Toyo Tanso : Corporate Governance Report was updated

Corporate Governance Report

CORPORATE GOVERNANCE

Toyo Tanso Co, Ltd.

Last Update: March 29, 2024

Toyo Tanso Co, Ltd

Naotaka Kondo,

Representative Director, Chairman & President, CEO Contact: Planning Department, Corporate Planning Division

Securities code: 5310https://www.toyotanso.com/

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

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile, and Other Basic

Information

1. Basic Views

In order to respond to the trust placed in us by our stakeholders including shareholders, customers, employees and society, and to achieve sustainable growth and medium- to long-term corporate value, while following the fundamental philosophy and management policies below as our basic principle, the Company and the TOYO TANSO GROUP have built a structure of corporate governance aiming to make transparent, fair, quick and decisive decisions while keep maintaining a balance between management supervision and the execution of duties.

[Fundamental philosophy]

The Company and the TOYO TANSO GROUP aim to contribute to society through our business activities, based on the fundamental philosophy that "The TOYO TANSO GROUP contributes to the world through the pursuit of the possibilities inherent in carbon(C)."

[Management policies]

1.

With raising the level of customer satisfaction constituting the predominant theme of management, we shall aim to provide optimal levels of quality, delivery times, costs, and services and engage in corporate activities accordingly.

• 2. Through carbon technologies, it is our goal to be a constantly growing, future-oriented corporate group highly trusted by shareholders and the general public.

• 3. We are committed to building a rewarding workplace that respects the independence and creativity of employees, encourages employees to have goals, and permits fair evaluations.

• 4. Based on compliance with laws and social norms, we shall observe public order as well as contribute to society through conscientious and fair corporate activities.

• 5. We shall aim to coexist in a state of consonance with people, carbon technologies, and the natural environment and engage in corporate activities that will contribute to the conservation of the global environment.

Reasons for Non-compliance with the Principles of the Corporate Governance Code

[Supplementary Principle 4-1(3): Succession Planning for the CEO and Other Top Executives]

The Board of Directors of the Company determines successors for the CEO and other top executives, after receiving suggestions for appointment approved by the Nomination/Remuneration Committee based on sufficient deliberation in light of the appointment criteria of the Company, and the Company is currently in the process of developing systems for succession planning and its supervision.

Furthermore, the Company has identified "areas of expertise and experience for Directors and Audit & Supervisory Board Members"

as skills necessary for managers, and develops skills of management candidates, by providing support such as training opportunities focused on classroom learning and placement assistance, and nurtures and coaches management candidates as appropriate.

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

(New)

[Action to Implement Management that is Conscious of Cost of Capital and Stock Price]

The Company recognizes improving profitability to be one of the most important management issues and has set a management target of "ROE of 12%," which is a level that exceeds the cost of capital, in the Medium-Term Management Plan (2024-2028), ensuring that the Board of Directors has a good understanding of the Company's cost of capital.

While ROE in FY2023 was 9.3%, in the Medium-Term Management Plan, the Company plans to carry out aggressive shareholder returns with a dividend payout ratio of 30% or more and make proactive strategic investments for business expansion using cash generated through high profitability and financial leverage including borrowings. With these measures, the Company seeks to achieve further business expansion and profit growth, and improve capital efficiency.

[Updated]

[Principle 1-4: Cross-Shareholdings]

Taking into consideration changes in the environment surrounding the Corporate Governance Code and the fact that the risk of fluctuations in share prices may significantly impact the Company's financial position, the TOYO TANSO GROUP holds, as cross-shareholdings, shares that are deemed to contribute to enhancing the corporate value of the TOYO TANSO GROUP through the maintenance and strengthening of business relationships with issuers and trouble-free transactions, from a medium- to long-term perspective. When the Company assesses that there is little meaning in holding shares, it will take actions to reduce its holdings, such as selling all or part of the shares, after considering the impact on the market and other factors.

