Basic Policy

The Sumitomo Forestry Group has established the Sumitomo Forestry Group Code of Conduct as a foundation for its policies and regulations based on its Corporate Philosophy and Our Values. The Sumitomo Forestry Group uses the Code of Conduct for compliance not only at its Group companies but also at its suppliers to prevent corruption such as bribery, engage in fair business practices, maintain informational confidentiality, build healthy relationships with politicians, and respect human rights. In this manner, we ensure that the entire Group’s operations follow the Code of Conduct including in the supply chain.

Compliance Promotion

Sumitomo Forestry established the Compliance Subcommittee as a subordinate organization under the Risk Management Committee, chaired by the general manager of the General Administration Department and comprised of the persons responsible for risk management, including those from the responsible departments at each group company. As a cross-cutting organization across the group, the subcommittee promotes responses to compliance risk. It has established the group standard risk management system and tools to ensure compliance with the Construction Business Act of Japan and other laws throughout the group, for efficient response to compliance risk.

A meeting was held by the committee twice in FY2023 to continuously improve the compliance system through the following activities. Through these efforts, compliance officers of the entire group are able to coordinate their viewpoints from the bottom up and share a sense of crisis.

• Combined inspection of compliance with the Construction Business Act, Act on Architects and Building Engineers, and the Real Estate Brokerage Act
• Combined inspection of safe operation management system
• Combined inspection of compliance with the Subcontracting Act
• Combined inspection of responses to administrative procedures and legal requirements specific to Group companies
• Sharing of matters for initiatives aimed at strengthening execution of the Subcontract Act and Anti-Monopoly Act (fair transactions with subcontracting SMEs and appropriate price pass-on, etc.)

These activities are outlined and reported to the Board of Directors once every quarter to build a system to reflect this information into the execution of our businesses. In addition to making monthly activity reports to auditors and internal audit divisions, any particularly important initiatives or risk information that is common to the group is shared with the auditors in each group company via the meetings of statutory auditors of Sumitomo Forestry and its subsidiary companies. Thus, the group has developed a system for promoting compliance in its lines of business execution using internal and external approaches.

Based on the Sumitomo Group Procurement Policy, Sumitomo Forestry Group responds to compliance risks in supply chains by working with suppliers to ensure that wood procurement is performed legally and in a sustainable manner with consideration of legal compliance, human rights, labor practices, biodiversity conservation, and local communities. The Wood Procurement Committee convenes four times every year led by the Executive Officer in charge of Sustainability Department as the chairperson and procurement managers from the Timber and Building Materials Division, Housing Division, and each department procuring timber and wood products at affiliates as members. At meetings, the Committee deliberates on the wood procurement of the entire Group, including procurement standards for wood and risk assessment of illegal logging. This committee receives reports on results from local interviews and the Sustainability Procurement Survey, including the level of supplier compliance awareness, and requires corrective actions to rectify any supplier issues found. In addition, in the risk assessment, we review and revise the risk classification of each logging country once a year with reference to information from the Corruption Perception Index of international NGOs, the FSC's country-specific risk assessments, and reports by environmental NGOs.

Compliance Training

The Sumitomo Forestry Group conducts compliance training, including on laws and internal systems, for employees when they first join the company, to ensure that they understand the importance of compliance and to foster awareness of compliance. In fiscal 2023, training was administered to a total of 375 new graduate recruits, and to 123 mid-career recruits (Sumitomo Forestry). Compliance training was also provided to groups of employees at specific levels, including "Training for New General Managers."

In addition, we have designated e-learning courses such as "Risk Management and Compliance," "Information Security," and "Work and Human Rights," which include topics related to harassment, as mandatory courses. All employees of the Group, including temporary employees and part-time employees, are required to take these courses every year. By having employees take the course repeatedly, we aim to establish compliance awareness and enhance corporate value.

In FY2023, 12,533 employees of whom 5,723 and 6,810 belong to the parent company and Group companies, respectively, took the class.

