1. ESG Management Promotion System

2. Review Process

1. The Denka Group analyzed and evaluated ESG issues over the medium-to-long term up to 2030 and reviewed materiality in formulating its management plan Mission 2030.
2. The newly identified materiality issues clarify important management issues for fulfilling social responsibility in the "expected world" and "megatrends" analyzed when formulating the Management Plan "Mission 2030," and serve to connect these issues to individual business activity targets. With the support of external experts, we evaluated and analyzed a population ¹ list of social issues, selected materiality issues using a materiality map (materiality matrix), and identified 14 materiality issues through a process of formulating our Management Plan, which were then approved by the Board of Directors in November 2022.

• (Note: Social issue items population: Based on an analysis of the World Economic Forum (WEF) Global Risk Report (2022), Sustainable Development Goals (SDGs), SASB Standards, CDP, and other ESG assessment organizations, we classified the items into 23 categories and 333 items.)

Materiality Analysis Map of the Denka Group

3. New Materiality

Classifying 14 items into two categories

1. The Company has classified its sustainability initiatives into two categories: "Responsibility and Contribution to a Sustainable Society," which addresses the Company's contribution to society through its business activities, and "Strengthening the Business Foundation," which is a prerequisite for the Company's continued existence and sustainable growth.
2. The five items of "Responsibility and Contribution to a Sustainable Society" are aimed at solving social issues through our business activities and are comprised of the following items that the Denka Group should address: global warming countermeasures, healthcare, and sustainable cities and lifestyles.
3. The Denka Group ESG Basic Policy states that the Denka Group will strengthen its business foundation in nine areas. In addition to complying with the Denka Group ESG Basic Policy, this initiative addresses human resource issues, which are the source of sustainable growth, and the fulfillment of social responsibilities through supply chain interactions.

The Denka Group ESG Basic Policy, Materiality, and Direction for Solving Issues

4. Incorporating sustainability issues into management

4.1 Setting Growth Strategies and Non-financial KPIs

1. Materiality is an essential element for addressing the risks and opportunities of sustainability issues in our management foundation from a medium- to long-term perspective and achieving our vision. It should serve as the basis for our business activities.
2. The Management Plan "Mission 2030" sets forth growth strategies linked to materiality, and the Denka Group will address global issues including climate change and contribute to the realization of a sustainable society.
3. We have reflected the newly identified materiality in the individual items of "Policies" and "Measures" in our growth strategy, and established non-financial KPIs with a view to visualizing progress management. By achieving a balance between solving ESG issues and improving profitability, and accelerating this virtuous cycle, we aim to achieve sustainable growth.

4.2 Materiality and Non-financial KPIs

1. The non-financial KPIs linked to materiality identified in Mission 2030 and targets for fiscal year 2030 are as follows.