In accordance with this policy, every year, the Board of Directors comprehensively verifies the purpose of holding, the benefits of holding (dividends received and gains from business transactions), the risks, the cost of capital, etc., for individual cross-shareholdings. As a result of this verification, all shares held as of December 31, 2023, fulfill the holding criteria. If, however, any holdings do not satisfy these criteria, the Board of Directors will examine the future impact of continuing to hold the cross-shareholdings on its financial targets, customer base, etc., through dialogue with the issuer, and it will thereby verify the appropriateness of the cross-shareholdings, and will reconfirm and consider whether to continue holding them.

When exercising voting rights for individual cross-shareholdings, the Company makes an assessment for each proposal, after comprehensively considering factors such as whether it can be expected to enhance the corporate value of the investee over the medium to long term, and whether there is any possibility that it will harm shareholder value.

[Principle 1-7: Related Party Transactions]

The Board of Directors must approve any competing transactions or transactions with conflicts of interest, as set forth in laws and regulations, between the Company and officers, and when such transactions are conducted, the content thereof must be reported within a certain time period. In addition, the Company makes reasonable choices concerning transactions with major shareholders, etc., after considering factors such as the necessity and cost-effectiveness of the transaction, and approval of the Board of Directors is also obtained for transactions that meet certain criteria set forth in the Board of Directors Regulations and very important transactions.

[Supplementary Principle 2-3 (1): Response to Sustainability Issues]

The Board of Directors recognizes factors such as consideration for climate change and other global environmental issues, respect for human rights, fair and appropriate treatment of the workforce including caring for their health and working environment, fair and reasonable transactions with suppliers, and crisis management for natural disasters as management issues related to sustainability, and the Sustainability Promotion Department, Risk & Compliance Committee, and responsible departments promote initiatives under the control of the Sustainability Committee.

[Updated]

[Supplementary Principle 2-4 (1): Policy on ensuring diversity in recruitment of core personnel, etc.]

The prohibition of discrimination is a basic principle of the Company, including discrimination on the basis of gender and nationality, as well as religion, age, disability, and other differences between people, and the Company aims to foster a corporate culture where employees with differing values and ideas respect each other, and where there is an abundance of trust and co-creation, enabling employees to feel fulfilled in their work.

The Company is also committed to professional human resource development based on the following basic views, in order to grow along with employees, as a trustworthy company that creates social value.

The TOYO TANSO GROUP based on the recognition that human resources are our most important asset and that human growth is the driving force of our company's development, we nurture human resources capable of working across national borders by offering opportunities to grow global perspective through working overseas and providing training to improve communication skills and to strengthen global teamwork, in accordance with company policies deeply linked to our fundamental philosophy.

We emphasize the development of employee capabilities in order to ensure a strong organizational foundation. We continuously provide educational and upskilling opportunities in order to develop human resources that can flexibly respond to a rapidly changing business environment with zero-based thinking, support the development of leadership and problem-solving capabilities, and create an environment that encourages autonomous career development.

Furthermore, we value innovation, and aim to develop strongly competitive human resources by encouraging new ideas and creativity.

Finally, we foster employees' awareness of ethics and social responsibilities in order to develop human resources with a high level of sensitivity to their contribution to society. We value sustainability, and promote initiatives to tackle social issues suchas the environment.

As our plan to appoint core personnel for April 2021 to March 2024, we have set targets of achieving a ratio of women in managerial positions (non-consolidated basis) of 7% or more, and an average ratio of women among new hires (non-consolidated basis) of 20% or more. Achievements in FY2022 were an 8.3% representation of women in managerial positions

(non-consolidated basis) and 15.4% women among new hires (non-consolidated basis).

Furthermore, the Company has developed a workforce plan linked to the business strategy, in the Medium-term Management

Plan, and is hiring personnel (graduate and mid- career workers) in accordance with the said plan. We ensure diversity by hiring talented people regardless of nationality, and build the foundation of our corporate policy of "becoming a global business." Evaluation and assignment of employees is based on the same assessment criteria for all employees, without setting targets for assignment of foreign nationals or mid-career hires, etc., so we do not discriminate based on nationality or whether the employee is a recent graduate or mid-career hire.

