Nippon Carbon : (Delayed)Corporate Governance Report

[Translation]

Corporate Governance Report

Last Updated: March 30, 2022

Nippon Carbon Co., Ltd.

Takafumi Miyashita Representative Director, CEO Contact: Administration Div. of Biz Administration Dept. Securities Code: 5302 https://www.carbon.co.jp/english/

The corporate governance of Nippon Carbon Co., Ltd. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Views

The Company always pursues the best corporate governance and continues to work on enhancing it. The basic views are based on the Management Philosophy formulated in 1980.

Management Philosophy

"A company with dreams and technology that aims for a society of love and science"

In accordance with this view, the Company works on enhancing corporate governance, while regarding ensuring the transparency and fairness of decision-making as well as fully utilizing the management resources it holds and increasing the vitality of management using swift and decisive decision-making as the center of corporate governance, from the perspective of increasing the Company's sustainable growth and long-term corporate value.

1. Respect the rights of shareholders and secure their equal treatment.
2. Consider the interests of stakeholders including shareholders and cooperate appropriately with the stakeholders.
3. Properly disclose the Company's information and ensure transparency.
4. Make the Board of Directors' supervision function for business execution effective.
5. Through the realization of the Management Philosophy, aim to increase sustainable corporate value and engage in constructive dialogue with shareholders and investors that have investment policies that align with the Management Philosophy.

[Reasons for Non-compliance With the Principles of Japan's Corporate Governance Code] Updated

Described based on the Code revised in June 2021.

[Supplementary Principle 3.1.3 Disclosure of Initiatives on Sustainability]

Based on the understanding that Environment, Social and Governance (ESG) are very important for increasing medium- and long-term corporate value, the Company will set targets for each during FY2022 and implement specific initiatives toward increasing medium- and long-term corporate value.

In accordance with the purpose of the revision of the Code in June 2021, the Company will assess the impact of climate change-related risks and earning opportunities on its businesses using a scenario analysis required by the Task Force on Climate-related Financial Disclosures (TCFD) to disclose the assessment during FY2022.

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[Translation]

[Disclosure Based on the Principles of Japan's Corporate Governance Code] Updated

[Principle 1.4 Cross-Shareholdings]

1. Policy relating to cross-shareholdings

The Company holds shares for policy-oriented purposes such as maintaining and expanding good transaction relationships, as well as keeping stable and continuous financial transaction relationships.

The Company examines the reasonableness of holding cross-shareholdings at a meeting of the Board of Directors annually from a medium- to long-term perspective, giving comprehensive consideration to the purposes, and risks and interests to be gained from cross-shareholdings, capital costs and other factors for all the individual issues.

The Company has a policy to reduce shares not deemed reasonable to be held after the examination. The Company reduced four share issues in 2021.

2. Exercising voting rights regarding cross-shareholdings

The Company exercises the voting rights of all the cross-shareholdings in principle, believing that appropriate exercise of voting rights promotes the strengthening a company's corporate governance structure and leads to enhancement of its medium- and long-term value and sustainable growth. To exercise voting rights, the Company comprehensively decides whether a proposal would contribute to the establishment of an appropriate corporate governance structure and the increase of the medium- and long-term corporate value of an issuing company, as well as have any impact on the Company.

[Principle 1.7 Related Party Transactions]

Whenever the Company engages in related party transactions, its Board of Directors carries out appropriate procedures according to the details and characteristics of the transactions, and the transactions are disclosed in securities reports and similar. In addition, the Company monitors its group companies' officers by researching related party transactions annually.

[Supplementary Principle 2.4.1 Ensuring Diversity]

The Company actively and continuously hires and appoints diverse human resources such as women, foreign nationals and mid-career workers with various professional backgrounds to develop a business structure that enables flexible and swift responses to a rapidly changing market environment. The Company also works on improving the workplace environment so that each worker can utilize his or her abilities and characteristics, and sets criteria for selecting middle managers regardless of sex, or whether they are new graduate or mid-career employees.

Going forward, the Company will strive to train employees that will be engaged in management decision-making in the future, by conducting recruitment with ensuring diversity in mind from medium- and long-term perspectives, creating an environment where employees can play an active role regardless of the type of their hiring, sex or nationality, and supporting employees' self-directed growth.

As the target for promoting the active participation of women, the Company will vigorously work on hiring women in career track positions, candidates for middle managerial positions, in a bid to double the number of female managers by 2030.

[Principle 2.6 Roles as Asset Owners]

The Company manages a pension fund with the aim of ensuring necessary total revenues for the long term, while weighing risks to make sure to provide pension benefits into the future, and formulates the asset mix from a medium- to long-term perspective.

