Kurita Water Industries : Corporate Governance Report

Corporate Governance Report

KURITA WATER INDUSTRIES LTD

Last Update: December 24, 2021

Kurita Water Industries Ltd.

President and Representative Director: Michiya Kadota

Contact: General Affairs Department, Corporate Control and Administration Division

[phone]

Securities Code: 6370

https://www.kurita.co.jp/english/

The corporate governance of Kurita Water Industries Ltd. is described below.

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

Basic Information

1. Basic Views Updated

Kurita Water Industries Ltd. and its consolidated subsidiaries (hereinafter the "Kurita Group," and Kurita Water Industries Ltd. on a non-consolidated basis shall be hereinafter referred to as the "Company") aim to contribute broadly to society through corporate activities in the fields of water and environment in accordance with the Kurita corporate philosophy, "Study the properties of water, master them, and we will create an environment in which nature and man are in harmony." The Kurita Group will make efforts to promote sustainable growth and enhance its corporate value in the medium and long term, deferring to the rights and position of various stakeholders such as customers, business partners, employees, shareholders, and local communities while striving to meet their expectations. To this end, the Kurita Group will establish corporate governance, with the aim of realizing transparent, fair, prompt, and decisive decision-making measures and highly effective management supervision.

[Basic Policies]

(1) Ensuring the rights and equality of shareholders

The Kurita Group will work to develop an environment in which the shareholders are able to appropriately exercise their rights, such as voting rights at a general meeting of shareholders, and provide the information needed to exercise of their rights in a timely and accurate manner in order to secure the substantive equality of the rights of shareholders, including minority and foreign shareholders.

(2) Appropriate level of cooperation with stakeholders other than shareholders

The Kurita Group will work to ensure an appropriate level of cooperation with stakeholders such as customers, business partners, employees, and local communities under the leadership of the Board of Directors. To achieve this aim, the Kurita Group will properly respond to issues related to sustainability(medium- to long-term sustainability including ESG factors), and make actions based on compliance with laws, regulations, and social ethics a prerequisite for all corporate activities.

(3) Ensuring appropriate information disclosure and transparency of information

The Kurita Group will develop an environment in which the Audit & Supervisory Board, the members of the Audit & Supervisory Board, and the accounting auditor are able to conduct audits properly. It will also disclose information in accordance with the laws related to information disclosure, such as the Companies Act and the Financial Instruments and Exchange Act, and regulations for the timely disclosure of corporate information established by the Tokyo Stock Exchange. The Kurita Group will actively and fairly disclose information that is deemed to be effective for facilitating understanding of the Kurita Group among

- 1 -

shareholders and investors. This information will comprise financial information including financial conditions and results of operations, management strategies including risks, corporate governance and matters related to social and environmental issues, and other issues surrounding sustainability, and policies for capital efficiency.

(4) Duties of the Board of Directors and the Audit & Supervisory Board, etc.

The Board of Directors will fulfill its fiduciary responsibility and accountability to shareholders. It will strengthen the orientation of corporate strategies, decision-making on important matters related to operational execution, the supervision of overall management, the internal controls and risk management measures that support appropriate risk-taking, etc. in order to enhance the corporate value and earnings power, as well as improve capital efficiency, etc.

The members of the Audit & Supervisory Board and the Audit & Supervisory Board will fulfill their fiduciary responsibility to shareholders, and conduct audits in an appropriate manner and express their opinions from an independent and objective standpoint.

(5) Dialogue with shareholders and investors

Continuing to emphasize management that values shareholders, the Kurita Group will make efforts to engage in constructive dialogues with shareholders and investors, as well as provide them with information in a timely and appropriate manner.

The Company's Corporate Governance Policies are posted on our website: https://ir.kurita.co.jp/en/corporate_governance/governance_policies/index.html

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

The Company complies with all the principles of the Corporate Governance Code.

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

[Principle 1.4 Policies regarding shares owned for policy purposes and the exercise of voting rights]

(1) Policy regarding shares owned for policy purposes

In some cases, the Company holds listed shares as shares owned for policy purposes to strengthen business relationships, etc. When holding such shares, the Company makes efforts to minimize the risk of holding shares owned for policy purposes by examining economic rationality in the medium and long term and relationships with companies whose shares the Company holds. The propriety of holding each individual stock owned for policy purposes is reviewed on a regular or timely basis at the Board of Directors by closely examining the expected return against the cost of capital and the status of business transactions with the company whose shares the Company holds. Based on the results of the examination, the Company strives to reduce the holding of shares owned for policy purposes.

(2) Policy for exercising the voting rights of shares owned for policy purposes

When exercising the voting rights of shares owned for policy purposes, the Company will do so by judging the pros and cons of each proposal, taking into comprehensive consideration whether it will contribute to medium- and long-term enhancement of the corporate value of the Company and a company in which the Company holds shares.

1. Policy for responding to the intention to sell, etc. of the Company's shares indicated by a shareholder owning shares for policy purposes (Note 1)
   If a shareholder owning shares for policy purposes indicates its intention to sell, etc. the Company's shares, the Company will not prevent the shareholder from making such sale, etc.