[Principle 2-6: Function as a Corporate Pension Asset Owner]

The Company entrusts its corporate pension fund to an asset management institution that has expressed its acceptance of the

Stewardship Code, and has appointed an employee within the Human Resources Department, which is the department responsible for corporate pension, as the person in charge of corporate pension. This person receives regular reports from the asset management institution concerning management systems, the level of achievement of management targets, composition of assets, and other information, the details of which are also reported to the Board of Directors. Based on the content of those reports, he or she works with an appropriately qualified employee from the Finance and Accounting Department to discuss the appropriateness of the management of the corporate pension by the managing institution, including stewardship activities, makes revisions to the composition of assets, etc., as necessary, and performs monitoring to ensure that any potential conflicts of interest between beneficiaries and the Company are appropriately managed, etc.

[Principle 3-1-i: Full Disclosure: Company Objectives (Fundamental Philosophy, etc.), Business Strategies, and Business Plans]

・Fundamental philosophy: This information is provided in "I. Basic Views on Corporate Governance, Capital Structure,

Corporate Profile, and Other Basic Information 1. Basic Views" in this report as well as the Company's website.

https://www.toyotanso.com/sustainability/governance/corporate-governance.html

・Business strategies and business plans: This information is provided in disclosure materials, financial results presentation materials, and other documents. Each type of document is provided on the Company's website.

Medium-term management plan:https://www.toyotanso.com/IR/plan.html

Financial results presentation materials:https://www.toyotanso.com/IR/presentation.html

[Principle 3-1-ii: Full Disclosure: Basic Views and Guidelines on Corporate Governance]

This information is provided in "I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic

Information 1. Basic Views" in this report.

[Principle 3-1-iii: Full Disclosure: Policies and Procedures for Determining the Remuneration of Senior Management and Directors]This information is provided in "II. Business Management Organization and Other Corporate Governance Systems regarding

Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation [Director

Remuneration] Disclosure of Policy on Determining Remuneration Amounts and the Calculation Methods Thereof" in this report.

[Principle 3-1-iv: Full Disclosure: Policies and Procedures for the Appointment/Dismissal of Senior Management and the Nomination of Director and Audit & Supervisory Board Member Candidates]

When nominating Director and Audit & Supervisory Board Member candidates and appointing/dismissing Executive Officers, the

Board of Directors nominates persons that possess the abundant experience, excellent skills and insight, and advanced expertise suitable for Directors, Audit & Supervisory Board Members, and Executive Officers of the Company, in order to uphold the corporate philosophy of the Company, achieve sustainable growth, and enhance medium- to long-term value, with the prerequisite that these persons satisfy the Company's criteria for appointment.

In addition, when selecting Director and Executive Officer candidates, the Company's basic policy is to make appointments regardless of age, gender, nationality, and whether they are from inside or outside the Company. Furthermore, with regard to Outside

Directors, the Company also enhances the transparency and fairness of management and ensures the transparency of processes related to the personnel serving as Directors, Audit & Supervisory Board Members, and Executive Officers by ensuring that the Nomination / Remuneration Committee provides recommendations to the Board of Directors concerning persons with these qualities, together with the reasons thereof, with the prerequisite that they satisfy the conditions stipulated in the Companies Act and the conditions for

Independent Directors and Independent Audit & Supervisory Board Members set forth by the Tokyo Stock Exchange, as well as the

Company's independence standards.

Furthermore, the consent of the Audit and Supervisory Board is obtained for the nomination of Audit & Supervisory Board Member candidates.

The Board of Directors makes decisions concerning the dismissal of Directors or Executive Officers, after receiving suggestions for dismissal approved by the Nomination / Remuneration Committee based on sufficient deliberation in light of the dismissal criteria of the Company, pursuant to a consultation by the Board of Directors.

[Principle 3-1-v: Explanations with Respect to Individual Appointments and Nominations when Nominating Director and Audit &

Supervisory Board Member Candidates]

This information is provided in the reference documents attached to convocation notices for the General Shareholders Meeting.