Compliance Hotline

The Sumitomo Forestry Group is committed to creating a workplace environment equipped with a self-corrective function for catching any misconduct concealed in day-to-day operations at an early stage. The Group established the Compliance Hotline (advice desks) in 2002 to allow for the reporting of compliance violations. Furthermore, in October 2019, we put in place a whistleblowing mechanism shared with our main overseas Group companies as our Group expands businesses around the world. An external multilingual operator is used for this reporting system to receive reports in English, Chinese, Indonesian, Vietnamese, and Thai.

We received 15 consultations, including cases of suspected misconduct and harassment in fiscal 2023.

Compliance Hotline Framework

The Group has two Compliance Hotlines, one within the Group (general manager of the General Administration Department is responsible) and one external to it (lawyer), ready to provide advice and receive reports via telephone or a dedicated email address. Sumitomo Forestry clarified the protection of rights for persons seeking advice or making reports in relevant regulations while publicizing this information on its intranet. We are also striving to create an environment where everyone can easily use this hotline through measures such as the distribution of leaflets including the contact information—internal and external—for the compliance hotline to all employees including those of Group companies.

When a report is received, an investigation will be carefully conducted. If a compliance violation, etc. is confirmed, necessary corrective measures will be taken. The operating performance of the Compliance Hotline is reported to the Board of Directors quarterly, and case studies of reports are used as learning opportunities in training as needed in an effort to prevent recurrence.

Compliance Hotline Framework

Compliance Auditing

The Sumitomo Forestry Group audits compliance-related matters at each business site through internal audits and follows up with guidance on for corrective actions or improvements for any problems that are found.

Compliance Awareness Survey

The Sumitomo Forestry Group conducts a compliance awareness survey of all employees of Group companies in Japan once every two years in order to measure the level of awareness and penetration of compliance.

Issues identified through this survey are reflected in compliance initiatives.

Preventing Corruption

Based on the Sumitomo Forestry's Regulations for Prevention of Bribery of Officials including Public Servants, we aim preventing corruption both in Japan and overseas. Basic principle of these regulations is to pay attention to facilitation payments (small payments to facilitate ordinary administrative services) and to provide conditions and prior approval for donations such as political contributions. The regulations also stipulate that no offer, promise, implementation, or approval will be made for the provision of money, goods, or other benefits to public officials, etc. We also introduce overseas consolidated subsidiaries common tools such as a Sales Commission Checklist to help prevent bribery. We will continue to conduct interviews and training on the status of anti-bribery initiatives to understand risks and educate Group employees.

In addition to the above, when appointing a new contractor or agency or renewing a contract, the Company appropriately confirms that there is no risk that contractor will commit acts of bribery. At the same time, when engaging in joint ventures with other companies, the Company appropriately conducts due diligence, including status of corruption.

Furthermore, there were no reports of bribery, including facilitation payments, taking place in the Sumitomo Forestry Group in fiscal 2023.

Promotion of Fair Competition and Appropriate Transactions with Subcontractors

Sumitomo Forestry published the Antimonopoly Act Guide Book, and via articles on its intranet, e-learning and other methods, it works to enhance understanding and awareness regarding the intent and outline of the Antimonopoly Act and about the risk of cartels stemming from contact with competitors, for the purpose of promoting fair competition. In addition, we conduct a combined inspection of our compliance system for the Subcontract Act (Act on Prevention of Delay in Payment of Subcontract Proceeds, etc.), and we are working to correct trade and business practices that hinder the building of partnerships with suppliers for the creation of value and coexistence and co-prosperity throughout the supply chain.

Furthermore, there were no reports that any breaches or issues related to the Antimonopoly Act and Subcontract Act involving any member of the Sumitomo Forestry Group in fiscal 2023.