Policy	Non-financial KPIs	2023 Fiscal Year Results	2030 Targets
Achievement of carbon neutrality	(1) Reduction of group-wide CO 2 emissions	28% reduction compared to FY2013 (1.78 million t-CO 2​	60% reduction from FY2013 (1,000,000t)
	②Maximizing renewable energy generation	146MW	150MW
	③Renewable energy + electricity mix with non-fossil fuel certificates	40%	76%
	④Promoting Group-wide energy conservation	102% compared to previous fiscal year	Continue 1% reduction from previous year
Increasing healthy life expectancy and correcting health disparity	Concentration on three-star businesses	ー	100%
Sustainable cities and fulfilling daily lives	①Contribution to decarbonization and recycling-oriented society through the chemical recycling of styrene resins	Completion and start-up of PS chemical recycling plant Establishment of a collection scheme for used PS products with Ichihara City	Establishment of social implementation consortium for PS chemical recycling
	②Establishment of CO 2 concrete fixation technology	32t	Sales expansion of LEAF
Sustainable growth through the creation of new businesses	(Financial KPIs)
Conservation of the environment and minimization of environmental footprint	①Continue zero waste emissions	Continue zero waste emissions Standalone: 0.05% Including domestic affiliates: 0.06%	Continue zero waste emissions
	②Addressing nature-related risks such as biodiversity and water based on TNFD	Establishment of biodiversity assessment plans for main business sites Conducted local investigations in Omuta, Shibukawa, Gosen, and Bibai, and additional investigations in Aomi	Implementation of biodiversity conservation plan in accordance with TNFD and continuation of group-wide awareness-raising activities
Strengthening of HR development systems	Average training costs (per person)	69,000 yen / person・year	Double compared to fiscal 2021
Diversity, equity & inclusion	Percentage of female/foreign/experiential hires in management positions	20%	50%
	Paternity leave uptake rate	53%	85%
	Percentage of mid-career hires	31%	50%
Health and productivity management and work style reform	Improving employee engagement	Create action plans for issues extracted from the analysis results of the 3rd employee awareness survey	Visualizing engagement and making ongoing improvements
	Overtime hours	147 hours	30 hours or less/person/year
	Taking annual paid leave	81%	100%
	Introduction of shift breakers	Number of shift breakers adopted15	ー
	Working-from-home rate	39%	Twice a week
	Employees within appropriate weight limits	65%	80%
	Employees with high stress levels	15%	10% or less
	Establishing good exercise habits	34%	40%
	Smokers	25%	12% or less
Process reforms	Reduction of 1,000 workers (investment of 50 billion yen over 8 years)	Investment in process reforms: ¥2.3 billion
Respect for Human Rights	Establishment of human rights policy and thorough respect for human rights based on the United Nations Guiding Principles on Business and Human Rights and the United Nations Global Compact	The Denka Group established the Denka Group Human Rights Policy and launched a human rights working team. Holding online briefing sessions for the Human Rights Action Plan (2 times). Conducted hearings (target: head office business divisions, management divisions, labor union) to identify priority risk items (11 items) for the identification of important human rights risks.	Establishment of process for identifying and addressing human rights risks in group supply chain
Safety First	Occupational injury frequency rate	0.4	Main unit and subsidiaries 0.2 or less
	Online training for occupational safety and security	82% (Conducted for Denka employees around 5 years after joining)	All group employees
Supply chain management	BCP measures based on raw material risk assessment	The Company has summarized the BCP raw material risk assessment. The percentage of items with high risk assessment has decreased from 31% in the first round (April 2020) to 15%.	Number of high-risk suppliers: 0
	Procurement questionnaire implementation rate	A total of 732 suppliers of raw materials and fuels were surveyed using the UNGC ESG survey questionnaire, and responses were received from 572 suppliers, or 78%.	Conduct questionnaire for suppliers covering 90% of total procurement cost
	Acquisition of high ESG rating	Implementation of EcoVadis score improvement plan	Ecovadis Gold
Improving product safety and quality	Integration of quality control systems, raising of management levels	Inappropriate acts such as UL certification found	Zero cases of serious quality accidents
Enhancement of corporate governance	Ongoing improvement of effectiveness of Board of Directors	To enhance independence and objectivity, an outside director has been appointed as the chairperson of the Nomination and Remuneration Advisory Committee. Establishment of The Sustainability Committee, which requires attendance of all Directors	ー
	Thorough risk management across the global Group	Inappropriate acts such as UL certification found	The number of significant compliance violations: 0
	Attendance at compliance training	Implementation of E-learning for Code of Conduct for all group employees: Attendance rate of approximately 90%	All group employees
	Appropriate operation of the whistle-blowing system and disclosure of responses to whistle-blowing	Disclose 2023 results on ESG information site	Disclosure on ESG information sites
	Dissemination of vision and management plan	Holding of business contest (Denka Innovation Day) Establishment of employee suggestion system (Immprovement Committee)	Dissemination of Vision and Management Plan
	Group-wide establishment of internal control framework	Companies with completed maintenance: 11 Companies in the process of establishing: 3 ※Combined from FY2021	Establishment of internal control framework for all Group companies

5. Review of Materiality

In response to changes in sustainability issues, social needs, and stakeholder expectations, we will review materiality and non-financial indicators (KPI) as appropriate to reflect our business activities and their mutual impact on the economy, environment, and society in our management.