Pigeon : Corporate Governance Report of Pigeon Corporation

[Translation for Reference and Convenience Purposes Only]

Please note that the following is an unofficial English translation of the Japanese original text of the Corporate Governance Report of Pigeon Corporation, which is reported to the Tokyo Stock Exchange. The Company provides this translation for reference and convenience purposes only and without any warranty as to its accuracy or otherwise. In the event of any discrepancy between this translation and the Japanese original, the latter shall prevail.

An Overview of Corporate Governance at Pigeon Corporation (the "Company") is Described Below.

I Basic Policy Regarding Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Policy

The Company has developed the "Pigeon Way," as described below, comprising its Purpose, Values, Action Principles and Vision, under its Corporate Philosophy of "Love" and its Credo of "Only love can beget love," as the basis of its spirit and actions to be shared by all Pigeon Group employees, both in Japan and abroad.

The "Pigeon Way" is more than a mere slogan. The Company believes that having all employees become strongly aware of the "Pigeon Way" and putting it into action will inevitably improve corporate value, and that its corporate value encompasses both social and economic value. We are aiming to achieve the goal of improving social value mainly by becoming an indispensable part of society, while delivering joy and happiness to our target customers, by providing solutions and new value. The Company established the following six (6) priority materialities (Key Issues) to be addressed in terms of Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG): 1) enhancement of business competitiveness and R&D capabilities; 2) sustainable reduction of environmental impact; 3) enhancement of stakeholder support capability; 4) improvement of the quality of human resources; 5) creation of comfortable working environment; and 6) development of a solid management base, all of which will be incorporated into our business strategies. Meanwhile, we are aiming to achieve the goal of improving economic value mainly by increasing free cash flow consistently, efficiently, and strategically, as we move into the future.

Based on this approach, the Company defines corporate governance as "the system that pays due respect to the views of our employees, customers, business partners, shareholders and local communities, and that ensures transparent and fair as well as prompt and bold decision-making" and the purpose of corporate governance as the means to achieving "the Company's sustained growth and the improvement of corporate value in the medium- to long-term."

The Company will continue to further strengthen this system in accordance with the above definition and make efforts to continuously enhance its corporate governance in pursuit of further improving its corporate value.

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[Translation for Reference and Convenience Purposes Only]

Corporate Philosophy: Love

Credo:

Only love can beget love

Purpose:

We want to make the world more baby-friendly by furthering our commitment to understanding and addressing babies' unique needs

Values:

• - Integrity

• - Communication, Consent, Trust

• - Passion

Action Principles:

• - Agility

• - Keep sight of consumers

• - Global collaboration among competent individuals

• - Leadership and logical working style

• - Willingness to change

Vision:

To be the baby product manufacturer most trusted by the world's babies and families, i.e. "Global Number One"

[Reasons for Non-Compliance with the Principles of the Corporate Governance Code]

The Company implements all principles (including principles for the Prime Market) of the Corporate Governance Code (revised June 11, 2021), excluding Supplementary Principle 2.4.1. The reason for not implementing Supplementary Principle 2.4.1 is included in 2. Appropriate Cooperation with Stakeholders Other Than Shareholders, (Supplementary Principle 2.4.1) of the below [Disclosure Based on the Principles of the Corporate Governance Code].

[Disclosure Based on the Principles of the Corporate Governance Code]

The Company has included disclosure based on the Principles of the Corporate Governance Code revised in June 2021. (This includes principles for the Prime Market.)

1. Securing the Rights and Equal Treatment of Shareholders

(Principle 1.2 Exercise of Shareholder Rights at General Shareholder Meetings)

In recognition of the General Meeting of Shareholders as the highest decision-making body, as well as the opportunity for constructive dialogue with shareholders, the Company provides sufficient time and setting for shareholders to appropriately exercise their rights, while at the same time determining the date and location and developing an environment to facilitate shareholder attendance. Specifically, the Company is engaged in the following initiatives.

 The Company strives to prepare a convocation notice that is easy to read by using graphs, images, and plain language in its explanations.

 The Company reflects feedback from shareholders in the operation of the General Meeting of

Shareholders by means such as providing a special child-care room and assistance through a sign language interpreter at the meeting venue, in order to create an environment that promotes attendance.

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[Translation for Reference and Convenience Purposes Only]

•  At the 65th Ordinary General Meeting of Shareholders held on March 30, 2022, as we did last year, we conducted an online live stream so that shareholders who could not make it to the venue can watch the General Meeting of Shareholders.

•  In order to provide our shareholders with sufficient time for considering proposals, the Company sends the convocation notice no later than three weeks before the date of the General Meeting of Shareholders. Prior to dispatching the convocation notice, it also discloses information included in the notice in both Japanese and English at the Tokyo Stock Exchange, Inc. (referred to below as the "Tokyo Stock Exchange"), on the Electronic Voting Platform, and on the Company's website no later than approximately one month before the date of the General Meeting of Shareholders.