Convocation notices for the General Shareholders Meeting are posted on the Company's website.

https://www.toyotanso.com/IR/meeting.html

[Updated]

[Supplementary Principle 3-1 (3): Disclosure of Initiatives on Sustainability]

The Company established the Sustainability Committee as an important management body and the Sustainability Promotion

Department as a dedicated department, through which it pursues sustainability management to implement strategic initiatives aimed at solving environmental and social issues, including formulation of measures and plans, identification of materiality in relation to

ESG (Environment, Society, and Governance), and establishment of indicators for setting targets. Please refer to the Company'swebsite for information about our sustainability initiatives.

https://www.toyotanso.com/sustainability/

In addition, we indicated our support for the TCFD recommendations, and we are gradually disclosing information based on the disclosure framework recommended by the TCFD, including analyzing and collecting information related to the impact of climate change-related risks and earning opportunities on our business activities and profits. More details can be found on the Company's website.

https://www.toyotanso.com/sustainability/environment/tcfd.html

Furthermore, we are currently considering measures to address risks and business opportunities, as well as necessary indicators and targets.

Investment in human capital is conducted based on our basic views on human resources development (refer to I Basic Views on

Corporate Governance, Capital Structure, Corporate Profile, and Other Basic Information, Disclosure Based on the Principles of the

Corporate Governance Code [Supplementary Principle 2-4 (1): Policy on ensuring diversity in recruitment of core human resources, etc.]).

As an example of this, we are conducting language education at the expense of the Company (total cost amounts to 6.5 million yen

(for the period from November 2022 to October 2023)), etc.

The TOYO TANSO GROUP has developed and is implementing an intellectual property strategy based on the fundamental policies of 1. supporting business development through intellectual property-related activities, 2. appropriate protection of results of activities, including intellectual property and know-how in products, technologies, and services, 3. respecting the intellectual property rights of others, and 4. legitimate exercise of rights. Our IP strategy in line with these fundamental policies is being implemented through the following systems and measures, etc.

• • We employ R&D management through a stage gate method to respect the rights of others and avoid infringement, and we implement systems to avoid infringing the rights of others, such as by the Intellectual Property Department participating in R&D from the initial stages, and checking the status at each step through to commercialization and marketing. These systems realize appropriate collaboration with other companies and outside research institutions, such as cross-licensing and joint research, and lead to results that would not to be possible through our own technology and know-how alone.

• • Building barriers to entry by others through intellectual property

The TOYO TANSO Head Office and major domestic and overseas affiliates strategically differentiate patent applications and rights and confidential know-how, and build barriers to entry by others.

• • IP landscape initiatives

In order to develop our IP strategy, we are developing human resources (IP analysts, etc.) who can execute IP landscapes, and provision of investigation tools. We intend to use them for analysis of business conditions, analysis of new and supplementary themes, and searching for new applications for the Company's patents.

• • Increased motivation for invention through the employee invention incentive scheme

Patents that have contributed to business are evaluated each year based on the Employee Invention Regulations, and a share of profitis provided to the inventor.

FY2023 R&D expenses amounted to 1,043 million yen.

[Supplementary Principle 4-1 (1): Overview of Scope of Delegation to Management]

The Board of Directors makes decisions concerning important matters set forth in laws and regulations, the Articles of Incorporation, and the Board of Directors Regulations. In addition, to ensure prompt decision-making and clarify responsibilities, the Company has introduced an Executive Officer system. The day-to-day execution of business operations is delegated to Executive Officers, and important management matters are deliberated and matters to be reported to the Board of Directors are discussed by the Management

Meeting, which consists of Directors and Executive Officers. In this way, the Company ensures the validity of judgments when making decisions concerning important matters. Each Executive Officer is appointed by the Board of Directors to lead the internal organizations they oversee, execute business operations, and take responsibility for the development and promotion of business operations in accordance with management policies, management plans, etc.

[Supplementary Principle 4-2 (2): Basic Policy on Sustainability Initiatives]

The Company's basic policy on sustainability is as follows.

