Corporate Governance Report

Hanwa Co, Ltd.

CORPORATE GOVERNANCE

Last Update: June 27, 2025

Yoichi NAKAGAWA, Director, President Contact: Corporate Planning Dept.

+81-3-3544-2000

Securities code: 8078

https://www.hanwa.co.jp/

The corporate governance of Hanwa CO., LTD. (the "Company") is described below.

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

   1. Basic Views

      We aim to fulfill our social responsibilities as a good corporate citizen so that we can gain and retain the respect from stakeholders and be recognized as a valuable enterprise. We work to establish a high degree of transparency in management systems to ensure full legal and regulatory compliance and respect for social norms.

      In addition, to coexist with the Earth and society and to develop sustainably, we have established the Sustainability Promotion Committee and promoted management initiatives with a focus on sustainability.

      Reasons for Non-compliance with the Principles of the Corporate Governance Code Supplementary Principles 2.4.1

      At present, the Company has not set specific numerical targets related to the promotion of foreign nationals and mid-career hires to managerial positions.

      This is because the Company's recruitment of new graduates is focused mainly in Japan, and opportunities to hire foreign nationals are currently limited. Furthermore, when recruiting mid-career hires, we focus on their expertise and immediate work-readiness, and promotion to managerial positions is determined based on individual ability and aptitude. Therefore, it is difficult to set standardized targets.

      Going forward, we will strive to create an environment in which all employees can maximize their abilities regardless of gender, nationality, or type of employment. We will promote employee development and promotion based on individual careers and growth opportunities, and consider the need for setting numerical targets as appropriate depending on the situation.

      The Company has set a numerical target for the ratio of female new graduates hired for career positions (30%).

      Supplementary Principles 4.1.3

      With regard to the personnel affairs of directors, the Company has established a Nomination Advisory Committee, the majority of whose members are outside directors, as an advisory organ of the Board of Directors. The Committee examines and submits personnel proposals to the Board of Directors. Concerning successors of the CEO and other top executives, candidates will be narrowed down based on close examinations of the individual performance, characters, knowledge, and other factors of each director and executive officer.

      The Company does not have a specific procedural plan, such as a succession plan, clearly defined. However, we began introducing a succession plan for executive officers, including executive directors, in FY2024 with a view to visualizing management candidates and development plans. The qualitative review system for executive officers, including executive directors, introduced in FY2003 presents the desirable management requirements as evaluation criteria. The results of evaluations of all executive officers have been accumulated. In addition to the evaluations and feedback collected each fiscal year, the Nomination Advisory Committee will deliberate on the executive officer succession plan and report its conclusions to the Board of Directors, thereby selecting candidates who meet the requirements for senior management positions. With regard to the development, the Company plans to further enhance the training system for officers and potential officers starting in FY2025. By carrying out the succession plan on an ongoing basis, we will formulate and implement successor plans.

      Disclosure Based on each Principle of the Corporate Governance Code

      The Company's policies and initiatives in response to all 83 items of general principles, principles and supplementary principles of the Corporate Governance Code are disclosed on our website as the Principles for Responding to the Corporate Governance Code (https://www.hanwa.co.jp/en/company/governance.html). Among these, disclosure items based on each principle of the Corporate Governance Code are as follows.

      Principle 1.4

      1. Holding Policy

         From the perspective of business partnerships, creating business opportunities, maintaining and strengthening business relationships, etc., the Company holds shares of business partners, etc., when it is considered to contribute to enhancing corporate value over the medium to long term.

      2. Verification and Reduction Policy

         Each year, the Board of Directors and the Management Committee regularly and comprehensively examine the appropriateness of the holding of individual shares, taking into account factors such as investment returns from transactions and dividends, capital efficiency, and the purpose of holding. The Company promotes the sale of shares that are deemed to be inconsistent with the purpose of the holding.

      3. Criteria for Exercising Voting Rights

         The Company has established the following screening criteria for exercising voting rights. For the stock issues that meet the criteria, the Company will scrutinize the details of the proposals and determine whether to vote for or against them.

         1. a company whose value of shares are judged to be significantly impaired according to its stock price level and financial conditions

         2. a company whose operating income, ordinary income, or net income was recorded as negative in its business results for the previous fiscal year

         3. a company that caused a scandal with significant social impact, including violations of laws and regulations or anti-social acts

         4. a company that submits a proposal that is likely to hinder the purpose of shareholding and significantly impair the value of shares, including any proposal on changes of control or substantial revisions of corporate organization

      4. Reduction Status for the Year Ended March 2025

The Company sold all shares of 14 companies and a portion of shares of 5 companies. As of the end of March 2025, the ratio of cross-shareholdings to consolidated net assets was 15.6%.

If the Company intends to engage in a transaction with a director of the Company or a company where a director of the Company holds office as a representative (related party transaction), the Company will conduct the related party transaction only after the Board of Directors deliberates on the transaction and gives approval.