•  Bearing in mind the percentage of foreign and institutional investors, the Company, in an effort to ensure convenience of the exercise of voting rights, offers voting via the Internet and uses the Electronic Voting Platform.

•  When investors who hold shares of the Company in street names express an interest in attending the General Meeting of Shareholders, the Company allows them to sit in after undergoing the necessary procedures, although it does not permit the exercise of voting rights. The necessary procedures are disclosed on the Company's website.

(Principle 1.3 Basic Strategy for Capital Policy)

The Company's business model is to generate profits efficiently from slim assets. We believe that the Company's current capital structure is fully capable of underpinning the future growth of the Group's businesses, without major reliance on outside financing.

The Company sets a WACC of 5% and sets high targets that greatly exceed the Company's capital costs for PVA (Pigeon Value Added, a performance indicator), ROIC (return on invested capital), and ROE (return on equity). The Company carries out concrete measures to achieve these targets and discloses progress in biannual results briefings. In addition, we are promoting the management of working capital based on CCC (cash conversion cycle), thus, the Pigeon Group as a whole is striving to improve its efficiency and reduce it. The WACC of 5% is used as the base hurdle rate for investment projects.

As for dividend policy, pursuant to our Seventh Medium-Term Business Plan, our target is to reach approximately 56.0 billion yen in operating cash flow over a three-year period, and to direct approximately 25.0 billion yen of that cash flow into capital investments and strategic M&As for growth. Meanwhile, our basic policy is to proactively return profits to shareholders while stabilizing our financial position, targeting year-on-year increases in cash dividends in each fiscal period and a total shareholder return ratio of 55% on a consolidated basis.

(Principle 1.4 Cross-Shareholdings)

The Company may hold shares as cross-shareholdings, with the aim of improving relations and collaboration with business partners. However, the company has sold the two stocks listed in Japan that were previously held as cross-shareholdings, and as of the submission date of this report, the Company holds only one stock listed overseas as a cross-shareholding. The Company discloses the purpose and holding status of these shares in the annual securities report. Regarding individual cross-shareholdings, the Company confirms the background and objectives of holding the shares, the status of transactions, and risks associated with holding the shares, etc. The Company reviews whether or not shares can continue to be held each year, as well as the number of shares to hold, and obtains approval for cross-shareholdings by the Board of Directors, as a disclosure item of the annual securities report.

Furthermore, the Pigeon Group exercises voting rights for cross-shareholdings after considering proposals from the perspective of improving the corporate value of the Pigeon Group, while paying due respect to the management policy of the company it invests in.

(Principle 1.7 Related Party Transactions)

The Company believes that the monitoring of conflicts of interest is a typical role and function expected of Outside Directors. The Company directly confirms with the Directors and Audit & Supervisory Board Members every six months the existence of important transactions between the Company and its major shareholders, competing transactions between the Company and its Directors or Audit & Supervisory Board

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[Translation for Reference and Convenience Purposes Only]

Members, conflict-of-interest transactions (self-dealing and indirect transactions) as well as related party transactions, and reports the results to the Board of Directors. In addition, the "Board of Directors Rules" stipulate that a resolution of the Board of Directors is required when engaging in such transactions.

2. Appropriate Cooperation with Stakeholders Other Than Shareholders

(Supplementary Principle 2.4.1)

The Pigeon Group believes that in order to deliver high-quality products to the world, we must create an environment that motivates employees to work, and if we do not take care of our employees, we cannot succeed in business. For this reason, in an effort to provide a rewarding workplace that encourages our employees to have pride and motivation in working for the Pigeon Group, we have set forth the following in our Corporate Ethics Policies: "Value the diversity and individuality of each employee at any time and provide for its employees a great work environment with consideration given to their health and security. Pigeon will work out to provide a workplace where its employees can achieve self-realization and feel fulfilled."

(1) Promotion of women to management positions

In order to obtain continued support from customers for our products, we must incorporate perspectives unique to women into product planning and marketing. As a result, the hiring and promotion of women have taken root as natural processes within the company. Across the group, the ratio of female employees is 62.1%, and the percentage of management positions occupied by women is 42.7% (as of the end of December 2021). (2) Promotion of foreign employees to management positions

As a result of the growth of our businesses overseas, the number of employees working overseas has exceeded the number of employees working in Japan, standing at 67.1% (as of the end of December 2021) of all employees across the Group. Amidst this situation, we are promoting employees regardless of nationality to management positions in the Group according to the situation at each company or location. In addition, as the potential for growth in sales is higher at our three overseas businesses (China business, Singapore business, and Lansinoh business) than in Japan, we are expecting to increase employment and promotion of foreign employees in line with the growth of our businesses overseas.

