SHO BOND : Corporate Governance Report

These documents have been translated from Japanese originals for reference purposes only.

In the event of any discrepancy between these translated documents and the Japanese originals, the originals shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translations.

Corporate Governance Report

SHO-BOND Holdings Co., Ltd.

Last Update: December 17 2021

SHO-BOND Holdings Co., Ltd.

Tatsuya Kishimoto, President and Representative Director Contact: Tel: [phone] Securities Code: 1414 https://www.sho-bondhd.jp/english/

This report explains the corporate governance of SHO-BOND Holdings Co., Ltd. ("SHO-BOND").

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

1. Basic Views

SHO-BOND positions corporate governance as one of the highest management priorities to realize our corporate philosophy "With a sense of mission of 'inheriting and passing on social infrastructure to the next generation in good condition' we will contribute to the realization of a safe and affluent society by utilizing our advanced technological development capability as a leading company in the structure maintenance business." By fulfilling our social responsibility as a company that specializes in the maintenance business, we will work together with our shareholders and all other stakeholders to achieve sustainable growth and enhance our corporate value over the medium to long-term. In addition, we will aim for a highly sound and transparent management by developing and promoting a corporate governance system that enables swift and decisive decision-making.

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

This Report is based on the code following the June 2021 revisions.

[Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Human Resources]

To maintain diversity in its workforce, SHO-BOND selects management personnel based solely on each individual's capabilities and performance. These selections are not affected by gender, nationality, whether individuals were hired as new graduates or after working at other organizations, or any other personal characteristics. In addition, we provide training programs structured for specific types of employees, such as training for new employees with previous work experience and engineering classes for women. All activities involving personnel have the goal of enabling people from a broad range of backgrounds to realize their full potential.

SHO-BOND will disclose its stance on maintaining the diversity of key personnel and others, targets set to be achieved for diversity, and information about progress toward achieving these targets. Human resource strategies play a vital role in measures for the medium to long-term growth of corporate value. SHO-BOND plans to announce policies concerning training programs that contribute to diversity and workplace environments conducive to diversity as well as other information about diversity initiatives.

[Supplementary Principle 3.1.3 Full Disclosure]

SHO-BOND discloses our sustainability efforts on our website. SHO-BOND has designated four Materialities based on social demands and the expectations of stakeholders. We believe that all of these activities contribute to accomplishing the Sustainable Development Goals and achieving our corporate philosophy.

Furthermore, SHO-BOND has established a Sustainability Policy to provide a guideline for constant activities in accordance with materiality priorities, the medium- to long-term growth of corporate value and contributions to creating a sustainable society. We will set up action plans and KPIs (key performance

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indicators) for the main items of the Sustainability Policy. We plan to disclose information on the progress and results of these efforts.

(https://www.sho-bondhd.jp/english/csr/materiality/)

Investment in human resources and intellectual property is described in the medium-term business plan from the fiscal year ending June 2022.

(https://www.sho-bondhd.jp/english/ir/library/plan/)

We have begun collecting the necessary data to analyze the impact of climate change risks and opportunities on our business activities. We will strive to improve the quality and quantity of disclosures based on the TCFD framework or equivalent framework.

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

[Principle 1.4 Cross-shareholdings]

As a rule, SHO-BOND does not purchase or hold the stock of suppliers and other business partners with the exception of cases where purchasing and holding stock helps conduct business operations efficiently and maintain and strengthen business relationships, thereby contributing to the medium to long-term growth of its corporate value. Holdings of the stock of other companies are examined individually by taking into consideration of qualitative and quantitative benefits and risk factors, including holding purposes, the amount of transactions with these companies, their operating environment, results of operations and financial position, dividend yields as a return of investments and stock price fluctuation risks. Holdings are reduced when there is no longer any need to continue owning the stock. SHO-BOND will reduce the ratio of cross-shareholdings to net assets by selling 20% on a fair value basis, in the medium-term business plan from the fiscal year ending June 2022. Voting decisions concerning the stock of other companies are based on the goals of increasing shareholder value for SHO-BOND shareholders and contributing to the medium to long-term growth of the corporate value of the other companies.

