Furukawa Electric : Integrated Report, Sustainability Report 2022

Contents

About Furukawa Electric Group

01 About the Furukawa Electric Group Integrated Report 2022

02 Furukawa Electric Group's Values

Management Strategy

04 President's Message

10 Innovation History of Furukawa Electric Group

12 At a Glance, Furukawa Electric Group

14 Changes in the External Environments and the Social Issues Surrounding Furukawa Electric Group

16 Furukawa Electric Group's Sustainability

20 Value Creation Process Directed at Achieving Vision 2030

22 Stakeholders and Materiality

24 Message from the General Manager of the Strategy Division

30 Medium-term Management Plan 2022-2025 (2025 Mid-term Plan)

34 Message from the General Manager of the Finance & Accounting Division

38 Business Overview

Communications Solutions Energy Infrastructure Automotive Products & Batteries Electronics Component Materials Functional Products

50 Materiality of Revenue Opportunities

Creating Businesses that Solve Social Issues

Intellectual Property

Management Foundation

60 Furukawa Electric's Executives

62 Massage from Outside Directors

66 Materiality of Risks

Corporate Governance

Group Governance/Risk Management Supply Chain Management

Human Rights and Labor Practices

Developing Business Activities that Consider Climate Change

Strengthening Human Capital Management and Organizational Execution Abilities

Corporate Information/Data

86 Management Analysis of Operating Results and Financial Position

88 Main Financial and Non-Financial Data

90 Consolidated Financial Statements

92 Company Profile and Stock/ Dividend Information

94 Participation in Initiatives/ External Evaluation

Management Foundation

Corporate Information/Data

Editorial Policy

Since fiscal 2012, Furukawa Electric Group has published its Sustainability Report, containing Environment, Social, Governance (ESG) and other non-financial information beside business results, strategies, and other financial information.

Since fiscal 2020, we have been publishing the Furukawa Electric Group's integrated report in order to help investors and other stakeholders better understand our Group's efforts and measures to improve corporate value over the medium- to long-term.

We sincerely hope that this report will help you understand our value creation process directed at achieving Furukawa Electric Group Vision 2030, as well as our efforts to strengthen the foundation of our ESG management. We have used the following guidelines for reference.

International Integrated Reporting Framework (International Integrated Reporting Council (IIRC))

The Guidance for Collaborative Value Creation (the Ministry of Economy, Trade and Industry) Guidance on Climate-related Financial Disclosure (TCFD) Guidance 2.0 (the Ministry of Economy, Trade and Industry)

Scope of This Report

This Integrated Report has concisely stated important financial and non-financial information regarding Furukawa Electric Group with the aim of promoting a better understanding of our medium- to long- term initiatives and measures for the improvement of

corporate value by investors and other shareholders. Please also refer to Furukawa Electric's website and other reports, which post or publish other information not covered in this report or more detailed information.

Summarized Coverage

Detailed

https://www.furukawa.co.jp/en/ir/library/finalreport/https://www.furukawa.co.jp/en/rd/review/

INTEGRATED REPORT 2022

01

Corporate Philosophy

Management

Philosophy

Drawing on more than a century of expertise in the development and fabrication of advanced materials, we will contribute to the realization of a sustainable society through continuous technological innovation.

With an eye to the future, the Furukawa Electric Group management team pledges to:

Live up to the expectations and trust invested in us by society, with fairness and integrity.

Apply the sum total of our expertise to satisfy our customers and grow with them.

Continuously strive to achieve world-class technological innovation, and transform ourselves in every area of endeavor. Nurture human resources at every level, so that we can become a more diverse and creative organization.

The Founder's Thoughts

Mr. Ichibei Furukawa, the founder of Furukawa Group, said,

based on his wish to "brighten Japan," that we must

"Value employees, Value customers,

Value new technology, and Contribute to society."

Core Value

Furukawa Electric Group

Vision 2030

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Corporate Information/Data

The Furukawa Electric Group CSR Code of Conduct

(items only) (Revised April, 2019)

1. Human rights
2. Labor practices
3. Environment
4. Products and services
5. Internationaltransactions businesses and
6. Fair competition
7. Relations with customers, partners, and society
8. Management and preservation of Company assets
9. Disclosure of information

10 Duties and obligations of senior management and employees

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04

FURUKAWA ELECTRIC GROUP

Corporate Information/Data

In the last fiscal year ended March 31, 2022, which was positioned as the "fiscal year 0" of our 2025 Mid-term Plan (hereinafter, 25 MTP), we focused on winning rather than surviving and laid the groundwork for strengthening management through emphases on business transformation, the launch and development of new businesses, and capital efficiency. Until now, we have survived and at times thrived essentially by responding to the needs of our customers, but we recognize that we may not have made sufficient intentional efforts to manage the business toward what we wanted it to be. In order to leave that passive approach in the past and in its place survive and thrive, in the fiscal year 0 (FY0) of the 25 MTP we laid the groundwork for proactively striving to what we want to be.

