Espec : Corporate Governance Report

frameworks for human resources recruitment, promotion, training, evaluation and so forth, so that the Company's broad spectrum of human resources can demonstrate their individuality and abilities. For information on initiatives to promote the activeparticipation of diverse human resources, please see the Company's Sustainability Report.https://www.espec.co.jp/sustainability/report.html

1. Voluntary and Measurable Goals for Ensuring Diversity and Current Status Thereof 1. Promotion of women to managers
   The Company is actively engaged in building an organization where motivated and capable women can enjoy a good working environment and actively participate in the workforce. Since fiscal 2013, the Company has been offering female leader development programs, along with striving to nurture female employees into managers and to expand the scope of their occupations and job duties. As of the filing date of this report, the Company has 2 female officers and the ratio of femalemanagers stood at 6.0%. By fiscal 2025, the Company aims to achieve a ratio of female managers of 10% or more.
   2. Promotion of foreign nationals to managers
   The Company strives to secure talented human resources, regardless of nationality. For example, in the hiring process, the Company has set a certain target for the recruitment of non-Japanese nationals and actively hires such individuals. Currently, the Company does not yet have a foreign national manager. It will push ahead with human resources development to secure suchmanagers.
   3. Promotion of midcareer hires to managers
   Midcareer hires account for 30% of the number of the Company's managers, almost the same percentage as the ratio of midcareer hires to all employees. Going forward, the Company will continue to promote midcareer hires to managers, with a view toensuring even more diversity.
2. Policies on Human Resource Development and Internal Environment Development to Ensure Diversity

1. Provide motivated and capable human resources with a diverse range of support for growth and opportunities to succeed Personal growth is highly dependent on individual will and motivation. Indeed, such growth can be described as a personal priority. The Company provides capable employees who are eager to grow with a diverse range of support for growth and opportunities to realize their ambitions.
2. Developing an environment in support of diverse workstyles

The Company believes that it is important for it to develop an environment where employees can fully demonstrate their abilities with peace of mind. The workstyles that people desire are constantly changing with the times. To an appropriate extent, the Company will strive to develop an advanced workplace environment in support of diverse workstyles that meet the demands of the times.

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

To ensure appropriate operation of its defined benefit pension plan, the Company has established operational goals and a policy asset composition from a medium- to long-term standpoint, and entrusts its corporate pension to an investment management institution that accepts Japan's Stewardship Code. From an operational viewpoint, the Company assigns human resources with appropriate skills as heads of the finance and personnel departments and monitors the operational status of the operational institution. Moreover, to ensure transparency in regard to conflicts of interest, the Company notifies employees of the results offund operations.

Principle 3.1 Full Disclosure]

Article 1. Basic Stance on Corporate Governance

Article 7. The Company's Corporate Philosophy, Management Policy, and Relationship with Stakeholders Article 17. Method and Procedures for Nominating a Candidate for Director

Article 20. Compensation of Directors

・The Company shall disclose its reasons behind the nomination of candidates for director in the reference materials to its Noticefor Convening a Shareholders Meeting.

https://www.espec.co.jp/english/news/2022/0601.pdf

・The policy and procedures by which the Board of Directors determines the compensation of the management executives and directors is disclosed in this report under "Disclosure of Policy and Calculation Method for Determining Compensation Amounts", in the business report included in the convocation notice for the general meeting of shareholders, and the AnnualSecurities Report.

[Supplementary Principle 3.1.3 Initiatives on Sustainability] Article 8. Policy on Sustainability