At the TOYO TANSO GROUP, all employees shall carry out their duties with independence and a sense of responsibility based on the governance policy established by the Board of Directors. They shall strive to provide the value that is expected by all stakeholders

(customers, suppliers, local communities, shareholders and investors, and employees). So that we can be a company that continually contributes to improving sustainability (sustainable societal growth and preservation of the global environment), our policy is to achieve continual advancements through our business activities while increasing the sustainability of corporate growth.

Based on this policy, we will conduct all business activities throughout our value chain with a basic approach that is strongly focused on contributing to society while achieving continued growth. This includes technological innovations and creation of value for society and customers through our products, as well as consideration for the global environment, ensuring safety and health, compliance and risk management, fair business practices, respect for human rights and diversity, and harmony with society through social contribution activities.

[Updated]

[Principle 4-8: Effective Use of Independent Directors]

The Company has appointed three Independent Directors, meaning that Independent Directors make up 60% of the total number of

Directors (five). As a result, a structure has been created for the Board of Directors of the Company that ensures objectivity and independence.

[Principle 4-9: Independence Standards and Qualification for Independent Directors]

When appointing Independent Directors, the Company selects candidates in accordance with our own criteria, in addition to the criteria set forth by the Companies Act and the Tokyo Stock Exchange.

[Supplementary Principle 4-10 (1): Policy, Mandates, Roles, etc., Related to the Independence of the Composition of the Nomination / Remuneration Committee]

The Company has established a Nomination / Remuneration committee, and ensures the independence of the committee by appointing Outside Directors as a majority of members. For information regarding the role, etc., of the Nomination / Remuneration committee, please refer to II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 2. Matters Concerning Functions of Business Execution, Auditing and Supervision, Nomination, and Remuneration Decisions (Overview of Current Corporate Governance System).

[Principle 4-11: Preconditions for the Board of Directors and Audit and Supervisory Board Effectiveness]

When selecting Director candidates, the Company's basic policy is to make appointments regardless of age, gender, nationality, and whether they are from inside or outside the Company. As such, the Company ensures the effectiveness of the Board of Directors as a whole through a composition that has a good balance of knowledge, experience, and skills.

[Supplementary Principle 4-11 (1): Views on the Balance of Knowledge, Experience, and Skills of the Board of Directors as a Whole, and on Diversity and Size]

The Board of Directors of the Company consists of Directors with a wide range of experience and knowledge, including persons with experience in corporate management, persons with knowledge of carbon materials and the industry, and persons with knowledge in specialized areas, such as finance and accounting and risk management. In particular, for Outside Directors, the Company selects persons with superior knowledge and abundant experience in any of the following areas, based on the duties they are expected to fulfill: (1) global corporate management, (2) risk management, compliance with laws and regulations and other aspects of internal controls, and corporate ethics, (3) finance, accounting, and taxation, and (4) knowledge of development, technology, production, sales, etc.

For a skill matrix of the areas of expertise and experience of Directors and Audit & Supervisory Board Members, please refer to V.

Other 2. Other Matters Concerning the Corporate Governance System.

[Supplementary Principle 4-11 (2): Concurrent Positions of Directors and Audit & Supervisory Board Members as Officers at Other

Listed Companies]

Concurrent positions held by Directors and Audit & Supervisory Board Members as officers at other listed companies are disclosed every year in "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making,

Execution of Business, and Oversight in Management" of this report, Reference Documents for the General Shareholders Meeting, and annual securities reports.

At present, one Outside Directors serve concurrently as officers at other listed companies, but the Company has judged that it is within a reasonable scope. No other Directors or Audit & Supervisory Board Members serve concurrently as officers at other listed companies, etc.