Political Contributions Policy

The Sumitomo Forestry Group states in its “Code of Conduct”: "We shall maintain a healthy and transparent relationship with the government that is in conformance with all laws." This statement has been included to ensure a healthy relationship with the government. The Sumitomo Forestry Group Code of Conduct Handbook distributed to every employee working at Group companies in and outside Japan clarifies "As a general rule and in accordance with relevant laws and company regulations, only the division in charge is permitted to make political contributions” and "If circumstances require another division to make a political contribution, make sure that there is adequate prior consultation with the division in charge or top management."

Restriction of Insider Trading

The Sumitomo Forestry Group adheres to the Financial Instruments and Exchange Act as well as other relevant laws to prevent insider trading. Regulations to prevent insider trading maintains and improves the trust society has for the company in the stock market by clarifying procedures to prevent insider training by executives and employees as well as the management of information and disclosure methods. In addition, executives and employees who have the potential to come into contact with insider information on a daily basis are required as policy to gain the prior approval of the General Manager of the General Administration Department if they plan to buy or sell company stock to ensure the appropriateness. The Group also has published an Insider Trading Prevention Manual and raises awareness through its internal websites in addition to reminding the executives and employees twice a year about the prevention of insider trading as a general rule.

Furthermore, there were no reports of breaches or issues related to insider trading in the Sumitomo Forestry Group in fiscal 2023.

Rejection of Influence from Anti-Social Forces

The Sumitomo Forestry Group's Code of Conduct state that the “influence from anti-social forces will be met with a resolute attitude and no compromises will be tolerated” as its basic policy. The General Administration Department is designated as the division to coordinate overall response and systematically cooperates with external expert bodies such as the police and lawyers in order to gather information about anti-social forces, and when required, gives guidance in issuing warning notices. In addition, in accordance with the enforcement of laws of each prefecture for the exclusion of organized crime, Sumitomo Forestry takes appropriate action including standardization such that all contracts that Group companies enter into with third parties include a clause to exclude anti-social forces.

Furthermore, we have requested that all business partners, including existing contracted partners, provide declarations guaranteeing that neither they nor their parent, subsidiary or subcontracting companies are anti-social forces.

Prevention of Traffic Accidents and Violations

Sumitomo Forestry Group promotes use of a standard Group system for safe driving to manage the risks associated with traffic accidents and violations.

Specifically, Sumitomo Forestry established 10 common items to address, including standardizing accident report forms, acquiring Certified Driving Records*, and rolling out a Safe Driving Management System which centrally manages basic driver and vehicle information. We have also established systems for ensuring that the fulfillment of statutory obligations and driver instruction are carried out in a timely and appropriate manner, and every year, we conduct combined inspections of compliance under these systems.

We also share the results of analyses on monthly traffic accidents with each business division, which helps in formulating measures to prevent accidents and in educational activities.

Moreover, we provide safe driver training throughout the year. This includes uniquely tailored practical driving training and safe driving classes for employees with a higher risk of accidents or infractions due to inexperience or inadequate driving skills (new graduate hires, older employees, and employees who have previously caused an accident or infraction, etc.).

* A certificate issued by the Japan Safe Driving Center showing a driver's violations and administrative disciplinary actions, etc.

Non-compliance Case

In March 2024, Sumitomo Forestry received an administrative penalty for failing to comply with procedures to change its Forest Management Plan (the Plan) under the Forest Act, resulting in a revocation of its certification by the Minister of Agriculture, Forestry and Fisheries. In December 2023, it was discovered that a former employee of the Environment and Resources Department did not request certification for a change of a portion of the Plan, but instead prepared on his own a Ministerial Certification Letter. As a result, some operations were carried out without actual certification. Certification was revoked due to a failure to comply with certification application procedures as well as the undertaking of operations that were not in accordance with the Plan. After discovery of the incident, all operations outside the scope of the certification were ceased and a new certification application was submitted at the end of March (recertification was obtained on May 31^st).

This incident was due to inadequate knowledge sharing of business flow, insufficient internal procedures and an incomplete process checking system.

We will strive to prevent a recurrence by improving business processes and fostering compliance awareness through periodic training on the Forest Act and related laws and regulations.