Adeka : Updated "Corporate Governance Report"

Corporate Governance Report

Last Update: January 19, 2023

ADEKA Corporation

Hidetaka Shirozume, President and Chief Executive Officer Contact: Fumitake Koyae, General Manager, Legal Affairs & Publicity Department Securities Code: 4401 https://www.adeka.co.jp

The corporate governance of ADEKA Corporation (hereinafter the "Company") is described below.

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

Basic Information

1. Basic Views

ADEKA Group recognizes that strengthening corporate governance is the most important management issue in order to realize the Group's business mission and management policy.

The Company has worked to further improve its management efficiency so as to enable speedy decision- making and clarify roles (responsibility and authority) of business execution by implementing a series of management system reforms, including the adoption of the Operating Officers System, the establishment of the Management Committee, and the optimization of the number of Directors and shortening of their terms of office. The Company passed a resolution at its 159th Annual General Meeting of Shareholders held on June 18, 2021 to make amendments to its Articles of Incorporation to transition from a company with an Audit & Supervisory Board to a company with an Audit and Supervisory Committee in order to further enhance corporate governance by strengthening the function and system for supervision by the Board of Directors. The Company will continue to proactively work to reform its management system and further enhance its corporate governance.

Furthermore, the Company reviewed and revised its officers' remuneration system in June 2008, including the abolition of a retirement benefit plan for officers, and adopted a stock-based rewards plan under which compensation is paid in the form of restricted stock in June 2017. We also revised officers' remuneration at the 159th Annual General Meeting of Shareholders upon the transition to a company with an Audit and Supervisory Committee. We will proceed with further review to improve incentives.

The Company elected an External Director for the first time in June 2006 from the perspective of strengthening the function for supervision over the Board of Directors and ensuring transparency of management. As a result of the transition to a company with an Audit and Supervisory Committee in June 2021, the Company currently has six Independent External Directors (three of whom are Audit and Supervisory Committee Members).

The Company also works to enhance its internal control system. The Internal Auditing Department, established in July 2005, conducts internal audits of the adequacy and appropriateness of business execution for all departments from a fair and independent standpoint, and reports on audit results and makes recommendations, etc. for improvement to top management. In addition, the Internal Control Promotion Committee, established in March 2007, works to improve and enhance the internal control system under the Companies Act and the Financial Instruments and Exchange Act.

The Company attaches the greatest importance to constructive dialogues with shareholders, aiming to operate an open General Meeting of Shareholders in order to reflect opinions of shareholders in its management. The Company has established the ADEKA Group Corporate Governance Guidelines (hereinafter the "CGG") to explain the Group's basic views and policy regarding corporate governance. We also defined action guidelines to ensure that the Board of Directors of the Company and various conference bodies that support the Board of Directors fully perform their respective roles and functions, and that Directors, Operating Officers, and employees of the Company organically fulfill their respective roles in building and improving the level of the corporate governance system.

(Website where the CGG is disclosed: https://www.adeka.co.jp/en/ir/library/pdf/cgge.pdf)

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

Updated

The following information is based on the Corporate Governance Code revised in June 2021, and is also in line with the principles that have been applicable to companies listed on the Prime Market since April 4, 2022.

[Supplementary Principles 3.1.3 (4.2.2)] Initiatives for Issues Related to Sustainability

Management policy of the Group is based on "making social contributions through our main lines of business" and "co-existence and co-prosperity with the civil society." In line with this management policy, the Board of Directors of the Company established the ADEKA Group Fundamental CSR Policy, "The ADEKA Group contributes to the creation of a sustainable future by meeting stakeholders' expectations with technologies and reliability through fair and transparent corporate activities," in May 2021, which is disclosed on the Company's website (https://www.adeka.co.jp/csr/en/csrpolicy.html).

The ADEKA Group Fundamental CSR Policy expresses the basic stance of the Group to integrate management and CSR from the perspective of contributing to a sustainable future through our main lines of business, and continue to improve its corporate value to meet the expectations of society and our stakeholders. Guided by this Fundamental CSR Policy, all ADEKA Group employees aim to practice CSR, fulfill the Group's social responsibilities throughout the supply chain, and provide value as a producer of materials that address a variety of social issues. We also respond to stakeholders' evolving expectations, enhancing our corporate value by contributing to sustainable society through our main business.

