Pigeon : Corporate Governance Report of Pigeon Corporation_2021

[Translation for Reference and Convenience Purposes Only]

Pigeon Corporation

CORPORATE GOVERNANCE

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]

Pigeon Corporation

CORPORATE GOVERNANCE

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 of the Corporate Governance Code (revised June 1, 2018).

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

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.
• At the 64th Ordinary General Meeting of Shareholders held on March 30, 2021, 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

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[Translation for Reference and Convenience Purposes Only]

Pigeon Corporation

CORPORATE GOVERNANCE

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. For downsizing and improving the efficiency of working capital in particular, we set targets for CCC (cash conversion cycle), targets that the Group as a whole strives to meet. 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. As of the submission date of this report, the Company holds only two stocks listed in Japan (61 million yen on its balance sheets as of December 31, 2020) as cross-shareholdings.

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 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

(Principle 2.3 Sustainability Issues, Including Social and Environmental Matters)

Guided by the Purpose of the "Pigeon Way," "We want to make the world more baby-friendly by furthering

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[Translation for Reference and Convenience Purposes Only]

Pigeon Corporation

CORPORATE GOVERNANCE

our commitment to understanding and addressing babies' unique needs," the Company is striving not only to deliver joy and happiness to society and its target customers by solving problems and providing new value through its business activities, thereby becoming an indispensable part of society, but also to foster a sense of trust, and to achieve harmonious coexistence through its positive communication with people in local communities. With regard to the environment, in addition to complying with relevant laws and regulations, such as the Energy Saving Act and Law Concerning the Promotion of the Measures to Cope with Global Warming, the Company establishes energy-efficient systems and is promoting specific activities. As a supplier of daily commodities, we have a large lineup of environmentally friendly products that pay meticulous attention to each stage of the manufacturing process, from the selection of raw materials to manufacturing, logistics, use, and disposal, in order to avoid an adverse impact on the global environment.

• The Company is conducting joint research with the hospital and clinic neonatal intensive care units (NICUs) to develop exclusive products so that infants with low birth weight or disabilities can also drink mother's milk and packaged milk with minimal effort. These products include nipples for infants with low birth weight, nipples for babies with weak sucking function, and nursing bottles specially designed for babies with cleft lips and/or palates.
• The Company is engaged in the ongoing tree-planting activity, "Newborn Baby Commemorative Tree-Planting Campaign," which was launched in 1986. Through this initiative, we help create lifelong memories for parents and children, and continue to build relationships with local communities and help safeguard the environment by protecting the forest.
• The Company launched the "Pigeon Smile Breastfeeding Period Research Group" in collaboration with various experts on mothers and babies during breastfeeding, with the aim of identifying issues faced while breastfeeding and providing solutions to them. The philosophy of this initiative is to "realize a society in which more babies are raised in good health and more mothers feel happy when raising children."
• The Company established the "Pigeon Scholarship Foundation" with the aim of realizing a society in which everyone can give birth and raise children with peace of mind, while fostering the healthy lives and growth of mothers and babies. To that end, the foundation provides scholarship support, without obligation of repayment, to students in the neonatal, pediatric, and obstetrics departments of universities (students majoring in medicine at domestic general universities or medical universities).
• Pigeon supports the healthy growth of babies born prematurely or with low birthweight. In this spirit, we support human milk bank for the supply of donor milk. As part of this effort, we fully supported to open the Nihonbashi Human Milk Bank-the second such facility in Japan-within our Tokyo Head Office in September 2020.
• For the raw materials of products, the Company is committed to the sustainable use of resources. For example, we do not use any natural rubber but instead use silicon rubber made from silicon and silica gel.

• To "preserve an abundant earth for the future of babies that will be born tomorrow," through the formation of a sustainable society in a world with limited resources, in 2020, we established an environment policy and a biodiversity policy.
• The Pigeon Group has specified the volume of our greenhouse gas emissions (scope 1, scope 2), both direct and indirect. We have set goals for CO2 reduction and are strengthening systems to promote activities at each company. As an initiative for CO2 reduction, we installed solar panels at each factory (two companies in China, one company in India, and one company in Indonesia) switched to LED lighting. At some factories in Japan, we are proceeding with the purchase of renewable energy (hydroelectric power).
• The Pigeon Group promotes the acquisition of ISO-14001 certification for environmental management systems, and in 2020 obtained ISO-14001 certification for all its factories.
• We established new CSR procurement policies and guidelines. We will fulfill our social responsibility

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[Translation for Reference and Convenience Purposes Only]

Pigeon Corporation

CORPORATE GOVERNANCE

and responsibility for reducing the burden on the environment and conducting fair trading. Also, we are starting cooperative initiatives with our suppliers to bring about a sustainable society.

• In December 2020, we established a sustainable development policy. In Japan, we began displaying the "Pigeon Environment Label" from February 2021 so that customers can choose environmentally friendly products. We display the "Pigeon Environment Label" on the packaging of products that meet the "Display Standards for the Pigeon Environment Label," which are environmental standards set by the Company.
• In December 2020, the Company joined the RSPO (Roundtable on Sustainable Palm Oil). We will proceed with the sustainable procurement of raw materials, and in the future, we will release products.
• The Company is very stringent and cautious when selecting raw materials and ingredients to ensure that they are derived from food additives that have no impact on the human body. For our body soaps and other liquids and detergents, we strive to prevent pollution by identifying sources of pollution and waste related to our production activities and promoting the reduction of industrial waste at all group companies.

(Principle 2.4 Ensuring Diversity, Including Active Participation of Women)

The Pigeon Group believes that corporate value encompasses both social and economic value. In order to deliver high-quality products to the world, we must create an environment that motivates employees to work. 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 over the long term, we are engaged in the following initiatives, stated in our Corporate Ethics Policies: "Pigeon shall respect its employees' diversity and personalities at all times, offering them a comfortable working environment that gives consideration to health and safety. It shall also create workplaces that enable their self-fulfillment and motivate its employees."

• We are upgrading various frameworks and systems to create a comfortable working environment for our employees, while building a corporate culture that helps our employees perform their tasks more easily and providing them with opportunities to participate in capacity development, training, and practice. We are particularly committed to upgrading various systems and facilities to support employees in terms of balancing work and child-care, and developing an environment conducive to the advancement of women. These include setting up a breastfeeding/pumping room called the Lactation Lounge, promoting our work-at-home system, and launching the "Life Design Leave," a system enabling employees to take time off for fertility treatment. Moreover, to encourage male employees to take an active part in child-care, we adopted a parental leave plan called "One Month Together," offering one month's paid leave to male employees to encourage more men to take parental leave, aiming at fostering employees who are well versed on the subject of raising children.
• To discourage excessively long working hours, foster a good work-life balance, and increase labor productivity, the Company has implemented various measures including a rule to leave the workplace by 7:00 p.m. and setting one day per week as a "no overtime day," and the promotion of telework.

(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 selection. We also strive to enrich our employees' knowledge regarding asset management, through use of the educational tools provided by the pension management institutions, etc.

3. Ensuring Appropriate Information Disclosure and Transparency

(Principle 3.1 Full Disclosure)

1. Corporate philosophy, credo, management strategies and business plans  Corporate philosophy and credo
   Please refer to "Basic Policy" presented in I. 1., above.

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