(3) Promotion of mid-career hires to management positions

The Group conducts a certain amount of mid-career recruitment annually. These employees can immediately impact our business due to the high level of expertise and practical skills that they have gained at other companies. This allows us to accelerate efforts to improve management quality and respond to the expansion in the scale of our business and changes in the business environment. Accordingly, we promote employees to core positions within the organization equally for graduate and mid-career hires without discrimination. The percentage of management positions in the Company occupied by mid-career hires stands at 42.2% (as of the end of December 2021). In the future, due to further changes to the business environment, we predict that we will need to constantly acquire experienced professionals that possess expertise that differs from that of the Company employees. That is why we will continue to position mid-career recruitment as a measure to strengthen our human resources portfolio.

As stated above, various factors are at play, including the response to business characteristics requiring the promotion of women, the expansion of overseas businesses, changes in the business environment, and the acceleration of efforts to improve management quality. Amidst this backdrop, we recognize that we have ensured a certain degree of diversity by actively promoting employment and promotion to management positions of women, foreign employees, and mid-career hires. Based on this recognition, we have not set any voluntary and measurable targets for ensuring diversity.

However, the percentage of management positions held by women of 28.8% (as of the end of December 2021) in Japan, although improved from the previous year, remains low compared with 42.7% for the entire Group. In this way, we are aware that issues exist to further ensure diversity. We will continue to strengthen our efforts to address these issues.

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[Translation for Reference and Convenience Purposes Only]

The Company is concentrating its efforts on human resource development by providing ample opportunities to nurture employees' motivation and abilities so that each employee can improve their abilities and reach their full potential. Also, we are supporting the career development of each individual while respecting diverse values and perspectives. In addition, we are promoting an environment where diverse employees can work with enthusiasm.

(1) Personnel development policy

The Company has set forth a personnel development policy and is working on achieving the policy with an emphasis on the following initiatives: "Business skills and business stance development that transcends the boundaries between specific roles;" "professional development allowing employees to bring highly specialized skills and knowledge to bear on specific domains;" "development of personnel who can contribute in a global environment;" "fostering business cultures and providing opportunities with respect for diverse viewpoints and value systems;" and "fostering a mindset of individual career visualization and proactive pursuit of career opportunities." In this way, we are implementing education and training tailored to the role of each employee. In addition, we are offering opportunities to acquire diverse work styles and perspectives through training menus that include personnel development for next-generation management, global personnel development, and diversity training. Also, through the Accelerate My Career (AMC) program we offer opportunities to work outside the company, volunteering, and open recruitment within the company. Further, the Company introduced a new human resource system in 2021 as a mechanism for evaluation and promotion based on individual abilities and performance, regardless of attributes such as age or gender. We are aiming to create an environment where "each employee can work as a professional," and to that end, while accepting diverse working styles and career development, we ensure the fair evaluation of employee ability and performance based on the following perspectives: 1) Increasing human resource value by developing expertise, 2) clarification of the role of each employee, 3) fair evaluation not dependent on years of service, 4) remuneration according to job grade not dependent on age, and 5) flexible response to employees' life stage.

(2) Internal environment development policy

The Company regards the development of an environment where female employees can play a more active role than ever before as a particularly important issue and has set forth the "Three-Year Action Plan for Promoting the Active Participation of Women." The three pillars of the Action Plan are "expansion of the support system for work-life balance," "reforming awareness in the workplace" and "supporting the feelings and skills of women." The Company is also providing support in terms of further institutional enhancement and employee mindset. The Company has been implementing measures to improve work-life balance and labor productivity, including the introduction of teleworking in April 2019. A working environment is being developed at the Company where all employees can take childcare leave or family-care leave as a given, and through developing employees who have knowledge and experience of childcare, we are promoting initiatives to utilize this childcare experience in work such as product development. Furthermore, in 2021 we set forth and announced the Health Management Policy, and we are working towards creating "a company where employees can work with vitality in good health."

Please refer to our website for details:

Action Plan for Promoting the Active Participation of Women:https://www.pigeon.co.jp/about/companyinfo/female/ Occupational Health Management Policy:https://www.pigeon.com/sustainability/social_top/health_management_policy/ For employees:https://www.pigeon.com/sustainability/social_top/members/

(Principal 2.6 Roles of Corporate Pension Funds as Asset Owners)

The Company has introduced a corporate defined contribution pension plan to support the asset formation of its employees. The Company's financial status will never be affected by the future performance of pension management. Furthermore, in order to support our employees' asset formation, we brief all new permanent employees regarding the features of the pension management institutions, managed products, and methods of

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