During that year, supply chain disruptions due to the continued spread of COVID-19 and the fragmentation of the international community upset our plans and

defied our countermeasures but as a result, we believe that we have finally rid our system of all the weaknesses that plagued the Group. I am confident that we made the right decision to strengthen our corporate structure in order to resolve various issues and transform the corporate group so as to enable it to achieve the 25 MTP.

We reviewed the existing business portfolio and focused on launching and developing new businesses such as Michi-tenTM (an inspection system for lightpoles, traffic signals and other roadside structures) , as an outcome of our business transformation efforts. I also feel that our work is helping the effort to resolve social issues such as those caused by demographic changes.

The various initiatives we pursued in FY0 were sometimes difficult to carry out, but by implementing the initiatives we improved the organizational capabilities to accomplish tasks as a team. I am hoping that this enables us to carry out the 25 MTP with confidence.

The Furukawa Electric Group's vision for 2030 is to become a Group that is indispensable to solving social issues. We believe that we have gained insight into how society in 2030 will be, and gained confidence that we can contribute to that future society - this is behind that vision. We have then concluded that the following social issues are relevant for us in the perspective of 2030: the realization of a Beyond 5G (B5G) society, carbon neutrality, next-generation infrastructure enabling us to enjoy freedom of movement, and extension of healthy life expectancy. We want to have a solid presence in these areas, and also to focus on the realization of a circular economy as a social issue that spans across these areas.

The 25 MTP is positioned as a milestone toward realizing the Vision 2030. It was formulated based the dual approach of backcasting from the Vision 2030 and forward-looking from the present. I am often asked why we use the term "forward-looking" instead of "forecasting," which is the opposite of "backcasting." I like using the term "forward- looking" because what we want to achieve toward the Vision 2030 has already been decided.

We believe that the value creation process is extremely important for achieving the Vision 2030 and the 25 MTP. Through repeated discussions among our partners,

we have embodied the value creation process in our strategy for solving social issues from a long-term perspective that points toward the Vision 2030.

Since the 25 MTP has been clearly positioned as a milestone toward achieving the Vision 2030, the management team, including myself, is determined not

to present any situation threatening achievement of the 25 MTP. With this in mind, the main pillars of the 25 MTP we defined are "maximizing profits in existing businesses by focusing on capital efficiency" and "building a foundation for creating new businesses by strengthening development and proposal capabilities." In promoting these initiatives, we will also focus on "strengthening the foundation for ESG management," by placing ESG at the center of management. We are aware that if we fail to properly implement ESG management, we risk being cut loose from our mega value chain. We will therefore exert efforts to be deeply conscious of collaborating with our partners in executing the ESG initiatives.

Priority measures

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Top Message

New targets set in the 2025

Mid-term Plan

In my view targets that objectively and calmly evaluate the progress of the plan are indispensable to steadily advance the 25 MTP. In FY0, when we sought to reinforce our corporate structure, we were able to have our Group evaluated by ROIC*1 and FVA*2. Using the current status as was thus defined as a foothold, we will work on maximizing profits in existing businesses under the 25 MTP.

The 25 MTP has also clearly identified non-financial elements as sustainability targets in addition to the conventional financial targets. We can put ESG at the very heart of our management by clarifying sustainability goals, such as related to carbon neutrality, human capital, and human rights. With regard to intellectual property, we have set the IP landscape implementation rate as a sustainability indicator for revenue opportunities (see P56-57 for details on IP landscape). In the past few years, the Group's intellectual property has been highly evaluated by people in various fields. We will place more importance on intellectual property than ever before as it gives us strength from the viewpoint of carbon neutrality and the circular economy.

In terms of shareholder returns, despite the ups and downs of our business performance, we have traditionally tended to focus too much on stable dividends. Under the 25 MTP, we announced our cash allocation policy and set a numerical target for the dividend payout ratio of 30% for consolidated net income for the first time. During the 25 MTP period, we want to create a situation where we are constantly profitable with compounded interest and achieve stable shareholder returns through profit growth.