Note 1: The term "shareholder owning shares for policy purposes" means a shareholder who owns the Company's shares for policy purposes.

(4) Policy for transactions with shareholders owning shares for policy purposes

The Company will not conduct transactions with any shareholder owning shares for policy purposes if such

- 2 -

transactions are detrimental to the Company itself and common interests of its shareholders.

• In accordance with the above policies, the Company reviewed shares owned for policy purposes, and as a result, sold four holdings (including ones sold partially) in the fiscal year ended March 31, 2021.

[Principle 1.7 Related Party Transactions (Note 2)]

When conducting an important transaction (Note 3) with a related party, the Company's Board of Directors will review and decide on the transaction in advance to ensure that the transaction does not harm the interests of the Kurita Group and the common interests of its shareholders. The details of the submission standards, etc. shall be set forth in the Board of Directors Regulations, and the standards shall be disclosed.

Note 2: The term "Related Party Transactions" means transactions between the Company and following persons.

1. An officer of the Company and its close relative, (b) a shareholder who holds 10% or more of the voting rights of the Company and its close relative, (c) an important officer of a subsidiary and its close relative,

1. a subsidiary of the Company (excluding wholly owned subsidiaries) and its affiliate, and (e) a company in which a party mentioned in (a) through (d) above holds the majority of the voting rights for its own account and its subsidiary.

Note 3: The term "important transaction" means the transactions listed below.

1. Transaction exceeding 10% of the net sales or the sum of the cost of sales and selling, general and administrative expenses on a consolidated statement of income, (b) transaction related to profit or loss exceeding 10% of other income, other expense, finance income, or finance costs on a consolidated statement of income, (c) transaction exceeding 1% of the total assets on consolidated balance sheet, (d) transaction in which the balance, the total amount of transactions generated, or the average balance for the period of the loan of funds or the purchase or sale of tangible fixed assets or securities, etc. exceeds 1% of total assets on a consolidated balance sheet, (e) in the case of the transfer or acquisition of business, the total amount of assets or liability subject to the transfer or acquisition, whichever amount is greater, exceeds 1% of the total assets on a consolidated balance sheet, (f) in the event the related party is an individual, the transaction of an item on a consolidated statement of income or a consolidated balance sheet that exceeds 10 million yen, and (g) other transactions which are judged to need to be submitted to the Board of Directors for discussion, in light of their characteristics.

[Supplementary Principle 2.4.1 Approach to human resources diversity and policy for responding to human resources diversity]

Based on the concept that human resources diversity is the foundation for generating innovation as well as a source for creating unique value linked to sustained growth, the Kurita Group, in its efforts to secure diversity, established as its human resources policy (a group of professionals in diverse fields who feel pleasure in contributing to customers, society, and the global environment through their work at the Kurita Group and forge ahead with creation of new value) a basic approach to human resources. This approach ensures that those with diverse experience, knowledge, and skills can be active, leveraging their expertise. At the same time, the Group will determine the direction for human resources utilization and organizational support in its human resources policy in order to nurture talent and improve the internal environment, and will disclose the progress of the relevant initiatives. Moreover, the Group will endeavor to ensure diversity in the appointment, etc. of core human resources, clarify its approach and voluntary and measurable targets, while disclosing the status of relevant initiatives.

The Kurita Group aims to provide value to customers and society through innovative achievements made by its human resources with diverse backgrounds -- including gender, nationality, age, presence or absence of disabilities, how they joined the company, work style (employment status and working arrangements), and experience -- by taking advantage of each other's experience, knowledge, skills, and other qualities, toward realizing the Corporate Philosophy. The Kurita Group is also proactive in ensuring the diversity of its management and employees in management positions (and their equivalents) as its core human resources.

- 3 -

(1) Promotion of women to management positions, etc.

The Company has developed its action plan based on the Act on Promotion of Women's Participation and Advancement in the Workplace. Under this plan, the Company is taking the following initiatives.

1. Career planning support for women in career track positions
2. Increase the ratio of female recruits
3. Expand the roles of female employees
4. Support career development through the self-reporting system

For targets and results for past fiscal years, please refer to the attachments at the end of this report. As of September 2021, the number of women in management positions at the Company is 9 (2.7% of all employees in management positions). In addition, the Company positions specialists, management assistants, and special experts under the specialist system as equivalent to employees in management positions (including employees in management positions), and they are working actively as core human resources. As of September 2021, the number of women who are equivalent to employees in management positions is 19. Because of its initiatives to promote women to core human resources, the Company has been selected as a constituent of the MSCI Japan Empowering Women Index (WIN) since 2017.

(2) Promotion of non-Japanese employees to management positions, etc.

The Kurita Group strives to establish a system for operating globally by adopting ways of thinking of diverse countries and regions through the following initiatives.

1. Have the Company's headquarters organizations (organization other than the Japan Sales Business Division) work together with overseas Kurita Group companies
2. Promote locally recruited employees to the senior management of overseas Kurita Group companies Accordingly, the Company is promoting globally competitive human resources including non-Japanese (such as non-Japanese employees, those who have experienced living and working overseas for three years or longer, those who have experienced overseas businesses for three years or longer, and those who can use English for work) to positions equivalent to management positions at headquarters organizations.