With regard to transactions with major shareholders, significant financial transactions with Sumitomo Mitsui Banking Corporation and The Dai-ichi Life Insurance Company, Limited are conducted with approval from the Board of Directors. With regard to commercial transactions, the Company conducts them based on the Standards for Decision-making Authority established with approval from the Board of Directors according to the sizes of the transactions, and applies the same procedures to the Company's transactions with major shareholders such as Nippon Steel Corporation.

At present, the Company has not set specific numerical targets related to the promotion of foreign nationals and mid-career hires to managerial positions.

This is because the Company's recruitment of new graduates is focused mainly in Japan, and opportunities to hire foreign nationals are currently limited. Furthermore, when recruiting mid-career hires, we focus on their expertise and immediate work-readiness, and promotion to managerial positions is determined based on individual ability and aptitude. Therefore, it is difficult to set standardized targets.

Going forward, we will strive to create an environment in which all employees can maximize their abilities regardless of gender, nationality, or type of employment. We will promote employee development and promotion based on individual careers and growth opportunities, and consider the need for setting numerical targets as appropriate depending on the situation.

The Company has set a numerical target for the ratio of female new graduates hired for career positions (30%).

The Company manages pension reserves through Pension Fund of Hanwa Co., Ltd. (hereinafter referred to as the Pension Fund). Although it is difficult to say that the Company sufficiently assigns personnel who are highly qualified and experienced in investment in pension funds due to our size and expertise, the Company has established a Pension Committee within the Company to ensure stable and efficient management of Pension Fund and its investments. The Pension Committee is composed mainly of officers and section managers in charge of the Personnel Department, Finance Department, and Accounting Department. The committee selects investment institutions to be entrusted, allocates premiums, and evaluates investment performance. The results are submitted to the Board of Directors,

Representatives of the Pension Fund, and the Chairman of the Board of Directors. Based on the report of the Pension Committee, the Pension Fund presents its investment policy to the investment management contractors, entrusts them to the fund, monitors the investment status of the fund to the contractors on a regular basis, and shares the investment results with the Pension Committee.

The selection of individual issues and the exercise of voting rights are left to the trustees, and the Company does not direct them directly. Therefore, the Company believes that there will be no conflict of interest between the pension beneficiaries and the Company.

1. Company objectives (e.g., business principles), business strategies and business plans;

   The Company's Corporate Philosophy proclaims that by "Coping with changing times and markets quickly, Hanwa makes a great contribution to society by satisfying various needs of customers as a 'distribution specialist." Under this Corporate Philosophy, as a user-oriented trading company that provides high value-added product distribution and proposal-based services in response to customer needs, the Company pursues trading company logistics with distinction. The Company is committed to enhancing corporate value and fulfillment of its social responsibilities, emphasizing compliance in these activities. In principle, the Company formulates a medium-term management plan every three years and publicly discloses the plan.

2. Basic views and guidelines on corporate governance based on each of the principles of the Code;

   We aim to fulfill our social responsibilities as a good corporate citizen so that we can gain and retain the respect from stakeholders and be recognized as a valuable enterprise. We work to establish a high degree of transparency in management systems to ensure full legal and regulatory compliance and respect for social norms.

   In addition, to coexist with the Earth and society and to develop sustainably, we have established the Sustainability Promotion Committee and promoted management initiatives with a focus on sustainability.

3. Board policies and procedures in determining the remuneration of the senior management and directors;

   The Company has established a remuneration system consisting of monetary remuneration and compensation in the form of company stock (restricted stock compensation) for directors (excluding directors who are Audit and Supervisory Committee members). The annual monetary remuneration decided at the Ordinary General Shareholders Meeting held in June 2025 is within the total amount of 860 million yen (within 100 million yen for outside directors). The restricted stock compensation is within the total annual amount of 150 million yen (the maximum number of shares to be paid is 50,000 per year) decided at the Ordinary General Shareholders Meeting held in June 2025. The Board of Directors determines the specific amount of remuneration for each director. The Company has established a decision-making policy pertaining to the content of remuneration for each director (excluding directors who are Audit and Supervisory Committee members), a summary of which is as follows.

   The Company has set a policy for determining the individual remuneration of directors who are not Audit and Supervisory Committee members (hereafter referred to as the "determination policy"). A summary of the policy is as follows.

   The basic policy of the Company's remuneration system for directors is to ensure that it serves as an effective incentive for the sustainable enhancement of corporate value, and that the remuneration level is at an appropriate level based on the responsibilities of each position. Specifically, the remuneration system consists of the followings: basic remuneration, which is a fixed monthly payment determined based on the standard amount of remuneration for each position and taking into consideration the comprehensive evaluation of directors made by the Officers Evaluation Committee chaired by the President, with an emphasis on their commitment to medium- and long-term issues aimed at sustainable growth and the results of their efforts; and performance-linked remuneration, which is a monetary remuneration reflecting fiscal-year performance indicators applicable to the management team as a whole: and restricted stock remuneration designed to provide incentives to increase corporate value over the medium to long term. Outside directors, who are responsible for supervisory functions, are paid only basic remuneration in consideration of their duties.

