Daicel : (Delayed) Corporate Governance Report

[Provisional Translation Only]

The Company provides this English translation of the original Japanese document solely for information purposes, and in the event of any discrepancy between this translation and the Japanese original, the latter shall prevail.

Corporate Governance Report

Last Update: June 29, 2022

DAICEL CORPORATION

Representative: Yoshimi Ogawa, President and CEO Contact: Administration & Legal Service Group Tel: [phone] Securities Code: 4202 https://www.daicel.com/en/

The corporate governance of DAICEL CORPORATION (the "Company") is described below.

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

Other Basic Information

1. Basic Views

The Company recognizes that the reinforcement of corporate governance is an important management issue to improve corporate value and fulfill the Company's social mission and responsibility as a listed company. By clarifying the division of roles among each organization, the Company ensures mobility and institutes a management system that can promptly make decisions and implement them. As well, the Company actively incorporates external opinions into company management and improves both the transparency and fairness of management. Thus, the Company strives to maintain the soundness of its management.

[The Reason not to Disclose Based on the Principles of the Corporate Governance Code] (Updated)

The Company implements all of the principles set forth in the Corporate Governance Code.

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

Principle 1-4

(Policy Regarding Cross holdings of Shares)

We will adhere to a shareholding policy only when this principle is judged to contribute to the improvement of mid- and long-term corporate value from the perspective of strengthening business relationships, maintaining the stability of transactions with financial institutions, and maintaining or strengthening cooperative business relationships. When some stocks do not meet the purpose of our possession or are not recognized economic rationality due to changes in business environment and other factors, we will reduce the stocks in order.

(Verification in Board of Directors)

We will periodically verify the appropriateness of the purpose, the quantitative and qualitative benefits arising from business transactions, and the economic rationality of the risks held of all stocks that we

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possess. We report the result of the verification to Board of Directors, and the content is examined carefully. As a result of these verifications, in FY2022/3 we sold all shares of the one stock and a part of two stocks.

(Standards Regarding the Exercise of Voting Rights Associated with Cross-shareholdings)

Regarding rights of voting related to strategic shareholdings, we determine to exercise the rights considering if the exercise of the rights do not cause serious impacts on Daicel and our Group's purposes of possession, will contribute to sustainable growth and enhance mid- and long-term corporate value of the investee company, and contribute to the common benefits of shareholders.

Principle 1-7

In an effort to monitor transactions between related parties, the Company conduct a questionnaire every year to determine whether transactions have taken place between Directors, Audit & Supervisory Board Members, Executive Officers, and their close relatives and the Group; moreover, to determine whether transactions have taken place between a group whose the substantial majority of voting rights were held by Directors, Audit & Supervisory Board Members, Executive Officers or their close relatives and the Group. The Management Committee confirms the importance and the nature of all transactions taking place between related parties, such as whether the amount of the transaction is large or irregular.

In addition, the Company requires the Board of Directors to deliberate and resolve conflicts of interest regarding transactions involving Directors (through resolutions of the Board of Directors and post-exit reports at every six months).

Supplementary Principle 2-4-1

(1) Ensuring diversity

We hire new graduates with the goal of achieving a diversity (female/foreign national) ratio of 30% or more every year, in order to promote "human-centered business management" that enables employees of all diversities to grow while establishing their own presence and achieving fulfillment. We are also actively hiring mid-career professionals who have diverse work experiences. In the most recent year (FY2022/3), mid-career recruitment accounted for 50% of all hires.

As we declared our determination to pursue the personnel system reform in the long-term vision, we will create an environment that makes it easy for employees to demonstrate their willingness to take on challenges and leadership, and carry out organizational management that makes the most of the diversity.

By implementing the "Nadeshiko Seminar" female leader training program over the past four years and other measures, we have achieved our targeted female manager ratio (30 persons or more, 4% or more) set out in the 1st Action Plan (FY2016/3-FY2021/3). Opportunities for women to play an active role are steadily expanding.

From the perspective of strengthening governance and ensuring diversity, we have formulated the 2nd Action Plan for the five years starting from FY2022/3 and are taking on new challenges. In October 2021, we introduced a "mentor system" in which directors serve as mentors and take the initiative in nurturing female leaders. In this way, the management team is deeply involved in the development of employees.

◆"2nd Action Plan" based on the Act on Promotion of Women's Participation and Advancement in the Workplace (Period: April 1, 2021 to March 31, 2026)

Target 1) Maintain at least two female directors, including executive officers Target 2) Increase the ratio of women in management positions to at least 10%

Target 3) Raise the ratio of women in positions immediately under section managers to 15% or higher Target 4) Ensure that all employees take five day holidays in a row once a year using paid leave and

designated national holidays.

We expect employees to be active regardless of nationality or gender. Currently, we have 23 foreign nationals on our rolls, and seven of them are in managerial or higher positions.

On a group-wide basis, foreign nationals account for more than half of the positions with management responsibilities. We will continue to aim to further increase the ratio of foreign managers throughout the Group.

mid-career professionals to managerial positions>

As of April, 2022, the ratio of career professionals hired for managerial positions stands at 25.5%, reflecting our active recruiting of human resources with diverse work experiences. We will continue to strive to further increase the ratio of mid-career professionals hired for managerial positions.

