Fuso Chemical : Sustainability Report 2022

Contents

Top Message

Overview

Financial Highlights

Philosophy

To Achieve Sustainability

Governance

1	Top Message	1
2	Overview of Fuso Chemical Group	2
3	Financial Highlights	2
4	Corporate Philosophy	4
	■ Company Motto	4
	■ Management Philosophy	4
5	To Achieve Sustainability	5

• Creation of Corporate Value of Which Fuso

Chemical Thinks	5
Fuso Chemical's Strengths and Social Issues..	5
Fuso Chemical's Corporate Value Creation
Cycle	5

• Medium-TermManagement Plan "FUSO

VISION 2025"	7
Identification of Materialities	7
Initiatives of Each Business Unit for Materialities
and Social Issues	9
Investment Strategy for the Establishment of a
3rd Pillar	14
■ Sustainability Management	15
Sustainability Fundamental Policy	15
Organizational Structure	15
Participation in Initiatives	16

• Information Disclosures under the TCFD

Framework	17
Status and Views on the TCFD Proposed
Disclosure Items	17
Climate Change Risk Response Schedule	18
Risks and Opportunities	18
Financial Impacts of Climate Change	20
6 Governance	21
■ Corporate Governance	21
Organizational Structure	21
Board of Directors	22
Board of Directors' Effectiveness Evaluation ..	22
Response to Internal Control	23
Audit System and Audit Status	23
■ Compliance	24
Compliance System	24
Quality Control System	25
■ Risk Management	26
Risk Management System	26
Safety and Health Management	27
■ HR Strategy	28
Human Resources Development Policy	28
Management Goals, and Human Resources

Contents

Environment

Social

Development System to Support Self-Fulfillment
.........................................................................	29
■ Intellectual Property Strategy	30
Intellectual Property Strategy Initiatives	30
7 Environment	31
■ Environmental Policy	31
■ Energy Reduction Efforts	31
CO2 Emissions Initiatives	31
■ Water Environment Conservation	34

• Resource Conservation / Waste Reduction 34

Chemical Disposal and Recycling	34
■ Biodiversity Conservation	34
■ Other Environmental Initiatives	34
8 Social	35
■ For a Better Work Environment	35
Health and Productivity Management	35
Labor Relations	37
Employee Engagement Survey	37
■ Supporting Diverse Ways of Working	39
Promote Women's Active Participation	39
Supporting Child-Rearing	40
Support for Active Participation of Seniors	41
■ Social Contribution Activities	41
Local Community Activities	41
Education Support Activities	42
Other Support and Donations	42
Editorial Policy	43

• Top Message

	To our customers, business partners, communities,
	and other stakeholders: thank you for your constant
	support.
	Our business, which began from curiosity and
	passion for chemistry, has steadily grown while
	keeping up with the needs of the times. This business,
	which we have carefully developed with the
	management resources entrusted to us by our various
	stakeholders, was selected for the Global Niche Top
	Companies Selection 100 in 2014 for its unique ideas
	and technological capabilities. Since then, we have
	continued to grow and develop toward the realization
	of a sustainable society based on our management
1	philosophy of "contributing to the nation and society
through technology."

Our operations are sustained by the Life Science Business and the Electronic Materials & Functional Chemicals Business. The Life Science Business, as a general manufacturer of fruit acids, uses the power of acids to expand their use not only in the beverage and food industries, but also in the healthcare, industrial, agricultural, and digital industries. The Electronic Materials & Functional Chemicals Business provides indispensable materials for the semiconductor manufacturing process.

Both businesses performed well in our Financial Results for the fiscal year ended March 31, 2023. In May 2023, we have revised upward our Medium- Term Management Plan ending in FY2025, which was announced in 2021, in light of the changing business environment, including future demand. For the remainder of the plan period, we will continue to strive for net sales of 85 billion yen and operating profit of 19 billion yen as our management targets for the final year of the plan.

We have prepared the FY2022 edition of our Sustainability Report, updating the contents of last year's Sustainability Report. It contains a summary of our efforts to enhance corporate value by building an organizational structure to achieve business growth and a sustainable society toward the goals of the medium-term management plan.

