Basic Policy

The Sumitomo Forestry Group utilizes wood as a healthy and environmentally friendly natural resource to provide a diverse range of lifestyle-related services that contribute to the realization of a sustainable and prosperous society. All our efforts are based on Sumitomo's Business Spirit, which places prime importance on fairness and integrity for the good of society. Therefore, we strive to ensure management transparency, sound and legal business practices as well as rapid decision-making and business execution.

By further enhancing and strengthening its corporate governance through these efforts, the Company aims to continuously increase its corporate value and conduct management that lives up to expectations of various stakeholders around the Group.

Corporate Governance and Internal Control

Sumitomo Forestry introduced the executive officer system to separate decision making and management oversight functions from operational execution functions. Comprised of nine directors (seven male/77.8%, two female/22.2% ) including three outside directors (one male, two female), the Board of Directors is structured to make quick decisions. The oversight function of the Board of Directors has been strengthened, the lines of operational responsibility clarified, and the Chairman of the Board of Directors no longer serves as an executive officer. The Nomination and Remuneration Advisory Committee has been established to provide opinion to the Board of Directors on selecting director and statutory auditor candidates and executive officers as well as compensation of directors and executive officers, for the purpose of ensuring transparency and fairness of decision-making.

Sumitomo Forestry has a board of company statutory auditors. In addition to attending important meetings within the Company, the statutory auditors provide oversight for the directors' execution of duties, through sharing information and opinions with auditors at Group companies and the staff in the Internal Audit Division, and by supervising staff assisting auditing operations.

As of March 29, 2021, nine directors (including three outside directors), five auditors (including three outside auditors) and 20 executive officers were appointed to the Company. The Company notified Tokyo Stock Exchange, Inc. of the designation of the three outside directors and three outside statutory auditors as independent officers as required by its regulations.

Corporate Governance System

Board of Directors and Executive Committee

In principle, the Board of Directors meets once a month, making decisions and carrying out its supervisory function for important issues in accordance with its discussion standards. In addition to making decisions on all important items and confirming business results, it supervises the directors' execution of their duties. Directors and statutory auditors are required to maintain an attendance rate of 75% or higher as a general rule.

The Executive Committee, which is an advisory body for the President, holds meetings twice a month, before the Board of Directors meeting to ensure that there is sufficient prior discussion on important issues. It is attended by those directors who also serve as executive officers, as well as the full-time statutory auditors as a general principle.

The Company ensures prompt decision-making and separation of supervision and operational execution functions, for effective performance of the Board of Directors. In fiscal 2021, the Board of Directors meetings were held 16 times while Executive Committee meetings were held 26 times.

*1 Position, responsibility and significant concurrent positions as of March 29, 2022

*2 Attended meetings and the attendance rate to Board of Directors meetings are in fiscal 2021

*3 Attended meetings and attendance rate of Board of Directors meetings are after appointment as a director on March 30, 2021

Structure of the Board of Directors

The Board of Directors is composed of 17 individuals in a structure built on expertise, such as knowledge, experience, skill, and diversity. Sumitomo Forestry considers diversity such as gender and nationality as well as expertise which includes those who have a wealth of experience and success in the operations of the Sumitomo Forestry Group, those who have a wealth of experience and success in business such as corporate management, industry and policy and those who have specializations such as law and accounting.

Nomination Procedure for Directors

Director candidates are selected at the Board of Directors from a pool of personnel with superior personality traits and acumen, and potential value to the Company through consultation with the Appointment and Remuneration Advisory Committee. Summaries of background and interlocking status of the directors are available on the website.