One pillar of the 25 MTP is maximizing profits in existing businesses. Our Group has competitive products, but in the past, we commercialized some businesses based on the notion that "this is a good product," rather than the perspective of "what is the added value" or "what customers want." In some of these cases, a large capital investment was made when the business was growing steadily, but then when it started to fall, the factory's operating rate dropped, but we kept running the factory even if the profit was lower, and the business ended up falling to a stalemated business.

In order to prevent such a recurrence, in addition to improving our products, we directed attention to the creation of Koto, an extra-alpha service based on the perspective of "what customers want." We want to generate more cash by going beyond the functions of the product itself and shifting gears to enter this customers'

desiderata perspective.

Toward this end, we intend to thoroughly reorganize the portfolio of existing fields, identify businesses that shine when polished, and add more value to existing products to improve them.

Our approach to improve the product mix is to transform the large-scale, stalemated business into the specialized aggregated business , and not to enter the competition for market share in the fragmented businesses. For businesses that we need to expand in scale, we seek to earn profits while attaining target scale. In addition, with an eye on the creation of new businesses, we will monitor the ways we can earn an admirable ROIC of businesses that we deem necessary for the future of the Group, and be alert to issues, and then calmly make decisions and flexibly respond.

Adoption of the ROIC management may lead to a downsizing equilibrium trap, but in the years leading up to the launch of the 25 MTP, we focused on changing our mindset and moving into an ROIC management mode. This has led the existing businesses into a growth spiral, enabling us to objectively evaluate the business portfolio

using the growth curve of the market as well as ROIC and FVA of each business. At present, if the ROIC spread is 1.0% or more, we consider it to be a business that can earn profit from compound interest.

Our Group's businesses support social infrastructure and can be said to be B-to-B-to-C (with various C's,

*1 ROIC: Return on invested capital

*2 FVA: Furukawa value added to invested capital

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Corporate Information/Data

such as Customer and Citizen) business or B-to-G (Government) business. In order to support social infrastructure and constantly support the resolution of social issues, we ourselves need to continue growing. To this end, we are aiming to achieve an ROIC spread of 1.0%. Only when this is achieved, I believe that we can become a company that is truly trusted by society.

Until now, we have received proposals such as "If we

stop investing in this system, a billion yen of profits will be generated," but with such a shrinking equilibrium approach, we cannot achieve the milestone set in the 25 MTP. I cannot live just for the present but, as the 15th president of Furukawa Electric that has a 140-year history, I believe that my mission is to firmly pass the baton to the next generation and help our Group move forward to the Vision 2030.

To create new businesses, we will thoroughly utilize our four core technologies and focus on contributing to the realization of the following three themes: (1) carbon neutrality, (2) adaptation to the declining labor force due to the declining birthrate and aging population, and (3) a society where various things can be simultaneously performed (such as being able to watch videos while the car drives itself=). We consider the third one to

be the most important social challenge. Since our Group's products are to support society, we believe that "supporting" and "being utilized" will undoubtedly be key words for us to tackle social issues.

Another method we are using for the 25 MTP is to do the groundwork for the creation of new businesses. With regard to carbon neutrality, for example, bipolar lead storage batteries are being developed by the Group's specialized team. As for projects which cannot be realized by the Group alone, such as the creation of green LP gas using our original catalyst (Ramune CatalystTM) technology, we are actively promoting co-creation with partners. Also, the Next-Generation Photonics Business Creation Project has been launched under the direct control of myself, with the aim of creating photonics products that in the coming years will show material results in playing a role in supporting and being utilized in a society.

In order to realize a circular economy, we believe it is important to promote business together with external partners. In conventional corporate management, each company focused most to enhance its strength and had its

own ecosystem. However, we have begun to learn that a company cannot complete a viable ecosystem by itself, and needs to cooperate with other companies to form a loop for running a circular economy. In other words, rather than competing, a company needs to resonate its ecosystem with the ecosystem of customers and partners, and collaborate, similar to the way that an orchestra's musicians can make pleasing sounds together. We would like to co- create a high-quality ecosystem through the integration of technologies and resources with customers and partners.

In the creation of new businesses, intellectual property is important in improving the level of technology. We have had the idea of "defensive intellectual property" as a base for such creation, but from now on, I would like to also embrace the idea of "offensive intellectual property." Based on the 2021 revision of the Japan's Corporate Governance Code, we intend to create new value and lead to the creation of new businesses during the 25 MTP by strategically utilizing the Group's intellectual property that we have cultivated over many years.