[Principle 1.7 Related Party Transactions]

Directors must not neglect the interests of shareholders by taking actions aimed at earning profits for themselves or third parties. Even when there is no intent to take such actions, the consent of the Board of Directors is required for transactions involving a conflict of interest or transactions involving competitive information. When determining whether or not to grant this consent, the highest priority is the interests of SHO-BOND and the common interest of shareholders. A decision is made only after a thorough discussion. SHO-BOND examines related party transactions involving directors once every year. The results of these transactions are disclosed in a timely and proper manner in accordance with associated laws and regulations.

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

SHO-BOND understands that the management of assets in the corporate pension fund is important for the consistent accumulation of wealth for employees and that the management of these assets also has an effect on SHO-BOND's financial condition. SHO-BOND is dedicated to managing these assets properly, such as by reexamining the weighting of pension fund assets using medium and long-term perspectives. The Asset Management Committee holds regular meetings for the purposes of monitoring the performance (including stewardship activities) of the company(ies) that manage the pension fund assets. SHO-BOND assigns to the Asset Management Committee individuals who have expertise involving human resources, accounting, finance or other fields and has programs to give these people further training.

[Principle 3.1 Full Disclosure]

The Board of Directors properly discloses information in accordance with laws and regulations. In addition, the directors provide information about the corporate philosophy and other important policies. The purpose is to ensure the transparency and fairness of decisions made by the directors and maintain the effectiveness

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of corporate governance. Information is disclosed on the SHO-BOND website, in notices of general meeting of shareholders and in other ways. Additionally, SHO-BOND discloses materials required to be explained in English.

1. Corporate Goals (Corporate Philosophy, Etc.), Business Strategies, Business Plans (https://www.sho-bondhd.jp/english/company/philosophy/)<> Management Plan> (https://www.sho-bondhd.jp/english/ir/library/plan/)
2. Basic View and Basic Policy on Corporate Governance

The basic view is explained in "I. 1. Basic Views" of this report. The basic policy regarding items that are disclosed is as explained in this report.

1. Policies and Procedures in Determining the Remuneration of the Senior Management and Directors by the Board of Directors

These policies and procedures are explained in "II. 1. Organizational Composition and Operation [Director Remuneration]" in this report.

(4) Policies and Procedures in Appointing and Dismissing the Senior Management and Nominating Candidates for Directors by the Board of Directors

These policies and procedures are explained in "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" in this report.

1. Explanations of Individual Appointments and Dismissal and Nominations with Respect to Appointments and Dismissal of Senior Management and Nominations of Candidates for Directors by the Board of Directors

The reasons for nominating candidates for directors, along with personal histories and other information, are provided in notices of general meeting of shareholders. (https://ssl4.eir-parts.net/doc/1414/ir_material3/168354/00.pdf)

[Supplementary Principle 4.1.1] Roles and Responsibilities of the Board of Directors

The regulations of the Board of Directors, in compliance with laws and regulations, clearly define matters that must be approved by the directors. Also, the authority that is granted to Presidents, Regional Officers, General Managers and other managers of important subsidiaries is clearly defined by the SHO-BOND Group's standards for delegating authority for making decisions. The goals of these measures are to ensure that decisions are made with no problems and that business operations are conducted efficiently.

[Principle 4.9 Independence Standards and Qualifications for Independent Outside Directors]

These independence standards and qualifications are explained in "II. 1. Organizational Composition and Operation [Independent Directors]" in this report.

[Supplementary Principle 4.10.1 Use of Optional Approach

These approaches are explained in "II. 1. Organizational Composition and Operation [Voluntary Establishment of Committee]" in this report.

[Supplementary Principle 4.11.1 Preconditions to Ensure the Effectiveness of the Board of Directors]

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These preconditions are explained in "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" in this report.

[Supplementary Principle 4.11.2 Preconditions to Ensure the Effectiveness of the Board of Directors] Directors must have sufficient time to prepare for Board of Directors meetings. As a result, SHO-BOND prefers individuals who are not concurrently a director, audit & supervisory committee member or executive officer of another listed company. The chairperson of the Board of Directors is notified promptly when a request is received. Information about significant concurrent positions of directors is provided in notices of general meeting of shareholders.