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In addition to actively recruiting mid-career professionals, we are working to secure excellent human resources with the goal of achieving a diversity ratio of 30% and will continue to promote our own growth together with a diverse workforce regardless of nationality or gender.

(2) Policies on human resource development and diversity in the workplace, and progress therewith

We have adopted the following systems so employees working at our company can autonomously develop their careers and achieve both career and personal goals with high levels of motivation.

• Side/Portfolio careers: Encourage employees to acquire knowledge and skills through side or portfolio careers.
• Revision of personnel system for managers (establishment of fellow position): Instead of seeking only generalists, shift to a system under which individuals can further demonstrate their strengths and expertise. Abolish the seniority-based system and establish a system for individuals to perform at their full potential.
• Establishment of a stock compensation system for managers: Provide managers with incentives to achieve sustainable improvement of our corporate value as a shareholder.
• Senior executive early development program, "Next-Generation Leader Seminar (for young managers)": Conduct training to help selected young section managers cultivate a management perspective.
• Manager early development program, "Next-Generation Leader Seminar (for union members)": Conduct training to help employees moving up to management develops their leadership early on.
• Establishment of an in-house recruitment (career challenge) system: Introduce an in-house recruitment system that allows employees to autonomously shape their careers and obtain opportunities to take on challenges.
• Management training for managers (for general managers): Provide general managers with training to lead the creation of an organization that contributes to the growth of the Company by utilizing diverse human resources. (Scheduled to be introduced by the end of FY2022/3)
• Improvement of working environment (renovation of head offices): To keep pace with changes in workstyle that allows employees flexibility, such as teleworking that has rapidly expanded and penetrated the workplace, and promote office reform based on the concept of ABW (Activity-Based Working) by further advancing Free-Address Working at our head offices. At the same time, remodel the facility so LGBT employees and those with disabilities can work comfortably. (Scheduled to be launched by the end of FY2022/3)

(3) Promotion of employment of people with disabilities

The Company is promoting employment of people with disabilities in ways that suit their situation and needs. Currently, our employment rate of people with disabilities exceeds the statutory employment rate of 2.3%, and we will continue to maintain employment that exceeds the statutory employment rate.

Principle 2-6

We have established the Defined Benefit Corporate Pension Plan Asset Management Committee, consisting of members from human resources, accounting and finance departments and other related divisions with adequate capacity of managing deposit of corporate pension. The Company conducts adequate initiatives in terms of personnel and management, such as implementing the monitoring of investment institutions based on the basic policy of deposit management, which we have formulated on our own.

Principle 3-1

1. The Company has posted its basic philosophy, long-term vision, and an outline of its Mid-Term Strategy management plan on its website.
2. The Company posts its basic views to corporate governance on its website and describes it in the Securities Report and in Corporate Governance Report I, Article 1.
3. The policies and procedures for determining compensation for Directors and Audit & Supervisory Board
   Members are described in the Securities Report; in Corporate Governance Report II, Article 1, "Director Remuneration"; and in the convocation notice of the Annual General Meeting of Shareholders.
4. Regarding the appointment of management executives and nomination of the Director and Audit & Supervisory Board Member candidates, the Company requires the personnel "to agree with and inherit the Daicel Group's Basic Philosophy, Conduct Policy and Daicel Code of Conduct" and "to possess necessary credentials and experiences to realize mid- and long-term enhancement of the Company's
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corporate value" as standards and nominates the persons with adequate personality, knowledge, motivation, ethical view and management perspective to lead the Company. As the selection and nomination, we make determinations based on the reports from the Nomination and Compensation Committee (Chairman is an Outside Director), which consists of the Outside Directors and the Representative Directors. The Outside Directors are in the majority in this committee.

Based on their evaluations, performances and so forth, the Company appoints the Executive Officers from certain target persons who possess a mid- and a long-term management view and the ability to display their leadership. As the nomination of the Director candidates, the Company considers the balance and diversity of knowledge, experience and ability as the whole Board of Directors and the scale of the Company, and finally determines at the Board of Directors. For nominating the candidates of the Audit & Supervisory Board Members, we make decisions with the agreement of the Audit & Supervisory Board, considering their knowledge, experience and abilities that enable to audit the Directors' performance adequately, fairly and effectively, and the scale of the Company.

Furthermore, we determine the removal according to the answers of the Nomination and Compensation Committee, considering the Removal Standards mentioned below.

[Removal Standards]

1. In the case of actions violating laws and the article of association or antisocial actions
2. In the case of significantly damaging the Company's corporate value by the unsatisfactory professional conduct.
3. In the case of not being recognized their credentials as the Company's leader, such as not respecting the Daicel Group's Basic Philosophy, Conduct Policy and Daicel Code of Conduct.

The Daicel Group's Basic Philosophy, Conduct Policy and Daicel Code of Conduct can be seen the webpages listed below.

