBARA Group CSR Policy The EBARA Group CSR Policy has been established as the basic stance for our corporate activities with the Founding Spirit and Corporate Philosophy in its background. It sets out nine principles for implementing all of business operations based on high ethical standards and building good relationships of trust with all stakeholders. ➔For further information about the “EBARA Way,” please see Appendix 1. 2. Business Strategies and Business Plan Principle 1.3, 2.2, 2.3, 2.4, 3.1 i), 5.2, Supplementary Principle 2.3.1, 2.4.1, 3.1.3, 4.2.2, 5.2.1 The Board of Directors takes the lead in formulating medium- to long-term management policies (E-Vision 2030 and E-Plan 2022), and the operational divisions are executing these policies. The Board of Directors monitors and verifies the soundness, fairness, and effectiveness of the execution. (1) Long-term Vision “E-Vision2030” (Formulated Feb. 2020) The EBARA Group aim to further our contributions toward the SDGs and improve ESG-focused management to contribute to the creation of a sustainable society, while simultaneously increasing the social/environmental and economic value we generate. We believe this will earn us greater corporate value and recognition as an excellent global company. We have identified five material issues (EBARA’s materiality) with our key message for 2030 of: “Technology. Passion. Support our Globe,” in mind. Specifically, we will contribute through our businesses to solutions and improvements on five material issues (Ebara’s materiality), achieving a high rate of “return on invested capital (ROIC)” as an indicator of the efficacy and efficiency of related activities. Building on these results, we shall increase the Ebara Group’s presence and grow into a company admired by society and the world. 2 / 825 Material Issues (Materiality) i) Contribute to the creation of a sustainable society We will utilize our technologies to passionately support the creation of a sustainable, environmentally-friendly world with ample food and water, and safe and reliable social infrastructure. ii) Elevate standards of living and support abundant lifestyles for all We will utilize our technologies to passionately support economic development that enables the world to end poverty and realize ever-evolving and abundant lifestyles. iii) Conduct comprehensive environmental management We will promote the reduction of CO2 emissions from our business operations and maximizing our use of renewable energy to move toward a carbon-neutral world. iv) Promote working environments that encourage challenge We will promote a corporate group culture of competition and challenge, and provide diverse employees with meaningful work and comfortable working environments. v) Enhance corporate governance We will lay out a vision for and pursue growth through offensive and defensive governance that supports high-level management capabilities. ➔For more information on Long-term Vision “E-Vision2030,” please see: https://www.ebara.co.jp/en/ir/business/information/vision.html (2) Medium-term Management Plan “E-plan2022” (a) Basic Policies Back-casting the Long-term Vision “E-Vision2030” presenting directions in which we should take, this plan represents policies and strategies management should address in the next three years. We position this plan as a stage to “Reconstruct the foundations of growth” in the first three years of the 10-year-vision. Tasks for the next three years: – – Increase profits by continuously reevaluating and optimizing our business portfolio Identify and match both internal and external technologies/know-how with market needs to create new businesses Improve management efficiency and speed by taking measures to improve global operations – – Conduct business operations in line with the ideals of stakeholder capitalism Based on these we have defined the following basic policies: – Strive for growth Create and cultivate new businesses and expand existing businesses further into the global market – Improve profitability of existing businesses Transform business structures to strengthen revenue base and increase S&S sales in all businesses – Refine management and business infrastructure Proactively implement digital transformation (DX) technologies to facilitate swifter management and further emphasize ROIC management – Enhance ESG-focused management Address evolving environmental issues, foster bonds with society, and enhance governance practices Targets to be Achieved in Fiscal Year 2022 a) ROIC (Return on Invested Capital): 7.6%* or more (Group-wide) * The Company changed its consolidated accounting standard from Japanese GAAP to IFRS in fiscal year 2021, and accordingly, the ROIC target in E-Plan 2022, the medium-term management plan, has been revised from the initial 8.0% to 7.6%. b) Operating Income to Sales Ratio: 8.5% or more (Group-wide) ➔For more information on Medium-term Management Plan “E-plan2020,” please see: https://www.ebara.co.jp/en/ir/business/information/vision.html (b) Strengthen and Optimally Allocate Management Capitals (Resources) to Support Business Growth We will sophisticate and strengthen the six capitals required for business growth (people, manufacturing, financial, intellectual, social relations, nature and environment) to enable the Company to adapt changes in the business environment and expand our business globally. 3 / 82(ⅰ) Strengthen ROIC/Portfolio management ◆Optimization of Business Portfolio Based on Capital Cost EBARA formulates and publishes management policies/Medium-term Management Plans including our Group business portfolio; and we verify progress statuses against mid/long-term targets periodically and as needed; we also review our policies when necessary. In order to optimize our business portfolio, we clearly classify our businesses into “businesses that can be expected to grow in the future” and “businesses in a matured market or with issues in profitability”. We have a system in place to organize processes to periodically evaluate performances and growth of existing businesses and restructure business portfolio as needed. ◆Planned Investment/Financial Strategies In the Medium-term Management Plan “E-Plan2022” published in Feb. 2020, we set target values positioning ROIC as the most important management index to aim to construct a revenue base exceeding capital cost. Prioritizing capital investment for productivity improvement and growth investment such as M&A to accelerate global expansion, we will increase capital efficiency through focusing on balance sheet control such as compressing account receivables and inventories at respective businesses. Therefore, KPIs are set per Business and progress against plan is periodically checked, and action plans are reviewed when necessary so that the targets be achieved. (ⅱ) Manufacturing/Technology/Information Strategy ◆R&D and Intellectual Property Strategy The Company has adopted a management style to promote coordination among businesses, research and development, and intellectual property, and is driving strategic action planning over a long term and creation of new businesses. Going forward, we will further strengthen