The Company recruits several non-Japanese employees every year. As of September 2021, it has 18 such employees, two of whom are working actively in positions equivalent to management positions. In addition, the ratio of globally competitive human resources to those equivalent to employees in management positions at headquarters organizations is 30% as of September 2021, and the Company will increase this ratio further.

The Company has not set any long-term target for the recruitment and promotion of non-Japanese employees. However, it will continue to recruit globally competitive human resources and promote them to core human resources proactively as it expands its businesses globally. Further, the ratio of locally recruited employees to representatives of overseas Kurita Group companies and those in positions immediately under the representatives in the reporting line has reached 71%. Thus, human resources from various countries and regions are working actively as core human resources at the Kurita Group.

(3) Promotion of mid-career recruits to management positions, etc.

The Company recruits around 10 to 20 mid-career employees every year (equivalent to 10% to 30% of new recruits in each year), expecting them to contribute immediately to its business expansion. Mid-career recruits have been demonstrating their abilities, which has resulted in their promotion to core human resources. As of September 2021, 85 of those who joined the Company as mid-career recruits have been promoted to positions equivalent to management positions (constituting 13% of all employees in such positions). The Company has a policy of recruiting mid-career employees as industry-ready human resources and promoting them in a flexible manner in line with its business expansion, and therefore has not set any long-term targets for the recruitment and promotion of such employees. However, it will continue to recruit such human resources and promote them to core human resources proactively.

(4) Other matters

The Kurita Group has developed its Value Creation Story (Note 4), which provides a roadmap for growing together with society sustainably over the long term. It believes that engineers in technology fields (Note 5) supporting Kurita and business human resources promoting DX (Note 6) are important for achieving this. The Human Resources Development Committee will enhance measures to secure, train, and utilize engineers in technology fields supporting Kurita and the DX Committee will take the same initiatives for business

- 4 -

human resources promoting DX.

As a human resource development policy based on the above human resources policy, the Company takes initiatives with a focus on the following two points.

1. Continue to strengthen development and utilization of engineers in technology fields supporting Kurita and secure and develop business human resources promoting DX in the coming several years, thus promoting creation of new value
   ⇒ Engineers in technology fields supporting Kurita are developed in a carefully planned manner by the Company's subcommittee of specialized engineers under the engineer development plan it has formulated. Development of business human resources promoting DX is strengthened, such as by creating opportunities to learn AI and data science, based on the results of assessments of the Company's employees about their digital innovator quality and the skills and needs of organizations.
2. Position the active participation of human resources with a high degree of expertise, in addition to the cohesion of human resources, as core strengths and develop a system that will facilitate both of them.
   ⇒ The Human Resources Development Committee is systematically organizing the Company's training and development programs, enhancing programs for developing human resources with a high level of expertise, and taking other steps to rebuild the training and development system.

In addition, as its policy for improving the internal environment, the Company takes initiatives with a focus on the following two points.

1. Foster an organizational culture with Diversity & Inclusion (Note 7) instilled in it and a high level of engagement (Note 8), so as to create value that contributes to customers and society
   ⇒ The Company is pursuing initiatives to take advantage of diversity, including training for taking advantage of the diversity of an organization (for managers), human rights training for instilling an understanding of diversity, including sexual minorities, training related to the development of a corporate culture that takes advantage of diversity, and understanding and exploration of diversity through workplace discussion. In addition, the Company is making use of work from home and remote work, helping employees balance work and life events such as childcare and nursing care, and taking other steps to build an environment where diverse employees can work comfortably. Further, initiatives to build an organization with a high level of engagement are taken on a group-wide basis by instilling an understanding of the Value Creation Story to encourage employees to support the Corporate Philosophy and by implementing a PDCA cycle based on regular engagement surveys.
2. Build a system for providing value globally in accordance with characteristics of each region

• The Company aims to provide value that is suitable for the characteristics of customers and society in each of the countries and regions in which it operates, including Japan. In particular, in countries other than Japan, the Company is fostering locally recruited employees in each area and promoting them to senior management in accordance with the situation of each overseas Kurita Group company. In addition, diverse human resources from all over the world participate in multiple Group-wide projects. Thus, the globalization of human resources is also promoted through creation of new value.

Note 4: It provides a roadmap for the Kurita Group to achieve sustainable growth with society by creating corporate value over the long term to achieve the Corporate Philosophy. Please refer to pages 6 and 7 of the Company's Integrated Report.

https://ir.kurita.co.jp/en/downloads/pdf/annual_2021_en.pdf

Note 5: It refers to approx. 30 technology fields indicated in the map of the Group's engineers.

Note 6: They are digital specialists of the Company who create new business models and value using digital technologies.

Note 7: The Company is fostering a corporate culture and taking other actions based on Our Vision for Diversity & Inclusion, "The corporate group that continues to create unique value through interaction among diverse people who care about water and the environment and who accept each other's differences," which was set to enhance the Company's measures to improve the Kurita Group's competitiveness by taking advantage of diversity, including the promotion of women's empowerment.

- 5 -