In order to concretely promote corporate activities based on the Fundamental CSR Policy, the CSR Committee (chaired by the President and Chief Executive Officer) has identified the following seven CSR priority issues in priority domains of E (Environment), S (Social), and G (Governance) and specified a series of key performance indicators (KPIs) for 2030, the target year for achieving the SDGs, and is implementing company-widecross-sectional initiatives.

E (Environment)

Conserving the global environment

Supply of eco-friendly products

S (Social)

Creating value that meets society's expectations

Conduct dialogue with stakeholders

Respect for human rights

Expand opportunities for utilizing human resources

G (Governance)

Enhance Group governance and risk management

On April 1, 2022, we established the Corporate Sustainability Department in the Corporate Planning & Strategy Division to work on the integration of management and CSR and promote specific initiatives for issues related to sustainability.

(An abbreviation for Task Force on Climate-related Financial Disclosures)

The Company set up a project team for TCFD compliance under the CSR Committee in August 2021 to conduct scenario analysis, etc. of the impact of climate change-related risks and revenue opportunities, etc. We announced our support for the TCFD recommendations in February 2022 and recently disclosed information on the Functional Chemicals segment in accordance with the TCFD framework. (https://www.adeka.co.jp/csr/en/tcfd01.html)

In addition, we aim to accelerate our initiatives to achieve carbon neutrality by 2050, including the reduction of greenhouse gases and environmental impact. To this end, we established the Carbon-Neutral Strategy Department in the Corporate Planning & Strategy Division on April 1, 2022.

NIHON NOHYAKU CO., LTD., a consolidated subsidiary positioned at the core of the Group's life science business announced its support for the TCFD recommendations in February 2022 and recently disclosed information on its mainstay agrochemical business in line with the TCFD framework.

(https://www.nichino.co.jp/csr/csr_climate.html (in Japanese))

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Investment in human capital and intellectual properties is essential for the Group to continue to grow and expand sustainably. The Group formulates personnel plans and human resource development plans based on the business strategies of each department when formulating its Mid-Term Management Plan and confirms the progress of the plans whenever necessary. As for investment in intellectual properties, the ratio of R&D expenses to net sales for the fiscal 2021 was 4.0%. We will continue to consider technological collaboration with other companies and open innovation through cooperation between industry and academia with the aim of entering into new business fields (life science, environment, energy, and next-generation ICT) that are considered to be the growth drivers for the Group, in addition to creating new technologies and products by integrating the fundamental and specialized technologies that the Company has cultivated so far in each business field while striving to promote DX in production and R&D.

The Company will oversee the progress of the current Mid-Term Management Plan "ADX 2023" through periodic reviews, and when formulating new Mid-Term Management Plan, we will strive to disclose and provide as much information as possible on the allocation of management resources, including investment in human capital and intellectual properties.

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

Updated

The following information is based on the Corporate Governance Code revised in June 2021, and is also in line with the principles that have been applicable to companies listed on the Prime Market since April 4, 2022.

[Principle 1.4] Policy for Cross-Shareholding and Principle for Exercise of Voting Rights in Cross-Held Shares

cross-shareholding>

The Company shall hold shares in companies that are expected to improve the Company's business performance and corporate value, and strengthen the Company's financial base through capital tie-up, business collaborations such as joint research and development of new technology, etc., strengthening business relationship or maintaining a continuous, friendly, and stable relationship with invested companies, and that may contribute to business development of the Company over the mid- to long-term.

When newly acquiring shares of a business partner of the Company, the appropriateness of holding such shares shall be determined from the perspective of whether strengthening business relationship with said business partner will contribute to the improvement of the Company's business performance and corporate value, taking into account the current and future profitability, etc. of said business partner.

Regarding shares of business partners held by the Company, the appropriateness of holding shares for all issues shall be verified every year by comprehensively considering the reasonableness of holding such shares based on stock price trends, dividends, recent major financial results, etc., the results of the verification shall be reported to the Board of Directors, and efforts shall be made to reduce cross-held shares by selling stocks for which the reasonableness of holding is no longer recognized as reasonable.

In the fiscal year under review, the Company reduced cross-held shares of five stocks (for three stocks among them, all shares were sold) by 220 million yen from the end of the previous fiscal year.

cross-held shares>

In making decisions on the exercise of voting rights on individual proposals of the invested company, for proposals deemed to possibly prejudice the relationship with the invested company as well as the invested company's corporate value seriously, or deemed to possibly affect the Company's interest as a shareholder or the Company's business development over the mid- to long-term, the Company shall make decisions on approval or disapproval after carefully examining these factors. (Please refer to the CGG Exhibit 11.)