   In determining the ratio of remuneration by type, the Remuneration Advisory Committee considers the level of remuneration based on the benchmarks of companies in the same scale of business and related industries and business categories as the Company.

   With regard to procedures for determining the individual compensation of the management members and directors (excluding directors who are Audit and Supervisory Committee members), the Remuneration Advisory Committee, the majority of whose members are outside directors, plays a leading role in determining them, in accordance with the following procedures.

   The Officers Evaluation Committee, which is chaired by the President and whose majority members consist of outside directors, meets at least twice a year to conduct a comprehensive evaluation of basic remuneration based on an assessment of the level of commitment of executive directors and executive officers (excluding the Chairman, President, and outside directors) and a peer review process by all directors and executive officers. Based on the results, the Remuneration Advisory Committee, the majority of whose members are outside directors, prepares a proposal for basic remuneration and the Board of Directors makes a decision on the amount.

   Performance-linked remuneration is determined by the Board of Directors after the Remuneration Advisory Committee examines the proposed calculation method for each fiscal year, with the aim of ensuring that the remuneration accurately reflects the achievements and responsibilities of each management member and executive

   director.

   Restricted stock compensation is positioned as compensation for each management member and executive director's responsibilities to shareholders in increasing corporate value in accordance with his or her position. With this in mind, the Board of Directors determines the specific number of shares to be paid (the amount of monetary compensation claims to be used to pay for the acquisition of shares) based on the Remuneration Advisory Committee's consideration of the level deemed appropriate for each position.

   The amount of remuneration for each executive member of the management team other than directors (executive officers) is determined in accordance with the same system and procedures as those for executive members who also serve as directors.

   The remuneration for directors who are Audit and Supervisory Committee members was determined through the discussion held by directors who are Audit and Supervisory Committee members to be within the total annual amount of 120 million yen as determined by the Ordinary General Shareholders Meeting held in June 2025.

4. Board policies and procedures in the appointment/dismissal of the senior management and the nomination of directors

   candidates;

   To select internal directors (excluding directors who are Audit and Supervisory Committee members), the Nomination Advisory Committee, which is chaired by an outside director and the majority of its members consist of outside directors, reviews the directors of the following fiscal year based on their evaluation from directors and executive officers and the results of their performance evaluations of employees. A draft is then submitted to the Board of Directors where a proposal of the list of candidates is then forwarded to the Annual Shareholders Meeting. In addition, the Nomination Advisory Committee deliberates on the positions of directors (excluding directors who are Audit and Supervisory Committee members) and draws up a draft to be approved by the Board of Directors.

   With regard to director who is full-time Audit and Supervisory Committee member, the Board of Directors selects persons deemed capable of executing the duties as candidates from among internal directors and executive officers, etc. in consideration of their fields of specialty, their careers, and other factors. A proposal list of candidates is then forwarded to the Annual Shareholders Meeting with prior consent from the Audit and Supervisory Committee.

   To select outside directors, appropriate candidates are examined from all perspectives in consideration of the balance of their abilities and any excesses or deficiencies in the fields of specialty of the outside directors based on the fields of specialty of those retiring and of those remaining, and a proposal of the list of candidates is then prepared.

   More specific criteria for the nomination of candidates for directors and the appointment and dismissal of senior management are currently under consideration, including the necessity of such criteria. Discussions will be held at the Nomination Advisory Committee in the future.

5. Explanations with respect to the individual appointments/dismissals and nominations based on iv).

   Reasons for proposals for electing the senior management, directors and corporate auditors are stated in the Notice of Shareholders Meeting, together with brief career summaries. In the event that a senior executive is dismissed, the company will explain the background and the reason for the dismissal of the previous executive when disclosing the replacement.

   Supplementary Principles 3.1.3

   In the "Medium-Term Business Plan 2025", we have set "Sustainability Management" as one of our basic policies and are working on "business/investment strategies rooted in ESG and SDGs" as well as "strengthening the organizational structure to support sustainable growth. "

   The Company discloses information on sustainability as appropriate through the "Sustainability" page (https://www.hanwa.co.jp/en/csr/) on its website.

   The Company also has a human resources strategy aimed at enhancing human capital and is working to create an environment in which a diverse workforce can work while growing sustainably, as well as promoting the introduction of systems that support each employee's ability to demonstrate his or her strengths and take on challenges. The specific efforts, indicators, targets, and results related to human capital are disclosed in the securities report.