this approach and continue to contribute to solving social and environmental issues through our business. Specifically, the operational divisions, the research division, and intellectual property division collaborate to strengthen our core technologies and engage in activities to acquire patent rights in accordance with the market trends and technological trends for each product, to enhance the competitive advantage of key products in the existing businesses. In addition, we support initiatives aimed at creating new businesses by coordinating with internal and external research organizations and utilizing intellectual property information from novel perspectives without being bound by conventional technologies. ◆Digital Transformation (DX) Strategy The Company actively promotes DX to further grow and strengthen our competitiveness. We will not only support our existing businesses, but also drive expansion into new business fields by utilizing data and digital technologies to respond to drastic changes in the business environment, as well as transforming our products, services and business models to meet the needs of our customers and society. For specific initiatives, please refer to “Session 2” of the presentation material for the EBARA IR Day 2021 (held on July 8, 2021) on the Company website ➔For more information about the Digital Transformation (DX), please see EBARA IR Day 2021 “Session 2”: https://www.ebara.co.jp/en/ir/library/business-briefing/index.html (ⅲ) Personnel Affairs and Human Resource Development Policy The EBARA Group will focus on acquiring diverse, creative, and ambitious people unafraid of competition or of taking on challenges from around the world, and will ensure that we provide our people with comfortable, safe, and stimulating working environments that encourage this spirit of challenge and ambition, while conducting fair evaluations that promote the growth of each individual. In order to realize the above, the Group will revitalize our corporate culture by taking the following measures. a. In order to create a “Corporate Group Culture of Competition and Challenge,” we will further promote the implementation of our reformed personnel system to organizations, officers, and employees, expand the personnel system globally, and conduct optimal personnel allocation, regardless of seniority. 4 / 82b. Introduce a global talent management system and realize our goal of being able to foster and optimally place talented people in roles where they can contribute to their full potential regardless of nationality, gender or other factors. c. Evolve work style reform through further promoting the reform of awareness, corporate culture, and business practices and by also visualizing and prioritizing tasks, identifying and reducing unnecessary or redundant work, and facilitating greater cooperation between departments d. Promote the recruitment of diverse human resources through various channels, and foster competitive, ambitious human resources who are unafraid of taking on challenges Based on the above policy, the Group will accelerate the localization of human resources at Global Key Positions (GKPs), which are key business positions, as a concrete action to strengthen human resource management and improve diversity globally across the Group. We will raise the percentage of foreign-national employees at GKP, from approximately 20% in 2021, to 50% or more by 2030, and double the number of female employees at GKP. We must focus on acquiring and identifying excellent talents at early point and offer trainings to them to continuously develop talents to assume GKP, and the Group is promoting “One EBARA HR” project to set up infrastructure for the purpose. We also launched a new Diversity Project under the direct supervision of the President to accelerate the review and implementation of measures to promote active participation of female and foreign-national employees. In addition to the above Group initiatives, the Company has also set the following targets for promoting active participation of female employees, foreign-national employees and mid-career employees, and is implementing various measures. Target Ratio of Female Managers, Foreign-national Managers, and Mid-Career Managers and Measures to Achieve Them a. Female employees Target for female managers at the Company is 7% by 2023 (6.7% as of 2021). To achieve this goal, the Company is actively recruiting female employees and providing support such as disseminating information regarding role models and career planning service well-considering various life events of the employees. For more information on these measures, please refer to “III 3. Measures to Ensure Due Respect for Stakeholders, Other 【Supporting the Career Development of Female Employees】” later in this report. b. Foreign-national employees Target for foreign-national managers at the Company is 4% by 2023 (1.3% as of 2021). To achieve this goal, the Company is actively hiring foreign-national employees, and providing support for carrier development as well as support for the employees living and support for the divisions to which the employees are assigned for better retention. For more information, please refer to “III 3. Measures to Ensure Due Respect for Stakeholders, Other, 【Status of Foreign-national Employees】later in this report. c. Mid-career employees Target for mid-career managers at the Company is 25% by 2023 (23.6% as of 2021). To achieve this goal, the Company is actively hiring mid-career employees, and providing opportunities such as setting a fair manager promotion system based on the role grading system regardless of history of work at the Company. ➔For more information on “Personnel Affairs and Human Resource Development Policy”, please see: https://www.ebara.co.jp/en/sustainability/social/information/talent-management.html (c) Enhance Corporate Value and Contribute to Sustainable Society The Company is committed to addressing environmental issues, connecting with society, and strengthening the governance to sustainably contribute to solving social issues through our business, including SDGs, and to improve the corporate value over the medium- to long-term. To realize this goal, we have established a system to promote sustainability and a system that enables the Board of Directors to properly supervise sustainability as a key management issue. 