[Principle 1.7] Framework for Appropriate Procedures for Transactions with Related Parties

In making a transaction with related parties (officers, major shareholders, etc.), the Company shall go through examination by its legal department to ensure fairness in the contents and conditions of said transaction and the appropriateness of the procedures leading to the decisions, and transactions in which a certain level of importance is recognized shall be subject to resolution by the Board of Directors where Independent External Directors are attending. Furthermore, the Company shall have such procedures audited by the Audit and Supervisory Committee and the Internal Auditing Department in order to ensure the appropriateness of the transactions and protect the benefit of minority shareholders. (Please refer to the CGG Article 26.)

[Supplementary Principle 2.4.1] Goals and Status for Promotion of Women, Foreign Nationals, and Mid- career Hires to Middle Managerial Positions / Policies for Human Resources Development and Internal Environment Development to Ensure Diversity

The Group has identified "expand opportunities for utilizing human resources" as one of its CSR priority issues in its "ADEKA VISION 2030" and strives to promote sustainable growth and enhance its corporate

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value over the mid- to long-term by leveraging the perspectives and values of its diverse human resources. We have developed a work environment where each employee can utilize their personal qualities and demonstrate their abilities, regardless of gender, age, nationality, etc. We proactively employ a diverse range of people including women, foreign nationals, mid-career hires, the elderly, and people with disabilities.

Please refer to "ADEKA VISION 2030/ Mid-Term Management Plan" on our website (https://www.adeka.co.jp/en/ir/strategy.html) for details.

The Company works to expand its childcare leave system and promote work-life balance with the aim of creating an environment in which female employees can fully demonstrate their abilities and a workplace where employees can balance work and childcare. The Company is also proactively promoting initiatives for expanding its accumulated special leave system for childcare, and preparing brochures to inform employees of its systems for childcare and nursing care. By reorganizing the task teams for promoting women's participation and advancement in the workplace, which was established in April 2021, into the D&I Project Team in June 2022, the Company is implementing initiatives to foster a culture in which women can play an even more active role. Currently, the percentage of female employees in the Company's workforce is approximately 16%, and that in managerial positions is 3.5%. Our goal is to increase the percentage of female employees in managerial positions to 10% or more by fiscal 2030. Please refer to "Next generation nurturing support / Action plan to promote women's participation and advancement in the workplace" on our website (https://www.adeka.co.jp/csr/ngns.html) for details on the current status and goals regarding the women's participation and advancement in the workplace.

The Company has hired six foreign employees in the seven years from fiscal 2015 to fiscal 2021. The Group has expanded its global operations, and the ratio of overseas sales to total sales exceeded 50% in fiscal 2020. The percentage of foreign employees in the Group is over 40%. The Group has many overseas offices, and the percentage of foreign employees at overseas offices (including subsidiaries) has exceeded 90%. Since localization is being promoted in overseas offices, many foreign executives and managers are playing an active role (as of the end of March 2022, foreign executives account for 27% of all executives, and foreign managers account for 83% of all managers in overseas offices). We will accelerate the assignment of global human resources, including foreign nationals, to the right positions throughout the Group, by promoting the introduction of the talent management system described below. Currently, one of our 12 foreign employees has been appointed to managerial position. The percentage of foreign employees in the Company's workforce is approximately 0.6%, and that in managerial positions is approximately 0.2%. Aiming to raise the latter percentage to the same level as the former by 2030, we will work to promote foreign employees to managerial positions.

mid-career hires>

The Company believes that hiring human resources with experience in upstream and downstream industries in the value chain or those with a high level of expertise is indispensable for the promotion of new innovation or business reform and is proactively recruiting mid-career hires. Currently, mid-career hires account for 15% of our workforce, however, the percentage has increased in recent years. The Company employed 51 mid- career hires in the three years from fiscal 2019 to fiscal 2021, and the average ratio of mid-career hires over the past three years has been 21%. Currently, mid-career hires account for 12% of employees in managerial positions, and the Company will continue to promote mid-career hires to managerial positions, with the goal of increasing that percentage to 15% or more by 2030.