Realization of a circular economy in concert with others

Social issues

Collaborate in concert with partners through the resonance of the ecosystems

The Group's basic approach to carbon neutrality consists of three parts: (1) not to eliminate but to reduce direct CO2 emissions (Scope 1 and 2) ,(2) not to eliminate but to reduce CO2 emissions in society (Scope 3) , and (3) to capture or transform the emitted CO2. In particular, we intend to thoroughly work on our Scope 1 and 2 reduction efforts as they mean Scope 3 reduction for our customers. In order to ultimately achieve carbon neutrality by 2050, we are committed to steadily

reducing CO2 emissions and aim at achieving the revised Environmental Targets 2030 and the sustainability targets of the 25 MTP.

Our Group's renewable energy usage rate was 17.1% in Japan and 10.9% overseas in fiscal 2021, which we recognize is the result of efforts made by our predecessors. For example, to make copper requires a large amount of electricity and we are proud to have been using hydroelectric power since 1906.

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Top Message

In addition, triggered by the shutdown of our copper electrolytic refining facilities in 1988, our Group has been continuing to use scrap metal returned from customers by placing them directly in a melting furnace for manufacturing. As a result, we have honed our high technical ability to reuse scrap metal in manufacturing. This is what we call closed-loop recycling. Furthermore, the production of electrolytic copper foil normally requires the use of pure metal materials, but we have the technology to produce electrolytic copper foil using 100% recycled copper, and we have completed to acquire the verification of UL2809 (Underwriters Laboratories' Recycled Content Validation Mark) for our products using 100% recycled copper. We are also promoting the use of recycled materials in the Functional Plastics business. Use of the recycling technology is enabling us to reduce CO2 emissions over the entire product life cycle. It is an important initiative that can contribute to the reduction of Scope 3, including reduction for customers, and this has been realized thanks to our strength cultivated through the history of the Group.

Carbon neutrality is considered as an important business opportunity to achieve the Vision 2030, and we are actively

engaged in technological development and infrastructure development. A prime example is our technology for producing green LP gas with Ramune CatalystTM, an original catalyst that utilizes metals and polymers-our core technology. This technology can transform CO2 emitted by society, and was used for the Torch*3 of this year's Ichigo Ichie Tochigi National Sports Festival.

Furukawa Electric Group's Initiatives for recycling-oriented production activities

Conductive materials, copper strips,

and high-performance materials

"Strengthening human capital management and organizational execution abilities" has been identified as one of our materiality themes and is an important issue in management strategy.

We believe that a company will not survive without securing human capital. Today's young people tend to have a mental model of whether they can be engaged in solving social issues or improve their well-being when choosing a company to join. In the past, a company chose people to be employed. Now, we are entering an era in which young people, with such a mindset to solve social issues, choose a company to join.

By accurately understanding such a change, we have been able to consider what we could do to secure human capital, and formulated the Furukawa Electric Group Vision for Our People in 2018. This Vision provides a vision for individuals, defines the role of superiors, and defines the proper basic attitude toward people, while preserving the company's DNA. The Vision is shared in-house and is used

to build a human capital management system. In part for the purpose of instilling the "ability to accomplish" by a team as part of our culture, we believe that all employees should take the development of the workforce as their major collective mission. This has been incorporated into the managers' evaluation index to further improve it.

Managers are also reminded of the "Furukawa Seven" - seven principles for formation of the mindset and actions of supervisors in the workplace. As a neat measure to make it better known by employees, we have arranged a mechanism using a smartphone app that enables employees to share goals they want to be aware of, and share concerns over human capital development (among other subjects), and allows others to respond with advice in the comment section or by pushing a "like" button. Through such measures, we are advancing leadership reforms starting from the workplace.

As ways to strengthen our human rights and supply chain initiatives, we have formulated our Human Rights Policy based on the United Nations Guiding Principles on Business and Human Rights, and revised our CSR Procurement Guidelines. The materiality of governance already includes supply chain management as a sub-materiality. At the end of last fiscal year, we reviewed materiality and added human rights and

labor practices. In light of the current global situation, human rights can be a subject that can involve significant risk. If we take action without recognizing the negative impact on human rights, we may be excluded from the supply chain, products, services, or labor markets. With this in mind, we will continue to take various measures based on our Human Rights Policy and CSR Procurement Guidelines.

*3 The Torch is a symbol of the Sports Festival, similar to the Olympic flame.

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