Analysis, Assessment and Results for the Effectiveness of the Board of Directors

1.Assessment Method
We assessed the effectiveness of the Board of Directors in the current fiscal year by checking whether the Board has been fulfilling its role with respect to our Basic Policy on Corporate Governance (hereinafter "progress check"), and exchanging opinions with the outside directors and outside statutory auditors about the Board of Directors, in addition to conducting questionnaires for all directors and statutory auditors (anonymous questionnaire conducted directly by a third-party agency to ensure anonymity) while receiving advice from external bodies on self-assessments and analysis and conducted an external evaluation for the results of the questionnaire.In addition, the Board of Directors made an evaluation based on confirmation of implementation status for the role of the Board of Directors, etc. stipulated in Sumitomo Forestry's Basic Corporate Governance Policy and exchange of opinions with directors and corporate auditors.

2.Assessment Results

• As a result of the evaluation described in 1., the Board of Directors of Sumitomo Forestry was judged to be functioning effectively in general.
• With respect to the projects that were recognized as issues in the last year's evaluation, the Internal Audit Division established a report line to report directly to the Board of Directors on matters related to internal audits and held meetings to exchange opinions with outside officers to further strengthen collaboration between the two parties. In addition, criteria for reappointment of outside officers were established.
• As future issues, there was an opinion requesting that the Board of Directors regularly monitor progress of the medium-term management plan and improve efficiency of the management of the Board of Directors, such as further improving materials of the Board of Directors.

We will strive to further improve the effectiveness at Board of Directors meetings by continually working to heighten the level of discussion with awareness toward highlighted topics in the future.

Board of Statutory Auditors

The Board of Statutory Auditors meets to discuss and make decisions on important matters regarding audits. The five statutory auditors, including the three outside statutory auditors, utilize the deep insights and diverse perspectives they have acquired from their various business backgrounds to provide oversight for the directors' execution of duties. The Board of Statutory Auditors met 14 times during fiscal 2021.

The appropriate human resources are also appointed as statutory auditors at our main subsidiaries for the purpose of improving the effectiveness of auditing and informational exchange at these companies. Meetings of Statutory Auditors of Sumitomo Forestry and its subsidiary companies are held with members composed of full-time statutory auditors of Sumitomo Forestry as well as auditors of our main subsidiaries. This meeting was held 5 times in fiscal 2021.

*1 Position, responsibility and significant concurrent positions as of March 29, 2022

*2 Attended meetings and the attendance rate to Board of Directors meetings and Board of Statutory Auditors meetings in fiscal 2021.

Outside Directors

In the selection procedure for outside directors and statutory auditors, determinations are based on the following standards of independence and professional criteria.

Three of our current outside directors and three of our outside statutory auditors are considered independent based on the above list of independency criteria, not to pose a conflict of interest with general shareholders.

Nomination and Remuneration Advisory Committee

The Board of Directors establishes a Nomination and Remuneration Advisory Committee as an advisory body from which it seeks opinions to ensure fairness and transparency in matters including the selection of candidates for the Board of Directors and auditing posts, the selection of executive officers, the dismissal of board members, statutory auditors or executive officers, evaluations of the chief executive officer and other executive officers, and remuneration for board members and executive officers. The Nomination and Remuneration Advisory Committee will consist of the Chairman, the President, and all outside executives (three outside directors and three outside statutory auditors) where the majority must be outside executives, and the chairperson must be an outside director.

The Board of Directors determines the directors and executive officers' remunerations within the amount specified by resolution of the General Meeting of Shareholders, taking into consideration the opinions stated by the Nomination and Remuneration Advisory Committee.

*1 The position as of March 29, 2022

*2 Attended meetings and the attendance rate to Nomination and Remuneration Advisory Committee meetings are in fiscal 2021.

*3 Attended meetings and attendance rate of Board of Directors meetings after appointment as a director on March 30, 2021.

Risk Management Committee

Information regarding the Risk Management Committee is found in "Risk Management/ Risk Management Framework".

In fiscal 2021, Risk Management Committee was held four times, Compliance Subcommittee was held twice, BCM Subcommittee was held twice, and reports were made four times to Board of Directors respectively.

Sustainability Committee

In response to matters including SDGs, final recommendations of TCFD and human rights issues, the Sustainability Committee was established in fiscal 2018 based on the growing requirements for medium to long-term initiatives and informational disclosure about the Environment, Society and Governance (ESG).