5 / 82(ⅰ) Take aim at environmental issues E-Vision 2030 advocates “contributing to the creation of a sustainable society” and “conducting comprehensive environmental management” as its material issues, and the Company is working to launch highly efficient products, develop products that help reduce GHGs*1, and develop technologies related to hydrogen energy and CCUS*2 to achieve a decarbonized society. We are also working to reduce the environmental impact produced out of our business activities at our domestic and overseas business sites. With regard to climate change, we analyze risks and opportunities regarding the impact of climate change on the Group’s businesses under multiple scenarios based on TCFD recommendations, and we proactively disclose the result of analysis through various media, including the Company website and Integrated Reports. *1 GHGs: Greenhouse Gases *2 CCUS: Carbon dioxide Capture, Utilization and Storage. CCU technology turns the recovered CO2 into a new product or energy. CCS technology collects CO2 generated from factories, power plants and other facilities before it is released into the air, and transports it to the stratum suitable for underground storage, and stably stores it over a long period of time. (ⅱ) Foster bonds with society In our business activities, we clearly state in the EBARA Group CSR Policy that we respect human rights of our stakeholders, including the enhancement of the ease of working and job satisfaction of our employees and others, and put them into practice. The Company pays respect to the International Bill of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the United Nation’s Guiding Principles on Business and Human Rights, and has established the EBARA Group Human Rights Policy. The Company has also set out measures to implement the above policy and the Human Rights Committee to promote activities based on the same policy. The Company is continually working to improve its human rights management mechanism, including human rights due diligence and relief measures. In addition, we are continuously working to instill the EBARA CSR Procurement Guidelines in order to conduct fair and appropriate transactions with our suppliers and other parties, and aiming to create high-value products and services together with our suppliers. Not-for-profit social contribution is clearly positioned as philanthropy activities, and we promote such activities as supporting cultural facilities, etc. (ⅲ) Governance As the global management progresses, we will evolve the feedback-loop between the Outcome Goals and execution status of our management strategies and policies, to establish a highly effective Group governance system. In addition, we will strengthen comprehensive risk management from a global perspective in order to respond to diversifying risks, including COVID-19 and other infectious diseases. Please refer to the following for major policies, the status of specific initiatives, and important issues related to our ESG-focused management. ➔For more detailed information on “EBARA Way,” please see Appendix 1 ➔For full disclosure on “EBARA Group Human Rights Policy,” please see: https://www.ebara.co.jp/en/sustainability/social/information/respect.html ➔For full disclosure on “EBARA CSR Procurement Guidelines,” please see: https://www.ebara.co.jp/en/sustainability/social/information/supply-chain.html ➔For full disclosure on “Information disclosure based on TCFD recommendations,” please see: https://www.ebara.co.jp/en/sustainability/think/information/tcfd.html 3. Policy on Shareholder Return The EBARA Group regards returning profit to shareholders as one of the most important management policies. As for shareholder returns during the E-Plan2022 period, having the target of consolidated Dividend Payout ratio of 35% or more, we plan to payout while maintaining consolidated Dividend on Equity ratio (DOE) of 2.0% or more. We will be acquiring own equities expeditiously also. 6 / 824. Basic Policy for Cross-Shareholdings, etc. Principle 1.4, Supplementary Principle 1.4.1, 1.4.2 (See Article 5 of Appendix 2) (1) Policy for Reduction of Cross-Shareholdings In principle, the Company does not hold cross-shareholdings. However, it is possible that the Company will hold shares of other companies only in cases where it is determined that partnerships with investees through shareholding will contribute to the enhancement of the Group’s corporate value. (2) Status of Reduction of Cross-Shareholdings The Company had sold all cross-holding of listed shares (incl. listed shares contributed to the employee retirement benefit trust). [Number of Issues of Listed Shares Held by the Company Not for Purely Investment Purposes] End of March 2017 End of December 2017 End of December 2018 End of December 2019 End of December 2020 End of December 2021 Number of issues of cross-shareholdings Number of issues contributed to employee retirement benefit trust 14 8 9 8 9 5 2 1 0 0 0 0 (3) Standards for Voting Rights (4) Related to Cross-Shareholder The Company does not hold cross-shareholdings, so this section does not apply. The Company does not hold cross-shareholdings, so this section does not apply. 5. Basic Views on Corporate Governance Principle 3.1 ii) (See Article 1 of Appendix 2) The EBARA Group’s basic views on corporate governance are as follows. (1) The Company respects shareholders’ rights, and is engaged in establishing an environment which enables shareholders to appropriately and effectively exercise their rights and ensures equality among shareholders. In addition, the Company establishes the IR Basic Policy and exchanges constructive dialogues with shareholders and investors to facilitate the sustainable growth and medium- to long-term enhancement of corporate value. (2) The Company strives to co-create values with various stakeholders, including shareholders, customers, business partners, creditors, employees and local communities in an appropriate manner. (3) The Company strives to ensure management transparency through appropriate disclosure of its corporate information. (4) The Company has developed a governance system in which Independent Directors play important roles, and that is centered on Independent Directors and Non-executive Inside Directors. The Company has adopted the organizational form of a “Company with a Nomination Committee, etc.,” with the Nomination Committee, the Compensation Committee and the Audit Committee as statutory committees under the Board of Directors, to achieve clear separation between supervision and business execution in management. (5) The Company clearly stipulates expected roles and required qualifications and competencies for each Director, and strives to enhance effectiveness of the Board of Directors, etc. by utilizing them for selection of Candidates and training for the Directors, etc. 6. Separation between Supervision and Business Execution in Management (1) Adoption of a Company with a Nomination Committee, etc. Principle 4.10, Supplementary Principle 4.10.1 Based on the above 5 (4), the Company has adopted the organizational form of a “Company with a Nomination Committee, etc.,” to achieve clear separation between supervision and business execution in management. This 7 / 82enables the Board of Directors to effectively supervise the management responsible for business execution, and to objectively evaluate and comment on the status of business execution and the outcomes from a standpoint independent of business execution. To ensure the independence and objectivity of the Nomination, Compensation, and Audit Committees, which form the cornerstone of corporate governance, they shall be composed solely of Non-executive Directors, and the majority of the members of each committee shall be Independent Directors, and the Chairperson of each committee shall also be an Independent Director in principle. From this perspective, the Board of Directors shall be composed of at least a