Corporate Governance Report (as of March 27, 2026)

Corporate Governance Report

1. 1. The Company's policy is to acquire and own shares of business partners, etc. only when it judges that it can create further business opportunities and increase its corporate value in the mid-to-long term through building, maintaining and reinforcing business partnerships and collaborative relationships. In making decisions on holding of other stocks, the Company appoints the responsible department, which analyzes factors such as the significance and profitability of holding the stocks and whether risks associated with such holding are commensurate with the capital cost, and periodically verifies the appropriateness from Company-wide and strategic standpoints at the meetings of the Management Committee and the Board of Directors. The Company will reduce the holding of the stocks if the verification finds holding them not sufficiently reasonable.

   2. In regard to the voting rights for investee companies, we make judgments on the exercise of voting rights from the perspective of increasing corporate value of the Company and the respective investee companies in the medium-to-long term.

      [Principle 1-7]

      With respect to competing transactions and conflict of interest transactions of Directors, the Company's policy is to have the Board of Directors deliberate such transactions in advance in accordance with relevant laws and regulations and the Rules of the Board of Directors. As for the transactions approved, the results are reported to the Board of Directors.

      [Supplementary Principle 2-4-1]

      1. Approach for ensuring diversity, and its goals and status

         Aiming to contribute to the realization of a sustainable society, the Company will actively hire and promote diverse human resources, regardless of race, region, nationality, age, sex, sexual orientation or disability, in order to create innovation and new values. At the same time, we will make education available and create a work environment for employees with diverse characteristics. For managerial positions that play a central role in management, we believe it is particularly important to ensure diversity, and we will continue to appoint women, foreign nationals, and mid-career hires.

         1. Appointment of women to managerial positions

            We set a goal of 30% or more for the percentage of female hires among total new graduate hires for career-track positions in our Action Plan for General Business Operators based on the Act on Promotion of Women's Career Advancement. While the percentage of female employees has been on the rise, that of female employees in managerial positions at present remains at 3.5%. We aim to increase the percentage of female managers from 3.5% in 2025 to 7% or more by 2029 by actively appointing diverse female human resources, based on the concept of the right skills in the right positions regardless of job function or number of years in service.

         2. Appointment of foreign employees to managerial positions

            In conjunction with the promotion of globalization, we are working to hire more foreign nationals. While there are currently one foreign national that holds a managerial position on a Tokai Carbon non-consolidated basis, we plan to continue hiring and promoting foreign nationals moving forward. We aim to increase the number of foreign managers in 2026.

         3. Appointment of experienced mid-career hires to managerial positions

            We have been appointing experienced mid-career hires to assign persons with the right skills to the right positions according to various business themes such as overseas expansion and technology development, with experienced mid-career hires in 34.3% of managerial positions. We plan to continue to hire and appoint more experienced mid-career personnel. In 2026, we will aim to maintain and increase the percentage of experienced mid-career hires in managerial positions.

      2. Human resource development policy and internal environment development policy for ensuring diversity (Human resource development policy)

      Tokai Carbon Group's Basic Philosophy is "Ties of Reliability," and its Guidelines are "Integrity," "Innovation," "Challenge," "Co-creation," and "Agility." The Group will hire people who resonate with our Basic Philosophy and Guidelines, and in an era of rapid change, we will actively work with our colleagues, both internally and externally, who have diverse values and backgrounds, to develop people who can contribute to the realization of a sustainable society by boldly taking on the challenge of change with a sense of agility.

      (Internal environment development policy)

      To achieve the Group's long-term vision of "contributing to a sustainable society through advanced materials and solutions", our group will foster an organization and culture that is free and open, in which employees with diverse values and backgrounds can work hard together.

      In order to promote work style reform and realize an appropriate personnel system and competitive personnel treatment that attracts diverse human resources, we have, while supporting the growth of employees, prepared various training programs based on the stages, characteristics and desires of employees. We will respect the human rights of our employees to the fullest extent and will not tolerate harassment. Based on the "Tokai Carbon Health Management Declaration", we will strive for management that emphasizes the health of employees and their families, while also supporting employees' asset building through pension plans and employee stock ownership plans.

      [Principle 2-6]

      The Company has adopted the contract-type defined-benefit pension plan and invests the reserve funds in accordance with the regulations. Specifically, the Company performs regular monitoring to confirm that the pension reserves are managed appropriately in line with the policy asset mix according to the basic policy for investment management and the investment management guidelines based on quarterly reports from asset managers. In addition, the Company has put in place an investment management committee that consists of relevant departments and proceeds with the assignment and development of appropriate human resources, as well as carries out functions as an asset owner, such as having the person in charge of pension management report the result of investment management of pension assets for each fiscal year at meetings of the Management Committee.