Through the commitment of every employee to our company motto, "Limitless Progress and Creation," our business aims to realize a sustainable society and to forever be a company that is needed by society.

Thank you for your continued support.

Shinichi Sugita,

Representative Director & President

FUSO CHEMICAL CO., LTD.

• Overview

Company Profile

Trade Name: FUSO CHEMICAL CO., LTD.

Date of Establishment: June 24, 1957

Location of Head Office: 5-29, Kitahama 3-chome,Chuo-ku,Osaka

Representative: Shinichi Sugita, Representative Director & President
Capital:4,334,047,500yen
Number of Employees: 538 (non-consolidated), 859 (consolidated) (as of March 31, 2023)
Number of Consolidated Subsidiaries: 6	2
URL: https://fusokk.co.jp/eng/

• Financial Highlights

Financial Results for the Fiscal Year ended March 31, 2023

Consolidated net sales for the fiscal year ended March 31, 2023 were 68,459 million yen (up 12,698 million yen or 22.8% year-on-year). Operating profit was 18,930 million yen (up 3,895 million yen or 25.9% year-on-year), ordinary profit was 19,740 million yen (up 4,230 million yen or 27.3% year-on- year), and profit attributable to owners of parent was 14,129 million yen (up 3,239 million yen or 29.7% year-on-year).

• Financial Highlights

Performance Trends and Plans

Net sales

Operating profit

3

(100 million yen)

2024/3

Initial plan

(100 million yen)

2024/3

Initial plan

Ordinary	(100 million yen)
200
profit

150

100

50

2024/3

Initial plan

Profit attributable to owners of parent

(100 million yen)

2024/3

Initial plan

• Philosophy

Company Motto

Limitless Progress and Creation

Management Philosophy

• Value trust, and make it a principle to be reliable
• Contribute to the nation and society through technology
• Achieve employee fulfillment through prosperous business

• Company Motto

We operate a distinctive business within a niche area. Our motto is to always look to the future and strive for progress and creation.

■ Management Philosophy
Our company motto and management philosophy, formulated by our founder Shozo Akazawa, are
consistent with what is now known as purpose management, and define our relationship with our	4
business partners, nation and society, and employees as well as the goals to be achieved.

Value trust, and make it a principle to be reliable

We provide products that harmonize the balance of speed, cost, and quality required by our customers at a high level. Rather than focusing on corporate expansion, we first fulfilled our responsibility to supply products, and have been striving to meet the demands and expectations of our customers. Going forward, we will continue to provide products that our customers choose "because it's FUSO."

Contribute to the nation and society through technology

With "curiosity and challenge" as our engine, our company has grown. Our products are only "one material" in the market and are consumed in the manufacturing process, or exist only in very small quantities by the time they reach the consumer. However, we are proud that advances in this "one material" can support industrial development and society. Through the accumulation of thoughts about what future society will be like and how we can shape it, we can create a society that is different from what it was 10 years ago.

Achieve employee fulfillment through prosperous business

We will fulfill our corporate responsibility and contribute to society through our business for our partners, shareholders, local communities, and various stakeholders.

This cycle is created by our employees, who are themselves stakeholders. We are committed to upholding a solid management strategy for the happiness of our employees and their families.

• To Achieve Sustainability

Creation of Corporate Value of Which Fuso Chemical Thinks

Fuso Chemical's Strengths and Social Issues

Our products are used by our many business partners inside and outside Japan and their business activities using our products help achieve a sustainable society. We are committed to accomplishing our mission of achieving a sustainable society by responding to requests from our business partners. We have summarized our business cycle and what kind of social issues could be addressed by us, as follows.

Business Policy of Life Science

• Providing technology and products to adapt social changes and contribute to the solution of social issues
• Continuously providing products that contribute to the enhancement of people's dietary, health, and living environment

Further strengthening
our foundation and	Creating value for	Further strengthening
expanding our product
new food tech	our overseas
lineup as the sole
technology	business
domestic comprehensive
fruit acid manufacturer

Business Policy of Electronic Materials &

Functional Chemicals

• Contribution to society through our highly-functional electronics sector with the development and production of advanced materials such as Ultra High Purity Colloidal Silica, etc.