   Furthermore, the Company has expressed its support for the TCFD recommendations and utilizes the TCFD's framework to assess and identify the impact of climate change on the Company's business activities from the perspectives of risks and profit opportunities, the details of which are disclosed. With regard to climate change-related indicators and targets, greenhouse gas emissions have been set as an indicator, with medium- to long-term reduction targets set as "FY2030 Domestic Scope 1+2 34% reduction (compared to FY2021)" and "FY2050 Carbon neutrality." TCFD disclosures can be found on the "Dealing with Climate Change" page (https://www.hanwa.co.jp/en/csr/environment/climate-change.html) of the Company's website.

   Supplementary Principles 4.1.1

   The Company stipulates the decision-making authority of an organ according to the importance of decisions and monetary scale and other factors in the Regulation on the Board of Directors and the Standard for Submission to the Board of Directors, as well as the Regulations on the Management Committee and the Standard for Submission to the Management Committee, while prescribing the scope of operational delegation according to the positions of the executive officers, etc. in the Standard for Approval.

   Principle 4.9

   With regard to standards for judgment when electing independent outside directors, the Company established "Independence Standards for Outside Directors" as follows.

   "Independence Standards for Outside Directors"

   When an outside director of the Company does not fall under any of the following cases, he or she is judged independent from the Company.

   1. A major shareholder of the Company (meaning a shareholder who holds either directly or indirectly 10% or more of the total voting rights of the Company at the end of the most recent fiscal year), or an executing person thereof.

   2. A person belonging to or an executing person of a company of which the Company is a major shareholder (holding 10% or more of the total voting rights of the company at the end of the most recent fiscal year.)

   3. A major business partner of the Company (whose annual transaction with the Company exceeds 2% of the consolidated net sales of the Company during the most recent fiscal year), or an executing person thereof.

   4. A major lender to the Company (whose outstanding loans to the Company at the end of most recent fiscal year exceeds 2% of the consolidated total net assets of the Company), or an executing person thereof.

   5. A representative or an employee who belongs to the audit corporation that is the accounting auditor of the Company.

   6. A consultant, legal professional, certified public accountant, tax accountant, or other person providing a specialist service who received 10 million yen or more of monetary consideration or other properties per year from the Company other than officer remuneration in the most recent fiscal year (referring to a person belonging to the organization if the one who received the relevant property is an organization such as corporation and association.)

   7. A person who received the annual total of 10 million yen or more of donations or aid funds from the Company in the most recent fiscal year (referring to an executing person who belongs to the organization if the one who received the relevant donations or aid funds is an organization such as corporation and association.)

   8. A person who falls under any of 1 to 7 above in the past three years

   9. A person whose close relative fall under any of 1 to 8 above.

(Note1.) An executing person refers to an executive director, executive officer, corporate officer, or staff executing business of an entity

(Note2.) A close relative means a relative within the second degree of kinship

Even if a person falls under any of the above criteria, such person maybe elected as a candidate for independent outside directors if the person satisfies the requirements of an outside director under the Companies Act, has specialization and experience necessary in view of the Company's current situations and his/her knowledge and viewpoint are judged to be beneficial to the Company's management, on the condition that the Company provides explanations to shareholders of the reasons of its judgement and the fact that the person satisfies the requirements of an independent outside directors.

As an advisory organ for the evaluation, appointment, and remuneration of directors and executive officers, the Company has established three committees: the Officers Evaluation Committee, the Nomination Advisory Committee, and the Remuneration Advisory Committee. The majority of the members of each committee are outside directors, and the Nomination Advisory Committee is chaired by an outside director, which ensures the independence and objectivity of the supervisory function of the Board of Directors.

The Officers Evaluation Committee determines the comprehensive evaluation based on an assessment of the level of commitment of executive directors and executive officers (excluding the Chairman, President, and outside directors) and a peer review process by all directors and executive officers. Based on the results of this evaluation, the Nomination Advisory Committee discusses the proposed composition of the senior management and directors (including candidates), and the Remuneration Advisory Committee discusses the overall remuneration system for the senior management and directors (excluding directors who are Audit and Supervisory Committee members). Each committee has the authority to report the details of its decisions to the Board of Directors.

Regarding the appointment of directors, please refer to Principle 3-1 iv. The Company believes that the main skills required of each director to ensure the effectiveness of the Board of Directors are "corporate management," "sales/business strategy," "overseas experience," "finance/accounting," "legal/risk management," "human resources/labor affairs," and "IT/digital." The expertise possessed by each director is as shown in the skill matrix, and we appoint persons with each skill in a well-balanced manner.

The Board of Directors of the Company consists of fourteen members, including seven independent outside directors, all seven of whom have management experience at other companies.

The expertise held by each officer is listed in the skills matrix attached at the end of V-2. "Other Matters Concerning the Corporate Governance System" of this report.