      [Principle 3-1]

      1. Company objectives (e.g., business principles), business strategies, business plans (Basic Philosophy) "Ties of Reliability"

         Stakeholders, as represented by customers, business partners, employees, society and shareholders, are essential partners for the Company to contribute to the realization of a sustainable society through its corporate activities. Achieving co-existence and co-prosperity with our stakeholders is an earnest desire of the Company, and we believe that mutual trust is the key to creating new value together with our stakeholders. The Tokai Carbon Group will continue to work unremittingly to strengthen the "Ties of

         Reliability" with its stakeholders. To this end, the Group as a whole will continue to strive for integrity at all times, maintain appropriate communication with its stakeholders, boldly taking on challenges to bring innovation while conducting fair and transparent corporate activities, and work to achieve results that exceed stakeholders' expectations in a timely, continuous and long-term manner.

         (Management Policy)

         The Company discloses "Vision 2030," our vision for 2030 and the efforts we will undertake to achieve that vision, on our website:

         https://www.tokaicarbon.co.jp/ir/plan.html

      2. Basic views and policy on corporate governance

         Our basic views on corporate governance are disclosed in "I. 1. Basic Views" and in "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.

      3. Board policies and procedures in determining remuneration

         The policies and method for determining remuneration of Directors of the Company are disclosed in the "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in "II. 1. Organizational Composition and Operation" of this report.

      4. Board policies and procedures for the appointment and dismissal of senior management and the nomination of candidates for Directors and Audit & Supervisory Board Members

         At the Company, the Nomination Committee (composed of one (1) internal Director and three (3) External Directors), which is an advisory organ of the Board of Directors, deliberates and confirms the requirements for senior management and the basic policies on the appointment and dismissal of senior management members. In addition, the election and dismissal of Executive Officers as well as their roles, etc. are determined based on deliberation by the Board of Directors. The policies and procedures for nominating and dismissing candidates for Directors and Audit & Supervisory Board Members as well as each of the individual proposals for nomination and dismissal are deliberated on by the Nomination Committee and resolved by the Board of Directors before they are addressed at a general meeting of shareholders.

      5. The Company discloses the reasons for nominating candidates for all Directors and Audit & Supervisory Board Members, including External Directors and External Audit & Supervisory Board Members, in the Reference Document for an Annual Meeting of Shareholders.

      [Supplementary Principle 3-1-3, and Supplementary Principle 4-2-2]

      In November 2021, the Board of Directors of the Company resolved to revise the Basic Sustainability Policy (formerly the Basic CSR Policy), thereby clarifying its intent to incorporate sustainability and ESG into its business strategies, with the aim of resolving social issues through its business and realizing a sustainable society.

      (Basic Sustainability Policy)

      The Tokai Carbon Group engages in corporate activities based on the corporate philosophy of "Ties of Reliability" with its stakeholders. In order to make sure that we are a reliable partner for our stakeholders, we develop business strategies with due consideration to ESG (Environmental, Social and Governance) and work to resolve social issues through our business activities, thereby contributing to the realization of a sustainable society while improving our corporate value on a sustainable basis.

      (Investment in Human Capital and Intellectual Property)

      The Group will hire people who resonate with our Basic Philosophy and Guidelines and we will work with our colleagues, who have diverse values and backgrounds, to develop people who can contribute to the realization of a sustainable society by boldly taking on the challenge of change with a sense of agility. Intellectual property is also disclosed in the annual securities report as "R&D activities."

      (Structure)

      In January 2022, we established the Sustainability Committee, as an advisory organ to the Board of Directors. It is chaired by the President & CEO and composed of the Executive Officer responsible for the General

      Affairs and Legal Affairs Department, the Executive Officer responsible for the Corporate Planning Department, the Executive Officer responsible for the Human Resources Department, the General Manager for the R&D Strategy Division, the General Manager for the Technology & Engineering Division, and General Managers of four major divisions, and in principle, it is to meet each quarter. The Committee is responsible for discussing important sustainability-related matters, bringing matters for deliberation and submitting reports to the Board of Directors, and overseeing information disclosure concerning sustainability through the preparation of Integrated Reports and other means.

      Important managerial issues (Materiality) and goals are disclosed on the Company's website: https://www.tokaicarbon.co.jp/sustanability/csr_management.html

      (Response to climate change)

      Recognizing that responding to climate change is an important managerial issue, the Company resolved to support the Task Force on Climate-related Financial Disclosures (TCFD) at its Board of Directors' meeting in November 2021.

      Aiming to realize a low-carbon society and a decarbonized society, we identify the impact of climate change on the Company's business, take appropriate measures, and disclose information in accordance with the TCFD recommendations on the Company's website:

      https://www.tokaicarbon.co.jp/sustanability/climate-change.html

      [Supplementary Principle 4-1-1]

      The Company defines matters stipulated by laws and regulations and the Articles of Incorporation, the formulation, etc. of management policies and plans, and other important business management matters as items to be resolved by the Board of Directors and delegates all other business execution decision-making to the management team.

      [Principle 4-9]

      The Company appoints External Directors, who are independent officers, in accordance with the requirements for external directors set forth in the Companies Act and the independence standards defined by the financial instruments exchanges, and the Independence Standards for External Officers set forth by the Company.