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1. Initiatives on Sustainability
   THE ESPEC MIND, which is the Company's corporate philosophy, contains two important beliefs. The first belief is that a corporation is a public institution. The second belief is that the Company should aim to enhance its value exchangeability with all its stakeholders. Guided by this corporate philosophy, the Company has formulated ESPEC Vision 2025, where it clearly defines what kind of company and team it wants to be in the future, and what kinds of businesses it will pursue to create value. By implementing THE ESPEC MIND and ESPEC Vision, the Company seeks to achieve sustainable growth and contribute to society. For information on policies and initiatives related to the Company's sustainability, please see its
   Sustainability Report. https://www.espec.co.jp/sustainability/report.html
2. Investments in Human Capital
   The Company aims to maximize employees' abilities and energy through efforts to develop and nurture high-quality human resources who are strongly ambitious. For information on initiatives related to investments in human capital, please see the
   Company's Sustainability Report. https://www.espec.co.jp/sustainability/report.html
3. Investments in Intellectual Properties
   Regarding patents and technology-based designs, the Company strategically submits applications and acquires and exercises rights, along with continuously making a certain level of investment in the development of new technologies and products. In addition, the Company has developed a security framework to protect intellectual properties. Moreover, the Company regularly holds Company-wide technology networking meetings to bring out the creativity and ingenuity of employees. Concurrently, the Company works to raise employee motivation and enhance technical capabilities by, for example, presenting awards through the ESPEC Idea Challenge program, and by providing incentives based on invention and design handling regulations. For details on specific research and development initiatives, please see "Research and Development Activities" in the Annual Securities Report.
   https://www.espec.co.jp/ir/library/security.html
4. Effect of climate change-related risks and earnings opportunities on business activities and finance, etc.
   In December 2021, the Company announced its support for the recommendations of the Task Force on Climate-related
   Financial Disclosures (TCFD). For information on disclosure based on the TCFD recommendations, please see "Addressing TCFD (Disclosure of Information Based on TCFD)" on the Company's website and "Management Policies, Business Environment and Our Tasks Ahead, etc." in the Annual Securities Report. https://www.espec.co.jp/sustainability/env/climate/tcfd.html
   https://www.espec.co.jp/ir/library/security.html

[Supplementary Principle 4.1.1 Scope of Delegation to Management] Article 12. Roles of the Board of Directors

[Principle 4.9 Criteria for the Independence of Independent Outside Directors] Article 17. Method and Procedures for Nominating a Candidate for Director

[Supplementary Principle 4.11.1 Size, Diversity and Overall Balance of the Board of Directors] Article 14. Composition of the Board of Directors and the Audit & Supervisory Committee Article 17. Method and Procedures for Nominating a Candidate for Director

[Supplementary Principle 4.11.2 Directors and Audit & Supervisory Board Members Concurrently Holding Positions at OtherListed Companies]

Article 18. Tenure of Outside Directors and Their Concurrent Positions at Other Companies

The Company discloses the status of its directors holding important concurrent positions in other companies in the referencematerials, business report and other content attached to its Notice for Convening a Shareholders Meeting.

[Supplementary Principle 4.11.3 Evaluating the Effectiveness of the Board of Directors] Article 15. Evaluating the Effectiveness of the Board of Directors

To evaluate the effectiveness of the Board of Directors during fiscal 2021, the Board of Directors met in April 2022 to analyze and evaluate their effectiveness as a whole. As an evaluation method, the outside directors as the responsible officers, had all

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board members and Audit & Supervisory Board members fill out a questionnaire-styleself-evaluation of the organization, functions,] and conduct of the Board of Directors, as well as the support it had received. Based on the results, follow-up interviews were conducted. As a result, it was judged that the effectiveness of the Board of Directors as a whole has been secured based on the confirmation that the Board had put in place an organization for fulfilling its function of supervising management, and that conditions within the Board contributed to discussions and exchanges of opinions in a free, uninhibited and constructive manner. Meanwhile, the Board of Directors confirmed the need to work on further enhancing, utilizing and providing timely information about proposals on agendas, as issues that must be addressed going forward. Looking ahead, we will continue to havediscussions from various perspectives and endeavor to further improve the Board's effectiveness.

Results of the evaluation of the effectiveness of the Board of Directors have been posted on the Company's website. https://www.espec.co.jp/english/csr/management/

[Supplementary Principle 4.14.2 Training for Directors and Audit & Supervisory Board Members] Article 22. Training for Directors

[Principle 5.1 Policy for Constructive Dialogue with Shareholders] Article 23. Dialogue with Shareholders

The Company has formulated and disclosed a separate investor relations IR policy outlining its basic stance for realizing aconstructive dialogue with shareholders.

https://www.espec.co.jp/english/ir/policy.html

2. Capital Structure

Foreign Shareholding RatioFrom 10% to less than 20%

Status of Major Shareholders (Updated)

Supplementary Explanation (Updated)

The Company owns 1,231,846 shares of treasury stock in addition to the shares mentioned above.

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3. Corporate Attributes

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

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5. Other Special Circumstances which May have Material Impact on Corporate Governance

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II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

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