[Supplementary Principle 4.11.3 Preconditions to Ensure the Effectiveness of the Board of Directors]

This section is a summary of the analysis and evaluation of the effectiveness of the Board of Directors that was conducted in June 2021.

(1) Method of evaluating effectiveness

To evaluate the effectiveness of the Board of Directors, a third-party external adviser is used in order to ensure objectivity every other year. The evaluation is performed by asking all directors, including members of the Audit and Supervisory Committee, to complete self-evaluation questionnaires. The Board of Directors reviews the one-year efforts to address the recognized issues, and conducts self-analysis and evaluation year after the evaluation by questionnaire.

(2) Summary of evaluation results

The evaluation based on the self-analysis confirmed the effectiveness of the Board of Directors for the fiscal year ended June 2021. We will continue to improve the effectiveness of the Board of Directors by further deepening discussions on group strategies and enhancing executive training.

[Supplementary Principle 4.14.2 Training Policy for Directors including members of the Audit and Supervisory Committee]

When individuals first become a director and afterward, they receive opportunities for training and other forms of education that matches each person's knowledge, experience, capabilities and other characteristics.

[Principle 5.1 Policy for Constructive Dialogue with Shareholders]

The Corporate Planning Department and General Affairs Department are primarily responsible for dialogues with shareholders and other investors. As a rule, the director responsible for investor relations and the Corporate Planning Department handle dialogues with institutional investors. Directors and executives with knowledge about specific business activities also provide assistance as needed in order to ensure that investors receive adequate explanations. Dialogues are consistent with the spirit of fair disclosure and care is exercised to prevent the disclosure of insider information. SHO-BOND holds information meetings to announce results of operations to institutional investors, information meetings for individual shareholders and one-to-one meetings with institutional investors for quarterly results of operations and uses other activities in order to provide constant opportunities for a dialogue. The Executive Committee and Board of Directors receive feedback periodically concerning the opinions and concerns of shareholders. This information helps management take actions aimed at achieving sustained growth.

2. Capital Structure

Foreign Shareholding Ratio	From 20% to less than 30%

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[Status of Major Shareholders]

Name / Company Name			Number of Shares Owned	Percentage (%)
General Incorporated Foundation Ueda Memorial		5,408,000	10.05
Foundation
Custody Bank of Japan, Ltd. (Trust account)		4,959,700	9.21
SSBTC CLIENT OMNIBUS ACCOUNT		4,313,963	8.01
The Master Trust Bank of Japan, Ltd. (Trust account)		4,041,500	7.51
MUFG Bank, Ltd.		2,658,800	4.94
Custody Bank of Japan, Ltd. (Trust account 4)		2,616,700	4.86
The Dai-ichi Life Insurance Company, Limited		2,420,000	4.49
NORTHERN TRUST CO. (AVFC) RE FIDELITY		2,072,800	3.85
FUNDS
Meiji Yasuda Life Insurance Company		1,584,200	2.94
SMBC Nikko Securities Inc.		661,200	1.22
Controlling Shareholder (except for Parent Company)	-
Parent Company	None

Supplementary Explanation

1. The above major shareholders are as of June 30, 2021.
2. The percentages in the table above are based on the total number of issued shares after deducting treasury stock.

3. Corporate Attributes

	Listed Stock Market and Market Section		Tokyo Stock Exchange First Section
	Fiscal Year-End		June
	Business Sector		Construction
	Number of Employees (consolidated) as of the End of the		From 500 to less than 1000
	Previous Fiscal Year
	Sales (consolidated) as of the End of the Previous Fiscal Year		From ¥10 billion to less than ¥100 billion
	Number of Consolidated Subsidiaries as of the End of the		From 10 to less than 50
	Previous Fiscal Year

1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with a Controlling Shareholder
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2. Other Special Circumstances which May Have Material Impact on Corporate Governance

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1. Business Management Organization and Other Corporate Governance Systems regarding Decision-making,Execution of Business, and Oversight of Management

1. Organizational Composition and Operation

Corporate Governance System	Company with Audit and Supervisory Committee

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