majority of Independent Directors. of Appendix 2) (2) Scope of Delegation to the Management Principle 4.6, Supplementary Principle 4.1.1 (See Article 11 In order to clearly separate between supervision and business execution, the Board of Directors has established the Board of Directors’ Rules, specifying the matters to be resolved and reported to the Board of Directors, and stipulates the scope of matters for which decision-making authority is delegated to Executive Officers. The decision-making authority on matters concerning business execution is delegated to the Executive Officers, except those categorized as the exclusive jurisdiction of the Board of Directors by laws and regulations as well as the Articles of Incorporation, including basic management policies (management philosophy, Long-term Vision, medium- to long-term management plan, and annual budget, etc.) and those that may have a significant impact on the management of the Group (for example, capital policies which inappropriately harm the interest of current shareholders (change of the control right and/or significant stock dilution). The Board of Directors delegates the authority over an extensive range of business execution to the executive organizations, thereby promoting flexible and swift business management, strengthening competitiveness and allowing an appropriate level of risk to be taken in the execution of business. 7. Roles and Diversity of the Board （See Article 11 of Appendix 2) To ensure that the Directors are able to demonstrate their supervisory functions effectively and that their effectiveness can be clearly assessed, the roles and qualifications and competences required for, not only the Board of Directors as a whole, but also each Committee and Director, are clearly stipulated. (1) Roles of the Board Principle 4.1, 4.4, 4.5, Supplementary Principle 4.1.2, 4.3.4, 4.4.1 The Board of Directors shall make its best effort to realize the mission it has been entrusted by the shareholders to “continuously improve corporate value” while giving the greatest consideration possible within reasonable extent to the positions of all stakeholders. The Board of Directors establishes the Basic Management Policy for the long-term business environment so that the Group can enhance its corporate value. To achieve this goal, the Board of Directors strives to improve its social and environmental values through the sophisticated ESG- based management and continuous contribution to solving social issues, including SDGs, through its business. For the same reason, the Board of Directors also makes best efforts to improve its economic value by the ROIC-based management and portfolio-based management at the same time. In addition to the perspective of establishing an internal control environment for preventing scandals, etc., (i.e., defensive leadership), the Board shall also consider the perspective of establishing an environment enabling management to boldly face challenges to prevent business opportunities are missed (i.e., offensive leadership). In addition, the main roles of each Committee are described below. (a) Nomination Committee （See Article 12 of Appendix 2) Nomination Committee is primarily responsible for preparing proposals for the General Meeting of Shareholders with regard to the election and dismissal of Directors, and for making recommendations to the Board of Directors with regard to the election and dismissal of President & REO, the election and dismissal of Executive Officers, appointment and dismissal of Directors with special titles, appointment and dismissal of the Chairman of the Board of Directors and a Non-executive Inside Director to assist the Chairman and the appointment and dismissal of members and the Chairperson of each of the Nomination Committee, Compensation Committee, and Audit Committee. The Nomination Committee comprises three (3) or more Independent Directors and Non-executive Inside Directors. The majority of the Nomination Committee shall be Independent Directors and the Chairperson thereof shall be an Independent Director in principle. 8 / 82(b) Compensation Committee （See Article 13 of Appendix 2) The Compensation Committee strives to achieve sustainable growth and to increase corporate value over the medium- to long-term through compensation, by encouraging the Executive Officers to perform their duties in accordance with the management philosophy and management strategies and by fostering human resources and cultivating a culture by strongly motivating them to achieve challenging management targets with appropriately controlled risks, and by establishing a compensation system and standards that reflect the roles of the Directors defined in this Policy, including supervision of execution of their duties. The Compensation Committee comprises three (3) or more Independent Directors and Non-executive Inside Directors. The majority of the Compensation Committee shall be Independent Directors and the Chairperson thereof shall be an Independent Director in principle. (c) Audit Committee （See Article 14 of Appendix 2) The Audit Committee strives to establish a high-quality corporate governance system that responds to social trust by serving as a part of the Board of Directors’ supervisory function and properly auditing execution of duties of the Executive Officers and Directors, and by considering the interests of various stakeholders from an enterprise and business group perspectives, collaborating with these stakeholders, realizing sound and sustainable growth and the creation of corporate value over the medium- to long-term.The Audit Committee sets out basic policies and plans of audits based on the progress of the development of internal control systems, including risk management, in an effort to carry out efficient and effective audits through close coordination with the Internal Audit Division. The Company establishes a supporting system for the Audit Committee to enable the Committee to appropriately fulfill its roles and functions. Please refer to “Cooperation among Audit Committee, Independent Auditors, and Internal Audit Division” on pages 26 to 28 for the detail of the supporting system. The Audit Committee comprises three (3) or more Independent Directors and Non-executive Inside Directors. The majority of the Audit Committee shall be Independent Directors and the Chairperson thereof shall be an Independent Director in principle. (2) Policy on diversity and balance of knowledge, experience and skills of the Board of Directors Principle 4.11, Supplementary Principle4.11.1（See Article 11, 14, 16, 17 and 18 of Appendix 2） To fulfill the roles described in the above (1), the Board of Directors must be a place enabling the best conclusion to be reached while avoiding closed discussion through the exchange of diverse opinions. Directors are expected to have superior knowledge and experiences in one or more of the following domains, and also Directors need to have extensive insight and ability of logical thinking enabling them to make decisions based on the opinions of other Board members with expert knowledge and information from within and outside the Company. Note