      [Supplementary Principle 4-10-1]

      The Nomination Committee and Remuneration Committee are described in "Establishment of Voluntary Committee(s), Composition of Committee and Attributes of Chairman" and "Supplementary Explanation."

      [Supplementary Principle 4-11-1]

      The Board of Directors of the Company works to make accurate and timely business decisions in order to promote sustainable growth and increase corporate value in the medium- to long-term.

      To achieve this objective, the Board of Directors of the Company takes into account the size, contents, etc. of the Company's business and elects candidates for business-executing Directors who are well versed in the operations of each business division and corporate division so as to optimize the composition of the Board of Directors in terms of diversity and have an appropriate balance between knowledge, experience and skills of the Board as a whole.

      External Directors are elected by taking into account the requirements for external directors as set forth in the Companies Act and the independence standards defined by the Tokyo Stock Exchange, as well as the Independence Standards for External Officers set forth by the Company. Also, the Company receives advice from External Directors from viewpoints independent from business execution based on their wide-ranging experience and insights not only in their specialized fields but also in a broad range of areas, including management experience at other companies.

      The skill matrix of each Director and Audit & Supervisory Board Member is disclosed in the Notice of FY2025 Annual Meeting of Shareholders of the Company:

      https://www.tokaicarbon.co.jp/ir/shareholders-meeting.html

      [Supplementary Principle 4-11-2]

      Concurrent positions held by Directors and Audit & Supervisory Board Members are indicated on the Notice of FY2025 Annual Meeting of Shareholders.

      [Supplementary Principle 4-11-3]

      In order to strengthen the effectiveness of the Board of Directors, the Company analyzes and evaluates the effectiveness of the Board of Directors on an annual basis. The implementation status of the evaluation for FY2025 is summarized below.

      1. Method of evaluation

         The Board of Directors analyzed and evaluated its effectiveness based on the results of (i) qualitative and quantitative analysis of the operational results, status, and other details of the corporate governance system, including the Board of Directors and the Management Committee, in 2025; (ii) a survey on the composition/operation of the Board of Directors, information provision to External Directors, and other relevant matters conducted with respect to all Directors and Audit & Supervisory Board Members; and (iii) individual interviews with External Directors.

      2. Overview of results of evaluation

      The results of the evaluation of the effectiveness of the Board of Directors in FY2016 indicated that the Company has strengthened its corporate governance system, centered on the Board of Directors, by establishing the Nomination Committee, the Remuneration Committee, the Management Committee, and the Risk Management & Compliance Committee in 2016. This has contributed to making significant improvements from the previous year in various aspects, including the selection of agenda proposals, content of materials/explanations, content of deliberations, and meeting minutes. In the evaluation, it was pointed out that each of the External Directors has gained a better understanding of important cases by attending all Board of Directors meetings and proactively attending other important meetings. Neutral and objective opinions from External Directors have contributed greatly to enhancing the supervisory functions of the Board of Directors.

      The current corporate governance system was introduced a decade ago. The tenth evaluation concluded that the current corporate governance system has largely been established, and in addition to maintaining the achievements made in the early stages of the system's launch, some progress has been seen in strengthening the functions of the Board of Directors regarding strategic positioning and in the coordination of sustainability and management in 2025.

      Going forward, the Company will consider revising the governance system (transition to a company with an audit and supervisory committee) to further increase the effectiveness of the Board of Directors in addition to addressing ongoing issues, such as increasing sophistication of the business portfolio management.

      [Supplementary Principle 4-14-2]

      In order to ensure that the management supervision and auditing functions of Directors and Audit & Supervisory Board Members are adequately demonstrated, a secretariat for the Board of Directors is put in place to provide information required for executing duties in an appropriate and timely manner. Further, from the perspective of promoting contribution to sustainable growth into the future, training opportunities are set.

      [Principle 5-1]

      It is provided in "III. 2. IR Activities" of this report.

      [Supplementary Principle 5-2-1]

      In November 2021, the Board of Directors of the Company resolved to adopt the "Basic Policy on Business Portfolio Management" and decided to deliberate on the direction of the business portfolio annually at the Board of Directors' meetings, taking into account the consistency with the Company's long-term vision and perspectives on medium- to long-term growth, in addition to setting and monitoring targets for profitability and capital efficiency based on the Company's capital cost. The medium-term management plan announced in February 2025, "Vision 2030," also presents our views on this business portfolio, along with our basic policies for profit planning and capital policy, after being deliberated on by the Board of Directors.

      The disclosure requests from the Tokyo Stock Exchange dated March 31, 2023, "Implementing management that is conscious of cost of capital and stock price" and "Improvements in dialogue with shareholders and disclosure regarding this" were disclosed in the medium-term management plan, "Vision 2030."

      https://www.tokaicarbon.co.jp/ir/plan.html

2. Capital Structure