The Company has identified "respect the human nature and personal qualities of employees" as one of our human resources principles. Based on this principle, we will recruit human resources with diverse values, careers, and backgrounds as well as implement various development measures, including career development training, so that all employees can fully demonstrate their abilities and personal qualities and play an active role globally. The Company believes that in order for diverse human resources to play an active role, we need to have a system that allows them to have a work-life balance and a flexible work style that suits each individual's needs. The Company has adopted work styles that are not restricted by time or space, including flextime systems, discretionary labor systems for professional work and discretionary working systems for management-related work, and telework systems. The Company will further promote its current initiatives in the future to work on further system revisions, including expansion of the flextime systems and introduction of a system that ensures appropriate intervals between each working shift. In addition, we also believe that in order for individual human resources to play an active role in the organization, we need to understand the aptitude of each person and create a career development and training plan suitable for each individual. To that end, we intend to assign employees to more suitable jobs and provide them with individual training plans

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based on their work aptitude, wishes, and motivation, etc., and we will proceed with the introduction and development of the talent management system. Furthermore, we established the D&I Project Team in June 2022 in order to develop an environment in which employees accept and respect each other's personal qualities. Starting with the promotion of women's careers, we will continue to promote initiatives aimed at diversity and inclusion, such as conducting training to promote understanding of LGBTQ, with the aim of becoming a company where all employees can actively play their role.

[Principle 2.6] Roles of Corporate Pension Funds as Asset Owners

As the Company's retirement pension plan is a defined contribution corporate pension plan, there is no investment in the corporate pension fund and no impact on the Company's financial position.

[Principle 3.1] Full Disclosure

(i) Company objectives (management policies, etc.), business strategies and management plan

The Group's business mission is to grow in a sustainable way and raise its mid- to long-term corporate value, through the provision of material products and solutions using advanced technologies, thereby contributing to the creation of prosperous lives and sustainable society. In order to realize our business mission, we have established the following two policies as "ADEKA Group Management Policies." (CGG Article 2)

• "To be a company that is progressive and dynamic with a keen attitude towards the new changing tide"
• "Creating a better future for the people of the world"

The Group's management policies and Mid-Term Management Plan are disclosed on our website. Management policies: https://www.adeka.co.jp/en/company/philosophy.html

Mid-Term Management Plan: https://www.adeka.co.jp/en/ir/library/en/pdf/MTMP_ADX2023.pdf

1. Basic views and policies on corporate governance (entire CGG) Please refer to "1. Basic Views" of this report.
2. Policies and procedures in determining the remuneration of the senior management and Directors (CGG Exhibit 4)
   The Company's officers' remuneration shall consist of officers' remuneration as compensation for the performance of their duties, bonuses linked to the business performance of the Company and individual officers during the relevant fiscal year, and stock-based compensation as an incentive for the improvement of mid- to long-term business performance and stock price. As for the remuneration of Directors, consultation shall be made with the Nomination and Remuneration Committee, and decisions are made by the resolution of the Board of Directors, taking into consideration opinions and advice of the Nomination and Remuneration Committee.
   For specific details, please refer to "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in [Director Remuneration] below.
3. Policies and procedures in the appointment/dismissal of the senior management and the nomination of candidates for Directors (CGG Exhibit 3)
   The Company discloses its policies and procedures for the appointment/dismissal of senior management and the nomination of candidates for Directors in the CGG. In order to enhance transparency and fairness in the appointment/dismissal and nomination, consultation shall be made with the Nomination and Remuneration Committee regarding the executive personnel proposal based on the criteria set forth in said policies and decisions are made by the resolution of the Board of Directors, taking into consideration opinions and advice of the Nomination and Remuneration Committee.
4. Explanation with respect to the individual nomination of candidates for Directors and dismissals of Directors
   When nominating candidates for Directors and dismissing Directors, the Company shall disclose the reasons for each nomination and dismissal in the reference documents of the notice of the General Meeting of Shareholders, in order to enhance the provision of information to shareholders, in light of the fact that these are matters to be resolved at the General Meeting of Shareholders under the Companies Act.

[Supplementary Principle 4.1.1] Authorities of the Board of Directors, and the Scope of the Delegation of Authorities to Managements from the Board of Directors

The Company defines important management matters that should be resolved by the Board of Directors in the "Board of Directors Regulations," details of which are provided for in the "Detailed Regulations for Matters to be Resolved by the Board of Directors."

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