The Sustainability Committee is made up of executive officers also appointed as director, and divisional mangers with representative director president and executive officer acting as the Committee chairperson. The Committee is convened four times a year to formulate and promote initiatives for medium to long-term ESG challenges related to the sustainability of the Sumitomo Forestry Group including climate change in addition to analyzing risks and opportunities, conducting progress management of the Mid-Term Sustainability Targets, which incorporate business strategies toward achieving the SDGs, including monitoring of implementation and effectiveness of the Our Values and Code of Conduct.

In addition, plans and results regarding internal audits are reported directly to the Board of Directors, and an opinion exchange meeting with outside officers was held regarding internal audits.

The content of all committee proceedings is reported to the Board of Directors to enable our business operations to become part of the solution for social issues.

Executive Remuneration

In accordance with laws and regulations, Sumitomo Forestry discloses the remuneration paid to officers (directors and statutory auditors) each fiscal year.

*1 Names and amounts of officers whose remuneration is greater than or equal to 1 billion yen are disclosed in Financial Statements.

*2 Total amount of non-monetary remuneration for directors includes the cost of 31 million yen for the allocation of transfer-restricted stock granted to six directors (excluding outside directors).

Executive Remuneration

• Details and Method of Determination of the Amount and Calculation Method of Remuneration for Officers
  Sumitomo Forestry aims to prepare a new three-year medium-term management plan with the long-term vision “Mission TREEING 2030” and the 83rd term (January 1, 2022 to December 31, 2022) as the starting business year, and establish an executive remuneration system that can raise awareness of each officer toward achievement of the medium-term management plan. Sumitomo Forestry is reviewing its executive remuneration system at the Board of Directors meeting held on February 14, 2022.

  [Remuneration for directors]

  1. Basic policies

  The remuneration of directors of the Company is designed in accordance with the following policies:

  • The remuneration plan should be highly linked not only to short-term performance but also to medium- to long-term performance and improvement of corporate value;
  • The plan should be linked to the value to be newly created and provided in the course of promoting the ESG integrated management;
  • The plan should be designed to be linked to the shareholder value of the Company;
  • The remuneration level should be such that the Company can secure and maintain the human resources necessary to achieve its long-term vision; and
  • The plan should ensure transparency and objectivity in the remuneration determination process.

  2. Remuneration level

  From the perspective of ensuring objectivity and appropriateness of the executive remuneration, the level of remuneration for directors of the Company will be set with reference to the levels of other companies as surveyed by outside professional organizations, with the aim of achieving the mid-to-high level of remuneration in companies of similar size. The Company will revise the remuneration levels as necessary in response to changes in the external environment.

  3. Composition of remuneration

  The remuneration for directors of the Company comprises (i) fixed remuneration commensurate with the director's responsibilities and roles, (ii) annual performance-based Bonus as a short-term incentive, and (iii) performance-based restricted stock remuneration as a medium- to long-term incentive. Thus, the remuneration plan is designed to encourage management efforts from a short-term, and medium- to long-term perspective and to appropriately reward the results of such efforts. The remuneration for outside directors, who are responsible for management supervision from an independent standpoint and not in a position to execute business, is composed solely of fixed remuneration.

  4. Policy for determining the amount of fixed remuneration

  The amount of fixed remuneration is determined based on the following policy:

  • The Company will determine the amount of fixed remuneration for each position of directors in accordance with their responsibilities and roles. The fixed remuneration will be on a monthly basis, and a fixed monthly amount will be paid in cash on a fixed date of each month.
  • The amount of remuneration for outside directors, consisting only of monthly remuneration as fixed remuneration, will be determined in accordance with their responsibilities and roles.
  • The amount of remuneration for directors (total of fixed remuneration and annual performance-based Bonus) will be up to JPY 650,000,000 per year (of which up to JPY 60,000,000 per year is for outside directors) based on the resolution of the general meeting of shareholders.