that these domains shall be revised as appropriate based on the external environment and the condition of the Company. ・ Has experience of serving at a responsible position in corporate management and demonstrated leadership in corporate transformation ・ Has demonstrated leadership in implementing and enhancing the ESG-based management ・ Has demonstrated leadership in personnel, human resource development, and corporate culture reform ・ Has intimate knowledge of solving issues related to finance, accounting and/or capital policy and has experienced such problem solving from a business management perspective ・ Has intimate knowledge of auditing ・ Has intimate knowledge of legal affairs, internal control, and governance reforms ・ Has intimate knowledge of the latest issues regarding technical development and R&D, and has experienced such development from a business management perspective ・ Has intimate knowledge of global environment issues such as climate change caused by the greenhouse ・ Has intimate knowledge with regard to adequate conduct of an enterprise as a social entity such as respect for human rights, diversity, health and working environment, and supply chain management ・ Has intimate knowledge of areas which are anticipated to rapidly evolve in the future, such as digitization effect gas and AI technology Furthermore, the Board of Directors shall have well-balanced personnel with sufficient knowledge, experience and skills inside and outside the Company in the areas related to business management, and be structured with both appropriate diversity, including gender, international aspects, internal and external 9 / 82experiences, age and years of service, and an appropriate size. In particular, the Audit Committee shall include several members with appropriate knowledge of finance and accounting. (3) Composition of the Board of Directors (As of March 30, 2022) The Board of Directors is composed of seven (7) Independent Directors, including three (3) females, with a diverse composition in terms of experiences, gender, age and years of service. (See pages 8 to 20 of “the Notice of the 157th Ordinary General Meeting of Shareholders”) The skill matrix (indicating the correspondence between each Director’s knowledge and experiences and the business domains the Company has high expectation based on its medium- to long-term management strategies) is disclosed on pages 6 and 7 of “the Notice of the 157th General Meeting of Shareholders.” The structure of the Board includes multiple personnel with adequate knowledge with regard to international transactions and global business and management experiences at other enterprises. Future appointment of foreign-national Director(s) is under consideration to promote further diversity. ➔For full disclosure on “the Notice of the 157th General Meeting of Shareholders,” please see: https://www.ebara.co.jp/en/ir/stock/shareholdersmeeting/index.html 8．Effective Use of Independent Directors and System to Achieve the Purpose Based on the basic views of clear separation between supervision and business execution and the role of the Board of Directors as described in 6 and 7 (1) on pages 7 and 8, the Company has developed a governance system comprising mainly Independent Directors and Non-executive Inside Directors. The roles the Company expects from the Independent Directors and systems for them are as follows. (1) Roles of Independent Directors Principle 4.7 (See Article 17 of Appendix 2) One of the principal roles of the Independent Directors is verifying and assessing as appropriate the business results of the Company and performance of the Executive Officers in light of the management strategies or management plan set out by the Board of Directors, and determining and expressing opinions on whether it is appropriate to delegate management responsibilities to the incumbent Executive Officers from the perspective of the common interests of shareholders. (2) Independence Standards and Qualifications for Independent Directors Principle 4.9 （See Article 17 of Appendix 2） To fulfill the roles described in the above (1), it is essential that the Independent Directors be able to participate in the discussion on the essence of management from all perspectives including personal, economic, and mindset perspectives, by maintaining a position that is completely independent from the execution of business. For this purpose, the Company has established the Independence Standards of Independent Director of EBARA based on the independence standards specified by the Tokyo Stock Exchange. Only those who meet such standards shall serve as the Company’s Independent Directors. Also, upon election of the Independent Directors, the Company pays due attention to confirm functional adequacy, such as what competencies each candidate possesses and whether it is possible to secure sufficient hours to serve as an Independent Director, in addition to the above independency. ➔For full disclosure on “the Independence Standards of Independent Director of EBARA,” see Appendix 3 ➔For full disclosure on the reasons of appointment for Independent Directors, please see “II1.[Outside Directors] Outside Directors’ Relationship with the Company (2)” (3) Policy for the Chairman of the Board of Directors （See Article 19, 20 of Appendix 2） To ensure transparent and fair supervision, an Independent Director shall serve the position of the Chairman of the Board of Directors. Furthermore, to ensure the respective responsibilities of the Board of Directors, the Nomination Committee, the Audit Committee, the Compensation Committee and the Executive Sessions to be appropriately fulfilled, the Chairman of the Board of Directors shall not concurrently serve as the Chairperson of each of the committees and the Lead Independent Director unless there are special circumstances. The Chairman of the Board of Directors sets out the proposals to be deliberated and reported at Board of Directors’ meetings, and conducts the proceedings of the Board meetings to ensure that the best possible conclusion is reached efficiently, based on reasonable debate. The Chairman of the Board of Directors receives reports as appropriate from the Representative Executive Officer on whether the Board of Directors’ opinions are adequately reflected in business execution. The Chairman of the Board of Directors reports, as necessary, 10 / 82the status of such reports to the Board of Directors, and asks the Board to deliberate for possible correction of the general direction of business execution, etc. The Director, Chairman of the Company (or a Non-executive Inside Director in the absence of the Chairman of the Company) shall serve as an assistant to the Independent Director who is serving as a Chairman of the Board of Directors, so that the Chairman is able to effectively fulfill his/her roles. (4) Executive Session Supplementary Principle 4.8.1 (See Article 15 of Appendix 2) The Company establishes the Executive Session as a forum for Independent Directors to deepen their understanding of matters necessary to enhance quality of deliberation at the Board of Directors meetings and to freely discuss matters in