[Updated]

[Supplementary Principle 4-11 (3): Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole]

The Company distributes questionnaires to all Directors and Audit & Supervisory Board Members. The questions mainly evaluate: 1. the responsibilities and role of the Board of Directors, 2. the size, composition, and structure of the Board of Directors, 3. the operation of the Board of Directors, and 4. relationships with stakeholders. Based on the answers to these questionnaires, the Boardof Directors evaluates and analyzes the effectiveness of the Board of Directors as a whole every year. In terms of results for fiscal 2023, the evaluation showed that the Board of Directors of the Company is fulfilling its roles and responsibilities in accordance with the principles of the Corporate Governance Code, and that the effectiveness of the Board of Directors has generally been ensured.

On the other hand, however, the Company is aware that it should further enhance and develop its efforts in three areas: (1) deliberation concerning the direction of corporate strategy, the Medium-term Management Plan, etc., at meetings of the Board of Directors, (2)

the formulation of succession plans, and (3) progress of initiatives and improvement of issues identified in last fiscal year's evaluation of the effectiveness of the Board of Directors. Accordingly, the Company is focusing on improvements in these areas.

[Supplementary Principle 4-14 (2): Training Policy for Directors and Audit & Supervisory Board Members]

The Company offers, arranges, and bears all expenses for training opportunities for Directors, Audit & Supervisory Board Members, and Executive Officers aimed at ensuring that they acquire the necessary knowledge in relation to the Company's businesses, finances, organization, etc., at the time of their appointment, providing opportunities to develop a sufficient understanding of the roles and responsibilities required of them, and continuously renewing this learning during their time in office. Examples of specific initiatives include a plan to conduct regular training for management candidates, etc., as necessary, in addition to Directors, Audit & Supervisory

Board Members, and Executive Officers.

(Updated)

[Principle 5-1: Policy for Constructive Dialogue with Shareholders]

In order to engage in constructive dialogue with shareholders and investors, the Company has established a department responsible for IR, which consults with Representative Directors, responsible Directors, etc., on policies and ways to respond, and endeavors to engage in proactive activities. As part of these activities, in addition to financial results briefings, the Company systematically holds interviews with shareholders and investors, briefings, etc., and relays opinions and questions received to the Board of Directors, etc.,

on a regular basis.

These activities consist of financial results briefings mainly for analysts and institutional investors (for full-year and first-half results),

participation in small meetings and conferences hosted by securities companies, face-to-face and online individual meetings (investor relations (IR) and shareholder relations (SR)), as well as visits to overseas institutional investors, business briefings and other events that are organized as appropriate.

Please refer to our website for our Disclosure Policy.https://www.toyotanso.com/IR/Policy.html

[Status of dialogue with shareholders and investors, and related information (FY2023)]

Company attendees

• • Representative Director, Chairman, President & CEO, and person in charge of IR

Implementation status *number of companies is the aggregate number

• • Financial results briefings: 2 times (full-year results, half-year results)

• • Small meetings hosted by securities companies: 11 times

• • Individual meetings (IR)

  Analysts of securities companies: 38 companies, investors: 183 companies (of which 137 domestic investors, 46 foreign investors)

• • Individual meetings (SR): 12 companies

Main dialogue themes and investor interests

• • Overview of financial results, forecast for the next fiscal year, medium-term management plan, business summary,

  ESG/sustainability initiatives, etc.

(Updated)

[Principle 5-2: Establishing and Disclosing Business Strategies and Business Plans]

[Supplementary Principle 5-2-1: Announcing Business Portfolios]

In the five-year Medium-term Management Plan covering 2024 to 2028, announced in February 2024, the Company presented earnings targets and targets related to profitability and capital efficiency (net sales, operating income, and ROE), and also provided explanations concerning the business portfolio, allocation of management resources, and other factors. The Company will revise this content as necessary, in accordance with future changes in this plan, etc.

For information about the Medium-term Management Plan, please refer to the Company's website.

https://www.toyotanso.com/IR/plan.html

2. Capital Structure

Status of Major Shareholders [Updated]

Supplementary Explanation [Updated]

1. "The status of major shareholders" is as of December 31 2023, and the shareholding ratio is calculated after deducting treasury

shares (20,167 shares).

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Toyo Tanso Co. Ltd. published this content on 29 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2024 04:13:01 UTC.