  5. Policy for determining the method of calculation of the amount of the annual performance-based Bonus

  The method of calculation is determined based on the following policy:

  • The Company will pay an annual performance-based Bonus to each Subject Director as a short-term incentive.
  • The amount of annual performance-based Bonus will be determined through comprehensive judgment based on the amount obtained by multiplying the standard Bonus amount determined for each position by the payment rate which varies in proportion to the base profit for each business year (the amount obtained by deducting actuarial differences regarding employees' retirement benefit obligation, and net income attributable to non-controlling interests from consolidated recurring income for the fiscal year covered)
  • The Company adopts the method of amortizing actuarial differences regarding employees' retirement benefit obligation in a lump sum in a single business year. Accordingly, any significant fluctuation in such actuarial differences due to stock price fluctuations, interest rate conditions, or otherwise at the end of the business year will have a significant impact on the business performance. Therefore, for the calculation of the base profit, the Company uses the consolidated recurring income after deducting actuarial differences regarding employees' retirement benefit obligation.
  • The payment of annual performance-based Bonus will be determined by the board of directors within the limit of the remuneration amount (total amount of fixed remuneration and annual performance-based Bonus) for directors approved at the general meeting of shareholders (JPY 650,000,000 per year (of which up to JPY 60,000,000 per year is for outside directors)), based on the view of the Nomination and Remuneration Advisory Committee chaired by an outside director, in which outside officers constitute a majority of its members.

  6. Policy for determining the method of calculation of the amount of performance-based restricted stock remuneration

  The method of calculation is determined based on the following policy:

  • The Company will vest performance-based restricted stock remuneration in each Subject Directors as a medium- to long-term incentive.
  • The performance-based restricted stock remuneration is structured to reflect the Company's performance during each period (three years) of the medium-term management plan in the level of vesting. The standard stock remuneration amount prescribed for each position consists of (i) a portion linked to the growth rate of the Company's market capitalization relative to TOPIX (two-thirds of the Standard Stock Remuneration Amount by Position), and (ii) a portion linked to the achievement rate of the greenhouse gas emission reduction target based on SBT (Science Based Targets) (one-third of the Standard Stock Remuneration Amount by Position), each during the subject period.
  • The stock remuneration amount to be vested in each Subject Director will be determined by the board of directors after the end of the subject period by calculating the cumulative amount of stock remuneration during the subject period based on the actual value of each evaluation index, taking into account the views of the Nomination and Remuneration Advisory Committee.
  • The amount to be vested as performance-based restricted stock remuneration will be JPY 100,000,000 or less per business year based on the resolution of the general meeting of shareholders. Similarly, the number of shares to be delivered per business year will be 100,000 shares or less.

  7. Remuneration composition ratio

  The plan has been designed so that the ratio of fixed remuneration to variable remuneration for directors should be 60 to 40 when the base profit is JPY 100,000,000,000. Specifically, fixed remuneration accounts for 60%, annual performance-based Bonus (variable) accounts for 25%, and performance-based restricted stock remuneration (variable) accounts for 15% of the total remuneration, respectively. The remuneration for outside directors consists solely of fixed remuneration.

  8. Remuneration governance

  The matters regarding executive remuneration, such as the amount of individual remuneration for directors, will be determined at a board of directors meeting taking into account the views of the Nomination and Remuneration Advisory Committee chaired by an outside director, in which outside officers (three outside directors, and three outside statutory auditors) constitute a majority of its eight members.

  9. Forfeiture of remuneration

  In the event that the board of directors confirms any illegal or wrongful action or other misconduct by a Subject Director, the Company may demand restriction of the vesting of remuneration in such Subject Director, or return of the remuneration paid to such Subject Director.