Semiconductor	Information	Functional
Responding to	Industry	Materials
increasing demand for	Developing materials with low	Developing advanced
semiconductors in the	environmental impact and	materials that incorporate
market needs and penetrate
fields of AI, 5G, IoT,	high added value and capture
demand for such materials	new markets with such
autonomous driving, etc.
	materials

Fuso Chemical's Corporate Value Creation Cycle

We have created value based on the following 5 basic approaches in business management. We will continue to focus on these approaches and work to create value for further development.

1. Ensuring of rights and equality of shareholders

In order to substantially secure shareholders' rights, ensure that shareholders can exercise these rights, and ensure substantive equality between the shareholders, we work to promptly disclose information using websites, etc., appropriately determine the date and location of the General Meeting of Shareholders, avoid a capital policy that may impair the rights of existing shareholders, and manage transactions with relevant parties.

• 2. Appropriate collaboration with stakeholders other than shareholders
  We understand the social responsibility that we should assume while striving every day to improve our corporate value over medium to long term. Since our establishment in 1957, we have stated in its management philosophy that we value corporate trust and have worked to establish good collaboration relationships to ensure that we can win trust from all the stakeholders. While we are proud of our history, we will invariably look to future without being satisfied with our current situation and work to pursue sustainable growth and improvements in our new corporate value by continuing our activities with a focus on trust.

3. Appropriate information disclosure and ensuring of transparency

In order to be trusted by our shareholders, investors and other stakeholders and build an amicable collaboration framework, we believe that proactive disclosure of information, be it financial information or not, is required. Based on this policy, we work to proactively disclose accurate information on our website and through other means.

4. Responsibilities of the Board of Directors, etc.

The Board of Directors determines the direction of its corporate strategy, etc., based on which Executive Directors execute their duties. We also have developed an environment that supports risk taking by having in place the Board of Directors Regulations, the Rules on Division of Duties, the Rules on Delegation of Authority, and other rules and regulations to clarify responsibilities and authorities of respective positions including Directors and respective organizations. The Board of Directors ensures a highly effective framework to supervise Directors by procuring the attendance by External Directors, including Independent External Directors, and Directors who are the Audit and Supervisory Committee Members, including Independent External Directors.

5. Dialogue with shareholders

We strive to engage ourselves in dialogue with shareholders and investors by holding financial results briefings for institutional investors and visiting investors on a semi-annual basis. In addition, we comply as much as possible with requests from shareholders and investors for individual meetings. Any concerns and requests received from shareholders and investors are put together by the Division Manager of the Administration Division, reported to the Board of Directors, and reflected in business management.

• To Achieve Sustainability
• Cycle to achieve value creation

The following table shows the cycle to achieve the value creation. Considering that our products are connected to social issues and people's daily lives, we believe that the demand will continue to grow steadily.

Management

resources

Input

Business activities

OutputOutcome

Flexible re-establishment of the

Financialproduction system and CAPEX with an eye to the future

capital

Total assets of

92.0 billion yen

Product development and sales

activities based on

communication with customers

Manufactured		Sales and	Quality
capital		control and
	development
			assurance
		Research and
		development
	Water	Emissions intensity reduction
Natural	Energy
Resources
capital	Water intake and wastewater
		management
		Unique advanced technologies
		that should be kept secret
Intellectual	Accumulated	Protection of technologies that
survive global competition by
capital	know-how	acquiring rights on them
		Patent analysis
	Flexible	Definition of	Clear recruitment
	update of	requirements for
	required human	standards
	human	resources
	resource	Strategic personnel relations that
	portfolio	support career paths
	Career	Enhancement of	Enhancement of
	the system to
Human	development	the training
support
capital	support	qualification	system by rank
and theme
		acquisition
		Conducting	Introduction of flextime
		working hours system
	Employee	engagement surveys
	and work-from-home
	engagement	Health and productivity	system
		management	Goal setting and
		Enhancing welfare	interviews to share
		benefits	the business strategy
	Shareholders	Speedy and fair information
	disclosure
Social &	and investors	Creation of dialogue opportunities
	and feedback
relationship
capital	Customers	Corporate philosophy that
		values trust
	Community	Proactive collaboration