Daicel Group's Basic Philosophy

https://www.daicel.com/en/profile/philosophy.html

Daicel Group's Conduct Policy

https://www.daicel.com/en/sustainability/governance/compliance/policy.html

Daicel Code of Conduct

https://www.daicel.com/en/sustainability/governance/compliance/standard.html

1. The reasons for the nomination and appointment of candidates for the positions of Director and Audit & Supervisory Board Member are presented in the convocation notice for the Annual General Meeting of Shareholders. In addition, the reasons for nomination and appointment of individual candidates for the positions of Outside Director and Outside Audit & Supervisory Board Member are presented in the Securities Report and in the Corporate Governance Report II, Article 1, "Directors" and "Audit & Supervisory Board."
   Yet the removal has not been disclosed, since it has never occurred.

Supplementary Principle 3-1-3

As for Sustainability

We disclose our sustainable activities on the Integrated Report (Daicel Report) and Sustainability Website. In particular, we disclosed the SDGs activities in FY2021/3, the materiality in FY2022/3. In this way, we make an effort to enrich the content of Sustainability every year.

As for climate change, we set two new targets, a 50% reduction of GHG emissions from FY2019/3 to FY2031/3 and the realization of Carbon Neutrality in FY2051/3, and we started to approach these targets to meet them. Considering the necessity to disclose information on financial risks and opportunities related to climate change, we approved the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in October, 2021. We are making an analysis of risk and opportunity and a scenario analysis in accordance with the recommendations of TCFD. And we will disclose these results at an appropriate phase.

As for Human Capital Investment

The Daicel Group commits to promote "human-centered business management" that enables all diverse employees to grow while establishing their own presence and achieving fulfillment, and upholds the

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Sustainable People (the happiness for workers) for supporting individual autonomous career development and self-fulfillment with high quality motivation.

We amended our personnel system for managers on FY2022/3, for non-managers on FY2023/3. The new personnel system has a course-specific promotion system. It allows employees to select their individual career development and focus on their individual strengths and expertise. For the supporting the growth of next-generation leaders, we implement the leadership development training programs for fostering candidates for managerial positions early.

Concerning the working environment, adapting to the rapidly spreading transformation of working styles that rapidly spread over the world, such as teleworking, we reformed our working system to allow people to choose to work from home, mainly depending on their life stage. We improve our office environment by developing on our current free-address working office to increase the variety of working spaces to allow employees to choose the best working place depending on their duties. We also improve our office environment to promote user-friendliness of disabled and LGBT employees.

As for Intellectual Property Investment

In line with the basic philosophy of "The company making lives better by co-creating value," we aim to deliver value together, beyond the borders of industry and company, while sharing our philosophy in the business fields of health, safety/security, convenience/comfort, and the environment, where we can harness our strengths to meet social needs (Cross-Value Chain). We consistently invest our resources in intellectual properties to achieve this goal and continue to deliver value in each business field. For example, our intellectual property activity team reinforces the competitiveness of each business through acquiring and appropriately utilizing intellectual property rights. In addition, the team promotes the analysis and utilization (IP landscape) of intellectual property information as a "compass for management, business, and research" in order to properly build our business portfolio. Please refer to our corporate site link for further information. (https://www.daicel.com/innovation/ip/) (Japanese only)

Supplementary Principle 4-1-1

The Board of Directors deliberates on important issues as stipulated in laws and regulations, the Articles of Incorporation and the Board of Directors' Regulations. Decision-making and the undertaking of other matters are entrusted to Executive Officers and to the Management Meetings, the decision-making body at the business execution level. The Board of Directors receives reports on the results of decision-making undertaken at the Management Meetings and on the content of important meetings such as the Management Meetings, Management Strategy Meetings and etc. as well as the status of business execution by Executive Officers. Through these reports, the Board of Directors oversees decision-making and business execution by the Management Meetings and Executive Officers.

Principle 4-9

Regarding standards ensuring the independence of Outside Directors and Outside Audit & Supervisory Board Members from the Company, the Company has established Standards for Independence of Outside Directors/Outside Audit & Supervisory Board Members, which are presented in the convocation notice for Annual General Meeting of Shareholders; Securities Reports; the Corporate Governance Report II, Article 1, "Independent Directors/ Audit & Supervisory Board Members"; and on the Company website.

Supplementary Principle 4-10-1

We have appointed six Independent Outside Directors, which constitute a majority of the Board of Directors. Each Independent Outside Director actively expresses his/her opinions and gives advice as necessary at the Board of Directors meetings, etc., from a fair and impartial perspective and from an independent and objective standpoint by utilizing his/her high level of expertise and abundant experience.

Moreover, as stated in Supplementary Principle 4-3-1 and Principle 4-10, the Company has established a "Nomination and Compensation Committee," which currently comprises two Inside Directors (two Representative Directors) and six Outside Directors, totaling eight members. The Chairperson of the Committee is an Outside Director. The Committee has developed fair and highly transparent procedures in regard to important matters such as personnel affairs and remuneration of executives and directors.

When deciding treatment of officers at the Board of Directors meetings (appointment of director candidates, appointment and division of duties of Representative Directors, Chairperson, President, and Executive Officers who carry out business, matters related to successor development and remuneration of Directors,

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