order to enhance the effectiveness of the Board of Directors. ➔For further information about the Supporting System for Independent Directors, please see “II1. [Supporting System for Independent Directors] (5) Election of Lead Independent Director Supplementary Principle 4.8.2 (See Article 21 of Appendix 2） The Lead Independent Director is elected from among the Company’s Independent Directors. The Lead Independent Director serves as the Chairperson of the Executive Session. In addition, the Lead Independent Director summarizes opinions of other Independent Directors as necessary, and reports to the Chairman of the Board of Directors or the President and Representative Executive Officer for further consultation. (6) Composition of Independent Directors (As of March 30, 2022) Principle 4.8 (See Article 11 of Appendix 2） Seven (7) out of the ten (10) Directors (70% of the total) are Independent Directors, including three (3) females, and all of them meet the Independence Standards. The number of committee members of each of the Nomination Committee, Compensation Committee and Audit Committee established within the Board of Directors is three (3), and two (2) members out of the three (3) members of the Nomination Committee and Audit Committee are Independent Directors. With regard to the Compensation Committee, all three (3) members of the Compensation Committee have been Independent Directors since June 2017. In addition, the Chairperson of each Committees is served by an Independent Director. 9. Policies and Procedures for Election and Dismissal of Directors and Executive Officers （See Article 12 of Appendix 2) The policies and procedures related to the election and dismissal of directors and executive officers in the Company are determined by a Nomination Committee chaired by an Independent Director and comprising a majority of Independent Directors. (1) Process for the Election and Dismissal of Directors Principle 4.11.1 The Nomination Committee selects Candidates for Director from a strategic perspective based on management philosophy and management strategy, deliberates whether they have suitable qualities and capabilities as Directors based on the perspective in 7 (1) above, and prepares proposals with regard to the election and dismissal of Directors after consideration of the result of the evaluation of effectiveness of the Board of Directors as a whole, each Committee, each Director, and the Chairman of the Board and the predefined qualifications of the Directors required to enhance the effectiveness of the Board. The Candidates for Director are reported to the Board of Directors by the Nomination Committee and elected by resolution of the General Meeting of Shareholders. (2) Process for the Election and Dismissal of Executive Officers Principle 4.3, Supplementary Principle 4.3.1 The Nomination Committee deliberates whether Candidates for Executive Officer selected by the President and Representative Executive Officer have suitable qualities and capabilities as Executive Officers, and present the results of deliberation to the Board of Directors based on the Executive Officer appointment criteria and appointment procedures established by the Nomination Committee. The Board of Directors makes a decision after receiving the deliberation results from the Nomination Committee. Furthermore, in the event the performance does not meet the criteria specified in the Company’s regulation when the Nomination Committee periodically checks the aptitude of each current Executive Officer, the Nomination Committee will propose to the Board of Directors not to re-appoint the current Executive Officer. 11 / 82(3) Process for the Election and Dismissal of the President and Representative Executive Officer and Succession Planning Principle 3. 1 iv), v), Supplementary Principle 4.1.3, 4.3.2, 4.3.3 The Company has positioned the establishment and implementation of the succession planning and the criteria and policies for the election and dismissal of the President and Representative Executive Officer who serves in a particularly central role in top management as the most important strategic decision in the Company. (a) Process for the Election and Dismissal of the President and Representative Executive Officer The Nomination Committee proposes final candidates for the appointment of the President and Representative Executive Officer to the Board of Directors and the Board of Directors makes a decision based on the criteria and policies for the appointment and dismissal of the President and Representative Executive Officer established by the Nomination Committee. The Nomination Committee checks that the current President and Representative Executive Officer meets the requirements concerning the qualities of the President and Representative Executive Officer specified in the succession plan periodically and as needed, and makes proposals to the Board of Directors on the successor for President and Representative Executive Officer based on the succession plan when the President and Representative Executive Officer steps down. Furthermore, the Board of Directors has established an independent and objective process for discussion whether or not to dismiss the President and Representative Executive Officer when it is found that the President and Representative Executive Officer is not functioning adequately based on an appropriate evaluation of the Company’s performance, etc. Specifically, in the event the consolidated performance of a single fiscal year does not meet the criteria specified by the Nomination Committee for three consecutive years when the Nomination Committee periodically checks the aptitude of the current President and Representative Executive Officer, the Nomination Committee proposes to the Board of Directors not to re-appoint the current President and Representative Executive Officer unless there are special circumstances, and the Board of Directors conducts discussion on whether or not to dismiss the President and Representative Executive Officer. (b) Succession Planning for the President and Representative Executive Officer In order to appoint the next President and Representative Executive Officer the Nomination Committee establishes a succession plan for the President and Representative Executive Officer, establishes programs for the continued and deliberate development of candidates with the aptitude to serve in management, and works to ensure there is a system enabling the recommendation of appropriate personnel at any time. The Nomination Committee identifies the abilities, qualities (potential), experience, knowledge and skills required of the President, based on the current and future business environment and management strategies, as the Ebara style of an “ideal manager” based on the succession plan, establishes the specific methods and criteria for determining these, selects candidates from a broad age group, develops them and actively reviews the status of development. (4) Explanations with respect to Individual Election and Dismissal Principle 3.1 v) （See Article 10 of Appendix 2） The names and reasons for nomination for each Director are disclosed and