The Company selects an asset manager using a comprehensive evaluation of quantitative aspects such as management performance in addition to qualitative assessment of management process, compliance and the like.

[Principle 3.1 Full Disclosure]

1. Management Philosophy, etc., management strategy and management plan

(1) Management Philosophy, etc.

The Management Philosophy is as described in "1. Basic Views."

(2) Management strategy and management plan

The Company's group (the "Group") expects to develop along with new markets as a corporate group that provides carbon materials indispensable to growing markets related to "carbon neutral" and "digital transformation." The Group has formulated its Mid-term Management Policy "BREAKTHROUGH 2024,"

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[Translation]

setting "Business structural reform" and "Improvement of corporate constitution" as core targets, and aims to enhance profitability and corporate value through the Group's collective efforts.

(a) Business structural reform

We will develop strategy suited to our business portfolio with a focus on growing markets related to carbon neutral and digital transformation, aiming to ensure stable earnings.

1. Maintaining top share and further expansion of carbon fiber products for the high temperature furnace global market
2. Strengthening global competitiveness of artificial graphite electrode and anode materials for lithium-ion batteries by reducing production costs and cost reduction by thorough review of production processes
3. Creation of new business
4. Increase profitability of specialty carbon business
5. Business development of silicon carbide continuous fiber to meet global demand

(b) Improvement of corporate constitution

We will aim to enhance organizational strength through the ongoing securing and training of human resources and execution of diversified promotion.

We will advance work style reform such as teleworking, which has become the new normal, and review functions of our business locations, including headquarters, to realize a sustainable and strong corporate constitution.

1. Securing and training of human resources
2. Work style reform for the new normal era and promoting the efficiency of activity bases

(c) Promotion of ESG management

We will advance ESG management with "Environment," "Social" and "Governance" in mind to realize a sustainable society and improve corporate value.

2. Basic views and basic policy on corporate governance

The Company aims to enhance the soundness and transparency of management by adopting the following system as a governance mechanism to build the best relationship with stakeholders through business activities and increase corporate value.

The Company has selected the form of a company with Board of Auditors.

The Board of Directors composed of all the Directors including outside Directors deliberates on important decision-making related to business execution.

The Board of Directors consists of four Directors, two of whom are outside Directors, and the Board of Auditors is composed of three Auditors, two of whom are outside Auditors. This aims to increase the objectiveness of decision-making as well as strengthen the audit and supervision function of the Auditors for the management.

The Internal Audit Bureau in charge of the Group's internal audit monitors the status of the Company's internal control and reports to the Board of Directors and the Board of Auditors as well as gives instructions for improvement.

In addition, the Corporate Compliance Committee undertakes supervision activities of the overall Group to ensure compliance.

3. Policies and procedures for the Board of Directors in determining remuneration to Directors

The details are described in "II. 1 [Director Remuneration] Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof" of this report.

4. Policies and procedures for the Board of Directors in nominating the candidates for Director and Auditor

(1) Policies and procedures in nominating the candidates for Director

To nominate the candidates for Director, the Representative Director, CEO makes a proposal in line with the following standards, and after consulting the Advisory Committee, the Board of Directors resolves the draft proposal for a general meeting of shareholders and submits it as a proposal to the said meeting.

Standards for nominating the candidates for Director

• Be mentally and physically healthy
• Have high popularity, personal connections, dignity and ethics

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[Translation]

• Possess deep management knowledge and objective judgement as well as good foresight and insight
• Have no interest and transaction relationship that could affect the execution of the duties by Directors
• For an inside Director, have abilities, knowledge, experience and track record in the field he or she is good at as well as a sense of balance and decision-making capacity that enables him or her to understand the overall business and act
• For an outside Director, have abundant experience and in-depth insight in each field he or she has belonged to, secure enough time to execute the duties as the Company's Director and possess qualifications to advise and propose from an independent position to ensure the validity and appropriateness of decision-making of the Board of Directors
• Possess other qualifications required of a Director from the viewpoint of building corporate governance that achieves the soundness and transparency of management necessary for a listed company

The criteria for ensuring the independence of outside Directors comply with those prescribed by the Tokyo Stock Exchange.

(2) Policies and procedures in nominating the candidates for Auditor

The Company limits the number of Auditors to four in a bid to strengthen its functions, with half or more members being outside Auditors, pursuant to the provision of Article 335, paragraph (3) of the Companies Act.

In addition, Auditors cooperate with the Internal Audit Bureau and Accounting Auditor to seek to make each of three-pronged audits effective and enhance the audit for the overall business of the Group.

To nominate the candidates for Auditor, the Representative Director, CEO makes a proposal in line with the following standards, and after the Board of Auditors discusses and agrees with it, the Board of Directors resolves the draft proposal for a general meeting of shareholders and submits it as a proposal to the said meeting.