  10. Method of calculating the performance-based remuneration

  • Annual performance-based Bonus (short-term incentive)
    The amount of annual performance-based Bonus payable as short-term incentive remuneration will be determined through comprehensive judgment based on the amount obtained by multiplying the standard Bonus amount to be determined by position by the payment rate which is variable in proportion to the base profit for each business year (the amount obtained by deducting actuarial differences regarding employees' retirement benefit obligation, and net income attributable to non-controlling interests from consolidated recurring income for the fiscal year covered). The formula for calculating the amount payable is as follows:
    < Calculation Formula >
    Bonus amount = standard Bonus amount by position × payment rate (*)
    

    * The payment rate range will be from 0% (lower limit) to 180% (upper limit).

  • Performance-based restricted stock remuneration (medium- to long-term incentive remuneration)
    Under the plan for performance-based restricted stock remuneration as a medium- to long-term incentive remuneration, in order to promote management that emphasizes medium- to long-term enhancement of shareholder value, restricted shares in a number corresponding to the achievement status of the medium-term management plan are granted to the Subject Directors after the end of the final business year of the three-year medium-term management plan period as an incentive for improving the Company's corporate value during the medium-term management plan period. The initial period covered by this plan will be three years from January 1, 2022 to December 31, 2024 (the "Initial Coverage Period").
    
    The amount of performance-based restricted stock remuneration to be vested is calculated using two indicators. The calculation formulas are as follows:
    • Remuneration linked to the market capitalization growth rate
      Remuneration linked to the market capitalization growth rate is designed to compare the Company's market capitalization growth rate with the TOPIX appreciation rate to objectively measure the Company's relative valuation in the stock market and reflect it in remuneration.
      < Calculation Formula >
      Remuneration linked to the market capitalization growth rate = amount equivalent to two-thirds of the Standard Stock Remuneration Amount by Position × vesting rate (the Company's market capitalization growth rate during the medium-term management plan period / TOPIX appreciation rate during the same period) (*)
      

      * The vesting rate range will be from 0% (lower limit) to 120% (upper limit).

    • Remuneration linked to the sustainability index achievement rate
      Since the maximum vesting rate is set at 100%, if the Company fails to achieve the emission reduction target (*1) that it has set based on the SBT (Science Based Targets *2), the amount of remuneration vested in proportion to the target achievement rate will be reduced accordingly from the Standard Stock Remuneration Amount by Position, thereby providing a strong incentive to achieve the target.
      < Calculation Formula >
      Remuneration linked to the sustainability index achievement rate = amount equivalent to one-third of the Standard Stock Remuneration Amount by Position × vesting rate (achievement rate of the SBT-based emission reduction target under the medium-term management plan) (*3)
      

      *1 The emission reduction target for the Initial Coverage Period has been set at –21.7% compared to the Company's figures in FY 2017.

      *2 "SBT" refers to the emission reduction targets set by companies and to be achieved in five to fifteen years in consistency with the level required by the Paris Agreement that was adopted at the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) and took effect in 2016 (which sets a goal of limiting global temperature increase to well below 2℃ above pre-industrial levels and pursuing efforts to limit the increase to 1.5℃).

      *3 The vesting rate range will be from 0% (lower limit) to 100% (upper limit).

    [Remuneration for Statutory Auditor]

    Compensation for Statutory Auditors consists only of monthly compensation as basic compensation. In addition, we use results of a survey conducted by a third party for directorship remuneration at domestic corporations in order to set an appropriate remuneration level from the perspective of ensuring objectivity and appropriateness of executive remuneration.

• Date and contents of resolutions on remuneration for directors, etc. at the general meeting of shareholders

  • Total limit of fixed remuneration for directors and annual performance-related bonuses has been resolved at the 82nd Ordinary General Meeting of Shareholders held on March 29, 2022, as no more than 650 million yen per year (of which, outside directors is no more than 60 million yen per year).
  • At the 82nd Ordinary General Meeting of Shareholders held on March 29, 2022, it was resolved that maximum amount of performance-linked stock remuneration with transfer restrictions for directors (excluding outside directors) is 100 million yen per fiscal year.
  • Amount of remuneration for statutory auditors was approved as no more than 8 million yen per month at the 74th General Meeting of Shareholders held on June 20, 2014.