Product supply capacity to

meet demand

Initiatives for cutting-edge

technologies

New product development

Acquisition of Customers

Initiatives to reduce GHG

emissions

Waste management

Establishment of strategy that integrates management, R&D, and intellectual property

Acquisition of	Allocation of the
optimal and	right person in the
diverse human
right place
resources
Developing next generation
Improvement of
capabilities and	Creation of ideal
productivity of
organizations
organizations and
individuals
Engagement improvement
Physical and	New ideas
mental health
Active	Creation of an open
	and flat corporate

communication culture

Appropriate information disclosure

Information support in corporate management

Acquisition of trust

Continuous business growth

Aim for NICHE TOP

Products becoming

"gold medal products" in terms of quality and market share

Product line that

supports for enriched

lifestyle

An increase in GHGs due to

increased production

Passing the standards of

external evaluation6 institutions

Aim for NICHE TOP

Improvement and creation

of technologies in

collaboration with other companies and entities

Strengthening of the business foundation

• Energetic activities by diverse human resources
• An environment that increases momentum for innovation
• Penetration of corporate philosophy
• Maximization of the corporate value
  Maximization of the
  corporate value

• To Achieve Sustainability

Medium-Term Management Plan "FUSO VISION 2025"

Defining the 5-year period up to FY2025 (fiscal year ending March 31, 2026) as the "5-year period of solidifying our footing for further growth and promoting initiatives to create new business and build a 3rd pillar," we created the Medium-Term Management Plan "FUSO VISION 2025" (for 5 years from FY2021 to FY2025) and disclosed it in May 2021. Our product line, which responds to the demands of the times to realize a sustainable society, are facing great growth opportunities. By continuously promoting initiatives for addressing changes in the business environment and for creating new value, we will work to achieve the subtheme of the Medium-Term Management Plan "To create Fuso that contributes to the solution of social issues."

Against the background of positive changes in the surrounding business environment, our performance considerably exceeded the initial plan; therefore, we have revised the final year management targets for net sales, operating profit, as well as operating profit before depreciation and amortization, which are our key indicators, upward. Meanwhile, there is no change from the initial plan for the management policies and measures other than the management targets.

	(billion yen)	Initial Plan: FY2021 - FY2025 *final year		Revised Plan: FY2025 *final year
			(billion yen)
	90.0			90.0	85.0 billion yen
			Unchanged
	80.0		Overseas	80.0	Overseas
	70.0		sales ratio	70.0	sales ratio
		50%	50%
	60.0	58.0 billion yen	60.0
	50.0			50.0
	40.0			40.0
					30.0 billion yen
	30.0			30.0
7			20.0 billion yen		19.0 billion yen
20.0	14.0 billion yen		20.0	Unchanged
	10.0	Keeping 20%	2.0 billion yen	10.0
			2.0 billion yen
		or more

Net sales	Operating	Operating profit	R&D	Net sales	Operating	Operating profit	R&D
	profit	before depreciation	investment		profit	before	investment
		and amortization				depreciation and
						amortization

Identification of Materialities

We announced our Medium-Term Management Plan (for the period of five years from the fiscal year ended March 31, 2022 to the fiscal year ending March 31, 2026) in May 2021, and identified materialities. To be a company which can create both social and economic value, we repeatedly considered and discussed what issues we should address.

Our business scale is not necessarily large; however, we have high profitability with top market shares in some global and niche markets. We believe that we can contribute to enriched lifestyle and sustainable future through our major product lines centered on food and semiconductors. We are committed to promoting the development of advanced technologies, not satisfied with the status quo, aiming for further development as a company through pursuit of innovation and building a 3rd pillar.

Aim for GLOBAL NICHE TOP	Continuous	Continuous pursuit of	Building a 3rd pillar
FUSO	contribution to	innovation, not	with growth potential
enriched lifestyle and	satisfied with the	to existing businesses
	sustainable future	status quo	in order to create a
	solid company
	FUSO	FUSO
	FUSO