explained in the explanation of the proposal section on pages 8 to 20 of the Notice of the 157th General Meeting of Shareholders, in accordance with the policy and procedures with regard to the election and dismissal of Directors and Executive Officers as described in the above (1), (2) and (3). ➔For full disclosure on “the Notice of the 157th General Meeting of Shareholders,” please see: https://www.ebara.co.jp/en/ir/governance/information/effectiveness-evaluation.html 10. Effectiveness of the Board of Directors (1) Evaluation of the Effectiveness Principle 4.11, Supplementary Principle 4.11.3 （See Article 24 of Appendix 2） The Company pursues the best possible corporate governance structure and strives for its further enhancement at all times. In fiscal 2015, Board of Directors itself began conducting annual Evaluation of the Effectiveness of the entire Board of Directors to verify how Board of Directors is contributing to the effective functioning of corporate governance and to identify and improve issues. A summary of the findings is disclosed. In annual evaluations, an examination of the state of improvement of matters recognized as issues in the previous fiscal year is carried out, and the next issues are identified based on the results in a continuous cycle of improvement. 12 / 82A summary of Evaluation of the Board of Director’s effectiveness for fiscal 2021 can be found on the following website. ➔For full disclosure on “Evaluation of the Effectiveness of the Board of Directors,” please see: https://www.ebara.co.jp/en/ir/governance/information/governance-policy.html Major Governance-Reforming Based on Evaluation of the Effectiveness (a) Board of Directors agenda and discussion ⅰ) Strengthening Discussions on Medium- to Long-Term Issues ⅱ) Improving and deepening the quality of discussions In line with the perception that Board of Directors needs to further increase the weight of discussions on medium- to long-term issues, we began to incorporate into Board of Director’s annual agenda items in advance the long-term management vision, Medium-term Management Plan of realizing this vision, and the strategies, organizational structure, and personnel strategies of each business, and to hold time-consuming discussions. A few days before Board of Directors, Executive Session met with the executive officer in charge to explain the main topics of the Board of Directors meeting and to deepen their understanding of these topics, and to hold free discussions among Independent Director. At Board of Directors, there was a shared awareness that the quality of Independent Director’s discussions would be enhanced by having each Evaluation of the Effectiveness understand the issues and make comments from their own perspectives and responsibilities. Evaluation of the Effectiveness also confirmed the significance of this Executive Session. (b) Size and Composition of Board of Directors ⅰ) Size and composition of Independent Director ⅱ) Independent Director who are also in charge of business execution ⅲ) Board of Directors assumes chairmanship Regarding Independent Director, the background and the diversity of experiences are important, and the importance of free exchange of diverse views in the invisible social climate in the future was recognized. Evaluation of the Effectiveness confirmed the appropriateness of a system in which Independent Director of the 10 current boards of directors is composed of 7 members. With regard to the current system, in which the number of directors who are also in charge of business execution has been gradually reduced to 1 representative executive officer, Evaluation of the Effectiveness shared the view that the separation of supervision and execution has been promoted and the roles of execution responsibilities and Board of Directors have been further clarified. In 2019, Independent Director became Board of Directors Chairman of the Board to ensure further fairness and transparency and to set agenda items from the shareholder’s perspective. To check its effectiveness, the Chairman’s Assessment was included in Evaluation of the Effectiveness’s frame and reviewed annually at Board of Directors. (c) Committee’s Effectiveness Evaluation of the Committee’s Effectiveness ⅰ) Evaluation of the Committee’s Effectiveness ⅱ) Number and Composition of the Audit Committee and support system The Nominating, Compensation, and Auditing Committees shared their functions and roles through Evaluation of the Effectiveness and made progress in self-assessing whether they were sufficiently independent and capable of achieving their objectives. The Audit Committee has undergone a gradual decrease in the total number of members and the number of Internal Directors, resulting in a structure with four members including one Internal Director from 2020, and a structure with a total of three members including one Internal Director chaired by an Independent Director was adopted from 2021 to ensure further independence and realize audit oversight based on external viewpoints. With the transition to this system, the Audit Committee recognized that it is necessary to strengthen the system for supporting 13 / 82(d) Effectiveness of Directors ⅰ) Clarification of roles and qualification requirements Audit Committee in the evaluation of effectiveness, and the systems and allocation of personnel for this were expanded. For this reason, this will continue to be evaluated in the evaluation of effectiveness to review its effectiveness. In the FY2020 evaluation of effectiveness, it was found that the clarification of roles and qualification requirements of each Director and the confirmation based on the clarification through self-evaluation and peer evaluation contribute to the improvement of the capabilities of the Board as a whole and individual Directors. In order to realize this, the roles and qualification requirements required of Directors including attributes (Independent Director, etc.) and positions (Chairman of the Board, Committee Chairman, etc.) were explicitly stated in the Basic Policy on Corporate Governance (EBARA Corporate Governance Basic Policy) after sufficient discussion in the Board. In the FY2021 evaluation of effectiveness, it was shared that the recognition that the EBARA Corporate Governance Basic Policy is an important policy for future activities of the Board, Committees and individual Directors. Article 17 of Appendix 2） (2) Concurrent Positions of Directors and Attendance Rate of the Board Principals 4.11.2 （See The Company’s Basic Policy has provided that if a Director of the Company is to concurrently serve as a director or a statutory auditor of other listed companies, such service shall not be demanding to the extent that it may impede the roles and functions expected of a Director of the Company, and the standard for the number of concurrent boards has been set. We also have set standards pertaining to attendance rates of the Board of Directors meetings to ensure the effectiveness. We have determined that the current concurrent status of all Directors is within the extent of fulfilling the roles and functions expected of the Director of the Company. The