Standards for nominating the candidates for Auditor

• Be mentally and physically healthy
• Have high popularity, personal connections, dignity and ethics
• Always have an impartial, unbiased attitude and act based on one's own belief
• Always seek to self-improve to enhance the quality of audits
• Possess management knowledge and objective judgement
• Recognize management issues from the perspective of the overall management
• Have no interest and transaction relationship that could affect the execution of the duties by Auditors
• For a full-time Auditor, have information-gathering capacity required to fully assume the roles and responsibilities of the Board of Auditors
• Have an appreciable extent of expertise in finance and accounting, or abilities, knowledge and experience in the field one is good at
• For an outside Auditor, have abundant experience and in-depth insight in each field he or she has belonged to, secure enough time to execute the duties as the Company's Auditor and possess qualifications to advise and propose from an independent position to ensure the validity and appropriateness of decision-making of the Board of Directors
• Possess other qualifications required of an Auditor from the viewpoint of building corporate governance that

aims to enhance the soundness and transparency of management as a listed company

The criteria for ensuring the independence of outside Auditors comply with those prescribed by the Tokyo Stock Exchange.

(3) The reasons for appointment of candidates for Director and Auditor are disclosed in the Reference Documents for General Meeting of Shareholders.

URL: https://www.carbon.co.jp/english/topics/

(4) Policies and procedures in dismissing a Representative Director

A Representative Director shall be subject to a dismissal proposal if he or she meets even one of the following conditions.

• Violate laws and regulations, the articles of incorporation or other provisions of the Company to cause a heavy loss or trouble to the business
• Cause a significant loss in the execution of the duties
• Found to have a relationship with anti-social forces
• Clearly not satisfy each requirement of the appointment standards

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[Translation]

A dismissal proposal shall be resolved at a meeting of the Board of Directors after consulting the Advisory Committee.

[Supplementary Principle 4.1.1 Roles and Responsibilities of the Board of Directors]

The Company decides that strategic matters such as corporate management policies and the decision of important business execution that cannot be legally delegated to the management shall be resolution matters at meetings of the Board of Directors in the Board of Directors Regulations. It also determines the scope of authority regarding other matters related to business execution in the regulations on authority and specifies the details of the matters that should be transferred to the management.

Meetings of the Board of Directors are attended by outside Directors not engaged in management execution, and they have active discussions with other Directors not involved in the execution of the duties related to individual proposals. The supervision function performed by non-executive directors and the mutual supervision function among each of the Directors are fulfilled.

[Principle 4.8 Effective Use of Independent Outside Directors]

The Board of Directors currently consists of four Directors including two Representative Directors and two independent outside Directors.

The Board of Independent Outside Director composed of independent outside Directors and independent outside Auditors has been established and is held twice a year for members to freely exchange opinions and share recognition regarding the Company's management policies including the evaluation of the Board of Directors and management improvement, the development of the future top management and other topics based on expertise each member has from an independent position to fulfil the roles expected of independent outside Directors.

[Principle 4.9 Independence Criteria and Qualifications for Independent Outside Directors]

The Company's independence criteria to certify outside Directors and outside Auditors as independent officers comply with those prescribed by the Tokyo Stock Exchange.

[Supplementary Principle 4.10.1 Number of Independent Outside Directors and Matters Relating to Nominating and Remuneration Committees]

The Board of Directors is currently composed of two Representative Directors and two independent outside Directors.

Therefore, the Advisory Committee equivalent to a Nominating Committee or Remuneration Committee, composed of one inside Director and two independent outside Directors, has been established to ensure the objectiveness and transparency of the process of appointing and dismissing Directors as well as of determining remuneration to Directors. Nomination and determination of remuneration, etc. shall be decided after consultation of the Advisory Committee.

[Supplementary Principle 4.11.1 Preconditions for Ensuring the Effectiveness of the Board of Directors and the Board of Auditors]

The Company believes it necessary that inside Directors be composed of members with diverse professionalism that have a sense of balance, track record and decision-making capacity that enable them to understand the overall business and act.

The Company also believes it necessary that outside Directors consist of a wide variety of human resources with independence that have diverse viewpoints, abundant experience, in-depth insight and professionalism. As a result, the Company believes that it can expect to have sophisticated checking and advice functions performed by outside Directors and establish a management system to soundly respond to increasing risks including globalization.

[Supplementary Principle 4.11.2 Preconditions for Ensuring the Effectiveness of the Board of Directors and the Board of Auditors]

The Company limits the number of concurrent positions of officers at other companies to three other than the Company as reasonable for officers to allocate time and effort to the Company's Director and Board of Auditors services.

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