status of concurrent posts of Directors is disclosed in the explanation of the proposal for election of Directors of the Notice of the General Meeting of Shareholders. ➔For full disclosure on “the Notice of the 157th General Meeting of Shareholders,” please see: https://www.ebara.co.jp/en/ir/stock/shareholdersmeeting/index.html (3) Training for Directors Principals 4.14, Supplementary Principals 4.14.1, 4.14.2 （See Article 23 of Appendix 2） The Company offers opportunities for newly elected Directors to gain knowledge of, and insight into, the subjects necessary to perform their responsibilities as Directors, including finance, legal affairs and corporate governance prior to or immediately after their election. Furthermore, in an effort to promote understanding of the Group, the Company offers opportunities as appropriate for newly elected Independent Directors to gain knowledge of, and insight into important matters such as the Group’s management strategies and financial position, through a briefing by Executive Officers, etc., in charge of respective areas, and inspection tours, etc., at the Group’s business sites prior to or immediately after their election. In addition, the Company provides Directors with opportunities for adequate training after their election as appropriate, including lectures by external experts. 11. Policy on executives’ compensations and procedure Principle 3.1 iii),4.2, Supplementary Principle 4.2.1 （See Article 25 of Appendix 2） The Compensation Policy for Directors and Executive Officers (the “Compensation Policy”) is determined by Compensation Committee chaired by an Independent Director and comprising of Independent Directors only. Compensation policies are determined under our Long-term Vision “E-Vision2030” and Medium-term Management Plan “E-Plan2022”, and the contents of these policies are as follows. 14 / 82(1) Compensation for Directors In order to supervise the execution of duties by Executive Officers in line with the Company’s management philosophy and strategy, the Company has adopted a compensation level and remuneration system that reflects the roles played by Board of Directors and its committees, with the purpose of achieving sustainable growth of the Company and increasing corporate value over the medium- to long-term. A Director who concurrently serves as an Executive Officer is paid with compensation as an Executive Officer only, and not compensation as a Director. (2) Compensation for Executive Officers Compensation for Executive Officers is designed to encourage the Executive Officers to perform their duties in accordance with the management philosophy and management strategies and to strongly motivate them to achieve challenging management targets with appropriately controlled risks, ➔ For further information on “Indicators related to the performance-linked stock compensation plan, reasons for selecting such indicators, and the method of determining the amount of performance-linked compensation,” please see “II1.[Incentive] Supplementary Explanation of “Incentive Policies for Directors and/or Executive Officers” later in this report.” ➔ For further information on “Policy on Determination of Payment Ratio of Compensation, etc. Other Than Performance-Linked Compensation and Performance-Linked Compensation,” please see “II1. [Compensation for Directors and Executive Officers] Disclosure of Policy on Determining Compensation Amounts and Calculation Methods.” 12. Dialogue with Shareholders and Investors Principles 5.1, Supplementary Principle 5.1.1, 5.1.2 （See Article 4 of Appendix 2） The Company recognizes the establishment of a long-term trusting relationship with shareholders and investors as one of the most important management matters. The Company provides appropriate corporate information necessary for shareholders and investors to make investment decisions, and strives to further strengthen the trusting relationship on a continuous basis by engaging in IR activities for enhancing its corporate value through constructive dialogue. In the current framework, the President and Representative Executive Officer is the chief of IR activities of the Company, which are, in principle, carried out by the Executive Officer in charge of IR and the department in charge of IR. In addition, Directors (including Independent Directors), Executive Officers and other senior executives arrange, as appropriate, opportunities for direct dialogue with shareholders and investors. The Company develops a framework for internally sharing information and knowledge gained through such dialogue with shareholders and investors, which shall be utilized for the management of the Company. The Company has established and discloses its IR Basic Policy as a basic policy with regard to the system development and initiatives to promote constructive dialogues with shareholders and investors. ➔For more information on IR activities, please refer to “Ⅲ 2. IR Activities”. ➔For full disclosure on “IR Basic Policy,” please see: https://www.ebara.co.jp/en/ir/business/information/ir-basic-policy.html ➔For more information on “Flow Chart of Communication with Shareholders & Investors,” please see Appendix 13. Functions as a Corporate Pension Asset Owner Principle 2.6 The Group has established a Pension Committee as an organization for ensuring pension benefits are provided to members in the future in the management of defined benefit pension assets of the Company and its major domestic subsidiaries. The Pension Committee has defined a “Basic Policy on Management of Pension Assets” to secure total earnings required in the long term within an acceptable range of risk, and is engaged in the management and administration of pension assets by determining strategic asset composition ratios from a medium- to long-term perspective. The Pension Committee is made up of Executive Officers and employees from the Human Resources Division and the Finance and Accounting Division who have specialized knowledge in the areas of human resources systems, management of financial assets and accounting and taxes, and also hires external experts as advisors to receive the necessary advice on pension asset management and the establishment of systems, as well as to properly manage conflicts of interest between pension beneficiaries and the Company. 7. 15 / 8214. Related Party Transactions Principle 1.7 （See Article 6 of Appendix 2） The Company’ s Basic Policy has provided that the Company’s Directors and Executive Officers shall obtain prior approval of the Board of Directors when they are to “carry out transactions that belong to the line of business of the Company (competitive transactions) for themselves or for a third party” or “carry out transactions with the Company, or transactions that involve conflicts of interest between themselves and the Company (transactions involving conflicts of interest), including transactions between the Company and a third party for which they receive a commission, etc.” 16 / 822. Capital Structure Percentage of Foreign Shareholders More than 30% Status of Major Shareholders Name / Company Name Number of Shares Owned Percentage (%) 16,402,700 9,552,600 4,41